PROXY STATEMENT
Our
Board of Directors (our "Board") of Five Star Senior Living Inc., a Maryland corporation (the "Company," "we," "us" or "our") is furnishing this proxy statement (the "Proxy Statement") and
accompanying proxy card (or voting instruction form) to you in connection with the solicitation of proxies by our Board for our 2020 annual meeting of stockholders. Our annual meeting will be held at
Two Newton Place, 255 Washington Street, Suite 100, Newton, Massachusetts 02458* on Tuesday, June 9, 2020, at
9:30 a.m., Eastern time, subject to any postponements or adjournments thereof (the "2020 Annual Meeting"). We are first making these proxy materials available to stockholders on or about
April 15, 2020.
Only
owners of record of shares of common stock of the Company ("Common Shares") as of the close of business on March 16, 2020, the record date for the 2020 Annual Meeting, are entitled to
notice of, and to vote at, the meeting and at any postponements or adjournments of the meeting. Holders of Common Shares are entitled to one vote for each Common Share held on the record date. On
March 16, 2020, there were 31,543,711 Common Shares issued and outstanding.
The
mailing address of our principal executive office is 400 Centre Street, Newton, Massachusetts 02458.
* As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the annual meeting may be held virtually solely by
means of remote communication or via a live webcast. If we take this step, we will announce the decision to do so in advance, and we will provide details on how to participate in a press release and
on our website at www.fivestarseniorliving.com.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE 2020 ANNUAL MEETING TO BE HELD ON TUESDAY, JUNE 9, 2020.
The
Notice of 2020 Annual Meeting, Proxy Statement and Annual Report to Stockholders for the year ended December 31, 2019 are available at www.proxyvote.com.
2 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
We
are currently governed by a seven member Board of Directors. Ensuring our Board is comprised of Directors who bring diverse viewpoints and perspectives, exhibit a variety
of skills, professional experience and backgrounds and effectively represent the long term interests of stockholders is a top priority of our Board and our Nominating and Governance Committee.
OUR BOARD BELIEVES THAT ITS MEMBERS SHOULD:
|
|
|
|
|
•
exhibit high standards of integrity and ethics;
•
have business acumen, practical wisdom, ability to exercise sound judgment in a congenial manner and be able to make independent analytical inquiries;
•
have a strong record of achievements;
•
have knowledge of the healthcare and senior living industries and the commercial real estate industry;
|
|
•
have diverse perspectives, backgrounds and experiences, including professional background, gender, ethnicity and skills; and
•
be committed to serving on our
Board over a period of years in order to develop knowledge about the Company's operations and have sufficient time and availability to devote to Board and committee matters.
|
In
addition, our Board has determined that our Board, as a whole, should strive to have the right mix of characteristics and skills necessary to effectively perform its oversight responsibilities. Our
Board believes that Directors with one or more of the following professional skills or experiences can assist in meeting this goal:
|
|
|
|
|
•
work experience with a proven record of success in his or her field;
•
risk oversight/management expertise;
•
accounting and finance,
including a high level of financial literacy and understanding of the impact of financial market trends on the healthcare, senior living and commercial real estate industries;
•
operating business and/or
transactional experience;
•
management/leadership experience;
•
knowledge of the Company's historical business activities;
|
|
•
familiarity with healthcare regulation and trends;
•
experience at a strategic or policymaking level in a business, government, non-profit or academic organization of high standing;
•
service on other
public company boards and committees;
•
qualifying as a Managing Director in accordance with the requirements of our governing documents; and
•
qualifying as an Independent
Director in accordance with the requirements of the Nasdaq, the Securities and Exchange Commission ("SEC") and our governing documents.
|
Our
Nominating and Governance Committee and our Board consider the qualifications, characteristics and skills of Directors and Director candidates individually and in the broader context of our
Board's overall composition when evaluating potential nominees for election as Director.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 3
Table of Contents
|
Key Responsibilities of Our Board
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oversight of Strategy
|
|
|
|
Oversight of Risk
|
|
|
|
Succession Planning
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
✓
Our Board oversees and monitors strategic planning.
✓
Business strategy is a
key focus of our Board and embedded in the work of Board committees.
✓
Company management is charged with executing business strategy and provides regular
performance updates to our Board.
|
|
|
|
✓
Our Board oversees risk management.
✓
Board committees, which meet
regularly and report to the full Board, play significant roles in carrying out the risk oversight function.
✓
Company management is charged with managing risk, through
robust internal processes and effective internal controls.
|
|
|
|
✓
Our Board oversees succession planning and talent development for senior executive positions.
✓
Our Nominating and Governance Committee makes an annual report to our Board on succession planning.
✓
In the event of a succession, the entire Board may work with our Nominating and Governance Committee, or the Independent Directors, as applicable, to nominate and evaluate
potential successors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our Board's Role in Oversight of Risk Management
|
Our
Board is elected by stockholders to oversee our business and long term strategy. As part of fulfilling its responsibilities, our Board oversees the safeguarding of our assets,
the maintenance of appropriate financial and other internal controls and our compliance with applicable laws and regulations. Inherent in these responsibilities is our Board's understanding and
oversight of the various risks we face. Our Board considers that risks should not be viewed in isolation and should be considered in virtually every business decision and as part of our business
strategy.
Our
Board oversees risk as part of its general oversight of our Company. Oversight of risk is addressed as part of various Board and Board committee activities and through regular and special Board
and Board committee meetings. Our day to day business is conducted by management, and management is responsible for incorporating risk management in its activities. Our Director of Internal Audit
reports to our Audit Committee and provides us advice and assistance with our risk management function.
In
discharging their oversight responsibilities, our Board and Board committees review regularly a wide range of reports provided to them by management, internal audit and service providers,
including:
-
•
-
reports on market and industry conditions;
-
•
-
operating and regulatory compliance reports;
-
•
-
reports on clinical operations;
-
•
-
financial reports;
-
•
-
reports on risk management activities;
-
•
-
regulatory and legislative updates that may impact us;
-
•
-
reports on the security of our information technology processes and our data; and
-
•
-
legal proceedings updates and reports on other business related matters.
4 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
Our
Board and Board committees discuss these matters among themselves and with our management, our Director of Internal Audit, legal counsel, our independent auditors and other professionals, as
appropriate.
Our
Audit Committee takes a leading role in helping our Board fulfill its responsibilities for oversight of our financial reporting, internal audit function, risk management and our compliance with
legal and regulatory requirements. Our Board and Audit Committee review periodic reports from our independent auditors regarding potential risks, including risks related to our internal control over
financial reporting. Our Audit Committee also reviews, approves and oversees an internal audit plan developed by our Director of Internal Audit with the goal of helping us systematically evaluate the
effectiveness of its risk management, control and governance processes on an annual basis. Our Audit Committee considers risks related to cybersecurity and receives regular reports from management
regarding cybersecurity risks and countermeasures being undertaken or considered by us, including updates on the internal and external cybersecurity landscape and relevant technical developments. Our
Audit Committee meets at least quarterly and reports its findings to our Board. Our Audit Committee also meets periodically with our Director of Internal Audit to review the results of our internal
audits, and directs or recommends to our
Board actions or changes it determines appropriate to enhance or improve the effectiveness of our risk management.
Our
Quality of Care Committee reviews management reports on our clinical operations and directs or recommends to management and our Board actions or changes it determines appropriate to improve our
clinical operations and to reduce risks arising from those operations.
Our
Compensation Committee whose duties are detailed in its charter, among other duties, evaluates the performance of our Director of Internal Audit and the performance of The RMR Group LLC
("RMR LLC") under our business management agreements. Also, our Compensation Committee and our Board consider that we have a share award program that requires share awards to executive officers
to vest over a period of years. We believe that the use of share awards vesting over time rather than stock options mitigates the incentives for our management to undertake undue risks and encourages
management to make longer term and appropriately risk balanced decisions.
It
is not possible to identify all of the risks that may affect us or to develop processes and controls to eliminate all risks and their possible effects, and processes and controls employed to
address risks may be limited in their effectiveness. Moreover, it is necessary for us to bear certain risks to achieve our objectives. As a result of the foregoing and other factors, our ability to
manage risk is subject to substantial limitations.
To
learn more about the risks we face, you can review the matters discussed in Part I, "Item 1A. Risk Factors" and "Warning Concerning Forward Looking Statements" in our Annual Report
for the year ended December 31, 2019 (the "Annual Report"). The risks described in the Annual Report are not the only risks we face. Additional risks and uncertainties not currently known or
that may currently be deemed to be immaterial also may materially adversely affect our business, financial condition or results of operations in future periods.
Under
the corporate governance listing standards of the Nasdaq, to be considered independent:
-
•
-
a director must not have a disqualifying relationship, as defined in the corporate governance section of the Nasdaq rules;
and
-
•
-
our Board must affirmatively determine that the director otherwise has no relationship which would interfere with the
exercise of independent judgment in carrying out the responsibilities of a director. To facilitate the director independence assessment process, our Board has adopted written Governance Guidelines as
described below.
Our
Board is comprised of seven Directors, including five Independent Directors and two Managing Directors. Under our Bylaws, so long as the number of directors is less than five, at least one
director
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 5
Table of Contents
must
meet the qualifications of a Managing Director and, so long as the number of directors is five or greater, at least two directors must meet the qualifications of a Managing Director. Our Bylaws
require that a majority of our Board be Independent Directors. Under our Bylaws, Independent Directors are Directors who are not employees of the Company or RMR LLC, are not involved in the
Company's day to day activities and are persons who qualify as independent under the applicable rules of the Nasdaq and the SEC. As set forth in our Bylaws, Managing Directors are Directors who are
not Independent Directors and who have been employees of the Company or RMR LLC or any of its subsidiaries or involved in the day to day activities of the Company, any of its subsidiaries or
any of their predecessors for at least one year prior to such Director's election.
Our
Board affirmatively determines whether Directors have a direct or indirect material relationship with the Company, including the Company's subsidiaries, other than serving as our Directors or
trustees or directors of our subsidiaries. In making independence determinations, our Board observes the Nasdaq and SEC criteria, as well as the criteria set forth in our governing documents. When
assessing a Director's relationship with us, our Board considers all relevant facts and circumstances, not merely from the Director's standpoint, but also from that of the persons or organizations
with which the Director has an affiliation. Based on this review, our Board has determined that Barbara D. Gilmore, Donna D. Fraiche, Bruce M. Gans, M.D., Gerard M. Martin and Michael E. Wagner, M.D.
currently qualify as independent directors under applicable Nasdaq and SEC criteria and as Independent Directors under our Bylaws. In making these independence determinations, our Board reviewed and
discussed additional information provided by us and our Directors with regard to each of the Directors' relationships with us, RMR LLC or The RMR Group Inc. ("RMR Inc."), the
managing member of RMR LLC, and the other companies to which RMR LLC or its subsidiaries provide management services. Our Board has concluded that none of these five Directors possessed
or currently possesses any relationship that could impair his or her judgment in connection with his or her duties and responsibilities as a Director or that could otherwise be a direct or indirect
material relationship under applicable Nasdaq and SEC standards.
|
Executive Sessions of Independent Directors
|
Pursuant
to our Governance Guidelines, our Independent Directors are expected to meet in regularly scheduled meetings at which only Independent Directors are present. It is expected
that these executive sessions may occur at least twice per year. Our Independent Directors also meet separately with our officers, with our Director of Internal Audit and with our independent
auditors. The presiding Director for purposes of leading Independent Director sessions will be the Lead Independent Director, unless the Independent Directors determine otherwise.
|
Board Leadership Structure
|
All
Directors play an active role in overseeing our business both at the Board and committee levels. As set forth in our Governance Guidelines, the core responsibility of our
Directors is to exercise sound, informed and independent business judgment in overseeing the Company and its strategic direction. Our Directors are skilled and experienced leaders and currently serve
or have served as members of senior management in public and private for profit and nonprofit organizations, and also have served in academia. Our Directors may be called upon to provide solutions to
various complex issues and are expected to, and do, ask hard questions of our officers and advisers. Our Board is small, which facilitates informal discussions and communication from management to our
Board and among Directors.
Adam
D. Portnoy has served as Chair of our Board since 2019. One or more of our executive officers and our Director of Internal Audit are not members of our Board and regularly attend Board and Board
committee meetings. Special meetings of our Board may be called at any time by the President, any Managing Director or any two Directors. Our Managing Directors, in consultation with our management
and our Director of Internal Audit, set the agenda for Board meetings. Other Directors may suggest
agenda items as well. Discussions at Board meetings are led by the Managing Director or Independent Director who is most knowledgeable on a subject.
6 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
Five
of our Directors, including one of our nominees for election at the 2020 Annual Meeting, are independent under the applicable Nasdaq and SEC criteria and our governing documents. All of the
members of our Audit Committee, Nominating and Governance Committee and Compensation Committee are independent under the applicable listing requirements and rules of the Nasdaq and other applicable
laws, rules and regulations, including those of the SEC. As set forth in our governing documents, two of our Directors are Managing Directors, persons who have been employees, officers or directors of
RMR LLC or who have been involved in the Company's day to day activities for at least one year prior to such Director's election.
|
Lead Independent Director
|
We
have a Lead Independent Director who is selected annually by the vote of a majority of our Independent Directors. Currently, Ms. Fraiche serves as our Lead Independent
Director. Our Lead Independent Director has well-defined, substantive responsibilities that include:
-
•
-
presiding at all meetings of our Board at which the Chair or a Managing Director is not present;
-
•
-
presiding at all meetings and executive sessions of the Independent Directors;
-
•
-
having the authority to call meetings of the Independent Directors or executive sessions of the Independent Directors;
-
•
-
serving as the principal liaison between the Independent Directors and the senior management team;
-
•
-
arranging, together with the Chair of our Board, for appropriate information (including quality and quantity) to be timely
provided to our Board and the Independent Directors;
-
•
-
assisting our Compensation Committee in its annual evaluation of the performance of our management and of our manager,
RMR LLC;
-
•
-
assisting with setting Board meeting agendas and arranging meeting schedules, including to ensure that there is sufficient
time for discussion of all agenda items;
-
•
-
considering suggestions for meeting agenda items from other Independent Directors;
-
•
-
authorizing the retention of advisors and consultants who report directly to the Independent Directors when appropriate; and
-
•
-
if requested, and in coordination with the Chair of our Board and the Company's management, being reasonably available for
consultation and direct communication with stockholders.
|
Code of Business Conduct and Ethics and Committee Governance
|
Our
Board is committed to corporate governance that promotes the long term interests of our stockholders. Our Board has established Governance Guidelines that provide a framework for
effective governance. Our Board regularly reviews developments in corporate governance and updates our Governance Guidelines and other governance materials as it deems necessary and appropriate.
We
have also adopted a Code of Business Conduct and Ethics (the "Code") to, among other things, provide guidance to our and our subsidiaries' directors, officers and employees and RMR LLC, its
officers and employees and its parent's and subsidiaries' directors, officers and employees to ensure compliance with applicable laws and regulations.
Our
Board has an Audit Committee, Compensation Committee, Nominating and Governance Committee and Quality of Care Committee. Our Audit Committee, Compensation Committee, Nominating and Governance
Committee and Quality of Care Committee each have adopted a written charter, and reviews its written charter on an annual basis to consider whether any changes are required.
Our
Audit Committee, Compensation Committee, Nominating and Governance Committee and Quality of Care Committee are comprised entirely of Independent Directors under applicable Nasdaq rules who also
meet the independence criteria applicable to audit committees under the Sarbanes Oxley Act and the SEC's implementing rules under that law.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 7
Table of Contents
Our
corporate governance materials are available for review in the governance section of our website, including our Governance Guidelines, the charter for each Board committee, the Code and
information on how to report concerns or complaints about accounting, internal accounting controls or auditing matters and any violations or possible violations of the Code and how to communicate with
our Directors, individually or as a group. To access these documents on our website, visit www.fivestarseniorliving.com.
Our
Insider Trading Policies and Procedures expressly prohibits members of our Board and our officers from engaging in hedging transactions involving our securities and those of
RMR Inc. or any other public company to which RMR LLC or its affiliates provide management services.
|
Nominations for Directors
|
Our
Nominating and Governance Committee is responsible for identifying and evaluating nominees for Director and for recommending to our Board nominees for election at each annual
meeting of stockholders. Our Nominating and Governance Committee may consider candidates suggested by our Directors, officers or stockholders or by others. Stockholders who would like to recommend a
nominee for the position of Director should submit their recommendations in writing by mail to the Chair of our Nominating and Governance Committee, c/o Five Star Senior Living Inc., Secretary,
at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458 or by email to secretary@fivestarseniorliving.com. Any such recommendation should include a description of the
candidate's qualifications for Board service, the candidate's written consent to be considered for nomination and to serve if nominated and elected, as well as the addresses and telephone numbers for
contacting the stockholder and the candidate for more information. Our Nominating and Governance Committee may request additional information about the stockholder recommended nominee or about the
stockholder recommending the nominee. Recommendations by stockholders will be considered by our Nominating and Governance Committee in its discretion using the same criteria as other candidates it
considers.
|
Communications with Our Board
|
Our
Board has established a process to facilitate communication by stockholders and other interested parties with Directors. Communications should be addressed to Directors in care
of the Secretary, Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458 or by email to secretary@fivestarseniorliving.com.
We
understand the importance of leading a sustainable business and regularly consider ways to improve our internal culture and the communities in which we operate. Our environmental
sustainability and community engagement strategies focus on a complementary set of objectives, including the following:
-
•
-
Embrace Our Communities: We recognize
the importance of aligning ourselves with the communities where we operate our senior living communities. We seek to be a responsible corporate citizen and to strengthen the communities in which we
own or operate our senior living communities. We regularly encourage our employees to engage in a variety of charitable and community programs.
-
•
-
Environmental Stewardship: Preserving
our natural resources has a special meaning to us and to RMR LLC and its stakeholders. We support environmental practices that reduce the impact we have on our planet. We believe this is
important to all our stakeholders, including investors, regulatory agencies, local communities, residents and employees. We seek to improve the environmental footprint of our properties, including by
reducing energy consumption and water
8 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
usage
at our properties, especially when doing so may reduce operating costs and improve the properties' competitive positions. Through our Green Stars Program—we strive to achieve results
by using resources more efficiently, minimizing waste, and increasing awareness among employees and residents.
-
•
-
Diversity: We value a diversity of
backgrounds, experience and perspectives. Our Chief Executive Officer is a woman and our Board is comprised of more than 40% women. We are an equal opportunity employer.
To
learn more about our sustainability initiatives, visit www.fivestarseniorliving.com/the-five-star-difference/green-stars-program.
PROPOSAL 2: APPROVAL OF THE AMENDED AND RESTATED 2014 EQUITY COMPENSATION PLAN
Our Board believes that the availability of equity-based compensation is a significant factor in our ability to attract, retain and motivate
the employees, officers, directors and other service providers who are critical to our success. In order to achieve these objectives, our Board has unanimously approved, and unanimously recommends
that stockholders approve, the Amended and Restated 2014 Equity Compensation Plan (the "Amended and Restated 2014 Equity Compensation Plan"), in the form attached as Annex A. The principal
changes effected by the amendment and restatement (as compared to the Company's existing 2014 Equity Compensation Plan, or the "Predecessor Plan") are:
-
•
-
An increase in the number of shares available for issuance under the plan from 507,259 to 2,907,259;
-
•
-
Strengthening of the existing plan prohibitions on repricing options and stock appreciation rights;
-
•
-
Providing for accelerated vesting in the event of a Change in Control or Termination Event (as those terms are defined in the
plan); and
-
•
-
Extension of the term of the plan until the tenth anniversary of the Company's 2020 Annual Meeting of Stockholders.
If
stockholder approval of the Amended and Restated 2014 Equity Compensation Plan is not obtained, we will continue to use the Predecessor Plan as our equity compensation vehicle, until the available
shares under that plan are exhausted or the term of that plan expires on September 30, 2024.
Summary of the Amended and Restated 2014 Equity Compensation Plan
The following summary of the material features of the Amended and Restated 2014 Equity Compensation Plan is qualified in its entirety by reference to the
complete text of the Amended and Restated 2014 Equity Compensation Plan, attached as Annex A.
Purpose, Eligible Persons, Effective Date and Duration
The Amended and Restated 2014 Equity Compensation Plan will become effective on the date of the 2020 Annual Meeting of Stockholders, subject to stockholder
approval. The purpose of the Amended and Restated 2014 Equity Compensation Plan is to encourage the employees, officers, directors and other service providers of the Company or of its subsidiaries to
continue their association with us by providing favorable opportunities for them to participate in the ownership of Common Shares. The Amended and Restated 2014 Equity Compensation Plan allows us to
grant awards with respect to Common Shares ("Stock Awards"), including restricted Common Shares ("Restricted Stock"), options to acquire Common Shares ("Options"), stock appreciation rights ("SARs"),
restricted stock units ("RSUs") and other rights to compensation determined by the value of the Common Shares. Stock Awards, Restricted Stock, SARs, RSUs and other rights which may be granted under
the Amended and Restated 2014 Equity Compensation Plan (not including Options) are referred to below collectively as "Other Rights." As of March 16, 2020, approximately 23,500 persons,
principally employees, are eligible to receive Options and Other Rights pursuant to the Amended and Restated 2014 Equity Compensation Plan. The term of the Amended and Restated 2014 Equity
Compensation Plan is scheduled to continue until the tenth anniversary of the 2020 Annual Meeting of Stockholders, after which the plan is scheduled to terminate. Any termination of the Amended and
Restated 2014 Equity Compensation Plan will not affect awards made prior to termination, but no new awards will be made under the plan after termination.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 25
Table of Contents
Shares Subject to the Plan
The Predecessor Plan currently provides that an aggregate of 507,259 Common Shares are available for grant under the plan pursuant to grants of Options and
Other Rights. Since the 2014 Equity Compensation Plan was initially adopted, 345,395 shares of Restricted Stock have been granted pursuant to the plan. As of March 16, 2020, 174,648 Common
Shares were available for grants of future awards under the plan, and there were 93,258 unvested shares of Restricted Stock outstanding, which remain subject to possible forfeiture to, or repurchase
for nominal consideration by, us as provided in the restricted share award agreement. In addition, to the extent that Common Shares under the Amended and Restated 2014 Equity Compensation Plan are
subject to an award which lapses or is forfeited, any Common Shares subject to such award will again become available for grant under the terms of the Amended and Restated 2014 Equity Compensation
Plan. Common Shares issuable under the Amended and Restated 2014 Equity Compensation Plan may be authorized but unissued shares. In the event of any change in the number or kind of Common Shares
outstanding pursuant to a reorganization, recapitalization, exchange of shares, stock dividend, split or combination of shares or similar event, appropriate adjustments will be made to the number of
authorized Common Shares under the Amended and Restated 2014 Equity Compensation Plan, to the number of Common Shares subject to outstanding grants or awards, to the exercise price per share of
Options or SARs and to the kind of shares which may be distributed under the Amended and Restated 2014 Equity Compensation Plan, among other things. The total amount of Common Shares subject to
Options which constitute "incentive stock options" (as described below) that may be granted to any single individual in any calendar year under the plan may not exceed in the aggregate 100,000 and all
Common Shares available under the plan may be granted as incentive stock options ("ISOs").
Administration
The Amended and Restated 2014 Equity Compensation Plan will be administered by our Compensation Committee. Among other things, our Compensation Committee
makes determinations regarding: (i) the persons to whom Options and Other Rights will be granted; (ii) the number and the terms and conditions of Options or Other Rights granted to each
such person, including the price per share to be paid upon exercise of any Option and the period within which each such Option or Other Right vests (if any) and, if applicable, may be exercised; and
(iii) the interpretation of the Amended and Restated 2014 Equity Compensation Plan and the establishment of rules and regulations for its administration. Our Board may also undertake the roles
and responsibilities of our Compensation Committee under the plan.
Options
Our Compensation Committee may grant Options to any individual eligible to participate in the plan. Our Compensation Committee makes determinations regarding
the number of Common Shares subject to an Option, its exercise price, its vesting conditions, the manner and time of its exercise and whether the Option is intended to qualify as an ISO, which is an
option which is eligible for favorable tax treatment under the Internal Revenue Code (the "Code"), as discussed in more detail below. ISOs may be issued only to employees of the Company or a
subsidiary of the Company. Options that are not intended to qualify as ISOs are referred to as nonqualified stock options ("NSOs").
In
the case of any Option, the exercise price may not be less than the "fair market value" of the Common Shares on the date the Option is granted; provided, however, that in the case of an employee
who owns (or is considered to own under Section 424(d) of the Code) shares possessing more than 10% of the total combined voting power of all classes of the Company's shares or any of its
subsidiaries, the price at which Common Shares may be purchased pursuant to an ISO may not be less than 110% of the fair market value of the Common Shares on the date the ISO is granted.
The
duration of the ISOs and NSOs granted under the plan may be specified pursuant to each respective stock option agreement, but in no event can any ISO be exercisable after the expiration of
10 years after the date of grant. In the case of any employee who owns (or is considered under Section 424(d) of the Internal Revenue Code (the "Code") as owning) shares possessing more
than 10% of the total combined
26 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
voting
power of all classes of the Company's shares or any of the Company's subsidiaries, no ISO shall be exercisable after the expiration of five years from its date of grant. Options may be
exercisable during their entire duration or during any lesser period of time, as specified in the Option agreement.
The
Option exercise price may generally be paid in cash, in Common Shares owned by the optionee, by delivery of a recourse promissory note secured by the Common Shares acquired upon exercise of the
Option or by means of a "cashless exercise" procedure.
Stock Appreciation Rights
Our Compensation Committee may grant SARs to eligible participants as to such number of Common Shares and on such terms and conditions as the committee may
determine. SARs may be granted separately or in connection with ISOs or NSOs. Upon exercise of a SAR, the holder is entitled to receive payment equal to the excess of the fair market value, on the
date of exercise, of the number of Common Shares for which the SAR is exercised, over the exercise price for such Common Shares under a related Option, or if there is not a related Option, over an
amount per share stated in the written agreement setting forth the terms and conditions of the SAR which may not be less than the fair market value of the shares on the date of grant. Payment may be
made in cash or other property, including Common Shares, in accordance with the provisions of the applicable SAR agreement. Upon the exercise of a SAR related to an Option, the Option shall terminate
as to the number of Common Shares for which the SAR is exercised.
Stock Awards and Restricted Stock
Our Compensation Committee may grant to eligible participants a number of Common Shares (which may be, but are not required to be, shares of Restricted Stock)
determined in the committee's discretion, subject to terms and conditions determined by the committee, including unconditional grants and grants with conditions that may require the holder to forfeit
the Common Shares (or permit us to repurchase the Common Shares for nominal consideration) in the event that the holder ceases to provide services to us before a stated time. Unlike holders of Options
and SARs, a holder of Restricted Stock has the rights of a stockholder to vote and to receive payment of dividends on the Restricted Stock, unless otherwise specified in the agreement that sets forth
the terms on which the Restricted Stock is granted.
Restricted Stock Units
Our Compensation Committee may grant to eligible participants the right to receive a number of Common Shares, subject to terms and conditions determined by
the committee, including conditions that may require the holder to forfeit such right in the event that the holder ceases to provide services to us before a stated time. Holders of RSUs do not have
the rights of stockholders unless and until Common Shares are issued in respect of the award.
Other Stock Based Awards
Our Compensation Committee may grant to eligible participants other awards of, or determined with respect to, Common Shares, subject to terms and conditions
determined by the committee.
Equitable Adjustment
If, while awards remain outstanding under the Amended and Restated 2014 Equity Compensation Plan, the Company merges or consolidates with another corporation
or in the event of similar corporate events, then our Compensation Committee, in its discretion, may make equitable adjustments to awards under the plan to reflect such transaction.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 27
Table of Contents
Change in Control or Termination Event
The Amended and Restated 2014 Equity Compensation Plan provides that upon either a Change in Control or a Termination Event (as such terms are defined in the
plan), awards under the plan will become fully vested and (if applicable) exercisable.
Amendments to the Plan
Our Board may modify, revise or terminate the Amended and Restated 2014 Equity Compensation Plan at any time and from time to time, except that approval of
our stockholders is required with respect to any amendment to change the aggregate number of Common Shares that may be issued under Options or granted pursuant to the plan, change the class of persons
eligible to receive Options or Other Rights or make any other change that requires stockholder approval under applicable law or listing standard. Amendments adversely affecting outstanding Options or
Other Rights may not be made without the consent of the holder of the Option or Other Right.
Other
than with respect to equitable adjustments as described above, we may not increase the aggregate number of Common Shares that may be issued under Options or granted pursuant to the Amended and
Restated 2014 Equity Compensation Plan without stockholder approval.
The
closing price of the Common Shares on The Nasdaq Stock Market on April 14, 2020 was $3.35.
Tax Treatment
The following description of the United States federal income tax consequences of Options and Other Rights is general and does not purport to be complete.
Tax Treatment of Options
An optionee realizes no taxable income when a NSO is granted. Instead, the difference between the fair market value of the Common Shares subject to the NSO
and the exercise price paid is taxed as ordinary compensation income when the NSO is exercised. The difference is measured and taxed as of the date of exercise, if the Common Shares are not subject to
a "substantial risk or forfeiture", or as of the date or dates on which the risk terminates in other cases. An optionee may elect to be taxed on the difference between the exercise price and the fair
market value of the Common Shares on the date of exercise, even though some or all of the Common Shares acquired are subject to a substantial risk of forfeiture. Gain on the subsequent sale of the
Common Shares is taxed as capital gain. We receive no tax deduction on the grant of a NSO, but we are entitled to a tax deduction when the optionee recognizes taxable income on or after exercise of
the NSO, in the same amount as the income recognized by the optionee.
Generally,
an optionee incurs no federal income tax liability on either the grant or the exercise of an ISO, although an optionee will generally have taxable income for alternative minimum tax
purposes at the time of exercise equal to the excess of the fair market value of the Common Shares subject to an ISO over the exercise price. Provided that the Common Shares are held for at least one
year after the date of exercise of the related ISO and at least two years after its date of grant, any gain realized on subsequent sale of the Common Shares will be taxed as long term capital gain. If
the Common Shares are disposed of within a shorter period of time, the optionee will recognize ordinary compensation income in an amount equal to the difference between the sales price and the ISO
exercise price or (if less) the difference between the fair market value at the time of exercise and the ISO exercise price. We receive no tax deduction on the grant or exercise of an ISO, but we are
entitled to a tax deduction if the optionee recognizes taxable income on account of a premature disposition of ISO Common Shares, in the same amount and at the same time as the optionee's recognition
of income.
28 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
Tax Treatment of SARs
A recipient recognizes no income upon the grant of a SAR, but upon its exercise realizes ordinary compensation income in an amount equal to the cash or cash
equivalent that he receives at that time. If the recipient receives Common Shares upon exercise of the SAR, the recipient recognizes ordinary income measured by the fair market value of the Common
Shares so received (or, if the Common Shares are subject to a substantial risk of forfeiture, at the date or dates on which the risk expires, unless the recipient elects to be taxed at the time of
exercise).
Tax Treatment of Restricted Stock and Other Stock Awards
A person who receives a grant of Restricted Stock generally will not recognize ordinary compensation income at the time the award is received, but will
recognize ordinary compensation income when restrictions constituting a substantial risk of forfeiture lapse. The amount of such income will be equal to the excess of the aggregate fair market value,
as of the date the restrictions lapse, over the amount (if any) paid by the holder for the Restricted Stock. Alternatively, a recipient of Restricted Stock may elect to be taxed instead on the excess
of the fair market value of the Restricted Stock at the time of grant over the amount (if any) paid by the recipient for the Restricted Stock, notwithstanding the restrictions on the stock. Recipients
of Stock Awards that are not subject to restrictions will recognize ordinary compensation income at the time the award is received, equal to the excess of the aggregate fair market value of the shares
over the amount (if any) paid by the holder for the shares. All such taxable amounts are deductible by the Company at the time and in the amount of the ordinary compensation income recognized by the
recipient.
Tax Treatment of Restricted Stock Units
In general, the grant of RSUs will not result in income for the person who receives the grant or in a tax deduction for the Company. Upon the settlement of
such an award in cash or shares, the participant will recognize ordinary income equal to the aggregate value of the payment received, and the Company generally will be entitled to a tax deduction at
the same time and in the same amount.
Interests of Certain Persons in Matters to Be Acted Upon
Our officers, employees, consultants, other service providers and non-employee directors are eligible to receive awards under the Amended and Restated 2014
Equity Compensation Plan in the discretion of our Compensation Committee. Future grants under the Amended and Restated 2014 Equity Compensation Plan will be made at the discretion of our Compensation
Committee and thus are not determinable at this time.
Share Usage
The following table sets forth the annual share usage under the Predecessor Plan for the last three calendar years. The number of shares in the table reflects
the one-for-ten reverse stock split affected on our Common Shares as of September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
Year
|
|
Awards Granted
(number of shares)
|
|
Weighted Average
Shares Outstanding
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
59,060
|
|
|
4,920,369
|
|
|
2018
|
|
|
47,100
|
|
|
4,968,734
|
|
|
2019
|
|
|
85,800
|
|
|
5,006,210
|
|
|
|
|
|
|
|
|
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 29
Table of Contents
Equity Compensation Plan Information
The following table shows information with respect to securities authorized for issuance under the equity compensation plans maintained by the Company as of
December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
|
|
Weighted-average
exercise price of
outstanding
options, warrants
and rights
|
|
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a))
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
(b)
|
|
(c)
|
|
|
Equity compensation plans approved by security holders—2014 Equity Compensation Plan
|
|
None
|
|
None
|
|
176,460
|
|
|
Equity compensation plans not approved by security holders
|
|
None
|
|
None
|
|
None
|
|
|
Total
|
|
None
|
|
None
|
|
176,460
|
|
|
|
|
|
|
|
|
|
|
Approval
of the Amended and Restated 2014 Equity Compensation Plan requires the affirmative vote of a majority of the votes cast in person or by proxy at the Annual Meeting of Stockholders.
Our Board of Directors recommends a vote "FOR" the approval of the Amended and Restated 2014 Equity
Compensation Plan.
30 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
REPORT OF OUR AUDIT COMMITTEE
In the course of oversight by our Audit Committee (our "Audit Committee") of our Board of Directors of Five Star Senior Living Inc.
(the "Company") of our financial reporting process, our Audit Committee has: (i) reviewed and discussed with management the audited financial statements for the fiscal year ended
December 31, 2019; (ii) discussed with RSM US LLP, our independent auditors, the matters required to be discussed under PCAOB Auditing Standard No. 1301;
(iii) received the written disclosures and the letter from our auditors required by applicable requirements of the Public Company Accounting Oversight Board regarding our independent auditors'
communications with our Audit Committee concerning independence; (iv) discussed with our independent auditors their independence; and (v) considered whether the provision of non-audit
services, if any, by our independent auditors is compatible with maintaining their independence and concluded that it is compatible at this time.
Based
on the foregoing review and discussions, our Audit Committee recommended to our Board that the audited financial statements be included in the Annual Report on Form 10-K for the fiscal
year ended December 31, 2019, for filing with the Securities and Exchange Commission.
|
|
|
|
|
|
|
Barbara D. Gilmore, Chair
Donna D. Fraiche
Bruce M. Gans, M.D.
Gerard M. Martin
Michael E. Wagner, M.D.
|
34 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
FREQUENTLY ASKED QUESTIONS
Proxy Materials and Voting Information
|
1. What is included in the proxy materials? What is a proxy statement and what is a proxy?
|
The
proxy materials for the 2020 Annual Meeting include the Notice Regarding the Availability of Proxy Materials, Notice of 2020 Annual Meeting, this Proxy Statement and our Annual
Report to Stockholders for the year ended December 31, 2019 (collectively, the "proxy materials"). If you request a paper copy of these materials, the proxy materials will also include a proxy
card or voting instruction form.
A
proxy statement is a document that the SEC regulations require us to give you when it asks you to return a proxy designating individuals to vote on your behalf. A proxy is your legal designation of
another person to vote the shares you own. That other person is called your proxy. We are asking you to designate the following three persons as your proxies for the 2020 Annual Meeting: Jennifer B.
Clark, Secretary; Adam D. Portnoy, Managing Director; and Katherine E. Potter, President and Chief Executive Officer.
|
2. What is the difference between holding shares as a stockholder of record and as a beneficial owner?
|
If
your shares are registered directly in your name with our registrar and transfer agent, Equiniti Shareowner Services, you are considered a stockholder of record of those shares.
If you are a stockholder of record, you should receive only one notice or proxy card for all the Common Shares you hold, whether in certificate or book entry form.
If
your shares are held in an account you own at a bank or brokerage or you hold shares through another nominee, you are considered the "beneficial owner" of those shares. If you are a beneficial
owner, you
will receive voting instruction information from the bank, broker or other nominee through which you own your Common Shares.
If
you hold some shares of record and some shares beneficially, you should receive a notice or proxy card for all the Common Shares you hold of record and a separate voting instruction form for the
shares from the bank, broker or other nominee through which you own Common Shares.
|
3. What different methods can I use to vote?
|
By Written Proxy. All stockholders of record can submit voting instructions by written proxy card.
If you are a stockholder of record and receive a Notice Regarding the Availability of Proxy Materials, you may request a written proxy card by following the instructions included in the notice. If you
are a beneficial owner, you may request a written proxy card or a voting instruction form from your bank, broker or other nominee. Proxies submitted by mail must be received by 11:59 p.m.,
Eastern time, on June 8, 2020 or, if the meeting is postponed or adjourned to a later date, by 11:59 p.m., Eastern time, on the day immediately preceding the date of the reconvened
meeting.
By Telephone or Internet. All stockholders of record also can authorize a proxy to vote their shares by touchtone
telephone by calling 1-800-690-6903, or through the internet at www.proxyvote.com, using the procedures and instructions described in your Notice
Regarding the Availability of Proxy Materials or proxy card. Beneficial owners may authorize a proxy by telephone or internet if their bank, broker or other
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 35
Table of Contents
nominee
makes those methods available, in which case the bank, broker or nominee will include the instructions with the proxy voting materials. To authorize a proxy by telephone or internet, you will
need the 16-digit control number provided on your Notice Regarding the Availability of Proxy Materials, proxy card or voting instruction form. The telephone and internet proxy authorization procedures
are designed to authenticate stockholder identities, to allow stockholders to vote their shares and to confirm that their instructions have been recorded properly. Proxies submitted by telephone or
through the internet must be received by 11:59 p.m., Eastern time, on June 8, 2020 or, if the meeting is postponed or adjourned to a later date, by 11:59 p.m., Eastern time, on
the day immediately preceding the date of the reconvened meeting.
In Person. All stockholders of record may vote in person at the meeting. Beneficial owners may vote in person at the
meeting if they have a legal proxy, as described in the response to question 11.
A
stockholder may revoke a proxy at any time before it is voted at the 2020 Annual Meeting, subject to the proxy voting deadlines described above, by authorizing a proxy again on a later date by
internet or by telephone (only the last internet or telephone proxy submitted prior to the meeting will be counted), by signing and returning a later dated proxy card or by attending the meeting and
voting in person or by sending an original written statement revoking the prior proxy to the Secretary of the Company at our principal executive office (or by hand delivery to the Secretary before the
taking of the vote at the 2020 Annual Meeting). If you are a beneficial owner, see the response to question 11.
Beneficial
owners who wish to change their votes should contact the organization that holds their shares.
|
4. Who may vote at the 2020 Annual Meeting?
|
Holders
of record of Common Shares as of the close of business on March 16, 2020, the record date, may vote at the meeting. Holders of Common Shares are entitled to one vote
for each Common Share held on the record date.
|
5. What if I authorize a proxy and do not specify how my shares are to be voted?
|
If
you submit a signed proxy card or authorize a proxy by internet or telephone, but do not indicate how your Common Shares should be voted on one or more proposals, then the proxies
will vote your shares as our Board recommends on those proposals. Other than the proposals listed on pages 10, 25, 31 and 32, we do not know of any other matters to be presented at the meeting.
If any other matters are properly presented at the meeting, the proxies may vote your shares in accordance with their discretion.
|
6. What is a quorum? How are abstentions and broker non-votes counted?
|
A
quorum of stockholders is required for stockholders to take action at the 2020 Annual Meeting. The presence, in person or by proxy, of stockholders entitled to cast one-third of
all the votes entitled to be cast at the 2020 Annual Meeting constitutes a quorum.
Abstentions
and broker non-votes (i.e., shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owner or the person entitled to vote
and (ii) the broker does not have discretionary voting power on a particular matter), if any, are included in determining whether a quorum is present. Abstentions are not votes cast and,
therefore, will not be included in vote totals and will have no effect on the outcome of any Proposal to be voted on at the 2020 Annual Meeting. A proxy
marked "WITHHOLD" with respect to Proposal 1 will have the same effect as an abstention. Broker non-votes are not votes cast and, therefore, will not be included in vote totals and will have no effect
on
36 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
the
outcome of Proposal 1, Proposal 2 or Proposal 3. There can be no broker non-votes on Proposal 4 as it is a matter on which, if you hold your shares in street name and do not provide voting
instructions to the broker, bank or other nominee that holds your shares, the nominee has discretionary authority to vote on your behalf.
|
7. Can I access the proxy materials on the internet? How can I sign up for the electronic proxy delivery service?
|
The
Notice of 2020 Annual Meeting, this Proxy Statement and the Annual Report are available at www.proxyvote.com. You may access these
proxy materials on the internet through the conclusion of the 2020 Annual Meeting.
Instead
of receiving future copies of our proxy materials by mail, stockholders of record and most beneficial owners may elect to receive these materials electronically. Opting to receive your future
proxy materials electronically will reduce the environmental impact of our annual meeting, save us the cost of printing and mailing documents, and also will give you an electronic link to our proxy
voting site. Your Notice Regarding the Availability of Proxy Materials instructs you as to how you may request electronic delivery of future proxy materials.
|
8. How are proxies solicited and what is the cost?
|
We
bear all expenses incurred in connection with the solicitation of proxies. We will request banks, brokers and other nominees to forward proxy materials to the beneficial owners of
our Common Shares and to obtain their voting instructions. We will reimburse those firms for their expenses of forwarding proxy materials.
Proxies
may also be solicited, without additional compensation, by our Directors and officers and by RMR LLC, its officers and employees and its parent's and subsidiaries' directors, trustees,
officers and employees, by mail, telephone or other electronic means or in person.
As
permitted by the Exchange Act, we may deliver only one copy of the Notice Regarding the Availability of Proxy Materials, Notice of 2020 Annual Meeting, this Proxy Statement and
the Annual Report to Stockholders residing at the same address, unless the stockholders have notified us of their desire to receive multiple copies of those documents. This practice is known as
"householding."
We
will deliver a separate copy of any of those documents to you if you write to the Company at Investor Relations, Five Star Senior Living Inc., Two Newton Place, 255 Washington Street,
Suite 300, Newton, Massachusetts 02458, or call the Company at (617) 796-8245. If you want to receive separate copies of our notices regarding the availability of proxy materials,
notices of annual meetings, proxy statements and annual reports in the future, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your
bank, broker or other nominee, or you may contact us at the above address or telephone number.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 37
Table of Contents
2020 Annual Meeting Information
|
10. How do I attend the 2020 Annual Meeting in person?
|
Attendance
at the meeting is limited to our Directors and officers, stockholders as of the record date (March 16, 2020) or their duly authorized representatives or proxies,
and other persons permitted by the Chairman of the meeting. All attendees need to bring photo identification for admission.
-
•
-
Record
owners: If you are a stockholder as of the record date who holds shares directly, you need not present any documentation to
attend the 2020 Annual Meeting, other than photo identification.
-
•
-
Beneficial
owners: If you are a stockholder as of the record date who holds shares indirectly through a brokerage firm, bank or other
nominee, you must present evidence of your beneficial ownership of shares. For this purpose, a copy of a letter or account statement from the applicable brokerage firm, bank or other nominee
confirming such ownership will be acceptable and such copy may be retained by the Company. Please note that you will not be able to vote your shares at the meeting without a legal proxy, as described
in the response to question 11.
If
you have questions regarding these admission procedures, please call Investor Relations at (617) 796-8245.
|
11. How can I vote in person at the meeting if I am a beneficial owner?
|
If
you are a beneficial owner and want to vote your shares at the 2020 Annual Meeting, you need a legal proxy from your bank, broker or other nominee. You also need to follow the
procedures described in the response to question 10 and to bring the legal proxy with you to the meeting and hand it in with a signed ballot that will be provided to you
at the meeting. You will not be able to vote your shares at the meeting without a legal proxy. If you do not have a legal proxy, you can still attend the meeting by following the procedures described
in the response to question 10. However, you will not be able to vote your shares at the meeting without a legal proxy. We encourage you to vote your shares in advance,
even if you intend to attend the meeting.
Company Documents, Communications and Stockholder Proposals
|
12. How can I view or request copies of the Company's SEC filings and other documents?
|
You
can visit our website to view our Governance Guidelines, Board committee charters and the Code. To view these documents, go to www.fivestarseniorliving.com, click on "Investor Relations" and then click
on "Corporate Governance." To view the Company's SEC filings and
Forms 3, 4 and 5 filed by the Company's Directors and executive officers, go to www.fivestarseniorliving.com, click on "Investor Relations" and
then click on "Financial Information & SEC Filings."
We
will deliver free of charge, upon request, a copy of our Governance Guidelines, Board committee charters, the Code or the Annual Report to any stockholder requesting a copy. Requests should be
directed to Investor Relations at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
38 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
|
13. How can I communicate with the Company's Directors?
|
Any
stockholder or other interested person who wants to communicate with our Directors should write to the party for whom the communication is intended, c/o Secretary, Five Star
Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458 or email secretary@fivestarseniorliving.com. The communication will then be delivered
to the appropriate party or parties.
|
14. How do I submit a nomination or other proposal for action at the 2021 annual meeting of stockholders?
|
A
proposal for action to be presented by any stockholder at the Company's 2021 annual meeting of stockholders must be submitted as follows:
-
•
-
For a proposal to be eligible to be included in the proxy statement pursuant to Rule 14a-8 under the Exchange Act, the proposal must be
received at the Company's principal executive offices by December 16, 2020.
-
•
-
If the proposal is not to be included in the proxy statement pursuant to Rule 14a-8, the proposal must be made in accordance with the
procedures and requirements set forth in our Bylaws and must be received by the Company not later than 5:00 p.m., Eastern time, on December 16, 2020 and not earlier than
November 16, 2020.
Proposals
should be sent to our Secretary at Two Newton Place, 255 Washington Street, Suite 300, Newton, Massachusetts 02458.
For
additional information regarding how to submit a stockholder proposal, see page 9 of this Proxy Statement.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 39
Table of Contents
RELATED PERSON TRANSACTIONS
The descriptions of agreements in this "Related Person Transactions" section do not purport to be complete and are subject to, and qualified
in their entirety by, reference to the actual agreements, copies of certain of which are filed as exhibits to our Annual Report.
A
"related person transaction" is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) or a proposed transaction in which (i) we
were, are or will be a participant, (ii) the amount involved exceeds the lesser of $120,000 or 1.0% of the average of the Company's total assets at year end for the last two completed fiscal
years and (iii) any related person had, has or will have a direct or indirect material interest.
A
"related person" means any person who is, or at any time since January 1, 2019 was:
-
•
-
a Director, a nominee for Director or an executive officer of the Company;
-
•
-
known to us to be the beneficial owner of more than 5.0% of the outstanding Common Shares when a transaction in which such
person had a direct or indirect material interest occurred or existed;
-
•
-
an immediate family member of any of the persons referenced in the preceding two bullets, which means any child, stepchild,
parent, stepparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law of any of the persons referenced in the preceding two bullets, and any
person (other than a tenant or employee) sharing the household of any of the persons referenced in the preceding two bullets; or
-
•
-
a firm, corporation or other entity in which any of the foregoing persons is a partner or principal or in a similar position
or in which such person has a 10.0% or greater beneficial ownership interest.
We
have adopted written Governance Guidelines that describe the consideration and approval of related person transactions. Under these Governance Guidelines, we may not enter into a transaction in
which any Director or executive officer, any member of the immediate family of any Director or executive officer or other related person, has or will have a direct or indirect material interest unless
that transaction has been disclosed or made known to our Board and our Board reviews and approves or ratifies the transaction by the affirmative vote of a majority of the disinterested Directors, even
if the disinterested Directors constitute less than a quorum. If there are no disinterested Directors, the transaction must be reviewed, authorized and approved or ratified by both (i) the
affirmative vote of a majority of our Board and (ii) the affirmative vote of a majority of the Independent Directors. In determining whether to approve or ratify a transaction, our Board, or
disinterested Directors or Independent Directors, as the case may be, also act in accordance with any applicable provisions of our Charter and Bylaws and consider all of the relevant facts and
circumstances and approve only those transactions that they determine are fair and reasonable to the Company. All related person transactions described below were reviewed and approved or ratified by
a majority of the disinterested Directors or otherwise in accordance with our policies, Charter and Bylaws, each as described above, and Maryland law. In the case of transactions with the Company by
employees of the Company who are subject to the Code but who are not Directors or executive officers of the Company, the employee must seek approval from an executive officer who has no interest in
the matter for which approval is being requested. Copies of our Governance Guidelines and the Code are available on our website, www.fivestarseniorliving.com.
Certain Related Person Transactions
Relationship with DHC. The Company was a 100% owned subsidiary of DHC until DHC distributed the Common Shares it then owned to its shareholders in 2001. DHC is
currently our largest stockholder, beneficially owning, as of March 16, 2020, 10,691,658 Common Shares, or 33.9% of our outstanding Common Shares. We manage for the account of DHC a substantial
majority of the senior living communities we operate. Adam D. Portnoy, the Chair of our Board and one of our Managing Directors, also serves as the chair of the board of trustees and as a managing
trustee of DHC. Our other Managing
40 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
Director
and Secretary also serves as a managing trustee and secretary of DHC. RMR LLC provides management services to both us and DHC. Our President and Chief Executive Officer and Executive
Vice President, Chief Financial Officer and Treasurer and DHC's executive officers are officers and employees of RMR LLC.
On
April 1, 2019, we entered into a transaction agreement with DHC (the "Transaction Agreement") to restructure our business arrangements with DHC (the "Restructuring Transaction"), which was
completed effective January 1, 2020. Historically, we leased most of the DHC owned senior living communities that we operated. Pursuant to the Restructuring Transaction, among other things, our
previously existing master leases with DHC for 166 of our senior living communities and our previously existing management and pooling agreements for 78 of DHC's senior living communities were
terminated and replaced with new management agreements and a related omnibus agreement (collectively, the "New Management Agreements"). Currently, all of these senior living communities are managed by
us pursuant to the New Management Agreements.
Restructuring our Business Arrangements with DHC. Pursuant to the Transaction Agreement, effective January 1, 2020 (the "Conversion
Time"):
-
•
-
our five then existing master leases with DHC for all of DHC's senior living communities that we then leased, as well as our then existing
management and pooling agreements with DHC for DHC's senior living communities that were then operated by us, were terminated and replaced with the New Management Agreements;
-
•
-
we issued 10,268,158 Common Shares to DHC and an aggregate of 16,118,849 Common Shares to DHC's shareholders of record as of
December 13, 2019; and
-
•
-
as consideration for the share issuances, DHC provided to us $75 million of additional consideration by assuming certain of our working
capital liabilities.
Also
pursuant to the Transaction Agreement: (1) commencing February 1, 2019, the aggregate amount of monthly minimum rent payable to DHC by us under our master leases with DHC was
reduced to $11.0 million, as of February 1, 2019, subject to adjustment, and subsequently reduced in accordance with the Transaction Agreement as result of DHC's subsequent sales of
certain of the leased senior living communities, and no additional rent was payable to DHC by us from such date through the Conversion Time; and (2) on April 1, 2019, DHC purchased from
us approximately $49.2 million of unencumbered Qualifying PP&E (as defined in the Transaction Agreement) related to DHC's senior living communities then leased and operated by us.
Pursuant
to the New Management Agreements, we will receive a management fee equal to 5% of the gross revenues realized at the applicable senior living communities plus reimbursement for our direct
costs and expenses related to such communities, as well as an annual incentive fee equal to 15% of the amount by which the annual earnings before interest, taxes, depreciation and amortization, or
EBITDA, of all communities on a combined basis exceeds the target EBITDA for all communities on a combined basis for such calendar year, provided that in no event shall the incentive fee be greater
than 1.5% of the gross revenues realized at all communities on a combined basis for such calendar year.
The
New Management Agreements expire in 2034, subject to our right to extend for two consecutive five-year terms if we achieve certain performance targets for the combined managed communities
portfolio, unless earlier terminated or timely notice of nonrenewal is delivered. The New Management Agreements also provide that DHC has, and in some cases we have, the option to terminate the
agreements upon the acquisition by a person or group of more than 9.8% of the other's voting stock and upon certain change in control events affecting the other party, as defined in the applicable
agreements, including the adoption of any stockholder proposal (other than a precatory proposal) with respect to the
other party, or the election to the board of directors or trustees, as applicable, of the other party of any individual, if such proposal or individual was not approved, nominated or appointed, as the
case may be, by a majority of the other party's board of directors or board of trustees, as applicable, in office immediately prior to the making of such proposal or the nomination or appointment of
such individual.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 41
Table of Contents
The
New Management Agreements also provide DHC with the right to terminate the New Management Agreement for any community that does not earn 90% of the target EBITDA for such community for two
consecutive calendar years or in any two of three consecutive calendar years, with the measurement period commencing January 1, 2021 (and the first termination not possible until the beginning
of calendar year 2023); provided DHC may not in any calendar year terminate communities representing more than 20% of the combined revenues for all communities for the calendar year prior to such
termination. Pursuant to a guaranty agreement dated as of January 1, 2020, made by us in favor of DHC's applicable subsidiaries, we have guaranteed the payment and performance of each of our
applicable subsidiary's obligations under the applicable New Management Agreements.
In
connection with the Transaction Agreement, we entered into the DHC credit facility pursuant to which DHC extended to us a $25 million line of credit. The DHC credit facility matured and was
terminated on January 1, 2020, in connection with the completion of the Restructuring Transaction. There were no borrowings outstanding under the DHC credit facility at the time of such
termination and we did not make any borrowings under the DHC credit facility during its term.
Senior Living Communities Formerly Leased from DHC. Under our master leases with DHC, which terminated as of January 1, 2020, we paid DHC annual rent plus
percentage rent equal to 4.0% of the increase in gross revenues at the applicable senior living communities over base year gross revenues as specified in the applicable lease.
The
following table is a summary of our leases with DHC as of December 31, 2019:
|
|
|
|
|
|
|
|
Lease
|
|
Number of
Properties
|
|
Annual Rent as of
December 31, 2019
|
|
|
|
|
|
|
|
1. DHC Lease No. 1(1)
|
|
|
73
|
|
$31.2 million
|
|
2. DHC Lease No. 2(1)
|
|
|
39
|
|
39.3 million
|
|
3. DHC Lease No. 3(2)
|
|
|
17
|
|
26.7 million
|
|
4. DHC Lease No. 4(1)
|
|
|
28
|
|
25.7 million
|
|
5. DHC Lease No. 5(2)
|
|
|
9
|
|
6.9 million
|
|
|
|
|
|
|
|
Total
|
|
|
166
|
|
$129.8 million
|
|
|
|
|
|
|
-
(1)
-
Lease
includes senior nursing facilities ("SNFs") and independent and assisted living communities.
-
(2)
-
Lease
includes independent and assisted living communities.
We
paid $129.8 million in total rent to DHC for the year ended December 31, 2019. As of December 31, 2019, we had no outstanding rent payable to DHC.
As
of December 31, 2019, our leases with DHC were "triple net" leases, which generally required us to pay rent and all property operating expenses, to indemnify DHC from liability which may
arise by reason of its ownership of the properties, to maintain the properties at our expense, to remove and dispose of hazardous substances on the properties in compliance with applicable law and to
maintain insurance on the properties for DHC's and our benefit.
Under
our leases with DHC, we had the right to request that DHC purchase certain improvements to the leased communities, and, until we entered the Transaction Agreement, in return for the purchases
the annual rent payable to DHC would increase in accordance with a formula specified in the applicable lease. Pursuant to the Transaction Agreement, the improvements of approximately
$110 million we sold to DHC for the communities we leased from DHC during the year ended December 31, 2019, did not result in increased rent payable by us to DHC. An increase in the
annual rent payable by us to DHC of $1.5 million for improvements sold to DHC in 2019 but prior to entering into the Transaction Agreement was adjusted pursuant to the terms of the Transaction
Agreement.
In
December 2019, we and DHC entered into an agreement to sell to a third party one senior living community located in Nebraska that DHC owns and we previously leased and currently manage for a
42 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
sales
price of approximately $5.6 million, excluding closing costs. The parties have since determined to terminate this agreement.
During
the year ended December 31, 2019, we and DHC sold to third parties 18 SNFs located in California, Kansas, Iowa and Nebraska that DHC owned and leased to us for an aggregate sales price
of approximately $29.5 million, excluding closing costs. As a result of these sales, the annual minimum rent payable to DHC by us under our master leases with DHC was reduced in accordance with
the terms of the Transaction Agreement.
Senior Living Communities Managed for the Account of DHC and its Related Entities. As of December 31, 2019, we managed 78 senior living communities for the
account of DHC. We earned base management fees of approximately $15.0 million, no incentive fees and $0.84 million of fees for our management of capital expenditure projects with respect
to the communities we managed for the account of DHC for the year ended December 31, 2019. In connection with the completion of the Restructuring Transaction, effective as of January 1,
2020, we and DHC terminated these long term management and pooling agreements and replaced them with the New Management Agreements, the terms of which are discussed above.
For
the year ended December 31, 2019, we had pooling agreements with DHC that combined most of our management agreements with DHC that included assisted living units, or our "AL Management
Agreements." The pooling agreements combined various calculations of revenues and expenses from the operations of the applicable communities covered by such agreements. Our AL Management Agreements
and the pooling agreements generally provided that we received from DHC:
-
•
-
a management fee equal to either 3.0% or 5.0% of the gross revenues realized at the applicable communities;
-
•
-
reimbursement for our direct costs and expenses related to such communities;
-
•
-
an annual incentive fee equal to either 35.0% or 20.0% of the annual net operating income of such communities remaining after DHC realizes an
annual minimum return equal to either 8.0% or 7.0% of its invested capital, or, in the case of certain of the communities, a specified amount plus 7.0% of its invested capital since
December 31, 2015; and
-
•
-
a fee for our management of capital expenditure projects equal to 3.0% of amounts funded by DHC.
For
AL Management Agreements that became effective from and after May 2015, our pooling agreements provided that our management fee is 5.0% of the gross revenues realized at the applicable community,
and our annual incentive fee is 20.0% of the annual net operating income of the applicable community remaining after DHC realizes its requisite annual minimum return.
Our
management agreements with DHC for the part of the senior living community owned by DHC and located in Yonkers, New York that is not subject to the requirements of New York healthcare licensing
laws, as described elsewhere herein, and for the assisted living communities owned by DHC and located in Villa Valencia, California and Aurora, Colorado were not included in any of our pooling
agreements with DHC. We also had a pooling agreement with DHC that combined our management agreements with DHC for senior living communities consisting only of independent living units.
In
April 2019, we began managing a senior living community located in Oregon with 318 living units for the account of DHC pursuant to our then existing management and pooling arrangements with DHC.
We
also provide certain other services to residents at some of the senior living communities we manage for the account of DHC, such as rehabilitation services. At senior living communities we manage
for the account of DHC where we provide rehabilitation services on an outpatient basis, the residents, third party payers or government programs pay us for those rehabilitation services. At senior
living communities we manage for the account of DHC where we provide both inpatient and outpatient rehabilitation services, DHC generally pays us for these services and charges for such services are
included in amounts charged
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 43
Table of Contents
to
residents, third party payers or government programs. We earned revenues of $5.9 million for the year ended December 31, 2019 for rehabilitation services we provided at senior living
communities we manage for the account of DHC and that are payable by DHC.
D&R Yonkers LLC. In order to accommodate certain requirements of New York healthcare licensing laws, we manage a part of the senior living community that
DHC owns for the subtenant entity, which is affiliated with DHC and the members of which are DHC's president and chief operating officer and chief financial officer and treasurer. We earn a management
fee equal to 3.0% of the gross revenues realized at that part of the community. The management agreement expires on August 31, 2022, and is subject to renewal for eight consecutive five-year
terms, unless earlier terminated. We earned management fees of $0.28 million for the year ended December 31, 2019 under this management agreement.
Pursuant
to the Transaction Agreement, we agreed to expand our Board of Directors within six months of January 1, 2020 to add an Independent Director (as defined in our Bylaws) reasonably
satisfactory to DHC. On February 26, 2020, our Board of Directors elected Michael E. Wagner, M.D. as an Independent Director, which satisfied our agreement with DHC to expand our Board of
Directors.
In
order to effect DHC's distribution of our Common Shares to its shareholders in 2001 and to govern our relationship with DHC thereafter, we entered agreements with DHC and RMR LLC. Since
then, we have entered various leases, management agreements and other agreements with DHC that include provisions that confirm and modify these undertakings. Among other things, these agreements
provide that:
-
•
-
so long as DHC remains a real estate investment trust, or a REIT, we may not waive the share ownership restrictions in our charter that
prohibit any person or group from acquiring more than 9.8% (in value or number of shares, whichever is more restrictive) of the outstanding shares of any class of our stock without DHC's consent;
-
•
-
so long as we are a tenant of, or manager for, DHC, we will not permit nor take any action that, in the reasonable judgment of DHC, might
jeopardize DHC's qualification for taxation as a REIT;
-
•
-
DHC has the right to terminate our management agreements upon the acquisition by a person or group of more than 9.8% of our voting stock or
other change in control events affecting us, as defined therein, including the adoption of any stockholder proposal (other than a precatory proposal) or the election to our Board of any individual, if
such proposal or individual was not approved, nominated or appointed, as the case may be, by a majority of our Directors in office immediately prior to the making of such proposal or the nomination or
appointment of such individual; and
-
•
-
so long as we are a tenant of, or manager for, DHC or so long as we have a business management agreement with RMR LLC, we will not
acquire or finance any real estate of a type then owned or financed by DHC or any other company managed by RMR LLC without first giving DHC or such company managed by RMR LLC, as
applicable, the opportunity to acquire or finance that real estate.
Relationships with RMR LLC and Others Related to It. We have relationships and historical and continuing transactions with DHC, RMR LLC, ABP Trust,
Adam D. Portnoy and others related to them, including other companies to which RMR LLC or its subsidiaries provide management services and some of which have directors, trustees or officers who
are also our Directors or officers. The Chair of our Board and one of our Managing Directors, Adam Portnoy, as the sole trustee of ABP Trust, is the controlling shareholder of RMR Inc. and is a
managing director and the president and chief executive officer of RMR Inc. and an officer and employee of RMR LLC. RMR Inc. is the managing member of RMR LLC. Jennifer
Clark, our other Managing Director and Secretary, is a managing director and the executive vice president, general counsel and secretary of RMR Inc., an officer and employee of RMR LLC
and an officer of ABP Trust and certain of our officers are also officers and employees of RMR LLC. Some of our Independent Directors also serve as independent trustees or independent directors
of other public companies to which RMR LLC or its subsidiaries provide management services. Adam Portnoy serves as the chair of the boards of directors or boards of trustees of several of these
public companies and as a
44 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
managing
director or managing trustee of all these companies. Other officers of RMR LLC serve as managing directors or managing trustees of certain of these companies. In addition, officers of
RMR LLC and RMR Inc. serve as our officers and officers of other companies to which RMR LLC or its subsidiaries provide management services.
Because
at least 80.0% of Ms. Potter's and Messrs. Leer's and Doyle's business time was devoted to services to the Company during 2019, 80.0% of their total cash compensation (that is,
the combined base salary and cash bonus paid by the Company and RMR LLC) was paid by the Company and the remainder was paid by RMR LLC. Ms. Potter and Messrs. Leer and
Doyle were also eligible to participate in certain RMR LLC benefit plans and to receive share awards from RMR Inc. and other companies to which RMR LLC or its subsidiaries provide
management services. We believe the compensation we paid to these officers reasonably reflected their division of business time and efforts; however, periodically, Ms. Potter and
Mr. Leer may divide their business time and efforts differently than they do currently and their compensation from us may become disproportionate to this division.
Management Agreement with RMR LLC. RMR LLC provides business management services to us pursuant to our business management agreement. These business
management services may include, but are not limited to, services related to compliance with various laws and rules applicable to our status as a publicly traded company, maintenance of our senior
living communities, evaluation of business opportunities, accounting and financial reporting, capital markets and financing activities, investor relations and general oversight of our daily business
activities, including legal matters, human resources, insurance programs and the like.
Fees. We pay RMR LLC an annual business management fee equal to 0.6% of our revenues. Revenues are defined as our total revenues from all sources reportable
under GAAP, less any revenues reportable by us with respect to communities for which we provide management services plus the gross revenues at those communities determined in accordance with GAAP.
Pursuant to our business management agreement with RMR LLC, we recognized business management fees of $9.1 million for the year ended December 31, 2019.
Term and Termination. The current term of our business management agreement ends on December 31, 2019 and automatically renews for successive one year terms
unless we or RMR LLC gives notice of nonrenewal before the end of an applicable term. RMR LLC may terminate our business management agreement upon 120 days' written notice, and we
may terminate upon 60 days' written notice, subject to approval by a majority vote of our Independent Directors. If we terminate or elect not to renew our business management agreement other
than for cause, as defined, we are obligated to pay RMR LLC a termination fee equal to 2.875 times the sum of the annual base management fee and the annual internal audit services expense,
which amounts are based on averages during the 24 consecutive calendar months prior to the date of notice of nonrenewal or termination.
Expense Reimbursement. We are generally responsible for all of our operating expenses, including certain expenses incurred or arranged by RMR LLC on our
behalf. Under our business management agreement, we reimburse RMR LLC for our allocable costs for our internal audit function. Our Audit Committee appoints our Director of Internal Audit and
our Compensation Committee approves the costs of our internal audit function. The amounts recognized as expense for internal audit costs were $0.28 million for the year ended
December 31, 2019.
Transition Services. RMR LLC has agreed to provide certain transition services to us for 120 days following an applicable termination by us or notice
of termination by RMR LLC.
Vendors. Pursuant to our management agreement with RMR LLC, RMR LLC may from time to time negotiate on our behalf with certain third party vendors
and suppliers for the procurement of goods and services to us. As part of this arrangement, we may enter agreements with RMR LLC and other companies to which RMR LLC provides management
services for the purpose of obtaining more favorable terms from such vendors and suppliers.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 45
Table of Contents
Share Awards to RMR LLC Employees. We have historically made share awards to certain RMR LLC employees who are not also Directors, officers or
employees of us under our equity compensation plans. During the year ended December 31, 2019, we awarded to such persons annual share awards of 17,150 common shares, valued at
$77 thousand, in aggregate, based upon the closing price of our common shares on Nasdaq on the dates the awards were made. Generally, one fifth of these awards vest on the award date and one
fifth vests on each of the next four anniversaries of the award date. In certain instances, we may accelerate the vesting of an award, such as in connection with the award holder's retirement as an
officer of us or an officer or employee of RMR LLC. These awards to RMR LLC employees are in addition to the share awards to our Managing Directors, as Director compensation, and the
fees we paid to RMR LLC. During the year ended December 31, 2019 we purchased 5,724 common shares, at the closing price of the common shares on Nasdaq on the date of purchase, from
certain of our officers and other employees of ours and RMR LLC in satisfaction of tax withholding and payment obligations in connection with the vesting of awards of our common shares.
Retirement and Separation Arrangements. In connection with their respective retirement, we entered into retirement agreements with our former officers, Bruce J.
Mackey Jr. and Richard A. Doyle. Additionally, we entered into a separation agreement with our former Senior Vice President, Senior Living Operations, R. Scott Herzig. Pursuant to these agreements, we
made cash payments of $0.6 million and $0.51 million to Mr. Mackey and Mr. Herzig, respectively, in January 2019 and made cash payments of $0.26 million to
Mr. Doyle in each of June 2019 and January 2020. In addition, we made release payments to Mr. Mackey, in cash, in an aggregate amount of $0.33 million during the year ended
December 31, 2019 and $0.11 million in January 2020, and made transition payments to Mr. Mackey and Mr. Doyle, in cash, in an aggregate amount of $96 thousand and
$56 thousand, respectively, during the year ended December 31, 2019.
RMR LLC
conducts a Leadership Development Program for which certain of its employees take part in a rotational program, working at each of the Company, RMR LLC and certain other
companies to which RMR LLC or its subsidiaries provide management services. The employee remains on RMR LLC's payroll during this rotational program and the Company reimburses
RMR LLC for the applicable employee costs for the period of time that the employee works for the Company. The amount recognized as expense for these costs for the year ended December 31,
2019, was approximately $0.14 million.
One
of our Managing Directors, Adam Portnoy, is a director and controlling shareholder of Sonesta. We have in the past held, and likely will in the future hold, business meetings at hotels operated by
Sonesta, which also manages certain hotels owned by Service Properties Trust, a company to which RMR provides management services, and our Directors, officers and employees have in the past stayed,
and are likely in the future to stay, overnight at hotels operated by Sonesta when traveling for Company business. We
pay Sonesta for the use of meeting space and related services and pay Sonesta or reimburses our Directors, officers and employees for the costs of these hotel stays.
Relationship with ABP Trust. Adam Portnoy, one of our Managing Directors, directly and indirectly through ABP Trust and its subsidiaries, beneficially owned, in
aggregate, approximately 6.3% of our outstanding Common Shares as of January 1, 2020 and prior to that, since November 2016, owned in excess of 30% of our outstanding Common Shares. Adam
Portnoy is the sole trustee and an officer and the controlling shareholder of ABP Trust, which is the controlling shareholder of RMR Inc. Our Secretary is also an officer of ABP Trust. We lease
our headquarters from a subsidiary of ABP Trust. Our rent expense for our headquarters, including utilities and real estate taxes that we pay as additional rent, was $1.9 million for the year
ended December 31, 2019.
We
are party to a Consent, Standstill, Registration Rights and Lock-Up Agreement, dated October 2, 2016, with Adam Portnoy, ABP Trust and certain other related persons, or the ABP Parties,
under which, among other things, the ABP Parties have each agreed not to transfer, except for certain permitted transfers as provided for therein, any of our Common Shares acquired after
October 2, 2016, but not including shares issued under our equity compensation plans, for a lock-up period that ends on the earlier of (i) the 10 year anniversary of such
agreement, (ii) January 1st of the fourth calendar year after our first
46 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
taxable
year to which no then existing net operating loss or certain other tax benefits may be carried forward by us, but no earlier than January 1, 2022, (iii) the date that we enter
into a definitive binding agreement for a transaction that, if consummated, would result in a change of control of us, (iv) the date that our Board of Directors otherwise approves and
recommends that our stockholders accept a
transaction that, if consummated, would result in a change of control of us and (v) the consummation of a change of control of us.
Under
the Consent, Standstill, Registration Rights and Lock-Up Agreement, the ABP Parties also each agreed, for a period of 10 years, not to engage in certain activities involving us without
the approval of our Board of Directors, including not to effect or seek to effect any tender or exchange offer, merger, business combination, recapitalization, restructuring, liquidation or other
extraordinary transaction involving us, other than the acquisition by the ABP Parties of our Common Shares prior to March 31, 2017, or solicit any proxies to vote any of our voting securities.
These provisions do not restrict activities taken by an individual in her or his capacity as a Director, officer or employee of us.
AIC. Until its dissolution on February 13, 2020, we, ABP Trust, DHC and four other companies to which RMR LLC provides management services each owned
14.3% of AIC, an Indiana insurance company.
We
and the other AIC shareholders historically participated in a combined property insurance program arranged and insured or reinsured in part by AIC. The policies under that program expired on
June 30, 2019, and we and the other AIC shareholders elected not to renew the AIC property insurance program; we have instead purchased standalone property insurance coverage from unrelated
third party insurance providers.
We
paid aggregate annual premiums, including taxes and fees, of $3.1 million in connection with this insurance program for the policy year ending June 30, 2019.
In
connection with its dissolution, AIC distributed approximately $9.0 million to each of the Company and each other AIC shareholder as an initial liquidation distribution in December 2019.
Directors' and Officers' Liability Insurance. We, RMR Inc., RMR LLC and certain other companies to which RMR LLC or its subsidiaries provide
management services, including DHC, participate in a combined directors' and officers' liability insurance policy. The current combined policy expires in September 2020. We paid aggregate premiums of
$0.19 million in 2019 for this policy.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement 47
Table of Contents
OTHER INFORMATION
At this time, we know of no other matters that will be brought before the meeting. If, however, other matters properly come before the meeting
or any postponement or adjournment thereof, the persons named in the accompanying proxy card intend to vote the shares for which they have been appointed or authorized as proxy in accordance with
their discretion on such matters to the maximum extent that they are permitted to do so by applicable law.
As
part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the 2020 Annual Meeting may be held virtually solely by means of remote communication or live
webcast. If we take this step, we will announce the decision to do so in advance, and will provide details on how to participate in a press release and on our website at www.fivestarseniorliving.com.
Jennifer B. Clark
Secretary
Newton,
Massachusetts
April 15, 2020
48 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
ANNEX A—AMENDED AND RESTATED PLAN
FIVE STAR SENIOR LIVING INC.
AMENDED AND RESTATED 2014 EQUITY COMPENSATION PLAN
Effective ,
2020
-
1.
-
PURPOSE
The
purpose of this Amended and Restated 2014 Equity Compensation Plan (the "Plan") is to encourage employees, officers, directors and other individuals (whether or not employees) who render services
to Five Star Senior Living Inc. (the "Company") and its Subsidiaries (as hereinafter defined), to continue their association with the Company and its Subsidiaries by providing opportunities for
them to participate in the ownership of the Company and in its future growth through the granting of options to acquire the Company's stock ("Options"), stock awards, including stock to be transferred
subject to restrictions ("Stock Awards") and other rights, including Stock Appreciation Rights (as defined in Section 6), to receive compensation in amounts determined by the value of the
Company's stock ("Other Rights"). The term "Subsidiary" as used in the Plan means a corporation or other business entity of which the Company owns, directly or indirectly through an unbroken chain of
ownership, fifty percent or more of the total combined voting power of all classes of stock, in the case of a corporation, or fifty percent or more of the total combined interests by value, in the
case of any other type of business entity.
-
2.
-
ADMINISTRATION
OF THE PLAN
The
Plan shall be administered by the Compensation Committee of the Company's Board of Directors (the "Board") or by the Board itself. The Compensation Committee shall from time to time determine to
whom awards shall be granted under the Plan, whether Options granted shall be incentive stock options ("ISOs") or nonqualified stock options ("NSOs"), the terms of the Options (including vesting
provisions) and the number of shares of Common Stock (as hereinafter defined) that may be granted under Options, and the number of shares subject to (and other terms of) Stock Awards or Other Rights.
The Compensation Committee shall report to the Board the names of individuals to whom Options, Stock Awards or Other Rights are to be granted, the number of shares covered and the terms and conditions
of each grant. The determinations and actions described in this Section 2 and elsewhere in the Plan may be made by the Compensation Committee or by the Board, as the Board shall direct in its
discretion, and references in the Plan to the Compensation Committee shall be understood to refer to the Board in any such case. The Compensation Committee shall have the authority to adopt, amend and
rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan. All questions of interpretation and application of such rules and regulations of the Plan and
of awards granted hereunder shall be subject to the determination of the Compensation Committee in its discretion, which determination shall be final and binding. The Plan is intended to be
administered in such a manner as to permit those Options granted hereunder and specially designated under Section 5 hereof as an ISO to qualify as incentive stock options as described in
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be construed in a manner consistent with that interpretation. For so long as Section 16 of the
Securities Exchange Act of 1934, as amended from time to time (the "Exchange Act"), is applicable to the Company, each member of the Committee shall be a "non-employee director" or the equivalent
within the meaning of Rule 16b-3 under the Exchange Act, and shall meet such other requirements as the Board may determine to be necessary or appropriate.
With
respect to persons subject to Section 16 of the Exchange Act ("Insiders"), transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its
successor under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed to be modified so as to be in compliance with such Rule, or,
if such modification is not possible, it shall be deemed to be null and void, to the extent permitted by law and deemed advisable by the Committee.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement A-1
Table of Contents
-
3.
-
STOCK
SUBJECT TO THE PLAN
The
total number of shares of capital stock of the Company that may be subject to Options, Stock Awards and Other Rights under the Plan shall be 2,907,259 shares of the Company's common stock, par
value $0.01 per share (the "Common Stock"), inclusive of shares of Common Stock subject to awards outstanding on the Restatement Effective Date (as defined below). All of shares of capital stock of
the Company available under the Plan may be granted as ISOs. Shares issued under the Plan may be from authorized but unissued shares of Common Stock. The maximum number of shares of Common Stock
subject to ISOs that may be granted to any Optionee in the aggregate in any calendar year shall not exceed 100,000 shares. The limits set forth in this Section 3 shall be subject to adjustment
in accordance with the provisions of Section 10. Awards (including those issued under the Plan prior to the Restatement Effective Date) that fail to vest or, if applicable, are not fully
exercised prior to the award's expiration or termination shall again become available for grant under the terms of the Plan.
-
4.
-
ELIGIBILITY
The
individuals who shall be eligible to receive Option grants, Stock Awards and Other Rights under the Plan shall be employees, officers, directors and other individuals who render services to the
management, operation or development of the Company or a Subsidiary and who have contributed or may be expected to contribute to the success of the Company or a Subsidiary. ISOs shall not be granted
to any individual who is not (i) an employee of the Company or (ii) an employee of a Subsidiary who is treated as an employee of the Company for purposes of Section 422 of the
Code. The term "Optionee," as used in the Plan, refers to any individual to whom an Option has been granted.
-
5.
-
TERMS
AND CONDITIONS OF OPTIONS
Every
Option shall be evidenced by a written Stock Option Agreement in such form as the Compensation Committee shall approve from time to time, specifying the number of shares of Common Stock that may
be purchased pursuant to the Option, the time or times at which the Option shall become exercisable in whole or in part, whether the Option is intended to be an ISO or an NSO and such other terms and
conditions as the Compensation Committee shall approve, and containing or incorporating by reference the following terms and conditions.
-
(a)
-
Duration. Each Option shall expire not later than ten years from its date of grant;
provided, however, that no ISO granted to an employee who owns (directly or under the attribution rules of Section 424(d) of the Code) stock possessing more than ten percent of the total
combined voting power of all classes of stock of the Company or any Subsidiary shall expire later than five years from its date of grant.
-
(b)
-
Exercise Price. The exercise price per share for each Option shall be at least
100 percent of the Fair Market Value (as hereinafter defined) of the shares on the date on which the Compensation Committee awards the Option, which shall be considered the date of grant of the
Option for purposes of fixing the price; and provided, further, that the price with respect to an ISO granted to an employee who at the time of grant owns (directly or under the attribution rules of
Section 424(d) of the Code) stock representing more than ten percent of the voting power of all classes of stock of the Company or of any Subsidiary shall be at least 110 percent of the
Fair Market Value of the shares on the date of grant of the ISO. For purposes of the Plan, the "Fair Market Value" of a share of Common Stock at any particular date shall be determined according to
the following rules: (i) if the Common Stock is not at the time listed or admitted to trading on a stock exchange or the NASDAQ, the Fair Market Value shall be the closing price of the Common
Stock on the date in question in the over-the-counter market, as such price is reported in a publication of general circulation selected by the Board and regularly reporting the price of the Common
Stock in such market, including any market that is outside of the United States; provided, however, that if the price of the Common Stock is not so reported, the Fair Market Value shall be determined
in good faith by the Board, which may take into consideration (1) the price paid for the Common Stock in the most recent trade of a substantial number of shares
A-2 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
known
to the Board to have occurred at arm's length between willing and knowledgeable investors, (2) an appraisal by an independent party or (3) any other method of valuation undertaken
in good faith by the Board, or some or all of the above as the Board shall in its discretion elect; or (ii) if the Common Stock is at the time listed or admitted to trading on any stock
exchange, including any market that is outside of the United States, or the NASDAQ, then the Fair Market Value shall be the closing sale price of the Common Stock on the date in question on the
principal exchange or the NASDAQ, as the case may be, on which the Common Stock is then listed or admitted to trading. If no reported sale of Common Stock takes place on the date in question on the
principal exchange or the NASDAQ, as the case may be, then the most recent previous reported closing sale price of the Common Stock (or, in the Board's discretion, the reported closing asked price) of
the Common Stock on such date on the principal exchange or the NASDAQ, as the case may be, shall be determinative of Fair Market Value. Without limitation of the authority of the Compensation
Committee under Section 10 hereof, unless approved by the Company's stockholders, no Option shall be settled, canceled, forfeited, exchanged or surrendered in exchange or otherwise in
consideration for either (A) a new Option or SAR (as defined below) with an exercise price that is less than that of such settled, canceled, forfeited, exchanged or surrendered Option
(B) a Stock Award or Other Right with an intrinsic value at issuance in an amount greater than the excess of the Fair Market Value of the Common Stock over the exercise price per share
applicable to the Option or (C) in exchange for a payment in cash in an amount greater than the excess of the Fair Market Value of the Common Stock over the exercise price per share applicable
to the Option.
-
(c)
-
Method of Exercise. To the extent that it has become exercisable under the terms of the
Stock Option Agreement, an Option may be exercised from time to time by notice acceptable to the Chief Executive Officer of the Company, or his delegate, stating the number of shares with respect to
which the Option is being exercised and accompanied by payment of the exercise price (and any applicable withholding tax) in cash or check payable to the Company or, if the Stock Option Agreement so
provides, other payment or deemed payment described in this Section 5(c). Such notice shall be delivered in person to the Chief Executive Officer of the Company, or his delegate, or shall be
sent by registered mail, return receipt requested, to the Chief Executive Officer of the Company, or his delegate, in which case delivery shall be deemed made on the date such notice is deposited in
the mail.
Alternatively,
payment of the exercise price may be made:
-
(i)
-
In
whole or in part in shares of Common Stock already owned by the Optionee or to be received upon exercise of the Option; provided, however, that such shares are
fully vested and free of all liens, claims and encumbrances of any kind; and provided, further, that the Optionee may not make payment in shares of Common Stock that he acquired upon the earlier
exercise of any ISO (or other "incentive stock option"), unless he has held the shares for at least two years after the date the ISO was granted and at least one year after the date the ISO was
exercised. If payment is made in whole or in part in shares of Common Stock, then, in the case of certificated shares, the Optionee shall deliver to the Company stock certificates registered in his
name representing a number of shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and encumbrances of every kind and having a Fair Market Value on
the date of delivery that is not greater than the exercise price, such stock certificates to be duly endorsed, or accompanied by stock powers duly endorsed, by the record holder of the shares
represented by such stock certificates. The Compensation Committee may approve comparable procedures to those set forth in the preceding sentence in the event of shares held in book-entry form. If the
exercise price exceeds the Fair Market Value of the shares for which stock certificates are delivered, the Optionee shall also deliver cash or a check payable to the order of the Company in an amount
equal to the amount of that excess or, if the Stock Option Agreement so provides, his promissory note as described in paragraph (2) of this Section 5(c); or
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement A-3
Table of Contents
-
(ii)
-
To
the extent permitted under applicable law, by payment in cash of the par value of the Common Stock to be acquired and by payment of the balance of the exercise
price in whole or in part by delivery of the Optionee's recourse promissory note, in a form specified by the Company, secured by the Common Stock acquired upon exercise of the Option and such other
security as the Compensation Committee may require.
In
the case of an exercise pursuant to clause (1) or (2) above, the Company may require the Optionee to pay to the Company in cash or by check, the amount of any withholding tax due in
connection with the exercise. At the time specified in an Optionee's notice of exercise, the Company shall, without issue or transfer tax to the Optionee, in the discretion of the Company, either
(A) register the Optionee's ownership of such shares in book-entry form or (B) deliver to him at the main office of the Company, or such other place as shall be mutually acceptable, a
stock certificate for the shares as to which his Option is exercised. If the Optionee fails to pay for or to accept delivery of all or any part of the number of shares specified in his notice upon
tender of delivery thereof, his right to exercise the Option with respect to those shares shall be terminated, unless the Company otherwise agrees.
-
(d)
-
Exercisability. An Option may be exercised so long as it is outstanding from time to
time in whole or in part, to the extent and subject to the terms and conditions that the Compensation Committee in its discretion may provide in the Stock Option Agreement. Such terms and conditions
shall include provisions for exercise within twelve (12) months after his or her death or disability (within the meaning of Section 22(e)(3)) of the Code, provided that no Option shall
be exercisable after the expiration of the maximum term of the Option. Except as the Compensation Committee in its discretion may otherwise provide in the Stock Option Agreement, an Option shall cease
to be exercisable upon the expiration of ninety (90) days following the termination of the Optionee's employment with, or his other provision of services to, the Company or a subsidiary,
subject to the expiration of the maximum term of the Option and Section 10 hereof.
-
(e)
-
Notice of ISO Stock Disposition. The Optionee must notify the Company promptly in the
event that he sells, transfers, exchanges or otherwise disposes of any shares of Common Stock issued upon exercise of an ISO before the later of (i) the second anniversary of the date of grant
of the ISO and (ii) the first anniversary of the date the shares were issued upon his exercise of the ISO.
-
(f)
-
No Rights as Stockholder. An Optionee shall have no rights as a stockholder with respect
to any shares covered by an Option until the date of either registration of the Optionee's ownership of such shares in book-entry form or the issuance of a stock certificate to him for the shares. No
adjustment shall be made for dividends or other rights for which the record date is earlier than the date the stock certificate is issued (or ownership is registered by book-entry), other than as
required or permitted pursuant to Section 10.
-
(g)
-
Transferability of Options. Options shall not be transferable by the Optionee otherwise
than by will or under the laws of descent and distribution, and shall be exercisable during his or her lifetime only by the Optionee, except that the Compensation Committee may specify in a Stock
Option Agreement that pertains to an NSO that the Optionee may transfer such NSO to a member of the Immediate Family of the Optionee, to a trust solely for the benefit of the Optionee and the
Optionee's Immediate Family, or to a partnership or limited liability company whose only partners or members are the Optionee and members of the Optionee's Immediate Family. "Immediate Family" shall
mean, with respect to any Optionee, such Optionee's child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, and shall include adoptive relationships.
A-4 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
-
6.
-
STOCK
APPRECIATION RIGHTS
The
Committee may grant Stock Appreciation Rights ("SARs") in respect of such number of Common Stock subject to the Plan as it shall determine, in its discretion, and may grant SARs either separately
or in connection with Options, as described in the following sentence. An SAR granted in connection with an Option may be exercised only to the extent of the surrender of the related Option, and to
the extent of the exercise of the related Option the SAR shall terminate. Common Stock covered by an Option that terminates upon the exercise of a related SAR shall cease to be available under the
Plan. The terms and conditions of an SAR related to an Option shall be contained in the Stock Option Agreement, and the terms of an SAR not related to any Option shall be contained in an SAR
Agreement. The base value per share for share subject to an SAR shall be at least 100 percent of the Fair Market Value of the shares on the date on which the Compensation Committee awards the
SAR. Without limitation of the authority of the
Compensation Committee under Section 10 hereof, unless approved by the Company's stockholders, no SAR shall be settled, canceled, forfeited, exchanged or surrendered in exchange or otherwise in
consideration for (A) a new SAR or Option with a base value per share or exercise price that is less than that of such settled, canceled, forfeited, exchanged or surrendered SAR, (B) a
Stock Award or Other Right with an intrinsic value at issuance in an amount greater than the excess of the Fair Market Value of the Common Stock over the exercise price per share applicable to the
Option or (C) in exchange for a payment in cash in an amount greater than the excess of the Fair Market Value of the Common Stock over the base value per share applicable to the SAR. Upon
exercise of an SAR, the Optionee shall be entitled to receive from the Company an amount equal to the excess of the Fair Market Value, on the exercise date, of the number of shares of Common Stock as
to which the SAR is exercised, over the exercise price for those shares under a related Option or, if there is no related Option, over the base value stated in the SAR Agreement. Any amount payable by
the Company upon exercise of an SAR shall be paid in the form of cash or other property (including Common Stock), as provided in the Stock Option Agreement or SAR Agreement governing the SAR.
-
7.
-
STOCK
AWARDS
The
Compensation Committee may grant or award Stock Awards in respect of such number of shares of Common Stock, and subject to such terms or conditions (if any), as it shall determine and specify in a
Stock Award Agreement, and may award shares of Common Stock which are not subject to vesting or forfeiture conditions. The Compensation Committee may provide in a Stock Option Agreement for an Option
to be exercisable for Common Stock subject to forfeiture conditions and restrictions on transfer ("Restricted Stock").
A
holder of Restricted Stock shall have all of the rights of a stockholder of the Company, including the right to vote the shares and the right to receive any cash dividends, unless the Compensation
Committee shall otherwise determine. Unless a grantee's Restricted Stock Agreement provides to the contrary, unvested shares of Restricted Stock granted under the Plan shall not be transferred without
the written consent of the Compensation Committee. In addition, at the time of termination for any reason of a grantee's employment or other service relationship with the Company or a Subsidiary, the
Company shall have the right, in the case of unvested Restricted Stock, (1) to cause the forfeiture of such shares of Restricted Stock for no consideration (2) to purchase all or any of
such shares of Restricted Stock at a price equal to the lower of (a) the price paid to the Company for such shares of Restricted Stock or (b) the Fair Market Value of such shares of
Restricted Stock at the time of repurchase, (3) to waive vesting requirements, (4) to permit continued vesting based on such criteria as the Compensation Committee shall determine or
(5) to provide for such other treatment as the Compensation Committee shall determine and set forth in the applicable agreement.. Nothing in the Plan shall be construed to give any person the
right to require the Company to purchase any Common Stock granted as Restricted Stock.
Certificates
representing Restricted Stock shall be imprinted with a legend to the effect that the shares represented may not be sold, exchanged, transferred, pledged, hypothecated or otherwise
disposed of except in accordance with the terms of the Restricted Stock Agreement. If shares of Restricted Stock are held in book entry form, statements evidencing those shares shall include a similar
legend. If the Compensation Committee so determines, the holder of Restricted Stock may be required to deposit certificates representing the Restricted Stock with the President, Treasurer, Secretary
or other officer of the Company or with an escrow agent designated by the Compensation Committee, together with a stock power or other instrument of transfer appropriately endorsed in blank.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement A-5
Table of Contents
-
8.
-
METHOD
OF GRANTING OPTIONS, STOCK AWARDS AND OTHER RIGHTS
The
grant of Options, Stock Awards and Other Rights shall be made by action of the Compensation Committee; provided, however, that if an individual to whom a grant has been made fails to execute and
deliver to the Compensation Committee a Stock Option Agreement, Stock Award Agreement or agreement with respect to an Other Award within thirty days after it is submitted to him, the Option, Stock
Award or Other Award granted under the agreement shall be voidable by the Company at its election, without further notice to the grantee.
-
9.
-
REQUIREMENTS
OF LAW
The
Company shall not be required to transfer Common Stock or to sell or issue any shares upon the exercise of any Option or SAR or Other Award if the issuance of such shares will result in a
violation by the recipient or the Company of any provisions of any law, statute or regulation of any governmental authority. Specifically, in connection with the Securities Act of 1933, as amended
from time to time (the
"Securities Act"), the Company shall not be required to issue shares unless the Compensation Committee has received evidence satisfactory to it to the effect that the holder of the Restricted Stock or
the Option or SAR or Other Award will not transfer such shares except pursuant to a registration statement in effect under the Securities Act or unless an opinion of counsel satisfactory to the
Company has been received by the Company to the effect that registration is not required. Any determination in this connection by the Compensation Committee shall be conclusive. The Company shall not
be obligated to take any other affirmative action in order to cause the transfer of Common Stock to comply with any law or regulations of any governmental authority, including, without limitation, the
Securities Act or applicable state securities laws.
-
10.
-
CHANGES
IN CAPITAL STRUCTURE
In
the event that the outstanding shares of Common Stock are hereafter changed for a different number or kind of shares or other securities of the Company, by reason of a reorganization,
recapitalization, exchange of shares, stock split, combination of shares or dividend payable in shares or other securities or in the event of a similar corporate event, a corresponding adjustment
shall be made by the Compensation Committee in the number and kind of shares or other securities covered by outstanding Options, Stock Awards and Other Rights and for which Options, Stock Awards and
Other Rights may be granted under the Plan. Any such adjustment in outstanding Options shall be made without change in the total price applicable to the unexercised portion of the Option, but the
price per share specified in each Stock Option Agreement shall be correspondingly adjusted; provided, however, that no adjustment shall be made with respect to an ISO that would constitute a
modification as defined in Section 424 of the Code without the consent of the holder. Any such adjustment made by the Compensation Committee shall be conclusive and binding upon all affected
persons, including the Company and all award recipients.
If
while unexercised Options remain outstanding under the Plan the Company merges or consolidates with a wholly-owned subsidiary for the purpose of reincorporating itself under the laws of another
jurisdiction, the Optionees will be entitled to acquire shares of common stock of the reincorporated Company upon the same terms and conditions as were in effect immediately prior to such
reincorporation (unless such reincorporation involves a change in the number of shares or the capitalization of the Company, in which case proportional adjustments shall be made as provided above) and
the Plan, unless otherwise rescinded by the Board, will remain the Plan of the reincorporated Company.
Except
as otherwise provided in the preceding paragraph, if the Company or a subsidiary is merged or consolidated with another corporation, whether or not the Company is the surviving entity, or if
the Company is liquidated or sells or otherwise disposes of all or substantially all of its assets to another entity while unexercised awards remain outstanding under the Plan, or if other
circumstances occur in which the Compensation Committee in its sole and absolute discretion deems it appropriate for the provisions of this paragraph to apply (in each case, an "Applicable Event"),
then: (a) in the discretion of the Compensation Committee, each holder of an outstanding award under the plan shall be entitled, upon exercise or vesting of the award (as applicable), to
receive in lieu of shares of Common Stock, such stock
A-6 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
or
other securities or property as he or she would have received had he exercised or vesting in the award immediately prior to the Applicable Event; or (b) the Compensation Committee may, in
its sole and absolute discretion, cancel all outstanding and unexercised awards as of the effective date of any such Applicable Event; or (c) the Compensation Committee may, in its sole
discretion, convert some or all awards under the Plan into awards to purchase (or with respect to) the stock or other securities of the surviving corporation pursuant to an Applicable Event; or
(d) the Compensation Committee may, in its sole and absolute discretion, cause the outstanding and unexercised awards to be cancelled in exchange for a payment in cash equal to the value (if
any) of the shares subject to such award (less any applicable exercise or base price), pursuant to an Applicable Event; provided, however, that notice of any cancellation pursuant to clause (b)
above shall be given to each holder of an Option or SAR not less than thirty days preceding the effective date of such Applicable Event. The Compensation Committee may, in its sole discretion, provide
for a combination of the foregoing treatments and/or for different treatment hereunder of different awards and there is no requirement for all awards of the same type to receive the same treatment
hereunder. Notwithstanding the foregoing, immediately upon the occurrence of a "Change in Control" or "Termination Event" (as each is defined on Exhibit A hereto) all awards issued and
outstanding under the Plan shall become fully vested and exercisable (as the case may be), whether or not the holder of the award experiences a termination of employment or service in connection with
the Change in Control.
Except
as expressly provided to the contrary in this Section 10 or as otherwise determined by the Compensation Committee, the issuance by the Company of shares of stock of any class for cash or
property or for services, either upon direct sale, upon the exercise of rights or warrants, upon conversion of shares or obligations of the Company convertible into such shares or other securities or
otherwise, shall not affect the number, class or price of shares of Common Stock then subject to outstanding Options, Stock Awards or Other Rights.
-
11.
-
FORFEITURE
FOR DISHONESTY, VIOLATION OF AGREEMENTS OR TERMINATION FOR CAUSE
Notwithstanding
any provision of the Plan to the contrary, if the Compensation Committee determines, after full consideration of the facts, that:
-
(a)
-
the
Optionee (or holder of a Stock Award or Other Right) has been engaged in fraud, embezzlement or theft in the course of his or her employment by or involvement
with the Company or a Subsidiary, has made unauthorized disclosure of trade secrets or other proprietary information of the Company or a Subsidiary or of a third party who has entrusted such
information to the Company or a Subsidiary, or has been convicted of a felony, or crime involving moral turpitude or any other crime which reflects negatively upon the Company; or
-
(b)
-
the
Optionee (or holder of a Stock Award or Other Right) has violated the terms of any employment, noncompetition, nonsolicitation, confidentiality, nondisclosure or
other similar agreement with the Company to which he is a party; or
-
(c)
-
the
employment or involvement with the Company or a Subsidiary of the Optionee (or holder of a Stock Award or Other Right) was terminated for "cause," as defined in
any employment agreement with the Optionee (or holder of a Stock Award or Other Right), if applicable, or if there is no such agreement, as determined by the Compensation Committee, which may
determine that "cause" includes among other matters the willful failure or refusal of the Optionee (or holder of a Stock Award or Other Right) to perform and carry out his or her assigned duties and
responsibilities diligently and in a manner satisfactory to the Compensation Committee;
then
the recipient's right to exercise an Option or SAR shall terminate as of the date of such act (in the case of (a) or (b)) or such termination (in the case of (c)), the recipient shall
forfeit all unexercised Options and SARS (or the holder shall forfeit all Other Rights) and the Company shall have the right to repurchase all or any part of the shares of Common Stock acquired by the
recipient upon any previous exercise of any Option or SAR (or any previous acquisition by the holder of a Stock Award, whether then
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement A-7
Table of Contents
vested
or unvested), at a price equal to the lower of (a) the amount paid to the Company upon such exercise or acquisition, or (b) the Fair Market Value of such shares at the time of
repurchase. If an Optionee or holder of a SAR whose behavior the Company asserts falls within the provisions of the clauses above has exercised or attempts to exercise an Option or SAR prior to
consideration of the application of this Section 11 or prior to a decision of the Compensation Committee, the Company shall not be required to recognize such exercise until the Compensation
Committee has made its decision and, in the event any exercise shall have taken place, it shall be of no force and effect (and shall be void ab initio) if the Compensation Committee makes an adverse
determination; provided, however, that if the Compensation Committee finds in favor of the recipient then the recipient will be deemed to have exercised the Option or SAR as of the date he or she
originally gave notice of his or her attempt to exercise or actual exercise, as the case may be. The decision of the Compensation Committee as to the cause of an Optionee's (or holder of a Stock Award
or Other Right) discharge and the damage done to the Company shall be final, binding and conclusive. No decision of the Compensation Committee, however, shall affect in any manner the finality of the
discharge of such Optionee (or holder of a Stock Award or Other Right) by the Company. For purposes of this Section 11, reference to the Company shall include any Subsidiary. Notwithstanding
anything herein to the contrary, the Compensation Committee may provide, either in an award agreement or separately, that the provisions of this Section 11 shall not apply following a change in
control of the Company (as defined by the Compensation Committee).
-
12.
-
MISCELLANEOUS
-
(a)
-
No Guarantee of Employment or Other Service Relationship. Neither the Plan nor any Stock
Option Agreement, Stock Award Agreement or agreement with respect to an Other Award shall give an employee the right to continue in the employment of the Company or a Subsidiary or give the Company or
a Subsidiary the right to require an employee to continue in employment.
Neither
the Plan nor any Stock Option Agreement, Stock Award Agreement or agreement with respect to an Other Award shall give a director or other service provider the right to continue to perform
services for the Company or a Subsidiary or give the Company or a Subsidiary the right to require the director or service provider to continue to perform services.
-
(b)
-
Tax Withholding. To the extent required by law, the Company shall withhold or cause to
be withheld income and other taxes with respect to any income recognized by a recipient by reason of the exercise or vesting of an Option or Stock Award, or payments with respect to Other Rights, and
as a condition to the receipt of any Option, Stock Award or Other Right the Optionee shall agree that if the amount payable to him by the Company and any Subsidiary in the ordinary course is
insufficient to pay such taxes, then he shall upon the request of the Company pay to the Company an amount sufficient to satisfy its tax withholding obligations.
Without
limiting the foregoing, the Compensation Committee may in its discretion permit any Optionee's (or holder of a Stock Award or Other Right) withholding obligation to be paid in whole or in part
in the form of shares of Common Stock by withholding from the shares to be issued or by accepting delivery from the Optionee (or holder of a Stock Award or Other Right) of shares already owned by him.
The Fair Market Value of the shares for such purposes shall be determined as set forth in Section 5(b). An Optionee (or holder of a Stock Award or Other Right) may not make any such payment in
the form of shares of Common Stock acquired upon the exercise of an ISO until the shares have been held by him for at least two years after the date the ISO was granted and at least one year after the
date the ISO was exercised. If payment of withholding taxes is made in whole or in part in shares of Common Stock, the Optionee (or holder of a Stock Award or Other Right) shall deliver to the Company
stock certificates registered in his name representing shares of Common Stock legally and beneficially owned by him, fully vested and free of all liens, claims and encumbrances of every kind, duly
endorsed or accompanied by stock powers duly endorsed by the record holder of the shares represented by such stock certificates. The Compensation Committee may approve comparable procedures to those
set forth in the preceding sentence in the event of shares held in book-entry form. If the
A-8 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
Optionee
(or holder of a Stock Award or Other Right) is subject to Section 16(a) of the Exchange Act, his ability to pay his withholding obligation in the form of shares of Common Stock shall
be subject to such additional restrictions as may be necessary to avoid any transaction that might give rise to liability under Section 16(b) of the Exchange Act.
-
(c)
-
Use of Proceeds. The proceeds from the issuance of shares pursuant to the exercise of
Options shall constitute general funds of the Company.
-
(d)
-
Certain Vesting Rules. Notwithstanding anything in the Plan to the contrary, the
Compensation Committee shall have the authority to (1) grant awards hereunder to members of the Board that are, to the extent determined by the Compensation Committee, vested upon grant and
(2) accelerate awards upon a termination of a participant's employment or service (which the Compensation Committee may do in its discretion); any such acceleration provisions may be (but are
not required to be) set forth in an award agreement (which may, without limitation, provide for accelerated vesting upon the death of a participant or upon a change in control or similar event).
-
(e)
-
Construction. All masculine pronouns used in this Plan shall include both sexes; the
singular shall include the plural and the plural the singular unless the context otherwise requires. The titles of the sections of the Plan are included for convenience only and shall not be construed
as modifying or affecting their provisions. Any reference herein to a statutory or regulatory provision includes the provision as amended, supplemented, or replaced.
-
(f)
-
Governing Law. This Plan shall be governed by and construed in accordance with the laws
of the State of Maryland, without regard to the principles of conflict of laws.
-
13.
-
EFFECTIVE
DATE, DURATION, AMENDMENT AND TERMINATION OF PLAN
The
Plan was originally effective as of the date of the Company's 2014 Annual Meeting of Stockholders, and this amendment and restatement shall be effective as of the date of the Company's 2020 Annual
Meeting of Stockholders (the "Restatement Effective Date") subject to approval by the holders of a majority of the outstanding shares of capital stock present, or represented, and entitled to vote
thereon (voting as a single class) at a duly held meeting of the stockholders of the Company. Awards of Options, Other Rights or Stock Awards that are conditioned upon the approval of the Plan by the
stockholders may be granted prior to approval. The Compensation Committee may grant Options, Stock Awards or Other Rights under the Plan from time to time until the close of business on
, 2030.(1) The Board may at any time amend the Plan; provided, however, that
without approval of the Company's stockholders there shall be no: (a) change in the
number of shares of Common Stock that may be issued under the Plan, except by operation of the provisions of Section 10, either to any one participant or in the aggregate; (b) change in
the class of persons eligible to receive Options, Stock Award or Other Rights; or (c) other change in the
Plan that requires stockholder approval under applicable law or regulation. No amendment shall adversely affect outstanding Options (or Stock Awards or Other Rights) without the consent of the
Optionee (or holder of the Stock Award or Other Right). The Plan may be terminated at any time by action of the Board, but any such termination will not terminate any Option, Stock Award or Other
Right then outstanding without the consent of the Optionee or the holder of such Stock Award or Other Right.
-
(1)
-
This date will be the date of the tenth anniversary of the 2020 Annual
Meeting.
FIVE STAR SENIOR LIVING INC.
2020 Proxy
Statement A-9
Table of Contents
EXHIBIT A
A "Change in Control" shall be deemed to have occurred if any of the events set forth in any one of the following paragraphs shall have
occurred:
-
(a)
-
any
Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 50% or more of either the then outstanding shares of
common stock of the Company or the combined voting power of the Company's then outstanding securities, excluding any Person who becomes such a Beneficial Owner in connection with a transaction
described in paragraph (c)(i) below;
-
(b)
-
the
following individuals cease for any reason to constitute a majority of the number of Directors then serving: individuals who, on the date of the Agreement,
constitute the Board and any new Director (other than a Director whose initial assumption of office is in connection with an actual or threatened election contest, including but not limited to a
consent solicitation, relating to the election of Directors) whose appointment or election by the Board or nomination for election by the Company's stockholders was approved or recommended by a vote
of at least two-thirds (2/3) of the Directors then in office who either were Directors on the date of the Agreement or whose appointment, election or nomination for election was
previously so approved or recommended;
-
(c)
-
there
is consummated a merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other entity, other than (i) a
merger or consolidation which would result in the voting securities of the Company outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity or any parent thereof) at least 50% of the combined voting power of the securities of the Company or such surviving
entity or any parent thereof outstanding immediately after such merger or consolidation, or (ii) a merger or consolidation effected to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company (not including in the securities Beneficially Owned by such Person any
securities acquired directly from the Company or its Affiliates) representing 50% or more of the combined voting power of the Company's then outstanding securities; or
-
(d)
-
the
stockholders of the Company approve a plan of complete liquidation or dissolution of the Company or there is consummated an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets, other than a sale or disposition by the Company of all or substantially all of the Company's assets to an entity, at least 50% of
the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such
sale.
A
"Termination Event" shall occur if The RMR Group LLC (or any entity controlled by, under common control with or controlling The RMR Group LLC) ceases to be the manager or shared
services provider to the Company.
For
purposes of the definitions set forth on this Exhibit A, the following definitions shall apply, with capitalized terms used but not defined in this Exhibit A having the meaning set
forth in the Plan:
"Affiliate"
shall have the meaning set forth in Rule 12b-2 promulgated under Section 12 of the Exchange Act.
"Beneficial
Owner" shall have the meaning set forth in Rule 13d-3 under the Exchange Act.
"Director"
is a member of the Board of Directors of the Company.
"Exchange
Act" shall mean the Securities Exchange Act of 1934, as amended.
"Person"
shall have the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof, except that such term shall not include
(i) the Company or any of its subsidiaries, (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or any of its Affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such securities and (iv) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially
the same proportions as their ownership of shares of the Company.
A-10 FIVE STAR SENIOR LIVING
INC.
2020 Proxy Statement
Table of Contents
THANK
YOU
Thank you for being a stockholder of Five Star Senior Living Inc.
AUTHORIZE YOUR PROXY BY INTERNET - www.proxyvote.com Use the internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m., Eastern time, on June 8, 2020. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to submit your voting instructions. AUTHORIZE YOUR PROXY BY TELEPHONE - 1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m., Eastern time, on June 8, 2020. Have your proxy card in hand when you call and then follow the instructions. FIVE STAR SENIOR LIVING INC. C/O BROADRIDGE FINANCIAL SOLUTIONS, INC. P.O. BOX 1342 BRENTWOOD, NY 11717 If the meeting is postponed or adjourned, the above times will be extended to 11:59 p.m., Eastern time, on the day before the reconvened meeting. AUTHORIZE YOUR PROXY BY MAIL Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Five Star Senior Living Inc., c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. ELECTRONIC DELIVERY OF FUTURE STOCKHOLDER COMMUNICATIONS If you would like to reduce the costs incurred by Five Star Senior Living Inc. in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically by email or over the internet. To sign up for electronic delivery, please follow the instructions above to vote using the internet and, when prompted, indicate that you agree to receive or access stockholder communications electronically in future years. TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: D04990-P36522 KEEP THIS PORTION FOR YOUR RECORDS DETACH AND RETURN THIS PORTION ONLY THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. FIVE STAR SENIOR LIVING INC. For Withhold 1. Election of Directors. Nominee (for Independent Director in Group I): Barbara D. Gilmore ! ! For ! ! Against Abstain Nominee (for Managing Director in Group I): Adam D. Portnoy 2. Approval of the Company's Amended and Restated 2014 Equity Compensation Plan. ! ! ! ! ! ! ! ! ! 3. Advisory vote to approve executive compensation. 4. Ratification of the appointment of RSM US LLP as independent auditors to serve for the 2020 fiscal year. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION IS GIVEN, WILL BE VOTED FOR BOTH NOMINEES FOR DIRECTOR IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE PROXIES, IN THEIR DISCRETION, ARE AUTHORIZED TO VOTE AND OTHERWISE REPRESENT THE UNDERSIGNED ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING OR AT ANY POSTPONEMENT OR ADJOURNMENT THEREOF. ! For address changes, please check this box and write them on the back where indicated. (NOTE: Please sign exactly as your name(s) appear(s) hereon. All holders must sign. When signing as attorney, executor, administrator or other fiduciary, please give full title as such. Joint owners should each sign personally. If a corporation, please sign in full corporate name by authorized officer, indicating title. If a partnership, please sign in partnership name by authorized person, indicating title.) Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date The Board of Directors Recommends a Vote FOR both Nominees for Director in Proposal 1 and FOR Proposals 2, 3 and 4.
FIVE STAR SENIOR LIVING INC. ANNUAL MEETING OF STOCKHOLDERS June 9, 2020, 9:30 a.m., Eastern Time Five Star Senior Living Inc. Two Newton Place, 255 Washington Street, Suite 100 Newton, Massachusetts 02458* Upon arrival, please present photo identification at the registration desk. Please see the Proxy Statement for additional attendance instructions. The 2020 Annual Meeting of Stockholders of Five Star Senior Living Inc. will address the following items of business: 1. Election of the Directors named in the Proxy Statement to the Company's Board of Directors; Approval of the Company's Amended and Restated 2014 Equity Compensation Plan; Advisory vote to approve executive compensation; Ratification of the appointment of RSM US LLP as independent auditors to serve for the 2020 fiscal year; and Transaction of such other business as may properly come before the meeting and at any postponements or adjournments of the meeting. 2. 3. 4. 5. * As part of our precautions regarding the coronavirus or COVID-19, we are planning for the possibility that the annual meeting may be held virtually solely by means of remote communication or via a live webcast. If we take this step, we will announce the decision to do so in advance, and we will provide details on how to participate in a press release and on our website at www.fivestarseniorliving.com. Please retain a copy of the control number from this Proxy Card, in the event that the meeting is held by remote communication or live webcast. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR BOTH NOMINEES FOR DIRECTOR IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4. D04991-P36522 FIVE STAR SENIOR LIVING INC. 400 Centre Street Newton, MA 02458 Proxy Important Notice Regarding the Availability of Proxy Materials: The proxy materials for the 2020 Annual Meeting of Stockholders of Five Star Senior Living Inc. (the "Company"), including the Company's annual report and proxy statement, are available on the internet. To view the proxy materials or vote online or by telephone, please follow the instructions on the reverse side hereof. This proxy is solicited on behalf of the Board of Directors of Five Star Senior Living Inc. The undersigned stockholder of the Company hereby appoints Jennifer B. Clark, Adam D. Portnoy and Katherine E. Potter, or any of them, as proxies for the undersigned, with full power of substitution in each of them, to attend the 2020 Annual Meeting of Stockholders of the Company to be held at Five Star Senior Living Inc., Two Newton Place, 255 Washington Street, Suite 100, Newton, Massachusetts 02458, on June 9, 2020, at 9:30 a.m., Eastern Time, and any postponement or adjournment thereof, to cast on behalf of the undersigned all the votes that the undersigned is entitled to cast at the meeting and otherwise to represent the undersigned at the meeting with all powers possessed by the undersigned if personally present at the meeting. The undersigned hereby acknowledges receipt of the annual report and the proxy statement, which includes the Notice of 2020 Annual Meeting of Stockholders, each of which is incorporated herein by reference, and revokes any proxy heretofore given with respect to the meeting. THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST AS INSTRUCTED ON THE REVERSE SIDE HEREOF. IF THIS PROXY IS EXECUTED, BUT NO INSTRUCTION IS GIVEN, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST FOR BOTH NOMINEES FOR DIRECTOR IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4. ADDITIONALLY, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST BY THE PROXIES, IN THEIR DISCRETION, ON ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE MEETING OR AT ANY POSTPONEMENT OR ADJOURNMENT THEREOF. See reverse for instructions on how to authorize a proxy. (If you noted any Address Changes/Comments above, please mark the corresponding box on the reverse side.) Address Changes/Comments:
