HEALTH CARE REIT, INC.

 

NOTICE OF ANNUAL MEETING OF

STOCKHOLDERS

 

and

 

PROXY STATEMENT

 

Meeting Date

 

May 1, 2008

 

YOUR VOTE IS IMPORTANT!

 

You are urged to sign, date, and return your proxy in the enclosed envelope.

 

HEALTH CARE REIT, INC.
One SeaGate

Suite 1500

P.O. Box 1475

Toledo, Ohio 43603-1475

 

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

 

 

To Be Held on May 1, 2008

 

To The Stockholders of Health Care REIT, Inc.:

 

The Annual Meeting of Stockholders of Health Care REIT, Inc. will be held on May 1, 2008 at 10:00 a.m. in the Auditorium of One SeaGate, Toledo, Ohio, for the purpose of considering and acting upon:

 

 

The Board of Directors of Health Care REIT, Inc. unanimously recommends that you vote “for” Proposals 1 and 2. Stockholders of record at the close of business on March 7, 2008 will be entitled to notice of, and to vote at, the Annual Meeting or any adjournment thereof. Information relating to the matters to be considered and voted on at the Annual Meeting is set forth in the Proxy Statement accompanying this Notice. In addition, the Proxy Statement, Annual Report and a form of Proxy Card are available on the Internet at www.hcreit.com/proxy.

 

BY ORDER OF THE BOARD OF DIRECTORS

 

Erin C. Ibele

Senior Vice President-Administration and
Corporate Secretary

 

Toledo, Ohio

March 20, 2008

 

 

 

 

 

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

 

PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS

May 1, 2008

 

GENERAL

 

This Proxy Statement is furnished to the stockholders of Health Care REIT, Inc. (the “Company”) by its Board of Directors in connection with the solicitation of proxies in the enclosed form to be used in voting at the Annual Meeting of Stockholders (the “Annual Meeting”), which is scheduled to be held on Thursday, May 1, 2008 at 10:00 a.m. as set forth in the foregoing notice. At the Annual Meeting, the stockholders will be asked to elect three Directors, ratify the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm and transact such other business as may properly come before the Annual Meeting or any adjournment thereof.

 

A share cannot be voted at the Annual Meeting unless the holder thereof is present or represented by proxy. When proxies in the accompanying form are returned properly executed and dated or the appropriate procedures for submitting a proxy via the Internet or by telephone are followed, the shares represented thereby will be voted at the Annual Meeting. If a choice is specified in the proxy, the shares represented thereby will be voted in accordance with such specification. If no specification is made, the proxy will be voted FOR the action proposed. Any stockholder giving a proxy has the right to revoke it any time before it is voted by filing a written revocation with the Senior Vice President-Administration and Corporate Secretary of the Company, by filing a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. The revocation of a proxy will not be effective until notice thereof has been received by the Senior Vice President-Administration and Corporate Secretary of the Company.

 

The cost of solicitation of proxies will be borne by the Company. In addition to solicitation by mail, Directors and officers of the Company may solicit proxies in writing or by telephone, electronically, by personal interview, or by other means of communication. The Company will reimburse Directors and officers for their reasonable out-of-pocket expenses in connection with such solicitation. The Company will request brokers and nominees who hold shares in their names to furnish this proxy material to the persons for whom they hold shares and will reimburse such brokers and nominees for their reasonable out-of-pocket expenses in connection therewith. The Company has hired Mellon Investor Services LLC to solicit proxies for a fee not to exceed $5,500, plus expenses and other customary charges.

 

The presence at the Annual Meeting, in person or by proxy, of the holders of a majority of the total number of shares of voting securities outstanding on the record date shall constitute a quorum for the transaction of business by such holders at the Annual Meeting.

 

The executive offices of the Company are located at One SeaGate, Suite 1500, Toledo, Ohio 43604, and its mailing address is One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475. The telephone number is (419) 247-2800. The approximate date on which this material was first sent to stockholders was March 26, 2008. A COPY OF THE COMPANY’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2007, INCLUDING THE FINANCIAL STATEMENTS AND THE SCHEDULES THERETO, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, IS AVAILABLE ON OUR WEBSITE AT www.hcreit.com OR MAY BE OBTAINED WITHOUT CHARGE BY WRITING TO THE SENIOR VICE PRESIDENT-ADMINISTRATION AND CORPORATE SECRETARY, HEALTH CARE REIT, INC., AT THE ABOVE MAILING ADDRESS.

 

VOTING SECURITIES OUTSTANDING

 

As of March 7, 2008, the Company had outstanding 86,020,404 shares of common stock, $1.00 par value per share. The common stock constitutes the only class of voting securities of the Company entitled to vote at the Annual Meeting. Stockholders of record at the close of business on March 7, 2008 are entitled to notice of, and to vote at, the Annual Meeting and any adjournments thereof. Each share of common stock is entitled to one vote on all matters to come before the Annual Meeting.

 

PROPOSAL 1 — ELECTION OF DIRECTORS

 

The Company’s By-Laws provide that the Board of Directors shall have nine members unless changed by the Board. In January 2007, the Board increased the number of Directors from nine to ten. In January 2008, the number of Directors was increased from ten to 11 upon the appointment of Jeffrey R. Otten as a Class II Director. The Board is divided into three classes: Class  I, Class II and Class III. The Directors are elected to serve for a three-year term and until the election and qualification of their respective successors.

 

Proxies received will be voted to elect the three Class I Directors named below to serve for a three-year term and until their respective successors are elected and qualified or until their earlier resignation or removal. If any nominee declines or is unable to accept such nomination to serve as a Director, events which the Board does not now expect, the proxies reserve the right to substitute another person as a Board nominee, or to reduce the number of Board nominees, as they shall deem advisable. The proxy solicited hereby will not be voted to elect more than three Directors.

 

CLASS I

Directors to be Elected

 

William C. Ballard, Jr., age 67.  Mr. Ballard is Of Counsel to Greenebaum Doll & McDonald PLLC (law firm), a position he has held since 1992. From 1970 to 1992, Mr. Ballard was Executive Vice President, Chief Financial Officer and Director of Humana Inc. (provider of integrated health care services). Mr. Ballard also serves as a Director of UnitedHealth Group Incorporated (diversified health and well-being company). Mr. Ballard has served as a Director of the Company since 1996 and is a member of the Board’s Compensation, Executive, Investment and Planning Committees.

 

Peter J. Grua, age 54.  Mr. Grua is a Managing Partner of HLM Venture Partners (provider of venture capital), where he has held various positions since 1992. Mr. Grua also serves as a Director of The Advisory Board Company (provider of best practices research and analysis to the health care industry). Mr. Grua has served as a Director of the Company since 1999 and is a member of the Board’s Executive, Investment, Nominating/Corporate Governance and Planning Committees.

 

R. Scott Trumbull, age 59.  Mr. Trumbull is Chairman and Chief Executive Officer of Franklin Electric Co., Inc. (manufacturer of electric motors), a position he has held since January 2003. From October 2001 through December 2002, Mr. Trumbull was Executive Vice President and Chief Financial Officer of Owens-Illinois, Inc. (manufacturer of glass containers). From 1993 to October 2001, Mr. Trumbull served as Executive Vice President, International Operations & Corporate Development of Owens-Illinois, Inc. Mr. Trumbull has served as a Director of the Company since 1999 and is a member of the Board’s Audit, Investment and Planning Committees.

 

THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE ELECTION OF THE ABOVE NOMINEES. The three nominees who receive the highest number of votes at the Annual Meeting shall be elected as Directors.

 

CLASS II

Directors Whose Terms Continue (1)

 

Pier C. Borra, age 68.  Mr. Borra is Chairman of CORA Health Services, Inc. (outpatient rehabilitation services), a position he has held since January 1998. Mr. Borra has served as a Director of the Company since 1991 and is a member of the Board’s Audit, Investment, Nominating/Corporate Governance and Planning Committees.

George L. Chapman, age 60.  Mr. Chapman is Chairman and Chief Executive Officer of the Company, positions he has held since October 1996, and served as President of the Company from September 1995 to May 2002. From January 1992 to September 1995, Mr. Chapman served as Executive Vice President and General Counsel of the Company. Mr. Chapman has served as a Director of the Company since 1994 and is a member of the Board’s Executive, Investment and Planning Committees.

 

Sharon M. Oster, age 59.  Ms. Oster is Professor of Management and Entrepreneurship, Yale University School of Management. Ms. Oster has served as a Director of the Company since 1994 and is a member of the Board’s Compensation, Investment and Planning Committees.

 

Jeffrey R. Otten, age 57.  Mr. Otten is the President of JRO Ventures Inc. (management consulting firm), a position he has held since 2002. From January 2004 to August 2005, Mr. Otten served as Chief Executive Officer of Stentor Corporation (provider of digital medical imaging). From 1994 to 2002, Mr. Otten served as Chief Executive Officer of Brigham and Women’s Hospital, a teaching affiliate of Harvard Medical School. Mr. Otten has served as a Director of the Company since January 2008 and is a member of the Board’s Investment and Planning Committees.

 

CLASS III

Directors Whose Terms Continue (2)

 

Raymond W. Braun, age 50.  Mr. Braun is President of the Company, a position he has held since May 2002, and served as Chief Financial Officer of the Company from July 2000 to March 2006. Since January 1993, Mr. Braun has served in various capacities, including Chief Operating Officer, Executive Vice President, Assistant Vice President and Assistant General Counsel of the Company. Mr. Braun has served as a Director of the Company since 2007 and is a member of the Board’s Investment and Planning Committees.

 

Thomas J. DeRosa, age 50.  Mr. DeRosa is the former Vice Chairman and Chief Financial Officer of The Rouse Company (real estate development and operations), a position he held from September 2002 until November 2004 when The Rouse Company merged with General Growth Properties, Inc. From 1992 to September 2002, Mr. DeRosa held various positions at Deutsche Bank and Alex. Brown & Sons (Deutsche Bank AG), including Global Co-Head of the Health Care Investment Banking Group of Deutsche Bank and Managing Director in the Real Estate Investment Banking Group of Alex. Brown & Sons. Mr. DeRosa also serves as a Director of Dover Corporation (global provider of equipment, specialty systems and services for various industrial and commercial markets). Mr. DeRosa has served as a Director of the Company since 2004 and is a member of the Board’s Audit, Investment, Nominating/Corporate Governance and Planning Committees.

 

Jeffrey H. Donahue, age 61.  Mr. Donahue is President and Chief Executive Officer of Enterprise Community Investment, Inc. (provider of affordable housing), a position he has held since January 2003. Mr. Donahue was Executive Vice President and Chief Financial Officer of The Rouse Company (real estate development and operations) from December 1998 to September 2002. Mr. Donahue has served as a Director of the Company since 1997 and is a member of the Board’s Compensation, Investment and Planning Committees.

 

Fred S. Klipsch, age 66.  Mr. Klipsch is Vice Chairman of the Company, a position he has held since December 2006, and Chairman of the Board and Chief Executive Officer of Klipsch Group, Inc., a position he has held since 1989. Since 1990, Mr. Klipsch also has served as Chairman of the Board of Klipsch Audio Technologies and Chairman of the Board and Chief Executive Officer of Klipsch Lanham Investments. Mr. Klipsch served as Chairman of the Board and Chief Executive Officer of Windrose Medical Properties Trust from its formation in 2002 until December 2006, when Windrose Medical Properties Trust merged with the Company. Mr. Klipsch has served as a Director of the Company since December 2006 and is a member of the Board’s Investment and Planning Committees.

 

 

 

BOARD AND COMMITTEES

 

Independence and Meetings

 

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

 

Pursuant to the Corporate Governance Guidelines, the Board undertook a review of Director independence in January 2008. During this review, the Board considered transactions and relationships between each Director, or any member of his or her immediate family, and the Company and its subsidiaries and affiliates. The purpose of this review was to determine whether any relationships or transactions were inconsistent with a determination that a Director is independent.

 

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

 

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

 

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

 

The Board also determined that all three of the nominees for election at the Annual Meeting (Messrs. Ballard, Grua and Trumbull) are independent from the Company and its Management under the standards set forth in the Corporate Governance Guidelines.

 

The Board met four times during the year ended December 31, 2007. It is our policy to schedule a meeting of the Board on the date of the annual meeting of stockholders and all of our Directors are encouraged to attend that meeting. All of our Directors attended last year’s annual meeting of stockholders.

 

The Board has standing Audit, Executive, Compensation, Investment, Nominating/Corporate Governance and Planning Committees. In 2007, all incumbent Directors attended at least 75% of the aggregate of the meetings of the Board and the committees on which they served.

 

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

Audit Committee

 

The Audit Committee has the authority and responsibility to engage and discharge the independent registered public accounting firm, pre-approve all audit and non-audit services to be provided by such firm, review the plan and results of the auditing engagement, review Management’s evaluation of the adequacy of the Company’s system of internal control over financial reporting, direct and supervise investigations into matters within the scope of its duties, and perform the duties set forth in its written charter and such other duties as are required by applicable laws or securities exchange rules. From January 2007 through April 2007, Ms. Oster was the Audit Committee Chair and Messrs. DeRosa and Trumbull were Committee members. In May 2007, Mr. Borra replaced Ms. Oster on the Committee and Mr. DeRosa became the Committee Chair. Accordingly, the current members of the Committee are Messrs. Borra, DeRosa and Trumbull, with Mr. DeRosa serving as Chair. The Audit Committee met eight times during the year ended December 31, 2007.

 

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

 

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

 

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

 

Compensation Committee

 

The Compensation Committee is responsible for determining the nature and amount of compensation for Executive Officers. From January 2007 through April 2007, Mr. Borra was the Compensation Committee Chair and Messrs. Ballard and Donahue were Committee members. In May 2007, Ms. Oster replaced Mr. Borra on the Committee and Mr. Donahue became the Committee Chair. Accordingly, the current members of the Compensation Committee are Ms. Oster and Messrs. Ballard and Donahue, with Mr. Donahue serving as Chair. The Compensation Committee met six times during the year ended December 31, 2007. The Compensation Committee is governed by a written charter approved by the Board of Directors. The charter is available on the Company’s website at www.hcreit.com and from the Company upon written request sent to the Senior Vice President-Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475. See “Executive Compensation — Compensation Discussion and Analysis” for additional information regarding the Compensation Committee.

 

Executive Committee

 

The function of the Executive Committee is to exercise all the powers of the Board (except any powers specifically reserved to the Board) between meetings of the Board. The Executive Committee is also responsible for reviewing and approving the Company’s investments between meetings of the Investment Committee. The members of the Executive Committee are Messrs. Ballard, Chapman and Grua. The Executive Committee met once during the year ended December 31, 2007.

 

Investment Committee

 

The function of the Investment Committee is to review and approve the Company’s investments in health care and senior housing properties. During the year ended December 31, 2007, the Investment Committee met four times. Each member of the Board is a member of the Investment Committee. The Executive Committee is responsible for reviewing and approving the Company’s investments between meetings of the Investment Committee.

Nominating/Corporate Governance Committee

 

Responsibilities and Members.  The Nominating/Corporate Governance Committee is responsible for reviewing and interviewing qualified candidates to serve on the Board, to make nominations to fill vacancies on the Board and to select the nominees for the Directors to be elected by our stockholders at each annual meeting. In addition, the Committee is responsible for evaluating, implementing and overseeing the standards and guidelines for the governance of the Company, including monitoring compliance with those standards and guidelines, as well as evaluating the performance of the Board. From January 2007 through April 2007, Mr. Ballard was the Nominating/Corporate Governance Committee Chair and Messrs. DeRosa and Grua were Committee members. In May 2007, Mr. Borra replaced Mr. Ballard on the Committee and Mr. Grua became the Committee Chair. Accordingly, the current members of the Nominating/Corporate Governance Committee are Messrs. Borra, DeRosa and Grua, with Mr. Grua serving as Chair. The Nominating/Corporate Governance Committee met seven times during the year ended December 31, 2007.

 

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

 

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

 

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

 

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

 

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

The Committee will consider qualified nominees recommended by stockholders who may submit recommendations to the Committee in care of the Senior Vice President-Administration and Corporate Secretary, Health Care REIT, Inc., One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475. To be considered by the Committee for inclusion in the Company’s proxy materials for the 2008 Annual Meeting, stockholder nominations must be submitted by November 20, 2008 and must be accompanied by: (1) the name, age, business address and, if known, residence address of the nominee; (2) the principal occupation or employment of the nominee for at least the last five years and a description of the qualifications of the nominee; (3) the class or series and number of shares of our stock that are owned beneficially or of record by the nominee; and (4) any other information relating to the nominee that is required to be disclosed in solicitations for proxies for election of Directors under Regulation 14A of the Securities Exchange Act of 1934, as amended, together with a written statement from the nominee that he or she is willing to be nominated and desires to serve, if elected. Also, the stockholder making the nomination should include: (1) his or her name and record address, together with the name and address of any other stockholder known to be supporting the nominee; and (2) the class or series and number of shares of our stock that are owned beneficially or of record by the stockholder making the nomination and by any other supporting stockholders. Nominees for Director who are recommended by stockholders will be evaluated in the same manner as any other nominee for Director.

 

In addition, the By-Laws provide that a stockholder entitled to vote for the election of Directors may make nominations of persons for election to the Board at a meeting of stockholders by complying with required notice procedures. Those procedures include, but are not limited to, making the nomination by written notice and delivering it to our Senior Vice President-Administration and Corporate Secretary not more than 120 days prior to the meeting and not less than 45 days before the date on which the Company first mailed or otherwise gave notice for the prior year’s annual meeting of stockholders.

 

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

 

Planning Committee

 

The function of the Planning Committee is to assist Management with identifying strategic opportunities for the Company. The Planning Committee met once during the year ended December 31, 2007. Each member of the Board is a member of the Planning Committee.

 

COMMUNICATIONS WITH THE BOARD

 

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

 

EXECUTIVE OFFICERS

 

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

 

George L. Chapman, age 60.  Mr. Chapman has served as Chairman and Chief Executive Officer of the Company since October 1996 and served as President of the Company from September 1995 to May 2002. As described above, since 1992, Mr. Chapman has served in various executive capacities with the Company.

 

Fred S. Klipsch, age 66.  Mr. Klipsch has served as Vice Chairman of the Company since December 2006. As described above, Mr. Klipsch also serves in various capacities for Klipsch Group, Inc., Klipsch Audio Technologies and Klipsch Lanham Investments and served as Chairman of the Board and Chief Executive Officer of Windrose Medical Properties Trust until December 2006.

 

Raymond W. Braun, age 50.  Mr. Braun has served as President of the Company since May 2002 and served as Chief Financial Officer of the Company from July 2000 to March 2006. As described above, since January 1993, Mr. Braun has served in various capacities, including Chief Operating Officer, Executive Vice President, Assistant Vice President and Assistant General Counsel of the Company.

 

Frederick L. Farrar, age 51.  Mr. Farrar has served as Executive Vice President of the Company since December 2006. Since 2000, Mr. Farrar has served as President of Klipsch Lanham Investments. Mr. Farrar served as President, Chief Operating Officer and Treasurer of Windrose Medical Properties Trust from March 2002 until December 2006, when Windrose Medical Properties Trust merged with the Company. Mr. Farrar served as Chief Financial Officer of Hospital Affiliates Development Corporation, formerly a subsidiary of Windrose Medical Properties Trust and now a subsidiary of the Company (now known as HCN Development Services Group, Inc.), from 1990 until March 2002.

 

Charles J. Herman, Jr., age 42.  Mr. Herman has served as Executive Vice President and Chief Investment Officer of the Company since March 2006. Mr. Herman served as Vice President and Chief Investment Officer of the Company from May 2004 to March 2006 and served as Vice President of Operations from August 2000 to May 2004. From 1998 to August 2000, Mr. Herman was a founding member and President of Herman/Turner Group, LLC, a health care consulting company. Prior to that date, Mr. Herman was a founder and Chief Operating Officer of Capital Valuation Group, a health care consulting firm founded in 1991.

 

Jeffrey H. Miller, age 48.  Mr. Miller has served as Executive Vice President and General Counsel of the Company since March 2006 and served as Vice President and General Counsel of the Company from July 2004 to March 2006. From 1996 to June 2004, Mr. Miller was a partner in the real estate practice group of the law firm of Shumaker, Loop & Kendrick, LLP.

 

Scott A. Estes, age 37.  Mr. Estes has served as Senior Vice President and Chief Financial Officer of the Company since March 2006 and served as Vice President of Finance of the Company from April 2003 to March 2006. From January 2000 to April 2003, Mr. Estes served as a Senior Research Analyst and Vice President with Deutsche Bank Securities.

 

Erin C. Ibele, age 46.  Ms. Ibele has served as Senior Vice President-Administration and Corporate Secretary of the Company since March 2006 and served as Vice President-Administration and Corporate Secretary of the Company from January 1993 to March 2006. Since 1986, Ms. Ibele has served in various capacities with the Company.

 

Daniel R. Loftus, age 57.  Mr. Loftus has served as Senior Vice President of the Company since December 2006. Mr. Loftus served as Secretary and General Counsel of Windrose Medical Properties Trust from March 2002 until December 2006, when Windrose Medical Properties Trust merged with the Company. Mr. Loftus was Of Counsel to Bone McAllester Norton PLLC during 2002 and Wyatt, Tarrant & Combs, LLP in Nashville, Tennessee from late 1997 to March 2002.

 

Michael A. Crabtree, age 51.  Mr. Crabtree has served as Vice President and Treasurer of the Company since March 2006 and served as Treasurer from July 2000 to March 2006. Mr. Crabtree served as Controller of the Company from 1996 to September 2002. From July 1993 to July 1996, Mr. Crabtree was Chief Financial Officer of Westhaven Services Co., a provider of pharmaceutical services to nursing homes.

 

SECURITY OWNERSHIP OF DIRECTORS AND MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS

 

The table below sets forth, as of March 7, 2008, unless otherwise specified, certain information with respect to the beneficial ownership of the Company’s shares of common stock by each person who is a Director of the Company, each Named Executive Officer (as defined below in the section “Executive Compensation”), and the Directors and Executive Officers of the Company as a group. Unless noted below, each person has sole voting and investment power regarding the Company’s shares. Also, unless noted below, the beneficial ownership of each person represents less than 1% of the outstanding shares of common stock of the Company.

 

 

 

 

Based upon filings made with the Securities and Exchange Commission in 2008, the only stockholders known to the Company to be the beneficial owners of more than 5% of the Company’s common stock at March 7, 2008 are as follows:

 

 

 

 

Section 16(a) Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s Directors and Executive Officers, and persons who own beneficially more than 10% of the shares of common stock of the Company, to file reports of ownership and changes of ownership with the Securities and Exchange Commission and the New York Stock Exchange. Copies of all filed reports are required to be furnished to the Company pursuant to Section 16(a). Based solely on the reports received by the Company and on written representations from reporting persons, the Company believes that the Directors and Executive Officers complied with all applicable filing requirements during the fiscal year ended December 31, 2007.

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Executive Compensation Program Objectives

 

Our compensation programs are designed to achieve the following objectives:

 

 

 

Compensation Committee Procedures

 

The Compensation Committee of the Board is responsible for determining the nature and amount of compensation for the Company’s ten Executive Officers, including the Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated Executive Officers of the Company who were serving at the end of 2007 (collectively, the “Named Executive Officers”). The Committee consists of three non-employee Directors. From January 2007 through April 2007, Pier C. Borra was the Compensation Committee Chair and William C. Ballard, Jr. and Jeffrey H. Donahue were Committee members. From May 2007 through December 2007, Mr. Donahue was the Compensation Committee Chair and Mr. Ballard and Sharon M. Oster were Committee members.

 

Compensation Consultant

 

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

 

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

 

Input of Executive Officers on Compensation

 

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

 

 

 

Annual Review of Executive Compensation

 

September Meeting.  Each year, with the assistance of its independent consultant, the Compensation Committee conducts a comprehensive review of the executive compensation programs in terms of program design and compensation levels. This year, the results of the competitive review were presented and discussed at the Committee meeting held on September 10, 2007.

 

This review for 2007 included a competitive analysis of our compensation practices versus those of our peers. The comparative peer group used in 2007 included four REITs in the health care sector and ten other REITs of similar size to the Company in terms of market and total capitalization. These REITs were:

 

 

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

 

Discussions — October through January.  Based on the results of the competitive review discussed at the September meeting, the Compensation Committee engaged in a dialogue over the next several months to discuss preliminary recommendations for changes to the programs for the upcoming year. These changes included potential adjustments to base salaries and annual and long-term incentive opportunity ranges; changes to the performance measures and weightings (if any) for the annual and long-term incentive programs; and changes (if any) to the long-term incentive grant types.

 

January Meeting.  At the January 21, 2008 meeting, the Committee reviewed the Company’s performance for 2007 against the pre-established performance measures and goals and approved the dollar amount of annual and long-term incentive compensation earned for each Executive Officer. Long-term incentive grants for 2007 performance were approved by the Committee and made on January 21, 2008. Cash bonuses for the Executive Officers for 2007 performance were approved by the Committee on January 21, 2008 and paid on January 25, 2008.

 

At the January meeting, the Committee also reviewed and approved adjustments to base salaries and changes to the annual and long-term incentive earnings opportunities for 2008 for each of the Executive Officers. The

Committee considered the input of the Chairman and Chief Executive Officer and the President when determining these adjustments for the other Executive Officers. These changes are discussed in detail in the discussion of “Compensation Elements” below.

 

Compensation Elements

 

Our compensation programs have the following elements:

 

 

Base Salary

 

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

 

 

 

 

Annual Incentives

 

In 2007, all of the Named Executive Officers participated in our annual incentive program, which provides rewards for the achievement of certain performance objectives tied to our annual business plan, as well as achievement of individual performance objectives. Under this program, a range of earnings opportunity is established for each executive at the beginning of the performance period, expressed as percentages of base salary and corresponding to three levels of performance (threshold, target and high performance levels). Annual incentives are paid in cash in the first quarter of the year following the performance year (e.g., 2007 bonuses were paid in the first quarter of 2008).

 

The corporate performance measures and weightings set by the Compensation Committee for 2007 under the annual incentive program, as well as our achievement for each goal, were as follows:

 

2007 Annual Incentive Corporate Performance Measures

 

 

 

For Messrs. Chapman and Braun, 80% of the bonus is determined by corporate performance, as defined above, and 20% by individual performance. The corporate component was set at 80% because the Committee believes that almost all of the Chief Executive Officer’s and the President’s annual incentive compensation should be based on overall corporate performance given their high levels of responsibility for our performance. For Messrs. Estes and Klipsch, 60% of the bonus is determined by corporate performance and 40% by individual performance. The Committee believes that overall corporate performance should be the primary basis for determining annual incentives for these executives, but gave individual performance a heavier weighting (as compared to Messrs. Chapman and Braun) to reflect the importance of several strategic initiatives for which the executive is primarily responsible. For Mr. Herman, 30% of the bonus is determined by corporate performance, 30% is based on his direct contribution to the investment activity of the Company, and 40% is based on individual performance. Mr. Herman’s bonus is tied in part to his contribution to investment performance because he bears a high degree of responsibility for that part of our business.

 

Factors considered in the assessment of individual performance include: implementation of targeted investment strategies, professional development of and succession planning for Management, successful integration of our Windrose Medical Properties Trust (“Windrose”), Paramount Real Estate Services, Inc., Rendina Companies, and other acquisitions, and effective capital raising and communication with investors. The Chairman and Chief Executive Officer and the President each provide recommendations for individual performance scores for the executives who report to them, based on their assessment of performance versus the individual factors. The Committee assesses the Chairman and Chief Executive Officer’s performance against his individual factors to determine his individual performance score. For 2007, the Committee determined that each of Messrs. Chapman, Estes, Braun, Klipsch and Herman achieved the high level of individual performance.

 

The table below illustrates each executive’s total annual incentive earnings opportunity, taking into consideration both corporate and individual performance, under the annual incentive program and the actual bonuses for 2007 performance that were approved at the Committee’s January 21, 2008 meeting.

 

 

 

 

For 2008, the Company is using the same corporate performance measures and weightings. The specific goals for threshold, target and high performance levels for 2008 for FFO per share and net real estate investments have not yet been determined, but we expect they will correspond to the Company’s internal budgetary goals and that the target levels will be within the ranges publicly disclosed as investor guidance for 2008. At the January 21, 2008 meeting, the Committee approved the 2008 annual incentive earnings opportunities for the Named Executive Officers, which are determined using the same percentage of base salary (or in the case of Mr. Klipsch, the same percentage of base consulting fee) as was used for 2007.

 

Long-Term Incentives

 

In 2007, Messrs. Chapman, Estes, Braun and Herman participated in the Company’s long-term incentive program. Under the terms of his consulting agreement with the Company, Mr. Klipsch does not participate in the long-term incentive program. Our long-term incentive program is used to promote long-term corporate goals, provide our executives with an opportunity to acquire equity interests in the Company and assist us in attracting and retaining key executives. Similar to the annual incentive program, long-term incentive awards for the Named Executive Officers (other than Mr. Klipsch) are based on the achievement of pre-established corporate and individual goals for the performance year. For each executive, a range of earnings opportunity, expressed in dollar values, is established at the beginning of the performance period corresponding to three levels of performance (threshold, target, and high performance levels) for long-term incentive compensation.

 

For each executive participating in the program, 75% of the value of the long-term incentive compensation award is based on corporate performance goals set by the Compensation Committee and 25% is based on individual performance. The corporate performance goals for 2007, as well as our achievement for each goal, were as follows:

 

2007 Long-Term Incentive Corporate Performance Measures

 

 

 

 

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

 

Long-term incentive amounts earned are delivered through equity grants from the 2005 Long-Term Incentive Plan (the “Plan”). The Committee determined that 75% of the value of long-term incentive compensation earned for 2007 should be granted in the form of shares of restricted stock, 12.5% should be granted as stock options with dividend equivalent rights (“DERs”) and 12.5% should be granted as stock options without DERs (“plain vanilla” stock options). This mix of long-term incentives was also used for 2006.

 

 

Generally, equity grants made on an annual basis vest ratably over five years. Cash payments attributable to DERs will accrue and be paid out only when the corresponding option has vested. This multi-year vesting creates a retention mechanism for our executives and subjects them to the same share price risk over a long-term period as other investors, thereby aligning their interests with those of our stockholders.

 

The table below outlines the long-term incentive earnings opportunities for 2007 and the amounts that were approved at the Committee’s January 21, 2008 meeting.

 

 

 

 

The 2007 long-term incentive earnings opportunities are reflected in the “Grants of Plan-Based Awards Table” below as dollar amounts.

 

For 2008, the Company is using the same corporate performance measures and weightings for the long-term incentive program. The goals for the total stockholder return metrics will be the same as those used in 2007. The specific goals for threshold, target and high performance levels for 2008 for net real estate investments and for dividend payout ratio have not yet been determined, but we expect that they will correspond to the Company’s internal budgetary goals and that the target levels will be within the ranges publicly disclosed as investor guidance for 2008.

 

At the January 21, 2008 meeting, the Committee approved the 2008 long-term incentive earnings opportunities for Messrs. Chapman, Estes, Braun and Herman. For Messrs. Chapman, Braun and Herman, the long-term incentive earnings opportunities are the same as they were for 2007. For Mr. Estes, threshold, target and high levels of performance were increased to $175,000, $350,000 and $600,000, respectively.

 

Timing of Awards

 

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

 

Windrose Merger Compensation

 

In connection with our merger with Windrose, Mr. Klipsch received the following awards on January 2, 2007:

 

 

 

Special Retention and Incentive Awards to the Chairman and Chief Executive Officer and President

 

On January 22, 2007, the Committee approved an amended employment agreement for Mr. Chapman (see “Employment and Consulting Agreements” below) along with a special retention and incentive award of 120,000 shares. This award was granted to retain Mr. Chapman as Chairman and Chief Executive Officer and to provide him with an incentive to achieve certain strategic objectives. Half of the shares are in the form of restricted stock that will vest on January 31, 2010, subject to Mr. Chapman’s continued employment. The other 60,000 shares are in the form of performance awards with DERs that will vest on January 31, 2010, based on Mr. Chapman’s continued employment and the Board’s determination that the Company, under Mr. Chapman’s leadership, has successfully achieved its strategic initiatives. The 60,000 restricted shares would become vested in the event of a change in corporate control, or upon Mr. Chapman’s death, disability or termination without cause. With respect to the performance awards, in the event of a change in corporate control, or upon Mr. Chapman’s death or disability, all 60,000 of the performance awards would become earned and payable. In the event of a termination without cause, 30,000 of the performance awards would become earned and payable and the remaining 30,000 would be earned and payable if the Board determines that the strategic objectives have been attained. Dividends are paid on the 60,000 restricted shares on a current basis. With respect to 30,000 of the performance awards, Mr. Chapman receives DER payments on a current basis. For the other 30,000 performance awards, DER payments accumulate and are deemed reinvested in additional shares, and are only paid out if the underlying shares are earned.

 

Also on January 22, 2007, the Committee approved a special retention and incentive award of 50,000 shares of restricted stock to Mr. Braun. Half of these shares vest on January 31, 2010, subject to Mr. Braun’s continued employment. The remaining 25,000 shares will vest on either: (1) January 31, 2010, if Mr. Braun remains employed through January 31, 2010 and Mr. Chapman does not serve as Chairman and Chief Executive Officer until January 31, 2011, or (2) January 31, 2011, if Mr. Braun remains employed through January 31, 2011 and Mr. Chapman serves as Chairman and Chief Executive Officer until January 31, 2011. Dividends are paid on a current basis on these shares. Vesting of the shares accelerates in the event of Mr. Braun’s death, disability, involuntary termination without cause or upon a change in corporate control.

 

Special Windrose Transaction Bonuses

 

Also on January 22, 2007, the Committee approved special awards to certain executives and other employees for their contribution to the success of the merger with Windrose. Messrs. Braun and Estes were among the recipients of special awards. The awards were provided in the form of restricted shares that vest ratably over five years, consistent with the vesting schedule of our annual equity compensation grants. The per share grant price was $45.73, the closing price on January 22, 2007. The table below illustrates the dollar value and number of shares granted to Messrs. Braun and Estes with respect to these special awards.

 

 

Benefits and Perquisites

 

The Named Executive Officers (other than Mr. Klipsch) participate in the same benefits programs as all other Company employees, including health and dental insurance, group life insurance, short-term and long-term

disability coverage, payment of health club/gym membership fees and participation in the Company’s tax-qualified 401(k) plan. In addition, Messrs. Chapman and Braun are entitled to certain perquisites, including:

 

 

The Committee reviews the Company’s policies with respect to perquisites on a regular basis. See Note 8 to the “Summary Compensation Table” for additional information regarding perquisites, including the dollar values of the perquisites provided by the Company in 2007.

 

Supplemental Executive Retirement Plan

 

The SERP is a non-qualified defined benefit pension plan adopted by the Compensation Committee on January 1, 2001. Messrs. Chapman and Braun are the only two participants in the SERP. The SERP benefit is designed to provide a benefit payable at retirement at age 65 or older equal to 35% of the participant’s average compensation at retirement, offset by the actuarial equivalent of the benefit provided by the Company’s tax-qualified retirement plan and trust (the “401(k) Plan”). Since the SERP benefit accrues over the career of the participant, if the participant retires before his 65th birthday, the benefit will be subject to a reduction for proration of length of participation and a further reduction based upon the number of months the participant’s retirement occurs prior to his or her 65th birthday. “Average compensation” is defined under the SERP to mean the average of the three highest years of salary and bonus compensation considering all years completed prior to the date of retirement. The actuarial equivalent of the benefit provided by the Company’s 401(k) Plan represents the value of Company contributions to the participant’s plan accounts projected to age 65 and expressed as a monthly benefit payable for life. The projected value of Company contributions is determined by using all contributions made on behalf of the participant for plan years completed prior to the date of retirement and a 7.5% interest rate compounded annually.

 

In the event of a change in corporate control of the Company, if Mr. Chapman’s employment is terminated, either voluntarily or involuntarily for any reason, he will be entitled to receive the full retirement benefit, unreduced by the proration for length of participation or the early retirement reduction. If Mr. Braun’s employment is terminated after a change in corporate control, either voluntarily or involuntarily for any reason, he will be entitled to receive his early retirement benefits as of the date of termination calculated by adding an additional five years of participation (up to but not beyond age 65) to the length of his participation proration, but with no reduction for early retirement.

 

Executive Loan Program

 

In 1999, the Company instituted an Executive Loan Program, pursuant to which the Company made six recourse loans to each of four Executive Officers, including Messrs. Chapman and Braun. The purpose of these loans was to assist the executives with paying taxes related to the vesting of restricted stock awards made under the 1995 Stock Incentive Plan. Each loan was evidenced by a promissory note, was secured by a pledge of the shares of the common stock of the Company that vested and gave rise to the tax liability with respect to which the loan was made to the Executive Officers, and bore interest at the mid-term applicable federal rate established by the Internal Revenue Service at the time of the loan. The interest rates for the six loans ranged from 3.94% to 6.21% and interest was payable annually. Each note became due and payable five years after the date of the note; however, on each anniversary date of each note, if the executive continued to be employed by the Company, one-fifth of the original principal amount due under the note was forgiven.

 

The highest amount due during 2007 from each of Messrs. Chapman and Braun were $9,853 and $4,927, respectively. On January 15, 2007, $9,853 and $4,927 were forgiven pursuant to the terms of Mr. Chapman’s and Mr. Braun’s existing loans, respectively. The Executive Loan Program was discontinued on July 30, 2002 as a result

of the passage of the Sarbanes-Oxley Act of 2002. As of March 7, 2008, there were no loans outstanding for any executive and no additional loans will be made to the executives.

 

Ownership Guidelines

 

We require our executives to own shares of our common stock with a fair market value of at least three times their base salary (five times for the Chief Executive Officer). Our non-employee Directors are required to own shares of our common stock with a fair market value of at least $150,000. Shares owned directly and indirectly, restricted shares, and deferred stock units count towards the ownership requirement, while unexercised stock options do not. Executives and non-employee Directors have five years from their date of hire or appointment, as applicable, to achieve the required ownership level. As of December 31, 2007, each of the Named Executive Officers and each of our non-employee Directors were in compliance with the ownership requirement.

 

Tax Deductibility of Executive Compensation

 

The Compensation Committee has considered the anticipated tax treatment to the Company regarding the compensation and benefits paid to the Named Executive Officers under Section 162(m) of the Internal Revenue Code of 1986, as amended. Although the Company does not pay corporate income taxes because it is a real estate investment trust, the Compensation Committee will strive to provide executives with attractive, well-designed compensation packages that will generally preserve the deductibility of such payments for the Company. Certain types of compensation payments and their deductibility depend upon the timing of an Executive Officer’s vesting or exercise of previously granted rights. Moreover, interpretations of any changes in the tax laws and other factors beyond the Compensation Committee’s control may affect the deductibility of certain compensation payments. As mentioned above, however, since the Company does not pay corporate income taxes, the loss of this deduction would not have adverse consequences for the Company. If deductibility becomes an issue, the Compensation Committee will consider various alternatives to preserve the deductibility of compensation payments to Executive Officers and benefits to the extent reasonably practical and to the extent consistent with its other compensation objectives, but reserves the right to make incentive-based awards not exempt from these limits where such awards are appropriate and will not have a material impact on stockholder value.

 

COMPENSATION COMMITTEE REPORT

 

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

 

Submitted by the Compensation Committee

 

Jeffrey H. Donahue, Compensation Committee Chair

William C. Ballard, Jr., Compensation Committee Member

Sharon M. Oster, Compensation Committee Member

Summary Compensation Table

 

The table below presents the total compensation awarded to, earned by, or paid to the Named Executive Officers.

 

 

 

 

 

 

 

 

 

2007 Grants of Plan-Based Awards Table

 

The table below provides information regarding grants of awards to the Named Executive Officers under the Company’s long-term incentive plans.

 

 

 

Employment and Consulting Agreements

 

We have employment agreements with each of Messrs. Chapman, Estes, Braun and Herman and we have a consulting agreement with Mr. Klipsch.

 

George L. Chapman — Employment Agreement

 

On January 22, 2007, the Company entered into an employment agreement with George L. Chapman, Chairman and Chief Executive Officer of the Company. The agreement expires on January 31, 2010; however, Mr. Chapman has the option to extend the term for an additional year. Mr. Chapman receives an annual base salary of not less than $570,000 and he is eligible to receive discretionary annual bonuses and equity awards under the Company’s long-term incentive plans. In addition, the Company pays the initiation fees and membership dues for two dining/country clubs, costs relating to up to three business-related conferences, conventions or seminars attended by Mr. Chapman and his spouse each year and the costs required to maintain a disability insurance policy on Mr. Chapman. The Company also provides Mr. Chapman with health insurance, paid vacation and reimbursement for the costs of physical examinations. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Chapman upon his termination or a change in control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

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

 

Scott A. Estes — Employment Agreement

 

The Company has entered into an employment agreement with Scott A. Estes, Senior Vice President and Chief Financial Officer of the Company, that expires January 31, 2009, and provides for optional successive two-year renewal terms. Mr. Estes receives an annual base salary of not less than $225,000 and he is eligible to receive discretionary annual bonuses and equity awards under the Company’s long-term incentive plans. In addition, the Company provides Mr. Estes with health insurance and paid vacation. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Estes upon his termination or a change in control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

Raymond W. Braun — Employment Agreement

 

The Company has entered into an employment agreement with Raymond W. Braun, President of the Company, that expires January 31, 2009, and provides for optional successive two-year renewal terms. Mr. Braun receives an annual base salary of not less than $285,402 and he is eligible to receive discretionary annual bonuses and equity awards under the Company’s long-term incentive plans. In addition, the Company pays the initiation fees and membership dues for one dining/country club and provides Mr. Braun with health insurance and paid vacation. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Braun upon his termination or a change in control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

Special Retention and Incentive Award.  On January 22, 2007, Mr. Braun received a grant of 50,000 shares of restricted stock as a special retention and incentive award. The restrictions on 25,000 of these shares will lapse if Mr. Braun remains employed by the Company through January 31, 2010. The restrictions on the remaining 25,000 shares will lapse: (1) on January 31, 2010, if Mr. Braun remains employed by the Company through January 31, 2010 and Mr. Chapman does not serve as Chairman and Chief Executive Officer of the Company during the period from February 1, 2010 until January 31, 2011, or (2) on January 31, 2011, if Mr. Braun remains employed

by the Company through January 31, 2011 and Mr. Chapman serves as Chairman and Chief Executive Officer of the Company until January 31, 2011.

 

Charles J. Herman, Jr. — Employment Agreement

 

The Company has entered into an employment agreement with Charles J. Herman, Jr., Executive Vice President and Chief Investment Officer of the Company, that expires January 31, 2009, and provides for optional successive two-year renewal terms. Mr. Herman receives an annual base salary of not less than $218,545 and he is eligible to receive discretionary annual bonuses and equity awards under the Company’s long-term incentive plans. In addition, the Company provides Mr. Herman with health insurance and paid vacation. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Herman upon his termination or a change in control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

Fred S. Klipsch — Consulting Agreement

 

The Company has entered into a consulting agreement with Fred S. Klipsch, Vice Chairman of the Company, that expires December 20, 2008. Mr. Klipsch received a base consulting fee of $350,000 in 2007 and will receive $250,000 in 2008. Each year during the term of the agreement, Mr. Klipsch will be eligible to receive a performance bonus based on the achievement of performance measures to be determined by the Compensation Committee, with the targeted amount of such bonus being 60% to 120% of his base consulting fee. For a description of the provisions of the agreement regarding compensation and benefits payable to Mr. Klipsch upon his termination or a change in control, see “Potential Payments Upon Termination or Change in Corporate Control” below.

 

Bonus Payments.  A retention bonus of $975,538 in cash and $929,962 in common stock was paid to Mr. Klipsch on January 2, 2007. Mr. Klipsch agreed not to sell any of these shares until after the first anniversary of the grant date and can sell no more than 50% of these shares between the first and second anniversaries of the grant date. He also received a payment of $1,680,000 in cash in lieu of amounts payable to him upon a change in control under a change in control severance agreement and an employment agreement between Mr. Klipsch, Windrose and Windrose’s operating partnership.

 

Indemnification by the Company.  The Company will indemnify Mr. Klipsch for any excise taxes assessed against him under Section 4999 of the Code as a result of payments or benefits provided under the agreement or any other plan, agreement or arrangement with the Company, Windrose, Windrose’s operating partnership or their affiliates. The Company also will indemnify Mr. Klipsch for any liability with respect to the guarantees executed by Mr. Klipsch in favor of Wells Fargo, as trustee, regarding the loan on the Mount Vernon, Georgia facility.

2007 Outstanding Equity Awards at Fiscal Year-End Table

 

The table below provides information regarding outstanding equity-based awards granted to the Named Executive Officers under the Company’s long-term incentive plans.

 

 

 

 

2007 Option Exercises and Stock Vested Table

 

The table below provides information regarding the dollar amounts realized pursuant to the vesting or exercise of equity-based awards during 2007 for the Named Executive Officers.

 

 

2007 Pension Benefits Table

 

The table below provides information regarding the SERP adopted by the Compensation Committee of the Board of Directors effective January 1, 2001. The SERP is a non-qualified defined benefit pension plan that provides certain executives selected by the Compensation Committee with supplemental deferred retirement benefits. The SERP provides an opportunity for participants to receive retirement benefits that cannot be paid under the Company’s 401(k) Plan because of the restrictions imposed by ERISA and the Internal Revenue Code of 1986, as amended. The Compensation Committee has selected George L. Chapman and Raymond W. Braun to participate in the SERP.

 

 

 

 

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

 

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

 

The SERP is unfunded and all benefits will be paid from the general assets of the Company. Eligibility is limited to a select group of Management or highly compensated employees whose qualified plan benefits are limited by ERISA and the Internal Revenue Code of 1986, as amended. See “Executive Compensation - Compensation Discussion and Analysis — Compensation Elements — Supplemental Executive Retirement Plan” above for more information regarding the SERP.

2007 Non-Qualified Deferred Compensation Table

 

As a result of the merger with Windrose Medical Properties Trust, the Company assumed Windrose’s obligations under the Windrose Medical Properties Trust Deferred Compensation Plan (the “Windrose Plan”). Fred S. Klipsch is the only Named Executive Officer who participated in the Windrose Plan, which became effective on January 1, 2006 and was terminated in connection with the merger. The table below provides information regarding the amounts paid to Mr. Klipsch by the Company in 2007.

 

 

Following completion of the merger, Mr. Klipsch received a single payment of $75,434, which was the balance of his deferred compensation account under the Windrose Plan.

 

Potential Payments Upon Termination or Change in Corporate Control

 

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

 

George L. Chapman

 

Severance Payments and Benefits.  If Mr. Chapman is terminated without cause, he would receive severance pay for the remaining term of the agreement or for 24 months, whichever is greater. If Mr. Chapman resigns during the 12 months following a “change in corporate control” (as defined in the agreement), he would receive severance pay for 36 months. These severance benefits would be made in a series of monthly payments, in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the average of his annual bonuses for the two fiscal years immediately preceding the termination or change in corporate control or a minimum bonus equal to 100% of his annual base salary. At Mr. Chapman’s election, the Company may instead be required to make an immediate lump sum payment equal to the present value of such monthly payments, calculated using a discount rate equal to the interest rate on 90-day Treasury Bills reported at the date the election is received by the Company. Mr. Chapman also would be entitled to continued benefits under any life, health and disability insurance programs maintained by the Company for the remaining term of the agreement, or six months, whichever is greater, or until the date he obtains comparable coverage from a new employer. If Mr. Chapman is terminated without cause and he obtains a replacement position with a new employer, the severance payments described above will be reduced by all amounts Mr. Chapman receives as compensation for services performed during such period. If it is determined that any payment by the Company to Mr. Chapman in connection with a change in corporate control would be a golden parachute subject to excise tax, the amount of the payments to him would be increased to cover such excise tax.

 

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

 

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

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

 

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

 

Non-Competition and Non-Solicitation.  Upon the termination of the agreement for any reason, Mr. Chapman will be subject to a non-solicitation agreement for one year from the later of the termination of the agreement or when severance payments under the agreement cease (or would have ceased if Mr. Chapman had not elected to receive a lump sum payment or had such payments not been offset by compensation received from a new employer). In the event of a voluntary termination by Mr. Chapman or termination for cause by the Company, Mr. Chapman also would be subject to a one-year non-competition agreement.

 

Scott A. Estes

 

Severance Payments and Benefits.  If Mr. Estes is terminated without cause, he would receive severance pay for the remaining term of the agreement or for 12 months, whichever is greater. If Mr. Estes resigns during the 12 months following a “change in corporate control” (as defined in the agreement), he would receive severance pay for 24 months. These severance benefits would be made in a series of monthly payments, in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the termination or change in corporate control or a minimum bonus equal to 35% of his annual base salary. At Mr. Estes’ election, the Company may instead be required to make an immediate lump sum payment equal to the present value of such monthly payments, calculated using a discount rate equal to the interest rate on 90-day Treasury Bills reported at the date the election is received by the Company. Mr. Estes also would be entitled to continued benefits under any life, health and disability insurance programs maintained by the Company for the remaining term of the agreement, or six months, whichever is greater, or until the date he obtains comparable coverage from a new employer. If Mr. Estes is terminated without cause and he obtains a replacement position with a new employer, the severance payments described above will be reduced by all amounts Mr. Estes receives as compensation for services performed during such period. If it is determined that any payment by the Company to Mr. Estes in connection with a change in corporate control would be a golden parachute subject to excise tax, the amount of the payments to him would be increased to cover such excise tax.

 

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

 

In the event of Mr. Estes’ termination as a result of disability, Mr. Estes would receive monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of disability or a minimum bonus equal to 35% of his annual base salary. These payments would terminate if Mr. Estes returns to active employment, either with the Company or otherwise. In addition, these payments would be reduced by any amounts paid to Mr. Estes under any long-term disability plan or other disability program or insurance policies maintained by the Company.

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

 

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

 

Non-Competition and Non-Solicitation.  Upon the termination of the agreement for any reason, Mr. Estes will be subject to a non-solicitation agreement for one year from the later of the termination of the agreement or when severance payments under the agreement cease (or would have ceased if Mr. Estes had not elected to receive a lump sum payment or had such payments not been offset by compensation received from a new employer). In the event of a voluntary termination by Mr. Estes, the election by Mr. Estes not to extend the term of the agreement or a termination for cause by the Company, Mr. Estes also would be subject to a one-year non-competition agreement.

 

Raymond W. Braun

 

Severance Payments and Benefits.  If Mr. Braun is terminated without cause, he would receive severance pay for the remaining term of the agreement or for 12 months, whichever is greater. If Mr. Braun resigns during the 12 months following a “change in corporate control” (as defined in the agreement), he would receive severance pay for 24 months. These severance benefits would be made in a series of monthly payments, in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the termination or change in corporate control or a minimum bonus equal to 55% of his annual base salary. At Mr. Braun’s election, the Company may instead be required to make an immediate lump sum payment equal to the present value of such monthly payments, calculated using a discount rate equal to the interest rate on 90-day Treasury Bills reported at the date the election is received by the Company. Mr. Braun also would be entitled to continued benefits under any life, health and disability insurance programs maintained by the Company for the remaining term of the agreement, or six months, whichever is greater, or until the date he obtains comparable coverage from a new employer. If Mr. Braun is terminated without cause and he obtains a replacement position with a new employer, the severance payments described above will be reduced by all amounts Mr. Braun receives as compensation for services performed during such period. If it is determined that any payment by the Company to Mr. Braun in connection with a change in corporate control would be a golden parachute subject to excise tax, the amount of the payments to him would be increased to cover such excise tax.

 

In the event of Mr. Braun’s death, his beneficiary would receive a lump sum payment equal to the present value of a series of monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of death or a minimum bonus equal to 55% of his annual base salary. In addition, the death benefits payable under any retirement, deferred compensation, life insurance or other employee benefit maintained by the Company will be paid to the beneficiary designated by Mr. Braun.

 

In the event of Mr. Braun’s termination as a result of disability, Mr. Braun would receive monthly payments for each month during the remainder of the term of the agreement (but not less than 12 months), each in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the date of disability or a minimum bonus equal to 55% of his annual base salary. These payments would terminate if Mr. Braun returns to active employment, either with the Company or otherwise. In addition, these payments would be reduced by any amounts paid to Mr. Braun under any long-term disability plan or other disability program or insurance policies maintained by the Company.

 

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

 

Vesting of Incentive Awards.  Mr. Braun’s stock option and restricted stock awards granted under the Company’s incentive plans (including the 50,000 shares of restricted stock granted as a special retention and

incentive award) would become vested and immediately exercisable in the event of a change in corporate control, or upon his death, disability or termination without cause.

 

Non-Competition and Non-Solicitation.  Upon the termination of the agreement for any reason, Mr. Braun will be subject to a non-solicitation agreement for one year from the later of the termination of the agreement or when severance payments under the agreement cease (or would have ceased if Mr. Braun had not elected to receive a lump sum payment or had such payments not been offset by compensation received from a new employer). In the event of a voluntary termination by Mr. Braun, the election by Mr. Braun not to extend the term of the agreement or a termination for cause by the Company, Mr. Braun also would be subject to a one-year non-competition agreement.

 

Charles J. Herman, Jr.

 

Severance Payments and Benefits.  If Mr. Herman is terminated without cause, he would receive severance pay for the remaining term of the agreement or for 12 months, whichever is greater. If Mr. Herman resigns during the 12 months following a “change in corporate control” (as defined in the agreement), he would receive severance pay for 24 months. These severance benefits would be made in a series of monthly payments, in an amount equal to one-twelfth of the sum of his annual base salary and the greater of the annual bonus for the fiscal year immediately preceding the termination or change in corporate control or a minimum bonus equal to 30% of his annual base salary. At Mr. Herman’s election, the Company may instead be required to make an immediate lump sum payment equal to the present value of such monthly payments, calculated using a discount rate equal to the interest rate on 90-day Treasury Bills reported at the date the election is received by the Company. Mr. Herman also would be entitled to continued benefits under any life, health and disability insurance programs maintained by the Company for the remaining term of the agreement, or six months, whichever is greater, or until the date he obtains comparable coverage from a new employer. If Mr. Herman is terminated without cause and he obtains a replacement position with a new employer, the severance payments described above will be reduced by all amounts Mr. Herman receives as compensation for services performed during such period. If it is determined that any payment by the Company to Mr. Herman in connection with a change in corporate control would be a golden parachute subject to excise tax, the amount of the payments to him would be increased to cover such excise tax.

 

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

 

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

 

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

 

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

 

Non-Competition and Non-Solicitation.  Upon the termination of the agreement for any reason, Mr. Herman will be subject to a non-solicitation agreement for one year from the later of the termination of the agreement or when severance payments under the agreement cease (or would have ceased if Mr. Herman had not elected to

receive a lump sum payment or had such payments not been offset by compensation received from a new employer). In the event of a voluntary termination by Mr. Herman, the election of Mr. Herman not to extend the term of the agreement or a termination for cause by the Company, Mr. Herman also would be subject to a one-year non-competition agreement.

 

Fred S. Klipsch

 

Severance Payments and Benefits.  If Mr. Klipsch’s service is terminated by him or the Company before the end of the two-year term for any reason, he will be entitled to receive his base consulting fee and performance bonus amounts accrued or earned but unpaid as of such date. He also will be entitled to receive a monthly severance payment (or, in the case of termination for disability, monthly disability payments) equal to his monthly base consulting fee for the remainder of the term (or, in the case of termination for disability, until he returns to active service to the Company, if applicable). In the event of disability, Mr. Klipsch may be entitled to additional payments under the Company’s disability plans and policies, and any such payments will reduce the payments due under the agreement. In addition, in exchange for not competing with the Company for the two-year period following the termination of Mr. Klipsch’s service for any reason, Mr. Klipsch will receive $600,000, payable in eight quarterly payments of $75,000. If Mr. Klipsch’s service terminates due to his death, his surviving spouse or other designated beneficiary will be entitled to receive a lump sum payment equal to the present value of the amounts which would have been payable to Mr. Klipsch as a result of the termination of his service and for not competing with the Company.

 

Vesting of Incentive Awards.  Mr. Klipsch’s stock option and restricted stock awards granted under the Company’s incentive plans would become vested and immediately exercisable in the event of his death.

 

Non-Competition and Non-Solicitation.  Upon the termination of the agreement for any reason, Mr. Klipsch will be subject to a two-year non-competition and non-solicitation agreement, except that Mr. Klipsch may solicit or hire Daniel R. Loftus, in his capacity as an attorney, at any time, and may solicit or hire either Mr. Loftus or Paula Conroy at any time after they cease to be employed by the Company.

Quantification of Benefits

 

The table below reflects estimates of the amounts of compensation that would be paid to the Named Executive Officers in the event of their termination. The amounts assume that such termination was effective as of December 31, 2007. The actual amounts to be paid to an executive can only be determined at the time of such executive’s separation from the Company.