Exhibit 10.3
FORM OF AWARD AGREEMENT
2007 Long-Term Equity-Based Compensation Program
Assisted Living Concepts, Inc.
TANDEM STOCK OPTION/STOCK APPRECIATION RIGHTS AWARD AGREEMENT

     
Employee:
  [EMPLOYEE NAME]
Number of Stock Options/SARs:
  [NUMBER OF OPTIONS/SARS]
Grant Date:
  March 30, 2007
Exercise Price:
  $11.80

     This Tandem Stock Option/Stock Appreciation Rights Award Agreement (the
“Award Agreement”) is entered into as of March 30, 2007, between Assisted Living
Concepts, Inc. (“ALC”) and Employee. In consideration of the mutual promises and
covenants made in this Award Agreement and the mutual benefits to be derived
from this Award Agreement, ALC and the Employee agree as follows:
     THIS AWARD IS SUBJECT TO ALL TERMS AND CONDITIONS OF THE PLAN AND THIS
AWARD AGREEMENT, INCLUDING, WITHOUT LIMITATION, THE DISPUTE RESOLUTION
PROVISIONS SET FORTH IN SECTION 17 OF THIS AWARD AGREEMENT. BY SIGNING YOUR NAME
BELOW, YOU WILL HAVE CONFIRMED YOUR ACCEPTANCE OF THE TERMS AND CONDITIONS OF
THIS AWARD AGREEMENT.
1. Definitions. Capitalized terms used in this Award Agreement that are not
defined in this Award Agreement have the meanings as used or defined in the
Assisted Living Concepts, Inc. 2006 Omnibus Incentive Compensation Plan (the
“Plan”) and is intended to be performance compensation under Section 162(m) of
the Internal Revenue Code. As used in this Award Agreement, the following terms
have the meanings set forth below:
     “Business Day” means a day that is not a Saturday, a Sunday or a day on
which banking institutions are legally permitted to be closed in the City of New
York.
     “Committee” means the Compensation/ Nominating/Governance Committee of the
Board, or such other committee of the Board as may be designated by the Board
from time to time to administer the Plan.
     “Common Stock” means Class A common stock of ALC, par value $0.01 per
share.
     “Determination Date” means the date during the first quarter of 2008, as
determined by the Committee, on which the Committee determines whether
Performance Goals with respect to the Performance Period have been achieved.

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     “Fair Market Value” means the closing market price per Share as reported on
the New York Stock Exchange (or other relevant exchange) on the applicable date
or, in the event there shall be no public market for the Shares on the
applicable date, the fair market value of the Shares as determined in good faith
by the Committee.
     “Performance Period” means the period from January 1, 2007 through
December 31, 2007.
     “Share” means a share of Common Stock.
2. Grant of Award. This Award Agreement sets forth the terms and conditions of
an award (the “Award”) under the Plan to the Employee as of the Grant Date of:
     a. Stock Options. The right and option (the “Stock Options”) to purchase up
to [NUMBER OF OPTIONS/SARS] Shares at the Exercise Price per Share, the Fair
Market Value on the date hereof. Each Stock Option is a Nonqualified Stock
Option. Unless earlier terminated pursuant to the terms of this Award Agreement,
the Stock Options shall expire on the fifth anniversary of the Grant Date.
     b. Stock Appreciation Rights. Each Stock Option includes a stock
appreciation right (“SAR”) at the price per Share equal to the Exercise Price.
The SAR constitutes an unfunded and unsecured promise of ALC to deliver (or
cause to be delivered) to Employee a whole number of Shares, cash or a
combination of Shares and Cash at the time such SAR vests and is exercised, as
provided herein, equal in value to the excess, if any, of the Fair Market Value
per Share over the Exercise Price per Share of the SAR. Fractional shares will
not be delivered and the number of Shares to be delivered upon any exercise by
you of SARs subject to this Award shall be rounded down to the nearest whole
Share. The Committee has sole discretion to deliver such value in Shares, cash,
or a combination of Shares and cash. Until such delivery, Employee has only the
rights of a general unsecured creditor and no rights as a stockholder of ALC.
Unless earlier terminated pursuant to the terms of this Award Agreement, the
SARs shall expire on the fifth anniversary of the Grant Date.
     c. Tandem Stock Option/Stock Appreciation Rights. An SAR with respect to a
Share shall vest, become exercisable, and terminate at the same times and under
the same terms as the Stock Option such Share is subject to. The exercise of a
Stock Option with respect to any Share shall cause the related SAR to
automatically terminate and the exercise of an SAR with respect to any Share
shall cause the related Stock Option to automatically terminate. Only one Stock
Option or one SAR, and not both, may be exercised with respect to any Share that
is subject to a Stock Option under this Award Agreement. The tandem Stock Option
and SAR rights with respect to a Share are referred to in this Award Agreement
as the “Stock Option/SAR.”
     d. Award Subject to Performance-Based Vesting. Except as otherwise provided
in any individual employment agreement between you and ALC or any of its
Affiliates (an “Employment Agreement”), the vesting of your rights with respect
to Stock Options/SARs is contingent on the attainment of performance goals set
forth on Exhibit A to this Award Agreement (the “Performance Goals”).
Accordingly, unless otherwise provided in your Employment Agreement, your rights
with respect to Stock Options/SARs subject to this Award Agreement will not
become vested on the

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Determination Date unless the Committee determines that the Performance Goals
with respect to the Performance Period have been attained. Furthermore, pursuant
to Section 14 and except as otherwise provided in your Employment Agreement, in
order for your rights with respect to any Stock Option or SAR to become vested
on the Determination Date, you must be employed by ALC or an Affiliate on the
Determination Date. If, on the Determination Date, the Committee determines in
its sole discretion that your rights with respect to any Stock Options/SARs
under this Award Agreement remain unvested, your rights with respect to such
Stock Options/SARs shall immediately terminate, and you will be entitled to no
further payments or benefits with respect thereto.
     e. Number of Vested Stock Options/SARs Dependent Upon Level of Performance.
If the Committee determines that the threshold level Performance Goal specified
in Exhibit A has been attained for the Performance Period, the Committee will
then determine the whole number of Stock Options/SARs that vest on the
Determination Date, up to the maximum number listed on the first page of this
Award Agreement, using the formula set forth in Exhibit A.
     f. Exercisability Subject to Time Vesting. Unless earlier terminated, any
Stock Options/SARs that the Committee determines to be vested as of the
Determination Date shall become exercisable as follows: one-third of the Shares
covered thereby (rounded up to the next whole Share) on March 30, 2008, an
additional one-third of such Shares (rounded up to the next whole Share) on
March 30, 2009, and the remainder of such Shares on March 30, 2010, subject in
each case to the prior termination of the Stock Option/SAR.
     g. Exercisability Upon Death, Disability or Change of Control.
Notwithstanding the foregoing, the Stock Options/SARs, to the extent
outstanding, shall become immediately vested and fully exercisable upon (a) a
Change of Control or (b) a Termination of Employment due to death or Disability.
For purposes of this Award Agreement, Disability means (1) “Disability” as
defined in your Employment Agreement, or (2) if there is no such employment or
similar agreement or it does not define “Disability,” permanent and total
disability as determined under ALC’s long-term disability plan applicable to
Employee. For purposes of this Award Agreement, Termination of Employment means
the termination of Employee’s employment with, or performance of services for,
ALC and any of its Subsidiaries or Affiliates. A participant employed by, or
performing services for, a Subsidiary or an Affiliate shall also be deemed to
incur a Termination of Employment if the Subsidiary or Affiliate ceases to be
such a Subsidiary or an Affiliate, as the case may be, and the participant does
not immediately thereafter become an employee of, or service-provider for, ALC
or another Subsidiary or Affiliate. Temporary absences from employment because
of illness, vacation or leave of absence and transfers among ALC and its
Subsidiaries and Affiliates shall not be considered Terminations of Employment.
3. The Plan. This Award is made pursuant to the Plan, all the terms of which are
hereby incorporated in this Award Agreement. In the event of any conflict
between the terms of the Plan and the terms of this Award Agreement, the terms
of this Award Agreement shall govern; provided, however, that, notwithstanding
the foregoing, it is understood that the provisions of Section 6(i)(vi)(D) of
the Plan, including but not limited to the concept of “negative discretion”
shall not be applicable to the Stock Options/SARs.

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In the event of any conflict between the terms of this Award Agreement and the
terms of any Employment Agreement, the terms of your Employment Agreement will
govern.
4. Exercise of the Stock Options.
     a. Stock Options as to which the Employee is vested, which have become
exercisable, and which have not terminated may be exercised by delivery to the
Secretary of ALC of a written or electronic notice, complying with the
applicable procedures established by the Committee or ALC, stating the number of
whole Shares to be purchased pursuant to this Award Agreement and the date on
which the Employee wants to exercise the Stock Option and accompanied by payment
of the full purchase price of the Shares to be purchased.
     b. The full purchase price of the Stock Option (the Exercise Price
multiplied by the number of Stock Options exercised) shall be paid in cash, by
wire transfer, or by certified check or bank draft payable to the order of ALC,
by exchange of Shares of unrestricted Common Stock of ALC already owned by the
Employee (that have been purchased on the open market by the Employee and held
for at least six months prior to exercise) and having an aggregate Fair Market
Value equal to the full purchase price, or by any other procedure approved by
the Committee, or by a combination of the foregoing.
     c. Employees who are not Executive Officers (as such term is defined the by
Securities and Exchange Commission) may also give notice and make payment
through a brokerage firm pursuant to an arrangement approved by ALC in advance.
5. Exercise of Stock Appreciation Rights. SARs as to which the Employee is
vested, which have become exercisable, and which have not terminated may be
exercised by delivery to the Secretary of ALC of a written or electronic notice,
complying with the applicable procedures established by the Committee or ALC,
stating the whole number of SARs that are thereby exercised. Upon exercise, ALC
shall deliver to Employee or Employee’s legal representative, at the absolute
discretion of the Committee, either (i) the number of Shares (rounded down to
the nearest whole Share) (the “Number of Equivalent Shares”) equal to (x)
(A) the excess, if any, of the Fair Market Value per Share on the exercise date
over the Exercise Price per Share of the SAR, multiplied by (B) the number of
SARs being exercised pursuant to such notice, divided by (y) the Fair Market
Value per Share on the exercise date, (ii) cash equal to the Fair Market Value
per Share on the exercise date multiplied by the Number of Equivalent Shares, or
(iii) any combination of cash and Shares with an aggregate value equal to the
Fair Market Value per Share on the exercise date multiplied by the Number of
Equivalent Shares.
6. Expiration of Stock Options/SARs. Unless the Committee determines otherwise
and except as otherwise provided in Section 7 or in your Employment Agreement
unexercised Options/SARs expire (i) automatically on the date of your
Termination of Employment for Cause (as defined in your Employment Agreement or,
if your Employment Agreement does not contain a definition of Cause) or
(ii) 90 days after the

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effective date of your Termination of Employment for any reason other than
Cause; provided that any portion of the Stock Options/SARs that is not vested as
of such effective date ceases vesting and terminates immediately; and provided
further that all Options/SARs will automatically expire on the fifth anniversary
of this Award Agreement.
7. Termination of Employment.
     a. If the Employee incurs a Termination of Employment due to Disability,
the Stock Options/SARs, to the extent outstanding at the time of such
Termination of Employment, shall become immediately vested and fully exercisable
and may be exercised by the Employee at any time prior to the first to occur of
(i) one year after such Termination of Employment or (ii) the expiration date of
the Stock Options/SARs, and shall thereafter expire.
     b. If the Employee incurs a Termination of Employment due to death, the
Stock Options/SARs, to the extent outstanding at the time of such Termination of
Employment, shall become immediately vested and fully exercisable and may be
exercised by the Employee’s estate or by a person who acquired the right to
exercise such Stock Options/SARs by bequest or inheritance or otherwise by
reason of the death of the Employee at any time prior to the first to occur of
(i) one year after such Termination of Employment or (ii) the expiration date of
the Stock Options/SARs, and shall thereafter expire.
     c. If the Employee incurs a Termination of Employment due to retirement at
or after age 65, the portion of the Stock Options/SARs, if any, which is
exercisable at the time of such Termination of Employment may be exercised at
any time prior to the first to occur of (i) three years after such Termination
of Employment or (ii) the expiration date of the Stock Options/SARs, and shall
thereafter expire. Any portion of the Stock Options/SARs that is not exercisable
at the time of such Termination of Employment due to retirement at or after age
65 shall expire as of such Termination of Employment.
     d. If the Employee incurs a voluntary Termination of Employment by the
Employee (other than retirement at or after age 65), the portion of the Stock
Options/SARs, if any, which is exercisable at the time of such Termination of
Employment may be exercised at any time prior to the first to occur of
(i) 30 days after such Termination of Employment or (ii) the expiration date of
the Stock Options/SARs, and shall thereafter expire. Any portion of the Stock
Option/SAR that is not exercisable at the time of such Termination of Employment
shall expire as of such Termination of Employment.
     e. If the Employee incurs a Termination of Employment by ALC without Cause,
the portion of the Stock Options/SARs, if any, which is exercisable at the time
of such Termination of Employment may be exercised at any time prior to the
first to occur of (i) 90 days after such Termination of Employment or (ii) the
expiration date of the Stock Option/SAR, and shall thereafter expire. Any
portion of the Stock Options/SARs

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that is not exercisable at the time of such Termination of Employment shall
expire as of such Termination of Employment. For purposes of this Award
Agreement, Cause means, unless otherwise provided by the Committee, (1) “Cause”
as defined in any Employment Agreement, or (2) if there is no such Employment
Agreement or if it does not define Cause: (A) conviction of Employee for
committing a felony under federal law or the law of the state in which such
action occurred, (B) dishonesty in the course of fulfilling Employee’s
employment duties, (C) willful and deliberate failure on the part of Employee to
perform his or her employment duties in any material respect, or (D) prior to a
Change in Control, such other events as shall be determined by the Committee.
The Committee shall, unless otherwise provided in any employment or similar
agreement between Employee and ALC, have the sole discretion to determine
whether “Cause” exists, and its determination shall be final.
8. Voting Rights; Dividend Equivalents. Prior to the date on which your rights
with respect to Options/SARs have become vested and you exercise such
Options/SARs, you shall not be entitled to exercise any voting rights with
respect to such Options/SARs or any Shares with respect thereto, and shall not
be entitled to receive dividends or other distributions with respect thereto.
9. Non-Transferability of Options/SARs. Unless otherwise provided by the
Committee in its discretion, Options/SARs may not be sold, assigned, alienated,
transferred, pledged, attached or otherwise encumbered except as provided in
Section 9(a) of the Plan. Any purported sale, assignment, alienation, transfer,
pledge, attachment or other encumbrance of Options/SARs in violation of the
provisions of this Section 9 and Section 9(a) of the Plan shall be void.
10. Adjustment in the Event of Change in Stock. In the event of any change in
corporate capitalization (including, but not limited to, a change in the number
of shares of Common Stock outstanding), such as a stock split or a corporate
transaction, such as any merger, consolidation, separation, including a
spin-off, or other distribution of stock or property of ALC, any reorganization
(whether or not such reorganization comes within the definition of such term in
Section 368 of the Code), or any partial or complete liquidation of ALC, the
number and kind of shares subject to the Stock Option/SAR and/or the exercise
price per share shall be adjusted by the Board or Committee as the Board or
Committee may determine to be appropriate in its sole discretion; provided,
however, that the number of shares subject to the Stock Options/SARs shall
always be a whole number. The determination of the Board or Committee regarding
any adjustment will be final and conclusive.
11. Payment of Transfer Taxes, Fees and Other Expenses. ALC agrees to pay any
and all original issue taxes and stock transfer taxes that may be imposed on the
issuance of Shares acquired pursuant to exercise of the Stock Options/SARs,
together with any and all other fees and expenses necessarily incurred by ALC in
connection therewith.
12. Other Restrictions on Exercisability. The exercise of the Stock Options/SARs
and the delivery of share certificates upon such exercise shall be subject to
the requirement that, if at any time the Committee shall determine that (a) the
listing, registration or

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qualification of the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or federal law or (b) the consent or
approval of any government regulatory body is, in the case or (a) or (b),
necessary or desirable as a condition of, or in connection with, such exercise
or the delivery or purchase of shares pursuant thereto, then in any such event
such exercise shall not be effective unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained free of
any conditions not acceptable to the Committee.
13. Taxes and Withholdings. No later than the date of exercise of the Stock
Options/SARs granted hereunder, the Employee shall pay to ALC or make
arrangements satisfactory to the Committee regarding payment of any federal,
state and local taxes, and any non-U.S. taxes applicable to the Employee, of any
kind required by law to be withheld upon the exercise of such Stock
Options/SARs. In the event that there is withholding tax liability in connection
with the exercise of Options/SARs, you may satisfy, in whole or in part, any
withholding tax liability by having ALC withhold from the number of Shares you
would be entitled to receive pursuant to the exercise of the Options/SARs, a
number of Shares having a Fair Market Value equal to such withholding tax
liability. ALC shall, to the extent permitted or required by law, have the right
to deduct from any payment of any kind otherwise due to the Employee federal,
state, local and applicable non-U.S. taxes of any kind required by law to be
withheld upon the exercise of such Stock Options/SARs.
14. Consents and Legends.
     a. Consents. Your rights in respect of the Options/SARs that are subject to
this Award are conditioned on the receipt to the full satisfaction of the
Committee of any required consents that the Committee may reasonably determine
to be necessary or advisable (including, without limitation, your consenting to
ALC’s supplying to any third-party record keeper of the Plan such personal
information as ALC or the Committee deems advisable to administer the Plan).
     b. Legends. ALC may affix to certificates for Shares issued pursuant to
this Award Agreement any legend that ALC or the Committee determines to be
necessary or advisable (including to reflect any restrictions to which you may
be subject under any applicable securities laws). ALC may advise the transfer
agent to place a stop order against any legended Shares.
15. Successors and Assigns of ALC. The terms and conditions of this Award
Agreement shall be binding upon and shall inure to the benefit of ALC and its
successors and assigns.
16. Committee Discretion. Subject to the terms of your Employment Agreement, the
Committee shall have full and plenary discretion with respect to any actions to
be taken or determinations to be made in connection with this Award Agreement,
and its determinations shall be final, binding and conclusive.

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17. Dispute Resolution.
     a. Jurisdiction and Venue. Notwithstanding any provision in your Employment
Agreement, you and ALC irrevocably submit to the exclusive jurisdiction of
(i) the United States District Court for the Eastern District of Wisconsin and
(ii) the courts of the State of Wisconsin for the purposes of any suit, action
or other proceeding arising out of this Award Agreement or the Plan. You and ALC
agree to commence any such action, suit or proceeding either in the United
States District Court for the Eastern District of Wisconsin or, if such suit,
action or other proceeding may not be brought in such court for jurisdictional
reasons, in the courts of the State of Wisconsin. You and ALC further agree that
service of any process, summons, notice or document by U.S. registered mail to
the other party’s address set forth below shall be effective service of process
for any action, suit or proceeding in Wisconsin with respect to any matters to
which you have submitted to jurisdiction in this Section 17(a). You and ALC
irrevocably and unconditionally waive any objection to the laying of venue of
any action, suit or proceeding arising out of this Award Agreement or the Plan
in (A) the United States District Court for the Eastern District of Wisconsin or
(B) the courts of the State of Wisconsin, and hereby and thereby further
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum.
     b. Waiver of Jury Trial. You and ALC hereby waive, to the fullest extent
permitted by applicable law, any right either of you may have to a trial by jury
in respect to any litigation directly or indirectly arising out of, under or in
connection with this Award Agreement or the Plan.
     c. Confidentiality. You hereby agree to keep confidential the existence of,
and any information concerning, a dispute described in this Section 17, except
that you may disclose information concerning such dispute to the court that is
considering such dispute or to your legal counsel or other advisors (provided
that such counsel or other advisors agree not to disclose any such information
other than as necessary to the prosecution or defense of the dispute).
18. Notice. All notices, requests, demands and other communications required or
permitted to be given under the terms of this Award Agreement shall be in
writing and shall be deemed to have been duly given when delivered by hand or
overnight courier or three Business Days after they have been mailed by U.S.
registered mail, return receipt requested, postage prepaid, addressed to the
other party as set forth below:

     
If to ALC:
  Assisted Living Concepts, Inc.
111 West Michigan Street
Milwaukee, WI 53203
Attention: Corporate Secretary
 
   
If to Employee:
  [NAME/ADDRESS OF EMPLOYEE]

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     The parties may change the address to which notices under this Award
Agreement shall be sent by providing written notice to the other in the manner
specified above.
19. Headings. Headings are given to the Sections and subsections of this Award
Agreement solely as a convenience to facilitate reference. Such headings shall
not be deemed in any way material or relevant to the construction or
interpretation of this Award Agreement or any provision thereof.
20. Amendment of this Award Agreement. The Committee may waive any conditions or
rights under, amend any terms of, or alter, suspend, discontinue, cancel or
terminate this Award Agreement prospectively or retroactively; provided,
however, that any such waiver, amendment, alteration, suspension,
discontinuance, cancellation or termination that would materially and adversely
impair your rights under this Award Agreement shall not to that extent be
effective without your consent (it being understood, notwithstanding the
foregoing proviso, that this Award Agreement and the Options/SARs shall be
subject to the provisions of Section 7(c) of the Plan).
21. Counterparts. This Award Agreement may be signed in counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
     IN WITNESS WHEREOF, the parties have duly executed this Award Agreement as
of the date first written above.

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