-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B6SCP7GoR+8uLhthRpXIoPUf1dxnnRuKxteXmk04Yp+YiSGbaYrnNPpAoGH6B+nc K9zKoqwqokS+O3HJqT/8jg== 0000893877-97-000485.txt : 19970815 0000893877-97-000485.hdr.sgml : 19970815 ACCESSION NUMBER: 0000893877-97-000485 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: REGENT ASSISTED LIVING INC CENTRAL INDEX KEY: 0001000693 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-SKILLED NURSING CARE FACILITIES [8051] IRS NUMBER: 931171049 STATE OF INCORPORATION: OR FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-27108 FILM NUMBER: 97663521 BUSINESS ADDRESS: STREET 1: 2260 US BANCORP TOWER STREET 2: 111 SW FIFTH AVE CITY: PORTLAND STATE: OR ZIP: 97204 BUSINESS PHONE: 5032274000 MAIL ADDRESS: STREET 1: 2260 US BANCORP TOWER STREET 2: 111 SW FIFTH AVE CITY: PORTLAND STATE: OR ZIP: 97204 10QSB 1 FORM 10-QSB - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20459 FORM 10-QSB _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1994 For the Quarterly period ending June 30, 1997 ___ TRANSITION REPORT PURSUANT TO SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1994 For the Transition period from ____ to ____ Commission file number 0-27108 REGENT ASSISTED LIVING, INC. (Exact name of registrant as specified in its charter) OREGON 93-1171049 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Suite 1000 121 SW Morrison St. Portland, Oregon 97204 (Address of principle executive offices) 503-227-4000 (Registrant's telephone number, including area code) Indicated by check mark whether Registrant (1) has filed all reports to be filed by section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ___ Shares of Registrant's Common Stock, No par value, outstanding at August 1, 1997 - 4,633,000 - -------------------------------------------------------------------------------- REGENT ASSISTED LIVING, INC. FORM 10-QSB June 30, 1997 INDEX Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Consolidated Balance Sheets as of December 31, 1996 and June 30, 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Condensed Consolidated Statements of Operations for the three months and six months ended June 30, 1996 and 1997 . . . . . . . . . . . . . . . . . 4 Condensed Consolidated Statements of Cash Flows for the three months and six months ended June 30, 1996 and 1997 . . . . . . . . . . . . . . . . . 5 Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . 6 Item 2. Management's Discussion and Analysis or Plan of Operation. . . . . . 9 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . .15 Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . .15 Page 2 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED BALANCE SHEETS June 30, December 31, 1997 1996 (Unaudited) ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ 8,650,817 $ 5,307,520 Investments 2,939,448 Accounts receivable 148,976 111,100 Prepaid expenses 126,148 349,162 Construction advances receivable 1,125,315 137,837 ------------ ------------ Total current assets 12,990,704 5,905,619 Property and equipment, net 17,383,668 32,949,299 Investment in joint venture 263,579 310,270 Restricted cash 1,646,485 2,294,720 Deferred income tax benefit 304,300 271,200 Other assets 588,948 528,874 ------------ ------------ Total assets $ 33,177,684 $ 42,259,982 ============ ============ LIABILITIES Current liabilities: Current portion of long-term debt $ 150,950 $ 165,033 Accounts payable and other accrued expenses 2,348,369 4,776,523 Accrued payroll 335,155 343,596 Accrued interest 57,530 57,035 ------------ ------------ Total current liabilities 2,892,004 5,342,187 Long-term debt 9,753,846 16,945,754 Other liabilities 474,423 754,896 ------------ ------------ Total liabilities 13,120,273 23,042,837 ------------ ------------ SHAREHOLDERS' EQUITY Preferred stock, no par value, 5,000,000 shares authorized; 1,666,667 shares issued and outstanding 9,349,841 9,349,841 Common stock, no par value, 25,000,000 shares authorized; 4,633,000 shares issued and outstanding 10,808,703 10,808,703 Accumulated deficit (101,133) (941,399) ------------ ------------ Total shareholders' equity 20,057,411 19,217,145 ------------ ------------ Total liabilities and shareholders' equity $ 33,177,684 $ 42,259,982 ============ ============ The accompanying notes are an integral part of these condensed consolidated financial statements.
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REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (Unaudited) Three Months Ended Three Months Ended Six Months Ended Six Months Ended June 30, 1996 June 30, 1997 June 30, 1996 June 30, 1997 ------------- ------------- ------------- ------------- Revenues: Rental and service $ 3,164,543 $ 3,203,750 $ 6,392,673 $ 6,540,097 Management fee 42,020 44,199 86,414 88,121 ------------ ------------ ------------ ------------ Total revenues 3,206,563 3,247,949 6,479,087 6,628,218 ------------ ------------ ------------ ------------ Operating expenses: Residence operating expenses 1,951,705 2,197,624 3,920,394 4,333,901 General and administrative 451,731 650,647 924,344 1,362,851 Lease expense 689,313 782,151 1,378,625 1,488,351 Depreciation and amortization 60,417 78,063 119,131 146,848 ------------ ------------ ------------ ------------ Total operating expenses 3,153,166 3,708,485 6,342,494 7,331,951 ------------ ------------ ------------ ------------ Operating income (loss) 53,397 (460,536) 136,593 (703,733) Interest income 87,119 73,812 203,981 222,591 Interest expense, net (129,802) (258,581) (101,228) Other income, net 5,622 12,341 10,112 17,604 ------------ ------------ ----------- ------------ Income (loss) before income taxes 16,336 (374,383) 92,105 (564,766) Income tax (provision) benefit (6,208) (35,000) 24,500 ------------ ------------ ----------- ------------ Net income (loss) $ 10,128 ($374,383) $ 57,105 ($540,266) ============ ============ =========== ============ Earnings (loss) per common share $0.00 ($0.11) $0.01 ($0.18) ============ ============ =========== ============ Weighted average common shares outstanding 4,633,000 4,633,000 4,633,000 4,633,000 ============ ============ =========== ============ The accompanying notes are an integral part of these condensed consolidated financial statements.
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REGENT ASSISTED LIVING, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended Six Months Ended June 30, 1996 June 30, 1997 ------------- ------------- Cash flows from operating activities: Net income (loss) $ 57,105 ($540,266) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 119,131 146,848 Changes in other assets and liabilities: Accounts receivable 47,323 37,876 Prepaid expenses (9,224) (109,014) Restricted cash 65,564 Deferred income taxes 33,100 Other assets (88,385) 56,643 Accounts payable and other accrued expenses 79,689 (131,880) Other liabilities 12,645 (59,527) ------------ ------------ Net cash provided by (used in) operating activities 283,848 (566,220) ------------ ------------ Cash flows from investing activities: Maturity of investments, net 1,952,542 2,939,448 Purchases of property and equipment (4,252,379) (15,826,609) Increase in construction related accounts payable 3,374,930 Investment in joint venture (46,691) Deposits to replacement reserve account (32,400) ------------ ------------- Net cash used in investing activities (2,299,837) (9,591,322) ------------ ------------- Cash flows from financing activities: Prepayments and deposits for financing arrangements (177,000) Construction reimbursements and deferred development fee 1,327,478 Restricted cash for financing arrangements (615,835) Proceeds from issuance of long-term debt 7,280,719 Payments on long-term debt (38,628) (74,728) Preferred stock issuance costs (600,159) Preferred stock dividends (326,230) ------------ ------------- Net cash provided by (used in) financing activities (38,628) 6,814,245 ------------ ------------- Net decrease in cash and cash equivalents (2,054,617) (3,343,297) Cash and cash equivalents, beginning of period 7,585,952 8,650,817 ------------ ------------- Cash and cash equivalents, end of period $ 5,531,335 $ 5,307,520 ============ ============= The accompanying notes are an integral part of these condensed consolidated financial statements.
Page 5 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Operations and Summary of Significant Account Policies: The Company Regent Assisted Living, Inc. ("the Company") is an owner, operator, and developer of private-pay assisted living communities. Assisted living is part of a spectrum of long-term care services that provide a combination of housing, personal services and health care designed to respond to elderly individuals who require assistance with activities of daily living in a manner that promotes maximum independence. On December 26, 1995, the Company sold 1,400,000 shares of common stock to the public at a price of $7.50 per share in an initial public offering (the Offering). Concurrently, the Company sold an additional 233,000 shares at a price of $7.50 per share to Mr. Walter C. Bowen, the Chairman of the Board, Chief Executive Officer, President and majority shareholder of the Company. The Company realized net proceeds of approximately $10.8 million from these transactions. On December 16, 1996, the Company completed the sale of 1,283,785 shares of Series A Preferred Stock and 382,882 shares of Series B Preferred Stock for the aggregate price of $10 million. The results of operations for the six months ended June 30, 1996 reflect the operations of three assisted living communities (Regency Park, Sterling Park and Sunshine Villa) and the property management services provided to one community (Park Place). The results of operations for the six months ended June 30, 1997, additionally reflect the operation of one new assisted living community (Willow Park) and the property management services provided to one additional community (Sun Oak). As of August 1, 1997, an additional 25 assisted living and special needs communities are in various stages of development. The Company also provides management and administrative services for Bowen Property Management Co., Bowen Financial Services Corp., Bowen Development Company and Bowen Condominium Marketing, Inc. (collectively, the Bowen Companies), all of which are Oregon corporations and are wholly owned by Mr. Bowen. These services are provided pursuant to the terms of an Administrative Services Agreement described in Note 3. Basis of Presentation The condensed consolidated financial statements include the accounts of the Company and its majority owned subsidiary. All significant inter-company accounts and transactions have been eliminated in consolidation. Page 6 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 1. Operations and Summary of Significant Accounting Policies, Continued: The accompanying unaudited condensed consolidated financial statements as of June 30, 1997, and for the three month and six month periods ended June 30, 1997 and 1996, have been prepared in conformity with generally accepted accounting principles. The financial information as of December 31, 1996, is derived from the Company's Form 10-KSB for the year ended December 31, 1996. Certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying financial statements include all adjustments necessary (which are of a normal and recurring nature) for the fair presentation of the results of the interim periods presented. The accompanying financial statements should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 1996 included in the Company's Form 10-KSB for the year ended December 31, 1996. Operating results for the three months and six months ended June 30, 1997, are not necessarily indicative of the results that may be expected for the entire fiscal year ending December 31, 1997, or any portion thereof. 2. Property and Equipment:
Property and equipment are stated at cost and consist of the following: December 31, June 30, 1996 1997 Land $ 1,100,000 $ 1,100,000 Buildings and improvements 6,520,556 6,636,891 Furniture and equipment 530,540 692,077 Construction in progress 9,456,006 24,885,466 ------------ ------------ 17,607,102 33,314,434 Less accumulated depreciation 223,434 365,135 ------------ ------------ Total property and equipment, net $ 17,383,668 $ 32,949,299 ============ ============
Land, buildings and certain furniture and equipment serve as collateral for long-term debt. Page 7 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 3. Administrative Services Agreement: The Company has entered into an agreement with the Bowen Companies, all of which are Oregon corporations controlled by Mr. Bowen, whereby the Company will provide each of the Bowen Companies executive assistance, accounting and financial management services, legal and administrative assistance, insurance, management information services, and other management services as required by the Bowen Companies. Under the terms of the agreement, the Company will be reimbursed at its cost on a monthly basis for all services provided. 4. Earnings (Loss) Per Common Share: The computation of fully diluted earnings (loss) per share for each of the periods was antidilutive; as such, no presentation of fully diluted earnings (loss) per share has been included in the condensed consolidated statements of operations. Earnings (loss) attributable to common stock includes a deduction of preferred stock dividends declared, which totaled $150,000 and $300,000 for the three and six month periods ended June 30, 1997, respectively. 5. Accounting Pronouncements: The Financial Accounting Standards Board (FASB) has issued several accounting pronouncements which the Company will be required to adopt in future fiscal reporting periods. FASB Statement No. 128 "Earnings per Share" establishes new guidelines for the calculation of and disclosures regarding earnings per share. The Company will adopt the provisions of Statement No. 128 during the first quarter of 1998 and at that time will be required to present basic and diluted earnings per share and to restate all prior periods. There will be no impact on the calculation of basic earnings per share for the three months and six months ended June 30, 1997 and 1996. Diluted earnings per share is not expected to differ materially from basic earnings per share. The Company will adopt FASB Statement No. 129 "Disclosure of Information About Capital Structure" during the first quarter of 1998. The Company does not expect that adoption of the disclosure requirements of this pronouncement will have a material impact on its financial statements. Page 8 REGENT ASSISTED LIVING, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS, Continued 5. Accounting Pronoucements, continued: FASB Statement No. 130 "Reporting Comprehensive Income," which the Company will adopt during the first quarter of 1998, establishes standards for reporting and display of comprehensive income and its components in financial statements. Comprehensive income generally represents all changes in shareholders' equity except those resulting from investments by or distributions to shareholders. Such changes are generally not significant to the Company; and the adoption of Statement No. 130, including the required comparative presentation for prior periods, is not expected to have a material impact on its financial statements. Page 9 ITEM 2. Management's Discussion and Analysis or Plan of Operation. Overview The Company The Company reported a net loss of $374,383, or $0.11 per share, on revenue of $3,247,949 for the three months ended June 30, 1997. For the six months ended June 30, 1997, the Company reported a net loss of $540,266, or $0.18 per share, on revenue of $6,628,218. The Company operated four communities pursuant to long-term leases and managed two additional communities during the three month period ending June 30, 1997. The Company leases Regency Park, a 142-bed assisted living community in Portland, Oregon, Sterling Park, a 192-bed community in Redmond, Washington, Sunshine Villa, a 126-bed community located in Santa Cruz, California, and Willow Park, a 134-bed community located in Boise, Idaho, for total operations of 594 beds. The Company also manages Park Place, a 112-bed community in Portland, Oregon, and Sun Oak, a 50-bed community in Citrus Heights, California, from which the Company derives management fees. Effective July 8, 1997, the Company began operating West Wind, a 48-bed community in Boise, Idaho, pursuant to a long-term lease. As of August 1, 1997, the Company had commenced construction on the following twelve new communities:
Expected Projected Quarter Leased or Location No. of Beds Opening Owned -------- ----------- ------- ----- Folsom, California 122 3rd-97 Owned San Antonio, Texas 137 3rd-97 Leased Roseville, California 108 4th-97 Owned Clovis, California 129 4th-97 Leased Rio Rancho, New Mexico 114 4th-97 Owned* Bakersfield, California 131 4th-97 Owned Eugene, Oregon 125 4th-97 Owned Vacaville, California 127 4th-97 Owned Tucson, Arizona 136 1st-98 Owned Henderson, Nevada 134 1st-98 Owned Austin, Texas 136 1st-98 Owned Kenmore, 96 2nd-98 Owned** Washington * The Company's community in Rio Rancho will be owned by a limited liability company in which the Company owns a 90 percent interest. The Company will manage the community. ** The Company's community in Kenmore will be owned by a limited liability company in which the Company owns a 50 percent interest. The Company will manage the community.
Page 10 An additional thirteen new communities were under varying stages of development as of August 1, 1997. If all 25 communities are developed, operations of the Company will increase by approximately 2,400 beds to a total of approximately 3,000. Also, with the intent of securing additional sites on which to build new communities, the Company is currently engaged in negotiations to acquire several additional sites and is pursuing joint venture opportunities with parties who control parcels of land in strategic markets. All costs associated with the development of these communities have been capitalized as "Construction in Progress" as disclosed in Note 2 to the condensed consolidated financial statements. Operating results for the three month and six month periods ended June 30, 1997, are not necessarily indicative of future financial performance as the Company intends to expand its operating base of communities. Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996 Revenues. For the three month period ended June 30, 1997, revenues were $3,247,949 compared to $3,206,563 in the three month period ended June 30, 1996. The Company operated three communities and managed a fourth in the three month period ended June 30, 1996, whereas the Company began operating a fourth community and managing a second community in May, 1997. The increase in revenue of $41,386, or 1.3 percent, includes $25,153 related to the newly opened community. Overall average occupancy at the three stabilized communities declined slightly to 93.2 percent for the three month period ended June 30, 1997 from 93.8 percent for the same period in 1996. Residence Operating Expenses. Residence operating expenses were $2,197,624 for the three month period ended June 30, 1997, and $1,951,705 for the same period in 1996, an increase of $245,919. The current period includes $292,689 of start-up and pre-opening costs related to the Company's new communities in Boise, Folsom and San Antonio. Residence operating expenses, excluding the effect of the new communities, totaled 59.9 percent and 61.7 percent of rental and service revenues for the three month periods ended June 30, 1997 and 1996, respectively. General and Administrative Expenses. General and administrative expenses were $650,647 for the three month period ended June 30, 1997, compared to $451,731 for the three month period ended June 30, 1996. The increase of $198,916 is due primarily to the increase in development activities by the Company, including payroll and related costs primarily resulting from staffing increases related to the implementation of the Company's strategy for rapid growth. Lease Expense. Lease expense for the Company's leased communities was $782,151 for the three month period ended June 30, 1997, and was $689,313 for the same period for 1996. The increase of $92,838 includes $77,781 related to the newly opened community. Depreciation and Amortization. Depreciation and amortization expense was $78,063 for the three month period ended June 30, 1997, compared to $60,417 for the three month period ended June 30, 1996. Page 11 Interest Income. Interest income decreased in the three month period ended June 30, 1997, to $73,812, from $87,119 for the same period in 1996. Interest income for the second quarter of 1997 resulted from the investment of the net proceeds from the sale of preferred stock in December, 1996, whereas interest income for the second quarter of 1996 resulted from the investment of the Company's net proceeds of its initial public offering. All investments of cash and cash equivalents are in high quality, short term securities placed with institutions with high credit ratings. Interest Expense. The Company reported no interest expense for the three months ended June 30, 1997, compared to $129,802 for the three month period ended June 30, 1996. The Company capitalized $258,771 of interest charges incurred during the three months ended June 30, 1997. The interest costs were incurred by the Company in the current period in connection with borrowings for construction purposes and the Sunshine Villa sale/leaseback financing. Net Income (loss). Net operating results decreased to a loss of $374,383 during the three month period ended June 30, 1997, from net income of $10,128 for the same period in 1996. The current period loss is indicative of the Company's expansion efforts and is expected to continue until the income from stabilized communities exceeds the initial operating losses generated from new communities. The decrease in net results is primarily due to an increase in general and administrative expenses (as discussed above), an increase in lease expense (as discussed above), a decrease in residence operating profits (rental and service revenue less residence operating expenses) of $206,712, offset by an decrease in interest expense of $129,802. Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 Revenues. For the six month period ended June 30, 1997, revenues increased by $149,131, or 2.3%, to $6,628,218, compared to $6,479,087 in the six month period ended June 30, 1996. Overall average occupancy at the three stabilized communities increased slightly to 94.7 percent for the six month period ended June 30, 1997 from 94.3 percent for the same period in 1996. Residence Operating Expenses. Residence operating expenses were $4,333,901 for the six month period ended June 30, 1997, and $3,920,394 for the same period in 1996. The increase of $413,507 is due primarily to the combined impact of slightly higher than expected operating costs for 1997 with lower than expected operating costs for 1996. In addition, the current period includes $322,990 of start-up and pre-opening costs related to three of the Company's new communities. Residence operating expenses, excluding the effect of the new communities, totaled 61.6 percent and 61.3 percent of rental and service revenues for the six month periods ended June 30, 1997 and 1996, respectively. General and Administrative Expenses. General and administrative expenses were $1,362,851 for the six month period ended June 30, 1997, compared to $924,344 for the six month period ended June 30, 1996. The increase of $438,507 is due primarily to the increase in development activities by the Company, including payroll and related costs primarily resulting from staffing increases related to the implementation of the Company's strategy for rapid growth. Page 12 Lease Expense. Lease expense for the Company's leased communities was $1,488,351 for the six month period ended June 30, 1997, and was $1,378,625 for the same period for 1996. The increase of $109,726 includes $77,781 related to the newly opened community. Depreciation and Amortization. Depreciation and amortization expense was $146,848 for the six month period ended June 30, 1997, compared to $119,131 for the six month period ended June 30, 1996. Interest Income. Interest income increased in the six month period ended June 30, 1997, to $222,591, from $203,981 for the same period in 1996, an increase of $18,610. Interest Expense. Interest expense decreased in the six month period ended June 30, 1997, to 101,228, from $258,581 for the six month period ended June 30, 1997. The Company capitalized $372,192 of interest charges incurred during the six months ended June 30, 1997. Net Income (loss). Net operating results decreased to a loss of $540,266 during the six month period ended June 30, 1997, from net income of $57,105 for the same period in 1996. The decrease in net results is primarily due to an increase in general and administrative expenses (as discussed above), an increase in lease expense (as discussed above), a decrease in residence operating profits (rental and service revenue less residence operating expenses) of $266,083, offset by an decrease in interest expense of $157,353. Liquidity and Capital Resources At June 30, 1997, the Company had approximately $563,000 of working capital compared to approximately $10.1 million at December 31, 1996, a decrease of $9.5 million primarily related to expenditures for development activities. Current liabilities include approximately $4.2 million of construction related payables for which long-term financing has been arranged. Net cash used in operating activities totaled $566,220 for the six month period ended June 30, 1997, which resulted primarily from a net loss of $540,266. Net cash used in investing activities totaled $9,591,322 for the six month period ended June 30, 1997, comprised primarily of $12,451,679 used in development activities offset by $2,939,448 provided from the maturity of investments. During the period, the Company incurred construction costs in nine locations and conducted preliminary development activities related to thirteen sites. At June 30, 1997, the aggregate purchase price for the Company's binding options related to ten parcels of land was approximately $7,000,000. The Company has paid initial deposits relating to these sites and has also completed the demographic analysis and other preliminary due diligence for purposes of developing assisted living communities at these sites. Net cash provided by financing activities totaled $6,814,245 during the six month period ended June 30, 1997, consisting of construction financing proceeds totaling $7,280,719, net reimbursements and development fees from REIT's totaling $1,327,478, offset by increases in restricted cash of $615,835, and payment of preferred stock issuance costs of $600,159 and preferred stock dividends of $326,230. Page 13 During the remainder of 1997, the Company intends to utilize current working capital resources to develop and construct assisted living communities. The Company intends to finance a substantial portion of the cost of developing each new community through additional sale/leaseback transactions with real estate investment trusts, as well as conventional financing with commercial banks, pension funds, and other financial institutions. The Company has completed four transactions with a real estate investment trust pursuant to which the Company sold its Sunshine Villa community and obtained approximately $23.4 million of lease financing for its Boise, San Antonio and Clovis communities. As of the end of the second quarter of 1997, the Company had completed the following construction loans:
Amount Community Lender - ------ --------- ------ $6,850,000 Folsom, California US National Bank of Oregon $5,935,000 Kenmore, Washington US National Bank of Oregon $7,600,000 Vacaville, California US National Bank of Oregon $7,200,000 Bakersfield, California Guaranty Federal Bank, FSB $7,700,000 Austin, Texas Guaranty Federal Bank, FSB $7,375,500 Rio Rancho, New Mexico Guaranty Federal Bank, FSB $6,255,000 Eugene, Oregon Wells Fargo $6,450,000 Roseville, California Key Bank
The Company has also received commitments or expressions of intent to provide the following construction financing:
Amount Community Lender - ------ --------- ------ $ 7,115,000 Tucson, Arizona Bank United of Texas, FSB $ 6,930,000 Henderson, Nevada Bank United of Texas, FSB $15,000,000 Multiple locations * US National Bank of Oregon * This loan facility will be for the construction of up to five Regent Court stand-alone special needs communities.
Additional project financing of up to $174.5 million has been agreed to, in principal terms, between the Company and Meditrust, a healthcare real estate investment trust. The financing is divided into three facilities. The first provides up to $100 million in sale/leaseback financing for communities currently under construction and for acquisition of new communities. The second provides an additional $70 million in financing for future development and acquisition activities. The third is a $4.5 million line of credit available primarily for development related expenditures, including site acquisition. Each of the pending financing transactions is subject to a number of conditions, including the negotiation and execution of definitive documents and the satisfactory completion of due diligence on the related properties, and there is no assurance that any of these financing transactions will be completed on the terms proposed, or at all. Page 14 The Company anticipates capital expenditures for 1997 will include additional land acquisition costs, architectural fees, and other development costs related to at least 14 assisted living communities and construction costs related to at least 16 new assisted living communities. The Company currently estimates that its plan to develop at least 14 additional assisted living communities and five Regent Court stand alone special needs communities by July 1, 1998, including the communities described above that are under development, will likely require additional financing prior to construction of the five Regent Court communities. Such additional financing may be required in addition to the financing described in the preceding paragraphs. Such financing may take the form of debt or equity, including a public or private debt or equity offering by either the Company or with respect solely to one or more new communities, or conventional bank financing, or the use of sale/leaseback financing from real estate investment trusts. The amount of such additional financing will be dependent upon the amount of security deposits required under, and other terms of, the sale/leaseback financing arrangements the Company expects to negotiate, the performance of the Company's newly developed communities and existing properties, and the extent to which the Company engages in development activities for projects in addition to the 25 communities currently under varying stages of development or construction. If the Company is unable to obtain additional required financing, or if such financing is not available on acceptable terms, the Company believes that its plan to develop these 25 new communities by the end of 1998 would likely be delayed or curtailed. Forward-Looking Statements The information set forth in this report in the sections entitled "Overview" and "Liquidity and Capital Resources" regarding the Company's acquisition of sites for development, the Company's development, construction, financing and opening of new assisted living communities, and the Company's plans to develop, construct and operate new Regent Court communities constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and is subject to the safe harbor created by that section. The development of additional assisted living communities will involve a number of risks including, without limitation, the risk that the Company will be unable to locate suitable sites, risks relating to the inability to obtain, or delays in obtaining, necessary zoning, land use, building, occupancy and other required governmental permits and authorizations, risks that financing may not be available on satisfactory terms, environmental risks, risks that construction costs may exceed original estimates, risks that construction and lease-up may not be completed on schedule, and risks relating to the competitive environment for development. The foregoing risks could cause the Company to significantly delay or curtail its planned growth and could cause one or more of the Company's new communities to not be profitable. Additional factors that could cause results to differ materially from those projected in the forward-looking statements include, without limitation, the ability of the Company to raise additional financing upon terms acceptable to the Company, increases in the costs associated with new construction, competition, and acceptance of the Company's prototype community in new geographic markets. The Company's growth strategy is subject to the risk that occupancy rates at newly-developed communities may not be achieved or sustained at expected levels, in which case, the Company will experience greater than anticipated operating losses in connection with the opening of new communities and the Company's need for additional financing to meet its growth plans will likely increase. Furthermore, the Company's growth will place increasing pressure on the Company's management controls and require the Company to locate, train, assimilate, and retain additional community managers and support staff. There is no assurance that the Company will be able to manage this growth successfully. Page 15 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its 1996 annual meeting of shareholders at 2:00 p.m., PDT, on May 6, 1997, on the 31st Floor of the U.S. Bancorp Tower, 111 S.W. Fifth Avenue, Portland, Oregon. The only matters submitted to a vote of the shareholders were the election of two directors and to increase the number of shares of the Company's Common Stock that may be issued pursuant to the Company's 1995 Stock Incentive Plan from 400,000 to 600,000. Proxies were solicited pursuant to Regulation 14A of the Exchange Act. The following persons were elected by the following vote as directors for the stated terms:
Votes Against Votes For or Withheld Abstentions Non-Votes --------- ----------- ----------- --------- Class I (three year term); Dana J. O'Brien 5,501,242 3,500 0 0 Steven L. Gish 5,501,242 3,500 0 0
The proposal to increase the number of shares of the Company's Common Stock that may be issued pursuant to the Company's 1995 Stock Incentive Plan from 400,000 to 600,000 was approved by the following vote: Votes For Votes Against Abstentions Non Votes - --------- ------------- ----------- --------- 4,721,669 15,980 6,500 760,593 Item 6. Exhibits and Reports on Form 8-K Exhibits: 10.1 Regent Assisted Living, Inc. 1995 Stock Incentive Plan, as amended 27 Financial Data Schedule Reports on Form 8-K None Page 16 SIGNATURE In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. REGENT ASSISTED LIVING, INC. By: STEVEN L. GISH Date: August 13, 1997 ----------------------------------- Steven L. Gish Chief Financial Officer Page 17 EXHIBIT INDEX Ex. No. Description - ------- ----------- 10.1 Regent Assisted Living, Inc. 1995 Stock Incentive Plan, as amended 27 Financial Data Schedule EX-10.1 2 1995 STOCK INCENTIVE PLAN REGENT ASSISTED LIVING, INC. 1995 STOCK INCENTIVE PLAN 1. Purpose. The purpose of this Stock Incentive Plan (the "Plan") is to enable Regent Assisted Living, Inc. (the "Company") to attract and retain the services of (1) selected employees, officers and directors of the Company and (2) selected nonemployee agents, consultants, advisors and independent contractors of the Company. 2. Shares Subject to the Plan. Subject to adjustment as provided below and in Section 13, the shares to be offered under the Plan shall consist of Common Stock of the Company, and the total number of shares of Common Stock that may be issued under the Plan shall not exceed 600,000 shares (after giving effect to a 3,000 for 1 stock split). The shares issued under the Plan may be authorized and unissued shares or reacquired shares. If an option, stock appreciation right or performance unit granted under the Plan expires, terminates or is cancelled, the unissued shares subject to such option, stock appreciation right or performance unit shall again be available under the Plan. If shares sold or awarded as a bonus under the Plan are forfeited to or repurchased by the Company, the number of shares forfeited or repurchased shall again be available under the Plan. 3. Effective Date and Duration of Plan. (a) Effective Date. The Plan shall become effective as of August 28, 1995. No option, stock appreciation right or performance unit granted under the Plan to an officer (an "Officer") who is subject to Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or a director, and no incentive stock option, shall become exercisable, however, until the Plan is approved by the affirmative vote of the holders of a majority of the shares of Common Stock represented at a shareholders meeting at which a quorum is present, and any such awards under the Plan before such approval shall be conditioned on and subject to such approval. Subject to this limitation, options, stock appreciation rights and performance units may be granted and shares may be awarded as bonuses or sold under the Plan at any time after the effective date and before termination of the Plan. (b) Duration. The Plan shall continue in effect until all shares available for issuance under the Plan have been issued and all restrictions on such shares have lapsed. The Board of Directors may suspend or terminate the Plan at any time except with respect to options, performance units and shares subject to restrictions then outstanding under the Plan. Termination shall not affect any outstanding options, any right of the Company to repurchase shares or the forfeitability of shares issued under the Plan. 4. Administration. (a) Board of Directors. The Plan shall be administered by the Board of Directors of the Company, which shall determine and designate from time to time the individuals to whom awards shall be made, the amount of the awards and the other terms and conditions of the awards. Subject to the provisions of the Plan, the Board of Directors may from time to time adopt and amend rules and regulations relating to administration of the Plan, advance the lapse of any waiting period, accelerate any exercise date, waive or modify any restriction applicable to shares (except those restrictions imposed by law) and make all other determinations in the judgment of the Board of Directors necessary or desirable for the administration of the Plan. The interpretation and construction of the provisions of the Plan and related agreements by the Board of Directors shall be final and conclusive. The Board of Directors may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any related agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect, and it shall be the sole and final judge of such expediency. (b) Committee. The Board of Directors may delegate to the Compensation Committee of the Board of Directors (the "Committee") any or all authority for administration of the Plan. If authority is delegated to the Committee, all references to the Board of Directors in the Plan shall mean and relate to the Committee, except (i) as otherwise provided by the Board of Directors, (ii) that only the Board of Directors may amend or terminate the Plan as provided in Sections 3 and 13 and (iii) that if the Committee includes officers of the Company, the Committee shall not be permitted to grant options to persons who are officers of the Company. If awards are to be made under the Plan to Officers or directors (in addition to the option grants to be awards made to non-employee directors pursuant to Section 17 hereof), authority for selection of Officers and directors for participation and decisions concerning the timing, pricing and amount of a grant or award, if not determined under a formula meeting the requirements of Rule 16b-3 under the Exchange Act, shall be delegated to another committee consisting of two or more disinterested directors. 5. Types of Awards; Eligibility. The Board of Directors may, from time to time, take the following action, separately or in combination, under the Plan: (i) grant Incentive Stock Options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), as provided in Sections 6(a) and 6(b); (ii) grant options other than Incentive Stock Options ("Non-Statutory Stock Options") as provided in Sections 6(a) and 6(c); (iii) award stock bonuses as provided in Section 7; (iv) sell shares subject to restrictions as provided in Section 8; (v) grant stock appreciation rights as provided in Section 9; (vi) grant cash bonus rights as provided in Section 10; and (vii) grant performance units as provided in Section 11. Any such awards may be made to employees, including employees who are officers or directors, and to other individuals described in Section 1 who the Board of Directors believes have made or will make an important contribution to the Company; provided, however, that only employees of the 2 Company shall be eligible to receive Incentive Stock Options under the Plan. The Board of Directors shall select the individuals to whom awards shall be made and shall specify the action taken with respect to each individual to whom an award is made. At the discretion of the Board of Directors, an individual may be given an election to surrender an award in exchange for the grant of a new award. No employee may be granted options or stock appreciation rights under the Plan for more than an aggregate of 100,000 shares of Common Stock in connection with the hiring of the employee or 50,000 shares of Common Stock in any calendar year otherwise. 6. Option Grants. (a) General Rules Relating to Options. (i) Terms of Grant. The Board of Directors may grant options under the Plan. With respect to each option grant, the Board of Directors shall determine the number of shares subject to the option, the option price, the period of the option, the time or times at which the option may be exercised and whether the option is an Incentive Stock Option or a Non-Statutory Stock Option. At the time of the grant of an option or at any time thereafter, the Board of Directors may provide that an optionee who exercised an option with Common Stock of the Company shall automatically receive a new option to purchase additional shares equal to the number of shares surrendered and may specify the terms and conditions of such new options. (ii) Exercise of Options. Except as provided in Section 6(a)(iv) or as determined by the Board of Directors, no option granted under the Plan may be exercised unless at the time of such exercise the optionee is employed by or in the service of the Company and shall have been so employed or provided such service continuously since the date the option was granted. Absence on leave or on account of illness or disability under rules established by the Board of Directors shall not, however, be deemed an interruption of employment or service for this purpose. Unless otherwise determined by the Board of Directors, vesting of options shall not continue during an absence on leave (including an extended illness) or on account of disability. Except as provided in Sections 6(a)(iv) and 12, options granted under the Plan may be exercised from time to time over the period stated in each option in such amounts and at such times as shall be prescribed by the Board of Directors, provided that options shall not be exercised for fractional shares. Unless otherwise determined by the Board of Directors, if an optionee does not exercise an option in any one year with respect to the full number of shares to which the optionee is entitled in that year, the optionee's rights shall be cumulative and the optionee may purchase those shares in any subsequent year during the term of the option. Unless otherwise determined by the Board of Directors, if an Officer exercises an option within six months of the grant of the 3 option, the shares acquired upon exercise of the option may not be sold until six months after the date of grant of the option. (iii) Nontransferability. Each Incentive Stock Option and, unless otherwise determined by the Board of Directors with respect to an option granted to a person who is neither an Officer nor a director of the Company, each other option granted under the Plan by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death. (iv) Termination of Employment or Service. (A) General Rule. Unless otherwise determined by the Board of Directors, in the event an optionee's employment or service with the Company terminates for any reason other than because of physical disability or death as provided in Sections 6(a)(iv)(B) and (C), his or her option may be exercised at any time before the expiration date of the option or the expiration of 30 days after the date of termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of termination. (B) Termination Because of Total Disability. Unless otherwise determined by the Board of Directors, in the event an optionee's employment or service with the Company terminates because of total disability, his or her option may be exercised at any time before the expiration date of the option or the expiration of 12 months after the date of termination, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option at the date of termination. The term "total disability" means a medically determinable mental or physical impairment that is expected to result in death or has lasted or is expected to last for a continuous period of 12 months or more and that causes the optionee to be unable, in the opinion of the Company and two independent physicians, to perform his or her duties as an employee, director, officer or consultant of the Company and to be engaged in any substantial gainful activity. Total disability shall be deemed to have occurred on the first day after the Company and the two independent physicians have furnished their opinion of total disability to the Company. (C) Termination Because of Death. Unless otherwise determined by the Board of Directors, in the event of an optionee's death while employed by or providing service to the Company, his or her option may be exercised at any time before the expiration date of the option or the expiration of 12 months after the date of death, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the 4 option at the date of death and only by the person or persons to whom the optionee's rights under the option shall pass by the optionee's will or by the laws of descent and distribution of the state or country of domicile at the time of death. (D) Amendment of Exercise Period Applicable to Termination. The Board of Directors, at the time of grant or, with respect to an option that is not an Incentive Stock Option, at any time thereafter, may extend the 30-day and 12-month exercise periods any length of time not longer than the original expiration date of the option, and may increase the portion of an option that is exercisable, subject to such terms and conditions as the Board of Directors may determine. (E) Failure to Exercise Option. To the extent that the option of any deceased optionee or any optionee whose employment or service terminates is not exercised within the applicable period, all further rights to purchase shares pursuant to the option shall cease and terminate. (v) Purchase of Shares. Unless the Board of Directors determines otherwise, shares may be acquired pursuant to an option granted under the Plan only upon the Company's receipt of written notice from the optionee of the optionee's intention to exercise, specifying the number of shares as to which the optionee desires to exercise the option and the date on which the optionee desires to complete the transaction, and if required in order to comply with the Securities Act of 1933, as amended, containing a representation that it is the optionee's present intention to acquire the shares for investment and not with a view to distribution. Unless the Board of Directors determines otherwise, on or before the date specified for completion of the purchase of shares pursuant to an option, the optionee must have paid the Company the full purchase price of those shares in cash (including, with the consent of the Board of Directors, cash that may be the proceeds of a loan from the Company (provided that, with respect to an Incentive Stock Option, such loan is approved at the time of option grant)) or, with the consent of the Board of Directors, in whole or in part, in Common Stock of the Company valued at fair market value, restricted stock, performance units or other contingent awards denominated in either stock or cash, promissory notes and other forms of consideration. The fair market value of Common Stock provided in payment of the purchase price shall be the closing price of the Common Stock as reported in The Wall Street Journal on the last trading day before the date the option is exercised, or such other reported value of the Common Stock as shall be specified by the Board of Directors. No shares shall be issued until full payment for the shares has been made. With the consent of the Board of Directors (which, in the case of an Incentive Stock Option, shall be given only at the time of grant), an optionee may request the Company to apply automatically the shares to be received upon the exercise of a portion of a stock option (even though stock certificates have not yet been issued) to satisfy the purchase price for additional 5 portions of the option. Each optionee who has exercised an option shall, immediately upon notification of the amount due, if any, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If additional withholding is or becomes required beyond any amount deposited before delivery of the certificates, the optionee shall pay such amount to the Company on demand. If the optionee fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the optionee, including salary, subject to applicable law. With the consent of the Board of Directors an optionee may satisfy this obligation, in whole or in part, by having the Company withhold from the shares to be issued upon exercise that number of shares that would satisfy the withholding amount due or by delivering to the Company Common Stock to satisfy the withholding amount. Upon the exercise of an option, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon exercise of the option. (b) Incentive Stock Options. Incentive Stock Options shall be subject to the following additional terms and conditions: (i) Limitation on Amount of Grants. No employee may be granted Incentive Stock Options under the Plan if the aggregate fair market value, on the date of grant, of the Common Stock with respect to which Incentive Stock Options are exercisable for the first time by that employee during any calendar year under the Plan and under all incentive stock option plans (within the meaning of Section 422 of the Code) of the Company exceeds $100,000. (ii) Limitations on Grants to 10 Percent Shareholders. An Incentive Stock Option may be granted under the Plan to an employee possessing more than 10 percent of the total combined voting power of all classes of stock of the Company only if the option price is at least 110 percent of the fair market value, as described in Section 6(b)(iv), of the Common Stock subject to the option on the date it is granted and the option by its terms is not exercisable after the expiration of five years from the date it is granted. (iii) Duration of Options. Subject to Sections 6(a)(ii) and 6(b)(ii), Incentive Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors, except that no Incentive Stock Option shall be exercisable after the expiration of 10 years from the date it is granted. (iv) Option Price. The option price per share shall be determined by the Board of Directors at the time of grant. Except as provided in Section 6(b)(ii), the option price shall not be less than 100 percent of the fair market value of the Common Stock covered by the Incentive Stock Option at the date the option is granted. The fair market value shall be deemed to be the closing price of the Common Stock as reported in The Wall Street Journal on the day before the date 6 the option is granted, or, if there has been no sale on that date, on the last preceding date on which a sale occurred, or such other value of the Common Stock as shall be specified by the Board of Directors. (v) Limitation on Time of Grant. No Incentive Stock Option shall be granted on or after the 10th anniversary of the effective date of the Plan. (vi) Conversion of Incentive Stock Options. The Board of Directors may at any time, without the optionee's consent, convert an Incentive Stock Option to a Non-Statutory Stock Option. (c) Non-Statutory Stock Options. Non-Statutory Stock Options shall be subject to the following terms and conditions, in addition to those set forth in Section 6(a) above: (i) Option Price. The option price for Non-Statutory Stock Options shall be determined by the Board of Directors at the time of grant and may be any amount determined by the Board of Directors. (ii) Duration of Options. Non-Statutory Stock Options granted under the Plan shall continue in effect for the period fixed by the Board of Directors. 7. Stock Bonuses. The Board of Directors may award shares under the Plan as stock bonuses. Shares awarded as a bonus shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability and forfeiture of the shares awarded, together with such other restrictions as may be determined by the Board of Directors. If shares are subject to forfeiture, all dividends or other distributions paid by the Company with respect to the shares shall be retained by the Company until the shares are no longer subject to forfeiture, at which time all accumulated amounts shall be paid to the recipient. The Board of Directors may require the recipient to sign an agreement as a condition of the award, but may not require the recipient to pay any monetary consideration other than amounts necessary to satisfy tax withholding requirements. The agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares awarded shall bear any legends required by the Board of Directors. Unless otherwise determined by the Board of Directors, shares awarded as a stock bonus to an Officer may not be sold until six months after the date of the award. The Company may require any recipient of a stock bonus to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the recipient fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the recipient, including salary, subject to applicable law. With the consent of the Board of Directors, a recipient may deliver Common Stock to the Company to satisfy this withholding obligation. Upon the issuance of a stock bonus, the number of 7 shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 8. Restricted Stock. The Board of Directors may issue shares under the Plan for such consideration (including promissory notes and services) as determined by the Board of Directors. Shares issued under the Plan shall be subject to the terms, conditions and restrictions determined by the Board of Directors. The restrictions may include restrictions concerning transferability, repurchase by the Company and forfeiture of the shares issued, together with such other restrictions as may be determined by the Board of Directors. If shares are subject to forfeiture or repurchase by the Company, all dividends or other distributions paid by the Company with respect to the shares shall be retained by the Company until the shares are no longer subject to forfeiture or repurchase, at which time all accumulated amounts shall be paid to the recipient. All Common Stock issued pursuant to this Section 8 shall be subject to a purchase agreement, which shall be executed by the Company and the prospective recipient of the shares before the delivery of certificates representing such shares to the recipient. The purchase agreement may contain any terms, conditions, restrictions, representations and warranties required by the Board of Directors. The certificates representing the shares shall bear any legends required by the Board of Directors. Unless otherwise determined by the Board of Directors, shares issued under this Section 8 to an Officer may not be sold until six months after the date the shares are issued. The Company may require any purchaser of restricted stock to pay to the Company in cash upon demand amounts necessary to satisfy any applicable federal, state or local tax withholding requirements. If the purchaser fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the purchaser, including salary, subject to applicable law. With the consent of the Board of Directors, a purchaser may deliver Common Stock to the Company to satisfy this withholding obligation. Upon the issuance of restricted stock, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. 9. Stock Appreciation Rights. (a) Grant. Stock appreciation rights may be granted under the Plan by the Board of Directors, subject to such rules, terms and conditions as the Board of Directors may determine. (b) Exercise. (i) Each stock appreciation right shall entitle the holder, upon exercise, to receive from the Company in exchange therefor an amount equal in value to the excess of the fair market value on the date of exercise of one share of Common Stock of the Company over its fair market value on the date of grant (or, in the case of a stock appreciation right granted in connection with an option, the excess of the fair market value of one share of Common Stock of the Company over the option price per share under the option to which the stock appreciation 8 right relates), multiplied by the number of shares covered by the stock appreciation right or the option, or portion thereof, that is surrendered. No stock appreciation right shall be exercisable at a time that the amount determined under this Section 9(b) is negative. Payment by the Company upon exercise of a stock appreciation right may be made in Common Stock valued at fair market value, in cash or partly in Common Stock and partly in cash, all as determined by the Board of Directors. (ii) A stock appreciation right shall be exercisable only at the time or times established by the Board of Directors. If a stock appreciation right is granted in connection with an option, the following rules shall apply: (1) the stock appreciation right shall be exercisable only to the extent and on the same conditions that the related option may be exercised; (2) the stock appreciation right shall be exercisable only when the fair market value of the stock exceeds the option price of the related option; (3) the stock appreciation right shall be for no more than 100 percent of the excess of the fair market value of the stock at the time of exercise over the option price; (4) upon exercise of the stock appreciation right, the option or portion thereof to which the stock appreciation right relates terminates; and (5) upon exercise of the option, the related stock appreciation right or portion thereof terminates. Unless otherwise determined by the Board of Directors, no stock appreciation right granted to an Officer or director may be exercised during the first six months following the date it is granted. (iii) The Board of Directors may withdraw any stock appreciation right granted under the Plan at any time and may impose any conditions upon the exercise of a stock appreciation right or adopt rules and regulations from time to time affecting the rights of holders of stock appreciation rights. Such rules and regulations may govern the right to exercise stock appreciation rights granted before adoption or amendment of such rules and regulations, as well as stock appreciation rights granted thereafter. (iv) For purposes of this Section 9, the fair market value of the Common Stock shall be determined as of the date the stock appreciation right is exercised, under the methods set forth in Section 6(b)(iv). (v) No fractional shares shall be issued upon exercise of a stock appreciation right. In lieu thereof, cash may be paid in an amount equal to the value of the fraction or, if the Board of Directors shall determine, the number of shares may be rounded downward to the next whole share. (vi) Each stock appreciation right granted in connection with an Incentive Stock Option, and unless otherwise determined by the Board of Directors with respect to a stock appreciation right granted to a person who is neither an Officer nor a director of the Company, each other stock appreciation right granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of 9 descent and distribution of the state or country of the holder's domicile at the time of death, and each stock appreciation right by its terms shall be exercisable during the holder's lifetime only by the holder. (vii) Each participant who has exercised a stock appreciation right shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the participant, including salary, subject to applicable law. With the consent of the Board of Directors, a participant may satisfy this obligation, in whole or in part, by having the Company withhold from any shares to be issued upon exercise that number of shares that would satisfy the withholding amount due or by delivering Common Stock to the Company to satisfy the withholding amount. (viii) Upon the exercise of a stock appreciation right for shares, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued. Cash payments of stock appreciation rights shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. 10. Cash Bonus Rights. (a) Grant. The Board of Directors may grant cash bonus rights under the Plan in connection with (i) options granted or previously granted, (ii) stock appreciation rights granted or previously granted, (iii) stock bonuses awarded or previously awarded and (iv) shares sold or previously sold under the Plan. Cash bonus rights will be subject to such rules, terms and conditions as the Board of Directors may determine. Unless otherwise determined by the Board of Directors with respect to a cash bonus right granted to a person who is neither an Officer nor a director of the Company, each cash bonus right granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death. The payment of a cash bonus shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. (b) Cash Bonus Rights in Connection With Options. A cash bonus right granted in connection with an option will entitle an optionee to a cash bonus when the related option is exercised (or terminates in connection with the exercise of a stock appreciation right related to the option) in whole or in part if, in the sole discretion of the Board of Directors, the bonus right will result in a tax deduction that the Company has sufficient taxable income to use. If an optionee purchases shares upon exercise of an option and does not exercise a related stock appreciation right, the amount of the bonus, if any, shall be determined by multiplying the excess of the total fair market value of the shares to be acquired upon exercise over the total option price for the shares by the 10 applicable bonus percentage. If the optionee exercises a related stock appreciation right in connection with the termination of an option, the amount of the bonus, if any, shall be determined by multiplying the total fair market value of the shares and cash received pursuant to the exercise of the stock appreciation right by the applicable bonus percentage. The bonus percentage applicable to a bonus right, including a previously granted bonus right, may be changed from time to time at the sole discretion of the Board of Directors but shall in no event exceed 75 percent. (c) Cash Bonus Rights in Connection With Stock Bonus. A cash bonus right granted in connection with a stock bonus will entitle the recipient to a cash bonus payable when the stock bonus is awarded or restrictions, if any, to which the stock is subject lapse. If bonus stock awarded is subject to restrictions and is repurchased by the Company or forfeited by the holder, the cash bonus right granted in connection with the stock bonus shall terminate and may not be exercised. The amount and timing of payment of a cash bonus shall be determined by the Board of Directors. (d) Cash Bonus Rights in Connection With Stock Purchases. A cash bonus right granted in connection with the purchase of stock pursuant to Section 8 will entitle the recipient to a cash bonus when the shares are purchased or restrictions, if any, to which the stock is subject lapse. Any cash bonus right granted in connection with shares purchased pursuant to Section 8 shall terminate and may not be exercised in the event the shares are repurchased by the Company or forfeited by the holder pursuant to applicable restrictions. The amount of any cash bonus to be awarded and timing of payment of a cash bonus shall be determined by the Board of Directors. (e) Taxes. The Company shall withhold from any cash bonus paid pursuant to this Section 10 the amount necessary to satisfy any applicable federal, state and local withholding requirements. 11. Performance Units. The Board of Directors may grant performance units consisting of monetary units which may be earned in whole or in part if the Company achieves certain goals established by the Board of Directors over a designated period of time, but not in any event more than 10 years. The goals established by the Board of Directors may include earnings per share, return on shareholders' equity, return on invested capital and such other goals as the Board of Directors may establish. In the event that the minimum performance goal established by the Board of Directors is not achieved at the conclusion of a period, no payment shall be made to the participants. In the event the maximum corporate goal is achieved, 100 percent of the monetary value of the performance units shall be paid to or vested in the participants. Partial achievement of the maximum goal may result in a payment or vesting corresponding to the degree of achievement as determined by the Board of Directors. Payment of an award earned may be in cash or in Common Stock or a combination of both, and may be made when earned, or vested and deferred, as the Board of Directors determines. Deferred awards shall earn interest on the terms and at a rate determined by the Board of Directors. Unless otherwise determined by the Board of Directors with respect to a performance unit granted 11 to a person who is neither an Officer nor a director of the Company, each performance unit granted under the Plan by its terms shall be nonassignable and nontransferable by the holder, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the holder's domicile at the time of death. Each participant who has been awarded a performance unit shall, upon notification of the amount due, pay to the Company in cash amounts necessary to satisfy any applicable federal, state and local tax withholding requirements. If the participant fails to pay the amount demanded, the Company may withhold that amount from other amounts payable by the Company to the participant, including salary, subject to applicable law. With the consent of the Board of Directors a participant may satisfy this obligation, in whole or in part, by having the Company withhold from any shares to be issued that number of shares that would satisfy the withholding amount due or by delivering Common Stock to the Company to satisfy the withholding amount. The payment of a performance unit in cash shall not reduce the number of shares of Common Stock reserved for issuance under the Plan. The number of shares reserved for issuance under the Plan shall be reduced by the number of shares issued upon payment of an award. 12. Changes in Capital Structure. (a) Stock Splits; Stock Dividends. If the outstanding Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares, dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Board of Directors in the number and kind of shares available for grants under the Plan. In addition, the Board of Directors shall make appropriate adjustment in the number and kind of shares as to which outstanding options, or portions thereof then unexercised, shall be exercisable, so that the optionee's proportionate interest before and after the occurrence of the event is maintained. Notwithstanding the foregoing, the Board of Directors shall have no obligation to effect any adjustment that would or might result in the issuance of fractional shares, and any fractional shares resulting from any adjustment may be disregarded or provided for in any manner determined by the Board of Directors. Any such adjustments made by the Board of Directors shall be conclusive. (b) Mergers, Reorganizations, Etc. In the event of a merger, consolidation, plan of exchange, acquisition of property or stock, separation, reorganization or liquidation to which the Company is a party or a sale of all or substantially all of the Company's assets (each, a "Transaction"), the Board of Directors shall, in its sole discretion and to the extent possible under the structure of the Transaction, select one of the following alternatives for treating outstanding options under the Plan: (i) Outstanding options shall remain in effect in accordance with their terms. 12 (ii) Outstanding options shall be converted into options to purchase stock in the corporation that is the surviving or acquiring corporation in the Transaction. The amount, type of securities subject thereto and exercise price of the converted options shall be determined by the Board of Directors of the Company, taking into account the relative values of the companies involved in the Transaction and the exchange rate, if any, used in determining shares of the surviving corporation to be issued to holders of shares of the Company. Unless otherwise determined by the Board of Directors, the converted options shall be vested only to the extent that the vesting requirements relating to options granted hereunder have been satisfied. (iii) The Board of Directors shall provide a 30-day period before the consummation of the Transaction during which outstanding options may be exercised to the extent then exercisable, and upon the expiration of that 30-day period, all unexercised options shall immediately terminate. The Board of Directors may, in its sole discretion, accelerate the exercisability of options so that they are exercisable in full during that 30-day period. (c) Dissolution of the Company. In the event of the dissolution of the Company, options shall be treated in accordance with Section 12(b)(iii). (d) Rights Issued by Another Corporation. The Board of Directors may also grant options, stock appreciation rights, performance units, stock bonuses and cash bonuses and issue restricted stock under the Plan having terms, conditions and provisions that vary from those specified in this Plan, provided that any such awards are granted in substitution for, or in connection with the assumption of, existing options, stock appreciation rights, stock bonuses, cash bonuses, restricted stock and performance units granted, awarded or issued by another corporation and assumed or otherwise agreed to be provided for by the Company pursuant to or by reason of a Transaction. 13. Amendment of Plan. The Board of Directors may at any time, and from time to time, modify or amend the Plan in such respects as it shall deem advisable because of changes in the law while the Plan is in effect or for any other reason. Except as provided in Sections 6(a)(iv), 9, 10 and 12, however, no change in an award already granted shall be made without the written consent of the holder of such award. 14. Approvals. The Company's obligations under the Plan are subject to the approval of state and federal authorities or agencies with jurisdiction in the matter. The Company will use its best efforts to take steps required by state or federal law or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company's shares may then be listed, in connection with the grants under the Plan. The foregoing notwithstanding, the Company shall not be obligated to issue or deliver Common Stock under the Plan if such issuance or delivery would violate applicable state or federal securities laws. 13 15. Employment and Service Rights. Nothing in the Plan or any award pursuant to the Plan shall (i) confer upon any employee any right to be continued in the employment of the Company or interfere in any way with the Company's right to terminate such employee's employment at any time, for any reason, with or without cause, or to decrease such employee's compensation or benefits, or (ii) confer upon any person engaged by the Company any right to be retained or employed by the Company or to the continuation, extension, renewal or modification of any compensation, contract or arrangement with or by the Company. 16. Rights as a Shareholder. The recipient of any award under the Plan shall have no rights as a shareholder with respect to any Common Stock until the date of issue to the recipient of a stock certificate for those shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs before the date such stock certificate is issued. 17. Option Grants to Non-Employee Directors. (a) Initial Board Grants. Each person who is a Non-Employee Director when the Plan is adopted or who becomes a Non-Employee Director thereafter shall be automatically granted an option to purchase 2,000 shares of Common Stock on the later of the date the Plan is approved by the shareholders of the Company or when the person becomes a Non-Employee Director. A "Non-Employee Director" is a director who is not an employee of the Company. (b) Additional Grants. Each Non-Employee Director shall be automatically granted an option to purchase additional shares of Common Stock in each calendar year subsequent to the year in which the Non-Employee Director was granted an option pursuant to Section 17(a), such option to be granted as of the date of the Company's annual shareholders meeting held in such calendar year, provided that the Non-Employee Director continues to serve in that capacity as of that date. The number of shares subject to each additional grant shall be [2,000] shares for each Non-Employee Director. (c) Exercise Price. The exercise price of options for shares granted pursuant to Section 17(a) as of the date the Plan is approved by the shareholders of the Company shall be equal to the price per share to the public in the Company's initial public offering, unless otherwise determined by the Board. The exercise price of all other options granted pursuant to this Section 17 shall be equal to 100 percent of the fair market value of the Common Stock determined pursuant to Section 6(b)(iv). (d) Term of Option. The term of each option granted pursuant to this Section 17 shall be [10] years from the date of grant. 14 (e) Exercisability. Until an option expires or is terminated, an option granted under this Section 17 shall be immediately exercisable for the full number of shares subject to the option. (f) Termination As a Director. If an optionee ceases to be a director of the Company for any reason, including death, his or her option may be exercised at any time before the expiration date of the option or the expiration of 30 days (or 12 months in the event of death) after the last day the optionee served as a director, whichever is the shorter period, but only if and to the extent the optionee was entitled to exercise the option as of the last day the optionee served as a director. (g) Nontransferability. Each option by its terms shall be nonassignable and nontransferable by the optionee, either voluntarily or by operation of law, except by will or by the laws of descent and distribution of the state or country of the optionee's domicile at the time of death, and each option by its terms shall be exercisable during the optionee's lifetime only by the optionee. (h) Exercise of Options. Options may be exercised upon payment of cash or shares of Common Stock of the Company in accordance with Section 6(a)(v). Adopted: August 28, 1995 Amended: May 6, 1997 15 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED BALANCE SHEET OF REGENT ASSISTED LIVING, INC. AS OF JUNE 30, 1997, AND THE RELATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS IN THE PERIOD ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 5,307,520 0 275,937 27,000 0 5,905,619 33,314,434 365,135 42,259,982 5,342,187 16,945,754 10,808,703 0 9,349,841 (941,399) 42,259,982 6,540,097 6,628,218 4,333,901 7,331,951 0 0 101,228 (564,766) (24,500) (540,266) 0 0 0 (540,266) (.18) (.18)
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