SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by Registrant: |X|
Filed by a Party other than the Registrant: |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Materials Pursuant to ss. 240.14a-11(c) or ss.240.14a-12
CAPITAL SENIOR LIVING CORPORATION
---------------------------------
(Name of Registrant as Specified in Its Charter)
CAPITAL SENIOR LIVING CORPORATION
---------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
CORPDAL:98255.9 34393-00001
<PAGE>
CAPITAL SENIOR LIVING CORPORATION
14160 DALLAS PARKWAY
SUITE 300
DALLAS, TEXAS 75240
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
To the Stockholders of Capital Senior Living Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Capital Senior Living Corporation, a Delaware corporation
(the "Company"), will be held at Embassy Suites, Galleria Area, Dallas, Texas,
on the 21st day of May, 1998, at 10:00 a.m. (local time) for the following
purposes:
1. To elect two (2) directors of the Company to hold office
until the annual meeting of stockholders to be held in 2001 or until
their respective successors are duly elected and qualified;
2. To ratify the Board of Directors' appointment of Ernst &
Young LLP, independent accountants, as the Company's independent
auditors for the year ending December 31, 1998; and
3. To transact any and all other business that may properly
come before the meeting or any adjournment(s) thereof.
The Board of Directors has fixed the close of business on March 25,
1998, as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at such meeting or any
adjournment(s) thereof. Only stockholders of record at the close of business on
the Record Date are entitled to notice of and to vote at such meeting. The stock
transfer books will not be closed. A list of stockholders entitled to vote at
the Annual Meeting will be available for examination at the offices of the
Company for 10 days prior to the Annual Meeting.
You are cordially invited to attend the meeting; whether or not you
expect to attend the meeting in person, however, you are urged to mark, sign,
date, and mail the enclosed form of proxy promptly so that your shares of stock
may be represented and voted in accordance with your wishes and in order that
the presence of a quorum may be assured at the meeting. Your proxy will be
returned to you if you should be present at the meeting and should request its
return in the manner provided for revocation of proxies on the initial page of
the enclosed proxy statement.
BY ORDER OF THE BOARD OF DIRECTORS
JAMES A. STROUD
SECRETARY
March 30, 1998
Dallas, Texas
CORPDAL:98255.9 34393-00001
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<PAGE>
CAPITAL SENIOR LIVING CORPORATION
14160 DALLAS PARKWAY
SUITE 300
DALLAS, TEXAS 75240
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 21, 1998
---------------------------
SOLICITATION AND REVOCABILITY
OF PROXIES
The accompanying proxy is solicited by the Board of Directors on behalf
of Capital Senior Living Corporation, a Delaware corporation (the "Company"), to
be voted at the 1998 Annual Meeting of Stockholders of the Company (the "Annual
Meeting") to be held on May 21, 1998, at the time and place and for the purposes
set forth in the accompanying Notice of Annual Meeting of Stockholders (the
"Notice") and at any adjournment(s) thereof. WHEN PROXIES IN THE ACCOMPANYING
FORM ARE PROPERLY EXECUTED AND RECEIVED, THE SHARES REPRESENTED THEREBY WILL BE
VOTED AT THE ANNUAL MEETING IN ACCORDANCE WITH THE DIRECTIONS NOTED THEREON; IF
NO DIRECTION IS INDICATED, SUCH SHARES WILL BE VOTED FOR THE ELECTION OF
DIRECTORS AS SET FORTH ON THE ACCOMPANYING NOTICE.
The executive offices of the Company are located at, and the mailing
address of the Company is, 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240.
Management does not intend to present any business at the Annual
Meeting for a vote other than the matters set forth in the Notice and has no
information that others will do so. If other matters requiring a vote of the
stockholders properly come before the Annual Meeting, it is the intention of the
persons named in the accompanying form of proxy to vote the shares represented
by the proxies held by them in accordance with their judgment on such matters.
This proxy statement (the "Proxy Statement") and accompanying form of
proxy are being mailed on or about March 30, 1998. The Company's Annual Report
to Stockholders covering the Company's fiscal year ended December 31, 1997, is
enclosed herewith, but does not form any part of the materials for solicitation
of proxies.
Any stockholder of the Company giving a proxy has the unconditional
right to revoke his proxy at any time prior to the voting thereof either in
person at the Annual Meeting by delivering a duly executed proxy bearing a later
date or by giving written notice of revocation to the Company addressed to David
R. Brickman, General Counsel, 14160 Dallas Parkway, Suite 300, Dallas, Texas
75240; no such revocation shall be effective, however, unless such notice of
revocation has been received by the Company at or prior to the Annual Meeting.
In addition to the solicitation of proxies by use of the mail, officers
and regular employees of the Company may solicit the return of proxies, either
by mail, telephone, telegraph, or through personal contact. Such officers and
employees will not be additionally compensated but will be reimbursed for
out-of-pocket expenses. Brokerage houses and other custodians, nominees, and
fiduciaries will, in connection with shares of common stock, par value $0.01 per
share (the "Common Stock"), registered in their names, be requested to forward
solicitation material to the beneficial owners of such shares of Common Stock.
The cost of preparing, printing, assembling, and mailing the Annual
Report, the Notice, this Proxy Statement, and the enclosed form of proxy, as
well as the reasonable cost of forwarding solicitation materials to the
beneficial owners of shares of the Company's Common Stock, and other costs of
solicitation, are to be borne by the Company.
CORPDAL:98255.9 34393-00001
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<PAGE>
QUORUM AND VOTING
The record date for the determination of stockholders entitled to
notice of and to vote at the Annual Meeting was the close of business on March
25, 1998 (the "Record Date"). On the Record Date, there were 19,717,347 shares
of Common Stock issued and outstanding.
Each holder of Common Stock is entitled to one vote per share on all
matters to be acted upon at the meeting and neither the Company's Amended and
Restated Certificate of Incorporation nor its Amended and Restated Bylaws allow
for cumulative voting rights. The presence, in person or by proxy, of the
holders of a majority of the issued and outstanding Common Stock entitled to
vote at the meeting is necessary to constitute a quorum to transact business. If
a quorum is not present or represented at the Annual Meeting, the stockholders
entitled to vote thereat, present in person or by proxy, may adjourn the Annual
Meeting from time to time without notice or other announcement until a quorum is
present or represented. Assuming the presence of a quorum, the affirmative vote
of the holders of a majority of the shares of Common Stock voting at the meeting
is required for the election of directors and the affirmative vote of the
holders of at least a majority of the shares of Common Stock represented in
person or by proxy at the Annual Meeting and entitled to vote is required to
ratify the appointment of the independent auditors.
An automated system administered by the Company's transfer agent
tabulates the votes. Abstentions and broker non-votes are each included in the
determination of the number of shares present for determining a quorum. Each
proposal is tabulated separately. Abstentions are counted in tabulations of
votes cast on proposals presented to stockholders, whereas broker non-votes are
not counted as voting for purposes of determining whether a proposal has
received the necessary number of votes for approval of the proposal. With regard
to the election of Directors, votes may be cast in favor of or withheld from
each nominee; votes that are withheld will be excluded entirely from the vote
and will have no effect.
The Company believes that under the rules of the New York Stock
Exchange, brokers who hold shares in "street name" on behalf of their customers
will have discretion, in the absence of voting instructions from the customer,
to vote such shares concerning all proposals.
CORPDAL:98255.9 34393-00001
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<PAGE>
PRINCIPAL STOCKHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of March 15, 1998, by: (i) each
person known by the Company to be the beneficial owner of more than five percent
of the Common Stock; (ii) each director of the Company; (iii) each of the
executive officers named in the Summary Compensation Table (the "Named Executive
Officers"); and (iv) all executive officers and directors of the Company as a
group. The address of each person listed below is 14160 Dallas Parkway, Suite
300, Dallas, Texas 75240.
SHARES BENEFICIALLY
OWNED (1)(2)
------------------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT
- ------------------------ ----------------- ------------------
Jeffrey L. Beck............................. 4,474,673(3) 22.7%
James A. Stroud............................. 4,474,674(4) 22.7%
Lawrence A. Cohen........................... 459,000(5) 2.3%
Keith N. Johannessen........................ 11,000(6) *
David R. Brickman .......................... 8,500(7) *
Dr. Gordon I. Goldstein..................... - *
J. Frank Miller, III........................ 12,000(8) *
James A. Moore.............................. 3,300(9) *
Dr. Victor W. Nee........................... - *
All directors and executive
officers as a group (14 persons)........... 9,473,397(10) 47.8%
* Less than one percent.
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking,
relationship or otherwise has or shares voting power and/or investment
power and as to which such person has the right to acquire such voting
and/or investment power within 60 days. Percentage of beneficial
ownership as to any person as of a particular date is calculated by
dividing the number of shares beneficially owned by such person by the
sum of the number of shares outstanding as of such date and the number
of shares as to which such person has the right to acquire voting
and/or investment power within 60 days.
(2) Except for the percentages of certain parties that are based on
presently exercisable options which are indicated in the following
footnotes to the table, the percentages indicated are based on
19,717,347 shares of Common Stock issued and outstanding on March 15,
1998. In the case of parties holding presently exercisable options, the
percentage ownership is calculated on the assumption that the shares
presently held or purchasable within the next 60 days underlying such
options are outstanding.
(3) Consists of 4,458,673 shares held by Mr. Beck directly and 16,000
shares which Mr. Beck may acquire upon the exercise of options
immediately or within 60 days after March 15, 1998.
(4) Consists of 55,000 shares held by Mr. Stroud directly, 4,403,674 shares
of stock held in trust over which Mr. Stroud has voting and dispositive
power and 16,000 shares which Mr. Stroud may acquire upon the exercise
of options immediately or within 60 days after March 15, 1998.
(5) Consists of 450,000 shares held by Mr. Cohen directly and 9,000 shares
which Mr. Cohen may acquire upon the exercise of options immediately or
within 60 days after March 15, 1998.
(6) Consists of 11,000 shares which Mr. Johannessen may acquire upon the
exercise of options immediately or within 60 days after March 15, 1998.
(7) Consists of 500 shares held by Mr. Brickman directly and 8,000 shares
which Mr. Brickman may acquire upon the exercise of options immediately
or within 60 days after March 15, 1998.
CORPDAL:98255.9 34393-00001
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<PAGE>
(8) Consists of 12,000 shares held by a family limited partnership of which
Mr. Miller is the general partner.
(9) Consists of 3,300 shares held by Mr. Moore.
(10) Includes 250 shares held directly or indirectly by executive officers
not individually set forth above and 30,000 shares which such officers,
collectively, may acquire upon the exercise of options immediately or
within 60 days after March 15, 1998.
CORPDAL:98255.9 34393-00001
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<PAGE>
ELECTION OF DIRECTORS
(PROPOSAL 1)
NOMINEES AND CONTINUING DIRECTORS
Unless otherwise directed in the enclosed proxy, it is the intention of
the persons named in such proxy to nominate and to vote the shares represented
by such proxy for the election of the following named nominees for the office of
director of the Company, to hold office until the next annual meeting and until
his successor is duly elected and qualified or until his earlier resignation or
removal. Each of the nominees is presently a director of the Company.
DIRECTOR'S
NAME AGE POSITION(S) WITH THE COMPANY TERM EXPIRES
---- --- ---------------------------- ------------
NOMINEES:
James A. Moore........... 63 Director 2001
Dr. Victor W. Nee........ 62 Director 2001
CONTINUING DIRECTORS:
Jeffrey L. Beck.......... 52 Co-Chairman and Chief Executive Officer 2000
James A. Stroud.......... 47 Co-Chairman, Chief Operating Officer, 2000
and Secretary
Lawrence A. Cohen........ 44 Vice Chairman and Chief Financial Officer 1999
Dr. Gordon I. Goldstein.. 60 Director 1999
J. Frank Miller, III..... 45 Director 1999
JEFFREY L. BECK has served as a director and Chief Executive Officer of
the Company and its predecessors since January 1986. He currently serves as
Co-Chairman and Chief Executive Officer of the Company. Mr. Beck also serves on
the boards of various educational, religious and charitable organizations and in
varying capacities with several trade associations. Mr. Beck served as Vice
Chairman of the American Seniors Housing Association from 1992 to 1994, and as
Chairman from 1994 to 1996, and remains a member of its Executive Board, and is
a council member of the Urban Land Institute. Mr. Beck is Chairman of the Board
of Directors of United Texas Bank of Dallas and is Chairman and President of
Beck Properties Trophy Club.
JAMES A. STROUD has served as a director and Chief Operating Officer of
the Company and its predecessors since January 1986. He currently serves as
Co-Chairman and Chief Operating Officer of the Company. Mr. Stroud also serves
on the boards of various educational and charitable organizations, and in
varying capacities with several trade organizations, including as a member of
the Founder's Council and Board of Directors of the Assisted Living Federation
of America, and as Housing Commissioner, President-Elect, and as a member of the
Board of Directors of the National Association For Senior Living Industries. Mr.
Stroud also serves as an Advisory Group member to the National Investment
Conference. Mr. Stroud was a Founder of the Texas Assisted Living Association
and serves as a member of its Board of Directors. Mr. Stroud has earned a
Masters in Law, is a licensed attorney and is also a Certified Public
Accountant.
Mr. Stroud experienced personal difficulties in 1993 surrounding a
prolonged terminal illness of his daughter. In 1994, Mr. Stroud pled guilty to
felony charges of driving while intoxicated, and was sentenced to, among other
obligations, five years probation and after care obligations, and as a result, a
probated sentence in 1992 of convictions of driving while intoxicated charges
was extended. If Mr. Stroud were to be convicted of similar charges in the
future, the risk exists that he would be unable to continue his employment with
the Company. In 1993, Mr. Stroud pled guilty to misdemeanor possession of
marijuana and paid a minor fine. The Board of Directors has concluded that these
matters do not adversely affect his fitness to serve as an officer or director
of the Company.
CORPDAL:98255.9 34393-00001
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<PAGE>
LAWRENCE A. COHEN has served as a director and Vice Chairman and Chief
Financial Officer of the Company since November 1996. From 1991 to 1996, Mr.
Cohen served as President and Chief Executive Officer of Paine Webber Properties
Incorporated, which controlled a real estate portfolio having a cost basis of
approximately $3.0 billion, including senior living facilities of approximately
$110.0 million. Mr. Cohen is also president and a member of the boards of
directors of ILM Senior Living, Inc. and ILM II Senior Living, Inc., and is a
member of the boards of directors of ILM I Lease Corporation and ILM II Lease
Corporation. In addition, he serves as a member of the Corporate Finance
Committee and chairman of the Direct Participation Programs Subcommittee of the
NASD Regulation, Inc., and was a founding member of the executive committee of
the Board of the American Seniors Housing Association. Mr. Cohen has earned a
Masters in Law, is a licensed attorney and is also a Certified Public
Accountant. Mr. Cohen has had positions with businesses involved in senior
living for 13 years.
DR. GORDON I. GOLDSTEIN has been an attending anesthesiologist at
Presbyterian Hospital in Dallas, Texas since 1967 and at the Surgery Center
Southwest since 1990. He is board certified by the American Board of
Anesthesiology and has been a Fellow of the American College of Anesthesiology
since 1966. Dr. Goldstein has published Diagnosis and Treatment of Reactions of
Chymopapain and Successful Treatment of Cafe Coronary. Dr. Goldstein received
his undergraduate degree in biology and chemistry from East Tennessee State
University, his M.D. from the University of Tennessee Medical School and has
served in the medical profession in the northeast and currently in the
southwest. Dr. Goldstein served as the Chairman of the Department of
Anesthesiology at Presbyterian Hospital in Dallas, Texas from 1994 to 1997, and
currently serves as Chairman of Dallas Anesthesiology Associates.
J. FRANK MILLER, III, is currently the President and Chief Executive
Officer of JPI, the largest multi-family developer in the United States. Mr.
Miller has served in this capacity from 1989 to the present. Mr. Miller has over
20 years of experience in real estate investment management and development. As
managing partner and president of JPI, he is responsible for the ongoing
operations of JPI's acquisitions, development, construction and management
activities and establishes and maintains JPI's financial relationship. Mr.
Miller was recognized as Builder of the Year for 1997 by Multifamily Executive
Magazine. Prior to joining JPI, Mr. Miller was President of Southland Financial
Corporation.
JAMES A. MOORE is currently President of Moore Diversified Services,
Inc., a senior living consulting firm engaged in market feasibility studies,
investment advisory services, and marketing and strategic consulting in the
senior living industry. Mr. Moore has 35 years of industry experience and has
conducted over 1,600 senior living consulting engagements in approximately 475
markets, in 46 states and six countries. Mr. Moore has authored numerous senior
living and health care industry technical papers and trade journal articles, as
well as the book Assisting Living--Pure & Simple Development and Operating
Strategies, which is required assisted living certification course material for
the American College of Health Care Administrators. Mr. Moore is the immediate
past president of The National Association for Senior Living Industries and is
the current chairman of The National Foundation for Retirement Living.
DR. VICTOR W. NEE, has been a Professor in the Department of Aerospace
and Mechanical Engineering at the University of Notre Dame since 1965. In
addition to his professorial duties, Dr. Nee served as Director of the Advanced
Technology Center at the University of Massachusetts, Dartmouth from 1993 to
1995, and as Director of the Advanced Engineering Research Laboratory at the
University of Notre Dame from 1991 to 1993. Dr. Nee received a Bachelors of
Science from the National Taiwan University in Civil Engineering and a Ph.D. in
Fluid Mechanics from The Johns Hopkins University. Dr. Nee holds international
positions as an advisor to governmental, educational and industrial
organizations in China. Dr. Nee has an ongoing relationship with New World and
will continue as the Company's principal liaison with New World in connection
with the Company's China development operations.
The Board of Directors does not contemplate that any of the above-named
nominees for director will refuse or be unable to accept election as a director
of the Company, or be unable to serve as a director of the Company. Should any
of them become unavailable for nomination or election or refuse to be nominated
or to accept election as a director of the Company, then the persons named in
the enclosed form of proxy intend to vote the shares represented in such proxy
for the election of such other person or persons as may be nominated or
designated by the Board of Directors.
There are no family relationships among any of the directors, director
nominees or executive officers of the Company.
CORPDAL:98255.9 34393-00001
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<PAGE>
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH
OF THE INDIVIDUALS NOMINATED FOR ELECTION AS A DIRECTOR.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors currently has three standing committees: the
Executive Committee, the Compensation Committee and the Audit Committee. The
Executive Committee is comprised of Messrs. Beck, Stroud and Cohen. The
Compensation Committee is comprised of Messrs. Goldstein, Moore and Nee. The
Audit Committee is comprised of Messrs. Goldstein, Miller and Moore. The
Executive Committee has been delegated all of the powers of the Board of
Directors to the extent permitted under the Delaware General Corporation Law,
other than those powers delegated to other committees of the Board of Directors.
The Executive Committee held no meetings during 1997. The Compensation Committee
is responsible for recommending to the Board of Directors the Company's
executive compensation policies for senior officers and administering the 1997
Omnibus Stock and Incentive Plan for Capital Senior Living Corporation (the
"1997 Stock Incentive Plan"). The Compensation Committee held no meetings during
1997. The Audit Committee is responsible for recommending independent auditors,
reviewing the audit plan, the adequacy of internal controls, the audit report
and management letter, and performing such other duties as the Board of
Directors may from time to time prescribe.
The Audit Committee held no meetings during 1997.
The Board of Directors does not have a standing Nominating Committee.
The Board of Directors held two meetings during 1997 following its
initial public offering. During 1997, each director attended all of the meetings
of the Board of Directors during the time that he served as director, other than
Messrs. Nee and Moore who each missed one meeting.
DIRECTOR COMPENSATION
Directors who are employees of the Company do not receive additional
compensation for serving as directors of the Company. Non-employee directors are
entitled to an annual retainer of $7,000 payable, in arrears, on the date of
each annual meeting of stockholders, commencing with the 1998 Annual Meeting of
Stockholders. Non-employee directors are also entitled to a fee of $500 for each
board meeting attended by such director, and $200 for each committee meeting
attended by such director that is not on the same day as a meeting of the Board
of Directors. All directors are entitled to reimbursement for their actual
out-of-pocket expenses incurred in connection with attending meetings. In
addition, non-employee directors receive options to purchase shares of Common
Stock in accordance with the provisions of the 1997 Stock Incentive Plan. See
"--Compensation Pursuant to Plans -- 1997 Stock Incentive Plan."
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
the compensation paid to the Company's Chief Executive Officer and each of the
other four most highly compensated executive officers whose salary exceeded
$100,000 for services rendered in all capacities to the Company for the fiscal
years ended December 31, 1997 and 1996, respectively. All of the executive
officers named below are referred to herein as the "named executive officers."
CORPDAL:98255.9 34393-00001
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION (1) COMPENSATION
OTHER ANNUAL OPTIONS/ ALL OTHER
NAME AND PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION SARS COMPENSATION
- ------------------------------------ ---------- -------------- ----------------- --------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey L. Beck..................... 1997 $175,000(2) $1,356,450(2) -- -- --
Co-Chairman and Chief Executive 1996 175,000(2) 1,483,300(2) -- -- --
Officer
James A. Stroud..................... 1997 $175,000(2) $1,356,450(2) -- -- --
Co-Chairman, Chief Operating 1996 175,000(2) 1,483,300(2) -- -- --
Officer and Secretary
Lawrence A. Cohen................... 1997 $250,000(3) $ 62,500(3) -- -- --
Vice Chairman and Chief Financial 1996 41,667(4) 10,417(4) -- -- --
Officer
Keith N. Johannessen................ 1997 $141,667 -- -- -- --
President 1996 128,750 $ 20,000 -- -- --
David R. Brickman................... 1997 $101,000 $ -- -- -- --
Vice President and General Counsel 1996 85,000 52,857(5) -- -- --
<FN>
(1) Annual compensation does not include the cost to the Company of
benefits certain executive officers receive in addition to salary and
cash bonuses. The aggregate amounts of such personal benefits, however,
did not exceed the lesser of either $50,000 or 10% of the total annual
compensation of such executive officer.
(2) Following the consummation of the Company's initial public offering on
November 5, 1997 (the "Offering"), the annual salaries of Messrs. Beck
and Stroud were set at $175,000 each, subject to annual adjustments and
bonuses as approved by the Compensation Committee. Bonus distributions
were paid based in part on Federal income tax regulations relating to
distributions of closely held corporations and S corporations that do
not apply to the Company after the Offering. See "--Employment
Agreements."
(3) The Company has entered into an Employment Agreement with Mr. Lawrence
A. Cohen to be the chief financial officer of the Company. Pursuant to
the terms of such agreement, Mr. Cohen's annual salary will be $250,000
plus a minimum annual bonus of 25% of Mr. Cohen's base salary. See
"--Employment Agreements."
(4) Represents amounts earned by Mr. Cohen for two months that he was
employed by the Company in 1996.
(5) The bonus amount includes a commission of $33,000 paid on the sale of
Capital Senior Living Communities, L.P.'s multi-family properties in
fiscal 1996.
</FN>
</TABLE>
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<PAGE>
GRANTS OF OPTIONS
The following table sets forth details regarding stock options granted
to the Named Executive Officers during 1997. In addition, there are shown the
"option spreads" that would exist for the respective options granted based upon
assumed rates of annual compound stock appreciation of 5% and 10% from the date
the options were granted over the full option term.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)
-------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF PERCENT OF AT ASSUMED ANNUAL RATES
SECURITIES TOTAL OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM (2)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR OR BASE PRICE DATE 5% 10%
- ------------------------ ------------- --------------- ------------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey L. Beck ......... 80,000 10.8% $ 13.50 11-5-07 $ 679,206 $ 1,721,242
Co-Chairman and
Chief Executive
Officer
James A. Stroud ......... 80,000 10.8% $ 13.50 11-5-07 $ 679,206 $ 1,721,242
Co-Chairman, Chief
Operating Officer
and Secretary
Lawrence A. Cohen ....... 45,000 6.1% $ 13.50 11-5-07 $ 382,053 $ 968,198
Vice Chairman and
Chief Financial Officer
Keith N. Johannessen .... 55,000 7.4% $ 13.50 11-5-07 $ 466,954 $ 1,183,354
President
David R. Brickman ....... 40,000 5.4% $ 13.50 11-5-07 $ 339,603 $ 860,621
Vice President and
General Counsel
<FN>
(1) Options were granted under the 1997 Stock Incentive Plan. The exercise
price of each option is the fair market value of the Common Stock on the
date of grant. Options vest 20% immediately and then vest in equal
one-fifth increments over a five-year term. The options have a term of 10
years, unless they are exercised or expire upon certain circumstances set
forth in the 1997 Stock Incentive Plan, including retirement, termination
in the event of a change in control, death or disability.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent upon the future
performance of the Company's Common Stock, overall market conditions and
the executive's continued employment with the Company. The amounts
represented in this table may not be achieved.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of its named
executive officers. Messrs. Beck and Stroud entered into employment agreements
with the Company in May 1997; and Mr. Cohen, Mr. Brickman, and Mr. Johannessen
entered into employment agreements with the Company in November 1996. Messrs.
Beck and Stroud's employment agreements contain terms that renew annually for
successive four-year periods, and the compensation thereunder consists of a
minimum base salary of $175,000 and a bonus that may be given at the option of
the Compensation Committee, in an amount that is at the Compensation Committee's
discretion. Mr. Cohen's employment agreement is for a term of three years, and
the compensation thereunder consists of a minimum annual base salary of $250,000
and a minimum annual bonus of 25% of Mr. Cohen's base salary. Messrs. Brickman
and Johannessen's employment agreements are for a term of three years and
automatically extend for a two-year term on a consecutive basis, and the
compensation thereunder consists of an annual base salary of $140,000 in the
case of Mr. Johannessen, and $100,000 in the case of Mr. Brickman, and an annual
bonus as determined by the Board of Directors or Compensation Committee.
Included in each employment agreement is a covenant of the employee not to
compete with the Company during the term of his employment and for a period of
one year thereafter (two years in the case of Mr. Cohen).
Messrs. Beck and Stroud's employment agreements also provide that if they
are terminated by the Company other than for cause or for reasons of death or
disability or if they voluntarily resign for good reason, then the Company will
pay their
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base salary plus their minimum annual bonus for the balance of the term of the
agreement, but not less than two years (base salary plus minimum annual bonus
for three years if the termination is due to a Fundamental Change, as defined
therein). Mr. Cohen's employment agreement provides that if Mr. Cohen is
terminated by the Company other than for cause or for reasons of death or
disability or Mr. Cohen voluntarily resigns for good reason, then the Company
will pay to Mr. Cohen his base salary plus his minimum annual bonus for the
balance of the term of his employment agreement, but not less than one year
(base salary plus minimum annual bonus for two years if the termination is due
to a Fundamental Change, defined as a merger, consolidation or any sale of all
or substantially all of the assets of the Company that requires the consent or
vote of the holders of common stock where the Company is not the survivor or in
control). Messrs. Brickman and Johannessen's employment agreements provide that
if the employee is terminated by the Company other than for cause or for reasons
of death or disability or the employee voluntarily resigns for good reason, then
the Company will pay the employee his base salary for the balance of the term of
the employment agreement, but in any event not to exceed two years, and not less
than one year from the date of notice of the termination.
Mr. Beck and Mr. Stroud's employment agreements also contain provisions
that allow them, in the event of their termination without cause, to require the
Company to register under the Securities Act and the right to include in a
Company initiated registration statement the shares of Common Stock that are
owned by them on the date of their termination plus all shares of Common Stock
that they may acquire after their termination pursuant to the exercise of
options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
In connection with the Company's initial public offering in October 1997,
the Board of Directors established a Compensation Committee to review and
approve the compensation levels of executive officers of the Company, evaluate
the performance of the executive officers, and to review any related matters for
the Company. The Compensation Committee is charged with reviewing with the Board
of Directors in detail all aspects of the cash compensation for the executive
officers of the Company. Stock option compensation for the executive officers is
also considered by the Compensation Committee.
Because the Compensation Committee was formed in November 1997, it was not
charged with establishing or passing upon the 1997 compensation for the
executive officers of the Company. Such determinations were made by the entire
Board of Directors, which was comprised at the time of Messrs. Beck, Stroud, and
Cohen. The Compensation Committee, however, did meet during 1998 to, among other
things, review the executive compensation paid by the Company during 1997. In
making such review, the Compensation Committee considered a number of factors,
including the compensation paid to comparable officers in a peer group of
publicly-traded competitors of the Company and the employment agreements
existing with several of the Company's executive officers. The Compensation
Committee concluded in its review that such compensation was reasonably related
to the performance of the Company and those individuals during fiscal 1997.
Subsequent to its formation, the members of the Compensation Committee
also met to establish a philosophy in determining executive compensation for
fiscal 1998 and future years. The philosophy of the Company's compensation
program is to employ, retain and reward executives capable of leading the
Company in achieving its business objectives. These objectives include
preserving a strong financial posture, increasing the assets of the Company,
positioning the Company's assets and business operations in geographic markets
and industry segments offering long term growth opportunities, enhancing
stockholder value and ensuring the competitiveness of the Company. The
accomplishment of these objectives is measured against conditions prevalent in
the industry within which the Company operates. In recent years these conditions
reflect a highly competitive market environment and rapidly changing regional,
geographic and overall industry market conditions. The Compensation Committee is
also mindful, however, of the fact that several of the Company's executive
officers have entered into employment agreements in connection with their
agreements to join the Company; accordingly, with respect to those executive
officers, the Compensation Committee recognizes that, to a large degree,
compensation for such persons is set by contract.
In general, the Compensation Committee has determined that the available
forms of executive compensation should include base salary, cash bonus awards
and stock options. Performance of the Company will be a key consideration (to
the extent that such performance can fairly be attributed or related to such
executive's performance), as well as the nature of each executive's
responsibilities and capabilities. The Company's compensation philosophy
recognizes, however, that stock price performance is only one measure of
performance and, given industry business conditions and the long term strategic
direction and goals of the Company, it may not necessarily be the best current
measure of executive performance. Therefore, the Company's compensation
philosophy also will give consideration to the Company's achievement of
specified business objectives when determining executive officer compensation.
The Compensation Committee will endeavor to compensate
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the Company's executive officers based upon a Company-wide salary structure
consistent for each position relative to its authority and responsibility
compared to industry peers.
An additional objective of the Compensation Committee in determining
compensation is to reward executive officers with equity compensation in
addition to salary in keeping with the Company's overall compensation
philosophy, which attempts to place equity in the hands of its employees in an
effort to further instill stockholder considerations and values in the actions
of all the employees and executive officers. In making its determinations, some
consideration will be given by the Compensation Committee to the number of
options already held by such persons and the existing amount of Common Stock
already owed by such persons. Stock option awards in 1997 were determined by the
Board of Directors in connection with the initial public offering and were used
to reward certain executive officers and to retain each of them through the
potential of capital gains and additional equity buildup in the Company. The
number of stock options granted was determined, in part, by the subjective
evaluation of each executive's ability to influence the Company's long term
growth and profitability and by the amount of equity owned by such executive
officers prior to the Company's initial public offering in October 1997. The
Compensation Committee believes that the award of options represents an
effective incentive to create value for the shareholders.
Section 162(m) of the Internal Revenue Code, enacted in 1993,
generally disallows a tax deduction to public companies for compensation over $1
million paid to the Chief Executive Officer or to any of the four other most
highly compensated executive officers. Certain performance-based compensation,
however, is specifically exempt from the deduction limit. The Company does not
have a policy that requires or encourages the Compensation Committee to qualify
stock options or restricted stock awarded to executive officers for
deductibility under Section 162(m) of the Internal Revenue Code. However, the
Compensation Committee will consider the net cost to the Company in making all
compensation decisions.
COMPENSATION COMMITTEE
Dr. Gordon I. Goldstein
James A. Moore
Dr. Victor W. Nee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is or has been an officer or
employee of the Company or any of its subsidiaries or had any relationship
requiring disclosure pursuant to Item 404 of Regulation S-K. No executive
officer of the Company served as a member of the compensation committee (or
other board committee performing similar functions or, in the absence of any
such committee, the entire board of directors) of another corporation, one of
whose executive officers served on the Compensation Committee. No executive
officer of the Company served as a director of another corporation, one of whose
executive officers served on the Compensation Committee. No executive officer of
the Company served as a member of the compensation committee (or other board
committee performing equivalent functions or, in the absence of any such
committee, the entire board of directors) of another corporation, one of whose
executive officers served as a director of the registrant.
COMPENSATION PURSUANT TO PLANS
1997 Stock Incentive Plan
The Company has adopted the 1997 Omnibus Stock and Incentive Plan for
Capital Senior Living Corporation (the "1997 Stock Incentive Plan"). The Stock
Incentive Plan was approved by the Board of Directors and stockholders of the
Company in August 1997. Under the 1997 Stock Incentive Plan, the Compensation
Committee has the authority to grant to key employees and consultants of the
Company the following types of awards: (i) stock options in the form of
incentive stock options ("ISO") or non-qualified stock options, or both; (ii)
stock appreciation rights; (iii) restricted stock; and/or (iv) other stock-based
awards. Pursuant to the 1997 Stock Incentive Plan, the maximum number of shares
of Common Stock which may be issued is 1,565,000 shares, plus shares which are
reacquired pursuant to the share repurchase plan. Under the share repurchase
plan, which is expressly set forth in the 1997 Stock Incentive Plan, shares may
be repurchased by the Company in the open market with the cash proceeds received
by the Company with respect to options exercised and shares (restricted) sold
under the 1997 Stock Incentive Plan, up to a maximum of 50% of the total shares
authorized for grant under the 1997 Stock Incentive Plan (determined by taking
into account any increase based on new issuance of shares, but without
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regard to the share repurchase plan). The shares issued with respect to the 1997
Stock Incentive Plan may include authorized and unissued shares or treasury
shares. The maximum number of shares for which ISOs may be granted is 1,565,000.
The maximum number of shares of Common Stock for which awards may be made under
the 1997 Stock Incentive Plan to an officer of the Company or other person whose
compensation may be subject to the limitations on deductibility under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), is 100,000
during any single year. Any shares as to which an option or other award expires,
lapses unexpired, or is forfeited, terminated, or canceled may become subject to
a new option or other award. The 1997 Stock Incentive Plan will terminate on,
and no award may be granted later than, the tenth anniversary of the date of
adoption of the 1997 Stock Incentive Plan, but the exercise date of awards
granted prior to such tenth anniversary may extend beyond that date.
The 1997 Stock Incentive Plan provides for automatic grants of
non-qualified stock options to purchase shares of Common Stock to Outside
Directors. Options to purchase 9,000 shares of Common Stock have been
automatically granted to each person serving as an Outside Director as of the
consummation of the Offering at an exercise price equal to the initial public
offering price. If any person who was not previously a member of the Board of
Directors is elected or appointed an Outside Director following the consummation
of the Offering but prior to the date of the annual meeting of stockholders of
the Company in the year 2000, such Outside Director will automatically be
granted an option to purchase 7,000 shares of Common Stock if such Outside
Director's service begins prior to the second anniversary of the Offering and
5,000 shares of Common Stock if such Outside Director's service begins after the
second anniversary of the Offering. The Board of Directors may, in its
discretion, increase or decrease the number of shares subject to such option to
reflect the extent to which such Outside Director's expected service may exceed
two years or may be less than one year. Such options shall vest with respect to
3,000 shares on the date of the first annual meeting of stockholders following
the date of grant, 3,000 shares on the date of the second annual meeting of
stockholders following the date of grant, and any remaining shares on the date
of the third annual meeting of stockholders following the date of grant.
On the date of each annual meeting of the stockholders of the Company
beginning with the annual meeting of stockholders held in the year 2000, unless
the 1997 Stock Incentive Plan has been terminated, each Outside Director who
will continue as a director following such meeting will receive an option to
purchase 3,000 shares of Common Stock. Such options will vest with respect to
all 3,000 shares on the date of the next annual meeting of stockholders. All
options automatically granted to an Outside Director will enable the optionee to
purchase shares of Common Stock at the fair market value of the Common Stock on
the date of grant. Outside Director optionees will not be able to transfer or
assign their options without the prior written consent of the Board of Directors
other than (i) transfers by the optionee to a member of his or her immediate
family or a trust for the benefit of the optionee or a member of his or her
immediate family, or (ii) transfers by will or by the laws of descent and
distribution. Options automatically granted to Outside Directors will have a
term of ten years from the date of grant. The exercise price may be paid in
cash, shares of Common Stock, or a combination thereof. The Board of Directors
has the discretion to reduce, but not increase, the number of shares awardable
to Outside Directors and to postpone, but not accelerate, the vesting of such
options.
ISOs and non-qualified stock options may be granted to employees for such
number of shares as the Board of Directors or Compensation Committee may
determine and may be granted alone, in conjunction with, or in tandem with other
awards under the 1997 Stock Incentive Plan or cash awards outside the 1997 Stock
Incentive Plan. A stock option will be exercisable at such times and subject to
such terms and conditions as the Compensation Committee will determine, but the
term will be no more than ten years after the date of grant (five years in the
case of ISOs for certain 10% stockholders). The option price for an ISO will not
be less than 100% (110% in the case of certain 10% stockholders) of the fair
market value of the Common Stock as of the date of grant. ISOs granted under the
1997 Stock Incentive Plan may not be transferred or assigned other than by will
or by the laws of descent and distribution. Non-qualified stock options,
restricted stock awards and stock appreciation rights may not be transferred or
assigned without the prior written consent of the Compensation Committee, other
than (i) transfer by the optionee to a member of his or her immediate family or
a trust for the benefit of the optionee or a member of his or her immediate
family, or (ii) transfers by will or by the laws of descent and distribution.
Stock appreciation rights may be granted under the 1997 Stock Incentive
Plan alone, or in conjunction with all or part of a stock option. If issued in
conjunction with a stock option, it will be exercisable only when the underlying
stock option is exercisable and once a stock appreciation right has been
exercised, the related portion of the stock option underlying the stock
appreciation right will terminate. Upon the exercise of a stock appreciation
right, the Company will pay to the employee or consultant in cash, Common Stock,
or a combination thereof (the method of payment to be at the discretion of the
Compensation Committee), an amount equal to the excess of the fair market value
of the Common Stock on the exercise date over the option price, multiplied by
the number of stock appreciation rights being exercised.
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Restricted stock awards may be granted alone, in addition to, or in tandem
with, other awards under the 1997 Stock Incentive Plan or cash awards made
outside the 1997 Stock Incentive Plan. The provisions attendant to a grant of
restricted stock may vary from participant to participant. In making an award of
restricted stock, the Compensation Committee will determine the periods during
which the restricted stock is subject to forfeiture. During the restriction
period, the employee or consultant may not sell, transfer, pledge, or assign the
restricted stock, but will be entitled to vote the restricted stock and to
receive, at the election of the Compensation Committee, cash or deferred
dividends.
The Compensation Committee also may grant other types of awards such as
performance shares, convertible preferred stock, convertible debentures, or
other exchangeable securities that are valued, as a whole or in part, by
reference to or otherwise based on the Common Stock. These awards may be granted
alone, in addition to, or in tandem with stock options, stock appreciation
rights, restricted stock, or cash awards outside of the 1997 Stock Incentive
Plan. Awards will be made upon such terms and conditions as the Compensation
Committee may determine.
If there is a change in control or a potential change in control of the
Company (as defined in the 1997 Stock Incentive Plan), unless otherwise
determined by the Compensation Committee in its sole discretion, stock
appreciation rights and limited stock appreciation rights, and any stock options
which are not then exercisable, will become fully exercisable and vested and the
restrictions and deferral limitations applicable to restricted stock and other
stock-based awards may lapse and such shares and awards will be deemed fully
vested. Stock options, stock appreciation rights, limited stock appreciation
rights, restricted stock and other stock-based awards, will, unless otherwise
determined by the Compensation Committee in its sole discretion, be cashed out
on the basis of the change in control price (as defined in the 1997 Stock
Incentive Plan and as described below). The change in control price will be the
highest price per share paid in any transaction reported on the NYSE or paid or
offered to be paid in any bona fide transaction relating to a change in control
or potential change in control at any time during the immediately preceding
60-day period, as determined by the Compensation Committee.
Effective upon the completion of the Offering, options to purchase up to
776,250 shares of Common Stock, exercisable at the initial public offering
price, were awarded to key employees and directors of the Company. Each such
option is exercisable over a period ranging from zero to five years and expire
on the tenth anniversary of the date of grant.
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COMMON STOCK PERFORMANCE GRAPH
The following performance graph compares the cumulative return of the
Company's Common Stock since the date of the Company's initial public offering
on October 31, 1997 (the "Offering"), with that of the Broad Market (the S&P
500) and a group of the Company's peer corporations. Each index assumes $100
invested at October 31, 1997 and is calculated assuming quarterly reinvestment
of dividends and quarterly weighting by market capitalization.
[GRAPHIC OMITTED]
<TABLE>
<CAPTION>
Beginning Month Ended Month Ended
October 31, 1997 November 30, 1997 December 31, 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Capital Senior Living Corporation 100.00 77.24 62.31
Peer Group 100.00 97.30 107.41
Broad Market 100.00 104.63 106.45
</TABLE>
The Broad Market (the S&P 500) is an index of 500 companies with common
stock on national securities exchanges. The Peer Group is composed of the
following companies: American Retirement Corp., Assisted Living Concepts, Inc.,
Atria Communities, Inc., Carematrix Corp. and Sunrise Assisted Living, Inc.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ILM MANAGEMENT CONTRACTS
The Company is a party to two separate property management agreements (the
"ILM Management Agreements") with ILM I Lease Corporation and ILM II Lease
Corporation, two finite-life corporations formed by ILM Senior Living, Inc. and
ILM II Senior Living, Inc. (collectively, "ILM") that operate 13 senior living
communities. The ILM Management Agreements commenced on July 29, 1996 and expire
on December 31, 1999 and December 31, 2000, respectively, subject to extension
under certain circumstances, but not beyond July 29, 2001. Lawrence A. Cohen is
a director of ILM I Lease Corporation and ILM II Lease Corporation and is the
president and a director of ILM. Effective in November 1996, Mr. Cohen was
elected Vice Chairman and Chief Financial Officer of the Company. The Company
earned a total of $854,948 and $734,755 under the two ILM Management Agreements
for the fiscal year ended December 31, 1997. The Company has an agreement with
Mr. Cohen whereby he has agreed that, without the Company's prior consent, he
will not spend a significant portion of his time on matters not related to his
duties with the Company.
TRI POINT DEVELOPMENT AGREEMENT
On September 16, 1997, the Company and Tri Point Communities, L.P. ("Tri
Point"), a limited partnership owned by the Company's founders, Jeffrey L. Beck
and James A. Stroud and their affiliates, entered into a Development and Turnkey
Services Agreement (the "Tri Point Agreement") in connection with the
development and management of Waterford communities by the Company for Tri
Point. Pursuant to the Tri Point Agreement, upon the closing of the purchase of
the real estate by Tri Point and the receipt of final, non-appealable zoning
approvals for the community to be developed, the parties expect to enter into a
development agreement for the construction of the community. The existing
development agreements provide for a development fee payable to the Company of
7% of total project costs. Upon completion of the construction of a community
and pursuant to the development agreement, the parties will enter into a
management agreement, pursuant to which the Company expects to earn a management
fee equal to approximately 5% of gross revenues or $5,000 per month and a
lease-up fee equal to approximately $500 for each unit leased and occupied. The
Company believes that the development and management fees to be paid to the
Company approximate fair market fees. The Company expects that each management
agreement will have a 10-year term with a five-year renewal option in favor of
the Company.
Effective April 1, 1998, Tri Point will be reorganized and the interests
of Messrs. Beck and Stroud will be sold at their cost to Triad Senior Living,
Inc. and its affiliates, which are unrelated third-parties. Triad Senior Living,
Inc. and its affiliates have previously owned, developed, operated and sold
senior living communities for their own account. Tri Point will be renamed Triad
Senior Living, L.P. ("Triad"). The new general partner of Triad, owning 1%, will
be Triad Senior Living, Inc. The limited partners will be Blake N. Fail
(principal owner of Triad Senior Living, Inc.), owning 80%, and a wholly owned
subsidiary of the Company, owning 19%. Triad will continue to be bound by the
existing Tri Point Agreement and all existing development agreements, except the
development fee will be reduced from 7% to 4%, but will include reimbursements
for expenses and overhead. Triad will also continue to be bound by all existing
property management agreements. The Company's subsidiary will have an option to
purchase the partnership interests of Triad Senior Living, Inc. and Blake N.
Fail for an amount equal to the amount such party paid for its interest, plus
non-compounded interest of 12% per annum. The property management agreements
also provide the Company with an option to purchase the communities developed by
Triad upon their completion for an amount equal to the fair market value (based
on a third-party appraisal but not less than hard and soft costs and lease-up
costs). The Company has made no determination as to whether it will exercise its
purchase options. The Company will evaluate the possible exercise of each
purchase option based upon the business and financial factors which may exist at
the time those options become exercisable.
PRIOR TRANSACTIONS INVOLVING RELATED PARTIES
Background
The Company was incorporated in October 1996 in the state of Delaware in
anticipation of a public offering. On November 5, 1997, the Company closed its
initial public offering (the "Offering"). Simultaneously with the consummation
of the Offering, the Company, the Company's founders, Messrs. Beck and Stroud,
Mr. Cohen, Vice Chairman and Chief Financial Officer of the Company, and
affiliates of Messrs. Beck and Stroud completed a series of transactions
(collectively, the "Formation Transactions") that resulted in the reorganization
of the Company (the "Formation").
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As part of the Formation Transactions, Messrs. Beck and Stroud contributed
all of the capital stock of Capital Senior Living, Inc., Capital Senior
Management 1, Inc., Capital Senior Management 2, Inc., Capital Senior
Development, Inc., and, with Mr. Cohen, of Quality Home Care, Inc. (the
"Contributed Entities") to the Company in exchange for the issuance of 7,687,347
shares of common stock and the issuance of separate notes to Messrs. Beck,
Stroud (and an affiliate of Stroud) and Cohen in the aggregate principal amount
of $18,076,380 (collectively, the "Formation Note"). The Formation Note was
repaid from net proceeds of the Offering.
Also as part of the Formation Transactions, the Company purchased
substantially all of the assets (the "Acquired Assets"), other than working
capital items, of Capital Senior Living Communities, L.P., a Delaware limited
partnership ("CSLC"), for the assumption of approximately of $70.8 million of
debt plus cash equal to $5.8 million (the "Asset Acquisition"). The Acquired
Assets of CSLC are: (i) four senior living communities; (ii) approximately 56%
of the limited partner interests in HealthCare Properties, L.P., a Delaware
limited partnership ("HCP"); and (iii) approximately 31% of the aggregate
principal amount of certain notes (the "NHP Notes") issued by NHP Retirement
Housing Partners I, L.P., a Delaware limited partnership ("NHP") and
approximately 3% of the outstanding limited partnership interests of NHP. The
primary assets of HCP consist of: (i) approximately $9.9 million in cash and
cash equivalents as of the Offering; (ii) four physical rehabilitation
facilities; and (iii) four skilled nursing communities. The outstanding
principal amount of all of the NHP Notes as of the Offering was $42.7 million.
The NHP Notes accrue interest at a rate of 13% per annum, pay cash interest at a
rate of 7% per annum, are secured by substantially all of the assets of NHP, and
mature on December 31, 2001. The primary assets of NHP consist of five senior
living communities. Messrs. Beck and Stroud control approximately 66% of the
limited partnership interests in CSLC and will initiate the steps to begin the
liquidation of CSLC, pursuant to the terms of CSLC's partnership agreement. The
purchase price paid for the Acquired Assets was determined as follows: (i)
CSLC's communities, other than construction in process, were valued based on the
appraised value of the communities; (ii) CSLC's investment in HCP was valued
based on the appraised value of HCP's communities, adjusted for working capital
items and other assets and liabilities that would be settled in cash, multiplied
by the percentage of HCP owned by CSLC; (iii) CSLC's investment in the NHP Notes
was valued based on discounting the amount of principal and interest payments to
be made following the maturity date (December 31, 2001) of the NHP Notes
(assuming a six month lag between maturity and full repayment); and (iv) CSLC's
investment in the NHP limited partnership interests was valued at its historical
cost basis which approximates fair value. The appraised values for the
communities were determined by third-party appraisals.
Project and Partnership Management
Capital Senior Living, Inc. ("CSL") (one of the Contributed Entities) and
until February 1, 1995, Capital Realty Group Senior Housing, Inc. ("Senior
Housing"), each an affiliate of Messrs. Beck and Stroud, have provided community
management services to CSLC, HCP and NHP pursuant to separate management
agreements and were paid management fees pursuant to the terms of the management
agreements. The management agreements provide for reimbursement of all expenses
of managing the communities owned by these entities, including salaries of
on-site managers and out-of-pocket expenses of CSL, and provide for payment of a
property management fee to CSL equal to 5% of the gross revenues of each
project. For the periods ended December 31, 1997, 1996 and 1995, CSLC paid CSL
and Senior Housing $853,577, $987,104 and $986,877, respectively, in property
management fees for managing the projects, and CSL and Senior Housing were paid
$327,802 in 1997, $332,438 in 1996 and $430,329 in 1995 for the reimbursement of
expenses under the management agreements. For the periods ended December 31,
1997, 1996 and 1995, HCP paid CSL and Senior Housing $330,000, $208,000 and
$252,000, respectively, in property management fees for managing the projects,
and paid $215,242 in 1997, $256,000 in 1996 and $235,000 in 1995 for
reimbursable expenses under the management agreements. For the periods ended
December 31, 1997, 1996 and 1995, NHP paid CSL and Senior Housing $1,432,813,
$1,351,527 and $1,326,188, respectively in management fees, dietary services
fees and other operating expense reimbursements related to services provided to
NHP, and paid $3,892,526 in 1997, $3,816,530 in 1996 and $3,925,369 in 1995 for
reimbursable expenses, including reimbursements for salaries, related benefits
and overhead reimbursements, under the management agreements.
The general partners of CSLC, HCP and NHP are affiliates of Messrs. Beck
and Stroud. These general partners are not retaining a fee for serving as such.
All property employees of each of CSLC, HCP and NHP are paid by an affiliate of
the general partner of these partnerships, which in turn is reimbursed by the
applicable partnership. Reimbursed gross payroll and health insurance premiums
paid by CSLC in 1997, 1996 and 1995 were $5,350,000, $5,254,000 and $5,213,000,
respectively. Reimbursed gross payroll and health insurance premiums paid by HCP
in 1997, 1996 and 1995, were $3,173,000, $2,068,000 and $2,491,000,
respectively. Reimbursed gross payroll and health insurance premiums paid by NHP
in 1997, 1996 and 1995, were $3,735,000, $3,538,657 and $3,561,140,
respectively.
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As part of the Formation Transactions, the Company has received a ten-year
option to purchase all of the capital stock of Senior Housing at fair market
value (as determined by an independent appraisal). Pending such exercise, any
fees received by Senior Housing from HCP or NHP will be assigned to the Company.
Transactions with CSLC
In connection with obtaining a $12 million mortgage loan for CSLC, an
affiliate of Messrs. Beck and Stroud received a 2% financing fee of $240,000 in
1994. In 1995, an affiliate of Messrs. Beck and Stroud received a 2% financing
fee of $110,000 in connection with increasing CSLC's mortgage loan commitment
from $12 million to $17.5 million. In connection with the extension of one of
CSLC's mortgages, an affiliate of Messrs. Beck and Stroud received $0, $40,453
and $20,830 in 1997, 1996 and 1995, respectively, as a financing fee.
In April 1996, an affiliate of Messrs. Beck and Stroud sold to CSLC
$1,269,000 of limited partnership interests in HCP at the then current fair
market value and recognized a $878,592 gain on such transaction.
Upon the sale by CSLC of the two communities in November 1996, an
affiliate of Messrs. Beck and Stroud received a $79,883 brokerage fee.
On December 10, 1996, CSLC entered into contract with Capital Senior
Development, Inc., an affiliate of Messrs. Beck and Stroud (one of the
Contributed Entities), to construct a 97 unit expansion of the Cottonwood
community, consisting of 49 units for independent living and 48 units for
assisted living. The budgeted cost for the expansion is approximately
$7,000,000. On November 3, 1997, this community was transferred to the Company
in the Formation Transactions.
Transactions with HCP
HCP may pay to Senior Housing or its affiliates, for services rendered in
connection with the sale of an HCP community, and shall be entitled to receive
the lesser of the following: (i) 3% of the sale price of HCP's community or (ii)
an amount not to exceed $50% of the standard real estate commission. Amounts
earned by Senior Housing in 1996 for the sale of HCP communities were $66,000
and $92,250 in 1996 and 1995, respectively. In October 1997, HCP paid Senior
Housing a refinancing fee of $13,245.
For property management services, Senior Housing or its affiliates are
entitled to receive leasing and property management fees. Since most of HCP's
communities have long-term, triple-net leases and others have independent fee
management engagements for most services, Senior Housing or its affiliates
received 1% of the monthly gross rental or operating revenues, totaling
approximately $90,000, $72,000 and $80,000 in 1997, 1996 and 1995, respectively.
Asset management fees paid to Senior Housing or its affiliates were
approximately $502,000, $740,000 and $712,000 in 1997, 1996 and 1995,
respectively.
Formation Transactions
In connection with the Formation Transactions, Messrs. Beck, Stroud (and
his affiliate), and Mr. Cohen contributed the capital stock of the Contributed
Entities to the Company and received in exchange shares of Common Stock and the
issuance of the Formation Note, which was repaid upon completion of the Offering
as set forth in the table below.
NUMBER OF SHARES PROCEEDS FROM THE
NAME OF COMMON STOCK(1) FORMATION NOTE
- ---- ------------------ --------------
Jeffery L. Beck.......... 3,843,673 $ 8,351,940
James A. Stroud.......... 3,843,673 $ 8,351,940
Lawrence A. Cohen........ - $ 1,372,500
- -------------------
(1) See Notes to "Principal Stockholders and Stock Ownership of Management"
for certain beneficial ownership information.
The number of shares of Common Stock to be issued and the principal amount
of the Formation Notes were established by Messrs. Beck and Stroud and the
Company based upon independent appraisals of the value of the Acquired Assets
and
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an assessment of the combined value of the Company after giving effect to the
Formation Transactions by reference to the market value of comparable
publicly-traded senior living companies. The shares of the Contributed Entities
were issued to Messrs. Beck and Stroud for nominal consideration, totaling less
than $50,000, in connection with the formation of the Contributed Entities.
Also as part of the Formation Transactions, the Company purchased the
Acquired Assets from CSLC for the assumption of the LBHI Loan, which was reduced
promptly following the consummation of the Offering, and cash for the balance of
the purchase price. A part of the assets acquired by the Company from CSLC (an
affiliate of Messrs. Beck and Stroud) in the Formation Transactions consisted of
limited partnership interests in HCP and NHP and the NHP Notes, which were
acquired by CSLC since April 30, 1995. CSLC paid an aggregate of $9.9 million,
$1,364 and $10.8 million, respectively, for the 56% of limited partnership
interests in HCP, the 3% of limited partnership interests in NHP and the NHP
Notes sold by CSLC to the Company in the Formation Transactions. Approximately
$14.8 million, $1,364 and $18.5 million of the purchase price for the Acquired
Assets has been allocated to the HCP and NHP limited partnership interests and
the NHP Notes, respectively. The purchase price paid for the Acquired Assets was
determined as follows: (i) CSLC's communities, other than construction in
process, were valued based on the appraised value of such communities; (ii)
CSLC's investment in HCP was valued based on the appraised value of HCP's
communities, adjusted for working capital items and other assets and liabilities
that would be settled in cash, multiplied by the percentage of HCP owned by
CSLC; (iii) CSLC's investment in the NHP Notes was valued based on discounting
the amount of principal and interest payments to be made following the maturity
date (December 31, 2001) of the NHP Notes (assuming a six month lag between
maturity and full repayment); and (iv) CSLC's investment in the NHP limited
partnership interests was valued at its historical cost basis, which
approximates fair value. The appraised values of the communities were determined
by third-party appraisals.
Messrs. Beck and Stroud (through a trust) beneficially own approximately
66% of the limited partnership interests in CSLC and own the general partner of
CSLC, and consequently have an indirect interest in the debt assumption and
repayment of CSLC's debt through net proceeds of the Offering. In addition, in
connection with the sale of the Acquired Assets, CSLC paid an affiliate of
Messrs. Beck and Stroud a brokerage fee of approximately $4.6 million.
LBHI Loan
On June 30, 1997, CSLC entered into a mortgage loan agreement with an
affiliate of Lehman Brothers, LBHI, pursuant to which LBHI agreed to make a
mortgage loan of $77.0 million to CSLC secured by four senior living communities
owned by CSLC and CSLC's investment in HCP and NHP. The loan agreement would
have matured on December 31, 1997. On October 30, 1997, approximately $70.8
million was outstanding under this loan agreement (excluding borrowings for
construction in progress) of which $5.5 million was used to repay outstanding
amounts under CSLC's prior credit facility, and the balance was used to purchase
U.S. Treasury securities. The U.S. Treasury securities were sold under a
repurchase agreement with a term equal to their maturity. At consummation of the
Offering, and as part of the Formation Transactions, the Acquired Assets of CSLC
were acquired by the Company through assumption of the LBHI Loan, the repurchase
agreement was canceled and the LBHI loan was reduced by the Company with net
proceeds of the Offering. The U.S. Treasury securities reverted to CSLC. Through
their ownership interests in CSLC, Messrs. Beck and Stroud indirectly derived
financial benefits from CSLC's sale of the Acquired Assets to the Company and
the reversion of the U.S. Treasury securities to CSLC.
Other
During the years ended December 31, 1997, 1996 and 1995, the Company was
advanced $500,000, $400,000 and $250,000, respectively, by Messrs. Beck and
Stroud. Such funds were advanced pursuant to separate demand notes bearing
interest at 10% per annum. Prior to the Offering, $900,000 remained outstanding
under such notes. In addition, prior to the Offering, the Company owed $266,481
to an affiliate of Messrs. Beck and Stroud pursuant to a promissory note, dated
February 1, 1995 in the original principal amount of $467,164, bearing interest
at 10% per annum and payable in seven annual installments of $65,091 on December
31, plus accrued interest. This indebtedness was repaid by the Company upon
completion of the Offering.
Jeffrey L. Beck is the chairman of the board and principal stockholder of
a bank where the majority of the Company's and CSLC, HCP and NHP's operating
cash accounts are maintained.
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POLICY OF THE BOARD OF DIRECTORS
The Company has implemented a policy requiring any material transaction
(or series of related transactions) between the Company and related parties to
be approved by a majority of the directors (all of the directors in the case of
any such transaction between the Company and Tri-Point) who have no beneficial
or economic interest in such related party, upon such directors' determination
that the terms of the transaction are no less favorable to the Company than
those that could have been obtained from third parties. There can be no
assurance that these policies will always be successful in eliminating the
influence of conflicts of interest.
The Bylaws of the Company provide that at least from the period from the
closing of the Offering until the first anniversary thereof, except during a
period not to exceed 90 days following the death, resignation, incapacity or
removal of a director prior to the expiration of each director's term of office,
a majority of the board of directors shall be comprised of persons who are not
related to any members of the families of Jeffrey L. Beck or James A. Stroud and
not officers or employees of the Company.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), which became effective May 1, 1991, requires the Company's
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities (the "10% Stockholders"), to file reports of
ownership and changes of ownership with the SEC and the New York Stock Exchange.
Officers, directors and 10% Stockholders of the Company are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms so
filed. Based solely on review of copies of such forms received, the Company
believes that, during the last fiscal year, all filing requirements under
Section 16(a) applicable to its officers, directors and 10% Stockholders were
timely met, with the exception that Messrs. Beck, Stroud, Moore and Miller were
each late with respect to the filing of one Form 4 related to the purchase of
Common Stock of the Company. These omissions have been corrected with subsequent
Form 5 filings.
---------------------------------
PROPOSAL TO RATIFY APPOINTMENT OF
INDEPENDENT AUDITORS
(PROPOSAL 2)
The Board of Directors has appointed Ernst & Young LLP, independent
auditors, to be the principal independent auditors of the Company and to audit
its consolidated financial statements for the fiscal year ending December 31,
1998. Ernst & Young LLP served as the Company's independent auditors for the
fiscal year ended December 31, 1997, and has reported on the Company's
consolidated financial statements. Representatives of the firm will be present
at the Annual Meeting, will have the opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions from
shareholders.
The Board of Directors has the responsibility for the selection of the
Company's independent auditors. Although shareholder ratification is not
required for the selection of Ernst & Young LLP, and although such ratification
will not obligate the Company to continue the services of such firm, the Board
of Directors is submitting the selection for ratification with a view towards
soliciting the shareholders' opinion thereon, which may be taken into
consideration in future deliberations. If the appointment is not ratified, the
Board of Directors must then determine whether to appoint other auditors before
the end of the current fiscal year, and in such case, shareholders' opinions
would be taken into consideration.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS OF THE
COMPANY FOR THE 1998 FISCAL YEAR.
OTHER BUSINESS
(PROPOSAL 3)
The Board knows of no other business to be brought before the Annual
Meeting. If, however, any other business should properly come before the Annual
Meeting, the person named in the accompanying proxy will vote the proxy as in
his discretion he may deem appropriate, unless directed by the proxy to do
otherwise.
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GENERAL
The cost of any solicitation of proxies by mail will be borne by the
Company. Arrangements may be made with brokerage firms and other custodians,
nominees and fiduciaries for the forwarding of material to and solicitation of
proxies from the beneficial owners of Common Stock held of record by such
persons, and the Company will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out of pocket expenses incurred by them
in connection therewith. Brokerage houses and other custodians, nominees and
fiduciaries will, in connection with shares of Common Stock registered in their
names, be requested to forward solicitation material to the beneficial owners of
such shares and to secure their voting instructions. The cost of such
solicitation will be borne by the Company.
The information contained in this Proxy Statement in the sections entitled
"Election of Directors -- Compensation Committee Report on Executive
Compensation" and "Common Stock Performance Graph" shall not be deemed
incorporated by reference by any general statement incorporating by reference
any information contained in this Proxy Statement into any filing under the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
except to the extent that the Company specifically incorporates by reference the
information contained in such sections, and shall not otherwise be deemed filed
under the Securities Act or the Exchange Act.
DATE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Stockholder proposals to be included in the proxy statement for the next
Annual Meeting must be received by the Company at its principal executive
offices on or before November 30, 1998 for inclusion in the Company's Proxy
Statement relating to that meeting.
BY ORDER OF THE BOARD OF DIRECTORS
Jeffrey L. Beck
Co-Chairman and Chief Executive Officer
March 30, 1998
Dallas, Texas
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. STOCKHOLDERS WHO DO NOT
EXPECT TO ATTEND THE MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED TO DATE,
SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE.
NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
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