<PAGE>
As filed with the Securities and Exchange Commission on February 24, 2000
File No. 000-25313
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Post-Effective Amendment No. 2
to
Form 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
AGEMARK CORPORATION
-------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Nevada 94-3270169
-------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2614 Telegraph Avenue
Berkeley, CA 94704
------------------------ -------------
(Address of Principal (ZIP Code)
Executive Offices)
Issuer's telephone number: (510) 548-6600
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered: each class is to be registered:
Not Applicable Not Applicable
--------------------- ---------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock,
par value $.001 per share
--------------------------------
(Title of class)
================================================================================
<PAGE>
Table of Contents
-----------------
Page
----
Item 1. Description of Business.............................................1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................13
Item 3. Description of Property............................................18
Item 4. Security Ownership of Certain Beneficial Owners
and Management.....................................................19
Item 5. Directors, Executive Officers, Promoters and Control Persons.......20
Item 6. Executive Compensation.............................................22
Item 7. Certain Relationships and Related Transactions.....................23
Item 8. Legal Proceedings..................................................23
Item 9. Market for Common Stock and Related Stockholder Matters............24
Item 10. Recent Sales of Unregistered Securities............................24
Item 11. Description of Securities..........................................24
Item 12. Indemnification of Directors and Officers..........................27
Item 13. Financial Statements...............................................27
Item 14. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................27
Item 15. Financial Statements and Exhibits..................................27
<PAGE>
Item 1. Description of Business.
General
Agemark Corporation (the "Company") owns and operates assisted living
residences, which offer a combination of housing and personalized services for
senior citizens who can no longer live independently but who do not require the
24-hour medical care provided by a skilled nursing facility. The Company
operates 10 properties located in non-urban, secondary markets in seven states.
The Company's primary focus is on "private pay" residents, who generally pay for
the Company's services from their own funds, with the help of other family
members or through private insurance. The Company was incorporated in Nevada in
April 1997 and commenced operations in January 1998 pursuant to the Plan of
Reorganization discussed below.
Background and Formation of the Company; Plan of Reorganization
Between 1987 and 1989, Westor Financial Group, Inc., now, Opus X Inc.
("Opus"), established Historic Housing for Seniors Limited Partnership, Historic
Housing for Seniors II Limited Partnership, Historic Housing for Seniors III
Limited Partnership (collectively, the "HHS Partnerships"), and Housing for
Seniors Participating Mortgage Fund Limited Partnership ("PIF I" and, together
with the HHS Partnerships, the "Partnerships"). The Partnerships were Delaware
limited partnerships, the securities of which were registered under the
Securities Exchange Act of 1934 (the "Exchange Act"). The HHS Partnerships owned
a portfolio of real properties throughout the United States that were operated
as housing facilities for senior citizens. PIF I, together with similar
partnerships sponsored by Opus (collectively, the "PIF Partnerships"), made
mortgage loans to the HHS Partnerships and owners of other such facilities. Opus
served as general partner for each of the Partnerships. Evergreen Management,
Inc. ("Evergreen"), a corporation owned by the principals of Opus, managed the
operations of the housing facilities owned by the Partnerships pursuant to
management agreements with those entities.
The operating performance of the HHS Partnerships did not reach feasibility
standards and pro forma expectations and by the early 1990s, due to a variety of
factors, the HHS Partnerships were unable to meet the debt service demands of
the PIF Partnerships. Factors that affected the businesses of the housing
facilities owned by the HHS Partnerships included higher resident turnover than
had been expected, slower rent up to full occupancy than anticipated, higher
expenses than anticipated and changes in tenants' needs due to their
deteriorating health. The decline in commercial and residential real estate and
the nationwide economic downturn adversely affected each HHS Partnership's
ability to lease its facilities in the time frame that was originally
anticipated by feasibility studies conducted by third parties on behalf of the
HHS Partnerships. Depressed home sales in many markets made it difficult for
potential residents to sell their homes, which adversely affected their
financial ability to be able to move into a senior citizen housing facility. An
additional factor affecting adversely the overall occupancy rates and net income
stream of the HHS Partnerships' housing facilities was a much higher than
anticipated turnover rate due to the age and frailty of the residents and lower
profit margins resulting from more intensive service required to retain the
frail elderly tenants who moved in. As a result, occupancies and income
available for debt service at the HHS Partnerships' facilities
<PAGE>
were below the level required to fund both the property operating expenses
and full mortgage payments.
In September 1993, the Partnerships filed voluntary petitions for relief
under Chapter 11 of the United States Bankruptcy Code. In May 1994, the HHS
Partnerships proposed a plan of reorganization that was never confirmed; the
court-appointed liquidating trustee for the PIF Partnerships other than PIF I
objected to the plan pending his further investigation of the operations of
Opus, the HHS Partnerships and the PIF Partnerships. In January 1997, the
Partnerships proposed a Second Amended Joint Plan of Reorganization (as amended
and confirmed, the "Plan of Reorganization") that was supported by the
liquidating trustee of the other PIF Partnerships. The Plan of Reorganization
was confirmed by the United States Bankruptcy Court for the Northern District of
California on April 29, 1997. The Plan of Reorganization was declared effective
on September 30, 1998.
In accordance with the Plan of Reorganization, the Company was incorporated
under the laws of Nevada in April 1997. Some of the facilities owned by the HHS
Partnerships were transferred to the Company pursuant to the Plan of
Reorganization. According to a study conducted in connection with the
formulation of and whose conclusions are included in the Plan of Reorganization,
these facilities were deemed to have the strongest long-term potential for
generating cash flow adequate to support ongoing debt or were needed to secure
certain obligations arising from previous loans. Additionally, two affiliated
limited partnerships of Opus, Dickinson Associates, L.P. and Williston
Associates, L.P., contributed two facilities located in Dickinson, North Dakota
and Williston, North Dakota, respectively, to the Company. Both Dickinson
Associates, L.P. and Williston Associates, L.P. were owned by the individuals
who now comprise the Company's senior management. In consideration for these
facilities, and in satisfaction of certain claims, the Company issued shares of
Common Stock to the Partnerships and the Opus-affiliated limited partnerships.
The Partnerships were dissolved and their equity interests in the Company were
distributed to their respective limited partners. The secured debt on the
Company's facilities was also reduced and modified pursuant to the Plan of
Reorganization. In addition, pursuant to the Plan of Reorganization, the Company
entered into amended management agreements with Evergreen, providing for reduced
fees compared to the agreements with the Partnerships. See Item 7--"Certain
Relationships and Related Transactions" below. The Company also assumed all
assets and liabilities of the Partnerships that were not otherwise disposed of
pursuant to the Plan of Reorganization.
The following table sets forth certain information with respect to the
properties that were acquired by the Company pursuant to the Plan of
Reorganization, including a breakdown of the assets and debt that were assumed
by the Company in respect of each property.
The following is a summary of the properties transferred to the Company and
the adjustments made to historical values to arrive at values approved by the
Bankruptcy Court pursuant to the Plan of Reorganization:
2
<PAGE>
(Amounts in thousands of dollars)
<TABLE>
<CAPTION>
Accumulated Net Book Write
Property Transferred Historical Depreciation Value Up Plan
Location From Value 12/31/97 12/31/97 (Down) Values
-------- ---- ----- -------- -------- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Beatrice, NE HHS I $ 2,742 $ 888 $ 1,854 $ (618) $ 1,236
Cumberland, MD HHS I 2,188 635 1,553 2,315 3,868
Hastings, NE HHS I 3,211 1,120 2,091 198 2,289
Chanute, KS HHS II 2,602 750 1,852 (901) 951
Rock Island, IL HHS II 4,345 1,212 3,133 (735) 2,398
Fort Madison, IA HHS III 3,460 781 2,679 (464) 2,215
Manitowoc, WI HHS III 3,642 693 2,949 (2,154) 795
Port Huron, IL PIF I 1,090 0 1,090 86 1,176
Dickinson, ND Private 1,380 380 1,000 1,273 2,273
Williston, ND Private 1,932 538 1,394 2,978 4,372
------------ ------------- ------------- ---------- ------------
$ 26,592 $ 6,997 $ 19,595 $ 1,978 $ 21,573
============ ============= ============= ========== ============
</TABLE>
In connection with the transfers of the facilities, the Company also
assumed various notes payable. The following is a summary of the notes payable
assumed by the Company:
(Amounts in thousands of dollars)
Carrying value of notes (including accrued
interest) by the Partnerships $ 24,186
Less forgiveness of debt recognized by the Partnerships 8,595
----------
Notes payable assumed by the Company $ 15,591
==========
The Senior Care Industry
The senior care industry is characterized by a wide range of living
accommodations and health care services. For those who are able to live in a
home setting, home health care and other limited services can be an appropriate
alternative. Community housing or retirement centers, which are commonly
referred to as independent living facilities, are also available to persons who
need modest assistance, such as with meal preparation, housekeeping and laundry.
Assisted living facilities are typically for those persons whose physical or
cognitive frailties have reached a state where independent living accommodations
can no longer provide the level of care required. These people do not need the
continuous medical attention of a skilled nursing facility. Generally, assisted
living facilities provide a combination of housing and 24-hour personal support
services designed to assist seniors with activities of daily living ("ADLs"),
which include bathing, eating, personal hygiene, grooming, ambulating and
dressing. Certain assisted living facilities also offer higher levels of
personal assistance for residents with Alzheimer's disease or other forms of
dementia but always in a "residential," as compared with a "medical," setting.
3
<PAGE>
Skilled nursing facilities provide care in a comparatively institutional
environment. Assisted living residences provide a "homelike" atmosphere. For
example, the Company's facilities feature carpeted floors compared with the
linoleum typically found in nursing home, and single-occupancy rooms.
Additionally, assisted living residences operated by the Company encourage
residents to bring their own, more familiar furniture, serve meals in dining
rooms and provide a wide range of social programs including outings to shows,
museums, movies and the like.
The senior care industry, including assisted living, is highly fragmented
and characterized by numerous providers whose services, experience and capital
resources vary widely. The Company believes that the assisted living industry is
evolving as the preferred alternative to meet the growing demand for a
cost-effective setting for those seniors who cannot live independently due to
physical or cognitive frailties, but who do not require the more intensive
medical attention provided by a skilled nursing facility. According to the
United States Bureau of the Census, approximately 45% of persons aged 85 years
and older, approximately 24% of persons aged 80 to 84 and approximately 20% of
persons aged 75 to 79 need assistance with ADLs.
The Company believes that a number of factors will contribute to the
continued growth of the assisted living industry, including:
Cost Effectiveness. The Company believes that assisted living facilities
provide a cost effective alternative to other types of facilities that may
provide more care than many seniors need. Additionally, the Company also
believes that the cost of assisted living services compares favorably with home
health care, particularly when costs associated with housing, meals and personal
care assistance are taken into consideration.
Changing Income and Family Structures. The Company believes that the
increased affluence of the current elderly population and changing family
structures will feed the demand for assisted living and health care services.
The Company believes that cumulative gains in stock prices and rising real
estate values over the past few decades has contributed to increased affluence
in the elderly population. Accordingly, the Company believes that the number of
seniors who are able to afford high-quality senior residential services such as
those offered by the Company will also increase. Additional factors affecting
the demand for assisted senior living arrangements include the past decade's
increase in the number of two-income households and rise in geographical
separation of senior family members from their adult children caused by
work-related moves. Many families that traditionally would have provided the
care and services offered by the Company to senior family members are less able
to do so now than in the past. The Company believes that assisted living
facilities represent an attractive and independent environment for senior family
members.
Demographics. The target market for the Company's services are persons 75
years and older, one of the fastest growing segments of the United States
population. According to the United States Bureau of the Census, the portion of
the United States population aged 75 and older is expected to increase by
approximately 29%, from approximately 13.0 million in 1990 to approximately 16.8
million by the year 2000. The number of persons aged 85 and older, as a segment
of the United States population, is expected to increase by approximately 43%,
from approximately 3.0 million in 1990 to over 4.3 million by the year 2000. The
Company believes
4
<PAGE>
that increases in human life expectancy will result in increased demand for
services similar to those provided by the Company.
Services
The Company operates assisted living facilities in the following locations:
Rock Island, Illinois; Fort Madison, Iowa; Chanute, Kansas; Cumberland,
Maryland; Port Huron, Michigan; Beatrice, Nebraska; Hastings, Nebraska;
Dickinson, North Dakota; and Williston, North Dakota. Except for the facilities
in North Dakota, which are modern buildings, the Company's facilities are
located in historic, renovated hotels, most of which are on the National
Register of Historic Places. The Company's facilities range in size from 50
units to 115 units. See Item 3--"Description of Property." In addition, the
Company currently operates a property located in Manitowoc, Wisconsin as an
apartment complex.
Assisted Living Properties. The Company's current portfolio of properties
is aimed at the middle to more affordable price range within the senior care
market. The Company offers a range of assisted living care and services, which
are available 24 hours per day at each of its assisted living facilities. The
services offered by the Company include personal care, support and certain
supplemental services. Personal care services include assistance with ADLs, such
as ambulating, bathing, dressing, eating, grooming, personal hygiene, monitoring
or assistance with medications and confusion management. Support services
include meal preparation, assistance with social and recreational activities,
laundry services, general housekeeping, maintenance services and transportation
services. Supplemental services, which are offered at an extra charge, include
beauty and barber services, extra laundry services and non-routine care
services. The rates for assisted living units at the Company's facilities range
from approximately $1,000 to $2,000 per month, depending, among other things, on
the size of the unit and the location of the facility.
Adult Day Care. The Company currently provides adult day care services at
its Cumberland, Maryland property. The Company charges approximately $60 per day
for its adult day care services. The Company believes that adult day care is a
natural complement to its existing assisted living facilities because many of
the Company's properties have large ballrooms or activity rooms which are
underutilized. Adult day care services, because they are offered to senior
citizens who do not reside in the Company's properties, have the potential to
generate new residents for the Company's assisted living residences by
introducing them to the Company.
Marketing and Sales
The Company's marketing strategy is intended to create awareness of the
Company and its services among potential residents and their family members and
referral sources, such as physicians, clergy, local area agencies for the
elderly, home health agencies and social workers. A central marketing staff
person located at the Company's facility in Hastings, Nebraska coordinates the
Company's overall strategies for promoting the Company throughout its markets
and monitors the success of the Company's marketing efforts. Additionally, the
Company has hired an outside marketing and public relations firm to develop
marketing materials for the Company as a whole and for each of the Company's
facilities. The Company also relies on print
5
<PAGE>
advertising, yellow pages advertising, direct mail, signage and special events,
such as grand openings for new facilities and community receptions.
Competition
The health care industry is highly competitive and the Company believes
that the assisted living business will become more competitive in the future.
There are currently few regulatory and other barriers to entry in the assisted
living industry. The Company faces competition for residents and for employees
from numerous local, regional and national providers of facility-based assisted
living and long-term care, including skilled nursing facilities, as well as
medical rehabilitation and home health care providers. Many of the Company's
present and potential competitors are significantly larger or have greater
financial resources than those of the Company. Additionally, some of the
Company's competitors operate on a not-for-profit basis or as charitable
organizations. If the development of new assisted living facilities surpasses
the demand for such facilities in particular markets, such markets could become
saturated. Competition could limit the Company's ability to attract residents
and patients and expand its business and could have a material adverse effect on
the Company's business, results of operations and financial condition.
The Company believes the primary competitive factors in the senior care
industry are: reputation for, and commitment to, high quality care; quality of
support services offered (such as home health care and food services); price of
services; physical appearance and amenities associated with the facilities; and
location. Because seniors tend to choose senior living facilities near their
homes, the Company's principal competitors are other senior living and long-term
care facilities in the same geographic areas as the Company's facilities. The
Company also competes with other health care businesses with respect to
attracting and retaining nurses, technicians, aides, and other high quality
professional and nonprofessional employees and managers.
Government Regulation
The assisted living industry is subject to extensive federal, state and
local regulation. The various layers of governmental regulation affect the
Company's business by controlling its growth, requiring licensure or
certification of its facilities, regulating the use of its facilities and
controlling reimbursement to the Company for services provided. Licensing,
certification and other applicable governmental regulations vary from
jurisdiction to jurisdiction and are revised periodically. It is not possible to
predict the content or impact of future legislation and regulations affecting
the assisted living industry.
Assisted Living Facilities. The Company's assisted living facilities are
subject to regulation by various state and local agencies. There are currently
no federal laws or regulations specifically governing assisted living
facilities. State requirements relating to the licensing and operation of
assisted living facilities vary from state to state; however, most states
regulate many aspects of a facility's operations, including physical plant
requirements; resident rights; personnel training and education; requisite
levels of resident independence; administration of medications; safety and
evacuation plans; and the level and nature of services to be provided, including
dietary and housekeeping. In most states, assisted living facilities must also
comply
6
<PAGE>
with state and local building and fire codes and certain other licenses or
certifications, such as a food service license, may be required. Assisted living
facilities are subject to periodic survey by governmental agencies with
licensing authority. In certain circumstances, failure to satisfy survey
standards could result in a loss of licensure and closure of a facility.
Because assisted living facilities historically have not been considered as
traditional health care entities and government and private insurers have not
reimbursed providers for assisted living services, these facilities have not
been subject to the degree of regulation which governs nursing homes and other
health care providers. As assisted living emerges as a cost-effective
alternative to nursing facility care, assisted living facilities could become
subject to more extensive regulation, particularly in the areas of licensure and
reimbursement. The content of such regulations, the extent of any increased
regulation and the impact of any such regulation on the Company cannot be
predicted at this time and there can be no assurance that such regulations will
not adversely affect the Company's business.
The Company believes the structure and composition of government regulation
of health care will continue to change and, as a result, it regularly monitors
developments in the law. The Company expects to modify its agreements and
operations from time to time as the business and regulatory environment changes.
While the Company believes it will be able to structure all its agreements and
operations in accordance with applicable law, there can be no assurance that its
arrangements will not be successfully challenged.
Americans with Disabilities Act. Under the Americans with Disabilities Act
of 1990, all places of public accommodation are required to meet certain federal
requirements related to access and use by disabled persons. A number of
additional federal, state and local laws exist which also may require
modifications to existing and planned properties to create access by disabled
persons. While the Company believes that its properties are substantially in
compliance with present requirements or are exempt therefrom, in part because of
their historic value, if required changes involve a greater expenditure than
anticipated or must be made on a more accelerated basis than anticipated,
additional costs would be incurred by the Company. Further, legislation may
impose additional burdens or restrictions with respect to access by disabled
persons, the costs of compliance with which could be substantial.
Environmental Regulation. The Company is subject to various federal, state
and local environmental laws and regulations. Such laws and regulations often
impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of hazardous or toxic substances. The costs of any
required remediation or removal of these substances could be substantial and the
liability of an owner or operator as to any property is generally not limited
under such laws and regulations and could exceed the property's value and the
aggregate assets of the owner or operator. The presence of these substances, or
failure to remediate such contamination properly, may also affect adversely the
owner's ability to sell or rent the property, or to borrow using the property as
collateral. Under these laws and regulations, an owner, operator or an entity
that arranges for the disposal of hazardous or toxic substances, such as
asbestos-containing materials, at the disposal site, may also be liable for the
costs of any required remediation or removal of the hazardous or toxic
substances at the disposal site. In connection with the ownership or operation
of its properties, the Company could be liable for these costs, as
7
<PAGE>
well as certain other costs, including governmental fines and injuries to
persons or properties.
Employees
As of January 1, 1999, the Company had approximately 307 employees,
including 136 part-time employees. None of the Company's employees are currently
represented by a union. The Company believes that it has a good relationship
with its employees.
Factors That May Affect Results
The Company's business, financial condition and results of operations are
subject to many risks, including those discussed under "--Competition" and
"--Government Regulation" above and those set forth below.
Limited Operating History. The Company was incorporated in 1997 and began
operations in January 1998 and consequently has a limited operating history.
Accordingly, there can be no assurance that the Company will not incur losses.
Failure to achieve profitability could have a material adverse effect on the
Company's business, results of operations and financial condition.
Formation from Chapter 11 Proceedings. The Company was formed pursuant to
the Plan of Reorganization, which became effective on September 30, 1998. The
Company's operations' experience in and recent emergence from Chapter 11 may
affect the Company's ability to negotiate favorable trade terms with vendors.
The failure to obtain such favorable terms could have a material adverse effect
on the Company's business, results of operations and financial condition.
Need for Additional Capital. The Company's growth is subject to its ability
to maintain or further increase revenues at existing facilities and the
availability of capital. The Company has begun and continues to work with
various sources of long-term financing to refinance existing loans in order to
obtain financing with a longer term, reduce the impact of debt financing on
future cash flows, and obtain additional liquidity for future capital projects.
In the opinion of management, the Company will have sufficient cash from
operations for the Company's operating and capital expenditure needs for at
least the next 12 months. There can be no assurance that the Company will be
able to maintain or further increase revenues at current facilities or that
sufficient capital will be available or, if available, that it will be available
on terms that the Company considers reasonable. Further, owing to the age of the
Company's historic properties, the Company's facilities may require greater
upkeep and capital expenditures than more modern facilities. The Company's
inability or failure to maintain or further increase such revenues or obtain
such sufficient capital on favorable terms could have a material adverse effect
on its business, results of operations and financial condition.
Debt Obligations. As of January 1, 1999, there was an aggregate balance of
approximately $14,775,150 outstanding on mortgages secured by certain of the
Company's properties. See Item 3--"Description of Property." Virtually all of
the Company's long-term debt will come due in three years, subject to an
extension to as much as six years upon the
8
<PAGE>
repayment of substantial amounts of principal. Consequently, a significant
portion of the Company's cash flow is expected to be devoted to debt service,
and there is a risk that the Company will not be able to generate sufficient
cash flow from operations to cover required debt payments. The Company has begun
and continues to work with various sources of long-term financing to refinance
the existing loans in order to obtain financing with a longer term, reduce the
impact of debt financing on future cash flows, and obtain additional liquidity
for future capital projects. If the Company were unable to generate sufficient
cash flow from operations to cover required debt payments in the future, there
can be no assurance that sufficient financing would be available to cover the
insufficiency or, if available, that the financing would be on terms acceptable
to the Company. In the absence of financing, the Company's ability to make
scheduled principal and interest payments on its indebtedness would be adversely
affected.
Obtaining Residents and Maintaining Rental Rates. As of January 1, 1999,
the senior citizen housing facilities owned and operated by the Company had a
combined occupancy rate of approximately 85%. Occupancy may drop in these
facilities primarily due to changes in the health of residents, increased
competition from other providers of assisted living services that may give
residents more choices with respect to the provision of such services, and
changes in state regulations. Turnover among residents is affected by their
health, and higher turnover can adversely affect the Company's results of
operations. There can be no assurance that, at any time, any of the Company's
facilities will be substantially occupied at assumed rents. In addition, full
occupancy may be achievable only at rental rates below those assumed. The
Company's operating expenses could be affected adversely by a variety of
factors, including the level of services required to retain residents, which in
turn is affected by the age and health of residents. If operating expenses
increase, local rental market conditions may limit the extent to which rents may
be increased. To the extent the Company acquires any new properties, rental
increases may lag behind increases in operating expenses since rent increases
generally can only be implemented at the time of expiration of leases. In
addition, the failure of the Company to generate sufficient revenue could result
in an inability to make interest and principal payments on its indebtedness.
General Real Estate Risks. The performance of the Company's senior citizen
housing facilities is influenced by factors affecting real estate investments,
including the general economic climate and local conditions, such as an
oversupply of, or a reduction in demand for, assisted living residences. Other
factors include the attractiveness of properties to residents, zoning, rent
control, environmental quality regulations or other regulatory restrictions,
competition from other forms of housing and the ability of the Company to
provide adequate maintenance and insurance and to control operating costs,
including maintenance, insurance premiums and real estate taxes. Real estate
investments are also affected by such factors as applicable laws, including tax
laws, interest rates and the availability of financing. Real estate investments
are relatively illiquid and, therefore, limit the ability of the Company to vary
its portfolio promptly in response to changes in economic or other conditions.
Any failure by the Company to operate its senior citizen housing facilities
effectively may have a material adverse effect on the Company's business,
financial condition and results from operations.
Liability and Insurance. Providing assisted living services involves an
inherent risk of liability. Participants in the senior living and health care
industry are subject to lawsuits alleging
9
<PAGE>
negligence or related legal theories, many of which may involve large
claims and significant legal costs. The Company currently maintains liability
insurance intended to cover claims in amounts and with such coverages and
deductibles that it believes are adequate and in keeping with industry practice.
However, claims in excess of the Company's insurance coverage or claims not
covered by the Company's insurance (e.g., claims for punitive damages) may
arise. A successful claim against the Company not covered by or in excess of the
Company's insurance coverage could have a material adverse effect on the
Company's business, results of operations and financial condition. Claims
against the Company, regardless of their merit or eventual outcome, may also
have a material adverse effect upon the Company's reputation and its ability to
attract residents or expand its business. The Company's insurance policies
generally must be renewed annually, and there can be no assurance that the
Company will be able to obtain liability insurance coverage in the future on
acceptable terms, if at all.
Dependence on Key Personnel. The Company's operations have been
significantly dependent on the contributions of management, and the loss of the
services of the Company's senior officers--Messrs. Pittore, Tolley and
Westin--could have a material adverse effect on the Company's business, results
of operations and financial condition. The Company has entered into employment
agreements with each of its senior officers. See Item 6--"Executive
Compensation--Employment Agreements." The Company's success also depends to a
significant extent upon a number of other key employees of the Company,
including the Company's Chief Operating Officer and National Marketing Director.
The loss of the services of one or more of these key employees also could have a
material adverse effect on the Company. The Company does not carry key person
life insurance. In addition, the Company believes that its future success will
depend in part upon its ability to attract and retain additional highly-skilled
professional, managerial, sales and marketing personnel. Competition for such
personnel is intense. There can be no assurance that the Company will be
successful in attracting and retaining the personnel that it requires for its
business and planned growth.
Labor Costs. The Company competes with various health care providers and
other employers for limited qualified and skilled personnel in the markets that
it serves. The Company expects that its labor costs will increase over time.
Currently, none of the Company's employees is represented by a labor union. If
employees of the Company were to unionize, the Company could incur labor costs
higher than those of competitors with nonunion employees. The Company's
business, results of operations and financial condition could be adversely
affected if the Company is unable to control its labor costs.
Conflicts of Interest. Certain of the Company's officers and directors may,
by virtue of their investment in or involvement with entities providing services
or office space to the Company have an actual or potential conflict of interest
with the interests of the Company. See Item 7--"Certain Relationships and
Related Transactions." From time to time, vendors may require personal
guarantees from the executive officers of the Company and such personal
guarantees may create a conflict of interest for such executive officer.
Year 2000 Issues. The Company has not assessed its readiness in regard to
Year 2000 issues. During the next fiscal year the Company will embark upon and
complete an assessment of the Company's critical systems and those of material
third parties to assure that they are Year
10
<PAGE>
2000 compliant and develop contingency plans in the event of noncompliance.
Because the Company cannot be certain that third parties will be able to supply
material goods and services without material interruption, and because the
Company cannot be certain that execution of its contingency plans will be
capable of implementation or result in a continuous and adequate supply of such
goods and services, the Company cannot give assurance that these matters will
not have a material adverse effect on the Company's future financial position,
results of operations or cash flows. The failure of either the Company's
critical systems or those of its material third parties to be Year 2000
compliant would result in the interruption of the Company's business, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
No Public Market for the Common Stock. If shares of the Company's Common
Stock are traded after their original issuance pursuant to the Plan of
Reorganization, they are expected to trade at varying prices, depending upon the
market for similar securities and other factors, including general economic
conditions and the financial condition and performance of, and prospects for,
the Company. The Plan of Reorganization provides that, as soon as practicable
after the effective date of the Plan of Reorganization, the Company shall take
the necessary steps to have the Company's Common Stock publicly traded. The
Company's management is currently investigating "over-the-counter" quotation of
the Company's Common Stock on the OTC Bulletin Board(R). However, there can be
no assurance that the Company will be successful in its efforts to establish a
public trading market for the Common Stock or that any market making activity
with respect to the Common Stock will continue in the future, if and once
initiated. See "--Risks of Low-Priced Stock; Possible Effect of `Penny Stock'
Rules on Liquidity for the Company's Securities."
Risks of Low-Priced Stock; Possible Effect of "Penny Stock" Rules on
Liquidity for the Company's Securities. As discussed above, the Company's
management is currently investigating "over-the-counter" quotation of the
Company's Common Stock on the OTC Bulletin Board(R). See "--No Public Market for
the Common Stock." As such, the Company's securities may become subject to Rule
15g-9 under the Exchange Act, which imposes additional sales practice
requirements on broker-dealers that sell such securities to persons other than
established customers and "accredited investors" (generally, individuals with a
net worth in excess of $1,000,000 or annual incomes exceeding $200,000 or
$300,000 together with their spouses). Rule 15g-9 defines "penny stock" to be
any equity security that has a market price (as therein defined) of less than
$5.00 per share or an exercise price of less than $5.00 per share, subject to
certain exceptions, none of which are currently met or are anticipated to be met
by the Company in the foreseeable future. For transactions covered by Rule
15g-9, a broker-dealer must make a special suitability determination for the
purchaser and have received the purchaser's written consent to the transaction
prior to sale. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Securities and Exchange Commission ("SEC")
relating to the penny stock market. Disclosure is also required to be made about
sales commissions payable to both the broker-dealer and the registered
representative and current quotations for the securities. Finally, monthly
statements are required to be sent disclosing recent price information for the
penny stock held in the account of the broker-dealer's client and information on
the limited market in penny stock. Consequently, such Rule may affect the
ability of broker-dealers
11
<PAGE>
to sell the Company's securities and may affect the ability of purchasers
to sell any of the Company's securities in the secondary market.
There can be no assurance that the Company's securities will qualify for an
exemption from the penny stock restrictions. In any event, even if the Company's
securities become exempt from such restrictions, the Company would remain
subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the
authority to restrict any person from participating in a distribution of penny
stock, if the SEC finds that such a restriction would be in the public interest.
If the Company's securities are subject to the rules on penny stocks, the
market liquidity for the Company's securities could be materially and adversely
affected.
Limitation on Payment of Dividends on Capital Stock. Since the Company's
formation in April 1997, the Company has not paid any dividends on its common
stock and does not anticipate doing so in the foreseeable future. Moreover, the
Plan of Reorganization provides that the Company may not declare any dividends
until certain indebtedness specified in the Plan of Reorganization is paid in
full or otherwise satisfied. There can be no assurance that the Company will pay
out any return on its common stock.
Control by Officers, Directors and Affiliated Entities. The Company's
executive officers, directors and certain entities affiliated with such
directors beneficially own in the aggregate approximately 22.8% of the issued
and outstanding shares of the Company's common stock. See Item 4--"Security
Ownership of Certain Beneficial Owners and Management." Such stockholders may
have sufficient voting power to control the outcome of matters (including the
election of directors and any merger, consolidation or sale of all or
substantially all of the Company's assets) submitted to the stockholders for
approval and may be deemed to have effective control over the affairs and
management of the Company. This controlling interest in the Company may also
have the effect of making certain transactions more difficult or impossible,
absent the support of such stockholders. Such transactions could include a proxy
contest, mergers involving the Company, tender offers and open market purchase
programs involving the Company's common stock that could give stockholders of
the Company the opportunity to realize a premium over the then prevailing market
price for their shares of the Company's common stock.
Anti-Takeover Provisions. Certain provisions of the Company's Bylaws and
Nevada law could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire, control
of the Company. Such provisions could limit the price that certain investors
might be willing to pay in the future for shares of the Company's Common Stock.
See Item 11--"Description of Securities--Nevada Anti-Takeover Law and Certain
Provisions of the Company's By-Laws."
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
When used in this discussion, the words "expects," "anticipates,"
"estimates," and similar expressions are intended to identify forward-looking
statements. Such statements, which include statements as to the adequacy of the
Company's capital resources, the ability to obtain new sources of capital, the
ability to service its debt obligations as they become due and Year 2000 related
actions, are subject to risks and uncertainties that could cause actual results
to differ materially from those projected. These risks and uncertainties
include, but are not limited to, those risks discussed below, as well as the
matters discussed in "Factors That May Affect Results." See Item 1--"Description
of Business--Factors That May Affect Results." These forward-looking statements
speak only as of the date hereof. The Company expressly disclaims any obligation
or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
Results of Operations
The Company was formed in April 1997 but did not commence operations until
January 1998. The results of operations for period ended September 30, 1998
represents partial year results for varying numbers of operating properties. The
Williston, North Dakota property operated for nine months, the Beatrice,
Nebraska; Chanute, Kansas; Cumberland, Maryland; Manitowoc, Wisconsin and Port
Huron, Michigan properties operated for six months, and the Dickinson, North
Dakota; Fort Madison, Iowa; Hastings, Nebraska and Rock Island, Illinois
properties operated for three months.
The results of operations grouped by the length of time held during the
fiscal year are presented below.
13
<PAGE>
(Numbers in thousands)
<TABLE>
<CAPTION>
One Five Four One
Property Properties Properties Property
Held Held Held Held for Sale
For Nine For Six For Three and
Months Months Months Overhead Total
<S> <C> <C> <C> <C> <C>
Property gross income $ 963 $ 1,796 $ 996 $ 2 $ 3,757
Other income 4 4
Total revenue 963 1,796 996 $ 6 3,761
Property operating expense 798 1,605 896 5 3,304
Administrative and overhead 3 1 208 212
expenses
Interest expense 258 34 11 303
Depreciation 94 108 66 268
Total expense 1,150 1,750 974 213 4,087
Net income (loss) (187) 46 22 $ (207) $(326)
before income tax
</TABLE>
This is the initial operating period for the Company; comparisons to prior
periods are not meaningful.
One property located in Williston, North Dakota was owned and operated for
nine months during the year ended September 30, 1998. Average occupancy for the
nine months was 79%, total revenue for the period was $963,000 and operating
expenses were $798,000 for a net income from property operations of $165,000.
Interest expense for the period was $258,000 and depreciation was $94,000 for
total expenses of $1,150,000 and a net loss of $187,000.
Five properties were owned and operated for six months during the year
ended September 30, 1998. Included in this group is the Manitowoc, Wisconsin
property which was operated as an apartment house. The impact of the Manitowoc,
Wisconsin property on all items of income and expense was immaterial. Average
occupancy for the six months, exclusive of the Manitowoc, Wisconsin property was
77.5%. Total revenue from the group was $1,796,000 and operating expenses were
$1,605,000 for a net income from property operations of $191,000. Interest
expense for the period was $34,000, administrative expenses were $3,000 and
depreciation was $108,000 for total expenses of $1,750,000 and net income of
$46,000.
Four properties were owned and operated for three months during the year
ended September 30, 1998. Average occupancy for the three months was 78.5%.
Total revenue from the group was $996,000 and operating expenses were $896,000
for a net income from property operations of $100,000. Interest expense for the
period was $11,000, administrative expenses were $1,000 and depreciation was
$66,000 for total expenses of $974,000 and net income of $22,000.
14
<PAGE>
Administrative and overhead expenses were $208,000 for the period ended
September 30, 1998, representing approximately five months' costs. Expenses
included salaries and other personnel-related expenses of $139,000, office and
occupancy expenses of $41,000, legal and accounting expenses of $19,000 and
other administrative and overhead expenses of $9,000. Other income is interest
earned on the cash reserves. The personnel-related expenses of $139,000
primarily includes salary expenses, and also employee benefits, payroll taxes
and travel expenses. The operations of the Sedalia, Missouri property, which was
held from April 1, 1998 through July 31, 1998, resulted in revenues of $2,000
and expenses of $5,000.
Liquidity and Capital Resources
Cash and cash equivalents increased from zero at January 1, 1998 to
$1,469,000 at September 30, 1998. Net cash provided by operations was $58,000
reflecting various holding periods for the 10 properties acquired and a partial
year of overhead and administrative expenses.
Net cash provided by investing activities was $182,000, reflecting the
$375,000 proceeds from the sale of the Sedalia, Missouri property offset by
$193,000 spent on capital projects primarily at the Williston, North Dakota
property and the Cumberland, Maryland property.
The capitalization of the Company resulted in the transfer of $1,259,000 of
cash and cash equivalents in return of the issuance of its stock. Net cash
provided by financing activities, consisting primarily of the cash received in
return for shares issued, was $1,229,000, net of $20,000 in principal payments
on tax notes and $10,000 in new loan costs incurred.
The Company has assumed various liabilities in connection with the issue of
its stock which are either in dispute or subject to other actions in the U.S.
Bankruptcy Court. The outcome of these disputes and legal objections will
determine the actual amount to be paid on such liabilities in 1999 and future
years. In the opinion of management, the Company has sufficient liquid assets to
pay the estimated amounts coming due in 1999 and future years. Accounts payable
and accrued liabilities (in thousands) consist of the following at September 30,
1998:
Current and continuing operating liabilities $ 1,098
Prepetition accounts payable 134
Disputed prepetition accounts payable 181
Prepetition real estate taxes, including interest 32
Disputed real estate taxes and interest 798
-----------
$ 2,243
The term "prepetition" refers to liabilities arising in periods prior to
the dates on which the Partnerships filed for Chapter 11 protection, generally
prior to September 3, 1993. Disputed amounts are carried at the highest amount
judged payable with interest attributed at statutory rates.
Notes payable (in thousands) consist of the following at September 30, 1998:
Notes secured by real estate:
15
<PAGE>
Regular mortgage notes $ 9,277
Rock Island mortgage note 4,171
Superfirst note 1,393
Reimbursement notes 392
Other notes 53
------------
Total secured notes $ 15,286
Tax notes 285
Total notes payable $ 15,571
===========
These amounts are not in dispute.
There are four regular mortgage notes, dated September 30, 1998, that bear
interest at 8% per annum. Interest on each of the notes is payable monthly at a
rate of 6% per annum. The notes are due on September 30, 2001 and can be
extended an additional three years upon the payment of substantial amounts on
the principal balance. On a quarterly basis, any portion of the 8% interest
which is unpaid and 75% of any computed net cash flow from the properties
securing the notes is payable. To the extent that this calculation results in a
payment of principal, that sum is to be retained by the lender as a reserve for
capital improvements. These notes are secured by first mortgage liens on
properties in Dickinson, North Dakota; Williston, North Dakota; Fort Madison,
Iowa and Hastings, Nebraska.
The mortgage note covering the Company's facility located in Rock Island,
Illinois, dated September 30, 1998, bears interest as follows: from October 1,
1998 through September 30, 1999, the lesser of 3% per annum on the unpaid
principal balance or computed cash flow from the Rock Island property; from
October 1, 1999 through September 30, 2000, the greater of 3% per annum on the
unpaid principal balance or computed cash flow from the Rock Island property;
from October 1, 2000 until maturity, the greater of 4% per annum on the unpaid
principal balance or computed cash flow from the Rock Island property. The note
is secured by a first mortgage lien on the property located in Rock Island,
Illinois and is due on September 30, 2001 and can be extended an additional
three years upon the payment of substantial amounts on the principal balance.
The Superfirst note and two reimbursement notes, dated September 30, 1998,
bear interest at 5% per annum. No periodic payments of interest or principal are
required. All of the accrued interest and unpaid principal is due on September
30, 2001. These notes are secured by first mortgage liens on properties located
in Beatrice, Nebraska; Manitowoc, Wisconsin and Port Huron, Michigan. Sale
proceeds of approximately $127,000 held by the mortgagee in trust for one of the
Partnerships have been applied to the balance of the Superfirst note.
The other secured notes consist of a note with a balance of approximately
$3,000 bearing interest at 7.5% per annum payable at $1,107 per month principal
and interest and two notes totaling approximately $50,000 bearing interest at 8%
per annum. The $3,000 note was
16
<PAGE>
completely amortized in December 1998. No periodic interest or principal
payments are required on the two notes totaling $50,000. All of the accrued
interest and unpaid principal is due on September 30, 2001. These two notes are
secured by a second mortgage lien on the property located in Williston, North
Dakota.
Of the long-term debt assumed by the Company pursuant to the Plan of
Reorganization, $46,000 will mature and become due in the fiscal year ended
September 30, 1999.
The Company also has tax notes that bear interest at 8% per annum. Payments
of interest and principal are due semi-annually each January and July in the
amount of $5,886 through January 2004 and each February and August in the amount
of $26,638 through February 2004.
Virtually all of the Company's long-term debt will come due in three years;
however, their term may be extended to as much as six years upon the repayment
of substantial amounts of principal. In addition, the loans provide for
substantial discounts for early repayment. The Company has begun and continues
to work with various sources of long-term financing to refinance the existing
loans in order to obtain financing with a longer term, reduce the impact of debt
financing on future cash flows, and obtain additional liquidity for future
capital projects. In the opinion of Management, the Company will have sufficient
cash from operations for the Company's operating and capital expenditure needs
for at least the next 12 months.
Each of Messrs. Pittore and Westin have entered into employment agreements
with the Company that provide that from October 1, 1998 through September 30,
2000, each shall be paid a salary at the annual rate of $12,000. Thereafter, the
salary to be paid to each shall be at the discretion of the board of directors,
but in no case shall such salary be less than $240,000 per year. The agreements
also provide that each of Messrs. Pittore and Westin is eligible for an annual
incentive bonus to be granted in the discretion of the board of directors with
such bonus to be up to 100% of base salary. See Item 6--"Executive
Compensation."
Impact of Inflation
Management believes that the Company's operations have not been materially
adversely affected by inflation. The Company expects that it will be able to
offset the effects of inflation on salaries and other operating expenses by
increases in rental rates, subject to applicable restrictions in North Dakota,
where the Company receives subsidies.
Year 2000 Disclosure
"Year 2000 issues" relate to the result of computer programs having been
written using two digits rather than four to define the applicable year.
Computer programs and electronic devices that utilize date-sensitive software or
information may recognize a date using the "00" as the year 1900 rather than as
the year 2000. This recognition could result in a system failure or
miscalculations causing disruptions of operations or the inability of suppliers
of material goods or services to continue supporting the Company's operations.
17
<PAGE>
The Company has not assessed its readiness in regard to Year 2000 issues.
During the next fiscal year the Company will embark upon and complete an
assessment of its hardware and software utilized for accounting and billing
purposes to assure that it is Year 2000 compliant. In addition, the Company will
obtain certificates of Year 2000 compliance from all vendors of material
supplies and services as well as vendors of certain emergency call systems
utilized in the company's facilities. Contingency plans will be developed and
executed with respect to vendors who will not be Year 2000 ready in a timely
manner where such lack of readiness is expected to have a material adverse
impact on the Company's operations. However, because the Company cannot be
certain that its vendors will be able to supply material goods and services
without material interruption, and because the Company cannot be certain that
execution of its contingency plans will be capable of implementation or result
in a continuous and adequate supply of such goods and services, the Company
cannot give assurance that these matters will not have a material adverse effect
on the Company's future financial position, results of operations or cash flows.
As these assessments and initiatives are not as yet completed, the Company
cannot say whether the cost of replacing noncompliant hardware, software and
systems will have a material adverse effect upon the Company's future operations
or prospects. The Company intends to develop and implement, if necessary,
appropriate contingency plans to mitigate to the extent possible the effects of
any Year 2000 noncompliance, and expects to have such plans completed in
mid-1999. As part of the development of a contingency plan, the Company will
evaluate its worst case scenario in the event of Year 2000 noncompliance.
Although the full consequences are unknown, the failure of either the Company's
critical systems or those of its material third parties to be Year 2000
compliant would result in the interruption of the Company's business, which
could have a material adverse effect on the Company's business, financial
position and results of operations.
Item 3. Description of Property.
The following table sets forth, as of January 1, 1999, certain information
as to the facilities owned by the Company:
<TABLE>
<CAPTION>
No. of Year Orig. Year
Facility Location (Facility Name) Beds Built Reopened(1)
- --------------------------------------------------------------------- ------------- ------------- --------------
<S> <C> <C> <C>
Rock Island, Illinois (The Fort Armstrong) 92 1926 1990
Fort Madison, Iowa (The Kensington) 75 1954 1988
Chanute, Kansas (The Tioga) 55 1929 1990
Cumberland, Maryland (The Kensington Algonquin) 86 1926 1989
Port Huron, Michigan (The Harrington Inn) 72 1896 1990
Beatrice, Nebraska (The Kensington Paddock) 64 1934 1989
Hastings, Nebraska (The Kensington) 80 1914 1988
Dickinson, North Dakota (The Evergreen Retirement Inn) 78 1980 1990
Williston, North Dakota (The Kensington) 115 1983 1988
Manitowoc, Wisconsin (Hotel Manitowoc) (2) 50 1927 1993
<FN>
- ---------------
18
<PAGE>
(1) "Year Reopened" refers to the year in which the facility was reopened as an
assisted living facility, after renovation of the historic property. The
Company's facilities at Dickinson, North Dakota and Williston, North Dakota
are not historic properties.
(2) The Company's property in Manitowoc, Wisconsin is operated as an apartment
complex.
</FN>
</TABLE>
Except for the Company's facilities in Chanute, Kansas and Cumberland,
Maryland, which are owned outright by the Company, each of the facilities listed
in the table above is subject to a mortgage. See Item 2--"Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources." As of January 1, 1999, there was
an aggregate balance of $14,775,150 outstanding under the mortgages, with the
amount owing on a property ranging from approximately $1,277,000 to $4,171,000.
The Company currently maintains insurance on its properties in amounts and
with such coverages and deductibles that it believes are adequate and in keeping
with industry practice. The Company also believes that its properties are
suitable for their use as assisted living facilities.
The Company leases its headquarters in Berkeley, California from The
Waterford Company, which is owned by members of Mr. Westin's family, for $24,000
per year and on terms and conditions that the Company's believes are at or more
favorable than prevailing market rates. See Item 7--"Certain Relationships and
Related Transactions."
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table shows as of January 1, 1999, (1) the beneficial owners
of more than 5% of the outstanding Common Stock of the Company and their
holdings and (2) the number of shares held by each director and each executive
officer listed in the table under the section titled "Executive Compensation"
below and all directors and executive officers as group, as reported by each
person. Except as noted, each person has sole voting and investment power over
shares indicated in the table.
<TABLE>
<CAPTION>
Amount and Nature of Common Stock Beneficially Owned
----------------------------------------------------
Common Stock Holder Number of Shares Percent of Class
- ------------------- ---------------- ----------------
<S> <C> <C>
Stockholders
Opus X Inc. 50,349 (1) 5.0%
2614 Telegraph Avenue
Berkeley, California 94704
Directors and Other Executive Officers
Jesse A. Pittore 109,251 (2) 10.9
Richard J. Westin 109,252 (3) 10.9
Robert Herrick, M.D. 298 (4) *
James P. Tolley 9,683 (5) *
Directors and Officers as a Group (4 persons) 228,484 (2)(3)(4)(5) 22.8
<FN>
- ------------
* Less than 1%
(1) Opus X Inc. ("Opus"), formerly known as Westor Financial Group, Inc., is jointly held by Messrs. Pittore and
Westin.
19
<PAGE>
(2) Includes 25,175 out of 50,349 shares of common stock owned by Opus, of which
Mr. Pittore owns an approximately 50% interest.
(3) Includes 25,174 out of 50,349 shares of common stock owned by Opus, of which
Mr. Westin owns an approximately 50% interest.
(4) Includes 167 shares that Dr. Herrick could acquire by exercising options
within 60 days of January 1, 1999.
(5) Includes 833 shares that Mr. Tolley could acquire by exercising options
within 60 days of January 1, 1999.
</FN>
</TABLE>
1997 Employee Stock Incentive Plan
In December 1998, after the close of the fiscal year covered by this
registration statement, the stockholders approved the adoption of the 1997
Employee Stock Incentive Plan, a stock option plan for certain employees and
directors. The total number of shares that may be issued upon the exercise of
options under this plan is 250,000. Also under this plan, no participant may be
granted more than 100,000 shares and no awards may be granted after November 21,
2007.
On January 1, 1999, the Board of Directors granted options to purchase up
to a total of 210,416 shares of common stock at exercise prices ranging from
$1.00 to $1.10 per share, including the grants reflected in the table set forth
above. The Board of Directors of the Company determined at the time of grant
that the estimated fair market value of the Company's common stock was $1.00 per
share based on the following considerations: there was no public market for the
stock; the Company and the contributing Partnerships had no operating profit
history; the Plan of Reorganization prohibits the Company from declaring any
dividends on its common stock until certain notes payable assumed pursuant to
the Plan of Reorganization are paid in full or otherwise satisfied; a
significant portion of the Company's cash flow for at least the near term is
expected to be devoted to debt service; and transactions affecting 50,000 shares
had been effected at that time between the former general partner of the
contributing Partnerships and certain limited partners where the limited
partnership interests were purchased by the general partner at an equivalent
value of approximately $1.00 per share.
Item 5. Directors, Executive Officers, Promoters and Control Persons.
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Richard J. Westin 57 Director, Co-Chairman of the Board,
Chief Executive Officer and Secretary
Jesse A. Pittore 58 Director, Co-Chairman of the Board,
President
Robert R. Herrick, M.D. 60 Director
James P. Tolley 55 Treasurer and Chief Financial Officer
The business experience of the Company's directors and executive
officers, including each such person's principal occupations and employment
during the last five years, is summarized below.
20
<PAGE>
Richard J. Westin has been Director, Co-Chairman of the Board of Directors,
Chief Executive Officer and Secretary of the Company since its incorporation in
April 1997. From 1986 until 1998, Mr. Westin served as President of The Westor
Financial Group, Inc., now, Opus X Inc. ("Opus"), a company specializing in
financing the development of assisted living facilities across the county. Mr.
Westin received his B.A. degree from the University of North Carolina at Chapel
Hill and his Juris Doctor degree from the University of California's Hastings
College of the Law.
Jesse A. Pittore has been Director, Co-Chairman of the Board of Directors,
President and Chief Operating Officer of the Company since its incorporation in
April 1997. From 1986 until 1998, Mr. Pittore was Chairman of the Board of Opus.
Mr. Pittore holds a Bachelor of Science degree in Industrial Engineering and
Business Management from the University of California, Berkeley.
Robert R. Herrick, M.D. has been a Director of the Company since January
1998. Dr. Herrick has been in private practice in neurology in Northern
California since 1971. In 1997, he served as Chief of Staff to Doctors' Medical
Center in San Pablo, California and currently serves as President of the Board
of Governors of that hospital. Dr. Herrick received his bachelor's degree from
Oberlin College in Ohio and his medical degree from the University of Chicago
Medical School.
James P. Tolley has been Treasurer and Chief Financial Officer of the
Company since its incorporation in April 1997. From 1988 to present, he has
served as Controller of Opus. Mr. Tolley is a Certified Public Accountant and
hold a Bachelor of Science degree from California State University, San
Francisco.
21
<PAGE>
Item 6. Executive Compensation.
Pursuant to the Plan of Reorganization, for two years after the effective
date of the Plan of Reorganization, which period will end on September 30, 2000,
Messrs. Westin and Pittore have agreed not to accept more than $1,000 per month
in salary for their services as officers of the Company. The Plan also provides
that neither of Messrs. Westin nor Pittore may receive compensation for his
services as director of the Company except for stock options and other
perquisites as set forth in each of their employment agreements. See
"--Employment Agreements" below. Dr. Herrick, who is a nonemployee director,
receives options to purchase 1,000 shares of the Company's common stock per year
for his services as director, subject to adjustment by the Board of Directors.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation Awards
-------------------
Annual Compensation
------------------- Securities Underlying All Other
Name and Principal Position Year(1) Salary Bonus Options/SARs Compensation
- --------------------------- ------- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Richard J. Westin 1998 -- -- -- --
Co-Chairman of the Board
and Chief Executive Officer
Jesse A. Pittore 1998 -- -- -- --
Co-Chairman of the Board
and President
Robert R. Herrick, M.D. 1998 -- -- -- --
Director
James P. Tolley 1998 $25,500 -- -- --
Chief Financial Officer
<FN>
- ----------------------
(1) From January 1 through September 30, 1998 (the end of the Company's fiscal
year), the Company paid no compensation to any executive officer or director
except to Mr. Tolley.
</FN>
</TABLE>
In the last fiscal year, the Company granted no options to any named
executive officer under the Company's 1997 Employee Stock Incentive Plan and
none of the named executive officers exercised any options to purchase shares of
the Company's Common Stock.
Employment Agreements
Each of Messrs. Pittore and Westin have entered into employment agreements
with the Company dated as of September 30, 1998. The employment agreements
provide that from October 1, 1998 through September 30, 2000, each shall be paid
a salary at the annual rate of $12,000. Thereafter, the salary to be paid to
each shall be at the discretion of the board of directors, but in no case shall
such salary be less than $240,000 per year. The agreements also provide that
each of Messrs. Pittore and Westin is eligible for an annual incentive bonus to
be granted in the discretion of the board of directors with such bonus to be up
to 100% of base salary. The agreements provide further that the Company shall
grant to each of Messrs. Pittore and Westin options to purchase up to 83,333
shares of the Company's Common Stock, pursuant to the Company's 1997 Employee
Stock Incentive Plan. Pursuant to the agreements, each of
22
<PAGE>
Messrs. Pittore and Westin are eligible for loans from the Company up to
$720,000 subject to certain terms and conditions provided in the employment
agreements.
Item 7. Certain Relationships and Related Transactions.
Evergreen, which is jointly owned by Messrs. Westin and Pittore, presently
manages all of the Company's properties under management agreements that were
substantially amended pursuant to the Plan of Reorganization. The Company and
Evergreen enter into individual contracts for each of the facilities owned by
the Company. Each management contract's initial term is three years, and
Evergreen has the option to extend each management contract for an additional
three year term. The management fee paid pursuant to each management contract is
based on a percentage of gross revenues of the property, with the average
management fee being 4.5%. The following table sets forth the management fees
earned by Evergreen for each property for the year ended September 30 , 1998.
<TABLE>
<CAPTION>
Facility Location (Facility Name) 1998 Management Fees
---------------------------------------------------------------- -------------------------------------
<S> <C>
Rock Island, Illinois (The Fort Armstrong) $ 14,334.81
Fort Madison, Iowa (The Kensington) 11,566.45
Chanute, Kansas (The Tioga) 16,235.15
Cumberland, Maryland (The Kensington Algonquin) 30,506.77
Port Huron, Michigan (The Harrington Inn) 24,542.33
Beatrice, Nebraska (The Kensington Paddock) 14,171.00
Hastings, Nebraska (The Kensington) 11,129.78
Dickinson, North Dakota (The Evergreen Retirement Inn) 11,061.05
Williston, North Dakota (The Kensington) 47,629.73
Manitowoc, Wisconsin (Hotel Manitowoc) 2,769.39
------------
Total $ 183,946.46
</TABLE>
Management fees earned with respect to each property are not necessarily
indicative of future fees because the Company did not hold all of the properties
for a full fiscal year.
The Company leases its headquarters in Berkeley, California from The
Waterford Company, which is owned by members of Mr. Westin's family, for $24,000
per year and on terms and conditions that the Company's believes are at or more
favorable than prevailing market rates. See Item 3--"Description of Property."
For the year ended September 30, 1998, the Company reimbursed Opus for
salaries and administrative expenses of $103,091 incurred by Opus on behalf of
the Company for the period May 1, 1998 through September 30, 1998. Opus is
jointly owned by Messrs. Pittore and Westin.
Item 8. Legal Proceedings.
The Company was formed pursuant to the Plan of Reorganization, which was
proposed by the Partnerships in January 1997 and confirmed by the bankruptcy
court on September 30, 1998. See Item 1--"Business--Formation of the Company and
Plan of Reorganization."
23
<PAGE>
From time to time, the Company is party to litigation arising out in
the ordinary course of business. The Company believes that no pending legal
proceeding will have a material adverse effect on the Company's business,
financial condition or results of operations.
Item 9. Market for Common Stock and Related Stockholder Matters.
There is currently no public trading market for the Company's Common Stock.
As of January 1, 1999, there were 4,569 stockholders of record.
The outstanding Common Stock of the Company issued pursuant to the Plan of
Reorganization is freely tradable by reason of the exemption from registration
provided by section 1145 of the Bankruptcy Code.
The Plan of Reorganization prohibits the Company from declaring any
dividends on its Common Stock until certain of the notes issued pursuant to the
Plan of Reorganization are paid in full or otherwise satisfied. Since the
Company's formation in April 1997, the Company has not paid any dividends on its
common stock and does not anticipate doing so in the foreseeable future.
Item 10. Recent Sales of Unregistered Securities.
In October 1998, pursuant to the Plan of Reorganization, the Company issued
an aggregate of 221,850 shares of its Common Stock to the officers and directors
of the Company and a total of 778,150 shares of Common Stock to the former unit
holders of the HHS Partnerships and PIF I. The Company relied on the exemption
from the registration requirements of the Securities Act provided by section
1145 of the Bankruptcy Code.
Item 11. Description of Securities.
The following summary description of the capital stock of the Company is
qualified in its entirety by reference to the Articles of Incorporation and
By-Laws of the Company, a copy of each of which is filed as an exhibit to this
Registration Statement.
Generally
The Articles of Incorporation of the Company provide that the Company may
issue up to 20,000,000 shares of Common Stock, par value $.001 per share. As of
January 1, 1999, 1,000,000 shares of Common Stock were issued and outstanding.
Common Stock
All shares of Common Stock are of a single class and have equal voting and
other rights. Pursuant to Article 3 of the Articles of Incorporation, the
Directors of the Company may fix and determine the price, series and numbers of
each series of the Common Stock as provided in Nevada corporation law.
24
Holders of the Company's Common Stock are entitled to cast one vote on all
matters submitted to a vote of stockholders including the election of directors,
to receive such dividends as may be declared by the Board of Directors out of
legally available funds and to share pro rata in any distribution of the
Company's assets after payment of all debts and other liabilities. There is no
cumulative voting in the election of directors, which means that the holders of
a plurality of the outstanding Common Stock can elect all of the directors then
standing for election and the holders of the remaining Common Stock will not be
able to elect any directors. The Plan of Reorganization prohibits the Company
from declaring any dividends on its Common Stock until certain of the notes
issued pursuant to the Plan of Reorganization are paid in full or otherwise
satisfied.
The Company's Articles of Incorporation provide further that the holders of
stock of the Company shall have preemptive rights. Nevada law provides that the
stockholders of a corporation with preemptive rights have the right, granted on
uniform terms and conditions prescribed by the board of directors of such
corporation to provide a fair and reasonable opportunity to exercise such right,
to acquire proportional amounts of the corporation's unissued shares upon the
decision of the board of directors to issue such shares. Under Nevada law, a
stockholder may waive his or her preemptive right. No preemptive right exists
under Nevada law with respect to:
o shares issued as compensation to directors, officers, agents or employees
of the corporation, its subsidiaries or affiliates;
o shares issued to satisfy rights of conversion or options created to provide
compensation to directors, officers, agents or employees of the
corporation, its subsidiaries or affiliates;
o shares authorized in the corporation's articles of incorporation that are
issued within six months from the effective date of incorporation; or
o shares sold otherwise than for money.
Nevada law further provides that any shares subject to preemptive rights that
are not acquired by stockholders may be issued to any person for one year after
being offered to stockholders at a consideration set by the board of directors
that is not lower than the consideration set for the exercise of preemptive
rights. An offer to a person after the expiration of one year or at a lower
consideration is subject to the stockholders' preemptive rights.
Nevada Anti-Takeover Law and Certain Provisions of the Company's By-Laws
Nevada's "Combinations with Interested Stockholders Statute," which applies
to Nevada corporations that have a class of shares registered under section 12
of the Exchange Act, prohibits an "interested stockholder" from entering into a
"combination" with the corporation, unless certain conditions are met. A
"combination" includes (a) any merger with an "interested stockholder," (b) any
consolidation, sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets, in one transaction or a series of transactions, to an
"interested stockholder," having: (i) an aggregate market value equal to 5% or
more of the aggregate market value of the corporation's assets; (ii) an
aggregate market value equal to 5% or more of the aggregate market value of all
outstanding shares of the corporation; or (iii) representing 10% or more of the
25
<PAGE>
earning power or net income of the corporation, or (c) any issuance or transfer
of shares of the corporation or its subsidiaries having an aggregate market
value equal to 5% or more of the aggregate market value of all the outstanding
shares of the corporation. An "interested stockholder" is a person who, together
with affiliates and associates, beneficially owns (or within the prior three
years, did beneficially own) 10% or more of the corporation's voting stock.
A corporation to which the statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares, unless the combination or the interested stockholder's acquisition of
shares was approved by the board of directors before the interested stockholder
acquired the shares. If this approval is not obtained, then after the three-year
period expires, the combination may be consummated with the approval of the
board of directors or a majority of the voting power held by disinterested
stockholders, or if the consideration to be paid by the interested stockholder
is at least equal to the higher of: (i) the highest price per share paid by the
interested stockholder within the three years immediately preceding the date of
the announcement of the combination or in the transaction in which it became an
interested stockholder, whichever is higher; (ii) the market value per common
share on the date of announcement of the combination or the date the interested
stockholder acquired the shares, whichever is higher or (iii) if higher for the
holders of preferred stock, the highest liquidation value of the preferred
stock.
Nevada's "Control Share Acquisition Statute," prohibits an acquirer, under
certain circumstances, from voting shares of a target corporation's stock after
crossing certain threshold ownership percentages, unless the acquirer obtains
the approval of the target corporation's stockholders. The statute specifies
three thresholds: at least one-fifth but less than one-third, at least one-third
but less than a majority, and a majority or more, of the outstanding voting
power. Once an acquirer crosses one of the above thresholds, shares which it
acquired in the transaction taking it over the threshold or within ninety days
become "Control Shares" which are deprived of the right to vote until a majority
of the disinterested stockholders restore that right. If the stockholders fail
to restore voting rights to the acquirer, then the corporation may, if so
provided in its Articles of Incorporation or By-Laws, call certain of the
acquirer's shares for redemption. The Company's Articles of Incorporation and
By-Laws do not currently permit it to call an acquirer's shares for redemption
under these circumstances. The Control Share Acquisition Statute also provides
that in the event the stockholders restore full voting rights to a holder of
Control Shares which owns a majority of the voting stock, then all other
stockholders who do not vote in favor of restoring voting rights to the Control
Shares may demand payment for the "fair value" of their shares (which is
generally equal to the highest price paid in the transaction subjecting the
stockholder to the statute). The Control Share Acquisition Statute only applies
to Nevada corporations with at least 200 stockholders, including at least 100
record stockholders who are Nevada residents, and which do business directly or
indirectly in Nevada.
The Company's By-Laws provide for a classified board of directors and
eliminate the right of stockholders to call special meetings of stockholders.
These provisions could have the effect of deterring a hostile takeover or
delaying a change in control or management of the Company.
26
<PAGE>
Item 12. Indemnification of Directors and Officers.
Nevada corporation law provides for the indemnification of officers,
directors, and other corporate agents in terms sufficiently broad to indemnify
such persons under certain circumstances for liabilities (including
reimbursement for expenses incurred). Article 6 of the Company's Articles of
Incorporation and Article V of the Company's By-Laws provide for indemnification
of the Company's directors, officers, employees and other agents to the extent
and under the circumstances permitted by the Nevada General Corporation Law. The
Company has also entered into agreements with its directors and executive
officers that will require the Company, among other things, to indemnify them
against certain liabilities that may arise by reason of their status or service
as directors or executive officers to the fullest extent not prohibited by law.
Item 13. Financial Statements.
The information required by this item is contained in the Financial
Statements of the Company set forth beginning at page F-1 of this Registration
Statement.
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not applicable.
Item 15. Financial Statements and Exhibits.
(a) Financial Statements. See Index to Financial Statements beginning at
page F-1 of this Registration Statement.
(b) Exhibit List.
Exhibit Description
------- -----------
3.1* Articles of Incorporation
3.2* By-Laws
10.1* Order Confirming Debtors' Second Amended Joint Plan of Reorganization
dated April 29, 1997
10.2* Amended Modification of Debtors' Second Amended Joint Plan of
Reorganization dated April 24, 1997
10.3* Debtors' Second Amended Joint Plan of Reorganization dated January
15, 1997
10.4* Employment Agreement between the Company and Jesse A. Pittore
10.5* Employment Agreement between the Company and Richard J. Westin
27
<PAGE>
10.6* 1997 Employee Stock Incentive Plan
10.7* Form of management contract between Evergreen Management, Inc. and
the Company
10.8** Lease Agreement between The Waterford Company and Westor Financial
Group, Inc.
11** Statement regarding Computation of Per Share Earnings
27.1* Financial Data Schedule
- -------------
* Incorporated by reference to the registrant's Form 10-SB filed on
January 29, 1999.
** Incorporated by reference to Amendment No. 1 to Form 10-SB filed on
September 17, 1999.
28
<PAGE>
AGEMARK CORPORATION
INDEX TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Page
----
AGEMARK CORPORATION -- FISCAL YEAR ENDED SEPTEMBER 30, 1998
Report of Independent Certified Public Accountants...........................F-2
Financial Statements
Balance sheet...........................................................F-3
Statement of operations.................................................F-4
Statement of stockholders' equity.......................................F-5
Statement of cash flows.................................................F-6
Notes to financial statements................................... F-7 - F-16
Schedule XI
Real estate and accumulated depreciation...............................F-17
AGEMARK CORPORATION (ACQUIRED PROPERTIES) --
YEARS ENDED DECEMBER 31, 1997 AND 1996
Report of Independent Certified Public Accountants..........................F-19
Financial Statements
Statements of operating income.........................................F-20
Notes to statements of operating income................................F-21
AGEMARK CORPORATION (ACQUIRED PROPERTIES) --
ESTIMATED PRO FORMA STATEMENTS (UNAUDITED)
Financial Statements
Estimated twelve-month pro forma statement of
taxable net operating loss (unaudited).................................F-23
Estimated twelve-month pro forma statement of
funds available (unaudited)............................................F-23
Notes to estimated twelve-month pro forma statement of
taxable net operating loss and estimated twelve-month
pro forma statement of funds available.................................F-25
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Agemark Corporation
We have audited the accompanying balance sheet of Agemark Corporation (a Nevada
corporation) as of September 30, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended. We have also
audited the financial statement Schedule XI. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Agemark Corporation as of
September 30, 1998, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement Schedule XI, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
TIMPSON GARCIA
Oakland, California
January 12, 1999
F-2
<PAGE>
AGEMARK CORPORATION
BALANCE SHEET
September 30, 1998
(In thousands except share data)
A S S E T S
Cash and cash equivalents $ 1,469
Property and equipment, net 21,498
Deferred tax assets 445
Other assets 378
--------------
Total assets $ 23,790
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable and accrued liabilities $ 2,243
Notes payable 15,571
--------------
Total liabilities $ 17,814
--------------
STOCKHOLDERS' EQUITY
Common stock, stated value $.001, 20,000,000 shares
authorized, 1,000,000 shares issued and outstanding $ 1
Additional paid in capital 5,856
Retained earnings 119
--------------
Total stockholders' equity $ 5,976
--------------
Total liabilities and stockholders' equity $ 23,790
==============
See accompanying notes to financial statements.
F-3
<PAGE>
AGEMARK CORPORATION
STATEMENT OF OPERATIONS
Year Ended September 30, 1998
(In thousands except share data)
Revenue
Property gross revenue $ 3,757
Other income 4
--------------
Total revenue $ 3,761
--------------
Expenses
Property operating expenses $ 3,304
Administrative and overhead expenses 212
Interest expense 303
Depreciation 268
--------------
Total expenses $ 4,087
--------------
(Loss) before income taxes $ (326)
Income tax (benefits) - deferred (445)
--------------
Net income $ 119
==============
Basic earnings per common share $ 40.49
==============
See accompanying notes to financial statements.
F-4
<PAGE>
AGEMARK CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended September 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
----- ------- -------- -----
<S> <C> <C> <C> <C>
Balance, October 1, 1997 $ -- $ -- $ -- $ --
Common stock issued for
net assets acquired 1 5,856 5,857
Net income 119 119
------------- ------------- ------------- -------------
Balance, September 30, 1998 $ 1 $ 5,856 $ 119 $ 5,976
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
AGEMARK CORPORATION
STATEMENT OF CASH FLOWS
Year Ended September 30, 1998
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 119
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 268
Deferred income taxes (445)
Change in assets and liabilities:
(Increase) in other assets (9)
Increase in accounts payable and accrued liabilities 125
------------
Net cash provided by operating activities $ 58
------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of property in Sedalia, MO $ 375
Additions to property and equipment (193)
------------
Net cash provided by investing activities $ 182
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash acquired in connection with issuance of common stock $ 1,259
Principal payments on notes payable (20)
New loan costs paid (10)
------------
Net cash provided by financing activities $ 1,229
------------
Net increase in cash and cash equivalents $ 1,469
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 0
------------
Cash and cash equivalents, end of year $ 1,469
============
SUPPLEMENTAL DISCLOSURES Cash payments for:
Interest $ 242
============
============
Taxes $ 0
============
Noncash investing and financing transaction:
Common stock issued for net assets acquired:
Property and equipment acquired $ 21,948
Other assets acquired 359
Notes payable assumed (15,591)
Other liabilities assumed (2,118)
------------
Value of noncash assets acquired $ 4,598
Cash and cash equivalents acquired 1,259
------------
============
Value of assets acquired $ 5,857
============
See accompanying notes to financial statements.
F-6
<PAGE>
AGEMARK CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies
Organization:
Agemark Corporation (the "Company") was organized in April, 1997
pursuant to an order of the U.S. Bankruptcy Court dated April 27,
1997 (the "Order") to receive the assets of and continue the
businesses of four reorganized, publicly registered limited
partnerships and two privately held limited partnerships (the
"Partnerships"). The Order confirmed the Second Amended Joint
Plan of Reorganization (the "Plan") of the Partnerships filed in
January, 1997 and amended in April, 1997. The first of the
property transfers to the Company pursuant to the Plan was
accomplished in January, 1998 and the final transfer took place
in July, 1998. A total of 1,000,000 shares of stock were issued
to the Partnerships for these properties as of September 30, 1998
and immediately distributed to their partners.
The property locations and their transfer dates were as follows:
Williston, ND January, 1998
Beatrice, NE April, 1998
Chanute, KS April, 1998
Cumberland, MD April, 1998
Manitowoc, WI April, 1998
Port Huron, MI April, 1998
Fort Madison, IA July, 1998
Hastings, NE July, 1998
Dickinson, ND July, 1998
Rock Island, IL July, 1998
All of the above properties transferred and retained by the
Company are renovated hotels that have been designated as
"Certified Historic Structures," except for the two facilities in
North Dakota, which are modern buildings. All of the locations
are operated as senior residential and assisted living
facilities, except for the Manitowoc, WI property. These
facilities provide an apartment style residence, three meals per
day, housekeeping, transportation, activities and 24-hour
non-medical assistance to elderly residents for a monthly fee.
Revenues are received directly from residents, their family, or
another responsible party. Services are generally not covered by
government or private insurance programs, except in North Dakota,
where the State government provides limited subsidies. Resident
fee revenue is recognized when services are rendered.
(Continued)
F-7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies (Continued)
Organization: (Continued)
The property located in Manitowoc, WI is operated as an apartment
complex. These units are generally rented on a month-to-month
basis.
A property located in Sedalia, MO was also transferred to the
Company in April, 1998 and sold in July, 1998 at no gain or loss.
Use of Estimates:
Management uses estimates and assumptions in preparing financial
statements. Those estimates and assumptions affect the reported
amounts of assets and liabilities, and the reported revenues and
expenses. Actual results could differ from those estimates.
Property and Equipment:
Property and equipment transferred to the Company pursuant to the
Plan is carried at amounts stated in the Plan. Additions to
property and equipment are stated at cost. Depreciation of
buildings is computed using the straight-line method over
estimated useful lives of forty years. Personal property is
depreciated using the straight-line method over useful lives of
fifteen years.
Income Taxes:
Income taxes are provided for the tax effects of transactions
reported in the financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes are recognized
for differences between the basis of assets and liabilities for
financial statement and income tax purposes. The differences
relate primarily to the accrual of compensated absences that are
not deductible for income tax purposes and differences between
the carrying amounts of the property and equipment transferred to
the Company pursuant to the Plan. The deferred tax assets and
liabilities represent the future tax return consequences of those
differences, which will either be deductible or taxable when the
assets and liabilities are recovered or settled. Deferred taxes
are also recognized for operating losses that are available to
offset future taxable income.
(Continued)
F-8
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 1. Organization and Significant Accounting Policies (Continued)
Stock-Based Compensation:
The Company has elected to account for its stock option plan
under Accounting Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees. Accordingly, no compensation expense
has been recognized for the stock option grants.
Cash and Cash Equivalents:
For purposes of the statement of cash flows, the Company
considers all money market funds purchased with a maturity of
three months or less to be cash equivalents.
Note 2. Restricted Cash
At September 30, 1998, cash and cash equivalents included
approximately $1,288,000 invested in Vanguard Federal Money
Market Fund, of which approximately $508,000 was restricted for
payment of the Superfirst note (see Note 5) assumed in connection
with the organization of the Company and the Order. This payment
was made on November 10, 1998. Vanguard Federal Money Market Fund
invests in United States Treasury obligations, securities issued
or guaranteed by agencies of the U.S. Government, and repurchase
agreements collateralized by these obligations and securities.
Note 3. Property and Equipment
Property and equipment (in thousands) consists of the following
at September 30, 1998:
<TABLE>
<CAPTION>
Plan
Values Cost Total
------ ---- -----
<S> <C> <C> <C>
Land $ 1,035 $ - $ 1,035
Buildings 18,345 149 18,494
Personal property 2,193 44 2,237
------------ ------------ -----------
$ 21,573 $ 193 $ 21,766
=========== ===========
Less accumulated depreciation 268
-----------
$ 21,498
===========
</TABLE>
(CONTINUED)
F-9
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 3. Property and Equipment (Continued)
Plan values represent the assets transferred from the four
publicly registered limited partnerships and two privately held
limited partnerships pursuant to the Order of the U.S. Bankruptcy
Court. The Partnerships were as follows:
Publicly registered limited partnerships:
Historic Housing for Seniors Limited Partnership (HHS I)
Historic Housing for Seniors II Limited Partnership (HHS II)
Historic Housing for Seniors III Limited Partnership (HHS III)
Housing for Seniors Participating Mortgage Fund Limited
Partnership (PIF I)
Privately held limited partnerships:
Dickinson Associates Limited Partnership
Williston Associates Limited Partnership
Under the Plan, those facilities which were determined to have
the strongest long-term potential for generating cash flow to
support ongoing debt or which were needed to secure certain
obligations from previous loans were transferred to the Company.
The following is a summary (in thousands) of the properties
transferred to the Company and the adjustments made to historical
values to arrive at Plan values pursuant to the Order of the U.S.
Bankruptcy Court:
<TABLE>
<CAPTION>
Trans- Accum. Net Book Write
Property ferred Historical Depr. Value Up Plan
Location From Value 12/31/97 12/31/97 (Down) Values
-------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Beatrice, NE HHS I $ 2,742 $ 888 $ 1,854 $ (618) $ 1,236
Cumberland, MD HHS I 2,188 635 1,553 2,315 3,868
Hastings, NE HHS I 3,211 1,120 2,091 198 2,289
Chanute, KS HHS II 2,602 750 1,852 (901) 951
Rock Island, IL HHS II 4,345 1,212 3,133 (735) 2,398
Fort Madison, IA HHS III 3,460 781 2,679 (464) 2,215
Manitowoc, WI HHS III 3,642 693 2,949 (2,154) 795
Port Huron, IL PIF I 1,090 0 1,090 86 1,176
Dickinson, ND Private 1,380 380 1,000 1,273 2,273
Williston, ND Private 1,932 538 1,394 2,978 4,372
------------ ------------- ------------- ---------- ------------
$ 26,592 $ 6,997 $ 19,595 $ 1,978 $ 21,573
============ ============= ============= ========== ============
</TABLE>
(CONTINUED)
F-10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 3. Property and Equipment (Continued)
In connection with the transfers of the facilities, the Company
also assumed various notes payable. The following is a summary
(in thousands) of the notes payable assumed by the Company:
<TABLE>
<S> <C>
Carrying value of notes (including accrued
interest) by the Partnerships $ 24,186
Less forgiveness of debt recognized by the Partnerships 8,595
----------
Notes payable assumed by the Company $ 15,591
==========
</TABLE>
Note 4. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities (in thousands) consist
of the following at September 30, 1998:
<TABLE>
<S> <C>
Current and continuing operating liabilities $ 1,098
Prepetition accounts payable 134
Disputed prepetition accounts payable 181
Prepetition real estate taxes, including interest 32
Disputed real estate taxes and interest 798
-----------
$ 2,243
===========
</TABLE>
(CONTINUED)
F-11
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 4. Accounts Payable and Accrued Liabilities (Continued)
The term "prepetition" refers to liabilities arising in periods
prior to the dates on which the Partnerships filed for Chapter 11
protection, generally prior to September 3, 1993.
Disputed amounts will likely be adjudicated in U.S. Bankruptcy
Court. The ultimate result cannot be estimated at this time.
Liabilities are carried at the highest amount judged payable with
interest attributed at statutory rates.
Note 5. Notes Payable
Notes payable (in thousands) consist of the following at
September 30, 1998:
Notes secured by real estate:
Regular mortgage notes $ 9,277
Rock Island mortgage note 4,171
Superfirst note 1,393
Reimbursement notes 392
Other notes 53
------------
Total secured notes $ 15,286
Tax notes 285
Total notes payable $ 15,571
===========
There are four regular mortgage notes, dated September 30, 1998,
that bear interest at 8% per annum. Interest on each of the notes
is payable monthly at a rate of 6% per annum. The notes are due
on September 30, 2001 and can be extended an additional three
years upon the payment of substantial amounts on the principal
balance. On a quarterly basis, any portion of the 8% interest
which is unpaid and 75% of any computed net cash flow from the
properties securing the notes is payable. To the extent that this
calculation results in a payment of principal, that sum is to be
retained by the lender as a reserve for capital improvements.
These notes are secured by first mortgage liens on properties in
Dickinson, ND, Williston, ND, Fort Madison, IA and Hastings, NE.
(CONTINUED)
F-12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 5. Notes Payable (Continued)
The Rock Island mortgage note, dated September 30, 1998, bears
interest as follows: from October 1, 1998 through September 30,
1999, the lesser of 3% per annum on the unpaid principal balance
or computed cash flow from the Rock Island property; from October
1, 1999 through September 30, 2000, the greater of 3% per annum
on the unpaid principal balance or computed cash flow from the
Rock Island property; from October 1, 2000 until maturity, the
greater of 4% per annum on the unpaid principal balance or
computed cash flow from the Rock Island property. The note is
secured by a first mortgage lien on the property located in Rock
Island, IL and is due on September 30, 2001and can be extended an
additional three years upon the payment of substantial amounts on
the principal balance.
The Superfirst note and two reimbursement notes, dated September
30, 1998, bear interest at 5% per annum. No periodic payments of
interest or principal are required. All of the accrued interest
and unpaid principal is due on September 30, 2001. These notes
are secured by first mortgage liens on properties located in
Beatrice, NE, Manitowoc, WI and Port Huron, MI. Sale proceeds of
approximately $127,000 held by the mortgagee in trust for one of
the Partnerships have been applied to the balance of the
Superfirst note.
The other secured notes consist of a note with a balance of
approximately $3,000 bearing interest at 7.5% per annum payable
at $1,107 per month principal and interest and two notes totaling
approximately $50,000 bearing interest at 8% per annum. The
$3,000 note was completely amortized in December, 1998. No
periodic interest or principal payments are required on the two
notes totaling $50,000. All of the accrued interest and unpaid
principal is due on September 30, 2001. These two notes are
secured by a second mortgage lien on the property located in
Williston, ND.
The tax notes bear interest at 8% per annum. Payments of interest
and principal are due semi-annually each January and July in the
amount of $5,886 through January, 2004 and each February and
August in the amount of $26,638 through February, 2004.
Future maturities of notes payable (in thousands) at September
30, 1998 are as follows:
Years ending September 30:
1999 $ 46
2000 46
2001 15,333
2002 55
2003 60
2004 31
------------
$ 15,571
(CONTINUED)
F-13
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 6. Transactions With Affiliates
The Company contracts with Evergreen Management, Inc. ("EMI") for
the management of its owned and operated properties. EMI is
co-owned by Richard J. Westin and Jesse A. Pittore, directors and
officers of the Company. Compensation for these management
services is 4.5% of gross income paid monthly. For the year ended
September 30, 1998, management fees of $183,946 are included in
the property operating expenses on the statement of operations
for services provided by EMI. At September 30, 1998, accounts
payable includes $34,138 owed by the Company to EMI.
For the year ended September 30, 1998, the Company reimbursed
Westor Financial Group, Inc. ("WFG") for salaries and
administrative expenses of $103,091 incurred by WFG on behalf of
the Company for the period May 1, 1998 through September 30,
1998. WFG is co-owned by Richard J. Westin and Jesse A. Pittore,
directors and officers of the Company. Administrative expenses
include rent for the Company's headquarters in Berkeley, CA in
the amount of $7,500 paid, reimbursed, or accrued pursuant to a
lease between WFG and the Waterford Company, which is owned by
members of Richard J. Westin's family.
Effective October 1, 1998, the lease was rewritten in the name of
the Company for a one-year term starting October 1, 1998 at a
rent of $2,000 per month. The lease will automatically renew
unless terminated by either party. The lessee is responsible for
limited maintenance and repair expenses and all utilities. The
Waterford Company is responsible for major repairs, real estate
taxes and debt service.
Note 7. 401(k) Savings Plan
The Company has adopted a Savings Plan effective July 1, 1998
(the "401(k) Plan") that is intended to qualify under Section
401(k) of the Internal Revenue Code. After completing twelve
months of service, employees that are at least twenty-one years
of age are eligible to participate in the 401(k) Plan by
contributing up to 15% of their gross income to the 401(k) Plan
subject to Internal Revenue Service restrictions. The Company may
make contributions to the 401(k) Plan at the discretion of the
Board of Directors, but such contributions are not required. For
the year ended September 30, 1998, no contributions to the 401(k)
Plan were made by the Company.
F-14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note 8. Income Taxes
The tax provision consists entirely of deferred tax (benefits)
based upon the statutory U.S. federal tax rate of 34%. A summary
(in thousands) of the deferred tax assets follows:
<TABLE>
<CAPTION>
Estimated Net
Deferred Valuation Deferred
Tax Asset Allowance Tax Asset
--------- --------- ---------
<S> <C> <C> <C>
Difference in basis of property and equipment $ 890 $ 445 $ 445
Accrued compensated absences 19 19 0
Net operating loss carryforward 144 144 0
----------- ---------- ----------
$ 1,053 $ 608 $ 445
========== ========= =========
</TABLE>
A net deferred tax asset of $445,000 has been recorded to reflect
the minimum benefit the Company expects it will receive from the
differences between the higher carrying amounts for income tax
purposes of the property and equipment transferred to the Company
pursuant to the Plan than the lower amounts reported for
financial statement purposes. Although realization is not
assured, management believes it is more likely than not that all
of the net deferred tax asset will be realized.
The net operating loss carryforward is approximately $410,000 and
expires on September 30, 2018.
Note 9. Earnings per Share
In accordance with Statement of Financial Accounting Standards
No. 128, Earnings per Share, the Company is required to present
both basic and diluted earnings per common share.
For the year ended September 30, 1998, the weighted average
common shares outstanding was 2,939 shares for the calculation of
basic earnings per common share. The weighted average common
shares outstanding was computed as follows:
<TABLE>
<CAPTION>
Weighted
Fraction Average
Dates Outstanding Shares Outstanding of Period Shares
----------------- ------------------ --------- ------
<S> <C> <C> <C>
200 364/365 199
October 1, 1997 to September 29, 1998
September 30, 1998:
- Cancellation of shares issued
at incorporation (200)
- Issuance of shares
to partnerships 1,000,000 1/365 2,749
-----------
2,939
===========
</TABLE>
F-15
<PAGE>
There were no other common shares that were issuable that would
have a dilutive effect on the calculation of earnings per share.
Note 10. Subsequent Event
In December, 1998 the stockholders approved the adoption of the
1997 Employee Stock Incentive Plan, a stock option plan for
certain employees and directors. The total number of shares that
may be issued upon the exercise of options under this plan is
250,000. Also under this plan, no participant may be granted more
than 100,000 shares and no awards may be granted after November
21, 2007.
Effective January 1, 1999, options to purchase up to a total of
210,416 shares of common stock were granted at exercise prices
ranging from $1.00 to $1.10 per share to the officers and
directors of the Company. The options will vest as follows:
Exercise Date
Shares Price Fully
Granted Per Share Vested
------- --------- ------
166,666 $ 1.10 July 1, 1999
1,000 1.00 January 1, 2000
42,750 1.00 January 1, 2003
The Board of Directors of the Company determined at the time of
grant that the estimated fair market value of the Company's
common stock was $1.00 per share based on the following
considerations: there was no public market for the stock; the
Company and the contributing Partnerships had no operating profit
history; the Plan of Reorganization prohibits the Company from
declaring any dividends on its common stock until certain notes
payable assumed pursuant to the Plan of Reorganization are paid
in full or otherwise satisfied; a significant portion of the
Company's cash flow for at least the near term is expected to be
devoted to debt service; and transactions affecting 50,000 shares
had been effected at that time between the former general partner
of the contributing Partnerships and certain limited partners
where the limited partnership interests were purchased by the
general partner at an equivalent value of approximately $1.00 per
share.
F-16
<PAGE>
AGEMARK CORPORATION
SCHEDULE XI
REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1998
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Costs
Capitalized
(Charged Off)
Initial Cost Subsequent to Gross Amount at Which
to Company Acquisition Carried at Close of Period
Description Encumbrances Land Buildings Improvement Land Buildings Total
----------- ------------ ---- --------- ----------- ---- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Assisted Living
Facility
Williston, ND 2,550 74 3,860 97 74 3,957 4,031
Assisted Living
Facility
Beatrice, NE 1,785 14 1,083 10 14 1,093 1,107
Assisted Living
Facility
Port Huron, MI * 98 902 5 98 907 1,005
Apartment House
Manitowoc, WI * 286 491 286 491 777
Assisted Living
Facility
Chanute, KS - 7 868 7 868 875
Assisted Living
Facility
Cumberland, MD 3 187 3,388 187 3,410 3,597
Assisted Living
Facility
Rock Island, IL 4,171 189 1,855 189 1,859 2,048
Assisted Living
Facility
Fort Madison. IA 2,215 52 1,915 11 52 1,926 1,978
Assisted Living
Facility
Hastings, NE 2,289 92 1,892 92 1,892 1,984
Assisted Living
Facility
Dickinson, ND 2,273 36 2,091 0 36 2,091 2,127
Totals 15,286 1,035 18,345 149 1,035 18,494 19,529
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
Accumulated
Depreciation and Date of Date
Amortization Construction Acquired Life
------------ ------------ -------- ----
<S> <C> <C> <C>
94 1983 1/1/98 40 yr.
18 1934 4/1/98 40 yr.
17 1896 4/1/98 40 yr.
7 1927 4/1/98 40 yr.
13 1929 4/1/98 40 yr.
52 1926 4/1/98 40 yr.
18 1926 7/1/98 40 yr.
16 1954 7/1/98 40 yr.
17 1914 7/1/98 40 yr.
16 1980 7/1/98 40 yr.
268
<FN>
* The notes totaling $1,785,000 are secured by a blanket mortgage on the
properties in Beatrice, NE, Port Huron, MI and Manitowoc, WI.
</FN>
</TABLE>
F-17
<PAGE>
AGEMARK CORPORATION
- ACQUIRED PROPERTIES
STATEMENTS OF OPERATING INCOME
YEARS ENDED
DECEMBER 31, 1997 AND 1996
F-18
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Stockholders and
Board of Directors of
Agemark Corporation
We have audited the accompanying statements of operating income of Agemark
Corporation - Acquired Properties for the years ended December 31, 1997 and
1996. These operating statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these operating
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we perform the audit to obtain
reasonable assurance about whether the operating statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the operating statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the operating
statements. We believe that our audits provide a reasonable basis for our
opinion.
The accompanying statements of operating income were prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission (for inclusion in the registration statement on Form 10-SB
of Agemark Corporation) as described in Note 1 and are not intended to be a
complete presentation of the revenues and expenses of the acquired properties.
In our opinion, the statements of operating income referred to above
present fairly, in all material respects, the operating income described in Note
1 of Agemark Corporation - Acquired Properties for the years ended December 31,
1997 and 1996, in conformity with generally accepted accounting principles.
TIMPSON GARCIA
Oakland, California
August 6, 1999
F-19
<PAGE>
AGEMARK CORPORATION - ACQUIRED PROPERTIES
STATEMENTS OF OPERATING INCOME
Years Ended December 31, 1997 and 1996
(In thousands)
1997 1996
---- ----
Property gross revenue
HHS I properties 2,701 2,730
HHS II properties 1,572 1,520
HHS III properties 1,140 1,045
PIF I property 914 814
Privately held properties 2,295 2,302
--------- ---------
$ 8,622 $ 8,411
--------- ---------
Property operating expenses
HHS I properties $ 2,182 $ 2,098
HHS II properties 1,398 1,271
HHS III properties 952 874
PIF I property 843 804
Privately held properties 1,911 1,655
--------- ---------
$ 7,286 $ 6,702
--------- ---------
Operating income $ 1,336 $ 1,709
========= =========
F-20
<PAGE>
AGEMARK CORPORATION - ACQUIRED PROPERTIES
NOTES TO STATEMENTS OF OPERATING INCOME
Note 1. Organization and Significant Accounting Policies
Organization:
Agemark Corporation (the "Company") was organized in April, 1997
pursuant to an order of the U.S. Bankruptcy Court dated April 27, 1997
(the "Order") to receive the assets of and continue the businesses of
four reorganized, publicly registered limited partnerships and two
privately held limited partnerships (the "Partnerships"). The Order
confirmed the Second Amended Joint Plan of Reorganization (the "Plan")
of the Partnerships filed in January, 1997 and amended in April, 1997.
The first of the property transfers to the Company pursuant to the
Plan was accomplished in January, 1998 and the final transfer took
place in July, 1998.
The Partnerships were as follows:
Publicly registered limited partnerships:
Historic Housing for Seniors Limited Partnership (HHS I)
Historic Housing for Seniors II Limited Partnership (HHS II
Historic Housing for Seniors III Limited Partnership (HHS III)
Housing for Seniors Participating Mortgage Fund Limited
Partnership (PIF I)
Privately held limited partnerships:
Dickinson Associates Limited Partnership
Williston Associates Limited Partnership
The property locations and their transfer dates were as follows:
<TABLE>
<S> <C> <C>
Acquired from HHS I: Beatrice, NE April, 1998
Cumberland, MD April, 1998
Hastings, NE July, 1998
Acquired from HHS II: Chanute, KS April, 1998
Rock island, IL July, 1998
Acquired from HHS III: Manitowoc, WI April, 1998
Fort Madison, IA July, 1998
Acquired from PIF I: Port Huron, MI April, 1998
Privately held limited partnerships: Williston, ND January, 1998
Dickinson, ND July, 1998
</TABLE>
F-21
<PAGE>
NOTES TO STATEMENTS OF OPERATING INCOME
Note 1. Organization and Significant Accounting Policies (Continued)
Organization: (Continued)
All of the above properties transferred and retained by the Company
are renovated hotels that have been designated as "Certified Historic
Structures," except for the two facilities in North Dakota, which are
modern buildings. All of the locations are operated as senior
residential and assisted living facilities, except for the Manitowoc,
WI property. These facilities provide an apartment style residence,
three meals per day, housekeeping, transportation, activities and
24-hour non-medical assistance to elderly residents for a monthly fee.
Revenues are received directly from residents, their family, or
another responsible party. Services are generally not covered by
government or private insurance programs, except in North Dakota,
where the State government provides limited subsidies. Resident fee
revenue is recognized when services are rendered.
The property located in Manitowoc, WI is operated as an apartment
complex. These units are generally rented on a month-to-month basis.
Basis of Presentation:
Operating income is defined as property gross revenue less property
operating expenses, which excludes items not comparable to the
proposed future operations of the acquired properties such as interest
expense, depreciation, and administrative and other overhead expenses.
Use of Estimates:
Management uses estimates and assumptions in preparing these
statements of operating income. Those estimates and assumptions affect
the reported amounts of revenues and expenses. Actual results could
differ from those estimates.
Note 2. Transactions With Affiliates
The Company contracts with Evergreen Management, Inc. ("EMI") for the
management of the acquired properties. EMI is co-owned by Richard J.
Westin and Jesse A. Pittore, directors and officers of the Company.
Compensation for these management services is 5% of gross income paid
monthly. For the years ended December 31, 1997 and 1996, management
fees of $431,207 and $420,561, respectively, are included in the
property operating expenses on the statements of operating income for
services provided by EMI.
F-22
<PAGE>
AGEMARK CORPORATION
ACQUIRED PROPERTIES
ESTIMATED TWELVE-MONTH PRO FORMA STATEMENT OF
---------------------------------------------
TAXABLE NET OPERATING LOSS
--------------------------
(Unaudited)
(in thousands)
Historical Operating Income
(exclusive of mortgage interest, depreciation
amortization, administrative and other
general expenses, and Federal and state
income taxes) (Note 2) $ 1,366
Reduction in Management Fee Expense (Note 2) $ 45
Administrative and Other Overhead Expenses (Note 3) $ (492)
Depreciation of Properties (Note 4) $ (1,176)
Interest on Mortgage Debt (Note 5) $ (931)
Pro Forma Taxable Net Operating Loss from Properties $ (1,188)
ESTIMATED TWELVE-MONTH PRO FORMA STATEMENT OF FUNDS AVAILABLE
-------------------------------------------------------------
(Unaudited)
(in thousands)
Pro Forma Taxable Net Operating , as above $ (1,188)
Add: Depreciation of Properties (Note 4) $ 1,176
------------
Pro Forma Funds Available $ (12)
=============
F-23
<PAGE>
AGEMARK CORPORATION
ACQUIRED PROPERTIES
NOTES TO ESTIMATED TWELVE-MONTH PROFORMA STATEMENT
--------------------------------------------------
OF TAXABLE NET OPERATING LOSS AND ESTIMATED TWELVE-MONTH
--------------------------------------------------------
PRO FORMA STATEMENT OF FUNDS AVAILABLE
--------------------------------------
(Unaudited)
Note 1: These statements should be read in conjunction with the preceding
Statements of Operating Income. Although these statements reflect adjustments to
expenses, based on assumptions detailed in Note 2, they do not purport to
forecast actual operating results for any period in the future and, thus, there
can be no assurance that the foregoing results will be attained.
Note 2: The historical operating income is based upon the operating income of
the Acquired Properties for the twelve months ended December 31, 1997. The
historical operating income is defined as property gross revenue less property
operating expenses, which excludes items not comparable to the proposed future
operations of the acquired properties such as interest expense, depreciation,
and administrative and other overhead expenses.
Each of the Acquired Properties will be managed by Evergreen Management, Inc.
pursuant to management contracts in effect as of the date of their acquisition.
These contracts provide for a management fee based on 4.5% of the total income
of the property. During the period ended December 31, 1997, the period upon
which historical operating income is based, each of the Acquired Properties was
managed by Evergreen Management, Inc. at a fee of 5%.
Note 3: Management estimates that the cost of ongoing administrative and other
overhead expenses will typically equal about $41,000 per month.
Note 4: Depreciation of the properties is presented on a tax basis. The tax
depreciation of the Acquired Properties is estimated by reference to the tax
basis of the properties in the hands of the transferor partnerships, and the
shorter depreciable lives allowed by tax law for residential real estate. Tax
depreciation is approximately double depreciation for book purposes.
F-24
<PAGE>
Note 5: The properties are subject to new secured debt (in thousands) consisting
of:
Notes secured by real estate:
Regular notes 9,277
Rock Island note 4,171
Superfirst note 1,393
Reimbursement notes 392
Other notes 53
--------
Total secured notes 15,286
Tax notes 285
Total notes payable 15,571
There are four regular mortgage notes that bear interest at 8% per annum.
Interest on each of the notes is payable monthly at a rate of not less than 6%
per annum. The notes are due on September 30, 2001 and can be extended an
additional three years upon the payment of substantial amounts on the principal
balance. On a quarterly basis, to the extent computed net cash flow from the
properties securing the notes allows, any portion of the 8% interest which is
unpaid and 75% of the excess of computed net cash flow over any unpaid interest
is payable. To the extent that this calculation results in the payment of
principal, that sum is to be retained by the lender as a reserve for capital
improvements. These notes are secured by first mortgage liens on properties
located in Dickinson, ND, Williston, ND, Fort Madison, IA and Hastings, NE.
The Rock Island mortgage note bears interest as follows: from October 1, 1998
through September 30, 1999, the lesser of 3% per annum on the principal balance
or computed cash flow from the Rock Island property; from October 1, 1999
through September 30, 2000, the greater of 3% per annum on the principal balance
or computed cash flow from the Rock Island property; from October 1, 2000 until
maturity the greater of 4% per annum on the principal balance or computed cash
flow from the Rock Island property. The note is secured by a first mortgage lien
on the property located in Rock Island, IL, is due September 30, 2001 and can be
extended an additional three years upon the payment of substantial amounts on
the principal balance. For purposes of these statements the note is assumed to
bear interest at 3% per annum.
The Superfirst Note and two Reimbursement Notes bear interest at 5% per annum.
No periodic interest or principal payments are required. All of the accrued
interest and unpaid principal is due on September 30, 2001. These notes are
secured by first mortgage liens on properties located in Beatrice, NE,
Manitowoc, WI and Port Huron, MI. Payments of $634,000 are required to be
applied to these notes shortly after acquisition. Therefore, for purposes of
these statements the balance of the Superfirst Note for computation of interest
is assumed to be $1,277,000.
The other secured notes consist of a note with a balance of $3,000 bearing
interest at 7.5% payable at $1,107 per month principal and interest and two
notes totaling $50,000 which bear interest at 8% per annum. The $50,000 notes
require no periodic payments. All accrued interest and the unpaid principal
balance is due September 30, 2001. Security for the $50,000 notes is a second
mortgage lien on the Williston, ND property.
F-25
<PAGE>
The Tax Notes bear interest at 8% per annum. Payments of interest and principal
are due semi-annually each January and July in the amount of $5,886 through
January 2004 and each February and August in the amount of $26,638 through
February 2004.
F-26
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this Post-Effective Amendment No. 2 to the registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized.
AGEMARK CORPORATION
Date: February 24, 2000 By /s/ RICHARD J. WESTIN
----------------------------------------
Richard J. Westin
Chief Executive Officer
<PAGE>
EXHIBIT INDEX TO
POST-EFFECTIVE AMENDMENT NO. 2 TO
REGISTRATION STATEMENT ON FORM 10-SB
FOR AGEMARK CORPORATION
Exhibit Description
- ------- -----------
3.1* Articles of Incorporation
3.2* By-Laws
10.1* Order Confirming Debtors' Second Amended Joint Plan of
Reorganization dated April 29, 1997
10.2* Amended Modification of Debtors' Second Amended Joint Plan of
Reorganization dated April 24, 1997
10.3* Debtors' Second Amended Joint Plan of Reorganization dated January
15, 1997
10.4* Employment Agreement between the Company and Jesse A. Pittore
10.5* Employment Agreement between the Company and Richard J. Westin
10.6* 1997 Employee Stock Incentive Plan
10.7* Form of management contract between Evergreen Management, Inc. and
the Company
10.8** Lease Agreement between The Waterford Company and Westor Financial
Group, Inc.
11** Statement regarding Computation of Per Share Earnings
27.1* Financial Data Schedule
- -------------
* Incorporated by reference to the registrant's Form 10-SB filed on January
29, 1999.
** Incorporated by reference to Amendment No. 1 to Form 10-SB filed on
September 17, 1999.
- --------
* Filed on January 29, 1999.
** Filed on September 17, 1999.
