As filed with the Securities and Exchange Commission on September 5, 1996
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
THE STANDISH CARE COMPANY
(Exact Name Of Registrant As Specified In Its Charter)
Delaware 8316
(State or other (Primary Standard 04-3069586
jurisdiction of Industrial (I.R.S. Employer
incorporation or Classification Code Identification No.)
organization) Number)
197 First Avenue
Needham, Massachusetts 02194
(617) 433-1000
(Address, including zip code, and telephone number,
including area code of Registrant's principal executive offices)
-------------
Michael J. Doyle
The Standish Care Company
197 First Avenue
Needham, Massachusetts 02194
(617) 433-1000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------
Copies of all communications to:
Michael J. Bohnen, Esq.
Nutter, McClennen & David A. Garbus, Joseph W. Armbrust, Jr.,
Fish, LLP Esq. Esq.
One International Robinson & Cole Brown & Wood LLP
Place One Boston Place One World Trade Center
Boston, MA 02110 Boston, MA 02108 New York, NY 10048
(617) 439-2000 (617) 557-5900 (212) 839-5300
------------
Approximate date of commencement of proposed sale to public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If the Form is a post-effective amendment filed pursuant to Rule 426(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
CALCULATION OF REGISTRATION FEE
===========================================================================
Proposed Proposed
Title of each maximum maximum
class of Amount to be offering aggregate Amount of
securities registered price per offering registration
to be registered (1) unit (2) price (2) fee
---------------------------------------------------------------------------
Common Stock, 35,937,500
$.01 par value Shares $4.00 $143,750,000 $49,569
===========================================================================
(1) Includes 4,687,500 shares which may be purchased by the Underwriters from
the Selling Stockholder pursuant to an over-allotment option. See
"Underwriting."
(2) Estimated pursuant to Rule 457(a) for purposes of calculating the
registration fee.
-------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such state.
SUBJECT TO COMPLETION,
Dated September 5, 1996
31,250,000 Shares
[CareMatrix logo]
(formerly The Standish Care Company)
Common Stock
All of the shares of Common Stock, par value $.01 per share (the "Shares"),
offered hereby are being offered by CareMatrix Corporation (the
"Company"). Up to 4,687,500 additional Shares may be sold by a
certain stockholder of the Company (the "Selling Stockholder")
if the Underwriters exercise their over-allotment option.
The Company will not receive any of the proceeds from
the sale of Shares by the Selling Stockholder.
See "Principal and Selling Stockholders"
and "Underwriting."
------------
The Common Stock is included in the Nasdaq Small Cap System under the symbol
"CRMX." On October , 1996, the last reported sales price for the Common
Stock on the Nasdaq Small Cap System was $ per Share. Prior to the
Offering, however, only a limited number of Shares have traded
publicly.
------------
The Company has applied to list the Common Stock for quotation on the Nasdaq
National Market under the symbol "CRMX." See "Price Range of Common Stock
and Dividends."
------------
See "Risk Factors" beginning on page 7 for a discussion of certain
information that should be considered by prospective investors.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THE OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
==========================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- ---------------------------------------------------------------------------
Per Share $ $ $
Total (3) $ $ $
===========================================================================
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Selling Stockholder has granted the Underwriters a 30-day option to
purchase up to an additional 4,687,500 Shares to cover over-allotments,
if any. If all such Shares are purchased, the total price to public,
underwriting discounts and commissions and proceeds to the Selling
Stockholder will be $ , $ and $ , respectively. See
"Underwriting."
------------
The Shares are offered by the several Underwriters named herein when, as
and if received and accepted by them, subject to their right to reject any
order in whole or in part and subject to certain other conditions. It is
expected that delivery of the Shares will be made in New York, New York on or
about , 1996.
------------
Dean Witter Reynolds Inc.
NatWest Securities Limited
PaineWebber Incorporated
Robertson, Stephens & Company
Smith Barney Inc.
, 1996
<PAGE>
[MAP OR PHOTOGRAPH]
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ SMALL CAP SYSTEM IN ACCORDANCE WITH RULE 10b-6A
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT").
SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus and, if given or made, such other
information and representations must not be relied upon as having been
authorized by the Company or the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the date hereof or that the information contained herein is correct as of
any time subsequent to its date. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any securities other than the
registered securities to which it relates. This Prospectus does not constitute
an offer to sell or a solicitation of an offer to buy such securities in any
circumstances in which such offer or solicitation is unlawful.
TABLE OF CONTENTS
Page
-------
Available Information ............................... 3
Prospectus Summary .................................. 4
Risk Factors ........................................ 7
The Company ......................................... 13
Use of Proceeds ..................................... 13
Price Range of Common Stock and Dividends ........... 14
Capitalization ...................................... 15
Dilution ............................................ 16
Unaudited Pro Forma Financial Information ........... 17
Selected Combined Financial Data of the Company ..... 23
Management's Discussion and Analysis of Financial
Condition and Results of Operations of the Company . 24
Selected Historical Financial Data of Standish ...... 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Standish .... 27
Business ............................................ 37
Management .......................................... 51
Certain Transactions ................................ 59
Principal and Selling Stockholders .................. 62
Description of Capital Stock ........................ 63
Shares Eligible for Future Sale ..................... 68
Underwriting ........................................ 68
Legal Matters ....................................... 69
Experts ............................................. 70
Index to Financial Statements ....................... F-1
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (herein, together with all
amendments, exhibits and schedules thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the Common Stock offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, omits certain information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete, and, in
each instance, reference is made to the contract or document filed as an exhibit
to the Registration Statement and incorporated by reference herein. The Company
is subject to the information requirements of the Exchange Act and in accordance
therewith files reports, proxy statements and other information with the
Commission (collectively, "Exchange Act Filings"). The Registration Statement,
including the exhibits and schedules thereto, as well as the Company's Exchange
Act Filings, may be obtained from the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048,
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the public
reference section of the Commission at its Washington address upon payment of
the fees prescribed by the Commission, or may be examined without charge at the
offices of the Commission, or accessed through the Commission's Internet address
at http://www.sec.gov.
For United Kingdom Purchasers: The shares of Common Stock offered hereby
may not be offered or sold in the United Kingdom other than to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of
investments, whether as principal or agent (except in circumstances that do not
constitute an offer to the public within the meaning of the Public Offers of
Securities Regulations 1995 or the Financial Services Act 1986) and this
Prospectus may only be issued or passed on to any person in the United Kingdom
if that person is of a kind described in Article 11(3) of the Financial Services
Act 1986 (Investment Advertisements) (Exemptions) Order 1995 or is a person to
whom the Prospectus may otherwise lawfully be issued or passed on.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Prospective investors should consider carefully
the information set forth under "Risk Factors." Unless otherwise indicated,
information in this Prospectus assumes no exercise of the Underwriters' option
to purchase from the Selling Stockholder up to 4,687,500 additional shares of
Common Stock to cover over-allotments, if any.
The Company
CareMatrix Corporation (the "Company") (formerly known as The Standish Care
Company) is a provider of assisted living services, operating 20 facilities in
eight states with a capacity of approximately 1,580 residents. Of these
facilities, two are owned, nine are leased and nine are managed. The Company's
three year growth objective is to develop at least 60 new facilities, with a
capacity of approximately 7,200 residents, and to acquire additional assisted
living facilities or operations. Currently, the Company is developing 31
facilities, of which six facilities are now under construction. The Company's
strategy is to provide a full range of assisted living and related services
across a range of pricing options.
The Company believes that it can effectively and efficiently respond to a
variety of the needs of seniors as they age and require additional care. The
Company expects its assisted living facilities to serve as the foundation from
which it will provide a continuum of care for its residents. When its assisted
living facilities are integrated with supportive independent living facilities,
skilled nursing facilities and Alzheimer's care programs, the Company believes
that it will have the ability to provide a less stressful transition for its
residents to a higher degree of care either within the same facility, in a
campus setting or in a nearby facility. The Company believes that by integrating
different levels of care it will offer advantages over free-standing assisted
living facilities that do not provide the flexibility to allow residents to age
in place.
The Company intends to provide a full range of quality senior residential
services at all of its assisted living facilities, which are designed to permit
residents to age in place by meeting their evolving personal and health care
needs. To accomplish this objective, the Company is developing comprehensive
service packages and integrated campuses that the Company believes will enable
it to become a leading provider of assisted living services to seniors in a
fully integrated matrix of social and healthcare service models.
The Company believes that the popularity of assisted living and other
senior care alternatives will increase the demand for quality facilities that
provide such services across upper, moderate and low income markets. The Company
is developing four such models to meet this anticipated demand:
(bullet) Chancellor Park--These facilities will provide supportive
independent and assisted living services and are designed to serve
primarily upper income residents. The capacity of this model ranges from
100 to 160 residents. The average monthly service fee paid by residents
will range from approximately $2,300 to $4,900.
(bullet) Chancellor Gardens--These facilities, which target a broader
population base, will provide similiar services to moderate and upper
income residents. This model typically accommodates 80 to 140 residents.
The average monthly service fee paid by residents will range from
approximately $1,400 to $3,000.
(bullet) Chancellor Village--These facilities, which further broaden the
Company's service market, are designed to accommodate lower income
residents and Medicaid eligible residents. This model accommodates 80 to
100 residents. The average monthly service fee for residents will range
from approximately $900 to $2,000.
(bullet) Chancellor Court--These facilities, which will be free-standing
or integrated with other Company facilities to provide a continuum of
care, are specially designed to meet the programmatic needs of residents
with early or intermediate Alzheimer's disease and other forms of
dementia. This model, which targets upper income seniors, accommodates 40
to 80 residents. The average monthly service fee paid by residents will
range from approximately $3,200 to $3,600.
Upon the completion of the Offering, the Company will implement an
aggressive development and acquisition program designed to enable the Company to
provide assisted living services in conjunction with supportive
4
<PAGE>
independent living and skilled nursing/rehabilitation services in order to
offer a continuum of care to seniors with a range of pricing options. The
Company will seek to cluster its facilities in its markets to achieve
marketing, cost and service advantages. The Company believes that by
combining different levels of care in a single, integrated campus or facility
or through a network of facilities within a distinct market, it will be able
to respond to the varied needs of seniors, meet the cost containment
objectives of private and governmental payor sources and create significant
competitive advantages.
The Company's senior management team has extensive experience in
developing, operating and managing senior housing facilities. The Company
expects that the facilities it plans to develop and subsequently manage or lease
over the next three years will be developed for both related and unrelated
parties. See "Risk Factors--Dependence by the Company on Related Party
Agreements" and "Business--Development and Acquisition."
On September 27, 1996, twelve wholly owned subsidiaries of The Standish
Care Company ("Standish ") were merged into twelve affiliated corporations
controlled by Abraham D. Gosman, members of his family and certain members of
senior management (collectively, "Pre-Merger CareMatrix"), with the holders of
the stock of the Pre-Merger CareMatrix corporations receiving approximately 92%
of the then outstanding shares of Standish common stock (the "Merger").
Following the Merger, The Standish Care Company changed its name to CareMatrix
Corporation. The Merger was accounted for as a reverse acquisition, whereby
Pre-Merger CareMatrix is treated as the acquiror for accounting purposes.
The Offering
Common Stock Offered 31,250,000 shares
Common Stock to be
Outstanding After the
Offering 85,580,000 shares (1)
Use of Proceeds To finance future acquisitions and development, to
repay outstanding debt to, and redeem the Series B
Preferred Stock held by, the Company's principal
stockholder, to pay dividends in arrears on the
Series A Preferred Stock and for working capital
purposes. See "Use of Proceeds."
Proposed Nasdaq National
Market symbol "CRMX"
(1) Does not include (i) an aggregate of 2,046,596 shares of Common Stock
issuable following the completion of the Offering upon exercise or
conversion of outstanding warrants and convertible securities of the
Company and (ii) an aggregate of 8,000,000 shares of Common Stock
reserved for issuance under the Company's stock option/equity incentive
plans, of which approximately 3,400,000 have been granted at an average
exercise price of approximately $2.90 per share. See "Capitalization,"
"Management" and "Shares Eligible for Future Sale."
5
<PAGE>
Summary Combined Financial Data
The following table sets forth the historical combined financial
information of the Company and pro forma financial information to give effect to
the Merger of Pre-Merger CareMatrix and Standish, the purchase in July 1996 of
certain assets from an entity controlled by the Company's principal stockholder
(the "Asset Purchase") and the sale of the Common Stock offered hereby. The
Merger was accounted for as a reverse acquisition, whereby Pre-Merger CareMatrix
is deemed the acquiror for accounting purposes. Accordingly, the financial
history presented is that of Pre-Merger CareMatrix.
<TABLE>
<CAPTION>
Pro Forma
Historical((1)) Pro Forma((2)) As Adjusted((3))
--------------------------------- -------------------- ----------------------
June 24,
1994 Six Six
(Inception) Year Months Year Months Year Six
to Ended Ended Ended Ended Ended Months
December December June December June December Ended
31, 31, 30, 31, 30, 31, June 30,
1994 1995 1996 1995 1996 1995 1996
--------- --------- ------- --------- ------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations
Data:
Net revenues $ 366 $ 2,485 $ 2,389 $ 10,921 $ 7,059 $10,921 $ 7,059
Operating costs
and expenses 2,865 9,147 5,591 20,113 11,128 20,113 11,128
------- ------- ------- -------- ------- ------- -------
Loss from
operations (2,499) (6,662) (3,202) (9,192) (4,069) (9,192) (4,069)
Interest income -- -- (24) (153) (53) (153) (53)
Interest expense 56 544 559 2,044 1,382 1,500 823
Other -- -- -- (558) (743) (558) (743)
------- ------- ------- -------- ------- ------- -------
Loss (4) $(2,555) $(7,206) $(3,737) $(10,525) $(4,655) $(9,981) $(4,096)
======= ======= ======= ======== ======= ======= =======
Pro forma loss
per share $(0.19) $(0.09) $(0.12) $(0.05)
Shares
outstanding 54,330 54,330 85,580 85,580
</TABLE>
June 30, 1996
---------------------------------------
Pro Forma
Pro As
Historical((1)) Forma((5)) Adjusted((6))
--------------- --------- ------------
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 2,028 $ 3,284 $ 98,219
Working capital (deficit) 1,286 (3,038) 93,055
Total assets 6,022 44,464 139,399
Long-term debt, less current
maturities (7) 16,992 30,753 10,461
Stockholders' equity (deficit) (13,498) 3,326 119,711
(1) The historical combined financial data represents the combined financial
position and results of operations for the Company for the periods
presented.
(2) Gives effect to the Merger and the Asset Purchase as if such transactions
had occurred as of January 1, 1995. See "Unaudited Pro Forma Financial
Information."
(3) Gives effect to (i) the Merger and the Asset Purchase and (ii) the sale
of Common Stock offered hereby (assuming a public offering price of $4.00
per share) and the application of the net proceeds therefrom, as if such
transactions had occurred as of January 1, 1995. See "Use of Proceeds"
and "Unaudited Pro Forma Financial Information."
(4) Provisions for income taxes have not been reflected in these combined
financial statements since there is no taxable income on a combined
basis. See Note 2 of the CareMatrix Combined Financial Statements.
(5) Adjusted to give effect to the Merger and the Asset Purchase as if such
transactions had occurred on June 30, 1996. See "Unaudited Pro Forma
Financial Information."
(6) Adjusted to give effect to (i) the Merger and the Asset Purchase and (ii)
the sale of the Common Stock offered hereby (assuming a public offering
price of $4.00 per share) and the application of the net proceeds
therefrom as if such transactions had occurred on June 30, 1996. See "Use
of Proceeds" and "Unaudited Pro Forma Financial Information."
(7) Includes debt due to stockholder.
6
<PAGE>
RISK FACTORS
Potential investors should consider carefully the following factors, as
well as the more detailed information contained elsewhere in this Prospectus,
before making a decision to invest in the Common Stock offered hereby. This
Prospectus contains certain forward-looking statements regarding the Company's
future plans, operations and prospects which involve risks and uncertainties.
The Company's actual results could differ materially from the results
anticipated in these forward-looking statements as a result of certain of the
factors set forth under "Risk Factors" and elsewhere in this Prospectus.
History of Losses From Operations; Accumulated Deficit. From its formation
on June 24, 1994 through June 30, 1996, the Company experienced significant
losses from operations. Through June 30, 1996, the Company had cumulative losses
from operations of $12.4 million. For the year ended December 31, 1995 and the
six months ended June 30, 1996, the Company incurred losses from operations of
$6.7 million (including an $895,000 provision for closing a facility) and $3.2
million, respectively. At June 30, 1996, the Company's accumulated deficit was
$13.5 million. On a pro forma basis giving effect to the Merger and the Asset
Purchase, for the year ended December 31, 1995 and the six months ended June 30,
1996, the Company incurred losses from operations of $9.2 million and $4.1
million, respectively. The Company expects to incur losses from operations
through at least the end of 1996 and may continue to have losses thereafter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of the Company" and the CareMatrix Combined Financial Statements.
There can be no assurance that the Company will be able to generate income from
operations or net income at any time, whether from its existing operations or
from any facilities that are operated in the future. Failure of the Company to
achieve profitability could have a material adverse effect on the future
viability of the Company.
Dependence by the Company on Related Party Agreements. It is expected that
the Company will enter into agreements with related parties in connection with a
significant number of transactions, including development, management and lease
agreements. Generally, it is expected that the Company and a related party will,
at the time of the signing of a development agreement, simultaneously enter into
a management services agreement for a 10 to 20 year period to become effective
upon completion of construction of the project. Each such management agreement
is expected to contain an option, on behalf of the Company, to convert the
management agreement into a lease for fair market rental value, which will be a
negotiated percentage of total project costs, having an initial term of 10 years
with a minimum of two five-year extension periods. Abraham D. Gosman is the
principal owner, and certain members of the Company's senior management and
stockholders also have an ownership interest in, Chancellor Senior Housing
Group, Inc. ("Chancellor"), with which the Company expects to enter into most
such agreements. Failure of the Company to continue to enter into such
agreements with Chancellor or other such related parties or the inability of
Chancellor to secure all necessary financing could have a material adverse
effect on the Company. See "Business-Development and Acquisitions" and "Certain
Transactions."
Need for Additional Financing. The Company's development and acquisition
strategy will require substantial capital resources. The estimated cumulative
cost to complete approximately 60 new facilities targeted for completion over
the next three years is between $400 million and $600 million, which
substantially exceeds the financial resources of the Company. The Company's
future growth will depend primarily on the ability of related parties, such as
Chancellor, for whom the Company develops facilities to obtain financing on
acceptable terms. To finance its capital needs, the Company plans both to incur
indebtedness and to issue, from time to time, additional debt or equity
securities, including Common Stock or convertible notes, in connection with its
acquisitions and affiliations. If additional funds are raised through the
issuance of equity securities, dilution to the Company's stockholders may
result, and if additional funds are raised through the incurrence of debt, the
Company would likely become subject to certain covenants that impose
restrictions on its operations and finances. There can be no assurance that the
Company or such related parties will be able to raise additional capital when
needed on satisfactory terms or at all. The Company has relied upon equity and
loans provided primarily by Abraham D. Gosman, the Company's Chairman of the
Board and principal stockholder, or companies affiliated with him. See
"--Substantial Debt and Lease Obligations." Upon completion of the Offering, the
loans from Mr. Gosman will be repaid. There can be no assurance that any
additional financing from Mr. Gosman, Chancellor or any other sources will be
available after completion of the Offering. Any limitation on the Company's
ability to obtain additional financing could have a material adverse effect on
the Company. See "Use of Proceeds" and "Certain Transactions."
Substantial Debt and Lease Obligations. At June 30, 1996, the Company's pro
forma total debt, as adjusted for the Offering, was $13.3 million. Debt service
and annual operating lease payment obligations are expected to
7
<PAGE>
increase significantly as the Company pursues its growth strategy. A
significant portion of these obligations may be to related parties. There can
be no assurance that the Company will generate sufficient cash flow to meet
its obligations. Any payment default or other default with respect to such
obligations could cause the lender to foreclose upon any collateral securing
the indebtedness or, in the case of an operating lease, could terminate the
lease, with a consequent loss of income and asset value to the Company.
Moreover, because certain of the Company's mortgages, debt instruments and
leases may contain cross-default and cross-collateralization provisions, a
default by the Company on one of its payment obligations could result in
acceleration of other obligations and adversely affect a significant number
of the Company's other facilities. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations of the Company-Liquidity and
Capital Resources" and "Certain Transactions."
Development and Construction Risks. During the next three years, the
Company plans to develop approximately 60 new facilities with a resident
capacity of approximately 7,200 residents. The Company's ability to achieve its
development goals will depend upon a variety of factors, many of which are
beyond the Company's control. There can be no assurance that the Company will
not suffer delays in its development program, which could slow the Company's
growth. The successful development of additional facilities will involve a
number of risks, including the possibility that the Company may be unable to
locate suitable sites at acceptable prices or may be unable to obtain, or may
experience delays in obtaining, necessary certificates of need, zoning, land
use, building, occupancy, licensing and other required governmental permits and
authorizations. The Company may also incur construction costs that exceed
original estimates or even so-called guaranteed maximum cost construction
contracts, and may not complete construction projects on schedule. The Company
will rely on third-party general contractors to construct its new facilities.
There can be no assurance that the Company will not experience difficulties in
working with general contractors and subcontractors, which could result in
increased construction costs and delays. Further, facility development is
subject to a number of contingencies over which the Company will have little
control and that may adversely affect project cost and completion time,
including shortages of, or the inability to obtain, labor or materials, the
inability of the general contractor or subcontractors to perform under their
contracts, strikes, adverse weather conditions and changes in applicable laws or
regulations or in the method of applying such laws and regulations. Failure of
the Company to achieve its development goals could have a material adverse
effect on the Company.
Risks Related to Acquisition Strategy. The Company's strategy includes
growth through acquisition. The Company is subject to various risks associated
with its acquisition growth strategy, including the risk that the Company will
be unable to identify or acquire suitable acquisition candidates or to integrate
the acquired companies into the Company's operations. Any failure of the Company
to identify and consummate economically feasible acquisitions could have a
material adverse effect on the Company. There can be no assurance that the
Company will be able to achieve and manage its planned acquisition growth, that
the liabilities assumed by the Company in any acquisition will not have a
material adverse effect on the Company or that the addition of facilities will
be profitable for the Company.
Difficulties Associated with Integrating the Operations of Standish and
Pre-Merger CareMatrix. The Company believes that it can successfully integrate
and manage the combined operations of Standish and Pre-Merger CareMatrix, as
well as achieve certain economies of scale. However, because of the inherent
uncertainties associated with efforts to integrate and manage the operations of
the two companies, there can be no assurance that the Company will be successful
in such integration and management, that any cost savings or operating synergies
will be realized, or that there will not be offsetting increases in other
expenses or other charges to earnings resulting from the combined operations.
The Company may elect to dispose of certain of its facilities and may, as a
result, incur non-recurring expenses. See "Unaudited Pro Forma Financial
Information."
Dependence on Attracting Seniors with Sufficient Resources to Pay. The
Company expects to rely primarily on the ability of its residents to pay for
services from their own and their families' financial resources. Generally, only
seniors with income or assets meeting or exceeding the comparable median in the
regions where the Company's assisted living facilities are located can afford
the applicable fees for its facilities for an extended period of time. Any
difficulty in attracting seniors with adequate resources to pay for the
Company's services could have a material adverse effect on the Company.
Inflation or other circumstances which adversely affect the ability of the
Company's residents and potential residents to pay for assisted living services
could also have a material adverse effect on the Company.
Dependence Upon Key Personnel. The Company is dependent upon the ability
and experience of its executive officers, including its Chairman, and there can
be no assurance that the Company will be able to retain all of such officers.
8
<PAGE>
The failure of such officers to remain active in the Company's management could
have a material adverse effect on the Company. There can be no assurance that
the anticipated contributions of senior management will be realized, and the
failure of such contributions to be realized could have a material adverse
effect on the Company.
Risks Related to Goodwill. At June 30, 1996, the Company's pro forma total
assets, as adjusted for the Offering, were approximately $139.4 million, of
which approximately $18.5 million, or approximately 13.3% of total assets, was
goodwill. Goodwill is the excess of cost over the fair value of the net assets
of businesses acquired. There can be no assurance that the value of such
goodwill will ever be realized by the Company. This goodwill is being amortized
on a straight-line basis over 25 years. The Company evaluates on a regular basis
whether events and circumstances have occurred that indicate all or a portion of
the carrying amount of goodwill may no longer be recoverable, in which case an
additional charge to earnings would become necessary. Although at June 30, 1996
the net unamortized balance of goodwill is not considered to be impaired, any
such future determination requiring the write-off of a significant portion of
unamortized goodwill would adversely affect the Company's results of operations.
See "Unaudited Pro Forma Financial Information."
Competition. The assisted living industry is highly competitive and, given
the relatively low barriers to entry and continuing health care cost containment
pressures, the Company expects that it will become increasingly competitive in
the future. The Company competes with other companies providing assisted living
services as well as numerous other companies providing similar service and care
alternatives, such as home health care agencies, congregate care facilities,
retirement communities and skilled nursing facilities. While the Company
believes there is a need for additional assisted living residences in the
markets where it intends to develop facilities, the Company expects that as
assisted living facilities receive increased attention competition will increase
from new market entrants. Moreover, in implementing its growth strategy, the
Company expects to face competition for development and acquisition
opportunities from local developers and regional and national assisted living
companies. Some of the Company's present and potential competitors have, or may
have access to, greater financial resources than those of the Company.
Consequently, increased competition in the future could limit the Company's
ability to attract and retain residents, to maintain or increase resident
service fees or to expand its business and could have a material adverse effect
on the Company's financial condition, results of operations and prospects. See
"Business-Competition."
Discretionary Use of Proceeds; Significant Net Proceeds to Principal
Stockholder. The Company will have broad discretion in using the net proceeds
received by the Company from the Offering. While approximately $23 million of
the net proceeds received by the Company will be used to repay debt to, and
redeem the Series B Preferred Stock held by, the Company's principal
stockholder, the Company expects to use approximately $95 million of the
remaining net proceeds to acquire and develop additional facilities. Although
the Company currently has six facilities under construction and an additional 25
facilities under development, the Company will have broad discretion in
modifying its current acquisition and development plan, selecting and developing
future sites, acquiring additional facilities and otherwise using the net
proceeds of the Offering. See "Use of Proceeds," "Business-Development and
Acquisition" and "Principal and Selling Stockholders."
Limited Experience with New Service Models and Facility Designs. The
Company's success is dependent, in part, on its ability to develop and offer new
service models and facility designs to prospective residents of its facilities.
Currently, the Company does not have extensive operating experience with these
new service models and facility designs and the failure of the Company to
successfully implement and integrate these new service models and facility
designs could have a material adverse effect on the Company. See
"Business-Service Models."
Potential Conflicts of Interest. Abraham D. Gosman, the Company's principal
stockholder and Chairman, and certain members of the Company's senior
management, have an ownership interest in Chancellor with which the Company
expects to enter into development, management and lease agreements. These
agreements will be on terms that the Company believes will be fair and no less
favorable to the Company than those which the Company could have obtained from
unaffiliated third parties. However, such ownership interests in Chancellor may
create actual or potential conflicts of interest on the part of these officers.
In the case of related party transactions, it is the Company's policy to require
that any such transactions be approved by a majority of the disinterested
members of the Company's Board of Directors. See "Certain Transactions."
Control by Management. Members of the Board of Directors and management
will be the beneficial owners of approximately 55% of the outstanding Common
Stock after the Offering. Abraham D. Gosman, together with
9
<PAGE>
his sons, Andrew D. Gosman and Michael M. Gosman, all of whom are members of
the Board of Directors and executive officers of the Company, will be deemed
to be the beneficial owners of approximately 50% of the outstanding Common
Stock after the Offering. Accordingly, they have the ability, by voting
shares of Common Stock, to determine (i) the election of the Company's Board
of Directors and, thus, the direction and future operations of the Company,
and (ii) the outcome of all other matters submitted to the Company's
stockholders, including mergers, consolidations and the sale of all or
substantially all of the Company's assets. See "Principal and Selling
Stockholders."
Residence Staffing and Labor Costs. The Company competes with other
providers of assisted living services with respect to attracting and retaining
qualified and skilled personnel. The Company is dependent upon its ability to
attract and retain management personnel responsible for the day-to-day
operations of each of the Company's facilities. In addition, a possible shortage
of nurses or trained personnel may require the Company to enhance its wage and
benefits package in order to compete in the hiring and retention of such
personnel or hire more expensive temporary personnel. The Company will also be
dependent upon the available labor pool of semi-skilled and unskilled employees
in each of the markets in which it will operate. Any significant failure by the
Company to attract and retain qualified management and staff personnel, to
control its labor costs or to pass on any increased labor costs to residents
through rate increases would have a material adverse effect on the Company.
Government Regulation. Health care is an area of extensive and frequent
regulatory change. The assisted living industry is relatively new, and,
accordingly, the manner and extent to which it is regulated at the Federal and
state levels are evolving. Changes in the laws or new interpretations of
existing laws may have a significant impact on the Company's methods and costs
of doing business. The Company is subject to varying degrees of regulation and
licensing by health or social service agencies and other regulatory authorities
in the various states and localities where it operates or intends to operate.
The Company's success will depend in part upon its ability to satisfy
applicable regulations and requirements and to procure and maintain required
licenses in rapidly changing regulatory environments. Any failure to satisfy
applicable regulations or to procure or maintain a required license could have a
material adverse effect on the Company. Furthermore, certain regulatory
developments such as revisions in building code requirements for assisted living
facilities, mandatory increases in the scope and quality of care to be offered
to residents and revisions in licensing and certification standards could have a
material adverse effect on the Company. There can be no assurance that Federal,
state or local laws or regulations will not be imposed or expanded which would
have a material adverse effect on the Company. The Company's operations are also
subject to health and other state and local government regulations.
In addition, in most states in which the Company participates in government
reimbursement programs, the Company's operations are subject to Federal and/or
state requirements or provisions which prohibit certain business practices and
relationships that might affect the provision and cost of health care services
reimbursable under Medicaid. The Company's failure to comply with the
regulations and requirements applicable to a facility could result in the
imposition of significant fines and increased costs, a revocation of the
Company's license to operate that facility, and, if sufficiently serious in
nature, the inability of the Company to maintain or obtain licenses to operate
other facilities. Any such event could have a material adverse effect on the
Company. See "Business-Government Regulation."
Federal and state anti-remuneration laws, such as the Medicare/Medicaid
anti-kickback law, govern certain financial arrangements among health care
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, certain direct and
indirect payments that are intended to induce the referral of patients to, the
arranging for services by, or the recommending of, a particular provider of
health care items or services. The Medicare/Medicaid anti-kickback law has been
broadly interpreted to apply to certain contractual relationships between health
care providers and sources of patient referral. Similar state laws vary from
state to state, are sometimes vague and seldom have been interpreted by courts
or regulatory agencies. Violation of these laws can result in loss of licensure,
civil and criminal penalties, and exclusion of health care providers or
suppliers from participation in (i.e., furnishing covered items or services to
beneficiaries of) the Medicare and Medicaid programs. It is expected that the
Company will be subject to these laws. There can be no assurance that such laws
will be interpreted in a manner consistent with the practices of the Company.
See "Business-Government Regulation."
Environmental Risks. Under various Federal, state and local environmental
laws, ordinances and regulations, a current or previous owner or operator of
real property may be held liable for the cost of removal or remediation of
certain hazardous or toxic substances, including, without limitation,
asbestos-containing materials, that could
10
<PAGE>
be located on, in or under such property. As a result, the presence, with or
without the Company's knowledge, of hazardous or toxic substances at any
property held or operated by the Company, or acquired or operated by the
Company in the future, could have an adverse effect on its business,
financial condition and results of operations. Environmental audits performed
on properties leased or managed by the Company have not revealed any
significant environmental liability that management believes would have a
material adverse effect on the Company; however, there can be no assurance
that existing environmental audits with respect to any of the properties
leased or managed by the Company have revealed all environmental liabilities.
See "Business-Government Regulation."
Liability and Insurance. The Company's business entails an inherent risk of
liability. In recent years, participants in the assisted living and long-term
care industry, including the Company, have become subject to an increasing
number of lawsuits alleging negligence or related legal theories, many of which
involve large claims and significant legal costs. The Company is from time to
time subject to such suits as a result of the nature of its business. The
Company currently maintains insurance policies in amounts and with such coverage
and deductibles as it believes are adequate, based on the nature and risks of
its business, historical experience and industry standards. The Company
currently maintains professional liability insurance and general liability
insurance. There can be no assurance that claims will not arise which are in
excess of the Company's insurance coverage or are not covered by the Company's
insurance coverage. Any successful claim against the Company not covered by, or
in excess of, the Company's insurance could have a material adverse effect on
the Company. Claims against the Company, regardless of their merit or eventual
outcome, may also have a material adverse effect on the Company's ability to
attract residents or expand its business and would require management to devote
time to matters unrelated to the operation of the Company's business. In
addition, the Company's insurance policies must be renewed annually, and there
can be no assurance that the Company will be able to continue to obtain
liability insurance coverage in the future or, if available, that such coverage
will be available on acceptable terms. See "Business-Insurance."
Dependence on Reimbursement by Third-Party Payors. A portion of the
Company's revenues from skilled nursing facility services will be dependent upon
reimbursement from third-party payors, including Medicare, state Medicaid
programs and private insurers. Furthermore, there can be no assurance that the
Company's proportionate percentage of revenue received from Medicare and
Medicaid programs will not increase or that such revenues will fully pay the
cost of providing services to residents covered by Medicare and Medicaid. The
revenues and profitability of the Company will be affected by the continuing
efforts of governmental and private third-party payors to contain or reduce the
costs of health care by attempting to lower reimbursement rates, increasing case
management review of services and negotiating reduced contract pricing. In an
attempt to reduce the Federal and certain state budget deficits, there have been
and management expects that there will continue to be, a number of proposals to
limit Medicare and Medicaid reimbursement in general. Adoption of any such
proposals at either the Federal or the state level could have a material adverse
effect on the Company.
Certain Anti-takeover Provisions. Certain provisions of the Company's
Restated Certificate of Incorporation and By-laws and of Delaware General
Corporation Law could, together or separately, discourage potential acquisition
proposals, delay or prevent a change in control of the Company and limit the
price that certain investors might be willing to pay in the future for shares of
the Common Stock. Certain of these provisions provide for a classified Board of
Directors, the issuance, without further stockholder approval, of preferred
stock with rights and privileges which could be senior to the Common Stock, the
payment of a "fair price" (or board approval by continuing directors) in
connection with certain business combinations with interested stockholders, no
right of the stockholders to call a special meeting of stockholders,
restrictions on the ability of stockholders to nominate directors and submit
proposals to be considered at stockholders' meetings, and a super-majority
voting requirement in connection with the removal of directors and the adoption
of stockholders' amendments to the By-laws. The Company also is subject to
Section 203 of the Delaware General Corporation Law which, subject to certain
exceptions, prohibits a Delaware corporation from engaging in any of a broad
range of business combinations with any "interested stockholder" for a period of
three years following the date that such stockholder became an interested
stockholder. See "Management" and "Description of Capital Stock."
Possible Volatility of Stock Price. The market price of the Common Stock
could be subject to significant fluctuations in response to various factors and
events, including the liquidity of the market for the Common Stock, variations
in the Company's operating results, new statutes or regulations or changes in
the interpretation of existing statutes or regulations affecting the health care
industry generally or assisted living companies in particular. In addition, the
stock market in recent years has experienced broad price and volume fluctuations
that often have been
11
<PAGE>
unrelated to the operating performance of particular companies. These market
fluctuations also may adversely affect the market price of the Common Stock.
Dividend Policy. The Company has never declared or paid any dividends on
its Common Stock. The Company expects to retain any earnings to finance the
operations and expansion of the Company's business. See "Price Range of Common
Stock and Dividends."
Immediate and Substantial Dilution. The purchasers of the shares of Common
Stock offered hereby will experience immediate and substantial dilution in the
net tangible book value of their shares of Common Stock in the amount of $2.85
per share. In the event the Company issues additional shares of Common Stock in
the future, including shares that may be issued in connection with future
acquisitions, purchasers of Common Stock in the Offering may experience further
dilution in the net tangible book value per share of Common Stock. See
"Dilution."
12
<PAGE>
THE COMPANY
The Standish Care Company ("Standish") was incorporated in Delaware in
October 1989. On September 27, 1996, twelve wholly owned subsidiaries of
Standish were merged into the twelve corporations comprising Pre-Merger
CareMatrix, owned primarily by Abraham, Andrew and Michael Gosman. The holders
of the common stock of Pre-Merger CareMatrix received approximately 92% of the
outstanding shares of Common Stock of the Company. The managements of Standish
and Pre-Merger CareMatrix determined that a merger of their companies would
result in a stronger enterprise with greater potential for expansion.
Furthermore, they believed that the Merger would combine a strong base of
existing facilities in attractive markets with a large number of facilities
under development or construction, strengthen the senior management team and
improve the Company's access to equity and debt capital. Following the Merger,
the Company changed its name to CareMatrix Corporation. The Merger was accounted
for as a reverse acquisition, whereby Pre-Merger CareMatrix is treated as the
acquiror for accounting purposes. Accordingly, the financial history of the
Company presented herein is that of Pre-Merger CareMatrix.
The Company's principal place of business is 197 First Avenue, Needham,
Massachusetts 02194; and its telephone number at that address is (617) 433-1000.
Unless otherwise indicated herein or required by the context, references to the
"Company" include its subsidiaries.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 31,250,000 shares of
Common Stock being offered hereby (assuming a public offering price of $4.00 per
share and after deducting the estimated underwriting discounts and commissions
and offering expenses) are estimated to be approximately $118,000,000 . The
Company intends to use the net proceeds of the Offering (i) to finance the
acquisition and development of additional assisted living and other facilities;
(ii) to repay outstanding debt to its principal stockholder (including accrued
interest) in the amount of approximately $21,450,000 at June 30, 1996 used
primarily for working capital and, to a lesser extent, incurred in connection
with the Asset Purchase, which debt bears interest at the prime rate payable on
demand and the principal of which is payable in January 1998; (iii) to redeem
the Series B Preferred Stock held by the Company's principal stockholder at a
redemption price of $1,400,000 plus accrued dividends; (iv) to pay dividends in
arrears on its Series A Preferred Stock in the amount of $214,550; and (v) for
working capital purposes. Pending use of the net proceeds of the Offering, the
Company will invest such funds in short-term and medium-term, investment grade,
interest-bearing obligations. The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Stockholder pursuant to the
exercise of the Underwriters' over-allotment option. See "Capitalization" and
"Certain Transactions."
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock is currently traded on the Nasdaq Small Cap System and is
quoted under the symbol "CRMX." All sales prices set forth below prior to
September 27, 1996 reflect the price of Standish common stock prior to the
Merger (previously quoted as "STAN"). The following table sets forth for the
periods indicated the range of high and low sales prices as reported on the
Nasdaq Small Cap System.
High Low
------- ------
Fiscal Year Ended December 31, 1994
First Quarter 6-3/4 5-3/8
Second Quarter 5-3/8 3-3/8
Third Quarter 4-1/8 2-7/16
Fourth Quarter 2-11/16 2-1/4
Fiscal Year Ended December 31, 1995
First Quarter 2-1/2 1-7/8
Second Quarter 2-1/4 2
Third Quarter 2-7/8 2-1/4
Fourth Quarter 4-1/8 2-3/8
Fiscal Year Ending December 31, 1996
First Quarter 4-7/16 2-7/8
Second Quarter 5-7/8 2-1/8
Third Quarter through September ,
1996
On , 1996, the closing price for the Common Stock as quoted on the Nasdaq
Small Cap System was $ . Prior to the Offering, however, only a limited number
of Shares have traded publicly. As of , 1996, there were approximately
stockholders of record. The Company has applied to list the Common Stock for
quotation on the Nasdaq National Market under the symbol "CRMX."
The Company has not declared or paid any cash dividends on its Common Stock
since its inception and does not currently plan to declare or pay any cash
dividends on its Common Stock in the foreseeable future. Dividends may be paid
only out of legally available funds as proscribed by statute, subject to the
discretion of the Company's Board of Directors. In addition, the Company's
ability to pay cash dividends is restricted by the provisions of its Restated
Certificate of Incorporation pertaining to the Series A Preferred Stock and the
Series B Preferred Stock, respectively. In that regard, no dividends may be paid
on any shares of Common Stock unless and until all accumulated and unpaid
dividends on both the Series A and Series B Preferred Stock have been declared
and paid in full. The Company intends to use a portion of the net proceeds of
the offering to pay the $214,550 of accrued but unpaid dividends on its Series A
Preferred Stock and to redeem all of its Series B Preferred Stock. See "Certain
Transactions" and Note Q to the Standish Consolidated Financial Statements.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June
30, 1996 (i) on a historical basis, (ii) pro forma to give effect to the Merger
and the Asset Purchase, and (iii) as further adjusted to give effect to the
Offering and the application of the net proceeds therefrom as described under
"Use of Proceeds." This table should be read in conjunction with the CareMatrix
Combined Financial Statements and the Unaudited Pro Forma Financial Information
appearing elsewhere in this Prospectus.
June 30, 1996
------------------------------------
Pro Pro Forma
Historical Forma As Adjusted
--------- -------- -----------
(in thousands)
Current portion of
long-term debt $ -- $ 2,816 $ 2,816
======= ====== =========
Long-term debt, net of
current portion $ -- $ 10,461 $ 10,461
Due to stockholder 16,992 20,292 --
------- ------ ---------
16,992 30,753 10,461
Stockholders' equity:
Series B Preferred Stock -- 1,400 --
Common Stock, par value
$.01; 125,000,000 shares
authorized; 54,330,000
shares issued and
outstanding, pro forma;
85,580,000 shares issued
and outstanding, pro forma
as adjusted (1) (2) -- 543 855
Additional paid in capital -- 14,881 132,354
Retained earnings
(accumulated deficit) (13,498) (13,498) (13,498)
------- ------ ---------
Total stockholders'
equity (deficit) (13,498) 3,326 119,711
------- ------ ---------
Total capitalization $ 3,494 $ 34,079 $130,172
======= ====== =========
- ------------
(1) Reflects change in amount of authorized shares as of September , 1996.
(2) Does not include (i) an aggregate of 2,046,596 shares of Common Stock
issuable following the completion of the Offering upon exercise or
conversion of outstanding warrants and convertible securities of the
Company, and (ii) an aggregate of 8,000,000 shares of Common Stock
reserved for issuance under the Company's stock option/equity incentive
plans of which approximately 3,400,000 have been granted at an average
exercise price of approximately $2.90 per share. See "Management,"
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."
15
<PAGE>
DILUTION
The Company's pro forma net tangible book value (deficit) as of June 30,
1996 was $(18,182,000) or $(0.33) per share. Pro forma net tangible book value
(deficit) per share is determined by dividing the net tangible book value
(tangible assets less liabilities) of the Company (giving effect to the Merger)
by the number of shares of Common Stock outstanding at that date. Assuming the
receipt by the Company of the net proceeds from the sale of 31,250,000 shares of
Common Stock offered hereby at an assumed offering price of $4.00 per share, the
adjusted pro forma net tangible book value of the Company as of June 30, 1996
would have been $98,203,000 or $1.15 per share. This represents an immediate
increase in pro forma net tangible book value of $1.48 per share to existing
stockholders and an immediate dilution of $2.85 per share to new investors. The
following table illustrates this dilution per share:
Assumed public offering price per share $4.00
Pro forma net tangible book value (deficit)
per share $(0.33)
Increase per share attributable to the Offering 1.48
----
Adjusted pro forma net tangible book value per
share after the offering 1.15
----
Dilution to new investors $2.85
====
16
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
In connection with the Merger Agreement, Standish issued 50,000,000 shares
of Standish common stock in exchange for all the outstanding shares of common
stock of Pre-Merger CareMatrix. The Merger was accounted for as a reverse
acquisition, whereby Pre-Merger CareMatrix is the acquiror for accounting
purposes. Accordingly, the financial history presented is that of Pre-Merger
CareMatrix. Therefore, the CareMatrix Unaudited Pro Forma Combined Statements of
Operations for the year ended December 31, 1995 and the six months ended June
30, 1996 present the CareMatrix Combined Statements of Operations for the year
ended December 31, 1995 and the six months ended June 30, 1996 adjusted for the
sale of Common Stock offered hereby and the application of the net proceeds
therefrom and the following effects of the Merger: (i) increased amortization
resulting from goodwill generated in the purchase accounting treatment of the
Merger, (ii) increased depreciation from the recording of Standish fixed assets
at fair market value, (iii) increased compensation expense to reflect new
employment agreements, and (iv) increased amortization and depreciation to
reflect the Asset Purchase as if it had occurred on January 1, 1995. The
CareMatrix Unaudited Pro Forma Combined Balance Sheet as of June 30, 1996,
presents the CareMatrix Combined Balance Sheet as of June 30, 1996, adjusted for
the sale of Common Stock offered hereby and the application of the net proceeds
therefrom and the following effects of the Merger: (i) the value of the common
stock deemed to be issued by the accounting acquiror, (ii) the purchase
adjustments, including goodwill generated in the purchase accounting treatment
of the Merger, (iii) equity and debt transactions of Standish that occurred in
July 1996 subsequent to the June 30, 1996 balance sheet and (iv) the Asset
Purchase.
The CareMatrix Unaudited Pro Forma Combined Financial Statements do not
purport to be indicative of the results of operations that actually would have
occurred had the Merger and Offering taken place on January 1, 1995, or that may
be expected to occur in the future. The CareMatrix Unaudited Pro Forma Combined
Financial Statements should be read in conjunction with the CareMatrix Combined
Financial Statements and the Standish Consolidated Financial Statements included
elsewhere in this Prospectus.
17
<PAGE>
CAREMATRIX
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
June 30, 1996
(in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Offering Pro Forma
CareMatrix Standish Adjustments Forma Adjustments As Adjusted
--------- ------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash $ 2,028 $ 356 $ 500((1))
equivalents 400((2)) $ 3,284 $ 94,935((6)) $ 98,219
Accounts
receivable, net 939 177 1,116 1,116
Prepaid
expenses and
other current
assets 318 803 1,121 1,121
------- ----- -------- ------ -------- ---------
Total current
assets 3,285 1,336 5,521 100,456
Property, plant
& equipment, 1,444 10,916 1,667((4))
net 500((5)) 14,527 14,527
Note receivable 770 770 770
Goodwill and
other
intangibles, 1,661 17,047((4))
net 2,800((5)) 21,508 21,508
Other assets 523 1,615 2,138 2,138
------- ----- -------- ------ -------- ---------
Total assets $ 6,022 $ 15,528 $ 44,464 $139,399
======= ===== ======== ====== ======== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current
liabilities
Accounts
payable and
accrued
expenses $ 841 $ 1,081 $ 2,250((4)) $ 4,172 $ 4,172
Accrued
interest--
stockholder 1,158 1,158 (1,158)((6)) 0
Current portion
of long-term 3,316 500((1))
debt (1,000)((2)) 2,816 2,816
Other current
liabilities 413 413 413
------- ----- -------- ------ -------- ---------
Total current
liabilities 1,999 4,810 8,559 7,401
Due to
stockholder 16,992 3,300((5)) 20,292 (20,292)((6)) 0
Long-term debt 10,461 10,461 10,461
Other long-term
liabilities 529 521 667((4)) 1,717 1,717
Minority
interest 109 109 109
Stockholders'
equity:
Preferred stock 920 1,400((2))
(920)((7)) 1,400 (1,400)((6)) 0
Common stock 35 543((3))
(35)((7)) 543 312((6)) 855
Additional
paid-in capital 8,964 14,881((3))
(8,964)((7)) 14,881 117,688((6))
(215)((6)) 132,354
Accumulated
deficit (13,498) (10,292) 10,292((7)) (13,498) (13,498)
------- ----- -------- ------ ---------
Total
stockholders'
equity
(deficit) (13,498) (373) 3,326 119,711
------- ----- ------ ---------
Total
liabilities
and
stockholders'
equity $ 6,022 $ 15,528 $ 44,464 $139,399
======= ===== ====== =========
</TABLE>
See accompanying notes to the Pro Forma Combined Financial Statements.
18
<PAGE>
CAREMATRIX
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the six months ended June 30, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Offering Pro Forma
CareMatrix Standish Adjustments Forma Adjustments As Adjusted
--------- ------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 2,389 $4,670 $ 7,059 $ 7,059
Operating costs
and expenses
Salaries, wages
and benefits 1,575 53((3)) 1,628 1,628
Salaries, wages
and benefits--
related party 1,406 1,406 1,406
Community
operating
expense 3,209 3,209 3,209
Community rent
expense 304 304 304
Selling,
general and
administrative
expense 931 931 931
Depreciation
and
amortization
expense 65 393 341((1))
64((2))
56((4)) 919 919
Other operating
expenses 2,007 186 2,193 2,193
Other--related
party expense 538 538 538
------- ----- -------- ------ -------- ---------
Total
operating costs
and expenses 5,591 5,023 11,128 11,128
Interest income (24) (29) (53) (53)
Interest expense 559 823 1,382 (559)((6)) 823
Other (743) (743) (743)
------- ----- ------ ---------
Loss $(3,737) $ (404) $(4,655) (4,096)
======= ===== ====== =========
Loss per common
share $(0.09) $(0.05)
Shares
outstanding 54,330((5)) 85,580((7))
</TABLE>
See accompanying notes to the Pro Forma Combined Financial Statements
19
<PAGE>
CAREMATRIX
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Pro Offering Pro Forma
CareMatrix Standish Adjustments Forma Adjustments As Adjusted
--------- ------- ---------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 2,485 $ 8,436 $ 10,921 $ 10,921
Operating costs
and expenses
Salaries, wages
and benefits 2,100 105((3)) 2,205 2,205
Salaries, wages
and benefits--
related party 2,123 2,123 2,123
Community
operating
expense 5,961 5,961 5,961
Community rent
expense 616 616 616
Selling,
general and
administrative
expense 2,347 2,347 2,347
Depreciation
and
amortization
expense 3 680 682((1))
127((2))
112((4)) 1,604 1,604
Provision for
closure loss 895 895 895
Other operating
expenses 3,009 336 3,345 3,345
Other--related
party expense 1,017 1,017 1,017
------- ----- ------ ---------
Total
operating costs
and expenses 9,147 9,940 20,113 20,113
Interest income (153) (153) (153)
Interest expense 544 1,500 2,044 (544)((6)) 1,500
Assignment fee
from related
party (1,000) (1,000) (1,000)
Other 442 442 442
------- ----- ------ ---------
Loss $(7,206) $(2,293) $(10,525) $ (9,981)
======= ===== ====== =========
Loss per common
share $(0.19) $(0.12)
Shares
outstanding 54,330((5)) 85,580((7))
</TABLE>
See accompanying notes to the Pro Forma Combined Financial Statements
20
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(dollar amounts in thousands)
Notes to Unaudited Pro Forma Combined Balance Sheet
(1) To record the $500 of proceeds received by Standish on July 10, 1996
pursuant to a $1,000 promissory note.
(2) To record the issuance of $1,400 of Series B Preferred Stock by
Standish on July 30, 1996 and the repayment of a $1,000 promissory note
with the proceeds.
(3) To record the 4,330,000 shares issued at a value of $15,424 by
CareMatrix in consideration for Standish and the related merger costs
(assumes conversion of all Series A Preferred Stock into Common Stock).
(4) To adjust the assets and liabilities of Standish to their estimated
fair value and to recognize other liabilities in connection with the
purchase transaction:
Net assets of Standish at June 30, 1996 $ (373)
Writeup of fixed assets to fair market value 1,667
Tax effect of fixed asset writeup (667)
Provision for the cost of closing or subleasing
certain Standish facilities and the write off of
related fixed assets (1,750)
Acquisition costs (500)
Goodwill recorded 17,047
------
$15,424
======
(5) To record the purchase from a related party of management contracts
for $2,800 and fixed assets for $500 by CareMatrix in July 1996.
(6) Reflects the issuance of 31,250,000 shares of Common Stock and the use
of net offering proceeds ($118,000 net of underwriting fees and expenses)
to pay amounts Due to stockholder including accrued interest, to redeem
the Series B Preferred Stock, and to pay unpaid cumulative preferred stock
dividends on the Series A Preferred Stock as follows:
Net proceeds to CareMatrix $118,000
Repay Due to stockholder (20,292)
Repay accrued interest due to stockholder (1,158)
Redeem Series B Preferred Stock (1,400)
Pay cumulative preferred stock dividends
on the Series A Preferred Stock (215)
-------
Net increase in cash $ 94,935
=======
(7) To eliminate Standish equity accounts in conjunction with purchase
accounting.
Notes to Unaudited Pro Forma Combined Statements of Operations
(1) To reflect the amortization of goodwill over a period of 25 years.
(2) To adjust depreciation expense to reflect the writeup of fixed assets
to fair market value and the purchase of additional fixed assets as
follows:
Depreciation Expense
Adjustments
------------------------
Six
Year Months
Ended Ended
December June
Depreciable 31, 30,
Item Amounts Lives 1995 1996
---------------------- --- ------ ------- ------
Assets written up to
fair market value $1,667 30 $ 56 $28
Fixed assets acquired
from a related party 500 7 71 36
-------- --------
Total $127 $64
======== ========
21
<PAGE>
Notes to Unaudited Pro Forma Combined Statements of Operations (Continued)
(3) Increased compensation expense to reflect new employment agreements
signed at the time of the transaction.
(4) To reflect the amortization of management contracts purchased in July
1996 over the lives of the contracts (25 years).
(5) Reflects CareMatrix's 50,000,000 shares and the 4,330,000 shares
issued by CareMatrix in consideration for Standish and the related merger
costs.
(6) Reflects the reduction of interest expense resulting from the use of
Offering proceeds to pay amounts Due to stockholder.
(7) Reflects the issuance of 31,250,000 shares of Common Stock pursuant to
the Offering.
22
<PAGE>
SELECTED COMBINED FINANCIAL DATA OF THE COMPANY
(in thousands, except per share data)
The following table sets forth the historical combined financial
information of the Company and pro forma financial information to give effect to
the Merger of Pre-Merger CareMatrix and Standish, the Asset Purchase and the
sale of the Common Stock offered hereby at an assumed public offering price of
$4.00 per share. The Merger of Pre-Merger CareMatrix and Standish was accounted
for as a reverse acquisition, whereby Pre-Merger CareMatrix is the acquiror for
accounting purposes. Accordingly, the financial history presented is that of
Pre-Merger CareMatrix. The pro forma financial information was prepared to
illustrate the effects of the Merger, the Asset Purchase and the Offering. The
pro forma financial information does not purport to be indicative of the results
of operations which actually would have occurred had the Merger, the Asset
Purchase and Offering taken place on January 1, 1995, or which may be expected
to occur in the future. The pro forma financial information should be read in
conjunction with the CareMatrix Combined Financial Statements, the Standish
Consolidated Financial Statements and the Unaudited Pro Forma Financial
Information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Pro Forma
Historical((1)) Pro Forma((2)) As Adjusted((3))
-------------------------------- ------------------- ---------------------
June 24,
1994 Six Six
(Inception) Year Months Year Months Year Six
to Ended Ended Ended Ended Ended Months
December December June December June December Ended
31, 31, 30, 31, 30, 31, June 30,
1994 1995 1996 1995 1996 1995 1996
-------- -------- ------- -------- ------- -------- ---------
(Audited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations
Data:
Net revenues $ 366 $ 2,485 $ 2,389 $ 10,921 $ 7,059 $10,921 $ 7,059
Operating costs
and expenses 2,865 9,147 5,591 20,113 11,128 20,113 11,128
------- ------- ------- -------- ------- ------- -------
Loss from
operations (2,499) (6,662) (3,202) (9,192) (4,069) (9,192) (4,069)
Interest income (24) (153) (53) (153) (53)
Interest expense 56 544 559 2,044 1,382 1,500 823
Other -- -- -- (558) (743) (558) (743)
------- ------- ------- -------- ------- ------- -------
Loss (4) $(2,555) $(7,206) $(3,737) $(10,525) $(4,655) $(9,981) $(4,096)
======= ======= ======= ======== ======= ======= =======
Pro forma loss
per share $(0.19) $(0.09) $(0.12) $(0.05)
Shares
outstanding 54,330 54,330 85,580 85,580
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------
1994 1995 June 30, 1996
------- -------- ------------------------------------------
Pro Forma
Pro As
Historical((1)) Historical((1)) Forma((5)) Adjusted((6))
-------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
(Audited) (Unaudited) (Unaudited) (Unaudited)
Balance Sheet
Data:
Cash and cash
equivalents $ 2 $ 145 $ 2,028 $ 3,284 98,219
Working capital
(deficit) 174 (691) 1,286 (3,038) 93,055
Total assets 330 2,410 6,022 44,464 139,399
Long-term debt,
less current
maturities (7) 2,730 9,661 16,992 30,753 10,461
Stockholders'
equity
(deficit) (2,555) (9,762) (13,498) 3,326 119,711
</TABLE>
((1)) The historical combined financial data represent the combined financial
position and results of operations for the Company for the periods
presented.
((2)) Gives effect to the Merger and the Asset Purchase as if such
transactions had occurred on January 1, 1995. See "Unaudited Pro Forma
Financial Information."
((3)) Gives effect to (i) the Merger and the Asset Purchase and (ii) the sale
of Common Stock offered hereby (assuming a public offering price of
$4.00 per share) and the application of the net proceeds therefrom, as
if such transactions had occurred on January 1, 1995. See "Use of
Proceeds" and "Unaudited Pro Forma Financial Information."
((4)) Provisions for income taxes have not been reflected in these combined
financial statements since there is no taxable income on a combined
basis. See Note 2 to the CareMatrix Combined Financial Statements.
((5)) Adjusted to give effect to the Merger and the Asset Purchase as if such
transactions had occurred on June 30, 1996. See "Unaudited Pro Forma
Financial Information."
((6)) Adjusted to give effect to (i) the Merger and the Asset Purchase and
(ii) the sale of Common Stock offered hereby (assuming a public
offering price of $4.00 per share) and the application of the net
proceeds therefrom as if such transactions had occurred on June 30,
1996. See "Use of Proceeds" and "Unaudited Pro Forma Financial
Information."
((7)) Includes debt due to stockholder.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY
General
On September 27, 1996, the Company consummated the Merger. In the Merger,
Standish, as the surviving company in the Merger, acquired all of the assets and
operations of Pre-Merger CareMatrix and issued 50,000,000 shares of its Common
Stock to the stockholders of Pre-Merger CareMatrix. The Merger was treated as a
"reverse acquisition" for accounting purposes, with Pre-Merger CareMatrix
treated as the accounting acquiror, even though Standish was the survivor for
legal purposes. In a reverse acquisition, the accounting acquiror is treated as
the surviving entity even though Standish's legal existence does not change and
the financial statements of the Company reflect the historical financial
statements of Pre-Merger CareMatrix. The Company, as the accounting acquiror,
treats the Merger as a purchase acquisition. The Merger was recorded using the
historical cost basis for the assets and liabilities of Pre-Merger CareMatrix,
and the estimated fair value of Standish's assets and liabilities.
Results of Operations
The following discussion reviews the results of operations for the period
from June 24, 1994 (inception) to December 31, 1994 (the "1994 Period"), the
year ended December 31, 1995 and the six months ended June 30, 1996 (the "1996
Period"), respectively.
The CareMatrix Combined Financial Statements and the Notes thereto included
elsewhere in this Prospectus present the results of operations of the entities
that have been operated under common control on a combined basis. All of the
operations of the Company began subsequent to June 23, 1994. As a result, the
Company believes that any period to period comparisons and percentage
relationships within periods are not meaningful.
Revenues
During the 1994 Period, the year ended December 31, 1995 and the 1996
Period, the Company derived revenues from one or more of the following services:
the operation of an inpatient extended care facility in Maryland; the operation
of an outpatient rehabilitation facility in Georgia; and the management of two
inpatient extended care facilities in Florida.
Net revenues were $0.4 million for the 1994 Period and consisted of
revenues attributable to outpatient rehabilitation services. The Company
purchased the outpatient rehabilitation facility during November 1994.
Net revenues for the year ended December 31, 1995 were $2.5 million. Such
revenues during this period consisted of $1.1 million or 44% related to
outpatient rehabilitation services; and $1.4 million or 56% related to inpatient
nursing services. The Company operated the outpatient rehabilitation facility
for ten months during 1995 until its closure during November 1995. The inpatient
nursing facility revenues were for the period August 15, 1995 (date of lease
inception) to December 31, 1995 for a 138-bed extended care facility in Silver
Spring, Maryland.
Net revenues for the 1996 Period were $2.4 million. Such revenues during
this period consisted of $2.2 million or 92% related to inpatient nursing
services; and $0.2 million or 8% related to the management of extended care
facilities. The Company entered into two management agreements during December
1995 for the provision of management services to extended care facilities in
Homestead, Florida and Miami, Florida.
General Corporate Expenses
For the 1994 Period, the year ended December 31, 1995 and the 1996 Period,
expressed as a percentage of net revenues, general corporate expenses were 447%,
175% and 114%, respectively. General corporate expenses represent primarily
salaries, wages and benefits and professional fees for administration, marketing
and facility development of the Company. General corporate expenses will
continue to increase in absolute terms, but this expense as a percentage of net
revenues is expected to continue to decline. Historically, these expenses have
been paid to a related party, Continuum Care of Massachusetts, Inc. in the form
of management fees. Following the Merger, the Company's reliance on Continuum
Care of Massachusetts, Inc. for personnel and services has been significantly
reduced.
24
<PAGE>
Facility Operating Expenses
For the 1994 Period, the year ended December 31, 1995 and the 1996 Period,
expressed as a percentage of net revenues, facility operating expenses were
324%, 185% and 115%, respectively. Included in facility operating expenses for
the 1994 Period is a $0.8 million charge recorded to writedown assets at the
outpatient rehabilitation facility to their net realizable value. Included in
facility operating expenses for the year ended December 31, 1995 is a $0.9
million charge recorded to provide for the remaining lease obligation at the
outpatient rehabilitation facility. Facility operating expenses also include
rent expense of $45,868, $0.6 million and $0.5 million for the 1994 period, the
year ended December 31, 1995 and the 1996 Period, respectively. The change in
rent expense is attributable primarily to the ten year lease entered into during
August 1995 for the extended care facility in Silver Spring, Maryland.
Depreciation and Amortization
The Company's depreciation and amortization expense was $3,603, $2,931 and
$65,164 for the 1994 Period, the year ended December 31, 1995 and the 1996
Period, respectively. The increase in depreciation represents depreciation on
the $1.5 million invested in capital improvements from August 15, 1995 (date of
lease inception) on the 138-bed extended care facility in Silver Spring,
Maryland.
Interest Expense
The Company's interest expense was $55,856, $0.5 million and $0.6 million
for the 1994 period, the year ended December 31, 1995 and the 1996 Period,
respectively. The increase in interest expense results from the interest payable
at the prime rate on additional advances from the principal stockholder.
Liquidity and Capital Resources
Cash used by operating activities was $3.9 million for the 1996 Period and
is primarily attributable to the loss of $3.7 million for the 1996 Period. Cash
used by operating activities was $6.0 million for the year ended December 31,
1995 and primarily represents the loss of $7.2 million offset by the $0.9
million accrual for the remaining lease obligation at the outpatient
rehabilitation facility. Cash used by operating activities was $2.0 million for
the 1994 Period and primarily represents the $2.6 million loss offset by the
$0.8 million charge recorded to write-down assets at the outpatient
rehabilitation facility to their net realizable value.
Cash used by investing activities was $1.5 million for the 1996 Period.
This primarily represents the $0.8 million used by the Company for capital
expenditures for the 138-bed extended care facility in Silver Spring, Maryland
and the $0.7 million note receivable advanced pursuant to a management agreement
with an extended care facility in Miami, Florida. Cash used by investing
activities was $0.7 million for the year ended December 31, 1995 and primarily
represents capital expenditures for the 138-bed extended care facility in Silver
Spring, Maryland.
Cash used by investing activities was $0.7 million for the 1994 Period and
primarily represents the cash required to purchase an outpatient rehabilitation
facility in Atlanta, Georgia. Cash provided by financing activities was $2.7
million, $6.9 million and $7.3 million for the 1994 Period, the year ended
December 31, 1995 and the 1996 Period, respectively, and represents the advances
from the principal stockholder.
At June 30, 1996, the Company's principal source of liquidity consisted of
$2.0 million in cash. The Company also had $2.0 million of current liabilities
(which includes approximately $1.2 million of interest due to the principal
stockholder). The Company intends to seek additional financing from Abraham D.
Gosman to the extent necessary for working capital purposes prior to the
Offering, although Mr. Gosman is under no obligation to provide such additional
financing indefinitely. It is expected that once the Offering is completed,
Abraham D. Gosman will no longer provide funding for the Company. All loans from
Mr. Gosman bear interest at a rate equal to the prime rate.
On a pro forma basis after the Merger and Offering and the application of
the net proceeds of the Offering as set forth in "Use of Proceeds," the Company
will have working capital of $93.1 million (including cash and cash equivalents
of $98.2 million). In addition, the Company will have $10.5 million of long-term
debt.
The Company will require resources in the future to fund the planned
acquisition and development of additional assisted living, supportive
independent and extended care facilities as well as its working capital
requirements. The Company expects to fund these resource requirements with the
net proceeds from the Offering and related party or third party financing of
certain assisted living facilities. Furthermore, the Company intends to seek
bank borrowings and other debt or equity offerings to provide additional sources
of capital in the future. See "Risk Factors--Need for Additional Financing."
25
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF STANDISH
The Merger of Pre-Merger CareMatrix and Standish was accounted for as a
reverse acquisition, whereby Pre-Merger CareMatrix is deemed the acquiror for
accounting purposes. The following selected financial data for Standish are
included herein as a predecessor company of Pre-Merger CareMatrix within the
meaning of the applicable regulations of the Commission.
<TABLE>
<CAPTION>
Six Months Ended June
Year Ended December 31, 30,
------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1995 1996
-------- --------- --------- --------- --------- --------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Service revenue $ 20,494 $ 688,546 $ 1,193,287 $ 6,126,883 $ 7,701,951 $ 3,517,717 $4,380,316
Management fees
and marketing
revenue 98,200 287,224 440,707 276,529 511,831 304,811 213,152
Development
fees and other
revenue 83,422 30,333 97,091 305,197 222,100 158,000 76,500
------- ------- ------- ------- ------- ------- ---------
202,116 1,006,103 1,731,085 6,708,609 8,435,882 3,980,528 4,669,968
------- ------- ------- ------- ------- ------- ---------
Operating costs and
expenses:
Community
operating
expense 162,009 1,179,011 1,013,096 5,042,334 5,960,638 2,749,877 3,208,438
Community rent
expense -- -- -- 406,898 615,580 271,688 304,230
Selling,
general and
admin. expense 651,892 1,397,020 1,512,861 2,509,426 2,347,034 1,156,127 930,804
Depreciation
and amortization 22,182 369,623 283,351 693,385 679,621 320,747 393,269
Provision for
doubtful
accounts -- 132,256 240,000 338,112 74,125 -- --
Severance costs -- -- -- -- 263,413 -- --
Transaction
termination
costs -- -- -- -- -- -- 186,352
Write-off of
investments in
development
projects -- -- -- 832,703 -- -- --
------- ------- ------- ------- ------- ------- ---------
Total operating
costs and
expenses 836,083 3,077,910 3,049,308 9,822,858 9,940,411 4,498,439 5,023,093
------- ------- ------- ------- ------- ------- ---------
Loss from
operations (633,967) (2,071,807) (1,318,223) (3,114,249) (1,504,529) (517,911) (353,125)
Interest expense (168,028) (912,524) (351,518) (1,109,422) (1,500,458) (678,322) (823,524)
Interest income 44,108 145,219 41,872 20,281 153,115 81,232 28,618
Write-off of
financing
costs and other
related costs -- -- -- -- (528,257) -- --
Assignment fee
from related party -- -- -- -- 1,000,000 -- --
Gain on sale of
bonds -- -- 158,000 -- -- -- --
Gain on sale of
land -- -- 376,167 -- -- -- --
Gain on sale of
interest
in affiliate -- 1,556,733 -- -- -- -- --
Other income -- -- -- -- -- -- 696,249
Minority
interest 97,637 -- -- 31,400 86,630 49,941 48,002
------- ------- ------- ------- ------- ------- ---------
Loss before
income taxes $(660,250) $(1,282,379) $(1,093,702) $(4,171,990) $(2,293,499) $(1,065,060) $ (403,780)
------- ------- ------- ------- ------- ------- ---------
26
<PAGE>
Six Months Ended June
Year Ended December 31, 30,
------------------------------------------------------------ ------------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ---------
(unaudited)
Provision for
income taxes -- -- (1,300) -- -- -- --
------- ------- ------- ------- ------- ------- ---------
Net loss $ (660,250) $(1,282,379) $(1,095,002) $(4,171,990) $(2,293,499) $(1,065,060) $ (403,780)
=========== =========== =========== =========== =========== =========== ===========
Net loss per
common share $(1.05) $(1.02) $(0.95) $(1.81) $(0.71) $(0.33) $(0.13)
Weighted average
number of
common shares
outstanding 630,148 1,261,379 1,442,718 2,462,785 3,393,026 3,395,152 3,439,272
December 31, June 30,
---------------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- ---------
(unaudited)
Balance sheet
data:
Total assets $11,452,880 $ 3,505,295 $13,656,778 $13,418,954 $15,974,831 $17,600,249 $15,528,075
Convertible debt 231,000 -- -- 895,000 2,000,000 -- --
Long-term debt 10,266,120 1,375,217 5,652,177 7,544,911 10,457,003 12,675,678 10,461,569
Stockholder's
equity
(deficit) (429,292) 926,782 6,064,680 2,327,301 17,634 1,210,882 (372,637)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF STANDISH
Overview
Organized in October 1989, Standish operates assisted living communities
throughout the eastern United States and provides management, marketing,
development and other services to third party owners of assisted living
communities. Standish has achieved significant growth in revenues, primarily by
acquiring existing senior living communities and by providing management,
marketing, development and other services to communities owned by third parties.
Prior to the Merger, Standish operated ten communities for its own account with
a resident capacity of 516, and provided managing and marketing services for
four communities with a resident capacity of 385.
On March 25, 1996, Standish received approximately $825,000 in back
management fees, prior investments and advances in connection with the
refinancing and sale by a third party owner of the Fox Ridge Manor community
located in Dover, Pennsylvania. Standish recorded a gain of approximately
$596,000 related to this transaction in the first quarter of 1996. That
community had been owned by Senior Lifestyles, Inc. ("SLI"), a third party, and
Standish had managed that community for SLI since July 1992. Standish has been
retained by the new owner, Northwood Retirement Community, Inc. ("Northwood"), a
Pennsylvania not-for-profit corporation, to manage the Fox Ridge community under
a three year management agreement (with two 1 year renewable options). Standish
expects to receive management fees in a fixed monthly amount of approximately
$5,200 plus an additional incentive management fee of approximately 2% of
monthly operating revenues during the term of its new management agreement.
Under certain circumstances, the fixed and incentive management fees may be
subordinate to payments due certain holders of bonds issued in connection with
the acquisition of Fox Ridge by the new owner. In connection with these
transactions, SLI bonds in the face amount of $900,000 (the "Group A SLI Bonds")
resold by Standish to an investor group in 1993 and guaranteed by Standish as to
the payment of interest and principal, were refinanced and exchanged for new
subordinated 1996 Series C Bonds in the face amount of $800,000. Of these bonds,
$750,000 face amount are held for the benefit of the investor group and $50,000
are held for the benefit of Standish. Standish has provided credit enhancement
commitments to the investor group with respect to the $750,000 1996 Series C
bonds. See Notes C, G and R to the Standish Consolidated Financial Statements.
The results of operations for the six month period ended June 30, 1996
include the accounts of Standish, Bailey Retirement Center, Inc. ("Bailey"), an
assisted living community in Gainesville, Florida that Standish acquired in July
1992, Dominion Villages, Inc. ("Dominion"), a chain of three assisted living
communities in the Tidewater, Virginia area which Standish acquired in November
1993, Lowry Village, Inc. ("Lowry"), a stand-alone Alzheimer's facility in
Tampa, Florida which Standish acquired in January 1994, Piedmont Villages, Inc.
("Piedmont"), a chain of three assisted living facilities in North Carolina that
Standish acquired in March 1994, Bailey Home Suites ("Bailey Suites"), an
assisted living community in Gainesville, Florida that Standish began leasing in
September 1994 and Lakes Region, L.L.C. ("Sunny Knoll"). Standish and Emeritus
Corporation ("Emeritus"), through a
27
<PAGE>
limited liability company, acquired 51% and 49% ownership interests,
respectively, in the Sunny Knoll community located in Franklin, New Hampshire
in May 1995.
The results of operations for the six month period ended June 30, 1995
include the accounts of Standish, Bailey, Dominion, Lowry, Piedmont and Bailey
Suites. The results of operations also include the accounts of Sunny Knoll for
the period May 1, 1995 to June 30, 1995.
The following table sets forth the approximate percentage of Standish's
total revenues represented by certain items from Standish's consolidated
statement of operations for the respective periods presented:
Year Ended Six Months
December 31, ended June 30,
1995 1994 1993 1995 1996
----- ----- ----- ----- -------
Revenues:
Service revenue 91.3% 91.3% 68.9% 88.4% 93.8%
Management fees and
marketing revenue 6.1 4.1 25.5 7.7 4.6
Development fees and
other revenue 2.6 4.6 5.6 3.9 1.6
--- --- --- --- -----
Total revenues 100.0 100.0 100.0 100.0 100.0
Operating costs and
expenses:
Community operating
expense 70.7 75.2 58.5 69.1 68.7
Community rent expense 7.3 6.1 -- 6.8 6.6
Selling, general and
administrative expense 27.8 37.4 87.4 29.0 19.9
Transaction termination
costs -- -- -- -- 4.0
Depreciation and
amortization expense 8.1 10.3 16.4 8.1 8.4
Provision for corporate
doubtful accounts 0.9 5.0 13.9 -- --
Severance costs 3.1 -- -- -- --
Write-off of investment
in development projects -- 12.4 -- -- --
--- --- --- --- -----
Total operating costs
and expenses 117.9 146.4 176.2 113.0 107.6
--- --- --- --- -----
Income (loss) from
operations (17.9) (46.4) (76.2) (13.0) (7.6)
Interest expense (17.7) (16.5) (20.3) (17.1) (17.6)
Interest income 1.8 0.3 2.4 2.0 0.6
Other income -- -- -- -- 15.0
Write-off of financing
costs and other related
costs (6.3) -- -- -- --
Assignment fee from
related party 11.9 -- -- -- --
Gain on sale of bonds -- -- 9.1 -- --
Gain on sale of land -- -- 21.7 -- --
Minority interest 1.0 0.4 -- 1.3 1.0
--- --- --- --- -----
Income (loss) before
income taxes (27.2) (62.2) (63.3) (26.8) (8.6)
=== === === === =====
Results of Operations
Six Months Ended June 30, 1996 Compared to the Six Months Ended June 30, 1995
Revenues
Revenues for the six month period ended June 30, 1996 were $4,670,000,
representing an increase of $689,000, or 17%, from revenues of approximately
$3,981,000 in the comparable period in 1995.
Service revenue for the six month period ended June 30, 1996 was
$4,380,000, representing an increase of $862,000, or 25%, from service revenue
of $3,518,000 in the comparable period in 1995. Of this increase, $369,000 was
attributable to service revenue for the Sunny Knoll community acquired by
Standish in May 1995 and thus not fully reflected in Standish's results for the
first two quarters of 1995. The $493,000 balance of this increase in service
revenue was primarily attributable to higher service revenues at certain of the
communities operated by Standish throughout the period, primarily due to
increased resident census and higher average service fee rates at these
communities.
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Management fees and marketing revenue for the six month period ended June
30, 1996 was $213,000, representing a decrease of $92,000, or 30%, from
management fees and marketing revenue of $305,000 in the comparable period in
1995. The higher management fees and marketing revenue during the 1995
comparable period was attributable primarily to $100,000 of management fee
revenue Standish recorded during the second quarter of 1995 related to Crystal
Cove, a senior living community in Florida. These management fees reflect a
partial recovery of $132,000 of management fees related to Crystal Cove which
Standish had written off in 1992. Standish resigned as manager of Crystal Cove
during the second quarter of 1995.
Development fees and other revenue for the six month period ended June 30,
1996 was $77,000, representing a decrease of $81,000, or 51%, from development
fees and other revenue of $158,000 in the comparable period in 1995. Development
fees and other revenue for the six month period ended June 30, 1996 was
primarily comprised of fees associated with one assisted living community being
developed in Cambridge, Massachusetts while development fees and other revenue
in the comparable period in 1995 was primarily related to fees associated with
assisted living communities being developed in Pikesville, Maryland, Cambridge,
Massachusetts and the Laurelmead community which was co-developed by Standish
and Cornish Realty Associates, L.P. ("Cornish") in Providence, Rhode Island.
Community Operating Expense
Community operating expense for the six month period ended June 30, 1996
was $3,208,000, representing an increase of $458,000, or 17%, from community
operating expense of $2,750,000 in the comparable period in 1995. As a
percentage of service revenue, community operating expense decreased to 73.2%
for the six month period ended June 30, 1996, versus 78.2% in the comparable
period in 1995. Of the increase in the amount of community operating expense,
$255,000 was attributable to community operating expense for the Sunny Knoll
community acquired by Standish in May 1995 and thus not fully reflected in
Standish's results for the first two quarters of 1995. The $203,000 remaining
increase in community operating expense was primarily attributable to increased
community operating expense at Standish's Piedmont and Bailey communities. The
increase in community operating expense at Piedmont was primarily due to an
increase in census while the increase at Bailey was primarily due to increases
in staffing.
Community Rent Expense
Community rent expense represents lease payments Standish is required to
make under operating leases at its Piedmont Villages and Bailey Suites
communities. Community rent expense for the six month period ended June 30, 1996
was $304,000, representing an increase of $32,000, or 12%, from community rent
expense of $272,000 in the comparable period in 1995. As a percentage of service
revenue, community rent expense decreased to 6.9% for the six month period ended
June 30, 1996, versus 7.7% in the comparable period in 1995. The increase in the
amount of community rent expense is primarily due to increased lease advances in
connection with the expansion of Standish's Statesville, North Carolina
community. The decrease in community rent expense as a percentage of service
revenue was primarily due to the allocation of these expenses over increased
levels of total revenues for the first two quarters of 1996.
Selling, General and Administrative Expense
Selling, general and administrative expense for the six month period ended
June 30, 1996 was $931,000, representing a decrease of $225,000, or 19%, from
selling, general and administrative expense of $1,156,000 in the comparable
period in 1995. As a percentage of total revenues, selling, general and
administrative expense decreased to 19.9% for the six month period ended June
30, 1996, versus 29.0% in the comparable period in 1995. The decrease in the
amount of selling, general and administrative expense for the six month period
ended June 30, 1996 versus the comparable period in 1995 was due primarily to
decreases in salaries, recruitment costs, consulting costs, marketing and public
relations costs and travel and related costs. The decrease in selling, general
and administrative expense as a percentage of total revenues was due to reduced
spending and the allocation of these expenses over increased levels of total
revenues for the first two quarters of 1996.
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<PAGE>
Transaction Termination Costs
Transaction termination costs were $186,000 for the six month period June
30, 1996. These costs represent legal, accounting, travel and other related
costs primarily associated with the proposed merger between Integrated Health
Services, Inc. ("IHS") and Standish. In February 1996, IHS informed Standish
that it was terminating their business combination discussions. Transaction
termination costs also include legal, accounting, travel and other related costs
associated with the proposed merger between Emeritus and Standish. In May 1996,
Standish informed Emeritus that it was terminating those merger discussions.
Standish and Emeritus could not agree on an exchange ratio.
Depreciation and Amortization Expense
Depreciation and amortization expense for the six month period ended June
30, 1996 was approximately $393,000, representing an increase of $72,000, or
22%, from depreciation and amortization expense of $321,000 in the comparable
period in 1995. As a percentage of total revenues, depreciation and amortization
expense increased to 8.4% for the six month period ended June 30, 1996, versus
8.1% in the comparable period in 1995. Of the increase in the amount of
depreciation and amortization expense, $34,000 was attributable to depreciation
and amortization expense for the Sunny Knoll community acquired by Standish in
May 1995 and thus not fully reflected in Standish's results for the first two
quarters of 1995. The increase in the amount of depreciation and amortization
expense was also attributable to higher depreciation and amortization expense at
Dominion due to certain additions at those facilities during the six month
period ended June 30, 1996 versus the comparable period in 1995. The increase in
depreciation and amortization expense was also attributable to amortization of a
non-compete agreement with a former director and officer of Standish.
Interest Expense
Interest expense for the six month period ended June 30, 1996 was $824,000,
representing an increase of $146,000, or 22%, from interest expense of $678,000
for the comparable period in 1995. As a percentage of total revenues, interest
expense was 17.6% for the six month period ended June 30, 1996, versus 17.1% for
the comparable period in 1995. The increase in the amount of interest expense is
attributable primarily to interest expense due to increased borrowings
associated with Dominion Village, and interest expense associated with the
acquisition of Sunny Knoll which was acquired on May 1, 1995.
Interest Income
Interest income for the six month period ended June 30, 1996 was $29,000,
representing a decrease of $52,000, or 64%, compared to interest income of
$81,000 in the comparable period in 1995. As a percentage of total revenues,
interest income was 0.6% for the six month period ended June 30, 1996, versus
2.0% in the comparable period in 1995. Interest income for the six month period
ended June 30, 1996 represents interest earned on cash and cash equivalents.
Interest income for the six month period ended June 30, 1995 is primarily
comprised of the accrued preferred return at the rate of 15% per annum on
Standish's investment in Laurelmead.
Other Income
Other income for the six month period ended June 30, 1996 was $696,000.
Other income for the six months ended June 30, 1996 is primarily composed of
cash received for previously reserved management fees and certain investments in
SLI which Standish received in connection with the sale and financing of Fox
Ridge Manor to Northwood and the refinancing of that community's related debt.
Other income also represents Standish's portion of the proceeds to which it is
entitled in connection with the sale of The Pines of Tewksbury community by
Emeritus to a third party. In addition to its development, management and
marketing contracts and its rights to 15% of excess cash flow, Standish owns a
15% residual interest to share in the proceeds of a sale or refinancing of The
Pines of Tewksbury community.
Minority Interest
Minority interest for the six month period ended June 30, 1996 was $48,000,
representing a decrease of $2,000, or 4% versus $50,000 in the comparable period
in 1995. As a percentage of total revenues, minority interest was 1.0% for the
six month period ended June 30, 1996, versus 1.3% for the comparable period in
1995.
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<PAGE>
Calendar Year 1995 Compared to Calendar Year 1994
The following table sets forth the percentage of the Company's total
revenues represented by certain items from the Company's consolidated financial
statements for the respective periods presented:
Revenues
Revenues for the year ended December 31, 1995 were $8,436,000, representing
an increase of $1,727,000, or 26%, from revenues of $6,709,000 in 1994.
Service revenue for the year ended December 31, 1995 was $7,702,000,
representing an increase of $1,575,000, or 26%, from service revenue of
$6,127,000 in 1994. Of this increase, $808,000 was attributable to the
acquisition of Sunny Knoll consummated in May 1995 and $142,000 was attributable
to the acquisition of Bailey Suites consummated in September 1994. The remaining
$625,000 increase in service revenue was attributable to an increase in service
revenue of communities operated by Standish throughout both years. This increase
was primarily attributable to growth in resident census and higher average rates
charged for services provided at these communities. Partially offsetting these
increases was a $299,000 decrease in service revenue at Standish Lowry
community. This decrease was primarily attributable to a significant decrease in
the census at this facility.
Management fees and marketing revenue for the year ended December 31, 1995
was $512,000, representing an increase of $235,000, or 85%, from management fee
and marketing revenue of $277,000 in 1994. The increase in management fees and
marketing revenue in 1995 was primarily due to increased management and
marketing fees on certain of Standish management agreements due to increased
occupancy at these facilities. The increase was also attributable to $100,000 of
management fees Standish received related to Crystal Cove, a senior living
community in Florida. The management fees reflect a partial recovery of $132,000
of management fees related to Crystal Cove which Standish had written off in
1992. Standish resigned as Manager of Crystal Cove during the second quarter of
1995.
Development fees and other revenue for the year ended December 31, 1995 was
$222,000, representing a decrease of $83,000, or 27%, from development fee
revenue of $305,000 in 1994. The decrease in development fee revenue was
primarily attributable to certain development contracts which expired during
1995 in which Standish completed its responsibilities under these development
contracts. These expired contracts were partially offset by two new development
contracts Standish acquired during 1995.
Community Operating Expense
Community operating expense for the year ended December 31, 1995 was
$5,961,000, representing an increase of $919,000, or 18%, from community
operating expense of $5,042,000 in 1994. As a percentage of service revenue,
community operating expense was 77.4% and 82.3% for the years ended December 31,
1995 and 1994, respectively. Of the $919,000 increase in the amount of community
operating expense, $410,000 was attributable to the Sunny Knoll acquisition
which was consummated in May 1995 and $54,000 was attributable to the Bailey
Suites lease which began in September 1994. The remaining $455,000 increase was
attributable to an increase in community operating expense of communities
operated by Standish throughout both years, primarily due to increases in
resident occupancy at these communities. The decrease in community operating
expense as a percentage of service revenue was due primarily to the acquisition
of Sunny Knoll and improved operating margins at the Bailey, Dominion and
Piedmont communities and to increased occupancy at certain of Standish's
communities.
Community Rent Expense
Community rent expense represents lease payments Standish is required to
make under operating leases at Piedmont Village and Bailey Suites. Community
rent expense for the year ended December 31, 1995 was $616,000, representing an
increase of $209,000, or 51%, from community rent expense of $407,000 in 1994.
As a percentage of service revenue, community rent expense was 8.0% and 6.6% for
the years ended December 31, 1995 and 1994, respectively. The increase in the
amount of community rent expense is due primarily to the timing of both the
Piedmont acquisition (consummated in March 1994) and the Bailey Suites
acquisition (consummated in September 1994).
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<PAGE>
Selling, General and Administrative Expense
Selling, general and administrative expense for the year ended December 31,
1995 was $2,347,000, representing a decrease of $162,000, or 6%, from selling,
general and administrative expense of $2,509,000 in 1994. As a percentage of
total revenues, selling, general and administrative expense was 27.8% and 37.4%
for the years ended December 31, 1995 and 1994, respectively. The decrease in
the amount of selling, general and administrative expense was primarily
attributable to a decrease in salaries and employee benefits, professional fees,
travel and related costs, public relations, printing and consulting costs. The
decrease in selling, general and administrative expense as a percentage of total
revenues was due to lower spending levels in 1995 and the allocation of these
expenses over increased levels of total revenues in 1995.
Depreciation and Amortization Expense
Depreciation and amortization expense for the year ended December 31, 1995
was $680,000, representing a decrease of $13,000, or 2%, from depreciation and
amortization expense of $693,000 in 1994. As a percentage of total revenues,
depreciation and amortization expense was 8.1% and 10.3% for the years ended
December 31, 1995 and 1994, respectively. The decrease in the amount of
depreciation and amortization expense was primarily due to a decrease in the
amount of corporate depreciation and amortization expense. This decrease was due
to the write-off of capitalized SLI management contract costs as of December 31,
1994. Due to the write-off of those contract costs, no amortization expense of
the contract costs was recorded during 1995. Standish recorded approximately
$79,000 of amortization expense related to these contract costs in 1994. This
decrease was partially offset by an increase in depreciation and amortization
expense of approximately $66,000 related to Sunny Knoll which acquisition was
consummated in May 1995. The decrease in depreciation and amortization expense
as a percentage of total revenues was due primarily to the allocation of these
expenses over increased levels of total revenues in 1995.
Provision for Corporate Doubtful Accounts
Provision for corporate doubtful accounts for the year ended December 31,
1995 was $74,000, representing a decrease of $264,000, or 78%, from provision
for corporate doubtful accounts of $338,000 in 1994. As a percentage of total
revenues, provision for doubtful accounts was .9% and 5.0% for the years ended
December 31, 1995 and 1994, respectively. The decrease in provision for
corporate doubtful accounts as a percentage of total revenues was due to a lower
level of write-offs and the allocation of these expenses over increased levels
of total revenues.
Severance Costs
Severance costs represents the cost associated with an Early Retirement and
Non-Competition Agreement Standish entered into effective December 31, 1995 with
a former officer and director of Standish. Severance costs for the year ended
December 31, 1995 were $263,000 versus none in 1994.
Interest Expense
Interest expense for the year ended December 31, 1995 was $1,500,000,
representing an increase of $391,000, or 35%, from interest expense of
$1,109,000 in 1994. As a percentage of total revenues, interest expense was
17.7% and 16.5% for the years ended December 31, 1995 and 1994, respectively.
The increase in the amount of interest expense was due primarily to increased
interest expense on increased borrowings for working capital purposes primarily
derived from the convertible debentures sold to Emeritus and borrowings
associated with Standish's acquisition of Sunny Knoll in May 1995.
Interest Income
Interest income for the year ended December 31, 1995 was $153,000,
representing an increase of $133,000, or 665%, from the interest income of
$20,000 in 1994. As a percentage of total revenues, interest income was 1.8% and
0.3% for the years ended December 31, 1995 and 1994, respectively. The increase
in the amount of interest income was primarily due to interest associated with
Standish's investment in Cornish which earns interest at the rate of 15% per
annum.
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<PAGE>
Write-off of financing costs and other related costs
Write-off of financing costs and other related costs of approximately
$528,000 for the year ended December 31, 1995 represents legal, accounting,
printing, due diligence and other related costs Standish incurred in connection
with a proposed financing and its then proposed related acquisition of the Green
Meadows communities pursuant to the "Green Meadows Agreement." Write-off of
financing costs and other related costs for the year ended December 31, 1995
were $528,000 versus none in 1994.
In September 1995, Standish decided not to proceed with its financing and
also assigned its rights and obligations to the Green Meadows Agreement to
Emeritus. As such, Standish wrote off the costs associated with both its
proposed financing and the Green Meadows Agreement.
Assignment fee from Related Party
Assignment fee from related party represents the fee Standish recognized
for assigning its rights and obligations to the Green Meadows Agreement to
Emeritus. Assignment fee from related party for the year ended December 31, 1995
was $1,000,000 versus none in 1994.
Minority Interest
Minority interest for the year ended December 31, 1995 was $87,000,
representing an increase of $56,000, or 181%, from minority interest of $31,000
in 1994. As a percentage of total revenues, minority interest was 1.0% and .4%
for the years ended December 1995 and 1994, respectively. The increase in the
amount of minority interest is due to increased losses in 1995 at Lowry.
Standish owns 80% of Lowry. These losses were partially offset by income from
Sunny Knoll. Standish owns 51% of Sunny Knoll.
Calendar Year 1994 Compared to Calendar Year 1993
Revenues
Revenues for the year ended December 31, 1994 were $6,709,000, representing
an increase of $4,978,000, or 288%, from revenues of $1,731,000 in 1993.
Service revenue for the year ended December 31, 1994 was $6,127,000,
representing an increase of $4,934,000, or 414%, from service revenue of
$1,193,000 in the comparable period in 1993. Of this increase, $4.7 million was
attributable to acquisitions consummated by Standish either during the fourth
quarter of 1993 or during the first quarter of 1994. The remaining $200,000
increase in service revenue was attributable to an increase in service revenue
at communities operated by Standish throughout both periods. This increase was
primarily attributable to growth in resident census and higher average rates
charged for services provided at those communities.
Management fees and marketing revenue for the year ended December 31, 1994
were $277,000, representing a decrease of $164,000, or 37%, from management fees
and marketing revenue of $441,000 in 1993. The decrease in management fees was
primarily attributable to a decrease of $163,000 from 1993 to 1994 in the
management fees recorded by Standish under its management contract with SLI. The
decrease in management fees was attributable also to the expiration of a
management and marketing contract on December 31, 1993 and the termination of a
management contract at another facility, also in December 1993. These decreases
in management fees were offset in part by certain new management contracts which
began generating revenue in 1994.
Development fees and other revenue for the year ended December 31, 1994 was
$305,000, representing an increase of $208,000, or 214%, from development fee
revenue of $97,000 in 1993. Of this increase, $128,000 was a development fee
recorded by Standish in connection with development services provided by it at
Laurelmead. The remaining increase was attributable to various other new
development contracts which Standish entered into during 1994.
Community Operating Expense
Community operating expense for the year ended December 31, 1994 was
$5,042,000, representing an increase of $4,029,000, or 398%, from community
operating expense of $1,013,000 in 1993. As a percentage of service revenue,
community operating expense was 82.3% and 84.9% for the years ended December 31,
1994 and 1993, respectively. Of the $4,029,000 increase in the amount of
community operating expense, approximately $3,600,000 was attributable to the
Dominion Village acquisition, which was consummated during the fourth quarter of
1993,
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<PAGE>
and the Lowry and Piedmont Villages acquisitions, which were consummated
during the first quarter of 1994. The remainder of the increase reflects an
increase in community operating expense of communities operated by Standish
throughout both years, primarily due to increases in resident occupancy at
those communities. The decrease in community operating expense as percentage
of service revenue was due primarily to improved operating margins at the
Dominion Village and Bailey communities and to increased occupancy at these
communities.
Community Rent Expense
Community rent expense for the year ended December 31, 1994 was $407,000.
Standish did not incur any community rent expense in 1993. As a percentage of
service revenue, community rent expense was 6.6% for the year ended December 31,
1994.
Selling, General and Administrative Expense
Selling, general and administrative expense for the year ended December 31,
1994 was $2,509,000, representing an increase of $996,000, or 66%, from selling,
general and administrative expense of $1,513,000 in 1993. As a percentage of
total revenues, selling, general and administrative expense was 37.4% and 87.4%
for the years ended December 31, 1994 and 1993, respectively. Approximately
$600,000 of the amount of the increase in selling, general and administrative
expense was attributable to increased salaries, wages, related payroll taxes and
benefits for the additional personnel required to support Standish's
significantly increased volume of business. The increase was also due to
increased legal and printing costs of $228,000, increased marketing and public
relations costs of approximately $177,000, and higher travel and related costs
of approximately $101,000, all due to the increased levels of revenues in 1994.
The decrease in selling, general and administrative expense as a percentage of
net revenues was due to the allocation of these expenses over increased levels
of total revenues in 1994.
Depreciation and Amortization Expense
Depreciation and amortization expense for the year ended December 31, 1994
was $693,000, representing an increase of $410,000, or 145%, from depreciation
and amortization expense of $283,000 in 1993. As a percentage of total revenues,
depreciation and amortization expense were 10.3% and 16.3% for the years ended
December 31, 1994 and 1993, respectively. The increase in the amount of
depreciation expense in 1994 as compared to 1993 was due almost entirely to
depreciation and amortization expense associated with the Dominion Villages
acquisition Standish consummated in the fourth quarter of 1993 and the Lowry and
Piedmont Village acquisitions consummated in the first quarter of 1994. The
decrease in depreciation and amortization expense as a percentage of total
revenues was due to the allocation of these expenses over increased levels of
total revenues in 1994.
Provision For Corporate Doubtful Accounts
Provisions for corporate doubtful accounts for the year ended December 31,
1994 were $338,000, representing an increase of $98,000, or 41%, from provisions
for corporate doubtful accounts of $240,000 in 1993. As a percentage of total
revenues, provisions for corporate doubtful accounts was 5.0% and 13.9% for the
years ended December 31, 1994 and 1993, respectively. The $338,000 of write-offs
and provisions for doubtful accounts in 1994 was related primarily to write-offs
of fees deemed uncollectible in connection with Standish's SLI management
contract. The entire $240,000 of write-offs and provisions for doubtful accounts
in 1993 was comprised of fees which were deemed uncollectible in connection with
Standish's SLI management contract.
Write-off of Investment in Development Projects
Write-off of investment in development projects for the year ended December
31, 1994 was $833,000. The write-off of investments in development projects
related to write-offs of investments in developments in which Standish either
was no longer holding an interest or in which the estimated realizable value had
significantly decreased. No such write-off of investment in development projects
was incurred in the comparable period in 1993. As a percentage of total
revenues, write-off of investment in development projects was 12.4% for the year
ended December 31, 1994.
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Interest Expense
Interest expense for the year ended December 31, 1994 was $1,109,000,
representing an increase of $757,000, or 215%, from interest expense of $352,000
in 1993. As a percentage of total revenues, interest expense was 16.5% and 20.3%
for the years ended December 31, 1994 and 1993, respectively. The increase in
the amount of interest expense was attributable primarily to interest expense
associated with three acquisitions Standish consummated in the fourth quarter of
1993 and the first quarter of 1994. The decrease in interest expense as a
percentage of total revenues was attributable to the allocation of this expense
over increased levels of total revenues in 1994.
Gain on Sale of Interest in Affiliate and Other Assets
In 1994, Standish did not record a gain on sale of interest in affiliate
and other assets. In 1993, Standish resold the Group C SLI Bonds and recognized
a gain of $158,000. Standish also sold a parcel of land in 1993. The total gain
with respect to this transaction was $597,000, of which $221,000 was deferred as
this portion of the sales proceeds was received in the form of a note.
Liquidity and Capital Resources
Since its inception, Standish has experienced working capital and liquidity
deficiencies. Standish has provided for its working capital and liquidity needs
through sales of securities in the public markets, including its initial public
offering of Common Stock in February 1992 and its public offering of Convertible
Preferred Stock in September and October 1993, through private placements of
debt and equity securities and through the sale of assets for cash, as well as
through the deferral of certain payables and preferred stock dividends. Some of
these transactions were with affiliated parties.
Cash and equivalents at June 30, 1996 were approximately $356,000 compared
to approximately $368,000 at December 31, 1995, a decrease of $12,000, or 3%. At
June 30, 1996, Standish had a working capital deficit of approximately
$3,474,000 compared to a working capital deficit of $1,584,000 at December 31,
1995.
During the six months ended June 30, 1996, Standish financed its working
capital and general corporate needs primarily through four sources: (i)
approximately $825,000 in back management fees and related investments from the
refinancing of Fox Ridge Manor; (ii) $500,000 in connection with a $1.0 million
promissory note between Standish and Pre-Merger CareMatrix (the balance of
$500,000 was received on July 10, 1996); (iii) $300,000 in connection with its
assignment of the Green Meadows communities to Emeritus and (iv) $250,000 in
connection with a promissory note between Standish and IHS.
Standish used the proceeds from these sources (counting only the initial
$500,000 borrowed from Pre-Merger CareMatrix on June 4, 1996) approximately as
follows: (i) $626,000 to reduce accounts payable including certain professional
fee payments; (ii) $509,000 to fund the working capital needs of Standish; (iii)
$180,000 to pay down existing debt; (iv) $171,000 to fund interest payments
associated with Standish's convertible debentures; (v) $200,000 to fund a line
of credit to Northwood in connection with Standish's management of Fox Ridge
Manor and to fund other costs associated with the Fox Ridge transaction; (vi)
$104,000 to fund additions to property, plant and equipment; and (vii) $97,000
for other corporate and community matters.
On July 10, 1996, Pre-Merger CareMatrix funded the second installment of
$500,000 in connection with its promissory note with Standish. On July 30, 1996,
through the issuance and sale to Abraham D. Gosman for $14,000 per share, or
$1.4 million in the aggregate, Standish issued 100 shares of its newly created
Series B Preferred Stock with a liquidation value of $14,000 per share. Standish
used a portion of the proceeds from the share issuance to repay the promissory
note of $1.0 million and obtained an additional $400,000 to be used for working
capital purposes. The Series B Preferred Stock is redeemable by Standish at any
time after December 1, 1996 at $14,000 per share plus accrued dividends provided
that the market price of the Common Stock exceeds 150% of the conversion price
($4.16) then in effect for twenty consecutive trading days. The Series B
Preferred Stock will be entitled to a quarterly dividend of $350 per share with
quarterly dividend payments on each of December 31, March 31, June 30 and
September 30. Concurrently with the issuance of the Series B Preferred Stock,
Standish issued five year warrants to the purchaser to purchase 400,000 shares
of Common Stock at an exercise price of $4.16 per share.
At June 30, 1994, Standish had outstanding 782,350 shares of Series A
Preferred Stock. Effective July 1, 1994, Standish consummated an Exchange Offer
(the "Offer") pursuant to which it exchanged 2.6 shares of its Common
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Stock for each share of Series A Preferred Stock tendered. Subsequent to the
Offer, there were 128,050 shares of Series A Preferred Stock outstanding. The
Offer had the effect of decreasing Standish's quarterly dividend requirement
on the Series A Preferred Stock from $195,588 to $32,013. Since issuing the
Series A Preferred Stock in September 1993, Standish has failed to make seven
quarterly dividend payments. Series A Preferred Stockholders who tendered
their shares in the Offer forfeited any right to a dividend for the quarter
ended June 30, 1994. At September 30, 1995, Standish was in arrears on four
quarterly dividends of approximately $32,013, or approximately $128,050 in
the aggregate. Under the terms of the Series A Preferred Stock, should
Standish fail to pay any portion of the quarterly dividend on its Series A
Preferred Stock on four separate payment dates, whether or not consecutively,
holders of the Series A Preferred Stock would be entitled to voting rights,
including the election of directors. These voting rights became effective on
September 30, 1995 when Standish's Board of Directors voted to omit the
dividend for the quarter ended September 30, 1995, the fourth such dividend
which had been omitted. In addition, each quarterly dividend not paid results
in a $0.25 reduction in the initial $5.00 per share conversion price. The
conversion price at June 30, 1996 was $3.25 per share (subject to
anti-dilution adjustments).
As of June 30, 1996, Standish had financed three acquisition transactions
involving seven communities with Health Care REIT in the aggregate amount of
$10.75 million. These transactions were structured so that the assets were
acquired by Health Care REIT and leased to Standish under either operating lease
or capital lease arrangements. Health Care REIT may have a right to provide
financing for future acquisitions completed by Standish up to an aggregate
additional amount of $19.25 million. Under the terms of the agreement, Health
Care REIT is entitled to receive a warrant to purchase one share of Common Stock
at an exercise price which is currently $4.16 per share (subject to
anti-dilution adjustments), for every $300 advanced. In March 1995, Standish
agreed to re-price all warrants previously granted to Health Care REIT from
$7.09 to $4.16 per share. To date, Standish has granted Health Care REIT, on
account of such financing, warrants to purchase approximately 35,833 shares of
Common Stock. The warrants are exercisable for five years from the date of
issuance, subject to extension under certain circumstances.
For information concerning certain of Standish's debt covenants (primarily
related to the debt coverage ratio requirements associated with its Dominion,
Lowry and Piedmont lease agreements), see Note I to the Standish Consolidated
Financial Statements.
36
<PAGE>
BUSINESS
Overview
CareMatrix Corporation (the "Company") (formerly known as The Standish Care
Company) is a provider of assisted living services, operating 20 facilities in
eight states with a capacity of approximately 1,580 residents. Of these
facilities, two are owned, nine are leased and nine are managed. The Company's
three year growth objective is to develop at least 60 new facilities, with a
capacity of approximately 7,200 residents, and to acquire additional assisted
living facilities or operations. Currently, the Company is developing 31
facilities, of which six facilities are now under construction. The Company's
strategy is to provide a full range of assisted living and related services
across a range of pricing options.
The Company believes that it can effectively and efficiently respond to a
variety of the needs of seniors as they age and require additional care. The
Company expects its assisted living facilities to serve as the foundation from
which it will provide a continuum of care for its residents. When its assisted
living facilities are integrated with supportive independent living facilities,
skilled nursing facilities and Alzheimer's care programs, the Company believes
that it will have the ability to provide a less stressful transition for its
residents either in the same facility, in a campus setting or within a nearby
facility. The Company believes that by integrating different levels of care it
will offer advantages over free-standing assisted living facilities that do not
provide the flexibility to allow residents to age in place.
The Company intends to provide a full range of quality senior residential
services at all of its assisted living facilities, which are designed to permit
residents to age in place by meeting their evolving personal and health care
needs. To accomplish this objective, the Company is developing comprehensive
service packages and integrated campuses that the Company believes will enable
it to become a leading provider of assisted living services to seniors in a
fully integrated matrix of social and healthcare service models.
Assisted Living Industry
The Company believes that the assisted living industry is evolving as the
preferred alternative to meet the growing demands 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 industry estimates, the assisted and
independent living industries represented approximately $10 to $12 billion in
revenue in 1995.
Generally, assisted living represents a combination of housing and 24-hour
per day personal support services designed to assist seniors with activities of
daily living ("ADLs"), which include such activities as bathing, eating,
personal hygiene, grooming, ambulating and dressing. Certain assisted living
facilities may offer higher levels of personal assistance for residents with
Alzheimer's disease or other forms of dementia.
The Company believes that few assisted living operators provide a
comprehensive range of assisted living services in conjunction with other levels
of services ranging from supportive independent living to skilled nursing care
and short-term rehabilitation. This range of services allows seniors to age in
place within a facility, an integrated campus or a cluster market region. The
Company believes that a number of factors will allow assisted living to continue
as one of the fastest growing segments of senior care.
Consumer Preference. The Company believes that assisted living is
increasingly becoming the setting preferred by prospective residents as well as
their families, who are often the decision makers for seniors. Assisted living
is a cost effective alternative to other types of facilities, offers seniors
greater independence and allows them to age in place in a residential setting.
Cost Effectiveness. The average annual cost for a patient in a skilled
nursing home approaches $40,000. The average cost for a private pay patient in a
skilled nursing home can exceed $75,000 per year in certain markets. In
contrast, assisted living services are provided at a cost which is generally 30%
to 50% lower than skilled nursing facilities located in the same region.
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
account.
Demographics and Changing Family Dynamics. The target market for the
Company's services are persons generally 75 years and older, one of the fastest
growing segments of the U.S. population. According to the U.S. Census
37
<PAGE>
Bureau, the portion of the U.S. population age 75 and older is expected to
increase by 33.8%, from approximately 13.0 million in 1990 to over 17.4
million by the year 2000, and the number of persons age 85 and older, as a
segment of the U.S. population, is expected to increase by 43%, from
approximately 3.0 million in 1990 to over 4.3 million by the year 2000. The
number of persons afflicted with Alzheimer's disease is also expected to grow
in the coming years. According to data published by the Alzheimer's
Association, this group will grow from the current 3.8 million to 4.8
million, or 26.3%, by the year 2000. As Alzheimer's disease and other forms
of dementia are more likely to occur as a person ages, the increasing life
expectancy of seniors is expected to result in a greater number of persons
afflicted with Alzheimer's disease and other forms of dementia in future
years absent breakthroughs in medical research.
According to the United States Bureau of the Census, the median net worth
of households age 75 and older has increased from $61,491 in 1988 to $76,541 in
1992. Accordingly, the Company believes that the number of seniors who are able
to afford high-quality residential environments, such as those offered by the
Company, has increased in recent years.
In addition, as the number of two-income households has increased over the
last decade and as the geographical separation of senior family members from
their adult children increases with the geographic mobility of the U.S.
population, many families that traditionally would have provided the type of
care and services offered by the Company to senior family members will
increasingly not be in a position to do so.
Supply/Demand Imbalance. While the senior population is growing
significantly, the supply of skilled nursing beds per thousand is declining.
This imbalance may be attributed to a number of factors in addition to the aging
of the population. Many states, in an effort to maintain controls of Medicaid
expenditures on long-term care, have implemented more restrictive certificate of
need regulations or similar legislation that restricts the supply of licensed
skilled nursing facility beds. Additionally, acuity-based reimbursement systems
have encouraged skilled nursing facilities to focus on higher acuity patients.
The Company also believes that high construction costs and limits on government
reimbursement for the full cost of construction and start-up expenses also will
constrain the growth and supply of traditional skilled nursing beds. These
factors, taken in combination, result in relatively fewer skilled nursing beds
available for the increasing number of seniors who require assistance with ADLs
but do not require 24-hour medical attention.
Business Strategy
Provide a Full Range of Senior Residential Services. The Company expects
its existing and future assisted living facilities to serve as the foundation on
which it will provide a continuum of care for its seniors within cluster
markets. When such facilities are combined with supportive independent living
and skilled nursing/rehabilitation facilities and an Alzheimer's care program,
the Company's facilities will have the resources to provide a more natural
transition for its residents to environments with higher degrees of care. The
Company believes that by combining different levels of care in the same
facility, on an integrated campus or in nearby facilities, it will gain an
advantage over those competitors that operate free-standing assisted living
facilities and that do not have similar flexibility to allow their residents to
age in place.
[Graphic flow chart]
- ------------- ----------- -------------
Supportive Skilled
Independent ----> Assisted ----> Nursing/
Living Living Rehabilitation
- ------------- ----------- -------------
|
| | /\
| | |
| | |
| \/ |
| ---------- |
| Alzheimer's |
------> Care -------
----------
38
<PAGE>
Provide Services across a Range of Pricing Options. In addition to
providing a broad range of services, the Company believes it will be able to
capture a larger market segment of the senior population by providing these
services over a range of pricing options. The Company provides, and is
developing models designed to provide, these services to both the moderate and
upper income markets. Also, the Company provides, and is developing models
intended to provide, assisted living services for Medicaid-eligible individuals
in Medicaid waiver states.
Upper Income Markets. A key component of the Company's strategy is to
address the needs and demands of the more affluent, upper income senior
population generally located in metropolitan or suburban areas. A number
of specific markets have been targeted, including Fairfield County in
Connecticut, Middlesex County in Massachusetts, Westchester County, Nassau
County and New York City in New York, Bergen County in New Jersey and Palm
Beach County in Florida and other areas in which the Company has commenced
development. The "Chancellor Park" models planned for these markets are
generally more spacious and provide a greater range of services than other
models. Rates currently charged or planned for facilities in these market
areas range from $2,300 per month to $4,900 per month.
Moderate Income Markets. Many of the Company's development activities
are geared toward providing its range of services in attractive settings
that are affordable to the middle income senior population. The
"Chancellor Gardens" models planned for these markets contain spacious
public areas, and unit sizes tend to be slightly smaller than those in the
upper income markets. The Company offers a basic service package with more
services provided on an "a la carte" basis. Monthly rates range from
$1,400 to $3,000. Specific areas targeted for development of this product
line include Arizona, Florida, Georgia, Maryland, North Carolina and
Texas.
Lower Income Markets and Medicaid Waiver States. A number of states
have obtained Federal waivers to allow Medicaid eligible individuals to
receive assisted living services in alternative settings. Generally, monthly
rates allowed under the waiver program fall on the low end of the market
rates for assisted living services and range from approximately $900 to
$2,000 per month. The Company currently provides, or is developing facilities
intended to provide, assisted living services to lower income residents
and Medicaid eligible residents in certain of those states that have
obtained Federal Medicaid waivers. The "Chancellor Village" models planned
for these markets are generally smaller, some with shared apartments, and
a basic package of services is provided. The Company operates such
facilities in North Carolina and has targeted Florida, Georgia, Maryland
and Texas as attractive locations. See "--Government Funding."
Offer Personalized, Quality Care and Services. The Company's strategy
includes providing its residents with personalized quality of care and services.
The Company, through its facility staff, develops a care plan for each resident
based on professional assessments and family consultations. The care plan is
updated regularly based on the needs of the resident by the facility's nursing
and social service staff in conjunction with the resident, resident's physician,
and family members. The Company maintains a quality assurance program with the
goal of meeting and exceeding the expectations of its residents and their
families. The Company pays special attention to recruitment, screening and
training of all personnel assigned to serve its residents and surveys its own
facilities to ensure that its quality standards are being maintained.
Develop Regional Cluster Markets. The Company seeks to be a leading
provider of assisted living services and related residential services in each of
its current and targeted cluster market regions. This positioning should allow
the Company to become the provider of choice in certain markets through
increased community familiarity. This strategy will also help enable it to
achieve operational management efficiencies within these markets. The Company
targets middle to upper income metropolitan and suburban areas which have well
established populations of persons 75 years or older. Markets currently targeted
for cluster regional development include Arizona, Connecticut, Florida, Georgia,
Massachusetts, New Jersey, New York, North Carolina and Texas.
Develop Hospital and Managed Care Relationships. The Company intends to
develop relationships with regional hospital systems and managed care
organizations to provide services to discharged patients that will offer a full
continuum of care in the areas of assisted living, supportive independent
living, Alzheimer's care and skilled nursing/rehabilitative care.
39
<PAGE>
Service Models
The Company provides three distinct service models designed to meet the
needs and demands of seniors. While providing services ranging from supportive
independent living to skilled nursing/rehabilitative care, the primary focus of
the services provided by the Company is the various assisted living models
developed by the Company.
Assisted Living. The Company offers a full range of assisted living
services based on individual resident needs. The Company has found that resident
needs generally fall in one or more of the following categories: (i) those
requiring socialization and interaction with others but needing assistance with
the instrumental activities of daily living (IADLs), (ii) those requiring
physical support or assistance with ADLs, and (iii) those who require assistance
due to Alzheimer's disease or other cognitive impairment.
Based on these resident needs, the Company has developed three distinct
service categories that can be implemented either individually or in combination
within the same facility or campus.
Social Model. Within this model, the Company provides three meals
daily, housekeeping, personal laundry services, transportation, 24-hour
security, health screening and assessment as well as personal care services.
Additionally, there is a greater focus on resident interaction as well as
social and recreational activities. The service package generally includes
up to thirty minutes per day of personal care assistance with additional
fees for services above that. Residents are encouraged to participate in
the Company's individually tailored Personalized Exercise Program (PEP)
conducted within the facility's wellness center. The program, developed in
conjunction with Tufts University, encourages independence through
exercise by improving flexibility, balance, strength and endurance. The
wellness centers are staffed with nursing personnel 24-hours per day.
Healthcare Services Model. This service model provides a lower cost
alternative for individuals needing lower acuity services than those
available in a skilled nursing facility, making this model an attractive
choice for managed care organizations and insurance companies seeking more
cost efficient programs. The Healthcare Services Model is designed to meet
the needs of two different market segments. This model will provide long-
term care services to moderate and upper income seniors who are generally
75 years of age or older and require assistance with at least two ADLs. In
addition, it serves as a step down provider from a skilled nursing
facility, where it will emphasize short term stays in a variety of
rehabilitative situations and also provide pre-operative and
post-operative services. In both instances, the need for these services is
due primarily to physical limitations rather than cognitive impairment.
Personal care assistance with ADLs is provided on a 24-hour basis and
averages between one and two hours per day for each resident. Other
services include ongoing health screenings and assessments, three meals
daily, transportation, social and recreational activities, housekeeping
and personal laundry. Where permitted by state law, the Company also
provides residents with medication assistance which includes monitoring,
supervision and dispensing. Residents are encouraged to participate in the
PEP program.
Alzheimer's Model. Alzheimer's care services are provided for
residents with early or intermediate stage Alzheimer's disease in specially
designed freestanding facilities or as distinct components contained within
an assisted living facility. Residents with Alzheimer's disease or other
forms of dementia require high levels of care and services as a result of
the decline of their cognitive abilities. In addition to the personal care
services provided in traditional assisted living facilities, additional
services are provided to include stimulation, behavior management, special
activities, intervention and therapeutic programs. Staffing is generally
15 to 20% higher in order to meet the needs of this population. Within
this model, the Company creates a home-like setting that addresses the
cognitive limitations of its residents. In the Alzheimer's Model, the
Company generally charges monthly rates which are 20% to 40% higher than
the rates for more traditional assisted living services.
Supportive Independent Living. Supportive independent living is provided
for seniors who require a residential environment that offers available health
care services but who do not yet need assistance with ADLs. The Company provides
this level of service in both moderate and upper income markets. The Company
believes that the supportive independent living service broadens the market
attractiveness of each facility or integrated campus by providing a residential
setting for those seniors who wish to maintain their independence but desire a
supportive environment. Services provided include daily meals, transportation,
social and recreational activities, laundry, housekeeping and health care
monitoring. Depending on government regulation, personal care and medical
services are available through either facility staff or through home health care
agencies. Residents generally pay a monthly rate to cover all services which is
approximately 20% to 30% less than the rate for assisted living services.
40
<PAGE>
Skilled Nursing/Rehabilitation. In certain cluster markets, the Company
provides skilled nursing/ rehabilitative services within a skilled nursing
facility setting. These services include both short-term rehabilitation and
traditional long-term care and will be an important component of the continuum
of care provided by the Company within an integrated campus or within these
cluster market regions. The short-term rehabilitation component addresses the
needs of patients requiring short-term rehabilitation or therapy services,
generally after a hospital stay.
Company Operations
The Company centralizes many of its financial, administrative and
operational functions at its corporate headquarters. Such centralization allows
facility-based personnel to focus on resident care, enhances the services
provided by the facility-based personnel and ensures that Company-wide policies
and procedures are maintained. Corporate personnel with expertise in
administration, nursing, marketing, food service, social services, financial
management and plant maintenance directly assist and supervise their
counterparts at the facility level. The Company believes that these corporate
resources enable each facility to provide services to its residents in a more
professional and cost effective manner. The Company also intends to develop
regional offices in certain cluster market regions to enhance its ability to
manage its development and operational activities.
Facility Staffing. Each of the Company's facilities has an Administrator or
Executive Director responsible for the day-to-day operations of the facility.
The Administrator is supported by the Director of Resident Care, a licensed
nurse who oversees the nursing personnel and personal care assistants and who is
directly responsible for the day-to-day care of the residents. Other key
management personnel typically include a Social Services Director, a Marketing
Director, a Food Services Director, an Activities Director and a Director of
Environmental Services. Additionally, those facilities which offer additional
services, such as Alzheimer's care, also include a Director of Specialty
Services and other management or medical staff as warranted. The Company has
attracted and continues to attract highly dedicated and experienced personnel.
The Company believes that education, training, staff development and staff
recognition enhance the effectiveness of its employees. The Company provides
training in all aspects of facility operations as well as specialized training
for programs offered. The Company encourages continuing education and provides a
tuition reimbursement plan for its employees. The Company believes it provides
competitive wages and employee benefits, enabling it to attract and maintain
qualified personnel. The Company has developed employee recognition and
incentive programs that increase awareness by employees of the importance of
providing high quality service to residents.
Financial Management. Corporate personnel oversee cash management, billing
and collection, accounts payable functions, payroll functions and all financial
and accounting functions. The Company monitors and controls operating expenses
for each of its facilities through monthly budgeting, standardized management
reporting and centralized purchasing.
Quality Assurance. The Company's quality assurance program is intended to
achieve and maintain a high degree of resident and family satisfaction with the
care and services it provides. The Company coordinates the implementation of its
quality assurance program at each of its facilities through its corporate
personnel. The Company encourages resident and family participation and seeks
feedback from families and residents through surveys conducted on a regular
basis. In addition, facility inspections are conducted regularly by corporate
staff. These inspections, performed semi-monthly, review all aspects of
operations, services provided and the overall appearance and cleanliness of the
facility. See "--Business Strategy."
Marketing. The Company's marketing efforts are undertaken on a regional and
local level, all under the supervision of the corporate marketing staff. This
provides greater cost effectiveness through cost sharing and ensures a
consistency in the presentation of the Company to the various regional
marketplaces. These efforts are intended to create awareness of the Company and
its services among prospective residents, their families, professional referral
sources and other key decision makers. The corporate marketing office develops
overall strategies to promote the Company and its service offerings throughout
the markets with which the Company is involved. The corporate marketing staff
conducts regional and state-wide surveys of age and income qualified seniors to
help ensure that the Company is meeting the needs and demands of that
marketplace. To further both market awareness of the Company by prospective
residents and to more accurately assess the needs and demands of seniors, the
Company regularly conducts regional focus groups. The corporate marketing
personnel develop the overall strategies for each facility, produce all
collateral materials, maintain marketing data bases, oversee direct
41
<PAGE>
mailings, place all media advertising and assist facility personnel in the
initial development and continuing refinement of marketing plans for each
facility.
Corporate and regional marketing offices commence marketing of each newly
developed facility nine to 12 months prior to the scheduled facility opening.
Approximately six months prior to each facility opening, a marketing director
and marketing sales person are hired for each facility. They are responsible for
community outreach activities and community relations, the coordination of
referral activities, conducting tours and providing advice for potential
residents and their families with respect to the Company's facilities and
services.
Facilities
Three basic designs have been developed for the Company's existing and
future facilities, the stand-alone assisted living facility, the combined
assisted/independent living facility and the stand-alone Alzheimer's care
facility. Each combined facility incorporates separate entrances for independent
and assisted units. Community spaces are adjacent to a large lobby/living room
that opens into a secure courtyard. The assisted and independent living areas
are connected with a single story service core which houses a combined kitchen
and separate dining rooms which open out onto a secured courtyard. Shared
facilities include central laundry, beauty/barber facilities and a wellness
center. The unit wings are designed in a modular fashion which allows for
modification of the size of the facility in increments of 12 units. This modular
concept allows for greater development flexibility and encourages social
interaction within this home-like environment. Current designs include
facilities ranging in size from 82 to 118 units for stand alone assisted living
facilities. Combined assisted/independent designs range from 124 to 148 units.
The residential wings are three stories and are accented by a large living room
centrally located and adjacent to elevators, on each floor. The Alzheimer's care
facility design is generally smaller than the Company's other facility designs
to accommodate the cognitive limitations and needs of its residents. The design
accommodates a minimum of 32 units which house up to 40 residents and can be
expanded to include as many as 64 units or 80 residents. Key features generally
include indoor and outdoor wandering paths, a simulated town square area, secure
outdoor spaces and directional aids and other coding to assist residents in "way
finding."
Three basic exterior designs have been developed for implementation in
various geographic regions. The New England colonial, designed primarily for use
in the Northeast, incorporates detailed wood trim with cedar clapboards and
cedar shingles. The Jeffersonian colonial, designed primarily for use in the
Mid-Atlantic states, is comprised of masonry with cast stone lintels. The
Regency, designed primarily for use in the Southeast and Southwest, combines
Florida regency and Southwestern details.
Units for which the Social Model services are provided are generally more
spacious than in other assisted living models and range in size from 360 square
feet to 800 square feet and include a full kitchen and spacious walk-in closets.
The resident's apartment in the Healthcare Services Model generally ranges in
size from 320 square feet to 725 square feet. Many units include walk-in
closets, storage areas and kitchenettes. Units in the Alzheimer's Model range in
size from 300 square feet to 500 square feet and furnishings are designed to
take into account the cognitive limitations of its residents. All units include
private bath, emergency call systems in the bedroom and bathroom, closet space,
cable TV, and telephone service.
The interior design for facilities has been standardized from a materials
standpoint. The Company procures furniture, fixtures and equipment, including
carpet and wall fabric, through national accounts. This results in
standardization of materials but still allows for actual color and pattern
selection to be made on a facility by facility basis. Standardization of
materials also allows for competitive pricing in the marketplace.
The Company occupies executive offices located in Needham, Massachusetts
under a lease expiring in 2001.
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<PAGE>
The following tables set forth certain information regarding facilities
currently owned, leased or managed by the Company:
<TABLE>
<CAPTION>
Date
Acquired As of June 30, 1996
or -------------------
Commencement
of Avg.
Care Management Resident Rate/ Occupancy
Facility Location Level (1) Capacity Resident Rate
- ------------------------ ------------ --------- ----------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Owned/Leased
- ---------------------------
Florida
Bailey Suites (2) Assisted
Gainesville Living Nov-94 14 $1,563 85%
Bailey Village (3) Assisted
Gainesville Living Jul-92 72 $1,482 88%
Courtyard at Lowry Place Alzheimer's
(4)(5) Tampa Care Jan-94 74 $1,638 50%
Maryland
Sylvan Manor (2) Skilled
Silver Spring Nursing Aug-95 138 86%
New Hampshire
Sunny Knoll (6) Alzheimer's
Franklin Care May-95 32 $3,573 84%
North Carolina
Piedmont Village at Newton Assisted
(2) Newton Living Mar-94 39 $1,121 100%
Piedmont Village at Assisted
Statesville (2) Statesville Living Mar-94 75 $1,158 100%
Piedmont Village at Assisted
Yadkinville (2) Yadkinville Living Mar-94 50 $1,098 98%
Virginia
Dominion Village at Assisted
Chesapeake (4) Chesapeake Living Nov-93 55 $1,469 82%
Dominion Village at Assisted
Poquoson (4) Poquoson Living Nov-93 45 $1,956 92%
Dominion Village at Assisted
Williamsburg (4) Williamsburg Living Nov-93 60 $1,927 89%
--- ------ ---
Subtotal 654 $1,616 86%
=== ====== ===
Managed (1) ---------------------------
Connecticut
Westfield Court (7) Independent
Stamford Living Sep-91 168 $3,200 100%
Florida
Homestead Manor Skilled
Homestead Nursing Dec-95 56 93%
Miami Shores Skilled
Miami Nursing Dec-95 120 76%
Massachusetts
Cadbury Commons (8) Assisted
Cambridge Living Sept-96 82 N/A N/A
Courtland House of Assisted
Leominster (9) Leominster Living May-96 74 $2,461 25%
Standish Village at Lower Assisted
Mills (10) Boston Living Apr-94 93 $2,674 83%
Avery Crossing (7) Assisted
Needham Living 58 100%
Avery Manor (7) Skilled
Needham Nursing 142 96%
Pennsylvania
Fox Ridge Manor Assisted
Dover Living Mar-96 136 $1,313 86%
--- ------ ---
Subtotal 929 $2,011 85%
--- ------ ---
Total 1,583 $1,762 85%
=== ====== ===
</TABLE>
N/A = Not Applicable.
(1) Management contracts typically have a term of 5 years.
(2) Operating lease.
(3) 100% owned by the Company.
(4) Capital lease.
(5) A 20% minority interest in the lessee is owned by a third party.
(6) A 49% minority interest is owned by a third party.
(7) Managed for a related party.
(8) Cadbury Commons opened on July 8, 1996 and therefore had no occupants as
of June 30, 1996. As of that date, 44 units had been pre-leased.
Cadbury Commons has been included in the resident capacity total but not
in the calculations for average rate per resident or occupancy rate.
(9) Courtland House of Leominster opened on May 7, 1996; however, the
Company began earning management fees in September 1995. In addition to
such base management fees, as manager, the Company is entitled to 10% of
excess cash flow under certain circumstances.
(10) The Company holds a 30% interest in the corporate general partner, which
owns a 1% interest in the owner partnership.
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<PAGE>
Development and Acquisition
Development Activities. The Company's senior management team has extensive
experience in the development of assisted living, supportive independent living
and skilled nursing/rehabilitation facilities. The Company currently plans to
develop approximately 60 facilities with a capacity of approximately 7,200
residents by the end of 1999.
The Company believes that it is able to differentiate itself from many of
its competitors because of its in-house development and research capabilities.
It has the ability to target potential markets, perform the appropriate market
studies, analyze the potential of these markets and its competition, identify
market demand and zoning requirements and determine the appropriate size and
configuration of facilities to develop and/or acquire. With respect to
properties that it intends to develop, the Company will coordinate all aspects
of each project, including obtaining the final permits and approvals, design,
construction and capital budgeting.
Facilities will be developed primarily in conjunction with: (i) related
party entities, (ii) joint ventures in which related parties have some level of
ownership, ranging from minority to majority ownership and (iii) third parties.
It is anticipated that a majority of the facilities developed in the next three
to four years will be for Chancellor and other related party entities, owned
primarily by Abraham D. Gosman, members of his family and other members of the
Company's senior management. The Company expects that it will only enter into
agreements with entities that it believes have demonstrated the capability to
obtain the financing necessary to construct and own the facilities. The Company
recognizes development revenues on a percentage of completion basis. Development
fees are intended to cover costs and to return an expected level of profit to
the Company. See "Risk Factors--Development and Construction Risks" and "Certain
Transactions."
Generally, the Company will enter into development agreements whereby
construction financing is obtained by the related or unrelated third parties.
The Company expects that risks related to construction and the initial operation
of the facilities it develops will be borne primarily by such third parties. The
Company expects that it will not enter into management agreements with these
parties until completion of the construction of such facilities or upon
acquisition of completed facilities. These management agreements would generally
be for a ten-year period, with fees approximating 5% of net revenues. The
Company also expects to have the option to convert such management agreements
into fair market value leases (which will be a negotiated percentage of total
project costs) for a ten-year period with three to four five-year fair market
value renewals. There may also be an option to acquire the facility at fair
market value at the end of the base lease or option periods. The Company expects
to exercise the lease option at such time as the properties reach stabilization.
The related party is likely to sell many or most of the developed facilities to
REITs (possibly including Meditrust, whose Chairman is Abraham D. Gosman) or
other financing sources. Any such sale would be subject to any management, lease
or purchase terms already in place. See "Certain Transactions."
The Company expects that its development projects for joint ventures and
third parties will be turnkey projects and will not result in either management
contracts or leases, although the Company may seek such contracts where
attractive.
The primary milestones in the development process are (i) site selection
and contract signing, (ii) permitting and approvals necessary to commence
construction and (iii) completion of construction. Once a market has been
identified, site selection and contract signing typically take approximately one
to three months. Land permitting generally takes five to 12 months and is
typically the most difficult step in the development process due to the
Company's selection of sites in established communities which usually require
site rezoning. Facility construction normally takes 12 months. After a facility
receives a certificate of occupancy, residents usually begin to move in
immediately.
The Company's development activities are coordinated by its experienced
development staff of approximately 20 people, which has extensive real estate
acquisition, engineering, general construction and project management
experience. Architectural design and hands-on construction functions are usually
contracted to outside architects and contractors.
44
<PAGE>
The following table sets forth certain information regarding facilities for
which the Company has commenced the zoning, permitting or construction process:
<TABLE>
<CAPTION>
Resident Capacity
-------------------------------------- Post
Assisted Independent Skilled Anticipated Opening
Location Living Living Nursing Total Owner (1) Interest
- --------------- ------ --------- ------ --- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Arizona
Yuma Joint
80 40 -- 120 Venture None
Peoria Joint
80 40 -- 120 Venture None
Tucson Joint
80 40 -- 120 Venture None
----- --------- ----- ---
240 120 0 360
Connecticut
Southington Joint
96 -- -- 96 Venture Manager
Darien Joint
67 19 -- 86 Venture Manager
Avon 108 -- -- 108 Third Party Manager
Woodbridge 90 -- -- 90 Third Party Manager
Cheshire Joint
104 -- -- 104 Venture Manager
Ridgefield Related
55 70 -- 125 Party Manager(2)
Milford 108 -- -- 108 Third Party Manager
Hamden 108 -- -- 108 Third Party Manager
----- --------- ----- ---
736 89 0 825
Florida
Boynton Beach Related
82 66 -- 148 Party Manager(2)
Jensen Beach Related
82 66 -- 148 Party Manager(2)
Deerfield Beach Related
80 48 -- 128 Party Manager(2)
Bonita Bay Related
82 66 -- 148 Party Manager(2)
----- --------- ----- ---
326 246 0 572
Georgia
Atlanta Related
82 66 -- 148 Party Manager(2)
Macon Related
82 66 -- 148 Party Manager(2)
----- --------- ----- ---
164 132 0 296
Massachusetts (3)
Dedham Related
-- -- 142 142 Party Manager(2)
Millbury -- -- 154 154 Third Party None
----- --------- ----- ---
0 0 296 296
North Carolina
Durham Related
82 66 -- 148 Party Manager(2)
----- --------- ----- ---
82 66 0 148
New Jersey
Princeton Related
83 -- 180 263 Party Manager(2)
Park Ridge Related
100 -- 210 310 Party Manager(2)
Livingston Related
118 -- -- 118 Party Manager(2)
----- --------- ----- ---
301 0 390 691
New York(4)
Ossining Joint
122 -- -- 122 Venture Manager
Glen Cove Joint
80 -- -- 80 Venture Manager
Riverdale Joint
80 -- -- 80 Venture Manager
Upper Nyack Related
148 -- -- 148 Party Manager(2)
Great Neck Joint
140 -- -- 140 Venture Manager
Ryebrook Joint
160 -- -- 160 Venture Manager
----- --------- ----- ---
730 0 0 730
Texas
Houston Related
82 66 -- 148 Party Manager(2)
Georgetown Related
82 66 -- 148 Party Manager(2)
----- --------- ----- ---
164 132 0 296
----- --------- ----- ---
2,743 785 686 4,214
===== ========= ===== ===
</TABLE>
Construction
Schedule
------------
Location Status Start Completion
- ----------------- ---------- --------- ----------
Arizona
Yuma Development Q3-96 Q3-97
Peoria Development Q2-97 Q4-97
Tucson Development Q2-97 Q2-98
Connecticut
Southington Construction Commenced Q2-97
Darien Construction Commenced Q3-97
Avon Development Q4-96 Q3-97
Woodbridge Development Q4-96 Q4-97
Cheshire Development Q4-96 Q4-97
Ridgefield Development Q2-97 Q1-98
Milford Development Q2-97 Q2-98
Hamden Development Q2-97 Q2-98
Florida
Boynton Beach Development Q4-96 Q4-97
Jensen Beach Development Q1-97 Q4-97
Deerfield Beach Development Q1-97 Q4-97
Bonita Bay Development Q2-97 Q1-98
Georgia
Atlanta Development Q2-97 Q1-98
Macon Development Q2-97 Q2-98
Massachusetts (3)
Dedham Construction Commenced Q3-96
Millbury Construction Commenced Q4-96
North Carolina
Durham Development Q4-96 Q4-97
New Jersey
Princeton Construction Commenced Q2-97
Park Ridge Development Q4-96 Q4-97
Livingston Development Q4-97 Q3-98
New York(4)
Ossining Construction Q4-96 Q2-97
Glen Cove Development Q4-96 Q3-97
Riverdale Development Q3-97 Q4-98
Upper Nyack Development Q3-97 Q2-98
Great Neck Development Q3-97 Q3-98
Ryebrook Development Q3-98 Q3-99
Texas
Houston Development Q3-96 Q3-97
Georgetown Development Q2-97 Q1-98
(1) Joint Venture refers to a joint venture between Chancellor and a third
party.
(2) The Company has an option to lease this facility.
(3) In addition, the Company derives earn-out revenues from four skilled
nursing facilities which it previously developed in Massachusetts but
does not currently manage.
(4) The New York facilities will be operated as senior residential facilities
with assisted living services to be provided by licensed healthcare
agencies.
45
<PAGE>
Facilities under development may not in fact be constructed for a variety
of reasons, including zoning, permitting, health care licensing and cost related
issues. See "Risk Factors--Development and Construction Risks." In addition to
facilities listed in the "Status" column as under development, the Company is
also engaged in preliminary development activities with respect to other
possible sites for future facilities.
Acquisition Activities. In addition to its development activities, the
Company intends to aggressively pursue acquisitions of existing facilities,
management agreements and/or leases to the extent that they complement its
growth strategy by helping to augment existing cluster markets or enter new
markets. Such acquisitions will depend on a number of factors, including the
advantages of acquiring a facility versus leasing for its own benefit, regional
or local competition, reputation and quality of the facilities and contribution
of the facility to operating results.
The Company's acquisition team has extensive experience in numerous areas,
including market assessment, budget development, project scheduling and
documentation for its transactions. All potential acquisitions are presented to
the Company's Board of Directors or its Executive Committee before authorization
is provided for the Company to proceed.
The current fragmentation of the assisted living industry, combined with
the Company's financial resources following completion of this Offering, should
provide the opportunity to consider a large number of acquisitions. The
Company's senior management team has extensive acquisition experience as well as
contacts with a large number of facility owners and operators throughout the
country. The Company believes that through the reputation of its management and
the quality of the facilities it owns and operates, it will become an attractive
acquiror for potential target facilities. The Company intends to pursue other
single and portfolio acquisitions that meet its quality standards and present
the opportunity to increase its profitability. See "Risk Factors--Need for
Additional Financing" and "--Risks Related to Acquisition Strategy."
Competition
Providers of assisted living services compete for residents primarily on
the basis of quality of care, reputation, physical appearance of the facilities,
price, services offered, family preferences, physician referrals and location.
Some of the Company's competitors operate on a not-for-profit basis or as
charitable organizations. Some of the Company's competitors are significantly
larger than the Company and have, or may obtain, greater resources than those of
the Company.
The long-term care industry generally is highly competitive and the Company
expects that the assisted living business in particular will become more
competitive in the future. The Company will be competing with numerous other
companies providing similar long-term care alternatives such as home health
agencies, life care at home, community-based service programs, retirement
communities and convalescent centers. While there presently are few assisted
living residences existing in the markets the Company intends to serve, the
Company expects that as assisted living receives greater attention competition
will grow from new market entrants, including companies focused primarily on
assisted living. Nursing facilities that provide long-term care services are
also a potential source of competition for the Company.
The Company believes that there is moderate competition for less expensive
segments of the private market and for Medicaid patients in small communities.
Management's experience indicates that seniors who move into assisted living
facilities frequently choose facilities near their homes, therefore the
Company's major competitors are other long-term care facilities within the same
geographic area as its facilities.
Goverment Funding
Assisted living residents or their families generally pay the cost of care
from their own financial resources. Depending on the nature of an individual's
health insurance program or long-term care insurance policy, the individual may
receive reimbursement for costs of care under an "alternative care benefit."
Government payments for assisted living have been limited. Some state or local
governments offer housing subsidies for rent or housing related services for low
income elders. Others may provide subsidies in the form of additional payment
for those who receive Supplemental Security Income ("SSI"). Medicaid provides
insurance for certain financially or medically needy persons, regardless of age,
and is funded jointly by federal, state and local governments. Medicaid
reimbursement varies from state to state. Although a majority of the Company's
revenues comes from private
46
<PAGE>
payors, the cost structure of the facilities has historically been, and is
expected to continue to be, sufficiently low so that the facilities are able
to operate profitably even if all of their revenues are derived through
Medicaid reimbursements. Government funding for assisted living is currently
limited.
In 1981, the federal government approved a Medicaid waiver program called
Home and Community Based Care which was designed to permit states to develop
programs specific to the health care and housing needs of the low-income elderly
eligible for nursing home placement (a "Medicaid Waiver Program"). In 1986,
Oregon became the first state to use federal funding for licensed assisted
living services through a Medicaid Waiver Program authorized by the Health Care
Financing Administration ("HCFA"). Under a Medicaid Waiver Program, states apply
to HCFA for a waiver to use Medicaid funds to support community-based options
for low-income elderly who need long-term care. These waivers permit states to
reallocate a portion of Medicaid funding for nursing facility care to other
forms of care such as assisted living. In 1994, the federal government
implemented new regulations which empowered states to further expand their
Medicaid Waiver Programs and eliminated restrictions on the amount of Medicaid
funding states could allocate to community-based care, such as assisted living.
A limited number of states currently have such programs operating that allow
them to pay for assisted living care. Without a Medicaid Waiver Program, states
can only use federal Medicaid funds for long-term care in nursing facilities.
The Company expects that state Medicaid and Medicare reimbursement programs
will constitute an additional source of future revenue for the Company at its
skilled nursing and rehabilitation centers. Medicaid programs typically provide
for fixed rate payment to health care providers. Providers must accept
reimbursement from medicaid as payment in full for all covered services rendered
to medicaid patients. Medicare is a federally funded and administered health
insurance program that provides coverage for a wide range of health care
services, including intensive rehabilitation, skilled nursing and certain
related medical services. With respect to skilled nursing and rehabilitation,
Medicare is a retrospective payment system in which each facility receives an
interim payment during the year, which is later adjusted to reflect actual
allowable direct and indirect costs of services based on the submission of a
cost report at the end of each year. There can be no assurance that either
Medicaid or Medicare will pay rates that recognize all of the Company's costs of
providing services to residents covered by those programs.
Government Regulation
The health care industry is subject to substantial 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 properties 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 health care industry.
Many of the states in which the Company operates have adopted certificate
of need statutes applicable to the skilled nursing services provided by the
Company. Such statutes provide generally that, prior to the addition of new
services or the making of certain capital expenditures exceeding defined levels,
a state agency must determine that a need exists for such proposed activities.
Failure to obtain the necessary state approval can result in the inability to
provide the service, operate the facility or complete the addition or other
change, and can also result in the imposition of sanctions or adverse action in
respect of the facility's license and reimbursement. To date, the Company has
generally not experienced any difficulty in obtaining such state approvals where
required.
The ability of the Company to operate profitably will depend in part upon
the Company obtaining and maintaining all necessary licenses, certificates of
need and other approvals and operating in compliance with applicable health care
regulations.
Under Massachusetts law, if any person owns, directly and/or indirectly, 5%
or more of the outstanding shares or certain obligations of a health care
provider, then such provider must disclose certain information about such person
to the Massachusetts Department of Public Welfare. If any person owns 10% or
more of the outstanding shares of the Company, then the Company may be required
to identify such person to the Massachusetts Department of Public Health and to
disclose to the Massachusetts Rate Setting Commission any transactions between
such persons and any facility operated by the Company, as the case may be, in
Massachusetts. Under New York regulations, a corporation may not be licensed to
operate certain health care facilities unless all of its stockholders are
specifically identified, approved individuals or are corporations, trusts,
partnerships and other entities owned by such individuals. Other states as well
as the U.S. Department of Health and Human Services may have similar
47
<PAGE>
requirements to disclose the names of persons or entities owning more than
certain specified percentages of the outstanding securities of corporations.
In Massachusetts, assisted living facilities must be certified by the
Department of Elder Affairs. The Department's regulations set forth requirements
relating to disclosure of ownership interests, physical plant requirements,
service standards and service plans, record keeping, staffing and training. The
regulations set forth the rights of assisted living residents and required
provisions of residency agreements. Failure to observe the Department's
regulations could result in the suspension or loss of certification of the
facility. The Company believes that its Massachusetts facilities currently meet
the requirements of the Department's regulations. Assisted living facilities are
generally subject to less extensive regulation than skilled nursing facilities.
Some residents may require ancillary health services from time to time,
such as skilled nursing, therapy, pharmacy or other health services. In
Massachusetts, these services must be provided by persons or entities that are
specifically licensed or certified, as applicable, to provide such other health
care services. The Company may from time to time enter into agreements with
other entities to provide ancillary services where it is not itself licensed or
certified to provide them.
Investigations or reviews conducted by state regulators also may adversely
affect the Company. From December 1994 until March 1995, the State of Florida
conducted a review of operating policies and procedures at Standish's Lowry
facility, during which time the community was subject to a moratorium imposed by
the State on the admission of new residents pending correction of various
deficiencies. Revenue at that facility has been adversely affected as a result
of the moratorium.
In certain states, the Company's assisted living facilities are subject to
certain state regulations and licensing requirements. In order to qualify as a
state licensed facility and therefore eligible to receive Medicaid funding, the
Company's facilities must comply with regulations which address, among other
things, staffing, physical design, required services and resident profile. The
Company expects that it will obtain licenses in states as required. The
Company's residences are also subject to various local building codes and other
ordinances, including fire safety codes. These requirements vary from state to
state and are monitored, to varying degrees, by state agencies.
In order to participate in the Medicare program, a skilled nursing facility
must be licensed and certified as a provider of skilled nursing services.
Effective October 1, 1990, the Omnibus Budget Reconciliation Act of 1987
("OBRA") eliminated the different certification standards for "skilled" and
"intermediate care" nursing facilities under the Medicaid program in favor of a
single "nursing facility" standard. This standard requires, among other things,
that the Company have at least one registered nurse on each day shift and one
licensed nurse on each other shift, and increases training requirements for
nurse's aides by requiring a minimum number of training hours and a
certification test before a nurse's aide can commence work. States continue to
be required to certify that nursing facilities provide "skilled care" in order
to obtain Medicare reimbursement.
The laws of many states prohibit physicians from splitting fees with
non-physicians and prohibit non-physician entities from practicing medicine.
These laws vary from state to state and are enforced by the courts and by
regulatory authorities with broad discretion. Although the Company believes its
operations are in compliance with such laws, the Company's business operations
have not been the subject of judicial or regulatory interpretation. There can be
no assurance that review of the Company's business by courts or regulatory
authorities will not result in determinations that could adversely affect the
operations of the Company or that the health care regulatory environment will
not change so as to restrict the Company's existing operations or their
expansion. In addition, the regulatory framework of certain jurisdictions may
limit the Company's expansion into such jurisdictions if the Company is unable
to modify its operational structure to conform with such regulatory framework.
Federal and state anti-remuneration laws, such as the Medicare/Medicaid
anti-kickback law, govern certain financial arrangements among health care
providers and others who may be in a position to refer or recommend patients to
such providers. These laws prohibit, among other things, certain direct and
indirect payments that are intended to induce the referral of patients to, the
arranging for services by, or the recommending of, a particular provider of
health care items or services. The Medicare/Medicaid anti-kickback law has been
broadly interpreted to apply to certain contractual relationships between health
care providers and sources of patient referral. Similar state laws vary from
state to state, are sometimes vague and seldom have been interpreted by courts
or regulatory agencies. Violation of these laws can result in loss of licensure,
civil and criminal penalties, and exclusion of health care providers or
suppliers from participation in (i.e., furnishing covered items or services to
beneficiaries of) the
48
<PAGE>
Medicare and Medicaid programs. Although the Company receives only a small
portion of its total revenues from certain Medicaid waiver programs and is
otherwise not a Medicare or Medicaid provider or supplier, it is subject to
these laws because (i) the state laws typically apply regardless of whether
Medicare or Medicaid payments are at issue and (ii) as required under some
state licensure laws, and for the convenience of its residents, some of the
Company's assisted living residences maintain contracts with certain health
care providers and practitioners, including pharmacies, visiting nurse
organizations and hospices, through which the health care providers made
their health care items or services (some of which may be covered by Medicare
or Medicaid) available to the Company's residents. There can be no assurance
that such laws will be interpreted in a manner consistent with the practices
of the Company.
In addition, 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 adversely affect 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 a 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 well as
certain other costs, including governmental fines and injuries to persons or
properties. See "Risk Factors--Environmental Risks."
The Company believes that the structure and composition of government, and
specifically health care, regulations will continue to change and, as a result,
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.
Insurance
Health care companies are subject to medical malpractice, personal injury
and other liability claims which are customary risks inherent in the operation
of health facilities and are generally covered by insurance. The Company
maintains property, liability and professional malpractice insurance policies in
amounts and with such coverages and deductibles which are deemed appropriate by
management, based upon historical claims, industry standards, and the nature and
risks of its business. The Company provides medical malpractice insurance for
its employee physicians and also requires that non-employee physicians
practicing at its facilities carry medical malpractice insurance to cover their
respective individual professional liabilities. The Company currently maintains
professional liability insurance and general liability insurance. The Company's
medical professional liability coverage is limited to $1.0 million per
occurrence and $2.0 million in the aggregate for all claims per annual policy
period. The non-medical, management professional liability insurance coverage is
limited to $1.0 million per wrongful act and $1.0 million in the aggregate. The
general liability insurance is limited to $1.0 million per occurrence and $2.0
million in the aggregate. The Company also has an umbrella excess liability
protection policy in the total amount of $10.0 million. There can be no
assurance that a future claim will not exceed available insurance coverages or
that such coverages will continue to be available for the same scope at
reasonable premium rates. Any substantial increase in the cost of such insurance
or the unavailability of any such coverages could have an adverse effect on the
Company's business.
Employees
As of September 30, 1996, the Company had approximately 300 full-time
employees. In addition, administrators of certain managed communities, while not
employees of the Company, are under supervision of the Company. None of the
employees is represented by a union. The Company considers its employee
relations to be good. Although the Company believes it is able to employ
sufficient skilled personnel to staff the communities it operates or manages, a
shortage of skilled personnel in any of the geographic areas in which it
operates could adversely affect the Company's ability to recruit and retain
qualified employees and its operating expenses.
49
<PAGE>
Legal Proceedings
The Company is involved in various lawsuits and claims arising in the
course of its business. In the opinion of management of the Company, although
the outcomes of these suits and claims are uncertain, in the aggregate they
should not have a material adverse effect on the Company's business, financial
condition and results of operations.
50
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning each of the
persons who are directors or executive officers of the Company.
Name Age Position
- ------------------- -- --------------------------------------------
Abraham D. Gosman 67 Chairman of the Board; Director
Andrew D. Gosman 30 Vice Chairman; Executive Vice President; Director
Michael J. Doyle 38 Chief Executive Officer; Director
Robert M. Kaufman 47 President
Michael M. Gosman 33 Executive Vice President--Acquisition and
Development; Director
James M. Clary, III 35 Executive Vice President, General Counsel and
Secretary
Joel A. Kanter 46 Executive Vice President
Harold E. Nash, III 43 Executive Vice
President--Construction/Planning and Zoning
Marc H. Benson 40 Chief Operating Officer
Donald J. Amaral 43 Director
H. Loy Anderson, Jr. 52 Director
Rev. Bedros Baharian 79 Director
Stephen E. Ronai 59 Director
Abraham D. Gosman has served as Chairman of the Board of Directors of the
Company since September 27, 1996. He has also served since January 1996 as the
Chairman of the Board of Directors, President and Chief Executive Officer of
PhyMatrix Corp. Prior to that, he founded and was the principal owner of The
Mediplex Group, Inc. ("Mediplex"), a diversified health care company, and its
predecessor companies for more than 15 years, with the exception of a period
from April 1986 to August 1990 when Mediplex was owned by Avon Products, Inc.
("Avon"). He was the Chief Executive Officer of Mediplex from its inception to
September 1988 and assumed that position again after Mediplex was purchased from
Avon in August 1990. In addition, he has served as Chairman of the Board of
Trustees and Chief Executive Officer of Meditrust, the nation's largest health
care real estate investment trust, since its inception in 1985.
Andrew D. Gosman has served as Vice Chairman of the Board of Directors and
Executive Vice President of the Company since September 27, 1996 and as
President of Pre-Merger CareMatrix from January through July 1996. Previously,
he served as Executive Vice President of Development for Continuum Care
Corporation ("Continuum"), from June, 1994 to January 1996. He has also served
as a Vice President of AMA Funding Corporation and AMA Venture Corporation, two
closely held investment and development concerns, since March 1992. He has
participated in a number of health care venture capital transactions.
Michael J. Doyle has served as Chief Executive Officer and a member of the
Board of Directors of the Company since September 27, 1996. Mr. Doyle, the
founder of Standish, served as the Chief Executive Officer of the Company from
its inception in 1989 and also as its Chairman from January 1994 to September
1996. From 1984 to 1986, Mr. Doyle served as the Director of Development for the
Hillhaven Corporation, an owner and operator of assisted living, independent
living communities and nursing facilities. From 1986 to October 1989, Mr. Doyle
served as vice president of Voluntary Hospitals of America Development Company,
a developer and operator of senior living communities and related projects. Mr.
Doyle is a member of the American College of Health Care Executives and a
director of the Assisted Living Facilities Association of America and the
Massachusetts Assisted Living Facilities Association. He is also a corporator of
Lawrence Memorial Hospital.
Robert M. Kaufman has served as President of the Company since September
27, 1996 and as President of Pre-Merger CareMatrix since July 9, 1996.
Previously, he spent the last twenty-four years with Coopers & Lybrand L.L.P.,
the last fifteen as a partner. He has specialized in the for-profit healthcare,
real estate and retail/consumer products industries. Mr. Kaufman has significant
experience advising companies in the long-term care, senior housing and
physician practice sectors in such areas as business and strategic planning,
deal negotiations and structure, public and private financing, real estate
development and management. In addition, he has been a member
51
<PAGE>
of Coopers & Lybrand's mergers and acquisitions group and served on their
Board of Partners, the Firm's nationally elected oversight committee.
Michael M. Gosman has served as a member of the Board of Directors and
Executive Vice President-Acquisition and Development of the Company since
September 27, 1996 and as Executive Vice President-Assisted Living of Pre-Merger
CareMatrix from January 1996 until the closing of the Merger. Previously, he
served as the Executive Vice President of Finance and Administration for
Continuum, from June 1994 to January 1996. He served as the Director of Special
Projects for Diamond Health Group, Inc. where he was responsible for organizing
financing packages and structuring acquisitions, from January, 1990 to June
1993. Prior to that, he was a financial analyst for Meditrust.
James M. Clary, III has served as Executive Vice President, General Counsel
and Secretary of the Company since September 27, 1996 and as Executive Vice
President, General Counsel and Secretary of Pre-Merger CareMatrix from December
1995 until the closing of the Merger. Previously, he served as Legal Counsel and
Senior Vice President for Continuum. Prior to that, he served as Associate
Counsel to Meditrust, from June 1993 to August 1994. Prior to joining Meditrust,
Mr. Clary was a Senior Associate with the Boston law firm of Choate, Hall &
Stewart, from December 1991 to June 1993, and the Boston law firm of Nutter,
McClennen & Fish, from October 1987 to December 1991, where he specialized in
the areas of real estate, health care, and corporate law.
Joel A. Kanter has served as Executive Vice President of the Company since
September 27, 1996 and as Executive Vice President of Pre-Merger CareMatrix from
December 1995 until the closing of the Merger. Previously, he served as Senior
Vice President of Development and Acquisitions for Continuum from June 1994 to
January 1996. Prior to that, he served since April 1986 in a variety of
development capacities with Mediplex, including terms as its Senior Vice
President of Administration and Senior Vice President of Development. From 1981
through 1986, Dr. Kanter served as the Director of the Massachusetts State
Senate's Committee on Post Audit and Oversight.
Harold E. Nash, III has served as Executive Vice President of
Construction/Planning and Zoning of the Company since September 27, 1996 and as
Executive Vice President of Pre-Merger CareMatrix from August 1996 until the
closing of the Merger. From 1991 to March 31, 1996, he served as Vice President
of Suffolk Construction Company, Inc., with primary responsibility as Director
of Design Build Services and Pre-Construction Services. Prior to joining Suffolk
Construction Company, Mr. Nash was a Vice President of two diversified
development companies from 1984 to 1991.
Marc H. Benson has served as Chief Operating Officer of the Company since
September 27, 1996 and as Chief Operating Officer of Pre-Merger CareMatrix from
August 25, 1996 until the closing of the Merger. Previously, he served as a Vice
President/Director of Operations for ManorCare, Inc.'s southeast district where
he had primary operating responsibility for ManorCare, Inc.'s assisted living
and Alzheimer's facilities in the southeastern portion of the United States,
from September 1995 to July 1996. Prior to joining ManorCare, Inc., Mr. Benson
served as Director of Operations for Beverly Enterprises where he managed senior
housing, assisted living, skilled nursing and home health care centers in seven
states from 1992 to September 1995. He served as Director of Finance of the
Retirement Living Division Beverly Enterprises from 1990 to 1992.
Donald J. Amaral has served as a director of the Company since September
27, 1996. Mr. Amaral has served as director, President and Chief Executive
Officer of Coram HealthCare Corp. since October 13, 1995. Previously, he was
President and Chief Operating Officer of OrNda Healthcorp ("OrNda") from April
1994 to August 1995, and served in various executive positions with Summit
Health Ltd. ("Summit") from October 1989 to April 1994, including President and
Chief Executive Officer between October 1991 and April 1994. Summit was merged
into OrNda in April 1994. Prior to joining Summit, Mr. Amaral was President and
Chief Operating Officer of Mediplex from 1986 until October 1989. Mr. Amaral is
also a member of the Board of Directors of Summit Care Corporation.
H. Loy Anderson, Jr. has served as a director of the Company since
September 27, 1996. He has served as President, Chief Executive Officer and a
director of Palm Beach National Bank & Trust Company since June 1990.
Rev. Bedros Baharian has served as a director of the Company since
September 27, 1996. Rev. Baharian is a consultant and private investor. He has
also served as Chairman of the Board of FACT Retirement Services, a
not-for-profit owner and manager of continuing retirement communities in
California since 1994. He served as Chairman of the Board of Teachers Assistance
Life Care Centers, Inc. from 1990 to 1993 and as a board member
52
<PAGE>
of Casa de las Campanas from 1990 to 1994. He is a founder and past president
of the New England Elderly Housing Association.
Stephen E. Ronai has served as a director of the Company since September
27, 1996. Mr. Ronai has been a partner in the Connecticut law firm of Murtha,
Cullina, Richter and Pinney since 1984 where he serves as Chairman of the firm's
Health Care Department. He is a member of the American Academy of Healthcare
Attorneys of the American Hospital Association, and from 1989 to 1995, he served
as a member of the Board of Directors of the National Health Lawyers
Association. Mr. Ronai has been a director of PhyMatrix Corp. since January
1996.
Officers are appointed by and serve at the discretion of the Board of
Directors. The officers, other than Abraham D. Gosman, will devote a majority or
substantially all of their business time to the business and affairs of the
Company. Andrew D. Gosman and Michael M. Gosman are sons of Abraham D. Gosman.
No other family relationship exists among the Company's directors and executive
officers.
Executive Committee. The members of the Executive Committee of the
Company's Board of Directors are Messrs. Andrew D. Gosman, Doyle, Amaral and
Rev. Baharian. The Executive Committee exercises all the powers of the Board of
Directors between meetings of the Board of Directors, except such powers as are
reserved to the Board of Directors by law.
Audit Committee. The members of the Audit Committee of the Company's Board
of Directors are Messrs. Amaral, Anderson and Rev. Baharian, all of whom are
independent directors. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
public accountants the plans for and results of the audit, approves professional
services provided by the independent public accountants, reviews the
independence of the independent public accountants, considers the range of audit
and non-audit fees and reviews the adequacy of the Company's internal accounting
controls.
Compensation Committee. The members of the Compensation Committee of the
Company's Board of Directors are Michael M. Gosman and Stephen E. Ronai. The
Compensation Committee establishes a general compensation policy for the Company
and approves increases both in directors' fees and in salaries paid to officers
and senior employees of the Company. The Compensation Committee administers all
of the Company's employee benefit plans. The Compensation Committee determines,
subject to the provisions of the Company's plans, the directors, officers and
employees of the Company eligible to participate in any of the plans, the extent
of such participation and terms and conditions under which benefits may be
vested, received or exercised. There are no interlocks among the members of the
Compensation Committee.
Executive Compensation
The Company. The current annual salaries for the nine executive officers of
the Company aggregate $1,610,000. No executive officer of the Company receives
an annual salary in excess of $250,000, exclusive of discretionary bonuses and
other forms of compensation.
Pre-Merger CareMatrix. During the period from June 24, 1994 (inception)
through December 31, 1994, and during the year ended December 31, 1995, there
were no executive officers of Pre-Merger CareMatrix whose salary and bonus paid
or accrued by Pre-Merger CareMatrix exceeded $100,000 because management
services for the Company were purchased from Continuum Care of Massachusetts,
Inc., a corporation owned primarily by Abraham D. Gosman, certain members of his
family and the Company's senior management.
Standish. As required by the regulations promulgated under the Securities
Act, the following Summary Compensation Table sets forth the annual and
long-term compensation paid by Standish with regard to 1993, 1994 and 1995 to
Mr. Doyle, its Chief Executive Officer, and to the other individuals who served
as executive officers of Standish as of December 31, 1995 and whose cash
compensation exceeded $100,000 for services in all capacities to Standish.
Information regarding the annual and long-term compensation paid by Standish to
individuals who formerly served as executive officers of Standish and whose cash
compensation exceeded $100,000 during the fiscal year ended December 31, 1995 is
set forth in the footnotes to the Summary Compensation Table.
53
<PAGE>
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Securities
Other Underlying
Name and Bonus Annual Options/SARs($) All Other
Principal Position Year Salary ($) ($) Compensation($) (2) Compensation
- ------------------ -- -------------- ------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Doyle, 1995 157,500(3) **(4) -- 50,000(7)
Chairman and Chief 1994 150,000 * * ** (5)
Executive Officer 1993 150,000 19,500 19,528 50,000
Michael J. Brenan, 1995 67,998(3)(6) **(4) **(6) 45,000(7)
President and
Chief
Operating Officer
Kenneth M. Miles, 1995 90,000(3) * *(8) 35,000(7)
Chief Financial 1994 * * * **
Officer and 1993 * ** ** 19,500
Treasurer
C. Joel Glovsky, 1995 150,000(3) ** -- **
Executive Vice 1994 150,000 * 22,000(9) **
President 1993 127,500 19,500 * 15,000
</TABLE>
* Amount insufficient to be reportable under applicable rules of the
Commission.
** No such awards were made to the individual during the relevant fiscal
years.
(1) In addition to the information shown on the table above in respect of the
four named executive officers (the "Named Executive Officers"), during
1994 the Company paid a salary of $95,000 to Christopher W. Hollister,
who resigned from his position as the Company's Executive Vice President
and a director effective May 1995. During 1994, Mr. Hollister received a
housing relocation allowance of $25,000 and an automobile allowance of
$8,000. During 1994, the Company also paid salary in the amount of
$101,327 to G. Faye Godwin, who resigned from her position as the
Company's Chief Operating Officer in May 1995. During 1994 the Company
granted options to Ms. Godwin under its 1991 Combination Stock Option
Plan (the "Plan") to purchase 50,000 shares of its Common Stock at a
price of $6.25 per share. Two-thirds of those options had not vested and
expired in May 1995 upon the termination of her employment. In accordance
with the terms of the Plan. Ms. Godwin's remaining options expired within
three months of her departure from the Company.
(2) In February 1995, the Company adjusted the exercise price of shares
issuable upon exercise of stock options previously awarded or granted to
the Named Executive Officers by replacing such options with a like number
of options repriced to $2.00 per share, which was the closing bid price
for the Common Stock as reported by Nasdaq for the day preceding the date
such repricing was authorized.
(3) All compensation figures shown for 1995 reflect the amounts which the
named executive officer received by year end at the annual base salary
increased from $150,000 to $165,000 as of July 1, 1995. Mr. Brenan's
employment with the Company commenced as of July 25, 1995 at an annual
base salary of $150,000. Mr. Miles annual base salary increased from
$75,000 to $105,000 as of July 1, 1995. Dr. Glovsky's annual base salary
was $150,000.
(4) Bonus compensation, if any, is determined by the Company's Board of
Directors in its sole discretion up to 40%, 30% and 25% of the annual
base salaries of Messrs. Doyle, Brenan and Miles, respectively. No
bonuses were paid in 1995.
(5) Under the terms of his employment agreement, Mr. Doyle is entitled to
receive an automobile allowance of $10,000 per annum and payment of
premiums of approximately $624 on a life insurance policy for a
beneficiary designated by Mr. Doyle. During 1993, Mr. Doyle received an
automobile allowance of $10,000 and a housing relocation allowance of
$9,000.
(6) Under the terms of his employment agreement, Mr. Brenan was entitled to
receive an automobile allowance of $6,000 per annum. Mr. Brenan resigned
from his position as President and Chief Operating Officer of the Company
and Director effective August 15, 1996. For amounts of consulting fees, a
lump sum severance payment and other sums and benefits payable to Mr.
Brenan under the Termination Agreement, see "--Termination Agreements."
54
<PAGE>
(7) Stock options were granted to each of Messrs. Doyle, Brenan and Miles,
dated as of July 1, 1995 at an exercise price per share as established in
September 1995 at $2.38 per share. In the case of Messrs. Doyle and
Miles, the options vest over two years, with one-third vesting on the
date of grant and an additional one-third on each anniversary provided
that the grantee remains in the employ of the company. In the case of Mr.
Brenan, vesting of his options was accelerated under this Termination
Agreement. See "--Employment Agreements" and "--Termination Agreements."
(8) Under the terms of his employment agreement, Mr. Miles is entitled to
receive an automobile allowance of $6,000 per annum, effective as of
March 1, 1996.
(9) During 1994 Dr. Glovsky received an automobile allowance of $9,492 and
the Company paid premiums in the amount of $12,508 on an insurance policy
on Dr. Glovsky's life for a beneficiary to be designated by him. Dr.
Glovsky retired from his position as an Executive Vice President of the
Company and director effective December 31, 1995. For amounts of
severance pay and other sums and benefits to be paid or granted to Dr.
Glovsky in connection with his early retirement from the Company. See
"--Termination Agreements."
Compensation of Directors
Officers who are members of the Board of Directors do not receive
compensation for serving on the Board. Each other member of the Board receives
annual compensation of $15,000 for serving on the Board, plus a fee of $1,000
for each Board of Directors' meeting attended and $500 for telephonic meetings.
In addition, such directors receive an additional fee of $500 for each committee
meeting attended, except that only one fee will be paid in the event that more
than one such meeting is held on a single day. All directors receive
reimbursement of reasonable expenses incurred in attending Board and committee
meetings and otherwise carrying out their duties.
Employment Agreements
The Company currently has employment agreements with Mr. Doyle, Chief
Executive Officer, Mr. Miles, Senior Vice President of Finance and Mr. Benson,
Chief Operating Officer. The employment agreement with Mr. Doyle, as amended
effective as of September 27, 1996, provides for an initial employment term
ending December 31, 1999, continuing thereafter on year-to-year renewal terms,
subject to either the Company's or the employee's electing not to renew, an
annual base salary of $250,000 through December 31, 1999, bonus compensation to
be determined by the Board of Directors of the Company in its sole discretion,
restrictions against competition with the Company, an automobile allowance of
$10,000 per annum and payment of premiums (amounting to approximately $6,300 in
1995) on a life insurance policy in the amount of $500,000 for a beneficiary to
be designated by Mr. Doyle. Such policy is in addition to the key man life
insurance policy to be maintained by and for the benefit of the Company.
The employment agreement between the Company and Mr. Miles is similar in
structure to Mr. Doyle's, and contains substantially the same provisions, except
that Mr. Miles' agreement provides for a term through December 31, 1998, subject
to renewal on a year-to-year basis, except that Mr. Miles agreement provides for
an annual base salary of $125,000 plus bonus compensation to be determined by
the Board of Directors in its sole discretion, but makes no provision for life
insurance.
Both of the employment agreements described above provide also that if the
employee's employment terminates within a 24-month period following the
occurrence of certain changes in control because, among other events, either (a)
his employment is not renewed by the Company, (b) his employment is
involuntarily terminated other than for cause as of a date prior to the end of
the initial term or any renewal term or (c) a change in his duties occurs, he is
entitled to receive a lump sum severance payment within 30 days after ceasing to
be employed equal to 2.99 times (in the case of Mr. Doyle) and 1.0 times (in the
case of Mr. Miles) the yearly average total compensation (consisting of base
salary and any cash bonus) payable with respect to the previous five full
calendar years.
The employment agreement between the Company and Mr. Benson provides for an
initial employment term ending August 26, 1999 and continuing thereafter on a
year-to-year basis, subject to the Company's or Mr. Benson's election not to
renew. The agreement provides for an annual base salary of $175,000, bonus
compensation granted in the sole discretion of the Company, a monthly car
allowance of $550 and a grant of options to purchase 131,000 shares of Common
Stock at an exercise price of $4.00 per share vesting in equal increments over
three years beginning in August 1997. Mr. Benson's agreement may be terminated
by the Company without cause upon written notice or by Mr. Benson in the event
of a failure of the Company to substantially perform its duties under the
55
<PAGE>
agreement. Upon any such termination, Mr. Benson would be entitled to receive
his salary payments for the twelve months following such termination.
Termination Agreements
During 1995, the Company also had an employment agreement with Dr. Glovsky,
which provided for a term of employment through December 31, 1997, a base annual
salary of $150,000 and various other benefits. On December 29, 1995, the Company
and Dr. Glovsky, a co-founder, director and officer of the Company, entered into
an Early Retirement and Non-Competition Agreement (the "Early Retirement
Agreement"). Under the terms of the Early Retirement Agreement, Dr. Glovsky
resigned as a director and an officer of the Company effective December 31,
1995, the Company and Dr. Glovsky agreed to terminate his employment agreement
which was scheduled to expire on December 31, 1997 and the Company agreed to
enter into a five year consulting arrangement. Under the Early Retirement
Agreement, Dr. Glovsky will provide services to the Company on an as needed
basis over the next five years. The Company will pay Dr. Glovsky $60,000 per
annum for these services and will also provide Dr. Glovsky with health
insurance, life insurance and certain other benefits through 1997. As part of
the Early Retirement Agreement, the Company also agreed to forgive loans
totalling approximately $139,000 (including interest) that the Company had
extended to Dr. Glovsky as well as pay approximately $49,900 for income taxes on
behalf of Dr. Glovsky for the forgiveness of these loans. the Company also
entered into a non-compete agreement with Dr. Glovsky providing for payments
totalling $40,000 under a promissory note and fully vested Dr. Glovsky's stock
options.
Until Dr. Glovsky's shares of the Company Common Stock beneficially owned
by him are acquired as part of a merger or take-over proposal at a per share
value of at least $5.00 or are otherwise disposed by Dr. Glovsky, whichever
shall occur first, but not after December 31, 1996, Dr. Glovsky's monthly
consulting fee under the Early Retirement Agreement will be increased by $4,000
per month and his non-compete note is subject to adjustment and Dr. Glovsky has
the right to require the Company to purchase up to 65,000 of his shares at a
purchase price of $6.00 per share.
During 1995 and 1996, the Company had an employment agreement with Michael
J. Brenan, which provided for a term of employment through December 31, 1997, a
base salary of $150,000 and various other benefits. Effective August 15, 1996,
Mr. Brenan resigned as a Director, officer and employee. In August 1996, the
Company and Michael J. Brenan, the then President and Chief Operating Officer of
the Company, entered into an agreement (the "Termination Agreement") under which
Mr. Brenan resigned as a Director and Officer of the Company and his employment
was terminated. Mr. Brenan has agreed to make himself available to provide
consulting services for which he would be entitled to receive consulting fees of
approximately $12,500 per month, payable through the consummation of the Merger.
Under the Termination Agreement, the Company made a lump sum severance payment
to Mr. Brenan in the amount of $150,000 (less any consulting fees previously
paid) will provide family health insurance through December 31, 1996 and a
moving allowance not to exceed $5,000. The Termination Agreement also provides
for acceleration of the vesting of Mr. Brenan's unexercised stock options to
purchase 45,000 shares of Common Stock at a purchase price of $2.38 per share.
In addition, the Termination Agreement prohibits Mr. Brenan, for a period of one
year beginning September 27, 1996 from engaging in any competing activity within
a twenty-mile radius of any offices or Company-operated communities, facilities
or development sites.
Limitation of Liability and Indemnification Agreements
As permitted by the Delaware General Corporation Law, the Company's
Restated Certificate of Incorporation provides for the elimination, subject to
certain conditions, of the personal liability of directors of the Company for
monetary damages for breach of their fiduciary duties.
The Company's By-Laws provide for the indemnification of directors and
officers. In addition, the Company has entered into indemnification agreements
with each of its directors. The Company may also enter into similar agreements
with certain of the Company's officers who are not also directors. Generally,
the Company's By-Laws and the indemnification agreements attempt to provide the
maximum protection permitted by Delaware law with respect to indemnification of
directors and officers.
The indemnification agreements, like the Company's By-Laws, provide that
the Company will pay certain amounts incurred by a director or officer in
connection with any civil or criminal action or proceeding, and specifically
including actions by or in the name of the Company (derivative suits), where the
individual's
56
<PAGE>
involvement is by reason of the fact that he is or was a director or officer.
Such amounts include, to the maximum extent permitted by law, attorney's
fees, judgments, civil or criminal fines, settlement amounts, and other
expenses customarily incurred in connection with legal proceedings. Under the
indemnification agreements and the Company's By-Laws, a director or officer
will not receive indemnification if he is found not to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Company.
Stock Option Plans
The Company's 1991 Combination Stock Option Plan (as amended and restated
to date, the "Stock Option Plan") was adopted initially in October 1991, and has
been amended several times subsequently, most recently at the Special Meeting of
Stockholders held September 26, 1996, in order to increase the number of shares
of Common Stock reserved for issuance under it. The number of shares currently
reserved for issuance under the Stock Option Plan is 2,000,000. The purpose of
the Stock Option Plan is to provide long-term incentives and rewards to the
Company's key employees, officers, directors and others in a position to
contribute to the success of the Company.
Under the Stock Option Plan, the Company may grant both incentive stock
options intended to qualify under Section 422 of the Internal Revenue Code of
1986, as amended ("incentive stock options"), and options which are not
qualified as incentive stock options ("non-qualified stock options"). Incentive
stock options may be granted only to persons who are employees of the Company at
the time of the grant, which may include officers and directors (other than
members of the Compensation Committee) who are also employees. Non-qualified
stock options may be granted to officers, directors (other than members of the
Compensation Committee) or employees of, or consultants or advisors to, the
Company at the time of the grant, and other persons, provided that directors who
serve on the Compensation Committee are not eligible to receive options under
the Stock Option Plan.
No stock appreciation rights have been granted by the Company. None of the
Named Executive Officers exercised stock options during 1995, and no stock
options were repriced during 1995, except on February 18, 1995, as permitted by
the terms of the Stock Option Plan, the Board of Directors determined to make
appropriate adjustments in the exercise price of stock options previously
awarded under the Stock Option Plan to take into account the effect of issuance
of a substantial number of shares of Common Stock pursuant to the exchange offer
(the "Exchange Offer") made by the Company in 1994, pursuant to which, on the
basis of a 2.6:1 ratio, an aggregate of 1,701,180 shares of Common Stock were
issue in exchange for 654,300 shares of Series A Preferred Stock. Pursuant to
the adjustments adopted by the Board of Directors, the Company exchanged options
to purchase an aggregate of 205,700 shares of Common Stock for outstanding
options to purchase a like number of shares and the exercise price was set at
$2.00 per share (the closing sale price as reported by the Nasdaq Small Cap
System for the trading day immediately preceding the Board's determination to
make such adjustment).
Directors who are not also employees of the Company are eligible to
participate in the Company's 1995 Non-Qualified Stock Option Plan. Under the
1995 Non-Qualified Stock Option Plan, each non-employee director, upon becoming
a director, is automatically granted options to purchase 6,000 shares of Common
Stock, subject to vesting over three years, and options to purchase additional
shares hereafter are based upon the formula provisions of said Plan. In June
1995, pursuant to the 1995 Non-Qualified Stock Option Plan, the Company granted
options to purchase 6,000 shares of Common Stock to each of Messrs. DeVore and
Sterman and Dr. Rayport. Dr. Rayport surrendered his options when he resigned as
a director in July 1995.
OPTIONS GRANTS IN 1995
Individual Grants
----------------------------------------------------
Number of % of Total Exercise
Securities Options or
Underlying Granted to Base
Options Employees in Price Expiration
Name Granted(#) 1995 ($/sh) Date
------------------ ---------- ------------- ------- -----------
Michael J. Doyle 50,000 23.9% $2.38 7/1/05
Michael J. Brenan 45,000 21.5% $2.38 7/1/05
Kenneth M. Miles 35,000 16.7% $2.38 7/1/05
None of the Named Executive Officers exercised stock options during 1995,
and no stock options were repriced during 1995 except, as noted above, action by
the Board of Directors to reprice outstanding stock options was taken in
February 1995. In June 1996, Standish granted to Messrs. Doyle and Miles stock
options to purchase 50,000
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<PAGE>
and 25,000 shares, respectively (increased upon consummation of the Merger to
500,000 and 250,000 shares, respectively), of Common Stock at an exercise price
of $2.94 per share, the closing sale price of the Common Stock on the Nasdaq
Small Cap System on the date of initial grant authorization. By action taken by
the Standish's Board of Directors on July 29 and August 15, 1996, these options
were modified to provide for immediate vesting in lieu of the original vesting
in installments over two years.
1996 Equity Incentive Plan
In September 1996, the Company adopted the 1996 Equity Incentive Plan (the
"Equity Plan") which provides for the award ("Award") of up to 6 million shares
of Common Stock in the form of incentive stock options ("ISOs"), non-qualified
stock options ("Non-Qualified Stock Options"), bonus stock, restricted stock,
performance stock units and stock appreciation rights. All employees, directors
and consultants of the Company and any of its subsidiaries are eligible to
participate in the Equity Plan.
The Equity Plan is administered by the Compensation Committee (the
"Committee"), which determines who shall receive Awards from those employees and
directors who are eligible to participate in the Equity Plan, the type of Award
to be made, the number of shares of Common Stock which may be acquired pursuant
to the Award and the specific terms and conditions of each Award, including the
purchase price, term, vesting schedule, restrictions on transfer and any other
conditions and limitations applicable to the Awards or their exercise. The
purchase price per share of Common Stock cannot be less than 100% of the fair
market value of the Common Stock on the date of grant with respect to ISOs. ISOs
cannot be exercisable more than ten years following the date of grant and
Non-Qualified Stock Options cannot be exercisable more than ten years and one
day following the date of grant. The Committee may at any time accelerate the
exercisability of all or any portion of any option.
Each Award may be made alone, in addition to or in relation to any other
Award. The terms of each Award need not be identical, and the Committee need not
treat participants uniformly. Except as otherwise provided by the Equity Plan or
a particular Award, any determination with respect to an Award may be made by
the Committee at the time of award or at any time thereafter. The Committee
determines whether Awards are settled in whole or in part in cash, Common Stock,
other securities of the Company, Awards or other property. The Committee may
permit a participant to defer all or any portion of a payment under the Equity
Plan, including the crediting of interest on deferred amounts denominated in
Common Stock. Such a deferral may have no effect for purposes of determining the
timing of taxation of payments. In the event of certain corporate events,
including a merger, consolidation, dissolution, liquidation or the sale of
substantially all of the Company's assets, all Awards become fully exercisable
and realizable.
The Committee may amend, modify or terminate any outstanding Award,
including substituting therefor another Award of the same or a different type,
changing the date of exercise or realization, and converting an ISO to a
Non-Qualified Stock Option, if the participant consents to such action, or if
the Committee determines that the action would not materially and adversely
affect the participant. Awards may not be made under the Equity Plan after
September 1, 2006, but outstanding Awards may extend beyond such date.
The number of shares of Common Stock issuable pursuant to the Equity Plan
may not be changed except by approval of the stockholders. However, in the event
that the Committee determines that any stock dividend, extraordinary cash
dividend, creation of a class of equity securities, recapitalization,
reorganization, merger, consolidation, split-up, spin-off, combination, exchange
of shares, warrants or rights offering to purchase Common Stock at a price
substantially below fair market value, or other similar transaction affects the
Common Stock such that an adjustment is required to preserve the benefits
intended to be made available under the Equity Plan, the Committee may adjust
equitably the number and kind of shares of stock or securities in respect of
which Awards may be made under the Equity Plan, the number and kind of shares
subject to outstanding Awards, and the award, exercise or conversion price with
respect to any of the foregoing, and if considered appropriate, the Committee
may make provision for a cash payment with respect to an outstanding Award. In
addition, upon the adoption of a plan or agreement concerning a change in
control, sale of substantially all the assets, or liquidation or dissolution of
the Company, all Awards which are not then fully exercisable or realizable
become so. Common Stock subject to Awards which expire or are terminated prior
to exercise or Common Stock which has been forfeited under the Equity Plan will
be available for future Awards under the Equity Plan. Both treasury shares and
authorized but unissued shares may be used to satisfy Awards under the Equity
Plan.
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<PAGE>
The Equity Plan may be amended from time to time by the Board of Directors
or terminated in its entirety; however, no amendment may be made without
stockholder approval if such approval is necessary to comply with any applicable
tax or regulatory requirement.
Following the Merger, options to purchase approximately 2,300,000 shares of
Common Stock were issued pursuant to the Equity Plan to employees of Pre-Merger
CareMatrix who became employees of the Company in exchange for options granted
to them in 1996 by Pre-Merger CareMatrix. Such options have an average exercise
price of approximately $2.95 per share. None of such options is exercisable
prior to December 31, 1996.
CERTAIN TRANSACTIONS
For the year ended December 31, 1995 and the period June 24, 1994
(inception) to December 31, 1994, Continuum Care of Massachusetts, Inc., whose
principal stockholder is Abraham D. Gosman, provided management services to the
Company. Fees for these services in the amount of $4,335,655 and $1,638,220,
respectively, have been included in the financial statements and consist of the
following:
June 24, 1994
(Inception) to Year Ended
--------------- ----------------
December 31,
-----------------------------------
1994 1995
--------------- ----------------
Salaries, wages and
benefits $ 579,078 $2,123,152
Supplies 124,726 166,136
Professional fees 260,411 493,269
Utilities 117,374 113,653
Rent 240,239 422,468
Other 316,392 1,016,977
------------- ---------------
$1,638,220 $4,335,655
============= ===============
Such fees were based on the discretion of the parties and may not be indicative
of what they would have been if the Company had performed these services
internally or had contracted for such services with unaffiliated entities.
Payments to Continuum Care of Massachusetts, Inc., for salaries and wages were
substantially reduced subsequent to July 1996.
The Company intends to provide development, management and other services
in connection with the establishment of assisted living facilities, skilled
nursing facilities and other health care facilities to or for the benefit of
Chancellor, which will be the owner of the new facilities. Abraham D. Gosman is
the principal owner of, and certain members of the Company's senior management
and stockholders also have an ownership interest in, Chancellor.
As used herein, a "Chancellor Entity" is Chancellor Senior Housing Group,
Inc. or a company in which Abraham D. Gosman has an ownership interest in excess
of 90%.
The Company has entered into a development agreement, dated March 8, 1996,
with Netwest Development Corporation ("Netwest") and Emerald Springs Associates
General Partnership in which a Chancellor Entity has an 85% interest, to
co-develop an assisted living/supportive independent living facility in Yuma,
Arizona. Pursuant to this agreement, the Company shall receive a development fee
of $125,000.
The Company has entered into a development agreement, dated August 28,
1996, with Netwest and Amethyst Arbor Associates General Partnership, in which a
Chancellor Entity has an 85% interest, to co-develop an assisted
living/supportive independent living facility in Peoria, Arizona. Pursuant to
this agreement, the Company shall receive a development fee of $125,000.
The Company has entered into a turnkey development agreement, dated August
14, 1996, with Atlantic Development Group, LLC and Cambridge House Associates
General Partnership ("Cambridge House Partnership"), in which a Chancellor
Entity has a 70% interest, to co-develop an assisted living facility in
Ossining, New York. Pursuant to this agreement, the Company shall receive a
development fee of $200,000. The Company has also entered into a management
agreement, dated as of August 14, 1996, with Cambridge House Partnership to
manage this facility. Pursuant to this agreement, the Company shall receive a
management fee equal to five percent of gross revenues of the facility (less
contractual adjustments for uncollectible accounts).
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<PAGE>
The Company has entered into a management agreement, dated as of June 25,
1996, with a Chancellor Entity, to manage a facility in Dedham, Massachusetts.
Pursuant to this agreement, which extends for a 10-year period, the Company
shall receive a management fee equal to five percent of gross revenues of the
facility (less contractual adjustments for uncollectible accounts).
The Company has entered into an assignment agreement, dated as of June 25,
1996, with a Chancellor Entity to develop a skilled nursing facility in West
Bridgewater, Massachusetts, in accordance with the turnkey construction
contract, dated April 20, 1995, as amended (the "West Bridgewater Construction
Contract"), between West Bridgewater Medical Investors Limited Partnership and
Continuum Care of West Bridgewater, Inc. Pursuant to the West Bridgewater
Construction Contract, the Company shall receive a development fee of
$1,131,666.
The Company has entered into an assignment agreement, dated as of June 25,
1996, with a Chancellor Entity to develop a skilled nursing facility in Auburn,
Massachusetts, in accordance with the turnkey construction contract, dated March
3, 1994, as amended, between Auburn Medical Investors, Limited Partnership and
Continuum Care Corporation (the "Auburn Construction Contract"). Pursuant to the
Auburn Construction Contract, the Company shall receive a development fee of
$1,243,541.
The Company has entered into an assignment agreement, dated as of June 25,
1996, with a Chancellor Entity to develop a skilled nursing facility in
Plymouth, Massachusetts, in accordance with the turnkey construction contract,
dated March 3, 1994, as amended, between Plymouth Medical Investors Limited
Partnership and Continuum Care Corporation (the "Plymouth Construction
Contract"). Pursuant to the Plymouth Construction Contract, the Company shall
receive a development fee of $1,243,541.
The Company has entered into an assignment agreement, dated as of June 25,
1996, with a Chancellor Entity to develop a skilled nursing facility in Raynham,
Massachusetts, in accordance with the turnkey construction contract, dated March
3, 1994, as amended, between Raynham Medical Investors Limited Partnership and
Continuum Care Corporation (the "Raynham Construction Contract"). Pursuant to
the Raynham Construction Contract, the Company shall receive a development fee
of $1,243,541.
The Company has entered into an assignment agreement, dated as of June 25,
1996, with a Chancellor Entity to develop a skilled nursing facility in
Millbury, Massachusetts, in accordance with the turnkey construction contract,
dated March 3, 1994, as amended, between Sun Health Care Group, Inc. and CCC of
Florida, Inc. (the "Millbury Construction Contract"). Pursuant to the Millbury
Construction Contract, the Company shall receive a development fee of
$1,000,000.
In July 1996, the Company acquired the management contract for the Needham,
Massachusetts facilities from a Chancellor Entity for the negotiated price of
$2.8 million in cash. Pursuant to this agreement, which extends for a 25 year
period, the Company shall receive a management fee equal to five percent of
gross revenues of the facility (less contractual adjustments for uncollectible
accounts).
The Company is currently negotiating a development agreement with The
Cragganmore Associates Limited Partnership, in which a Chancellor Entity has an
80% interest, to develop an assisted living facility in Southington,
Connecticut.
The Company is currently negotiating a development/management agreement
with Stony Brook Court, LLC, in which a Chancellor Entity has a 50% interest, to
be the co-developer and manager of an assisted living facility in Darien,
Connecticut.
Meditrust, a publicly traded real estate investment trust with assets in
excess of $1.7 billion of which Abraham D. Gosman is the Chairman of the Board
and Chief Executive Officer, has provided financing to a skilled
nursing/assisted living facility located in Needham, Massachusetts and owned
principally by Mr. Gosman, in the aggregate amount of $20,109,241 at December
31, 1995.
At December 31, 1995 and December 31, 1994, the Company had borrowed
$9,661,381 and $2,729,791, respectively, from Mr. Gosman. Interest on such
outstanding indebtedness at the prime rate of interest during the year ended
December 31, 1995 and the period June 24, 1994 (inception) to December 31, 1994
was $543,571 and $55,856, respectively. The borrowings from Mr. Gosman have a
maturity date of January 1998. Interest on the borrowings is payable upon
demand. Prior to the completion of the Offering and at Mr. Gosman's sole
discretion, the Company may obtain additional financing from Mr. Gosman for
working capital purposes. The Company intends
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to use a portion of the net proceeds of the Offering to repay this indebtedness.
See "Risk Factors--Need for Additional Financing" and "--Substantial Debt and
Lease Obligations."
In June and July 1996, Standish borrowed an aggregate of $1.0 million for
working capital purposes from Pre-Merger CareMatrix. In addition to executing a
promissory note to evidence the obligation, Standish entered into a mortgage and
option agreement with Pre-Merger CareMatrix under which all advances on the
working capital loan would be secured by a subordinate lien deed of trust on
Standish's Bailey Village community, subordinate to certain prior mortgages. On
July 30, 1996, Abraham D. Gosman purchased from Standish 100 shares of the newly
created Series B Preferred Stock for a purchase price of $14,000 per share, or
$1.4 million in the aggregate, $1.0 million of which was used to satisfy the
working capital loan from Pre-Merger CareMatrix. The Series B Preferred Stock
provides for a cumulative dividend rate of 10% per annum, payable quarterly in
arrears beginning on December 31, 1996, and carries a liquidation preference of
$14,000 per share, plus any accumulated and unpaid dividends. The Series B
Preferred Stock is convertible into shares of Common Stock at a conversion price
equal to $4.16 per share (subject to customary anti-dilution adjustments).
Concurrently with the sale of the Series B Preferred Stock to Mr. Gosman,
Standish issued to Mr. Gosman five-year warrants to purchase an additional
400,000 shares of Common Stock at an exercise price equal to $4.16 per share
(subject to customary anti-dilution adjustments). The Company intends to use a
portion of the net proceeds of the Offering to redeem the Series B Preferred
Stock. See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations for Standish" and "Principal and Selling
Stockholders."
It is the general policy of the Company not to enter into any transaction,
or amend in a manner adverse to the Company, any existing transaction in which
an affiliate of the Company has a material interest, unless a majority of the
disinterested directors approve the terms thereof. See "Risk Factors--Dependence
by the Company on Related Party Agreements" and "--Potential Conflicts of
Interest."
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PRINCIPAL AND SELLING STOCKHOLDERS
Common Stock. The following table and the notes thereto set forth
information regarding the beneficial ownership of Common Stock of the Company,
as of September 30, 1996, by each Director and each Named Executive Officer, by
persons who beneficially own 5% or more of the outstanding shares of Common
Stock, and by all Directors and executive officers of the Company as a group.
The beneficial ownership information described and set forth below is based on
information furnished by the specified persons and is determined in accordance
with Rule 13d-3 under the Exchange Act. It does not constitute an admission of
beneficial ownership for any other purpose. Footnote (3) to the table also sets
forth certain information with respect to the beneficial ownership of the
Selling Stockholder, assuming the Underwriters exercise their over-allotment
option in full.
Percentage(2)
---------------------
Common Stock Before
Name and Address of Beneficially the After the
Beneficial Owner Owned (1) Offering Offering
- -------------------------- --------------- -------- ---------
Abraham D. Gosman (3) .... 42,446,539(4) 78.6% 49.8%
777 South Flagler Drive
West Palm Beach, FL 33401
Andrew D. Gosman ......... 17,111,833(5) 32.0% 20.1%
197 First Avenue
Needham, MA 02194
Michael M. Gosman ........ 17,111,833(5) 32.0% 20.1%
197 First Avenue
Needham, MA 02194
Michael J. Doyle ......... 755,699(6) 1.4% *
Kenneth M. Miles ......... 304,500(7) * *
Donald J. Amaral ......... 0 0.0% 0.0%
H. Loy Anderson, Jr. ..... 0 0.0% 0.0%
Rev. Bedros Baharian ..... 0 0.0% 0.0%
Stephen E. Ronai ......... 0 0.0% 0.0%
All directors and
executive officers as a
group .................. 46,702,238 85.5% 54.7%
(13 persons including
certain of the
above-named individuals)
* Represents less than 1%.
(1) Includes shares which may be acquired within 60 days of September 30,
1996 pursuant to exercise or conversion of outstanding options, warrants
and convertible securities of the Company. The table does not show the
45,000 shares subject to options held by Michael J. Brenan or the 63,523
shares owned by Dr. C. Joel Glovsky, who are no longer officers or
directors of the Company. Their share ownership represents less than 1%
of the outstanding shares of Common Stock.
(2) The percentages shown are based on 53,697,366 shares of Common Stock as
of September 30, 1996 (84,947,360 shares of Common Stock upon completion
of the Offering) and 29,000 shares of Series A Preferred Stock,
respectively, outstanding plus, as to each individual and group listed,
the number of shares of Common Stock and/or Series A Preferred Stock
deemed to be owned by such holder pursuant to Rule 13d-3 under the
Exchange Act, assuming exercise or conversion of outstanding options,
warrants and convertible securities of the Company held by such holder
which are exercisable within 60 days of September 30, 1996, after
application of anti-dilution adjustments in respect of such holders.
(3) If the Underwriters exercise their over-allotment option in full, the
Selling Stockholder would sell 4,687,500 shares and would own 37,759,039
shares (44.3% of the outstanding shares of Common Stock) after the
Offering.
(4) Consists of (a) 3,509,167 shares of Common Stock owned directly, (b)
38,600,833 shares of Common Stock held by Abraham D. Gosman as trustee
for the benefit of each of his sons, Andrew D. Gosman and Michael M.
Gosman who are directors of the Company (as trustee, Abraham D. Gosman
has investment power with respect to all such shares and voting power
with respect to 21,489,000 of such shares), and (c) 336,538 shares of
Common Stock currently issuable upon conversion of the Series B Preferred
Stock at an initial conversion price of $4.16 per share, subject to
customary anti-dilution adjustments.
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(5) 38,600,832 shares (71.8% of the outstanding shares) of Common Stock are
held in trust for Andrew and Michael Gosman by their father Abraham D.
Gosman who has sole investment power with respect to all of the shares
and sole voting power with respect to 21,489,000 of the shares. Andrew
and Michael Gosman have shared voting power with respect to 17,111,833
shares.
(6) Includes 45,339 shares held by Mr. Doyle's spouse and 13,560 shares held
by trusts for the benefit of each of Mr. Doyle's two minor children. Mr.
Doyle disclaims beneficial ownership of the shares held by his spouse and
by the two trusts. Also includes (a) 50,000 shares which may be acquired
within 60 days pursuant to options dated as of February 28, 1995, (b)
50,000 shares which may be acquired within 60 days pursuant to options
dated as of July 1, 1995 and (c) 500,000 shares which may be acquired
within 60 days pursuant to the Management Options dated as of June 28,
1996.
(7) Includes (a) 54,500 shares of Common Stock which may be acquired within
60 days pursuant to options dated as of February 27, 1993, November 12,
1993 and July 1, 1995 and (b) 250,000 shares which may be acquired within
60 days pursuant to the Management Options dated as of June 28, 1996.
Series A Preferred Stock. As of September 30, 1996, Robert A. Schneider and
Deltec Asset Mgmt. Corp. ("Deltec") beneficially owned 14,000 and 10,000 shares,
respectively, representing 48.3% and 34.5% of the outstanding shares of the
Company's Series A Preferred Stock. Mr. Schneider's address is 2 Broadway, New
York, NY 10004. Deltec's address is 535 Madison Ave., New York, NY 10022.
DESCRIPTION OF CAPITAL STOCK
General
The following is a brief description of the capital stock of the Company.
The Company is authorized to issue 75,000,000 shares of Common Stock, $.01 par
value per share, and 345,268 shares of preferred stock, $.01 par value per share
(the "Preferred Stock") in series as noted below under the headings "Preferred
Stock," and "Series A Preferred Stock" and "Series B Preferred Stock." The
Company has 53,697,366 shares of Common Stock, 29,000 shares of Series A
Preferred Stock and 100 shares of Series B Preferred Stock issued and
outstanding.
Common Stock
Each holder of Common Stock is entitled to share ratably on a
share-for-share basis with respect to any dividends paid on the Common Stock
when, as and if declared by the Board of Directors out of funds legally
available as proscribed by statute. Each holder of Common Stock is entitled to
one vote for each share held of record. The Common Stock is not entitled to
conversion or preemptive rights and is not subject to redemption. Upon
liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to share ratably in the net assets legally available for
distribution after the liquidating distribution to the holders of the Series A
and Series B Preferred Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.
Preferred Stock
The Company's Board of Directors is authorized to establish and designate
the classes, series, voting powers, designations, preferences and relative,
participating, optional or other rights, and such qualifications, limitations
and restrictions of the Preferred Stock as the Board, in its sole discretion,
may determine without further vote or action of the Stockholders, except as and
to the extent described below under the headings "--Series A Preferred
Stock--Voting Rights" and "--Series B Preferred Stock--Voting Rights."
The rights, preferences, privileges, and restrictions or qualifications or
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and other matters. The issuance of
Preferred Stock could decrease the amount of earnings and assets available for
distribution to holders of Common Stock or could adversely affect the rights and
powers, including voting rights, of holders of Common Stock.
The existence of the Preferred Stock, and the power of the Board of
Directors to set its terms and issue a series of Preferred Stock at any time
without stockholder approval, could have certain anti-takeover effects. These
effects include that of making the Company a less attractive target for a
"hostile" takeover bid or discouraging the making of a merger proposal, or
rendering it more difficult either to assume control of the Company through the
acquisition of a large block of Common Stock or to remove incumbent management,
even if such actions could be beneficial to the stockholders of the Company.
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Series A Preferred Stock
The Company has 29,000 shares of Series A Preferred Stock outstanding. The
designations, rights, powers, preferences, qualifications and limitations of the
Series A Preferred Stock are set forth in a Certificate of Designations of
Series A Cumulative Convertible Preferred Stock filed with the Secretary of
State of the State of Delaware. All outstanding shares of Series A Preferred
Stock are fully-paid and nonassessable.
The following is a summary of the terms of the Series A Preferred Stock.
This summary is not intended to be complete, and is subject to and qualified in
its entirety by reference to the above-mentioned Certificate of Designations on
file with the Secretary of State of the State of Delaware.
Dividends. The holders of the Series A Preferred Stock are entitled to
dividends at the rate of $1.00 per share per annum, payable quarterly in arrears
on September 30, December 31, March 31 and June 30 of each year. Such rights to
receive dividends are subject to declaration of the dividend by the Board of
Directors out of funds legally available for that purpose as prescribed by
statute. Dividends are cumulative, and accrue (whether or not declared), without
interest, from the first day of each quarterly period.
No dividends may be paid on any shares of capital stock ranking junior to
the Series A Preferred Stock (including Common Stock) unless and until all
accumulated and unpaid dividends on the Series A Preferred Stock have been
declared and paid in full.
Conversion. Each share of Series A Preferred Stock is convertible at the
holder's election, at any time prior to redemption, into shares of Common Stock.
The conversion rate was set initially at two shares of Common Stock for each
share of Series A Preferred Stock; as of the date of this Prospectus the
conversion rate has been adjusted to approximately 3.2561 to reflect the seven
dividends on the Series A Preferred Stock which Standish (the predecessor of the
Company) had failed to pay since approximately June 30, 1994. In addition, the
conversion rate is subject from time to time to customary anti-dilution
adjustments, including adjustments for the failure of the Company to pay a
dividend on the Series A Preferred Stock within 30 days of a dividend payment
date. Payment of accumulated and unpaid dividends will be made upon conversion
to the extent of legally available funds as prescribed by statute. The right to
convert the Series A Preferred Stock terminates on the date fixed for
redemption.
Redemption. At any time on or after September 1, 1996, the Company may, at
its option, redeem the Series A Preferred Stock, in whole and not in part, at a
redemption price of $10.00 per share, plus accumulated and unpaid dividends,
provided that, for a period of 20 consecutive trading days ending within 10 days
prior to the notice of redemption, the market price of the Common Stock has been
at 150% of the conversion price then in effect.
Voting Rights. The holders of the Series A Preferred Stock are not entitled
to vote, except as set forth below and as provided by applicable law. On matters
as to which those holders do have such voting rights, they are entitled to one
vote per share of Series A Preferred Stock.
The affirmative vote of the holders of 662/3% of the outstanding shares of
the Series A Preferred Stock, voting as a separate class, is necessary for the
Company to: (a) amend any provision of its Restated Certificate of Incorporation
in any way which would effect a material, adverse change in the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Series A Preferred Stock, (b) authorize or issue any other stock
or securities which would have rights superior to or on parity with those of the
Series A Preferred Stock with respect to the payment of dividends or the
participation in liquidating distributions of the Company, or which would be
convertible into or exchangeable for such stock or securities, or (c) merge with
or consolidate into any corporation, firm or entity, or sell, lease or otherwise
dispose of all or substantially all of its assets unless the Company is the
surviving entity.
Since the Company had failed to pay dividends for four quarterly dividend
payment periods, whether or not consecutively, the holders of the Series A
Preferred Stock are entitled to vote together with the holders of Common Stock
on all matters submitted to the Company's Stockholders, including the election
of directors. Once in effect, such voting rights are not terminated by the
payment of all accrued dividends.
Liquidation. In the event of any liquidation, dissolution or winding-up of
the Company, to the extent that liquidation proceeds or other assets of the
Company are available for distribution to Stockholders, the holders of Series A
Preferred Stock will be entitled to receive a liquidating distribution of $10.00
per share, plus any accumulated and unpaid dividends, before any payment or
distribution may be made or set apart for the holders of Common Stock or any
stock ranking junior to the Series A Preferred Stock.
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Miscellaneous. The Company is not subject to any mandatory redemption or
sinking fund provisions with respect to the Series A Preferred Stock. The
holders of Series A Preferred Stock are not entitled to preemptive rights to
subscribe for or to purchase any shares or securities of any class which may at
any time be issued, sold or offered for sale by the Company. Shares of Series A
Preferred Stock redeemed or otherwise purchased by the Company shall be retired
by the Company and shall be unavailable for subsequent issuance. Pursuant to
Standish's Exchange Offer in 1994, an aggregate of 1,701,180 shares of Common
Stock were issued in exchange for 654,300 shares of Series A Preferred Stock.
Series B Preferred Stock
The Company has 100 shares of Series B Preferred Stock outstanding which is
to be redeemed with the proceeds of the Offering. The designations, rights,
powers, preferences, qualifications and limitations of the Series B Preferred
Stock are set forth in a Certificate of Designations of Series B Cumulative
Convertible Preferred Stock filed with the Secretary of State of the State of
Delaware. All outstanding shares of Series B Preferred Stock are fully-paid and
nonassessable.
The following is a summary of the terms of the Series B Preferred Stock.
This summary is not intended to be complete, and is subject to and qualified in
its entirety by reference to the above-mentioned Certificate of Designations on
file with the Secretary of State of the State of Delaware.
Dividends. The holders of the Series B Preferred Stock are entitled to
dividends at the rate of $1,400 per share per annum, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year. Such
right to receive dividends is subject to declaration of the dividend by the
Board of Directors out of funds legally available for that purpose as prescribed
by statute. Dividends are cumulative and accrue (whether or not declared),
without interest, from the first day of each quarterly period. No dividends,
however, may be paid on the Series B Preferred Stock unless and until all
accumulated and unpaid dividends on the Series A Preferred Stock have been
declared and paid in full.
No dividends may be paid on any shares of capital stock ranking junior to
the Preferred Stock (including Common Stock) unless and until all accumulated
and unpaid dividends on the Series B Preferred Stock have been declared and paid
in full.
Conversion. Each share of Series B Preferred Stock is convertible at the
holder's election, at any time prior to redemption, into shares of Common Stock,
at the conversion rate of 3,365 shares of Common Stock for each share of Series
B Preferred Stock. The conversion rate is subject from time to time to customary
anti-dilution adjustments, including adjustments for the failure of Standish to
pay a dividend on the Series B Preferred Stock within 30 days of a dividend
payment date. Payment of accumulated and unpaid dividends will be made upon
conversion to the extent of legally available funds as prescribed by statute.
The right to convert the Series B Preferred Stock terminates on the date fixed
for redemption.
Redemption. At any time on or after December 1, 1996, the Company may, at
its option, redeem the Series B Preferred Stock, in whole and not in part, at a
redemption price of $14,000 per share, plus accumulated and unpaid dividends,
provided that, for a period of 20 consecutive trading days ending within 10 days
prior to the notice of redemption, the market price of the Common Stock has been
at 150% of the conversion price then in effect.
Voting Rights. The holders of the Series B Preferred Stock are not entitled
to vote, except as set forth below and as provided by applicable law. On matters
as to which those holders do have such voting rights, they are entitled to one
vote per share of Series B Preferred Stock.
The affirmative vote of the holders of 66-2/3% of the outstanding shares of
the Series B Preferred Stock, voting as a separate class, is necessary for
Standish to: (a) amend any provision of its Restated Certificate of
Incorporation in any way which would effect a material, adverse change in the
rights, preferences, privileges or powers of, or the restrictions provided for
the benefit of, the Series B Preferred Stock, (b) authorize or issue any other
stock or securities which would have rights superior to or on parity with those
of the Series B Preferred Stock with respect to the payment of dividends or the
participation in liquidating distributions of the Company, or which would be
convertible into or exchangeable for such stock or securities, or (c) merge with
or consolidate into any corporation, firm or entity, or sell, lease or otherwise
dispose of all or substantially all of its assets, unless the Company is the
surviving entity.
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In the event that the Company fails to pay dividends for four quarterly
dividend payment periods, whether or not consecutively, the holders of the
Series B Preferred Stock are entitled to vote together with the holders of
Common Stock on all matters submitted to the Company's Stockholders, including
the election of directors. Once in effect, such voting rights are not terminated
by the payment of all accrued dividends.
Liquidation. In the event of any liquidation, dissolution or winding-up of
the Company, to the extent that liquidation proceeds or other assets of the
Company are available for distribution to Stockholders, the holders of Series B
Preferred Stock will be entitled to receive a liquidating distribution of
$14,000 per share, plus any accumulated and unpaid dividends, before any payment
or distribution may be made or set apart for the holders of Common Stock or any
stock ranking junior to the Series B Preferred Stock.
Miscellaneous. The Company is not subject to any mandatory redemption or
sinking fund provisions with respect to the Series B Preferred Stock. The
holders of Series B Preferred Stock are not entitled to preemptive rights to
subscribe for or to purchase any shares or securities of any class which may at
any time be issued, sold or offered for sale by the Company. Shares of Series B
Preferred Stock redeemed or otherwise purchased by the Company shall be retired
by the Company and shall be unavailable for subsequent issuance.
Certain Provisions of the Restated Certificate of Incorporation
Section 102 of the Delaware General Corporation Law authorizes a Delaware
corporation to include a provision in its certificate of incorporation limiting
or eliminating the personal liability of its directors to the corporation and
its Stockholders for monetary damages for breach of the directors' fiduciary
duty of care. The duty of care requires that, when acting on behalf of the
corporation, directors exercise an informed business judgment based on all
material information reasonably available to them. Absent the limitations
authorized by such provision, directors are accountable to corporations and
their stockholders for monetary damages for conduct constituting gross
negligence in the exercise of their duty of care. Although Section 102 of the
Delaware General Corporation Law does not change a director's duty of care, it
enables corporations to limit available relief to equitable remedies such as
injunction or rescission.
Pursuant to Section 102 of the Delaware General Corporation Law, the
Restated Certificate of Incorporation of the Company limits the personal
liability of its directors (in their capacity as directors but not in their
capacity as officers) to the Company or its stockholders to the fullest extent
permitted by the Delaware General Corporation Law. Specifically, a director will
not be personally liable to the Company or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for (i) any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) unlawful payments of dividends or unlawful stock
repurchases, redemptions or other distributions, and (iv) any transaction from
which the director derived an improper personal benefit.
The inclusion of this provision may have the effect of reducing the
likelihood of derivative litigation against directors and may discourage or
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefitted the Company and its stockholders. The inclusion of
this provision, however, together with provisions of the By-Laws of the Company
which require the Company to indemnify its officers and directors against
certain liabilities is intended to enable the Company to attract qualified
persons to serve as directors who might otherwise be reluctant to do so.
Transfer Agent and Registrar
American Securities Transfer, Incorporated of Denver, Colorado is the
transfer agent and registrar for the Common Stock and Series A Preferred Stock
of the Company.
Business Combinations
The Delaware General Corporation Law provides certain "fair price"
protections to stockholders of a corporation which is an Exchange Act Company,
in connection with business combinations between such corporation and any
interested stockholder. Such provisions are currently not applicable to the
Company because the Company does not have a class of voting stock listed on a
national securities exchange, authorized for quotation on the Nasdaq National
Stock Market or held of record by more than 2,000 stockholders. The Company's
Restated Certificate of Incorporation contains comparable "fair price"
protections but with certain variations as compared to the Delaware statutory
provisions. The Company's Restated Certificate of Incorporation defines a
"Related
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Person" (i.e., an interested stockholder) as an individual or corporation
which becomes the beneficial owner of 5% or more of the outstanding voting
stock of the Company after October 31, 1991. A beneficial owner includes an
individual or corporate entity which owns voting stock with any affiliates or
associates, or which has the right to acquire, or power to direct, the vote
or disposition of, voting stock.
Transactions between the Company and a Related Person must be approved by
the Company's Board of Directors, and additionally by the holders of two-thirds
of the voting power of the outstanding shares of voting stock of the Company,
excluding that voting stock held by a Related Person who is, or whose affiliate
or associate is, a party to the business transaction.
The above approval requirements apply to any direct or indirect purchase or
other acquisition in one or more transactions by the Company of any of the
outstanding voting stock of any class from any one or more individuals or
entities known by the Company to be a Related Person, who has beneficially owned
such security or right for less than two years prior to the date of such
purchase or other acquisition, at a price in excess of the fair market value (as
defined in the Company's Restated Certificate of Incorporation). Such
affirmative vote shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage may be specified by law or any agreement
with any national securities exchange, or otherwise, but no such affirmative
vote shall be required with respect to any purchase or other acquisition of
securities made as part of (i) a tender or exchange offer by the Company to
purchase securities of the same class made on the same terms to all holders of
such securities and complying with the applicable requirements of the Exchange
Act and the rules and regulations thereunder, or any successor rule or
regulation or (ii) pursuant to an open-market purchase program conducted in
accordance with the requirements of Rule 10b-18 promulgated by the Commission
pursuant to the Exchange Act or any successor rule or regulation.
The Company's Restated Certificate of Incorporation also requires the Board
of Directors to consider what is in the best interests of the Company in
connection with mergers, consolidations, or sales of all or substantially all of
the Company's assets whether or not in the ordinary course of business. In
considering what the best interests of the Company are in connection with such
transactions, the Board of Directors shall give due consideration not only to
the price or other consideration being offered, but also to all relevant
factors, including the interests of the Company's employees, suppliers,
creditors and customers, the economy of the state, region and nation, community
and societal considerations, and the long-term as well as short-term interests
of the corporation and its stockholders, including the possibility that those
interests may be best served by the continued independence of the Company.
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law which, with certain exceptions, prohibits a Delaware corporation from
engaging in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that such
stockholder became an interested stockholder, unless: (i) prior to such date,
the Board of Directors of the corporation approved either the business
combination or the transaction which resulted in the stockholder becoming an
interested stockholder, (ii) upon consummation of the transaction which resulted
in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes of
determining the number of shares outstanding those shares owned (a) by persons
who are directors and officers and (b) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer, or
(iii) on or after such date, the business combination is approved by the Board
of Directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least 662/3% of the outstanding voting stock which is
not owned by the interested stockholder. An "interested stockholder" is defined
as any person that is (a) the owner of 15% or more of the outstanding voting
stock of the corporation or (b) an affiliate or associate of the corporation and
was the owner of 15% or more of the outstanding voting stock of the corporation
at any time within the three-year period immediately prior to the date on which
it is sought to be determined whether such person is an interested stockholder.
Registration Rights
Abraham D. Gosman has been granted certain rights by the Company with
respect to the registration under the Securities Act of the 736,500 shares
issuable to him, in the aggregate, on exercise of the warrants and conversion of
the Series B Preferred Stock held by him.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 85,580,000 shares of
Common Stock outstanding. Of these shares, all of the 31,250,000 shares sold in
the Offering (35,937,500 shares if the Underwriters exercise their
over-allotment option in full) will be freely tradable without restriction under
the Securities Act, except for any such shares which may be acquired by an
affiliate of the Company as that term is defined in Rule 144 of the General
Rules and Regulations promulgated under the Securities Act ("Rule 144"). The
46,702,238 shares held by affiliates of the Company will be eligible for sale in
the open market, subject to the contractual lockup provisions and applicable
requirements of Rule 144 described below.
In general, under Rule 144, as currently in effect, an affiliate is
entitled to sell a number of shares within any three-month period that does not
exceed the greater of (i) one percent of the then outstanding shares of the
Common Stock or (ii) the average weekly reported volume of trading of the Common
Stock during the four calendar weeks preceding such sale. Sales under Rule 144
are also subject to certain requirements pertaining to the manner of such sales,
notices of such sales and the availability of current public information
concerning the Company.
The Company and its directors and executive officers have agreed that they
will not offer, sell, contract to sell, pledge, grant any option for the sale
of, or otherwise dispose or cause the disposition of any shares of Common Stock
or securities convertible into or exchangeable or exercisable for such shares,
for a period of 180 days after the date of this Prospectus without the prior
written consent of Dean Witter Reynolds Inc. Upon completion of the Offering,
sales of substantial amounts of Common Stock by existing stockholders could have
an adverse impact on the market price of the Common Stock. No predictions can be
made as to the effect, if any, that market sales of shares by existing
stockholders or the availability of such shares for future sale will have on the
market price of shares of Common Stock prevailing from time to time.
UNDERWRITING
The Underwriters named below, for whom Dean Witter Reynolds Inc., NatWest
Securities Limited, PaineWebber Incorporated, Robertson, Stephens & Company LLC
and Smith Barney Inc. are acting as representatives (the "Representatives"),
have severally agreed, subject to the terms and conditions of the Underwriting
Agreement (a copy of which has been filed as an exhibit to the Registration
Statement), to purchase from the Company the number of shares of Common Stock
set forth opposite their respective names in the table below:
Name Number of Shares
- ------------------------------------ -------------------
Dean Witter Reynolds Inc. ..........
NatWest Securities Limited .........
PaineWebber Incorporated ...........
Robertson, Stephens & Company LLC ..
Smith Barney Inc. ..................
-----------------
Total ............................ 31,250,000
=================
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other conditions. The nature of the Underwriters'
obligation is such that they must purchase all of the shares (other than those
subject to the over-allotment option) if any are purchased.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock directly to the public at the public offering price set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such public offering price less a concession not to
exceed $per share. Such dealers may reallow a concession not to exceed $per
share to other dealers. After the public offering, the public offering price may
be reduced and concessions and reallowances to dealers may be changed by the
Underwriters. The Representatives have informed the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority. The Representatives intend to make a market in
the Common Stock after completion of the Offering.
68
<PAGE>
The Selling Stockholder has granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an additional 4,687,500 shares of Common Stock at the public
offering price, less underwriting discounts and commissions to cover
over-allotments, if any. After commencement of this offering, the Underwriters
may confirm sales subject to the over-allotment option.
NatWest Securities Limited, a United Kingdom broker-dealer and a member of
the Securities and Futures Authority Limited, has agreed that, as part of the
distribution of the Common Stock offered hereby and subject to certain
exceptions, it will not offer any Common Stock within the United States, its
territories or possessions, or to persons who are citizens thereof or residents
therein. The Underwriting Agreement does not limit sale of the Common Stock
offered hereby outside of the United States.
NatWest Securities Limited has further represented and agreed that (a) it
has not offered or sold and will not offer or sell any shares of Common Stock to
persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments
(whether as principal or agent) for the purposes of their businesses or
otherwise in circumstances that have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995 or the Financial Services Act 1986 (the
"Act"); (b) it has complied and will comply with all applicable provisions of
the Act with respect to anything done by it in relation to the shares of Common
Stock in, from, or otherwise involving the United Kingdom; and (c) it has only
issued or passed on and will only issue or pass on, in the United Kingdom, any
document that consists of or any part of listing particulars, supplementary
listing particulars, or any other document required or permitted to be published
by listing rules under Part IV of the Act, to a person who is of a kind
described in Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1995 or is a person to whom the document may
otherwise lawfully be issued or passed on.
National Westminster Bank Plc ("NatWest"), an affiliate of NatWest
Securities Limited served as a financial advisor to Standish in 1995 and also
served as financial advisor to Pre-Merger CareMatrix in connection with the
Merger. NatWest will receive a fee of approximately 540,000 shares of Common
Stock in connection with the Merger.
The Company has agreed to indemnify the Underwriters against certain
liabilities including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.
The Company, the executive officers and directors of the Company have
agreed that they will not offer, sell, issue, distribute, grant any option to
purchase or otherwise dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exchangeable for, shares of Common
Stock or register for sale under the Securities Act any shares of Common Stock,
for a period of 180 days after the date hereof without the prior consent of Dean
Witter Reynolds Inc., except for shares of Common Stock offered hereby or
pursuant to the over-allotment option.
In connection with this offering, the Underwriters and other selling group
members may engage in passive market making transactions in the Common Stock on
the Nasdaq Small Cap System in accordance with Rule 10b-6A under the Exchange
Act. Passive market making consists of displaying bids on the Nasdaq Small Cap
System limited by the price of independent market makers and effecting purchases
limited by such prices and in response to order flow. Net purchases by a passive
market maker on each day are limited to a specified percentage of the passive
market maker's average daily trading volume in the Common Stock during a
specified prior period and must be discontinued when such limit is reached.
Passive market making may stabilize the market price of the Common Stock at a
level above that which might otherwise prevail and, if commenced, may be
discontinued at any time.
LEGAL MATTERS
The validity of the shares offered hereby will be passed upon for the Company
by Nutter, McClennen & Fish, LLP, Boston, Massachusetts and for the
Underwriters by Brown & Wood LLP, New York, New York.
69
<PAGE>
EXPERTS
The combined financial statements of the Company for the year ended
December 31, 1995 and for the period from June 24, 1994 (inception) to December
31, 1994, included in this Prospectus have been audited by Coopers & Lybrand
L.L.P., independent accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Standish for the three year period
ended December 31, 1995 included in this Prospectus have been audited by Coopers
& Lybrand L.L.P., independent accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing.
The combined statements of operations, changes in stockholders' deficit and
cash flows of Bailey Retirement Center, Inc. for the year ended December 31,
1993, included in the Standish Financial Statements, appearing elsewhere in this
Prospectus, have been included herein in reliance on the reports of Lovelace,
Roby & Company, P.A., independent accountants, given on the authority of that
firm as experts in accounting and auditing.
70
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-------
<S> <C>
CareMatrix
Report of Coopers & Lybrand L.L.P., Independent Accountants F-2
Combined Financial Statements:
Combined Balance Sheets as of June 30, 1996 (unaudited) December 31, 1995 and December 31,
1994 F-3
Combined Statements of Operations and Stockholders' Deficit, for the six months
ended June 30, 1996 (unaudited), the year ended December 31, 1995 and the
period June 24, 1994 (Inception) to December 31, 1994 F-4
Combined Statements of Cash Flows, for the six months ended June 30, 1996
(unaudited), the year ended December 31, 1995 and the period June 24, 1994
(Inception) to December 31, 1994 F-5
Notes to Combined Financial Statements F-6
The Standish Care Company
Report of Coopers & Lybrand L.L.P., Independent Accountants F-11
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-12
Consolidated Statements of Operations, for the years ended
December 31, 1995, 1994 and 1993 F-13
Consolidated Statements of Cash Flows,
for the years ended December 31, 1995, 1994 and 1993 F-14
Consolidated Statements of Stockholders' Equity, for the years ended
December 31, 1995, 1994 and 1993 F-17
Notes to Consolidated Financial Statements F-18
Consolidated Interim Financial Statements (unaudited):
Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995 F-39
Consolidated Statements of Operations for the three and six months ended June 30, 1996
and 1995 F-40
Consolidated Statements of Cash Flows for the six months ended June 30, 1996 and 1995 F-41
Notes to Consolidated Financial Statements F-42
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of CareMatrix:
We have audited the accompanying combined balance sheets of CareMatrix as of
December 31, 1995 and 1994 and the related combined statements of operations and
stockholders' deficit and cash flows for the year ended December 31, 1995 and
the period from June 24, 1994 (inception) to December 31, 1994. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of CareMatrix as of
December 31, 1995 and 1994 and the combined results of its operations and its
cash flows for the year ended December 31, 1995 and the period from June 24,
1994 (inception) to December 31, 1994 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
July 24, 1996
F-2
<PAGE>
CAREMATRIX
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31, December 31,
1996 1995 1994
------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,027,763 $ 144,643 $ 1,788
Receivables
Accounts receivable, net of allowance for doubtful
accounts of $304,425, $247,706 and $36,700 at
June 30, 1996, December 31, 1995 and 1994,
respectively 939,231 837,787 328,535
Other receivables 99,286 -- --
Prepaid expenses and other current assets 218,759 185,647 --
------------ ---------- -----------
Total current assets 3,285,039 1,168,077 330,323
Property and equipment, net (Note 4) 1,444,435 730,017 --
Note receivable (Note 11) 769,904 -- --
Deposits and other assets (Note 6) 522,644 511,750 --
------------ ---------- -----------
Total assets $ 6,022,022 $ 2,409,844 $ 330,323
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable 203,093 651,860 42,120
Accrued compensation 109,104 171,777 30,676
Accrued liabilities (Note 5) 528,832 436,178 27,232
Accrued interest--stockholder (Note 9) 1,158,479 599,427 55,856
------------ ----------- -----------
Total current liabilities 1,999,508 1,859,242 155,884
Due to stockholder (Note 9) 16,992,096 9,661,381 2,729,791
Accrued closure costs--long term (Note 5) 528,788 650,816 --
------------ ----------- -----------
Total liabilities 19,520,392 12,171,439 2,885,675
Commitments and contingencies (Notes 6 and 7)
Stockholders' deficit:
Accumulated deficit (13,498,370) (9,761,595) (2,555,352)
------------ ----------- -----------
Total stockholders' deficit (13,498,370) (9,761,595) (2,555,352)
------------ ----------- -----------
Total liabilities and stockholders' deficit $ 6,022,022 $ 2,409,844 $ 330,323
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
CAREMATRIX
COMBINED STATEMENTS OF OPERATIONS AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
June 24, 1994
Six Months Ended Year Ended (Inception) to
June 30, 1996 December 31, 1995 December 31, 1994
------------------ ------------------ ------------------
(Unaudited)
<S> <C> <C> <C>
Net revenues $ 2,389,069 $ 2,484,857 $ 366,214
------------ ----------- -----------
Operating costs and administrative expenses:
Salaries, wages and benefits 1,574,653 2,100,097 253,048
Salaries, wages and benefits--related party
(Note 9) 1,406,297 2,123,152 579,078
Professional fees 24,309 163,158 36,781
Professional fees--related party (Note 9) 476,603 493,269 260,411
Supplies 326,079 275,706 11,848
Supplies--related party (Note 9) 82,169 166,136 124,726
Utilities 126,636 126,216 19,448
Utilities--related party (Note 9) 79,199 113,653 117,374
Depreciation and amortization 65,164 2,931 3,603
Rent 544,775 645,702 45,868
Rent--related party (Note 9) 143,985 422,468 240,239
Provision for writedown of assets (Note 3) -- -- 757,095
Provision for closure loss (Note 3) -- 894,872 --
Provision for bad debts 56,719 211,006 36,700
Other 146,811 392,186 63,099
Other--related party, primarily administrative,
development and marketing costs (Note 9) 537,765 1,016,977 316,392
------------ ----------- -----------
Total operating costs and administrative
expenses 5,591,164 9,147,529 2,865,710
Interest income (24,372) -- --
Interest expense--stockholder (Note 9) 559,052 543,571 55,856
------------ ----------- -----------
Loss (Note 2) $ (3,736,775) $(7,206,243) $(2,555,352)
============ =========== ===========
Accumulated deficit at beginning of period (9,761,595) (2,555,352) --
------------ ----------- -----------
Accumulated deficit at end of period $(13,498,370) $(9,761,595) $(2,555,352)
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
CAREMATRIX
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
June 24, 1994
Six Months Ended Year Ended (Inception) to
June 30, 1996 December 31, 1995 December 31, 1994
---------------- ------------------ ------------------
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities
Loss $(3,736,775) $(7,206,243) $(2,555,352)
Noncash items included in net loss:
Depreciation and amortization 65,164 2,931 3,603
Provision for writedown of assets -- -- 757,095
Provision for closure loss -- 894,872 --
Changes in receivables (101,444) (509,252) (328,535)
Changes in accounts payable and accrued
liabilities 18,238 1,467,225 127,056
Changes in other assets (143,292) (697,397) --
----------- ----------- -----------
Net cash used by operating activities (3,898,109) (6,047,864) (1,996,133)
----------- ----------- -----------
Cash flows from investing activities
Capital expenditures (779,582) (740,871) (29,764)
Note receivable (769,904) -- --
Acquisition, net of cash acquired (Note 10) -- -- (702,106)
----------- ----------- -----------
Net cash used by investing activities (1,549,486) (740,871) (731,870)
----------- ----------- -----------
Cash flows from financing activities
Advances of funds from stockholder 7,330,715 6,931,590 2,729,791
----------- ----------- -----------
Net cash provided by financing activities 7,330,715 6,931,590 2,729,791
----------- ----------- -----------
Increase in cash and cash equivalents 1,883,120 142,855 1,788
Cash and cash equivalents, beginning of period 144,643 1,788 --
----------- ----------- -----------
Cash and cash equivalents, end of period $ 2,027,763 $ 144,643 $ 1,788
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
CAREMATRIX
NOTES TO COMBINED FINANCIAL STATEMENTS
1. Nature of Business and Organization
The combined financial statements of CareMatrix ("the Company") for the
period June 24, 1994 (inception) through December 31, 1994 (audited), the year
ended December 31, 1995 (audited), and the six months ended June 30, 1996
(unaudited) have been prepared to reflect the combination of business entities
which have been operated since their date of inception under common control by
Abraham D. Gosman ("Mr. Gosman"), principal stockholder of the Company, directly
or through trusts.
During the periods covered by these financial statements, the Company derived
revenues from one or more of the following services: the operation of an
inpatient nursing facility in Maryland; the operation of an outpatient
rehabilitation facility in Georgia; and the management of two inpatient nursing
facilities in Florida.
The Company intends to provide development, management and other services in
connection with the establishment of assisted living facilities, nursing homes
and other health care facilities.
The entities operated under common control are non-taxpaying (i.e., primarily
S Corporations, which results in taxes being the responsibility of the
respective owners), and therefore the financial statements have been presented
as further described in Note 2.
2. Summary of Significant Accounting Policies
Estimates Used in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. Estimates are used when
accounting for the collectibility of receivables and third party settlements,
depreciation and amortization and contingencies.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid instruments with original
maturities at the time of purchase of three months or less.
Revenue Recognition
Net revenues are reported at the estimated realizable amounts from patients,
third-party payors and others for services rendered. Revenue under certain
third-party payor agreements is subject to audit and retroactive adjustments.
Provisions for estimated third-party payor settlements and adjustments are
estimated in the period the related services are rendered and adjusted in future
periods as final settlements are determined. The provision and related allowance
are adjusted periodically, based upon an evaluation of historical collection
experience with specific payors for particular services, anticipated
reimbursement levels with specific payors for new services, industry
reimbursement trends, and other relevant factors.
Third Party Reimbursement
For the year ended December 31, 1995 and for the period from June 24, 1994
(inception) to December 31, 1994, approximately 46% and 16%, respectively, of
the Company's net revenue was derived primarily from the participation of the
Company's nursing home and outpatient rehabilitation facility in Medicare and
Medicaid programs. Medicare compensates the Company on a "cost reimbursement"
basis. Medicaid compensates the Company for nursing services, patient care and
administrative and routine services based on interim payments and re-indexed
rate payments (final settlements) subject to ceilings. In addition to extensive
existing governmental
F-6
<PAGE>
CAREMATRIX
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
2. Summary of Significant Accounting Policies (Continued)
health care regulation, there are numerous initiatives at the federal and state
levels for comprehensive reforms affecting the payment for and availability of
health care services. Legislative changes to federal or state reimbursement
systems could adversely and retroactively affect recorded revenues.
Property and Equipment
Additions are recorded at cost and depreciation is recorded principally by
use of the straight-line method for buildings, improvements and equipment over
their useful lives or, in the case of leasehold improvements, over the life of
the lease, if shorter. Upon disposition, the cost and related accumulated
depreciation are removed from the accounts and any gain or loss is included in
income. Maintenance and repairs are charged to expense as incurred. Major
renewals or improvements are capitalized.
Income Taxes
The entities included in these financial statements are S Corporations or
partnerships; accordingly, income tax liabilities are the responsibility of the
respective owners or partners. Provisions for income taxes and deferred assets
and liabilities of the taxable entities have not been reflected in these
combined financial statements since there is no taxable income on a combined
basis.
Stock Based Compensation
The Company is adopting Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." This standard requires the Company to
report the fair value for stock-based compensation plans either through
recognition or disclosure. The Company will disclose the pro forma net income
and pro forma net income per common and common equivalent share amounts assuming
the fair value method was adopted on January 1, 1996. The adoption of this
standard will not impact the Company's results of operations, financial position
or cash flows.
Long-Lived Assets
The Company periodically assesses the recoverability of long-lived assets,
including property and equipment and intangibles, when there are indications of
potential impairment based on estimates of undiscounted future cash flows. The
amount of impairment is calculated by comparing anticipated discounted future
cash flows with the carrying value of the related asset. In performing this
analysis, management considers such factors as current results, trends and
future prospects, in addition to other economic factors.
The Company is required to implement Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" in 1996. As the Company currently evaluates
the realizability of its long-lived assets, including property and equipment and
intangibles, adoption of the statement is not anticipated to have a material
effect on the Company's financial statements.
3. Acquisition
During November 1994, the Company purchased the assets of an outpatient
rehabilitation facility in Atlanta, Georgia, for $702,106. In connection with
the purchase, the Company also assumed the lease obligation for the facility for
which the current lease term expires in August 1999. The acquisition was
accounted for as a purchase and $566,312 of such purchase price was recorded as
goodwill. For the period June 24, 1994 (inception) to December 31, 1994, the
Company recorded a charge of $757,095 to write off impaired assets related to
the acquisition. During 1995, the Company ceased operations at this outpatient
rehabilitation facility and recorded a provision for such closure in the amount
of $894,872 which approximates the remaining lease obligations.
F-7
<PAGE>
CAREMATRIX
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
4. Property and Equipment
Property and equipment consists of the following:
Estimated December 31,
Useful Life -------------
(Years) 1995
---------------- -------------
Furniture and fixtures 5-7 $256,074
Equipment 3-10 65,719
Computer software 3 11,568
Leasehold improvements 4-20 399,587
--------
Property and equipment, gross 732,948
Less accumulated depreciation (2,931)
--------
Property and equipment, net $730,017
========
Depreciation expense was $2,931 and $1,263, respectively, for the year ended
December 31, 1995 and the period June 24, 1994 (inception) to December 31, 1994.
5. Accrued Liabilities
Accrued liabilities consist of the following:
December 31,
------------------
1995 1994
-------- -------
Accrued closure costs $244,056 $ --
Accrued rent 88,542 --
Other 103,580 27,232
-------- -------
Total accrued liabilities $436,178 $27,232
======== =======
The accrued closure costs are for the closure of the outpatient
rehabilitation facility (see Note 3) and represent the current portion of the
remaining lease obligation. Closure costs in the amount of $894,872 were accrued
at December 31, 1995; $650,816 of this amount is classified as a long term
liability at December 31, 1995.
6. Lease Commitments
The Company leases various office space and certain equipment pursuant to
operating lease agreements.
Future minimum lease commitments at December 31, 1995 consisted of the
following:
1996 $ 1,121,277
1997 1,173,405
1998 1,223,405
1999 1,196,083
2000 1,095,833
Thereafter 5,381,250
-----------
$11,191,253
===========
During August 1995, the Company entered into a ten year lease for a 138-bed
nursing facility in Silver Spring, Maryland. In connection with this lease the
Company has made a $500,000 security deposit. In addition, the lease requires
that the Company provide an irrevocable letter of credit in the amount of
$1,000,000 to the lessor prior to August 15, 1996. The letter of credit is
required to remain in place until the lessor is provided with a guarantee from a
public company with a net worth greater than $10,000,000. The Company has also
been granted an option to purchase the facility during the seventh year of the
lease for a purchase price of $8,000,000.
7. Commitments and Contingencies
The Company has entered into employment agreements with certain of its
employees, which include, among other terms, noncompetition provisions and
salary and benefits continuation.
F-8
<PAGE>
CAREMATRIX
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
8. Management Agreements
During December 1995, the Company entered into a management agreement, with
an initial term of five years, to manage a 54-bed nursing facility in Homestead,
Florida. In accordance with the provisions of the management agreement, the
Company receives a fixed management fee plus an incentive management fee which
is calculated as a percentage of net revenues. The fixed management fee ranges
from $80,000 during the first year of the agreement to $140,000 during the fifth
year of the agreement. The incentive management fee ranges from 2.9% of net
revenues during the first year of the agreement to 2.13% of net revenues during
the fifth year of the agreement.
During December 1995, the Company entered into a management agreement, with
an initial term of five years, to manage a 120-bed nursing facility in Miami,
Florida. The management agreement provides for a management fee which is based
upon a maximum of 6% of net revenues during the first year and 5% of net
revenues thereafter. In accordance with the management agreement, the Company
agreed to lend to the operator of the facility an Operating Loan for working
capital. The Operating Loan is evidenced by a promissory note (and
collateralized by accounts receivable), bears interest at the prime rate plus
two percent and has a final maturity upon the termination or expiration of the
management agreement.
9. Related Party
For the year ended December 31, 1995 and the period June 24, 1994 (inception)
to December 31, 1994, Continuum Care of Massachusetts, Inc., whose principal
stockholder is Mr. Gosman, provided management services to the Company. Fees for
these services in the amount of $4,335,655 and $1,638,220, respectively, have
been included in the financial statements and consist of the following:
Year June 24, 1994
Ended (Inception) to
----------- --------------
December 31,
------------------------------
1995 1994
----------- ----------
Salaries, wages and benefits $2,123,152 $ 579,078
Supplies 166,136 124,726
Professional fees 493,269 260,411
Utilities 113,653 117,374
Rent 422,468 240,239
Other 1,016,977 316,392
---------- ----------
$4,335,655 $1,638,220
========== ==========
Such fees are based on the discretion of Continuum Care of Massachusetts,
Inc. and may not be indicative of what they would have been if the Company had
performed these services internally or had contracted for such services with
unaffiliated entities. Included in rent is rent expense of $311,639 and $193,600
for the year ended December 31, 1995 and the period June 24, 1994 (inception) to
December 31, 1994, respectively, for the Company's principal office space in
Needham, Massachusetts. The lessee of the office space is Continuum Care of
Massachusetts, Inc. The remaining rent expense represents various operating
leases for equipment.
The Company intends to provide development and other services in connection
with the establishment of assisted living facilities, nursing homes and other
health care facilities. The Company will provide these services to or for the
benefit of the owners of the new facilities, which owners are either
corporations or limited partnerships and, in some cases, the owners of such will
be stockholders of the Company.
Meditrust, a publicly traded real estate investment trust with assets in
excess of $1.7 billion of which Mr. Gosman is the Chairman of the Board and
Chief Executive Officer, has provided financing to a skilled nursing/ assisted
living facility located in Needham, Massachusetts and owned principally by Mr.
Gosman, in the aggregate amount of $20,109,241 at December 31, 1995.
F-9
<PAGE>
CAREMATRIX
NOTES TO COMBINED FINANCIAL STATEMENTS (Continued)
9. Related Party (Continued)
At December 31, 1995 and December 31, 1994, the Company had borrowed
$9,661,381 and $2,729,791, respectively, from Mr. Gosman. Interest on such
outstanding indebtedness at the prime rate of interest during the year ended
December 31, 1995 and the period June 24, 1994 (inception) to December 31, 1994
was $543,571 and $55,856, respectively. The borrowings from Mr. Gosman have a
maturity date of January 1998. Interest on the borrowings is payable upon
demand. The Company will obtain additional financing, as required, from Mr.
Gosman for working capital purposes prior to an equity offering.
10. Supplemental Cash Flow Information
During the period from June 24, 1994 (inception) to December 31, 1994 the
Company acquired the assets and assumed certain liabilities of the entity
described in Note 3. The transaction had the following non-cash impact on the
balance sheet:
Current assets $ 93,123
Property, plant and equipment 71,381
Intangibles 566,312
Current liabilities (28,710)
11. Subsequent Events (Unaudited)
During 1996 the Company, pursuant to the management agreement for the 120-bed
nursing facility in Miami, Florida, advanced the Operator of the facility
$769,904 for working capital purposes.
During July 1996, the Company entered into a merger agreement with The
Standish Care Company ("Standish"). Under the merger agreement Standish, as the
surviving company in the merger, will acquire all of the assets and operations
of the Company and will issue 50 million shares of its common stock to the
stockholders of the Company. The merger transaction of the Company with and into
Standish will be recorded as a "reverse acquisition" for accounting purposes,
with the Company treated as the accounting acquiror, even though Standish will
be the survivor for legal purposes. In a reverse acquisition, the accounting
acquiror is treated as the surviving entity even though Standish's legal
existence does not change and the financial statements reflect the historical
financial statements of the Company. The Company, as the accounting acquiror,
will treat the merger as a purchase acquisition. The merger will be recorded
using the historical cost basis for the assets and liabilities of the Company,
and the estimated fair value of Standish's assets and liabilities. Consummation
of the merger is subject to approval by both companies' Boards of Directors and
stockholders and other closing conditions.
In July 1996, the Company acquired a management contract from an entity
principally owned by Mr. Gosman for $2,800,000 to manage a 142-bed facility in
Needham, Massachusetts. The contract, which extends for a 25 year period,
provides for an annual management fee of approximately five percent of gross
revenues.
During July 1996, the Company entered into agreements with a third party
whereby such third party will provide day to day management of the following
facilities: (i) the 54-bed nursing facility in Homestead, Florida; (ii) the
120-bed nursing facility in Miami, Florida; (iii) the 138-bed leased facility in
Silver Spring, Maryland; and (iv) the 142-bed facility in Needham,
Massachusetts.
In August 1996, the Company adopted a stock option plan for officers and
employees to purchase up to 6,000,000 shares of its stock. All options allow for
the purchase of the stock at prices not less than the fair value of such stock
at the date of grant. Options granted under the plan vest over a two to three
year period and expire ten years after the date of grant. As of August 31, 1996,
approximately 2,300,000 options were granted and outstanding at prices ranging
from $2.00 to $4.00 per share.
F-10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Standish Care Company:
We have audited the accompanying consolidated balance sheets of The Standish
Care Company and its subsidiaries as of December 31, 1995 and 1994, the related
consolidated statements of operations, stockholders' equity, and cash flows, for
each of the three years ended December 31, 1995. These financial statements and
the financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of the
Bailey Retirement Center, Inc., a wholly-owned subsidiary of the Company, whose
financial statements represent 52% of consolidated revenues for the year ended
December 1993. These statements were audited by other auditors whose report has
been forwarded to us, and our opinion, insofar as it relates to the amounts
included for the Bailey Retirement Center, Inc., is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and 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 audits provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of The Standish Care Company and its
subsidiaries as of December 31, 1995 and 1994, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 14, 1996, except as to
information presented
in Notes I (paragraphs 7 and 8)
and R, for which the date
is March 29, 1996.
F-11
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 367,631 $ 232,716
Restricted cash 199,719 94,823
Accounts receivable, less allowance for doubtful accounts
of $448,425 and $360,946 at December 31, 1995 and
1994, respectively 176,818 115,385
Note receivable 2,835 25,000
Interest receivable 14,245 --
Due from related parties 437,234 286,942
Other current assets 39,545 55,954
----------- -----------
Total current assets 1,238,027 810,820
Prepaid deposits -- 27,651
Restricted deposits 610,732 547,982
Assets held for sale 24,471 23,487
Investment in Adams Square Limited Partnership 127,000 127,000
Investment in Cornish Realty Associates, L.P. 125,000 250,000
Note receivable 50,467 30,000
Due from related parties 130,215 114,539
Property, plant and equipment, net 11,079,454 10,415,928
Prepaid lease deposit, net 539,843 605,947
Non-compete agreement, net 219,671 76,466
Resident leases, net 176,979 226,643
Goodwill, net 1,504,000 --
Other assets, net 148,972 162,491
----------- -----------
Total assets $15,974,831 $13,418,954
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 522,992 $ 573,454
Accrued payroll and related taxes 217,304 211,040
Accrued severance costs 232,874 --
Accrued professional fees 570,997 192,743
Accrued development costs -- 100,000
Advance for expansions 4,086 --
Resident security deposits 172,945 82,679
Current portion of long-term debt 626,298 392,434
Other current liabilities 474,913 326,461
----------- -----------
Total current liabilities 2,822,409 1,878,811
Deferred gain on sale of bonds 520,815 529,331
Long-term debt 12,457,003 8,439,911
Minority interest 156,970 243,600
Commitments and contingencies
Stockholders' equity
Preferred stock (aggregate liquidation preference of $1,281,175 and
$1,376,538 at December 31, 1995 and December 31, 1994, respectively) 1,125,000 1,280,500
Common stock, $.01 par value 30,000,000 and 10,000,000 shares
authorized and 3,435,826 and 3,395,152 shares issued and outstanding
at December 31, 1995 and December 31, 1994, respectively 34,359 33,952
Additional paid-in capital 8,746,096 8,607,171
Accumulated deficit (9,887,821) (7,594,322)
----------- -----------
Total stockholders' equity 17,634 2,327,301
----------- -----------
Total liabilities and stockholders' equity $15,974,831 $13,418,954
=========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-12
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the year ended For the year ended For the year ended
December 31, December 31, December 31,
1995 1994 1993
------------------ ------------------ --------------------
<S> <C> <C> <C>
Revenues:
Service revenue $ 7,701,951 $ 6,126,883 $ 1,193,287
Management fees and marketing revenue 511,831 276,529 440,707
Development fees and other revenue 222,100 305,197 97,091
----------- ----------- -----------
8,435,882 6,708,609 1,731,085
Operating costs and expenses:
Community operating expense 5,960,638 5,042,334 1,013,096
Community rent expense 615,580 406,898 --
Selling, general and administrative expense 2,347,034 2,509,426 1,512,861
Depreciation and amortization expense 679,621 693,385 283,351
Provision for Corporate doubtful accounts 74,125 338,112 240,000
Severance costs 263,413 -- --
Write off of investment in Development
projects -- 832,703 --
----------- ----------- -----------
Total operating costs and expenses 9,940,411 9,822,858 3,049,308
----------- ----------- -----------
Loss from operations (1,504,529) (3,114,249) (1,318,223)
Interest expense (1,500,458) (1,109,422) (351,518)
Interest income 153,115 20,281 41,872
Write-off of financing costs and other
related costs (528,257) -- --
Assignment fee from Related Party 1,000,000 -- --
Gain on sale of bonds -- -- 158,000
Gain on sale of land -- -- 376,167
Minority interest 86,630 31,400 --
----------- ----------- -----------
Loss before income taxes (2,293,499) (4,171,990) (1,093,702)
Provision for income taxes -- -- (1,300)
----------- ----------- -----------
Net loss ($ 2,293,499) ($ 4,171,990) ($ 1,095,002)
=========== =========== ===========
Net loss per common share ($0.71) ($1.81) ($0.95)
Weighted average number of common shares
outstanding 3,393,026 2,462,785 1,442,718
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-13
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $(2,293,499) $(4,171,990) $(1,095,002)
Adjustments to reconcile net loss to net cash used
by operating activities:
Gain on sale of bonds -- -- (158,000)
Gain on sale of land -- -- (376,167)
Depreciation and amortization 679,621 693,385 283,351
Accretion associated with capital lease obligations 363,001 193,229 29,341
Other income (1,000,000) -- --
Write-off of financing costs and other related
costs 528,257 -- --
Write-off of capitalized management contract costs -- 41,802 --
Write-off of interest in Development projects -- 832,703 --
Write-off of officers loan and associated taxes 188,413 -- --
Write-off of costs associated with termination
agreement 75,000 -- --
Provision for corporate doubtful accounts 74,125 338,112 240,000
Provision for facility doubtful accounts 109,767 10,290 --
Amortization of deferred costs 102,604 57,640 --
Minority interest in net (loss) of consolidated
partnership (86,630) (31,400) --
Compensation expense associated with issuance of
warrants 37,857 14,571 --
Increase in accounts receivable (245,345) (207,442) (251,866)
Increase in interest receivable (14,245) -- --
Decrease (increase) in note receivable 1,698 (25,000) --
Decrease (increase) in due from related parties 157,201 (238,640) (174,964)
Decrease (increase) in due from lender -- 108,000 (108,000)
Decrease (increase) in other current assets 16,409 94,464 (87,306)
(Decrease) increase in accounts payable (50,462) 291,759 197,504
Increase in accrued payroll and related taxes 6,264 87,160 123,880
Increase in accrued professional fees 378,254 86,246 51,387
Decrease in accrued compensation -- (67,820) (29,065)
Deferred legal costs and commissions in connection
with bond sale -- -- (19,964)
Increase (decrease) in other current liabilities 135,785 236,712 (12,568)
--------- --------- -----------
Net cash used by operating activities (835,925) (1,656,219) (1,387,439)
--------- --------- -----------
INVESTING ACTIVITIES:
Assignment fee from related party 700,000 -- --
Costs associated with assignment income (228,589) -- --
Additions to property, plant and equipment (915,386) (219,506) (226,539)
Investment in Dominion Villages, Inc. -- -- (2,283,843)
Investment in Lowry -- (82,848) --
Investment in Piedmont Villages, Inc. -- (456,520) --
Cash invested in Bailey refinancing -- (244,090) --
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-14
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------
1995 1994 1993
--------- ---------- ------------
<S> <C> <C> <C>
Investment in Sunny Knoll $ (150,000) $ -- $ --
Refundable deposits tendered -- (45,550) --
Increase in resident security deposits 90,266 45,169 --
Return of previous investment in Cornish Realty
Associates, Ltd. 125,000 250,000 --
Use of prepaid deposit (27,651) -- --
Proceeds from sale of land -- -- 456,000
(Repurchase) proceeds from sale of bonds (19,000) (15,200) 758,500
Investment in affiliates -- (222,140) (897,820)
Deposit for Lowry acquisition -- -- (1,175,000)
Cash received as part of the refinancing of the
Lowry acquisition -- 1,267,294 --
Funds in escrow restricted for refinancing -- -- (50,000)
Return of funds in escrow restricted for refinancing -- 48,530 --
Refund of previous investment in Partnership -- 30,041 --
Security for letter of credit deposited at bank (62,750) (240,000) (231,200)
Deposits to establish debt service reserve fund -- (62,544) --
Working capital loan to Lower Mills (123,169) -- --
Increase in other investments -- (30,000) (160,987)
---------- ---------- -----------
Net cash (used) provided by investing activities (611,279) 22,636 (3,810,889)
---------- ---------- -----------
FINANCING ACTIVITIES:
Expenses of proposed financing (299,668) -- --
Proceeds from borrowings 2,281,000 2,068,296 --
Costs associated with the exchange offer -- (211,572) --
Proceeds from issuance of preferred stock -- -- 7,823,500
Expenses associated with offering of preferred
stock -- -- (1,717,923)
Proceeds from issuance of common stock -- 832,000 500,000
Retirement of old preferred stock and dividends -- -- (205,000)
Loan refinancing costs -- (24,546) --
Payment of Convertible Preferred Stock dividends (64,025) (195,588) (237,962)
Repayment of debt (133,698) (235,995) (510,000)
Principal payments on capital lease obligations (201,490) (1,430,985) (103,649)
---------- ---------- -----------
Net cash provided by financing activities 1,582,119 801,610 5,548,966
---------- ---------- -----------
Net increase (decrease) in cash and cash equivalents 134,915 (831,973) 350,638
---------- ---------- -----------
Cash and cash equivalents at beginning of year 232,716 1,064,689 714,051
---------- ---------- -----------
Cash and cash equivalents at end of year $ 367,631 $ 232,716 $ 1,064,689
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-15
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SUPPLEMENTAL DISCLOSURES:
1. Interest paid in 1995, 1994 and 1993 was $1,337,067, $1,090,049 and
$329,382, respectively.
NON-CASH TRANSACTIONS:
1. The Company purchased property, plant and equipment by capital lease
totaling $13,288 during the twelve months ended December 31, 1993.
2. On November 10, 1993, the Company entered into a capital lease in which
the Company leased assets totaling $7,059,952.
3. During 1993, the Company converted 305 shares of a previous series of
preferred stock into an aggregate of 63,523 shares of common stock at a
conversion rate of $6.00 per share.
4. During 1994 the Company committed to fund up to $100,000 of working
capital at Standish Village at Lower Mills.
5. At December 31, 1994, the Company was holding $82,679 in Resident
Security Deposits.
6. In January 1994, the Company executed a $127,000 demand note to the
general partner of Adams Square as part of its initial capitalization.
7. During 1994, the Company wrote off $269,000 of its note receivable and
$221,000 of deferred gain associated with its sale of a parcel of land in
Florida.
8. On July 1, 1994, the Company consummated an exchange offer for 654,300
shares of its Series A Cumulative Convertible Preferred Stock to 1,701,180
shares of its common stock. After this transaction, there were 128,050 shares
remaining at $10.00 per share or $1,280,500.
9. On January 1, 1994, the Company entered into a capital lease in which the
Company leased assets totaling $1,851,331. These assets were comprised of
land of $257,189, building of $1,455,132 and furniture, fixtures and
equipment of $139,010. Simultaneous with this transaction, the Company also
entered into a non-compete agreement with the sellers, of which the Company
allocated $95,594 to this agreement and the seller also retained a 20%
minority interest recorded by the Company at $275,000. The minority interest
partners received 2 notes for $137,500 each, of which one was paid in full in
1994.
10. In January 1994, as part of the refinancing of Bailey, The Company
obtained seller financing of $100,000 in the form of a promissory note
payable over 5 years and bearing interest at 9%.
11. In March 1994, the Company as part of its Piedmont Villages acquisition
issued notes to certain principals and sellers of the the transaction
totaling $160,000.
12. In December 1994, The Company purchased an adjacent parcel of land to its
Bailey project from the previous seller for $200,000.
13. The Company purchased property, plant & equipment by capital leases
totaling $104,065 during 1994.
14. In May 1995, The Company purchased Sunny Knoll Retirement Home. The
Company purchased assets totaling $2,500,000, of which $40,000 was allocated
to land, $835,000 to the building, $32,000 to equipment, $1,536,000 to
goodwill and $57,000 to a non-compete agreement. This transaction was
partially financed with a seller note of $1,100,000 and an assumption of the
seller's mortgage in the amount of $750,000. The Company also borrowed
$600,000 from Emeritus.
15. In December 1995, the Company entered into an early retirement and
non-compete agreement with a founder of the Company. In connection with this
transaction, the Company has recorded $263,413 of costs in 1995.
16. During 1995, The Company recognized $1,000,000 of assignment fee income
of which $700,000 was received during the year and $300,000 is non-cash and
is included in due from related parties.
17. In December 1995, the Company exchanged 15,550 shares of Series A
Cumulative Convertible Preferred Stock for 40,674 shares of common stock.
After this transaction, there were 112,500 shares remaining at $10.00 per
share or $1,125,000.
The accompanying notes are an integral part of
the consolidated financial statements.
F-16
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common Stock Preferred Stock
----------------- -------------------- Paid-In Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------- ----- ------- --------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,330,449 $13,304 392 $ 490,000 $ 2,750,808 ($ 2,327,330) $ 926,782
Issuance of common stock 100,000 1,000 499,000 500,000
Redemption of a portion of
the Series A and all of
the Series B "old"
preferred stock (87) (108,865) (108,865)
Issuance of common stock
to a related party upon
conversion of a portion
of Series A and all of
the Series C "old"
preferred stock 63,523 635 (305) (381,135) 380,500
Issuance of Cumulative
Convertible Preferred
Stock 782,350 7,823,500 (1,711,922) 6,111,578
Dividends paid (269,813) (269,813)
Net loss (1,095,002) (1,095,002)
--------- ------- -------- ----------- ----------- ----------- -----------
Balance, December 31, 1993 1,493,972 $14,939 782,350 $ 7,823,500 $ 1,648,573 ($ 3,422,332) $ 6,064,680
--------- ------- -------- ----------- ----------- ----------- -----------
Issuance of common stock
through a private
placement 200,000 2,000 830,000 832,000
Exchange offer of a
portion of the Series A
Cumulative Convertible
Preferred Stock 1,701,180 17,013 (654,300) (6,543,000) 6,309,615 (216,372)
Dividends paid (195,588) (195,588)
Restrictions on stock
satisfied upon terms of
the Development Agency
Agreement 14,571 14,571
Net loss (4,171,990) (4,171,990)
--------- ------- -------- ----------- ----------- ----------- -----------
Balance, December 31, 1994 3,395,152 $33,952 128,050 $ 1,280,500 $ 8,607,171 ($ 7,594,322) $ 2,327,301
--------- ------- -------- ----------- ----------- ----------- -----------
Exchange offer of a
portion of the Series A
Cumulative Convertible
Preferred Stock 40,674 407 (15,550) (155,500) 155,093
Dividends paid (64,025) (64,025)
Compensatory stock options 10,000 10,000
Compensation expense
associated with issuance
of warrants 37,857 37,857
Net loss (2,293,499) (2,293,499)
--------- ------- ------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 3,435,826 $34,359 112,500 $ 1,125,000 $ 8,746,096 ($ 9,887,821) $ 17,634
========= ======= ======= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
the consolidated financial statements.
F-17
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Nature of Business
The Standish Care Company (the "Company") is a long term care services
company which operates assisted living communities throughout the eastern United
States. The Company also provides management, marketing, development and other
services to third party owners of assisted living communities.
B. Summary of Significant Accounting Policies
Principles of Consolidation
The 1993 consolidated financial statements include the accounts of the
Company, Bailey Retirement Center, Inc. ("Bailey"), Dominion Villages, Inc.
("Dominion") and Standish Marketing. Bailey is a senior living community located
in Gainesville, Florida, which the Company acquired in July 1992. The
acquisition was accounted for under the purchase method of accounting. Dominion
acquired a chain of three assisted living communities in Virginia on November
10, 1993. Title to the assets was assigned to a third party lender who is
leasing the assets back to Dominion. This transaction was accounted for as a
capital lease. The results of Dominion are included in the consolidated
financial statements for the period from November 10, 1993 to December 31, 1993
(Notes F and J). Standish Marketing was formed in January 1993 and until July 1,
1995 was a cost center for all marketing costs of the communities owned or
leased by Company subsidiaries.
The 1994 consolidated financial statements include the accounts of the
Company, Bailey, Dominion, Standish Marketing, Lowry Village Limited Partnership
("Lowry"), Piedmont Villages, Inc. ("Piedmont"), and Bailey Home Suites ("Bailey
Suites"). Lowry is a Florida limited partnership which is 80% owned by the
Company. Lowry purchased an assisted living facility in Tampa, Florida effective
January 1, 1994. On February 11, 1994, title to the assets was assigned to a
third party lender who is leasing the assets back to Lowry. This transaction is
being accounted for as a capital lease. Piedmont was formed to purchase a chain
of three assisted living facilities in North Carolina on March 2, 1994. Title to
the assets was assigned to a third party lender who is leasing the assets back
to Piedmont. This transaction was accounted for as an operating lease. The
results of Piedmont are included in the consolidated financial statements for
the period March 2, 1994 to December 31, 1994 (Note J). Bailey Suites is a 15
unit assisted living community in Gainesville, Florida which the Company began
leasing in September 1994. The results of Bailey Suites are included in the
consolidated financial statements for the period September 1, 1994 to December
31, 1994. The Bailey Suites transaction has been recorded as an operating lease.
The 1995 consolidated financial statements include the accounts of the
Company, Bailey, Dominion, Standish Marketing, Lowry, Piedmont, Bailey Suites
and Lakes Region L.L.C. ("Sunny Knoll"). The Company and Emeritus Corporation
("Emeritus"), a related party, through a limited liability company, acquired 51%
and 49% ownership interests, respectively, in the Sunny Knoll community located
in Franklin, New Hampshire on May 1, 1995. The acquisition was accounted for
under the purchase method of accounting and is included in the consolidated
financial statements of the Company for the period May 1, 1995 to December 31,
1995 (Note F). The results of Standish Marketing have been reclassified from
selling, administrative and general expenses to community operating expense for
the years ended December 31, 1995 and December 31, 1994 for presentation
purposes in amounts of $139,840 and $361,277, respectively. Intercompany
accounts and transactions have been eliminated from the consolidated financial
statements.
Investments in limited partnerships (Note E) in which the Company owns less
than 20%, are accounted for by the cost method of accounting.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from these estimates.
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, is effective for financial statements for fiscal years
beginning after December 15, 1995. The Company will continue to measure
F-18
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. Related Party (Continued)
compensation cost using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees. In
fiscal year 1996, the Company will disclose stock based compensation under FAS
123.
Revenue Recognition
Service revenue fees paid by residents for housing, health care and other
related services are recognized in the period services are rendered. Management
fees are recognized in the period in which the Company provides services.
Development fees and other revenue are recorded when the Company fulfills its
contractual obligations.
Cash and Cash Equivalents
The Company considers all highly liquid financial instruments with original
maturities of three months or less when purchased to be cash equivalents.
Restricted Cash
At December 31, 1995 and 1994, restricted cash was comprised of the
following:
December 31, 1995 December 31, 1994
------------------ --------------------
Resident security deposits $172,945 $82,679
Capital improvements
reserve--Bailey 15,481 12,144
Expansion funds--Piedmont 10,261 --
Real estate tax escrow--Sunny Knoll 1,032 --
-------- -------
$199,719 $94,823
======== =======
Restricted Deposits
At December 31, 1995 and 1994, restricted deposits was comprised of the
following:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------ --------------------
<S> <C> <C>
Cash collateral for letter of
credit--Dominion $231,200 $231,200
Cash collateral for letter of credit--Lowry 65,000 65,000
Cash collateral for letter of
credit--Piedmont 237,750 175,000
Debt service reserve--Bailey refinancing 61,032 61,032
Debt service reserve--SLI Bonds 15,750 15,750
-------- --------
$610,732 $547,982
======== ========
</TABLE>
The letters of credit are required under the terms of the financing
agreements for Dominion, Lowry and Piedmont. The letters of credit are required
to stay in place for the ten year life of the leases. The Bailey debt service
reserve is required to stay in place for the five year life of the loan. The
debt service reserve fund related to SLI represents two months of interest on
the $900,000 face amount Group A SLI Subordinated Bonds (as defined in Note G)
outstanding, for which the Company provided certain credit enhancements to the
purchaser of the Group A SLI Bonds in the form of a guarantee in January 1993
(Notes C and G).
Property, Plant and Equipment
Property, plant and equipment is stated at cost. The cost and related
accumulated depreciation of assets sold or otherwise disposed of are removed
from the related accounts and the resulting gain or loss is reflected in income.
Major additions and improvements are capitalized; repairs and maintenance are
charged to expense as incurred. The straight-line method is used to depreciate
the cost of property, plant and equipment over their estimated useful lives as
follows:
F-19
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
B. Summary of Significant Accounting Policies Continued)
Description Period
----------- ------
Buildings and improvements 30-32 years
Equipment, furniture and fixtures 5-7 years
Prepaid Lease Deposit
At December 31, 1995 and 1994, the prepaid lease deposit represents the
Company's investment and related closing costs associated with the purchase of
Piedmont. The Company accounted for this transaction as an operating lease. This
balance is being amortized over ten years, the life of the lease.
Non-Compete Agreement
In connection with the Company's purchase of Lowry, the Company and the
sellers entered into a non-compete agreement. The Company allocated a portion of
the purchase price, approximately $95,000, to the non-compete agreement. The
Company is amortizing this balance over the term of the non-compete agreement
which is five years. In connection with the Company's purchase of Sunny Knoll,
the Company and the sellers entered into a non-compete agreement. The Company
allocated a portion of the purchase price, approximately $57,000, to the non-
compete agreement. The Company is amortizing this balance over the term of the
non-compete agreement which is three years.
On December 29, 1995, the Company and Dr. Glovsky entered into an Early
Retirement and Non-Competition Agreement. As consideration for entering into the
non-compete agreement, Dr. Glovsky is entitled to receive $40,000 subject to
increase in the event Dr. Glovsky's shares are acquired at a per share value of
less than $6.00. The Company has calculated $118,000 as the non-compete payment
(Note H). The Company will amortize this balance over the term of the
non-compete which is three years.
Resident Leases
At December 31, 1995 and 1994, resident leases represent the portion of the
purchase price attributable to certain resident leases of the Bailey acquisition
in July 1992. This amount is being amortized over seven years, the expected
resident occupancy term.
Goodwill
At December 31, 1995, Goodwill represents the excess of the acquisition cost
of Sunny Knoll over the fair value of the net assets acquired. Goodwill of
$1,536,000 is being amortized over 32 years. Amortization expense recorded for
1995, 1994 and 1993 was $32,000, $0 and $0, respectively.
Other Assets
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
------------------ --------------------
<S> <C> <C>
Investment in SLI Bonds (Note G) $100,000 $100,000
Closing costs associated with the Bailey refinancing 24,670 31,636
Organizational costs 9,712 17,058
Security Deposits 13,587 13,587
Other 1,003 210
-------- --------
$148,972 $162,491
======== ========
</TABLE>
Organizational costs are amortized over a period of sixty months. The costs
associated with the Bailey refinancing are being amortized over five years, the
life of the loan.
F-20
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
B. Summary of Significant Accounting Policies (Continued)
Income Taxes
In the first quarter of 1993, the Company adopted Financial Accounting
Standards No. 109 entitled "Accounting for Income Taxes" (FAS 109). The adoption
of this pronouncement had no impact on the consolidated financial statements of
the Company for the year ended December 31, 1993.
The Company follows the liability method for accounting for income taxes.
Under the liability method, deferred tax assets and liabilities are recorded
based on the difference between the tax basis of assets and liabilities and
their carrying amounts for financial reporting purposes.
Computation of Earnings Per Share
Net loss per common share is computed by dividing the net loss for the year
plus any dividends accrued, paid, or in arrears on the Company's $.01 par value
Series A Cumulative Convertible Preferred Stock ("Convertible Preferred Stock")
by the weighted average number of outstanding shares of common stock. Dividends
paid in 1995 and 1994 totaled approximately $64,025 and $195,588, respectively.
Dividends were in arrears for the quarters ended June 30, 1994, September 30,
1994, December 31, 1994, September 30, 1995 and December 31, 1995. At December
31, 1995, the aggregate dividends in arrears on Convertible Preferred Stock
totaled $156,175 (Note Q).
Write-off of Financing Costs and Other Related Costs
Write-off of financing costs and other related costs of approximately
$528,000 for the year ended December 31, 1995 represents legal, accounting,
printing, due diligence and other related costs the Company incurred in
connection with a proposed financing and its proposed related acquisition of
four assisted living communities (the "Acquisition"). No such costs were
incurred in either 1994 or 1993.
In August 1995, the Company decided not to proceed with its financing and
also assigned to Emeritus its rights and obligations to the Acquisition in
exchange for an assignment fee (Note H). As a result, the Company wrote off the
costs associated with both its proposed financing and the Acquisition.
Provision for Doubtful Accounts
The Company recorded $74,000, $338,000 and $240,000 to provide for
potentially uncollectible accounts receivable related to certain management and
marketing contracts at December 31, 1995, 1994, and 1993, respectively.
The Company also recorded a provision for community doubtful accounts of
$110,000, $9,000 and $0 at December 31, 1995, 1994 and 1993, respectively. The
amounts have been included in community operating expenses.
Severance Costs
Severance Costs of $232,874 for the year ended December 31, 1995 represents
certain costs associated with an Early Retirement and Non-Competition Agreement
between the Company and Dr. C. Joel Glovsky, a co-founder and former Director
and Officer of the Company. No such expense was recorded in either 1994 or 1993
(Notes H and M).
Write-off of Investment in Development Projects
In 1994, the Company wrote-off approximately $833,000 of costs associated
with various developments in which the Company either is no longer holding an
interest or in which the estimated realizable value was significantly decreased.
No such expense was recorded in either 1995 or 1993.
F-21
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
B. Summary of Significant Accounting Policies Continued)
Assignment Fee from Related Party
Other income of $1,000,000 for the year ended December 31, 1995 represents
the assignment fee (payable in installments) the Company recognized for
assigning its rights and obligations of the Acquisition to Emeritus. No such fee
was recorded in either 1994 or 1993. At December 31, 1995, $300,000 of this fee
was included in the current portion of Due From Related Parties.
Reclassification
Certain amounts in the 1993 and 1994 consolidated financial statements have
been reclassified to conform with the 1995 presentation.
C. Financial Instruments and Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk are primarily cash investments and receivables. The Company
places its cash investments in short term highly liquid investments. All other
cash is held in various banks, each of which is a federally insured financial
institution. Receivables are primarily from management, marketing and
development fees and its assignment fees due from Emeritus (Notes B and H).
Management has established a reserve of approximately $448,000 at December 31,
1995 and $361,000 at December 31, 1994 to account for the potential
uncollectability of certain outstanding balances. In addition, approximately
$96,000 and $54,000 of certain accounts receivable were written off during 1995
and 1994, respectively. Management believes all other accounts receivable
outstanding to be fully collectible.
As of December 31, 1995 and 1994, respectively, the Company held SLI Bonds
(Note G) related to two communities, Fox Ridge Manor and Victoria Manor, with a
carrying value of $24,471 and $23,487. The future value of these Bonds is
dependent on the cash flows of these communities and the ability of SLI to pay
interest on the bonds on a current basis. These bonds accrue interest at 10.5%
but interest payments are subordinated to senior debt service as well as to
management fees payable to the Company. Currently, the cash flows of SLI are not
adequate to support subordinated debt service payments. A portion of the SLI
Bonds are currently held for sale and other portions of such Bonds were sold in
separate transactions in the first, second and third quarters of 1993, for
amounts in excess of the carrying value. Certain of the sales involved credit
enhancements provided by the Company (Notes B and G). During 1994 and the first
quarter of 1995, the Company repurchased SLI subordinated bonds at their par
value of $24,700 (Note G).
D. Public Offering of Preferred Stock
The Company completed a public offering on September 9, 1993 of 700,000
shares of Convertible Preferred Stock. In addition, on October 22, 1993,
pursuant to an over-allotment option, the Company sold an additional 82,350
shares of Convertible Preferred Stock. Net proceeds from the sales of
Convertible Preferred Stock, after subtracting costs such as underwriting,
legal, accounting and printing fees, were approximately $6,112,000.
F-22
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. Investments in Limited Partnerships
The following table summarizes the activity in the investment in limited
partnerships account for the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Standish Adams Cornish Realty
Oaktree L.P. Square L.P. Associates L.P. Total
------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1993 $ 524,164 $ -- $ 500,000 $1,024,164
Investment in Partnership 449,140 -- -- 449,140
Transfer of interest (127,000) 127,000 -- --
Return of investment (30,041) -- (250,000) (280,041)
Write-off of a portion of investment (816,263) -- -- (816,263)
--------- -------- --------- ----------
Balance at December 31, 1994 $ -- $127,000 $ 250,000 $ 377,000
Return of investment $ -- $ -- (125,000) (125,000)
--------- -------- --------- ----------
Balance at December 31, 1995 $ -- $127,000 $ 125,000 $ 252,000
========= ======== ========= ==========
</TABLE>
Development Agency Agreement
In December 1993, the Company terminated the Development Agency Agreement
dated October 1, 1991 and amended December 31, 1992, with a former affiliate of
the Company (the "Development Agent"). During 1991, the Company and the
Development Agent made equity contributions totaling $125,000 each for the
development of a community. In addition, in November 1991, the Company
authorized the issuance of 6,301 restricted shares of its common stock for no
consideration to the Development Agent effective at the date of the Company's
Initial Public Offering of its common stock in 1992. The Company recognized in
1994 approximately $14,571 as expense which represented the fair market value of
the stock on the date that the restrictions on this stock lapsed.
Standish Oaktree/Adams Square Limited Partnership
In December 1993, the partners of Standish Oaktree Limited Partnership agreed
to dissolve the partnership. Pursuant to the dissolution, the Company, through
its wholly-owned subsidiary, Standish/Oaktree Development Corp., holds 30% of
the 1% partnership interest of Adams Square, Inc., the General Partner of Adams
Square Limited Partnership. Adams Square Limited Partnership owns the Standish
Village at Lower Mills community ("Lower Mills") located in Dorchester,
Massachusetts. The Standish Oaktree Limited Partnership withdrew as a general
and limited partner of the Adams Square Partnership in 1993. Chevron USA, an
unrelated third party, holds a 99% limited partner interest. However, cash flow
and capital distributions are allocated differently under certain circumstances,
subject to certain priority distributions, some of which are to the Company.
The Company has been retained as the manager and marketing agent for the
community. The Company also is entitled to reimbursement of certain
out-of-pocket expenses and development fees as priority payments from cash flow.
In January 1994, the Company executed a $127,000 demand note to the General
Partner of the Adams Square Partnership as part of its initial capitalization.
The Company also funded approximately $123,000 of working capital deficits
associated with Standish Village at Lower Mills during 1995. At December 31,
1995, approximately $23,000 was included in Due From Related Parties.
Cornish Realty Associates, L.P.
At December 31, 1993, the investment in Cornish Realty Associates, L.P.
("Cornish") represented two separate $250,000 investments made during 1993 for
the Laurelmead development project in Providence, Rhode Island. In March 1993,
the Company entered into a marketing and management agreement with Cornish with
respect to the independent living portion of that community. This contract
stipulated that the Company would receive a marketing fee of $2,500 per month
(Note H).
In October, 1993, the Company and Cornish modified the terms of the
Company's marketing fees in light of changes in the marketing strategy and to
provide further incentive to the Company to achieve its sales goal. Under
F-23
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
E. Investments in Limited Partnerships (Continued)
these modified terms, the Company, upon the sale and closing of 155 independent
living units or 95% of available units, whichever is less (on or before the date
which is one year after that date on which the first resident moves into the
community), would be entitled to a lump-sum marketing fee of $300,000. If the
sales goal is not fully achieved within that one-year period, the marketing fee
payable to the Company will decrease at the rate of $1,000 for each day until
either the sales goal is achieved or the expiration of 300 days. As of February
12, 1996, 119 independent living units have been sold and the one-year sale
completion period commenced on November 18, 1994. The Company recognized revenue
of $60,000 of the $300,000 total potential marketing fee in the first quarter of
1994 as 87 units had been sold to date. At December 31, 1995, the Company wrote
off the $60,000 marketing fee revenue it recorded in the first quarter of 1994.
Simultaneously, the Company and Cornish agreed to reduce the Company's
investment in Cornish from a 12.375% limited partnership interest to a 6.188%
limited partnership interest. Accordingly, in February, 1994 Cornish returned
half of the Company's $500,000 investment or $250,000.
The limited partnership agreement stipulates that upon the receipt of a
prescribed dollar value of sale proceeds, the Company is entitled to receive its
remaining initial investment of $250,000. In addition, the Company is entitled
to a preferred return on its investment at the rate of 15% per annum. In
accordance with the terms of the agreement, the Company received $125,000 of its
remaining $250,000 investment during the first quarter of 1995. During 1995, the
Company accrued approximately $100,000 of preferred return. The Company included
this amount in interest income in its consolidated statement of operations (Note
H).
F. Property, Plant and Equipment
Property, plant and equipment at December 31, 1995 and 1994 consisted of the
following:
1995 1994
----------- -----------
Land $ 1,616,628 $ 1,576,628
Land improvements 21,964 21,964
Furniture, fixtures and equipment 1,221,239 1,132,721
Buildings and improvements 9,313,995 8,290,867
----------- -----------
12,173,826 11,022,180
Less accumulated depreciation (1,094,372) (606,252)
----------- -----------
$11,079,454 $10,415,928
=========== ===========
On November 10, 1993, the Company entered into a capital lease arrangement to
lease various land, furniture and buildings of Dominion. Based on a valuation
performed on the assets covered under the Company's lease agreement by an
outside independent appraiser and additional costs associated with this
transaction such as the assumption of debt and closing costs, the Company
allocated the present value of the lease payment as follows: $700,189 to land,
$348,353 to furniture, fixtures and equipment and $6,011,410 to buildings.
Accumulated depreciation includes $507,797 and $237,624 for these assets at
December 31, 1995 and 1994 (Note J).
On February 11, 1994, the Company entered into a capital lease agreement to
lease the land, furniture and the building of the Lowry community. Based on an
independent appraisal of the property and the amount of debt financing provided
by a lender and additional costs associated with this transaction such as the
assumption of debt and closing costs, the Company allocated the present value of
the lease payments as follows: $257,189 to land, $139,010 to furniture, fixtures
and equipment and $1,455,132 to the building. Accumulated depreciation includes
$134,280 and $67,140 for these assets at December 31, 1995 and 1994 (Note J).
The Company and Emeritus, through a limited liability company, acquired a 51%
and 49% ownership interest, respectively, in the Sunny Knoll community located
in Franklin, New Hampshire in May 1995. The acquisition
F-24
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F. Property, Plant and Equipment (Continued)
was accounted for using the purchase method of accounting. The total purchase
price was approximately $2,500,000. The purchase price exceeded the fair value
of the building and equipment by $1,536,000. This amount has been recorded as
goodwill and is being amortized over 32 years. The purchase price was funded
with (a) a $1,100,000 note from the seller which bears interest at 12% per annum
through April 1996 and 14% per annum thereafter and matures on April 30, 1997,
(b) a mortgage from a bank which the Company assumed for $750,000 which bears
interest at prime plus 1.75% and matures in April 1997, (c) a $600,000 note from
Emeritus bearing interest at 10% and which matures on April 30, 1998 and (d)
$150,000 funded by the Company. The Company guaranteed approximately $1,850,000
of the obligations of the limited liability company payable to the seller in
future years. Emeritus guaranteed $1,100,000 of these same obligations. The
Company is entitled to a management fee equal to 5% of gross revenues, a
preferred return of 10% on its $150,000 investment and 20% of the excess cash
flow after management fees, debt service and funding of reserves. Emeritus is
entitled to a 10% preferred return on its $600,000 note and 80% of the excess
cash flow until its note is repaid in full. After Emeritus' note is repaid in
full, the Company and Emeritus split excess cash flow in accordance with their
economic interests, 51% to the Company and 49% to Emeritus.
G. Assets Held for Sale
Land
At December 31, 1992, the Company held a parcel of land it owned in Florida
for sale, which it sold in January 1993. This land had a basis of approximately
$128,000 and was sold for $725,000, of which the Company received $456,000 in
cash and a note for $269,000. The Company used the proceeds from this sale to
pay down the existing mortgage on the land and its outstanding $188,000 letter
of credit. The total 1993 gain with respect to this transaction was $597,000.
The Company recognized the gain to the extent cash was received. The remainder
of the gain was deferred. The note beared interest at 12% per annum. Interest
and principal were payable to the Company within ten (10) days of written notice
to the borrower. In 1994, the Company determined there was substantial doubt
regarding the collectability of the note. Accordingly, the Company wrote off the
note receivable of $269,000 and the corresponding $221,000 deferred gain in
1994. The net charge to the 1994 consolidated statement of operations was
$48,000.
Subordinated Debt Securities
Among the communities managed by the Company for the account of third parties
are two communities in Pennsylvania owned by SLI; Fox Ridge Manor and Victoria
Manor ("SLI Communities"). In July 1992, the Company paid $500,000 for a
management contract with SLI for these communities and to purchase subordinated
bonds of SLI (the "SLI Bonds"), having a face value of $1,495,000. Based on a
valuation performed by an investment banking firm, the Company allocated the
$500,000 purchase price as follows: $238,000 to the management contract and
$262,000 to the SLI bonds. During 1993, the Company resold SLI bonds in the
aggregate face amount of $1,303,500 which bear interest at 10.5% annually with
interest payments due semi-annually in three separate transactions. In the first
of these transactions, the Company resold, for $550,000, SLI bonds in the face
amount of $900,000 (the "Group A SLI Bonds") to an investor group and guaranteed
the payment of interest and principal on such bonds. In the second transaction,
the Company resold, for $203,500; SLI bonds in the face amount of $203,500 (the
"Group B SLI Bonds") to a second investor group and guaranteed the payment of
interest and principal on such bonds. Because of such guarantees, the Company
deferred recognition of its $538,000 aggregate gain in these two resale
transactions. In the third 1993 transaction, the Company resold, for $200,000,
SLI bonds in the face amount of $200,000 (the "Group C SLI Bonds"), to another
investor group. The Company provided no guarantee or other credit enhancement
commitment in connection with the resale of the Group C SLI Bonds.
Since the cash flows of the SLI Communities have been insufficient to fund
the interest payments on the Group A SLI Bonds and the Group B SLI Bonds, the
Company is funding total interest payments of $115,000 per year
F-25
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
G. Assets Held for Sale (Continued)
on the Group A and Group B SLI Bonds. Because of the uncertainty of the ability
of the SLI Communities to generate adequate cash flow to fund the debt service
requirements on the SLI Bonds, the Company expects that its payments of interest
on the Group A and Group B SLI Bonds will continue for an indefinite period. The
first scheduled payment of principal on the Group A SLI Bonds in the amount of
$10,300 is due in October 1996, and the first scheduled payment of principal on
the Group B SLI Bonds in the amount of approximately $2,300 is due October 1996.
Thereafter, scheduled annual payment of principal on the Group A SLI Bonds,
beginning in the amount of $10,300 and increasing in amount to $90,000 in the
year 2018, and on the Group B SLI Bonds, beginning in the amount of $2,300 and
increasing in amount to $20,700, are due to increase until October 2018. Bond
payments extend through October 2019. At this time, the Company is uncertain as
to whether it will be required to make the principal payments on the Group A SLI
Bonds and/or the Group B SLI Bonds.
Under the terms of the sale agreement for the Group A SLI Bonds, the Company
was obligated to place the first two months of interest payments due on such
Group A SLI Bonds in an escrow account. The Company subordinated its management
fee to the payment of the bond interest. Accordingly, the Company deposits with
the escrow agent a balance equal to the interest payable at the beginning of
each month. The terms of the sale agreement require the Company to substitute
another management agreement of equal or greater value in the event the Company
is discharged as manager of SLI, or management fees are not received for three
consecutive months and an equivalent dollar amount is not paid by the Company.
The Company has the right to repurchase the Group A SLI Bonds during the periods
February 1 through May 31, 1997, 1998 and 1999 at a price of $630,000, $720,000
and $810,000, respectively, less any principal payment made to that point.
The sale of the bonds in the first quarter of 1993 resulted in proceeds
exceeding carrying value by $488,000. During the first quarter of 1993, the
Company recognized a gain of $158,000 on the sale of the Group C SLI Bonds with
no credit enhancements. The Company deferred the entire gain of $371,000,
related to the sale of the Group A SLI Bonds which were credit enhanced, pending
improved cash flows from the SLI communities. The Company also deferred
approximately $20,000 of legal costs and commissions associated with the sale of
the Group A SLI Bonds and netted this balance against the deferred gain in
connection with that sale. The Company deferred the entire gain totaling
approximately $187,000 associated with the sale of the Group B SLI Bonds.
During 1994 and the first quarter of 1995, the Company repurchased Group C
SLI Bonds at their face amount of $24,700. At December 31, 1995, the carrying
value on the Company's balance sheet of the remaining $221,000 face amount of
SLI bonds outstanding is $24,471.
H. Related Party Transactions
The Company has conducted various transactions with its officers, directors,
principal stockholders and/or their affiliated companies and unconsolidated
affiliates. Accounts affected by these transactions were as follows (See also
Note I):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1995 1994 1993
-------- ------ -------
<S> <C> <C> <C>
Accounts receivable from Carriage Hill Retirement
Center, Inc. ("Carriage Hill") owned by Emeritus for
management fees $ 16,493 $ 18,966 $ --
Accounts receivable from Emeritus for assignment fees,
management fees, and reimbursable expenses 314,371 -- --
Accounts receivable from Crystal Cove for management
fees and other costs -- 20,658 20,185
Accounts receivable from Cornish for development
management and marketing fees and other costs 55,693 114,276 33,867
</TABLE>
F-26
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
H. Related Party Transactions (Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Accounts receivable from Cornish for interest on
investment $ 99,545 $ -- $ --
Accounts receivable from Adams Square Limited
Partnership for reimbursement of management and
marketing fees and other costs 73,847 111,125 --
Due from an affiliate of a former director and officer -- -- 11,284
Due from minority partner for reimbursement of certain
costs -- 21,917 --
Loans to officers including a balance of $0, $102,039
and $65,242 to C. Joel Glovsky, an executive officer
and director of the Company (Note L) 7,500 114,539 77,742
Assignment fee from Emeritus (Note B) 1,000,000 -- --
Interest income on interest receivable from loans to
officers -- -- 797
Management fee revenue from Carriage Hill 107,914 36,997 --
Development fee revenue from Emeritus 20,000 20,000 --
Interest expense to Emeritus related to the convertible
debentures 145,198 23,664 --
Management fee revenue from Cornish 94,920 67,500 --
Marketing fee revenue from Cornish -- 60,000 12,500
Development fee revenue from Cornish 75,000 128,000 72,000
Interest income from Cornish 99,545 -- --
Consulting fee paid to affiliate of stockholder -- -- 40,000
Management fee revenue from Crystal Cove 99,650 -- 15,000
Management fees from Adams Square Limited Partnership 57,497 27,000 --
Marketing fees from Adams Square Limited Partnership 86,800 26,600 --
Expenses incurred through or reimbursed to
stockholders, directors and their affiliates:
Selling and Marketing 78,735 81,966 66,880
General and Administrative 9,069 15,852 5,747
</TABLE>
The Company's Other Income of $1,000,000 consists of the assignment fee
realized by the Company from its assignment to Emeritus of August 31, 1995 of
the Company's rights and obligations to the Acquisition (Note B). As of December
31, 1995, the Company had received $700,000 of the assignment fee.
On December 29, 1995, the Company and Dr. C. Joel Glovsky ("Dr. Glovsky"),
a co-founder, director and officer of the Company, entered into an Early
Retirement and Non-Competition Agreement (Note M).
On December 5, 1995, the Company received a notice of default from Cornish,
the general partner of Laurelmead, a 161 unit independent living community in
Providence, Rhode Island with respect to its Management and Marketing Agreement,
as amended (the "Agreement"). The notice of default alleged numerous instances
in which Cornish alleges the Company did not comply with the Management and
Marketing Agreement and commenced the Company's 30 day cure period thereunder.
The Company believes it has complied with the terms and conditions of the
Agreement and that it is entitled to its full compensation due under the
Agreement.
F-27
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
H. Related Party Transactions (Continued)
Furthermore, the Company maintains that Cornish itself is in breach of its
express and implied obligations under the Agreement.
The parties have entered into an agreement whereby Standish has agreed to
resign as the Manager of Laurelmead effective April 1, 1996. The Company will
receive management fees through March 31, 1996. The Company will also receive
its limited partnership interest in Cornish Realty Associates, L.P. of $125,000
and its accrued interest on its investment. The balance is payable as follows:
$10,000 per month for six months beginning in May 1996 and ending in October
1996, $80,000 is payable on December 15, 1996 and a final payment of $75,000 is
payable on December 15, 1997.
On January 23, 1996, the Company received from Emeritus a notice of
termination with respect to its Management and Marketing Agreement ("Agreement")
at the Pines of Tewksbury. In its notice, Emeritus alleges that the Company is
in material breach of its Agreement. On January 25, 1996, the Company responded
to this notice. The Company's position is that under the terms and conditions of
the Agreement, the Company may only be terminated by Emeritus if the Company
fails to cure any alleged default in performance under the Agreement within
thirty days (or longer period if a cure, pursued with reasonable diligence,
reasonably requires greater than 30 days) after written notice of an alleged
default.
I. Short-term borrowings and long-term debt
Short-term borrowings and long-term debt at December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Bailey Mortgage payable with interest at the one-month London
Interbank offered rate for US dollars plus 2.25% (8.08% at
December 31, 1995), principal payable monthly in varying amounts.
All remaining principal and interest due in February 1999,
collateralized by real estate. $936,804 $973,550
Sunny Knoll Mortgage Payable with interest equal to the base rate
of Primary Bank plus 1.75% (11% at December 31, 1995), principal
payable monthly in varying amounts, all remaining principal due
April 1997, collateralized by real estate. 744,764 --
Notes payable:
Note payable with 9% interest, principal payments of varying
amounts and interest payable over five years 66,853 86,285
Note payable with interest at the lender's prime rate plus 1%
(9.50% at December 31, 1995), payable in fifty-nine installments
of $833 each month. All remaining principal and interest due in
December 2000, collateralized by real estate 140,000 150,000
Note payable with 9.47% interest and principal due December 1999,
collateralized by automobile 14,901 23,296
Note payable with 14.99% interest and principal payments in
varying amounts, due by January 1996, collateralized by
furniture -- 890
Notes payable with 9% interest and principal payments in varying
amounts due February 1997 149,430 155,672
Note payable to a minority partner with 8% interest, entire
principal balance is due April 1997 (previously due December 1996) 137,500 137,500
Note payable to Adams Square L.P., interest-free, due on demand 127,000 127,000
F-28
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
I. Short-term borrowings and long-term debt (Continued)
1995 1994
---------- ----------
<S> <C> <C>
Note payable with 12% interest through April 1996, and 14%
thereafter, entire principal due April 1997 $ 1,100,000 $ --
Note payable to Emeritus with 10% interest, quarterly principal
payments based on excess cash flow, all remaining principal due
April 1998, collateralized by the Company's stock in Sunny
Knoll 551,732 --
Deferred liability associated with the Piedmont operating lease 160,244 57,639
----------- ---------
Subtotal 4,129,228 1,711,832
Convertible debentures with 8.5% interest due in June 1998,
convertible to common stock at $4.16 per share 2,000,000 895,000
Capital lease obligations (Note J) 6,954,073 6,225,513
----------- ----------
Subtotal 13,083,301 8,832,345
Less current maturities 626,298 392,434
----------- ----------
Long-term debt $12,457,003 $8,439,911
=========== ==========
</TABLE>
The most restrictive covenants with respect to the Bailey mortgage borrowing
requires Bailey to maintain an annual debt coverage ratio of 1.5 to 1. In
addition, under the terms of the loan, the Company was required to establish a
debt service reserve fund of approximately $61,032 which represents six monthly
debt service payments. The Company was also required to establish a depreciation
fund of $2,500 and the Company is required to deposit an additional $2,500 into
this fund each month. The depreciation fund may only be used for capital
improvements at Bailey.
In June 1994, the Company completed a financing transaction with Emeritus and
its chairman Daniel R. Baty. Emeritus has provided the Company with $2,000,000
in working capital loans in the form of convertible debentures which are
convertible at the option of the holder, and, in certain cases at the election
of the Company, into common stock at a price of $4.16 per share, subject to
customary anti-dilution adjustments. The working capital loans accrue interest
at 8.5% and are due June 1998. The most restrictive covenant with respect to the
convertible debentures is a cross default clause which allows Emeritus to
accelerate the repayment of the debentures by declaring the unpaid principal
balance and all accrued interest on the debentures due and payable immediately.
The most restrictive covenants with respect to the Sunny Knoll debt requires
Sunny Knoll to maintain a minimum of twenty (20) residents and an average daily
rate per resident of $110. Sunny Knoll is also required to maintain a debt
service coverage ratio of at least 1.1 to 1.0, and the Company and Emeritus must
also maintain readily available liquid assets of not less than $750,000.
The most restrictive covenants with respect to the Dominion, Lowry and
Piedmont leases require each entity to maintain a debt coverage ratio of 1.15 to
1.0 during the first year of the lease and 1.25 and 1.0 thereafter. In addition,
the Company as guarantor of the lease payments is required to maintain
consolidated net worth of at least $3,000,000.
During 1994, the Company did not comply with certain of its debt covenants
(primarily related to the debt coverage ratio requirements) associated with its
Dominion, Lowry and Piedmont Lease agreements. The Company obtained waivers for
each of these debt covenant violations through December 31, 1994 and a
modification of the debt coverage ratio requirements for 1995. The modified
covenants for 1995 required the Company to maintain a consolidated net worth of
not less than $500,000, and Dominion, Lowry and Piedmont to maintain a combined
quarterly weighted debt coverage ratio of at least .75 to 1.00 through December
31, 1995. In addition, selling, general and administrative expenses as a
percentage of revenues are not to exceed 30%, 25% and 20% for the years ending
December 31, 1995, 1996 and 1997, respectively. Subsequent to December 31, 1995,
Dominion, Lowry and Piedmont will each be required to maintain a quarterly debt
coverage ratio of 1.25 to 1.0.
F-29
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
I. Short-term borrowings and long-term debt (Continued)
During 1995, the Company did not comply with certain of its debt covenants,
primarily related to the debt coverage ratio requirements associated with its
Dominion, Lowry and Piedmont lease agreements. In addition, the Company did not
comply with its covenant of maintaining at least $500,000 of consolidated net
worth. In March 1996, the Company (a) obtained waivers for each of the defaults
which occurred in 1995 and (b) modified certain covenants for 1996. The modified
covenants for 1996 require Dominion, Lowry and Piedmont to maintain a combined
quarterly average debt coverage ratio of at least 1.0 to 1.0 through December
31, 1996 and requires the Company to maintain a consolidated negative net worth
no greater than $110,000, $609,000, $1,000,000 and $1,350,000 for the quarters
ended March 31, June 30, September 30 and December 31, 1996, respectively.
On February 20, 1996, the note payable to a minority partner was revised to
extend the maturity date from December 31, 1996 to April 1, 1997.
At December 31, 1995, the maturities of the notes, convertible debentures and
capital leases over the next five fiscal years are as follows:
<TABLE>
<CAPTION>
Notes Convertible Capital
Payable Debentures Leases Total
--------- --------- ---------- ------------
<S> <C> <C> <C> <C>
1996 $ 545,756 $ -- $ 773,644 $ 1,319,400
1997 1,522,293 -- 796,240 2,318,533
1998 974,823 2,000,000 816,042 3,790,865
1999 826,112 -- 841,825 1,667,937
2000 100,000 -- 863,790 963,790
Thereafter 160,246 -- 3,133,373 3,293,619
BPO* -- -- 2,863,546 2,863,546
Less amounts representing interest -- -- (3,134,389) (3,134,389)
---------- ---------- ----------- ------------
Subtotal 4,129,230 2,000,000 6,954,071 13,083,301
Less current maturities 408,256 -- 218,042 626,298
---------- ---------- ----------- ------------
Total long-term debt $3,720,974 $2,000,000 $ 6,736,029 $12,457,003
========== ========== =========== ============
</TABLE>
* Obligation associated with the bargain purchase option of the Dominion and
Lowry leases.
Interest paid in the years ended December 31, 1995, 1994, and 1993 was
$1,337,067, $1,090,049 and $329,382, respectively.
J. Leases
Dominion
On November 10, 1993, the Company and Dominion, a Virginia corporation and
wholly-owned subsidiary of the Company, entered into a transaction with a lender
under which (1) the Company assigned its rights to acquire the Facilities under
the Purchase and Sale agreement to the lender, (2) the lender acquired title to
the Facilities, (3) the lender leased the Facilities to Dominion, and (4) the
Company guaranteed the obligations of Dominion under the lease with the lender.
The lease to Dominion is for an initial term of ten years and Dominion has the
right to extend the term for two additional periods of five years each. On June
28, 1995 the Company received $576,000 of additional funding. The lease terms
remain the same except that the Company is required to make monthly payments to
the lender based on a lease advance of $5,200,000 and an applicable lease
interest rate. Interest on the lease is based on the ten year interest rate for
treasury notes plus 5%. In addition, the interest rate increases by 40 basis
points per year in years 2-6 of the lease and 33 basis points in years 7-10.
Dominion also has an option to purchase the facilities which is
exercisable prior to the expiration of the initial term and each extension
period. This option to purchase qualifies as a bargain purchase option. The
Company is
F-30
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
J. Leases (Continued)
accreting the bargain purchase option over the lease term of ten years given
that the purchase option is exercisable at an amount less than the current fair
market value.
Lowry
On February 11, 1994, the Company and Lowry, a Florida partnership and 80%
owned subsidiary of the Company, entered into a transaction with a lender under
which (1) the Company assigned its rights to acquire the facility under a
purchase and sale agreement to the lender, (2) the lender acquired title to the
facility, (3) the lender leased the facility to Lowry, and (4) the Company
guaranteed the obligations of Lowry under the lease with the lender. The lease
to Lowry is for an initial term of ten years and Lowry has the right to extend
the term for two additional periods of five years each. The Company is required
to make monthly payments to the lender based on a lease advance of $1,300,000
and an applicable lease interest rate. Interest on the lease is based on the ten
year interest rate for treasury notes plus 5%. In addition, the interest rate
increases by 40 basis points per year in years 2-6 of the lease and 33 basis
points in years 7-10.
Lowry also has an option to purchase the facilities which is exercisable
prior to the expiration of the initial term and each extension period. This
option to purchase qualifies as a bargain purchase option. The Company is
accreting the bargain purchase option over the lease term of ten years given
that the purchase option is exercisable at an amount less than the current fair
market value.
Piedmont
On March 2, 1994, the Company and Piedmont, a North Carolina corporation and
wholly owned subsidiary of the Company, entered into a transaction with a lender
under which (1) the Company assigned its rights to acquire the facility under
the purchase and sale agreement to the lender, (2) the lender acquired title to
the facility, (3) the lender leased the facility to Piedmont, and (4) the
Company guaranteed the obligations of Piedmont under the lease with the lender.
The lease to Piedmont is for an initial term of ten years and Piedmont has the
right to extend the term for two additional periods of five years each. On May
25, 1995 the lender made a $750,000 lease advance. Lease terms remain unchanged
except that the Company is required to make monthly payments to the lender based
on a lease advance of $4,250,000 and an applicable lease interest rate. Interest
on the lease is based on the ten year interest rate for treasury notes plus 5%.
In addition, the interest rate increases by 40 basis points per year in years
2-6 of the lease and 33 basis points in years 7-10. This transaction has been
accounted for as an operating lease by the Company.
Bailey Suites
On July 26, 1994, the Company entered into a lease agreement to lease a 15
unit facility in Gainesville, Florida for a two year period with the right to
extend the term of the lease for five additional periods of two years. The
Company is required to pay rent of $1,250 per month, pay the lessor's mortgage
of $2,437 per month and pay all operating expenses of the community including
real estate taxes and insurance. The Company is entitled to a $3,500 per month
management fee, may earn marketing fees upon the achievement of certain
occupancy milestones and is entitled to 40% of any excess cash flow of the
community.
Other Leases
The Company leases its offices and certain equipment under operating leases,
which expire at various dates through 1997. The Company has the option to
purchase the equipment at fair market value at the end of the leases. In
addition, the Company is treating its Piedmont acquisition as an operating lease
which expires in the year 2004. At December 31, 1995, the future minimum lease
payments under non-cancelable leases are as follows:
F-31
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
J. Leases (Continued)
Year Ended Operating Capital
December 31, Leases Leases
- ------------------------------------------- --------- ------------
1996 $ 633,931 $ 773,644
1997 556,217 796,240
1998 549,525 816,042
1999 566,525 841,825
2000 581,312 863,790
Thereafter 1,917,723 3,133,373
---------- ------------
Net minimum lease payments 4,805,233 7,224,914
BPO* -- 2,863,546
Less amounts representing interest -- (3,134,389)
---------- ------------
Present value of minimum lease payments due $4,805,233 $ 6,954,071
========== ============
* Obligation associated with the bargain purchase option of the Dominion and
Lowry leases.
Rent expense of $93,563, $60,202 and $82,593 for the years ended December 31,
1995, 1994, and 1993, respectively, was charged to operations. In 1995, 1994 and
1993, the Company subleased its former office space and recorded $7,851, $12,000
and $41,573, respectively, in sublease rental income. The sublease agreement
expired in January 1996. The Company recorded $566,612, $390,558 and $0 of rent
expense for Piedmont in 1995, 1994 and 1993, respectively and $48,968, $16,341
and $0 of rent expense for Bailey Suites in 1995, 1994 and 1993, respectively.
K. Proforma Results of Operations
The following represents the unaudited pro forma results of operations as if
Sunny Knoll was acquired at the beginning of 1995 and as if Sunny Knoll and
Piedmont were acquired, through the aforementioned lease transaction, at the
beginning of the prior year. The pro forma operating results do not include the
results of Bailey Suites. This entity is not considered a significant subsidiary
as it represents less than 10% of the Company's assets.
1995 1994
---------- ------------
Net revenues $ 8,834,686 $ 7,986,298
Loss before extraordinary items (2,159,322) (4,170,511)
Net loss (2,159,322) (4,170,511)
Net loss per common share (.67) (1.81)
The pro forma operating results include results of operations for 1995 and
1994 with increased depreciation and amortization on property, plant and
equipment associated with the lease of Piedmont and the acquisition of Sunny
Knoll.
The pro forma information given above does not purport to be indicative of
the results that actually would have been attained if the operations were
combined during the period presented, and is not intended to be a projection of
future results or trends.
L. Income Taxes
At December 31, 1995, the Company has available for federal income tax
purposes, subject to limitations under Section 382 of the Internal Revenue Code,
net operating loss carryforwards of approximately $11,136,000 for tax reporting
purposes. There are no significant book to tax differences associated with these
temporary differences. Carryforwards expire in the years 2004 through 2010.
F-32
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
L. Income taxes (Continued)
Effective January 1, 1993 the Company adopted the provisions of FAS 109,
"Accounting for Income Taxes." Deferred income taxes under the liability method
required by FAS 109 reflect the net effect of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. There are no significant book to tax
differences associated with these temporary differences. A valuation allowance
is recognized if it is more likely than not that some portion of the deferred
asset will not be realized.
There was no cumulative effect of adopting FAS 109 on the Company's net loss
for the year ended December 31, 1993.
The Company's deferred tax assets are comprised of the following at December
31, 1995:
Loss carryforward and other deferred assets $ 4,371,000
Deferred tax asset valuation allowance (4,371,000)
------------
$ --
============
The valuation allowance has been established since the use of the loss
carryforwards is uncertain. The loss carryforwards and the related valuation
allowance have increased since January 1995 by approximately $840,450 as a
result of operating losses for the year ended December 31, 1995.
The provision for income taxes as of December 31, 1993 is comprised solely of
current state taxes payable.
M. Commitments and Contingencies
Employment Contracts
The Company has entered into employment agreements with certain of its
executives, which provide for payments to these executives of either 2.99 times
or 1.0 times their average annual salary in the event they are terminated by the
Company within a twenty-four (24) month period following certain changes in
control. The maximum contingent liability under these agreements at December 31,
1995 was approximately $635,000.
Early Retirement and Non-Competition Agreement
On December 29, 1995, the Company and Dr. C. Joel Glovsky ("Dr. Glovsky"), a
co-founder, director and officer of the Company, entered into an Early
Retirement and Non-Competition Agreement (the "Agreement"). Under the terms of
the Agreement, Dr. Glovsky resigned as a director and an officer of the Company
effective December 31, 1995, the Company and Dr. Glovsky agreed to terminate his
employment agreement which was scheduled to expire on December 31, 1997 and the
Company agreed to enter into a five year consulting agreement with Dr. Glovsky.
Under the terms of the Consulting Agreement, Dr. Glovsky will provide services
to the Company on an as needed basis over the next five (5) years. The Company
will pay Dr. Glovsky $60,000 per annum for these services and will also provide
Dr. Glovsky with health insurance, life insurance and other certain benefits
through 1997. As part of the Agreement, the Company also agreed to forgive loans
that the Company had extended to Dr. Glovsky as well as pay income taxes on
behalf of Dr. Glovsky for the forgiveness of these loans. The Company also
entered into a non-compete agreement with Dr. Glovsky and fully vested Dr.
Glovsky's stock options. The following summarizes the components of the
Agreement:
F-33
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
M. Commitments and contingencies (Continued)
<TABLE>
<S> <C>
Consulting agreement and related benefits $434,000
Forgiveness of loans totaling $138,539 including taxes related to the forgiveness of
these loans of $49,874 188,413
Non-compete agreement 118,000
Compensation expense related to the acceleration of the vesting of Dr. Glovsky's
stock options 10,000
--------
$750,413
========
</TABLE>
At December 31, 1995, the Company has expensed $263,413 of the total $750,413
charge associated with the Agreement. The $263,413 is comprised of the following
components:
<TABLE>
<S> <C>
Write-off of loans previously granted to Dr. Glovsky and related taxes $188,413
Compensation and related benefits 65,000
Compensation expense related to the acceleration of the vesting of Dr. Glovsky's
stock options 10,000
--------
$263,413
========
</TABLE>
The Company will record compensation expense of approximately $369,000 over
the next five years as Dr. Glovsky provides services under the consulting
agreement. In addition, the Company capitalized the cost associated with the
non-compete agreement and will amortize the balance over the life of the
non-compete agreement which is three years.
If Dr. Glovsky's shares beneficially owned by him are not acquired in or as
part of a merger or take-over proposal on or before December 31, 1996 at a per
share value of at least $5.00, Dr. Glovsky's monthly consulting fee will be
increased by $4,000 per month and Dr. Glovsky has the right to require the
Company to purchase up to 65,000 of his shares at a purchase price of $6.00 per
share.
N. Legal Proceedings
The Company from time to time is named a defendant in lawsuits which arise in
the normal course of its business. As of February 14, 1996, the Company was
involved in seven such lawsuits. The Company believes it has meritorious
defenses to each of the complaints and is vigorously defending its position in
each claim. Should the Company be found to be liable in any instance, management
believes that the resulting claim against the Company, if any, would not be
material.
O. Stock Option Plans
In October 1991, the Company adopted the 1991 Combination Stock Option Plan
(the "Option Plan"). The Option Plan provides for the granting to key employees
of the Company, stock options intended to qualify as "incentive stock options"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), as well as "non-qualified options" not intended to
qualify. A total of 135,000 shares of common stock were reserved for issuance
under the Option Plan. In August 1993, the stockholders approved an amendment to
the Plan which increased the shares to be reserved for issuance to 285,000
shares. In May 1994, the stockholders approved an amendment to the plan which
increased the shares to be reserved for issuance to 535,000 shares. In June
1995, the stockholders approved an amendment to the plan which increased the
shares to be reserved for issuance to 785,000 shares. The Option Plan is
administered by the Board of Directors.
Subject to the terms of the Option Plan, the Board of Directors are
authorized to select options and determine the number of shares covered by each
option, its exercise price and other terms. Options under the 1991 Plan may not
be granted after August 31, 2001. The exercise price of incentive stock options
granted under the Option Plan may not be less than the fair market value of the
Company's common stock on the date of grant and cannot be
F-34
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
O. Stock option plans (Continued)
less than 110% of such fair market value with respect to any incentive stock
option granted to a participant who owns 10% or more of the Company's
outstanding common stock. The exercise price of non-qualified options granted
under the Option Plan cannot be less than 50% of the fair market value of the
Company's common stock on the date of grant. Options become exercisable in equal
annual installments over two to three years. The period within which any option
may be exercised cannot exceed ten years from the date of grant. Options
pursuant to the 1991 Plan held by a terminated employee expire three months
after the Option holder ceases to be an employee except in the event of death or
disability.
In June 1995, the Company's stockholders approved the 1995 Non-Qualified
Stock Option Plan for Non-Employee Directors (the "Directors Plan"). The
Directors Plan provides that each year on the first Friday following the
Company's Annual Meeting of Stockholders (the "Grant Date"), each individual
elected, re-elected or continuing as a Non-Employee Director will automatically
receive a non-qualified stock option for 6,000 shares of Common Stock, subject
to adjustment resulting from changes in capitalization. 180,000 shares of Common
Stock are reserved for issuance under the Directors Plan. Options granted under
the Directors Plan vest one-third on the Grant Date, one-third on the Friday
prior to the first Annual Meeting of Stockholders following the Grant Date, and
one-third on the Friday prior to the second Annual Meeting of Stockholders
following the grant date. Options under the Directors Plan expire ten years from
the date of grant.
Under the Directors Plan's formula, the exercise price for options granted
will be either 100% of the simple average of the high and low price at which the
Common Stock traded on the National Association of Securities Dealers Automated
Quotation ("NASDAQ") Small-Cap System on the date of the grant or the last sale
price of Common Stock on the NASDAQ on the date of grant, whichever is higher.
Information concerning options to purchase shares of common stock under both
the Option Plan and the Director's Plan for the years ended December 31, 1993,
1994 and 1995 is as follows:
Shares Exercise Price
-------- ------------------
Outstanding at December 31, 1993 209,700 $4.25 to $4.50
Granted 62,000 $4.50 to $6.25
Exercised -- --
Expired (4,000) $4.50
-------- --------------
Outstanding at December 31, 1994 267,700 $4.25 to $6.25
Granted 209,500 $2.25 to $2.38
Exercised -- --
Expired (161,167) $2.00 to $2.28
-------- --------------
Outstanding at December 31, 1995 316,033 $2.00 to $2.38
======== ==============
Options to purchase 0, 68,567 and 157,800 were exercisable at December 31,
1993, 1994 and 1995, respectively. The number of shares available for the
granting of options at the beginning and end of 1994 and 1995 were 75,300 and
263,300 and 263,300 and 303,800, respectively. On February 28, 1995, the
Company's Board of Directors voted in accordance with the provisions of the
Company's Option Plan to re-price all of the then outstanding options to $2.00
per share, the closing price on the day immediately preceding the Board meeting.
F-35
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
P. Warrants
Information concerning warrants to purchase shares of common stock for the
years ended December 31, 1993, 1994 and 1995 is as follows:
Shares Exercise Price
------ ---------------
Outstanding at December 31, 1992 156,000 $4.13 to $7.09
Granted 205,413 $7.09 to $8.25
Exercised -- --
Expired -- --
------- --------------
Outstanding at December 31, 1993 361,413 $4.13 to $8.25
Granted 186,000 $4.16 to $7.09
Exercised -- --
Expired -- --
------- --------------
Outstanding at December 31, 1994 547,413 $4.13 to $8.25
Granted 34,420 $4.16
Exercised -- --
Expired -- --
------- --------------
Outstanding at December 31, 1995 581,833 $4.13 to $8.25
======= ==============
Vesting period for warrants outstanding range from warrants that vest
immediately to others vesting over a five year period. At December 31, 1995 and
1994, respectively, 565,166 and 514,080 warrants were exercisable. Of the
warrants granted in 1995 and 1994, 31,413 were re-priced from $7.09 to $4.16 per
share in March 1995. Of the 186,000 warrants issued in 1994, 100,000 of the
warrants were issued to Emeritus (Note H).
Q. Preferred Stock
In September 1993, the Company issued 700,000 shares of $.01 par value Series
A Cumulative Convertible Preferred Stock (the "Convertible Preferred Stock") for
$10 per share. In October 1993, the Company issued an additional 82,350 shares
of the Convertible Preferred Stock also at $10 per share. The Company is
authorized to issue 1,000,000 shares of the preferred stock generally. At
December 31, 1993, there were 782,350 shares of Convertible Preferred Stock
outstanding.
In March 1994, the Company filed an issuer tender offer statement (the
"Offer") on Schedule 13E-4 with the Securities and Exchange Commission which the
Company offered to exchange 2.6 shares of the Company's common stock for each
outstanding share of the Company's Convertible Preferred Stock. The Offer
expired on July 1, 1994. Those stockholders who tendered their preferred shares
for shares of common stock forfeited any accrued dividends. Of the 782,350
shares of the Company's Convertible Preferred Stock outstanding at the
commencement of the Offer, 654,300 or 84% were tendered pursuant to the Offer
and accepted for exchange by the Company. On December 31, 1994, there were
128,050 preferred shares outstanding.
The Convertible Preferred Stock ranks with respect to dividends and upon
liquidation, dissolution or winding up, senior to the Common Stock. Dividends
are cumulative from the date of original issue at the rate of $1.00 per share
per annum, payable quarterly on September 30, December 31, March 31 and June 30
of each year. Dividends are declared at the Board of Directors' discretion and
paid out of funds legally available therefor. The Company paid cash dividends on
the Convertible Preferred Stock of approximately $195,588 on March 31, 1994. The
Board of Directors voted to omit the payout of the dividend on the Convertible
Preferred Stock for the quarters ending June 30, 1994, September 30, 1994 and
December 31, 1994. The Company paid cash dividends on the Convertible Preferred
Stock of approximately $32,013 on both March 31, 1995 and June 30, 1995. The
Board of Directors voted to omit the payout of the dividend on the Convertible
Preferred Stock for the quarters ending September 30, 1995 and December 31,
1995. These dividends, although not declared or paid, remain cumulative without
interest. Failure to pay any quarterly dividend results in a reduction of the
conversion price but not below the then par value of
F-36
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Q. Preferred stock (Continued)
the shares of Common Stock issuable upon conversion of the Convertible Preferred
Stock. Dividends in arrears totaled $156,175 at December 31, 1995. In December
1995, certain preferred shareholders of the Company converted their Convertible
Preferred Stock to Common Stock. These preferred shareholders converted 15,550
preferred shares to 40,674 common shares at the conversion rate then in effect.
At December 31, 1995 there were 112,500 preferred shares outstanding.
The Convertible Preferred Stock is convertible at any time prior to
redemption into, initially, two shares of Common Stock for each share of the
Convertible Preferred Stock. The initial conversion price is equal to $5.00 per
share and is subject to adjustment under certain circumstances. The conversion
price of the Convertible Preferred Stock at December 31, 1995 was $3.56. The
Convertible Preferred Stock is redeemable by the Company after September 1, 1996
at $10.00 per share, plus accrued but unpaid dividends, under certain
circumstances.
Upon liquidation, dissolution or winding up of the Company, holders of the
Convertible Preferred Stock are entitled to receive a preferential liquidation
distribution equivalent to $10.00 per share plus accumulated and unpaid
dividends before any distribution to holders of the Common Stock or any capital
stock ranking junior to the Convertible Preferred Stock.
Holders of the Convertible Preferred Stock will not have voting rights except
(i) with respect to the creation, authorization or issuance of capital stock
ranking senior to or in parity with (in certain respects) to the Convertible
Preferred Stock and with respect to certain amendments to the Company's Restated
Certificate of Incorporation, (ii) if the Company shall have failed to declare
and pay or set apart for payment in full the preferential dividends accumulated
on the Convertible Preferred Stock for any four quarterly dividend payment
periods, whether or not consecutively, (iii) in connection with a consolidation
into or merger with any corporation, firm or entity, or sale, lease or other
disposition of all or substantially all of the Company's assets unless the
Company is the surviving entity, and (iv) as otherwise required by law. Except
for clause (ii) above, holders of the Convertible Preferred Stock shall be
entitled to one vote per share of Convertible Preferred Stock, voting separately
as a single class, on all matters on which the Convertible Preferred Stock is
entitled to vote. In the event the Company fails to pay current dividends as
provided in clause (ii) above, holders of the Convertible Preferred Stock shall
be entitled to vote, on a one vote per share of Convertible Preferred Stock
basis, with the holders of Common Stock on all matters thereafter submitted
including the election of directors.
R. Subsequent Events
Working Capital Loan
On January 16, 1996, pursuant to a letter of intent for a then proposed
business combination, Integrated Health Services, Inc. ("IHS") loaned the sum of
$250,000 to the Company for working capital purposes. This loan is repayable to
IHS in accordance with a promissory note which bears interest at 8.5%, interest
payable semi-annually. Under certain circumstances up to $100,000 of the
promissory note could become payable prior to the maturity date of January 15,
1998.
Signing of Letter of Intent
On March 15, 1996, the Company and Emeritus jointly announced the signing of
an agreement in principal to merge in a tax-free stock-for-stock transaction.
Under the terms of the agreement in principal, shareholders of the Company would
receive .1845 shares (subject to adjustment under certain circumstances) of
Emeritus Common Stock for each share of Standish Common Stock outstanding or
issuable upon conversion of the Company's Convertible Preferred Stock. The
Exchange ratio was based on a market price of $21.00 per share of Emeritus
Common Stock. There will be a one year escrow of 5% of the Emeritus Common Stock
issued in the transaction to cover any inaccuracies in the representations and
warranties. The transaction is subject to negotiation and
F-37
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
R. Subsequent events (Continued)
execution of a definitive merger agreement and will be subject to approval by
the Company's shareholders. The transaction will also be conditioned on
qualifying the transaction as a "pooling of interests" and as a tax-free
reorganization under the Internal Revenue Code.
Fox Ridge Manor Transaction
On March 25, 1996, the Company received approximately $825,000 for back
management fees and prior investments in connection with the refinancing and
sale by a third party owner of the Fox Ridge Manor community located in Dover,
Pennsylvania. The Company expects to record a gain on this transaction of
approximately $600,000. The Company has also made available to Northwood
Retirement Community, Inc., the new owner of the Community, a $150,000 line of
credit to be used by the new owner in connection with the Fox Ridge Manor
community.
F-38
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 355,939 $ 367,631
Restricted cash 385,745 199,719
Accounts receivable, less allowance for doubtful accounts of
$159,747 and $448,425 at June 30, 1996 and
December 31, 1995, respectively 176,546 176,818
Due from related parties 177,625 437,234
Other current assets 239,378 56,625
------------ -----------
Total current assets 1,335,233 1,238,027
Restricted deposits 610,732 610,732
Investment in Adams Square Limited Partnership 127,000 127,000
Investment in Cornish Realty Associates, L.P. -- 125,000
Due from related parties 30,670 130,215
Property, plant and equipment, net 10,916,034 11,079,454
Prepaid lease deposit, net 506,792 539,843
Non-compete agreement, net 180,940 219,671
Resident leases, net 152,145 176,979
Goodwill, net 1,480,000 1,504,000
Other assets, net 188,529 223,910
------------ -----------
Total assets $ 15,528,075 $15,974,831
============ ===========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
Accounts payable $ 269,058 522,992
Accrued payroll and related taxes 228,251 217,304
Accrued severance costs 142,000 232,874
Accrued professional fees 441,963 570,997
Resident security deposits 158,442 172,945
Current portion of long-term debt 3,315,586 626,298
Other current liabilities 254,059 478,999
------------ -----------
Total current liabilities 4,809,359 2,822,409
Deferred gain on sale of bonds 520,815 520,815
Long-term debt 10,461,569 12,457,003
Minority interest 108,969 156,970
Commitments and contingencies
Stockholders' (deficit) equity:
Preferred stock (aggregate liquidation preference of $1,127,300
and $1,281,175 at June 30, 1996 and December 31, 1995,
respectively) 920,000 1,125,000
Common stock, $.01 par value 30,000,000 shares authorized and
3,501,053 and 3,435,826 shares issued and outstanding at
June 30, 1996 and December 31, 1995 35,011 34,359
Additional paid-in capital 8,963,953 8,746,096
Accumulated deficit (10,291,601) (9,887,821)
------------ -----------
Total stockholders' (deficit) equity $ (372,637) 17,634
------------ -----------
Total liabilities and stockholders' (deficit) equity $ 15,528,075 $15,974,831
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-39
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ----------- --------- -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues:
Service revenue $2,193,107 $1,875,183 $4,380,316 $ 3,517,717
Management fees and marketing revenue 87,708 195,741 213,152 304,811
Development fees and other revenue 65,250 120,000 76,500 158,000
---------- ---------- ---------- -----------
2,346,065 2,190,924 4,669,968 3,980,528
Operating costs and expenses:
Community operating expense 1,626,134 1,448,080 3,208,438 2,749,877
Community rent expense 154,459 142,141 304,230 271,688
Selling, general and administrative
expense 463,478 622,575 930,804 1,156,127
Transaction termination costs 27,381 -- 186,352 --
Depreciation and amortization expense 196,637 168,876 393,269 320,747
---------- ---------- ---------- -----------
Total operating costs and expenses 2,468,089 2,381,672 5,023,093 4,498,439
---------- ---------- ---------- -----------
Loss from operations (122,024) (190,748) (353,125) (517,911)
Interest expense (405,875) (370,249) (823,524) (678,322)
Interest income 17,970 41,909 28,618 81,232
Other income 100,000 -- 696,249 --
Minority interest 28,894 24,253 48,002 49,941
---------- ---------- ---------- -----------
Loss before income taxes (381,035) (494,835) (403,780) (1,065,060)
Provision for income taxes -- -- -- --
---------- ---------- ---------- -----------
Net loss $ (381,035) $ (494,835) $ (403,780) $(1,065,060)
========== ========== ========== ===========
Net loss per common share $ (0.12) $ (0.16) $ (0.13) $ (0.33)
Weighted average number of common shares
outstanding 3,442,718 3,395,152 3,439,272 3,395,152
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-40
<PAGE>
THE STANDISH CARE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------
1996 1995
-------------- ---------------
(Unaudited) (Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (403,780) $(1,065,060)
Adjustments to reconcile net loss to net cash used by operating
activities:
Depreciation and amortization 393,269 320,747
Accretion associated with capital lease obligations 100,648 104,548
Amortization of deferred costs 23,670 34,584
Minority interest in net (loss) of consolidated partnership (48,002) (49,941)
Compensation expense associated with issuance of warrants 6,333 12,667
Other income (696,249) 0
(Increase) in restricted cash (186,026) (638,907)
Decrease (increase) in accounts receivable 272 (28,781)
Decrease (increase) in due from related parties 359,154 (47,570)
Increase in other current assets (132,753) (27,069)
Increase in interest receivable -- (9,202)
Decrease in note receivable -- 1,226
(Decrease) increase in accounts payable (253,934) 34,174
Increase in accrued payroll and related taxes 10,947 16,636
(Decrease) in accrued severance costs (90,874) --
(Decrease) increase in accrued professional fees (129,034) 25,573
(Decrease) increase in other current liabilities (224,940) 35,167
----------- ----------
Net cash used by operating activities (1,271,299) (1,281,208)
----------- ----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (104,090) (1,122,713)
(Decrease) increase in security deposits -- 91,528
Return of previous investment in Cornish Realty Associates, Ltd. -- 125,000
Use of prepaid deposit -- 27,651
Proceeds from sale of bonds 825,554 (19,000)
Cash deposited to collateralize letters of credit -- (62,750)
Funding of accrued development costs -- (54,498)
(Increase) in other assets (38,769) --
----------- ----------
Net cash provided by investing activities 682,695 (1,014,782)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from excercise of stock options $ 7,375 --
Increase in advance for expansion costs -- $ 750,000
Payment of Convertible Preferred Stock dividends -- (64,025)
Proceeds from borrowings $ 750,000 $ 2,281,000
Repayment of debt (163,822) (28,118)
Principal payments on capital lease obligations (16,641) (23,605)
----------- -----------
Net cash provided by financing activities 576,912 2,915,252
----------- -----------
Net increase in cash and cash equivalents (11,692) 619,262
----------- -----------
Cash and cash equivalents at beginning of year 367,631 232,716
----------- -----------
Cash and cash equivalents at end of period $ 355,939 $ 851,978
=========== ===========
NON-CASH ACTIVITIES
Purchase of property, plant and equipment by seller note
financing $ 0 $ 1,852,000
Dividends accrued but not paid on Convertible Preferred Stock $ 51,125 $ 32,013
Conversion of 20,500 shares of preferred stock to 61,727 shares
(.01 par value) of common stock $ 205,000 $ 0
Refinancing fee from third party $ 100,000 $ 0
Reclass of a portion of the Cornish investment to related party $ 50,000 $ 0
Reclass of a portion of the Cornish investment to other assets $ 75,000 $ 0
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-41
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying financial statements and notes do not include all of the
disclosures made in the Company's Annual Report on Form 10-K and related Form
10-K/A for 1995, which should be read in conjunction with these statements. The
financial information included herein has not been audited. However, in the
opinion of Management, the financial statements include all adjustments
necessary for a fair presentation of the quarterly results. The results of the
three and six month periods ended June 30, 1996 are not necessarily indicative
of the results to be expected for the full year.
B. Restricted Cash
Restricted cash consists of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------ --------------------
(unaudited)
<S> <C> <C>
Resident security deposits $159,573 $172,945
Reserve, line of credit--Northwood Retirement,
Inc. 150,534 --
Credit enhancement escrow--Fox Ridge 50,000 --
Capital improvements reserve--Bailey 14,032 15,481
Expansion funds--Piedmont 10,421 10,261
Real estate tax escrow-Sunny Knoll 1,185 1,032
-------- --------
$385,745 $199,719
======== ========
</TABLE>
C. Related Party Transactions
The Company has conducted various transactions with its officers, directors,
and principal stockholders and/or their affiliated companies and unconsolidated
affiliates. Accounts affected by these transactions were as follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1996
-------------------
(unaudited)
<S> <C>
Accounts receivable from Emeritus Corporation ("Emeritus") for refinancing fee $100,000
Accounts receivable from Emeritus for management fees and reimbursable expenses 36,800
Accounts receivable from Adams Square Limited Partnership for management fees,
marketing fees and reimbursable expenses 40,825
Note receivable from Adams Square Limited Partnership 23,170
Loan to Officer 7,500
Management fees and marketing revenue from Emeritus 14,900
Management fees from Cornish 27,402
Management fees from Adams Square Limited Partnership 51,367
Marketing fee revenue from Adams Square Limited Partnership 21,000
Expenses incurred through or reimbursed to stockholders, officers, directors and
their affiliates:
Selling and marketing 69,695
General and administrative 2,000
</TABLE>
F-42
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
D. Restricted Deposits
Restricted deposits consists of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------ --------------------
(unaudited)
<S> <C> <C>
Cash collateral for letter of
credit--Piedmont $237,750 $237,750
Cash collateral for letter of
credit--Dominion 231,200 231,200
Cash collateral for letter of credit--Lowry 65,000 65,000
Debt service reserve--Bailey refinancing 61,032 61,032
Debt service reserve--Northwood Bonds 15,750 15,750
-------- --------
$610,732 $610,732
======== ========
</TABLE>
The letters of credit are required under the terms of the financing
agreements for Dominion, Lowry and Piedmont. The letters of credit are required
to stay in place for the duration of the leases. The Bailey debt service reserve
is required to stay in place for the five-year life of the loan. The debt
service reserve fund related to the Northwood Bonds represents approximately two
months of interest on the face amount of $750,000 of Northwood Bonds outstanding
for which the Company provided certain credit enhancements in the form of
guarantees in March 1996.
E. Property, Plant & Equipment
Property, plant and equipment consists of the following:
June 30, 1996 December 31, 1995
------------------ --------------------
(unaudited)
Land $ 1,616,628 $ 1,616,628
Land improvements 24,864 21,964
Furniture, fixtures and
equipment 1,242,760 1,221,239
Buildings and improvements 9,393,664 9,313,995
----------- -----------
12,277,916 12,173,826
Less accumulated depreciation (1,361,882) (1,094,372)
----------- -----------
$10,916,034 $11,079,454
=========== ===========
F. Short-term Borrowings and Long-term Debt
Short-term borrowings and long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------ --------------------
(unaudited)
<S> <C> <C>
Mortgages Payable:
Bailey mortgage payable with interest at the one-month
London Interbank offered rate for US dollars plus
2.25% (9.05% at June 30, 1996), principal payable
monthly in varying amounts. All remaining principal
and interest due in February 1999, collateralized by
real estate. $918,044 $936,804
</TABLE>
F-43
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F. Short-term Borrowings And Long-term Debt (Continued)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------ --------------------
(Unaudited)
<S> <C> <C>
Sunny Knoll mortgage payable with interest equal to the
base rate of Primary Bank plus 1.75% (10.75% at June
30, 1996), principal payable monthly in varying
amounts, all remaining principal due April 1997,
collateralized by real estate. $739,985 $744,764
Notes payable:
Note payable with 9% interest, principal payments of
varying amounts and interest payable over five years.
All remaining principal and interest due January
1999, collateralized by a second mortgage on Bailey
Village. 57,227 66,853
Note payable with interest at First Union Bank and
Trust's prime rate plus 1% (9.25% at June 30, 1996),
payable in fifty-nine installments of $833 each
month. All remaining principal and interest due in
December 2000, collateralized by real estate 135,000 140,000
Note payable with 9.47% interest and principal due
December 1999, collateralized by automobile 12,779 14,901
Notes payable with 9% interest and principal payments
in varying amounts due February 1997 146,096 149,430
Note payable to a minority partner with 8% interest,
entire principal balance is due April 1997 137,500 137,500
Note payable to Adams Square L.P., interest-free, due
on demand 127,000 127,000
Note payable with 12% interest through April 1996, and
14% thereafter, entire principal due April 1997 1,100,000 1,100,000
Note payable to Emeritus with 10% interest, quarterly
principal payments based on excess cash flow, all
remaining principal due April 1998, collateralized by
the Company's stock in Sunny Knoll 431,532 551,732
Note payable to Integrated Health Services, Inc. with
8.5% interest payable semi-annually. Under certain
circumstances, $100,000 could become due prior to
January 15, 1998. Otherwise, entire principal is due
January 15, 1998. (Note K) 250,000 --
Note payable to a corporation controlled by Abraham D.
Gosman, the principal stockholder of CareMatrix
Corporation ("CareMatrix"), with 10% interest payable
annually. All principal and accrued interest due on
October 1, 1996 subject to an extension until April
1, 1997 at the election of the lender, collateralized
by a subordinate mortgage on Bailey Village. (Notes K
and M) 500,000 --
Deferred liability associated with the Piedmont operating
lease 183,914 160,244
--------- ---------
Subtotal 4,739,077 4,129,228
</TABLE>
F-44
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
F. Short-term Borrowings and Long-term Debt (Continued)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------ --------------------
(Unaudited)
<S> <C> <C>
Convertible debentures payable to Emeritus with 8.5%
interest due in June 1998, convertible to common
stock at $4.16 per share (subject to anti-dilution
adjustments) $ 2,000,000 $ 2,000,000
Capital lease obligations 7,038,078 6,954,073
----------- -----------
Subtotal 13,777,155 13,083,301
Less current maturities 3,315,586 626,298
----------- -----------
Long-term debt $10,461,569 $12,457,003
=========== ===========
</TABLE>
G. Omission of Preferred Stock Dividend
On June 28, 1996, the Company's Board of Directors voted to omit the $.25
quarterly dividend on the Series A Cumulative Convertible Preferred Stock
("Convertible Preferred Stock") for the quarter ended June 30, 1996. These
dividends, although not declared or paid, remain cumulative without interest.
Failure to pay any quarterly dividend results in a reduction of the conversion
price of the shares of Common Stock issuable upon conversion of the Convertible
Preferred Stock. As a result of omitting more than four quarterly dividend
payments, holders of the Convertible Preferred Stock are entitled to vote, on a
one vote per share of Convertible Stock basis, with the holders of Common Stock
on all matters submitted to stockholders including the election of directors.
H. Earnings Per Share
Net loss per common share is computed by dividing the net loss for the period
plus any dividends accrued, paid or in arrears on the Company's Convertible
Preferred Stock by the weighted average number of outstanding shares of common
stock. Dividends paid in the three and six month periods ended June 30, 1996 and
June 30, 1995 totaled $0, $0, $32,013 and $64,025 respectively. As of June 30,
1996, aggregate dividends in arrears on the Convertible Preferred Stock totaled
approximately $207,300 and the conversion price of the Preferred Stock was $3.25
(subject to anti-dilution adjustments).
I. Pro Forma Results of Operations
The following represents the unaudited pro forma results of operations as if
Sunny Knoll was acquired at the beginning of 1995:
Six Months Ended
June 30, 1995
-------------------
(unaudited)
Net revenues 4,379,332
Loss before extraordinary items (930,883)
Net loss (930,883)
Net loss per common share (.29)
The pro forma operating results include results of operations for the six
months ended June 30, 1995 with increased depreciation and amortization on
property, plant and equipment associated with the acquisition of Sunny Knoll.
The pro forma information given above does not purport to be indicative of the
results that actually would have been attained if the operations were combined
during the period presented, and is not intended to be a projection of future
results or trends.
F-45
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
J. Stock Option Grants
In June 1996, the Company's Board of Directors voted to grant 75,000 stock
options to two officers and directors of the Company which allow the holder of
such stock options to purchase shares of the Company's common stock at $2.94 per
share, the closing stock price on the day immediately preceding the Board
Meeting. The stock options contain a provision which increases the amount of the
stock options up to a maximum of 750,000 shares at the time of the closing of
the merger with CareMatrix (Note L).
K. Commitments and Contingencies
Working Capital Loans
On January 16, 1996, pursuant to a letter of intent for a then proposed
business combination, Integrated Health Services, Inc. ("IHS") loaned the sum of
$250,000 to the Company for working capital purposes. In February 1996, IHS
informed the Company that it was terminating their business combination
discussions. This loan could become repayable to IHS in accordance with a
promissory note which bears interest at 8.5%, interest payable semi-annually.
Under certain circumstances up to $100,000 of the promissory note could become
payable prior to the maturity date of January 15, 1998. On or about April 9,
1996, the Company asserted a claim against IHS based on IHS's unilateral breach
of its contractual obligations under its letter of intent with the Company as
well as for its duties of good faith and fair dealing. In addition, the Company
has asserted claims that IHS's conduct constitutes unfair and deceptive trade
practices under applicable Massachusetts law. Although no law suit has been
commenced by the Company, the Company intends to vigorously pursue its claims
against IHS.
On June 3, 1996, pursuant to a term sheet for a proposed business
combination, a corporation controlled by Abraham D. Gosman, the principal
stockholder of CareMatrix, loaned the sum of $1,000,000 to the Company for
working capital purposes. The note is due on October 1, 1996 subject to an
extension until April 1, 1997 at the election of such corporation. The note
bears interest at 10% and interest is payable annually. In accordance with the
terms of the promissory note, such corporation advanced $500,000 to the Company
upon the signing of the term sheet and $500,000 upon the execution of the merger
agreement. (Note M)
L. CareMatrix Merger Transaction
In June 1996, the Company announced that it had signed a term sheet with
CareMatrix Corporation, a privately held group of twelve separate corporations
("CareMatrix"), under which the Company would acquire all of the assets and
operations of CareMatrix and the Company would issue between 40 million and 50
million shares of its common stock to the stockholders of CareMatrix subject to
due diligence and negotiation of a definitive merger agreement. On July 3, 1996,
the Company and CareMatrix entered into a definitive Agreement and Plan of
Merger (the "Merger Agreement") under which twelve subsidiary corporations of
the Company would be merged into CareMatrix and the Company would issue 50
million shares of its common stock to the stockholders of CareMatrix. The Merger
Agreement was approved by the Boards of Directors of the Company and CareMatrix
on July 10, 1996. The Merger Agreement is subject to the approval of both the
Company's and CareMatrix's stockholders, the receipt of an updated fairness
opinion and other customary closing conditions.
M. Subsequent Events
On July 10, 1996, a corporation controlled by Abraham D. Gosman, the
principal stockholder of CareMatrix, funded the second installment of $500,000
in connection with its promissory note with the Company. On July 30, 1996,
through the issuance and sale to a principal stockholder of CareMatrix (the
"purchaser"), for $14,000 per share or $1,400,000 in the aggregate, the Company
issued 100 shares of its newly created Series B Convertible Preferred Stock (the
"Series B Stock") with a liquidation value of $14,000 per share. The Company
used a portion of the proceeds from the share issuance to repay the promissory
note of $1,000,000 and obtained an additional $400,000 to be used for working
capital purposes. The Series B Stock is redeemable by the Company at any time
after December 1, 1996 at $14,000 per share plus accrued dividends provided that
the market price of the common stock exceeds 150% of the conversion price
($4.16) then in effect for twenty consecutive trading days. The Series
F-46
<PAGE>
THE STANDISH CARE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
M. Subsequent Events (Continued)
B Stock will be entitled to a quarterly dividend of $350 per share with
quarterly dividend payments on each of December 31, March 31, June 30 and
September 30. Concurrently with the issuance of the Series B Stock, the Company
issued five year warrants to the purchaser to purchase 400,000 shares of the
Company's common stock at an exercise price of $4.16 per share.
The following data represents certain unaudited pro forma information of the
Company assuming the issuance of the Series B Stock and the repayment of the
promissory note occurred on June 30, 1996.
Working capital $(2,074,126)
Total assets 16,428,075
Current portion of long-term debt 2,815,586
Long-term debt 10,461,569
Total shareholders equity 1,027,363
N. Reclassification
Certain amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
F-47
<PAGE>
[CareMatrix logo]
(formerly The Standish Care Company)
31,250,000 Shares
Common Stock
PROSPECTUS
Dean Witter Reynolds Inc.
NatWest Securities Limited
PaineWebber Incorporated
Robertson, Stephens & Company
Smith Barney Inc.
, 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table itemizes the expenses incurred by the Company in
connection with the offering. All amounts are estimated except for the
Registration Fee, NASD Fee and Nasdaq Listing Fee.
Registration Fee ................. $46,569
NASD Fee ......................... $14,875
Nasdaq Listing Fee ............... *
Printing and Engraving Expenses .. *
Legal Fees and Expenses .......... *
Accounting Fees and Expenses ..... *
Blue Sky Fees and Expenses ....... *
Miscellaneous .................... *
-------
TOTAL ......................... $ *
=======
* To be completed by amendment.
Item 14. Indemnification of Directors and Officers
The Company is a Delaware corporation. Reference is made to Section 145 of
the Delaware General Corporation Law, as amended, which provides that a
corporation may indemnify any person who was or is a party to or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
corporation and, with respect to any criminal action or proceedings, had no
reasonable cause to believe his conduct was unlawful. Section 145 further
provides that a corporation similarly may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite an adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper.
Article 11 of the Company's Restated Certificate of Incorporation
eliminates the personal liability of directors to the Company or its
stockholders for monetary damages for breach of fiduciary duty to the full
extent permitted by Delaware law. Article VII of the Company's By-Laws provides
that the Company indemnify its officers and directors to the full extent
permitted by the Delaware General Corporation Law.
The Company has entered into indemnification agreements with each of its
directors. The Company may also enter into similar agreements with certain of
its officers who are not also directors. Generally, the Company's By-Laws and
the indemnification agreements attempt to provide the maximum protection
permitted by Delaware law with respect to indemnification of directors and
officers.
II-1
<PAGE>
The indemnification agreements provide that the Company will pay certain
amounts incurred by a director or officer in connection with any civil or
criminal action or proceeding, and specifically including actions by or in the
name of the Company (derivative suits), where the individual's involvement is by
reason of the fact that he is or was a director or officer of the Company. Such
amounts include, to the maximum extent permitted by law, attorney's fees,
judgments, civil or criminal fines, settlement amounts, and other expenses
customarily incurred in connection with legal proceedings. Under the
indemnification agreements and the Company's By-Laws, a director or officer will
not receive indemnification if he is found not to have acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company.
The Company maintains an indemnification insurance policy covering all
directors and officers of the Company and its subsidiaries.
Item 15. Recent Sales of Unregistered Securities
(1) On November 12, 1993, the Company granted to each of Robert W. DeVore,
Marshal S. Sterman and Jeffrey F. Rayport options to purchase 15,000
shares of Common Stock in recognition of services as directors of the
Company.
(2) Between November 10, 1993 and June 28, 1995, the Company issued warrants
to purchase an aggregate of 35,833 shares of Common Stock to Health Care
REIT, Inc. under acquisition financing arrangements described in Part I
of this Registration Statement.
(3) On June 10, 1994, the Company issued $2,000,000 principal amount of
Convertible Debentures ("Convertible Debentures") to Columbia Pacific
Group, Inc. ("CP") under a working capital credit facility and at the
same time the Company issued to CP (a) 200,000 shares of Common Stock for
an aggregate purchase price of $832,000 and (b) warrants to purchase an
aggregate of 50,000 shares of Common Stock for no additional
consideration. Subsequently, CP assigned to one of its affiliates,
Emeritus Corporation ("Emeritus"), all of CP's rights and obligations in
respect of the Convertible Debentures, the 200,000 shares of Common Stock
and the warrants to purchase 50,000 shares of Common Stock.
(4) On June 10, 1994, at the time of consummation of the transactions
described in the preceding paragraph (3), the Company issued warrants to
purchase 50,000 shares of Common Stock to Daniel R. Baty, the Chairman
and principal stockholder of Emeritus, in consideration for Mr. Baty
entering into a three year Advisory Agreement with the Company.
(5) On June 10, 1994, the Company issued warrants to purchase an aggregate of
32,500 shares of Common Stock to RAS Securities Corp. as consideration
for investment banking services.
(6) On September 29, 1994, the Company issued warrants to purchase an
aggregate of 37,500 shares of Common Stock to The Equity Group, Inc. as
partial consideration for public relations services.
(7) On January 15, 1995, the Company issued warrants to purchase an aggregate
of 30,000 shares of Common Stock to Neil G. Berkman Associates as partial
consideration for public relations services.
(8) On July 31, 1996, the Company sold 100 shares of its Series B Preferred
Stock to Abraham D. Gosman.
(9) On July 31, 1996, the Company issued to Abraham D. Gosman a warrant to
purchase 400,000 shares of Common Stock.
In addition to the foregoing transactions, the Company has granted stock
options to purchase an aggregate of 1,005,200 shares of Common Stock to certain
of its officers and key employees under its Restated 1991 Combination Stock
Option Plan and an aggregate of 36,000 shares of Common Stock to three directors
under its 1995 Non-Qualified Stock Option Plan for Non-Employee Directors.
The securities issued in the foregoing transactions were not registered
under the Securities Act in reliance upon the exemptions from registration set
forth in Sections 3(b) and/or 4(2) of the Securities Act.
Item 16. Exhibits and Financial Statements
(a) Exhibits. The following is a list of exhibits which are incorporated as
part of the Registration Statement by reference.
II-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
1.01 Form of Underwriting Agreement
2.01 Lease/Purchase Agreement dated as of July 1, 1992 by and
among Mark V. Barrow, M.D. and Mary B. Barrow, Victoria
Enterprises, Inc., and Bailey Retirement Center, Inc. (12)
2.02 Purchase and Sale Agreement dated as of February 24, 1992
between the Registrant and Life Prime, Inc., relating to
purchase by the Registrant of assets comprising Heritage
Word, Heritage Place and Heritage Common communities (2)
2.03 Asset Transfer Agreement dated February 24, 1994 by and
between Chapman and Cood Enterprises and the Registrant,
related to Statesville Village, Statesville, North Carolina
(5)
2.04 Asset Transfer Agreement dated February 24, 1994 by and
between C-M Villas and the Registrant, related to Yadkin
Village, Yadkinville, North Carolina (5)
2.05 Asset Transfer Agreement dated February 24, 1994 by and
between Jerry R. Chapman and the Registrant, related to
Catawba House, Newton, North Carolina (5)
2.06 Lease Agreement dated July 26, 1994, James Post and Elizabeth
Bass Horton-Post, as landlord and Bailey Retirement Center,
Inc., as tenant for property in Gainesville, Florida, known
as Bailey Homes Suites (13)
2.07 Asset Purchase Agreement dated January 12, 1995 by and among
Sunny Knoll Retirement Home, Inc., Donna Holden and Peter
Holden, and the Registrant (with exhibits and schedules
attached thereto) (7)
2.08 Amendment and Restatement of Asset Purchase Agreement dated
as of May 1, 1995 by and among Sunny Knoll Retirement Home,
Inc., Donna Holden and Peter Holden, Benjamin Bartley, L.L.C.
and the Registrant and Lake Region Villages, L.L.C. (with
exhibits and schedules attached thereto) (7)
2.09 Agreement and Plan of Merger dated as July 3, 1996 by and
among the Registrant, each of the Standish Subsidiaries and
Pre-Merger CareMatrix (with certain exhibits and schedules
attached thereto) (14)
3.01 Restated Certificate of Incorporation of the Registrant (1)
3.02 Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant filed August 23, 1993 (2)
3.03 Certificate of Designations of the Registrant filed on August
31, 1993 (2)
3.04 Certificate of Correction of the Registrant filed on
September 1, 1993 (2)
3.05 Certificate of Amendment to Restated Certificate of
Incorporation of the Registration filed June 8, 1994 (13)
3.06 Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant filed June 30, 1995 (13)
3.07 Certificate of Retirement and Prohibition of Reissuance of
Shares of the Registrant filed July 28, 1995 (13)
3.08 Certificate of Designations of the Registrant filed July 30,
1996 (14)
3.09 By-Laws of the Registrant (3)
3.10 Amendment to By-Laws of the Registrant dated July 24, 1995 (13)
4.01 Specimen Certificate for Common Stock (3)
5.01 Legal Opinion of Nutter, McClennen & Fish, LLP (*)
10.01 Lease Agreement dated as of November 10, 1993, between Health
Care REIT, Inc. and Dominion Villages Inc. (6)
10.02 Lease Guaranty by the Registrant to Health Care REIT, Inc.
dated November 10, 1993, related to the obligations of
Dominion Villages, Inc. under its Lease Agreement (6)
10.03 Lease Agreement dated February 11, 1994 between Health Care
REIT, Inc. and Lowry Village Limited Partnership (6)
10.04 Lease Guaranty by the Registrant to Health Care REIT, Inc.,
dated February 11, 1994, related to the obligations of Lowry
Village Limited Partnership under its Lease Agreement (6)
II-3
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.05 Management Agreement dated January 1, 1994, by and between
Lowry Village Limited Partnership and the Registrant (6)
10.06 Lease Agreement dated as of March 2, 1994, between Health
Care REIT, Inc. and Piedmont Villages, Inc. (6)
10.07 Lease Guaranty by the Registrant to Health Care REIT, Inc.
dated March 1, 1994, related to the obligations of Piedmont
Villages, Inc. under its Lease Agreement (6)
10.08 Commitment Letter dated October 5, 1993, between Health Care
REIT, Inc., a corporate wholly owned subsidiary to be formed
by Registrant, as amended March 31, 1995 (13)
10.09 Warrants dated November 9, 1993, January 13, 1994, February
4, 1994, March 1, 1994, May 25, 1995 and June 28, 1995 to
purchase an aggregate of 35,833 shares of the Registrant's
Common Stock issued to Health Care REIT, Inc. (13)
10.10 Adams Square Limited Partnership First Amended and Restated
Limited Partnership Agreement dated as of January 31, 1994
(with certain exhibits attached) (13)
10.11 Operating Agreement of Lakes Region Villages L.L.C. dated May
1, 1995 (13)
10.12 Amended and Restated Employment Agreement dated October 1,
1991 between Registrant and Michael J. Doyle (3)
10.13 Amendment to Amended and Restated Employment Agreement dated
January 1, 1993 between the Registrant and Michael J. Doyle
(4)
10.14 Amendment No. 2 to Amended and Restated Employment Agreement
dated July 29, 1993 between the Registrant and Michael J.
Doyle (2)
10.15 Second Amended and Restated Employment Agreement dated as of
July 1, 1995 between the Registrant and Michael J. Doyle (13)
10.16 First Amendment to Second Amended and Restated Employment
Agreement dated as of March 1, 1996 between the Registrant
and Michael J. Doyle (13)
10.17 Form of Third Amended and Restated Employment Agreement
between the Registrant and Michael J. Doyle (14)
10.18 New Employment Agreement dated as of December 1, 1995 between
the Registrant and Michael J. Brenan (13)
10.19 First Amendment to New Employment Agreement dated as of March
1, 1996 between the Registrant and Michael J. Brenan (13)
10.20 Termination Agreement dated as of August 15, 1996 between the
Registrant and Michael J. Brenan (14)
10.21 Employment Agreement dated as of July 1, 1995 between the
Registrant and Kenneth M. Miles (13)
10.22 First Amendment to Employment Agreement dated as of March 1,
1996 between the Registrant and Kenneth M. Miles (13)
10.23 Form of Amended and Restated Employment Agreement between the
Registrant and Kenneth M. Miles (14)
10.24 Agreement between the Registrant and Christopher W. Hollister
dated as of May 26, 1995 related to termination of employment
and the surrender of unexercised options to purchase 35,000
shares of stock (13)
10.25 Amended and Restated Employment Agreement dated March 1, 1993
between the Registrant and C. Joel Glovsky (4)
10.26 Early Retirement and Non-Competition Agreement dated as of
December 29, 1995, between the Registrant and C. Joel
Glovsky, relating to early retirement, consulting services,
non-complete covenants and related matters (11)
10.27 Restated 1991 Combination Stock Option Plan of the Registrant
(8)
10.28 Amendment to the Registrant's Restated 1991 Combination Stock
Option Plan (2)
10.29 Amendment No. 2 to Registrant's Restated 1991 Combination
Stock Option Plan (13)
10.30 Amendment No. 3 to Registrant's Restated 1991 Combination
Stock Option Plan (13)
10.31 Amendment No. 4 to Registrant's Restated 1991 Combination
Stock Option Plan (13)
10.32 1995 Non-Qualified Stock Option Plan for Non-Employee
Directors ("1995 Non-Employee Directors' Plan") (13)
II-4
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.33 Warrants dated May 26, 1993 to purchase an aggregate of
15,000 shares of the Registrant's Common Stock granted to
Robert W. DeVore at a price of $4.50 per share (13)
10.34 Form of Stock Option Exchange Agreements dated as of February
28, 1995 between the Registrant and each of Michael J. Doyle,
C. Joel Glovsky, Marshall S. Sterman, Robert W. DeVore,
Jeffrey R. Rayport, Kenneth M. Miles, Christopher W.
Hollister and Faye Godwin relating to repricing of stock
options (13)
10.35 Stock Option Agreement between the Registrant and Christopher
W. Hollister dated February 28, 1995 for 35,000 shares of
stock at a price of $2.00 per share (13)
10.36 Stock Option Agreement between the Registrant and Michael J.
Doyle dated February 28, 1995 for 50,000 shares of stock at a
price of $2.00 per share (13)
10.37 Stock Option Agreement between the Registrant and C. Joel
Glovsky dated February 28, 1995 for 15,000 shares of stock at
a price of $2.00 per share (13)
10.38 Stock Option Agreement between the Registrant and Marshall S.
Sterman dated February 28, 1995 for 15,000 shares of stock at
a price of $2.00 per share (13)
10.39 Stock Option Agreement between the Registrant and Jeffrey F.
Rayport dated February 28, 1995 for 15,000 shares of stock at
a price of $2.00 per share (13)
10.40 Stock Option Agreement between the Registrant and Kenneth M.
Miles dated February 28, 1995 for 4,500 shares of stock at
$2.00 per share (13)
10.41 Stock Option Agreement between the Registrant and Kenneth M.
Miles dated February 28, 1995 for 15,000 shares of stock at
$2.00 per share (13)
10.42 Stock Option Agreement between the Registrant and Robert W.
DeVore dated February 28, 1995 for 15,000 shares of stock at
$2.00 per share (13)
10.43 Stock Option Agreement between and the Registrant and
Marshall S. Sterman, dated as of June 23, 1995, for 6,000
shares of common stock at a price of $2.28 per share, under
the 1995 Non-Employee Directors' Plan (13)
10.44 Stock Option Agreement between the Registrant and Robert W.
DeVore, dated as of June 23, 1995, for 6,000 shares of the
Registrant's Common Stock at a purchase price of $2.28 per
share, under the 1995 Non-Employee Directors' Plan (13)
10.45 Stock Option Agreement between the Registrant and Michael J.
Doyle dated as of July 1, 1995, for 50,000 shares of stock at
a price of $2.38 a share (13)
10.46 Stock Option Agreement between the Registrant and Kenneth M.
Miles dated as of July 1, 1995, for 35,000 shares of stock at
a price of $2.38 a share (13)
10.47 Stock Option Agreement between the Registrant and Michael J.
Brenan dated as of July 1, 1995 for 45,000 shares of stock at
a price of $2.38 a share (13)
10.48 Stock Option Agreement between the Registrant and Faye Godwin
dated February 28, 1995 for 50,000 shares of stock at a price
of $6.25 per share (expired) (13)
10.49 Form of Amended and Restated Stock Option Agreement between
the Registrant and Michael J. Doyle dated as of June 28, 1996
for 50,000 shares of the Registrant's Common Stock at a price
of $2.94 a share (14)
10.50 Form of Amended and Restated Stock Option Agreement between
the Registrant and Kenneth M. Miles dated as of June 28, 1996
for 25,000 shares of the Registrant's Common Stock at a price
of $2.94 a share (14)
10.51 Gain Participation Agreement between the Registrant and
certain limited partners of Lakeview Estates of Sandestin,
L.P. dated October 30, 1991 (3)
10.52 Purchase Agreement dated as of January 28, 1993 between the
Registrant and Manold Company as representative and agent for
the "Purchasers" listed therein, relating to sale by the
Registrant of subordinated bonds on Senior Lifestyles, Inc.
projects, 50,000 shares of the Registrant's Common Stock and
Stock Purchase Warrants to purchase an aggregate of 50,000
shares of the Registrant's Common Stock (4)
10.53 Form of Stock Purchase Warrants dated as of January 28, 1993,
numbered 1 to 10, inclusive, to purchase an aggregate of
50,000 shares of the Registrant's Common Stock, issued to the
"Purchasers" under the Purchase Agreement (Exhibit 10.52) (4)
II-5
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.54 Form of Agreement dated as of March 21, 1996, by and between
the Registrant and Manold, as representative and agent for
the "Purchasers" listed therein, relating to the exchange of
Bonds issued on behalf of Senior Lifestyles, Inc. and
registered in the name of the Registrant, including bonds
which are held beneficially and physically by The Manold
Company, and are the subject of the Registrant's 1993
Agreement with The Manold Company, in exchange for cash and
subordinate bonds issued by the York County Industrial
Development Authority on behalf of Northwood Retirement
Community, Inc. (13)
10.55 Management Agreement between the Registrant and Northwood
Retirement Community, Inc., dated March 20, 1996, for the
management of Fox Ridge Manor, in York County, Pennsylvania
(13)
10.56 Revolving Loan and Security Agreement between the Registrant
and Northwood Retirement Community, Inc. dated as of March
21, 1996 (13)
10.57 $150,000 Promissory Note from Northwood Retirement Community,
Inc. to the order of the Registrant dated as of March 21,
1996 (13)
10.58 Subordinated Trust Indenture between the Northwood Retirement
Community, Inc. and First Valley Bank, as Subordinated
Trustee dated as of March 21, 1996 (13)
10.59 Mortgage from the York County Industrial Development
Authority to First Valley Bank, as Subordinated Trustee dated
as of March 21, 1996 (13)
10.60 Form of Pledge, Security, Escrow and Subordination Agreement
between the Registrant and The Manold Company dated as of
March 21, 1996 (13)
10.61 Management Agreement dated July 6, 1995 by and between
Cortland House and the Registrant for the management of
Cortland House, Leominster, MA (13)
10.62 Management Agreement dated as of March 1, 1995 by and between
CJK Enterprises and the Registrant for the management of
Cadbury Commons, Dorchester, MA (13)
10.63 Limited Partnership Agreement of Standish Oaktree Limited
Partnership dated as of April 30, 1993, by and among Stan/Oak
Development Corp., Oaktree, Inc. and CJK Enterprises Limited
Partnership (2)
10.64 Agreement of Limited Partnership of Cornish Realty
Associates, L.P., bearing an unspecified date in 1993, by and
among Cornish Realty, Inc., as general partner, and the
Registrant and other persons executing the Agreement from
time to time, as limited partners (2)
10.65 Purchase Agreement dated as of March 23, 1996, by and among
the Registrant, as Seller, Cornish Realty Associates, L.P.,
Laurelmead Cooperative, Laurelmead Nursing Center L.L.C.,
James J. Skeffington and Arnold B. Chace, Jr., relating to
the sale by the Registrant of the Registrant's limited
partnership interest in Cornish Realty Associates, L.P. (13)
10.66 Amended and Restated Development Agency Agreement, dated as
of April 30, 1993, by and among Oaktree, Inc., Arthur A.
Klipfel, III, The Standish Oaktree Partnership, L.P. and the
Registrant (2)
10.67 Agreement dated May 5, 1993, between the Registrant, Tyler R.
Ruhlman, d/b/a Central Capital, and Mayflower Partners, Inc.,
relating to a consulting fee payable in connection with the
purchase by the Registrant of the Virginia Chain (2)
10.68 Management Agreement and Marketing Services Agreement between
Adams Square Limited Partnership and the Registrant dated
January 29, 1994 (6)
10.69 Development Services and Reimbursement Agreement between
Adams Square Limited Partnership and Stan/Oak Development
Corp., dated January 31, 1994 (6)
10.70 $127,000 Demand Note from the Registrant to Adams Square,
Inc. dated January 31, 1994 (6)
10.71 Unconditional Guaranty from the Registrant to SAI Mortgage
Group, Inc., dated February 25, 1994 (6)
10.72 Management and Marketing Agreement between Cornish Realty
Associates, L.P., Laurelmead Cooperative and the Registrant
dated October, 1993 (6)
10.73 First Amendment to Management and Marketing Agreement between
Cornish Realty Associates, L.P., Laurelmead Cooperative and
the Registrant, dated March 23, 1993 (6)
II-6
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.74 Laurelmead Resignation Agreement dated February 23, 1996,
among the Registrant, Cornish Realty Associates, L.P. and
Laurelmead Cooperative (13)
10.75 $1,000,000 Promissory Note from Bailey Retirement Center,
Inc. and the Registrant to First Union National Bank of
Florida dated January 26, 1994 (6)
10.76 Mortgage from Bailey Retirement Center, Inc. and the
Registrant to First Union National Bank of Florida dated
January 26, 1994 (13)
10.77 $100,000 Promissory Note from Bailey Retirement Center, Inc.
to Mark V. Barrow, M.D. and Mary B. Barrow, dated January 26,
1994 (13)
10.78 Mortgage from Bailey Retirement Center, Inc. to Mark V.
Barrow, M.D. and Mary B. Barrow, dated January 26, 1994 (13)
10.79 Form of $150,000 Promissory Note from Bailey Retirement
Center, Inc. and the Registrant to First Union National Bank
of Florida dated December 2, 1994 (13)
10.80 Mortgage from Bailey Retirement Center, Inc. and the
Registrant to First Union National Bank of Florida dated
December 2, 1994 (13)
10.81 Convertible Debenture Agreement between the Registrant and
Columbia Pacific Group, Inc. dated June 10, 1994 (9)
10.82 Form of Convertible Debenture issued in accordance with the
Assisted Living of America, Inc. n/k/a Emeritus Corp. working
capital credit facility (Exhibit 10.81) (9)
10.83 Warrant dated June 10, 1994 to purchase an aggregate of
50,000 shares of the Registrant's Common Stock issued to
Assisted Living of America, Inc. n/k/a Emeritus Corp. (9)
10.84 Warrant Dated June 10, 1994 to purchase an aggregate of
50,000 shares of the Registrant's Common Stock issued to
Daniel R. Baty (9)
10.85 Registration Rights Agreement dated June 10, 1994 between the
Registrant, Columbia Pacific Group, Inc. and Daniel R. Baty
(9)
10.86 Advisory Agreement between the Registrant and Daniel R. Baty
dated as of June 10, 1994 (9)
10.87 Management Agreement dated June 29, 1995 between Emeritus
Corp. and the Registrant, for the management of Woodholme
Commons in Pikesville, MD (13)
10.88 Management Agreement dated June 9, 1995 by and between
Emeritus Corp. and the Registrant for the management of The
Pines of Tewskbury, Tewksbury, MA (13)
10.89 Asset Purchase Agreement dated as of July 28, 1995 by and
among Painted Post Partnership, Allentown Personal Care
General Partnership, Unity Partnership and Saulsbury General
Partnership, each of the partners of such partnerships, P.
Jules Patt, as the managing general partner of each of the
foregoing named general partnerships and individually, and
the Registrant relating to the Green Meadows Acquisition (13)
10.90 Assignment and Assumption Agreement dated August 31, 1995, by
and between the Registrant and Emeritus Corp., relating to
the assignment of the Registrant's rights and obligations as
purchaser under the Asset Purchase Agreement dated as of July
28, 1995 with a group of partnerships, as seller (10)
10.91 Stock Purchase Warrant dated February 13, 1992 to purchase an
aggregate of 67,000 shares of the Registrant's Common Stock
issued to J. Edmund & Co. (3)
10.92 Underwriter's Warrant Agreement dated as of August 31, 1993
issued to RAS Securities corp. (2)
10.93 Warrants dated June 10, 1994 to purchase an aggregate of
32,500 shares of Registrant's Common Stock issued to RAS
Securities Corp. (13)
10.94 Draft of Warrants dated September 29, 1994, to purchase an
aggregate of 37,500 Common Shares issued to The Equity Group,
Inc. as partial consideration for public relations services
(13)
10.95 Warrants dated January 15, 1995 to purchase an aggregate of
30,000 shares of Registrant's Common Stock issued to Neil
Berkman Associates (13)
10.96 Form of Indemnification Agreement for officers and directors
(3)
10.97 Confidentiality Agreements dated May 20 and May 22, 1996
exchanged between the Registrant and CareMatrix (14)
10.98 Preferred Stock Purchase Agreement dated as of July 30, 1996
between the Registrant and Abraham D. Gosman (14)
II-7
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.99 Warrants dated July 30, 1996 to purchase an aggregate of
400,000 shares of the Registrant's Common Stock issued to
Abraham D. Gosman (14)
10.100 First Amendment to Warrant dated as of July 30, 1996 (*)
10.101 Registration Rights Agreement dated as of July 30, 1996
between the Registrant and Abraham D. Gosman (14)
10.102 Employment Agreement dated July 29, 1996 by and between
CareMatrix of Massachusetts, Inc. and Marc H. Benson.
10.103 1996 Equity Incentive Plan (*)
10.104 Lease Agreement concerning 197 First Avenue office space. (*)
10.105 Development Agreement, dated March 8, 1996, among CareMatrix of
Emerald Springs, Inc., Netwest Development Corporation and
Emerald Springs Associates General Partnership. (*)
10.106 Development Agreement, dated August 28, 1996, among CareMatrix of
Amethyst Arbor, Inc., Netwest Development Corporation and
Amethyst Arbor Associates General Partnership. (*)
10.107 Turnkey Development Agreement, dated August 14, 1996, among
CareMatrix of Massachusetts, Inc. ("CMM"), Atlantic Development
Group, LLC and Cambridge House Associates General Partnership.
(*)
10.108 Management Agreement, dated as of June 25, 1996, between CMM and
Continuum Care of Needham, Inc. (*)
10.109 Management Agreement, dated as of July 1996, between CMM and
Continuum Care of Needham, Inc. (*)
10.110 Assignment Agreement, dated as of June 25, 1996, between CMM and
Continuum Care of West Bridgewater, Inc. (*)
10.111 Assignment Agreement, dated as of June 25, 1996, between CMM and
Continuum Care of Massachusetts, Inc. (*)
10.112 Management Agreement, dated as of August 14, 1996, between CMM and
Cambridge House Associates General Partnership. (*)
10.113 Assignment Agreement, dated as of June 25, 1996, between CMM and
Continuum Care of Massachusetts, Inc. (*)
10.114 Assignment Agreement, dated June 25, 1996, between CMM and
Continuum Care of Massachusetts, Inc. (*)
10.115 Assignment Agreement, dated June 25, 1996, between CMM and
Continuum Care of Massachusetts, Inc. (*)
21.01 Subsidiaries of the Company (*)
23.01 Consent of Nutter, McClennen & Fish, LLP (contained in
Exhibit 5.01) (*)
23.02 Consents of Coopers & Lybrand L.L.P.
23.03 Consent of Lovelace, Roby & Company, P.A.
23.04 Consent of Donald J. Amaral
23.05 Consent of H. Loy Anderson, Jr.
23.06 Consent of Rev. Bedros Baharian
23.07 Consent of Stephen E. Ronai
24.01 Powers of Attorney (contained in Page S-2 to the Registration
Statement)
* To be filed by Amendment.
In accordance with Rule 411 under the Securities Act of 1933, as amended,
the following documents are hereby incorporated by reference:
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-18 (No. 33-43187-B)
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-1 (No. 33-64720)
(3) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-18 (No. 33-44966-B)
(4) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992
(5) Filed as an Exhibit to the Registrant's Report on Form 8-K dated March
10, 1994
II-8
<PAGE>
(6) Filed as an Exhibit to the Registrant's Report on Form 10-K dated for the
fiscal year ended December 31, 1993
(7) Filed as an Exhibit to the Registrant's Report on Form 8-K dated May 4,
1995
(8) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991
(9) Filed as an Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1994
(10) Filed as an Exhibit to the Registrant's Report on Form 8-K dated October
5, 1995
(11) Filed as an Exhibit to the Registrant's Report on Form 8-K dated January
3, 1996
(12) Filed as an Exhibit to the Registrant's Report on Form 8-K dated July
20, 1992
(13) Filed as an Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995
(14) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4 (No. 333-5364)
(b) Financial Statement Schedules
SCHEDULE II -- Valuation and Qualifying Accounts
Item 17. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted against
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A under the Securities Act and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of this registration statement as of the time it was declared effective. (2) For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof.
II-9
<PAGE>
THE STANDISH CARE COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Charges
to Charged
Balance at costs to Balance at
beginning and other end
Description of period expenses accounts Deductions of period
-------------- ---------- ------- ------- ------- -----------
Balance at
1/1/93 $ 0 -- -- -- $ 0
Amounts
reserved and
then written
off against
related
parties -- $132,000 -- ($132,000) --
Allowance for
doubtful
accounts 108,000 -- -- -- --
-------- ------ ------ ------ ---------
Balance at
12/31/93 $108,000 $132,000 -- ($132,000) $108,000
Allowance for
doubtful
accounts -- 252,946 -- -- --
-------- ------ ------ ------ ---------
Balance at
12/31/94 $108,000 $252,946 -- -- --
Allowance for
doubtful
accounts -- 87,479 -- -- --
-------- ------ ------ ------ ---------
Balance at
12/31/95 $360,946 $ 87,479 $ 0 $ 0 $448,425
======== ====== ====== ====== =========
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on September 5, 1996.
THE STANDISH CARE COMPANY
By: /s/ Michael J. Doyle
------------------------------
Michael J. Doyle
Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below on this Registration Statement hereby constitutes and appoints Michael
J. Doyle, Robert M. Kaufman and James M. Clary, III, and each of them, with
full power to act without the other, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities (until revoked in writing)
to sign any and all amendments (including post-effective amendments and
amendments thereto) to this Registration Statement on Form S-1 of the
Registrant, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary fully to all intents and purposes as he might or
could do in person thereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------- -------------------------- ----------------------
<S> <C> <C>
/s/ Michael J. Doyle Director, Chairman and September 5, 1996
- ----------------------- Chief Executive Officer
Michael J. Doyle (Principal Executive Officer)
/s/ Kenneth M. Miles Director, Chief Financial Officer September 5, 1996
- ----------------------- and Treasurer (Principal
Kenneth M. Miles Accounting Officer)
/s/ John A. Carucci Director September 5, 1996
- -----------------------
John A. Carucci
/s/ Marshall S. Sterman Director September 5, 1996
- -----------------------
Marshall S. Sterman
/s/ Robert W. DeVore Director September 5, 1996
- -----------------------
Robert W. DeVore
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
1.01 Form of Underwriting Agreement
2.01 Lease/Purchase Agreement dated as of July 1, 1992 by and
among Mark V. Barrow, M.D. and Mary B. Barrow, Victoria
Enterprises, Inc., and Bailey Retirement Center, Inc. (12)
2.02 Purchase and Sale Agreement dated as of February 24, 1992
between the Registrant and Life Prime, Inc., relating to
purchase by the Registrant of assets comprising Heritage
Word, Heritage Place and Heritage Common communities (2)
2.03 Asset Transfer Agreement dated February 24, 1994 by and
between Chapman and Cood Enterprises and the Registrant,
related to Statesville Village, Statesville, North Carolina
(5)
2.04 Asset Transfer Agreement dated February 24, 1994 by and
between C-M Villas and the Registrant, related to Yadkin
Village, Yadkinville, North Carolina (5)
2.05 Asset Transfer Agreement dated February 24, 1994 by and
between Jerry R. Chapman and the Registrant, related to
Catawba House, Newton, North Carolina (5)
2.06 Lease Agreement dated July 26, 1994, James Post and Elizabeth
Bass Horton-Post, as landlord and Bailey Retirement Center,
Inc., as tenant for property in Gainesville, Florida, known
as Bailey Homes Suites (13)
2.07 Asset Purchase Agreement dated January 12, 1995 by and among
Sunny Knoll Retirement Home, Inc., Donna Holden and Peter
Holden, and the Registrant (with exhibits and schedules
attached thereto) (7)
2.08 Amendment and Restatement of Asset Purchase Agreement dated
as of May 1, 1995 by and among Sunny Knoll Retirement Home,
Inc., Donna Holden and Peter Holden, Benjamin Bartley, L.L.C.
and the Registrant and Lake Region Villages, L.L.C. (with
exhibits and schedules attached thereto) (7)
2.09 Agreement and Plan of Merger dated as July 3, 1996 by and
among the Registrant, each of the Standish Subsidiaries and
Pre-Merger CareMatrix (with certain exhibits and schedules
attached thereto) (14)
3.01 Restated Certificate of Incorporation of the Registrant (1)
3.02 Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant filed August 23, 1993 (2)
3.03 Certificate of Designations of the Registrant filed on August
31, 1993 (2)
3.04 Certificate of Correction of the Registrant filed on
September 1, 1993 (2)
3.05 Certificate of Amendment to Restated Certificate of
Incorporation of the Registration filed June 8, 1994 (13)
3.06 Certificate of Amendment to Restated Certificate of
Incorporation of the Registrant filed June 30, 1995 (13)
3.07 Certificate of Retirement and Prohibition of Reissuance of
Shares of the Registrant filed July 28, 1995 (13)
3.08 Certificate of Designations of the Registrant filed July 30,
1996 (14)
3.09 By-Laws of the Registrant (3)
3.10 Amendment to By-Laws of the Registrant dated July 24, 1995 (13)
4.01 Specimen Certificate for Common Stock (3)
5.01 Legal Opinion of Nutter, McClennen & Fish, LLP (*)
10.01 Lease Agreement dated as of November 10, 1993, between Health
Care REIT, Inc. and Dominion Villages Inc. (6)
10.02 Lease Guaranty by the Registrant to Health Care REIT, Inc.
dated November 10, 1993, related to the obligations of
Dominion Villages, Inc. under its Lease Agreement (6)
10.03 Lease Agreement dated February 11, 1994 between Health Care
REIT, Inc. and Lowry Village Limited Partnership (6)
10.04 Lease Guaranty by the Registrant to Health Care REIT, Inc.,
dated February 11, 1994, related to the obligations of Lowry
Village Limited Partnership under its Lease Agreement (6)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.05 Management Agreement dated January 1, 1994, by and between
Lowry Village Limited Partnership and the Registrant (6)
10.06 Lease Agreement dated as of March 2, 1994, between Health
Care REIT, Inc. and Piedmont Villages, Inc. (6)
10.07 Lease Guaranty by the Registrant to Health Care REIT, Inc.
dated March 1, 1994, related to the obligations of Piedmont
Villages, Inc. under its Lease Agreement (6)
10.08 Commitment Letter dated October 5, 1993, between Health Care
REIT, Inc., a corporate wholly owned subsidiary to be formed
by Registrant, as amended March 31, 1995 (13)
10.09 Warrants dated November 9, 1993, January 13, 1994, February
4, 1994, March 1, 1994, May 25, 1995 and June 28, 1995 to
purchase an aggregate of 35,833 shares of the Registrant's
Common Stock issued to Health Care REIT, Inc. (13)
10.10 Adams Square Limited Partnership First Amended and Restated
Limited Partnership Agreement dated as of January 31, 1994
(with certain exhibits attached) (13)
10.11 Operating Agreement of Lakes Region Villages L.L.C. dated May
1, 1995 (13)
10.12 Amended and Restated Employment Agreement dated October 1,
1991 between Registrant and Michael J. Doyle (3)
10.13 Amendment to Amended and Restated Employment Agreement dated
January 1, 1993 between the Registrant and Michael J. Doyle
(4)
10.14 Amendment No. 2 to Amended and Restated Employment Agreement
dated July 29, 1993 between the Registrant and Michael J.
Doyle (2)
10.15 Second Amended and Restated Employment Agreement dated as of
July 1, 1995 between the Registrant and Michael J. Doyle (13)
10.16 First Amendment to Second Amended and Restated Employment
Agreement dated as of March 1, 1996 between the Registrant
and Michael J. Doyle (13)
10.17 Form of Third Amended and Restated Employment Agreement
between the Registrant and Michael J. Doyle (14)
10.18 New Employment Agreement dated as of December 1, 1995 between
the Registrant and Michael J. Brenan (13)
10.19 First Amendment to New Employment Agreement dated as of March
1, 1996 between the Registrant and Michael J. Brenan (13)
10.20 Termination Agreement dated as of August 15, 1996 between the
Registrant and Michael J. Brenan (14)
10.21 Employment Agreement dated as of July 1, 1995 between the
Registrant and Kenneth M. Miles (13)
10.22 First Amendment to Employment Agreement dated as of March 1,
1996 between the Registrant and Kenneth M. Miles (13)
10.23 Form of Amended and Restated Employment Agreement between the
Registrant and Kenneth M. Miles (14)
10.24 Agreement between the Registrant and Christopher W. Hollister
dated as of May 26, 1995 related to termination of employment
and the surrender of unexercised options to purchase 35,000
shares of stock (13)
10.25 Amended and Restated Employment Agreement dated March 1, 1993
between the Registrant and C. Joel Glovsky (4)
10.26 Early Retirement and Non-Competition Agreement dated as of
December 29, 1995, between the Registrant and C. Joel
Glovsky, relating to early retirement, consulting services,
non-complete covenants and related matters (11)
10.27 Restated 1991 Combination Stock Option Plan of the Registrant
(8)
10.28 Amendment to the Registrant's Restated 1991 Combination Stock
Option Plan (2)
10.29 Amendment No. 2 to Registrant's Restated 1991 Combination
Stock Option Plan (13)
10.30 Amendment No. 3 to Registrant's Restated 1991 Combination
Stock Option Plan (13)
10.31 Amendment No. 4 to Registrant's Restated 1991 Combination
Stock Option Plan (13)
10.32 1995 Non-Qualified Stock Option Plan for Non-Employee
Directors ("1995 Non-Employee Directors' Plan") (13)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.33 Warrants dated May 26, 1993 to purchase an aggregate of
15,000 shares of the Registrant's Common Stock granted to
Robert W. DeVore at a price of $4.50 per share (13)
10.34 Form of Stock Option Exchange Agreements dated as of February
28, 1995 between the Registrant and each of Michael J. Doyle,
C. Joel Glovsky, Marshall S. Sterman, Robert W. DeVore,
Jeffrey R. Rayport, Kenneth M. Miles, Christopher W.
Hollister and Faye Godwin relating to repricing of stock
options (13)
10.35 Stock Option Agreement between the Registrant and Christopher
W. Hollister dated February 28, 1995 for 35,000 shares of
stock at a price of $2.00 per share (13)
10.36 Stock Option Agreement between the Registrant and Michael J.
Doyle dated February 28, 1995 for 50,000 shares of stock at a
price of $2.00 per share (13)
10.37 Stock Option Agreement between the Registrant and C. Joel
Glovsky dated February 28, 1995 for 15,000 shares of stock at
a price of $2.00 per share (13)
10.38 Stock Option Agreement between the Registrant and Marshall S.
Sterman dated February 28, 1995 for 15,000 shares of stock at
a price of $2.00 per share (13)
10.39 Stock Option Agreement between the Registrant and Jeffrey F.
Rayport dated February 28, 1995 for 15,000 shares of stock at
a price of $2.00 per share (13)
10.40 Stock Option Agreement between the Registrant and Kenneth M.
Miles dated February 28, 1995 for 4,500 shares of stock at
$2.00 per share (13)
10.41 Stock Option Agreement between the Registrant and Kenneth M.
Miles dated February 28, 1995 for 15,000 shares of stock at
$2.00 per share (13)
10.42 Stock Option Agreement between the Registrant and Robert W.
DeVore dated February 28, 1995 for 15,000 shares of stock at
$2.00 per share (13)
10.43 Stock Option Agreement between and the Registrant and
Marshall S. Sterman, dated as of June 23, 1995, for 6,000
shares of common stock at a price of $2.28 per share, under
the 1995 Non-Employee Directors' Plan (13)
10.44 Stock Option Agreement between the Registrant and Robert W.
DeVore, dated as of June 23, 1995, for 6,000 shares of the
Registrant's Common Stock at a purchase price of $2.28 per
share, under the 1995 Non-Employee Directors' Plan (13)
10.45 Stock Option Agreement between the Registrant and Michael J.
Doyle dated as of July 1, 1995, for 50,000 shares of stock at
a price of $2.38 a share (13)
10.46 Stock Option Agreement between the Registrant and Kenneth M.
Miles dated as of July 1, 1995, for 35,000 shares of stock at
a price of $2.38 a share (13)
10.47 Stock Option Agreement between the Registrant and Michael J.
Brenan dated as of July 1, 1995 for 45,000 shares of stock at
a price of $2.38 a share (13)
10.48 Stock Option Agreement between the Registrant and Faye Godwin
dated February 28, 1995 for 50,000 shares of stock at a price
of $6.25 per share (expired) (13)
10.49 Form of Amended and Restated Stock Option Agreement between
the Registrant and Michael J. Doyle dated as of June 28, 1996
for 50,000 shares of the Registrant's Common Stock at a price
of $2.94 a share (14)
10.50 Form of Amended and Restated Stock Option Agreement between
the Registrant and Kenneth M. Miles dated as of June 28, 1996
for 25,000 shares of the Registrant's Common Stock at a price
of $2.94 a share (14)
10.51 Gain Participation Agreement between the Registrant and
certain limited partners of Lakeview Estates of Sandestin,
L.P. dated October 30, 1991 (3)
10.52 Purchase Agreement dated as of January 28, 1993 between the
Registrant and Manold Company as representative and agent for
the "Purchasers" listed therein, relating to sale by the
Registrant of subordinated bonds on Senior Lifestyles, Inc.
projects, 50,000 shares of the Registrant's Common Stock and
Stock Purchase Warrants to purchase an aggregate of 50,000
shares of the Registrant's Common Stock (4)
10.53 Form of Stock Purchase Warrants dated as of January 28, 1993,
numbered 1 to 10, inclusive, to purchase an aggregate of
50,000 shares of the Registrant's Common Stock, issued to the
"Purchasers" under the Purchase Agreement (Exhibit 10.52) (4)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.54 Form of Agreement dated as of March 21, 1996, by and between
the Registrant and Manold, as representative and agent for
the "Purchasers" listed therein, relating to the exchange of
Bonds issued on behalf of Senior Lifestyles, Inc. and
registered in the name of the Registrant, including bonds
which are held beneficially and physically by The Manold
Company, and are the subject of the Registrant's 1993
Agreement with The Manold Company, in exchange for cash and
subordinate bonds issued by the York County Industrial
Development Authority on behalf of Northwood Retirement
Community, Inc. (13)
10.55 Management Agreement between the Registrant and Northwood
Retirement Community, Inc., dated March 20, 1996, for the
management of Fox Ridge Manor, in York County, Pennsylvania
(13)
10.56 Revolving Loan and Security Agreement between the Registrant
and Northwood Retirement Community, Inc. dated as of March
21, 1996 (13)
10.57 $150,000 Promissory Note from Northwood Retirement Community,
Inc. to the order of the Registrant dated as of March 21,
1996 (13)
10.58 Subordinated Trust Indenture between the Northwood Retirement
Community, Inc. and First Valley Bank, as Subordinated
Trustee dated as of March 21, 1996 (13)
10.59 Mortgage from the York County Industrial Development
Authority to First Valley Bank, as Subordinated Trustee dated
as of March 21, 1996 (13)
10.60 Form of Pledge, Security, Escrow and Subordination Agreement
between the Registrant and The Manold Company dated as of
March 21, 1996 (13)
10.61 Management Agreement dated July 6, 1995 by and between
Cortland House and the Registrant for the management of
Cortland House, Leominster, MA (13)
10.62 Management Agreement dated as of March 1, 1995 by and between
CJK Enterprises and the Registrant for the management of
Cadbury Commons, Dorchester, MA (13)
10.63 Limited Partnership Agreement of Standish Oaktree Limited
Partnership dated as of April 30, 1993, by and among Stan/Oak
Development Corp., Oaktree, Inc. and CJK Enterprises Limited
Partnership (2)
10.64 Agreement of Limited Partnership of Cornish Realty
Associates, L.P., bearing an unspecified date in 1993, by and
among Cornish Realty, Inc., as general partner, and the
Registrant and other persons executing the Agreement from
time to time, as limited partners (2)
10.65 Purchase Agreement dated as of March 23, 1996, by and among
the Registrant, as Seller, Cornish Realty Associates, L.P.,
Laurelmead Cooperative, Laurelmead Nursing Center L.L.C.,
James J. Skeffington and Arnold B. Chace, Jr., relating to
the sale by the Registrant of the Registrant's limited
partnership interest in Cornish Realty Associates, L.P. (13)
10.66 Amended and Restated Development Agency Agreement, dated as
of April 30, 1993, by and among Oaktree, Inc., Arthur A.
Klipfel, III, The Standish Oaktree Partnership, L.P. and the
Registrant (2)
10.67 Agreement dated May 5, 1993, between the Registrant, Tyler R.
Ruhlman, d/b/a Central Capital, and Mayflower Partners, Inc.,
relating to a consulting fee payable in connection with the
purchase by the Registrant of the Virginia Chain (2)
10.68 Management Agreement and Marketing Services Agreement between
Adams Square Limited Partnership and the Registrant dated
January 29, 1994 (6)
10.69 Development Services and Reimbursement Agreement between
Adams Square Limited Partnership and Stan/Oak Development
Corp., dated January 31, 1994 (6)
10.70 $127,000 Demand Note from the Registrant to Adams Square,
Inc. dated January 31, 1994 (6)
10.71 Unconditional Guaranty from the Registrant to SAI Mortgage
Group, Inc., dated February 25, 1994 (6)
10.72 Management and Marketing Agreement between Cornish Realty
Associates, L.P., Laurelmead Cooperative and the Registrant
dated October, 1993 (6)
10.73 First Amendment to Management and Marketing Agreement between
Cornish Realty Associates, L.P., Laurelmead Cooperative and
the Registrant, dated March 23, 1993 (6)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.74 Laurelmead Resignation Agreement dated February 23, 1996,
among the Registrant, Cornish Realty Associates, L.P. and
Laurelmead Cooperative (13)
10.75 $1,000,000 Promissory Note from Bailey Retirement Center,
Inc. and the Registrant to First Union National Bank of
Florida dated January 26, 1994 (6)
10.76 Mortgage from Bailey Retirement Center, Inc. and the
Registrant to First Union National Bank of Florida dated
January 26, 1994 (13)
10.77 $100,000 Promissory Note from Bailey Retirement Center, Inc.
to Mark V. Barrow, M.D. and Mary B. Barrow, dated January 26,
1994 (13)
10.78 Mortgage from Bailey Retirement Center, Inc. to Mark V.
Barrow, M.D. and Mary B. Barrow, dated January 26, 1994 (13)
10.79 Form of $150,000 Promissory Note from Bailey Retirement
Center, Inc. and the Registrant to First Union National Bank
of Florida dated December 2, 1994 (13)
10.80 Mortgage from Bailey Retirement Center, Inc. and the
Registrant to First Union National Bank of Florida dated
December 2, 1994 (13)
10.81 Convertible Debenture Agreement between the Registrant and
Columbia Pacific Group, Inc. dated June 10, 1994 (9)
10.82 Form of Convertible Debenture issued in accordance with the
Assisted Living of America, Inc. n/k/a Emeritus Corp. working
capital credit facility (Exhibit 10.81) (9)
10.83 Warrant dated June 10, 1994 to purchase an aggregate of
50,000 shares of the Registrant's Common Stock issued to
Assisted Living of America, Inc. n/k/a Emeritus Corp. (9)
10.84 Warrant Dated June 10, 1994 to purchase an aggregate of
50,000 shares of the Registrant's Common Stock issued to
Daniel R. Baty (9)
10.85 Registration Rights Agreement dated June 10, 1994 between the
Registrant, Columbia Pacific Group, Inc. and Daniel R. Baty
(9)
10.86 Advisory Agreement between the Registrant and Daniel R. Baty
dated as of June 10, 1994 (9)
10.87 Management Agreement dated June 29, 1995 between Emeritus
Corp. and the Registrant, for the management of Woodholme
Commons in Pikesville, MD (13)
10.88 Management Agreement dated June 9, 1995 by and between
Emeritus Corp. and the Registrant for the management of The
Pines of Tewskbury, Tewksbury, MA (13)
10.89 Asset Purchase Agreement dated as of July 28, 1995 by and
among Painted Post Partnership, Allentown Personal Care
General Partnership, Unity Partnership and Saulsbury General
Partnership, each of the partners of such partnerships, P.
Jules Patt, as the managing general partner of each of the
foregoing named general partnerships and individually, and
the Registrant relating to the Green Meadows Acquisition (13)
10.90 Assignment and Assumption Agreement dated August 31, 1995, by
and between the Registrant and Emeritus Corp., relating to
the assignment of the Registrant's rights and obligations as
purchaser under the Asset Purchase Agreement dated as of July
28, 1995 with a group of partnerships, as seller (10)
10.91 Stock Purchase Warrant dated February 13, 1992 to purchase an
aggregate of 67,000 shares of the Registrant's Common Stock
issued to J. Edmund & Co. (3)
10.92 Underwriter's Warrant Agreement dated as of August 31, 1993
issued to RAS Securities corp. (2)
10.93 Warrants dated June 10, 1994 to purchase an aggregate of
32,500 shares of Registrant's Common Stock issued to RAS
Securities Corp. (13)
10.94 Draft of Warrants dated September 29, 1994, to purchase an
aggregate of 37,500 Common Shares issued to The Equity Group,
Inc. as partial consideration for public relations services
(13)
10.95 Warrants dated January 15, 1995 to purchase an aggregate of
30,000 shares of Registrant's Common Stock issued to Neil
Berkman Associates (13)
10.96 Form of Indemnification Agreement for officers and directors
(3)
10.97 Confidentiality Agreements dated May 20 and May 22, 1996
exchanged between the Registrant and CareMatrix (14)
10.98 Preferred Stock Purchase Agreement dated as of July 30, 1996
between the Registrant and Abraham D. Gosman (14)
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------- ---------------------------------------------------------------
10.99 Warrants dated July 30, 1996 to purchase an aggregate of
400,000 shares of the Registrant's Common Stock issued to
Abraham D. Gosman (14)
10.100 First Amendment to Warrant dated as of July 30, 1996 (*)
10.101 Registration Rights Agreement dated as of July 30, 1996
between the Registrant and Abraham D. Gosman (14)
10.102 Employment Agreement dated July 29, 1996 by and between
CareMatrix of Massachusetts, Inc. and Marc H. Benson.
10.103 1996 Equity Incentive Plan (*)
10.104 Lease Agreement concerning 197 First Avenue office space. (*)
10.105 Development Agreement, dated March 8, 1996, among CareMatrix of
Emerald Springs, Inc., Netwest Development Corporation and
Emerald Springs Associates General Partnership. (*)
10.106 Development Agreement, dated August 28, 1996, among CareMatrix of
Amethyst Arbor, Inc., Netwest Development Corporation and
Amethyst Arbor Associates General Partnership. (*)
10.107 Turnkey Development Agreement, dated August 14, 1996, among
CareMatrix of Massachusetts, Inc. ("CMM"), Atlantic Development
Group, LLC and Cambridge House Associates General Partnership.
(*)
10.108 Management Agreement, dated as of June 25, 1996, between CMM and
Continuum Care of Needham, Inc. (*)
10.109 Management Agreement, dated as of July 1996, between CMM and
Continuum Care of Needham, Inc. (*)
10.110 Assignment Agreement, dated as of June 25, 1996, between CMM and
Continuum Care of West Bridgewater, Inc. (*)
10.111 Assignment Agreement, dated as of June 25, 1996, between CMM and
Continuum Care of Massachusetts, Inc. (*)
10.112 Management Agreement, dated as of August 14, 1996, between CMM and
Cambridge House Associates General Partnership. (*)
10.113 Assignment Agreement, dated as of June 25, 1996, between CMM and
Continuum Care of Massachusetts, Inc. (*)
10.114 Assignment Agreement, dated June 25, 1996, between CMM and
Continuum Care of Massachusetts, Inc. (*)
10.115 Assignment Agreement, dated June 25, 1996, between CMM and
Continuum Care of Massachusetts, Inc. (*)
21.01 Subsidiaries of the Company (*)
23.01 Consent of Nutter, McClennen & Fish, LLP (contained in
Exhibit 5.01) (*)
23.02 Consents of Coopers & Lybrand L.L.P.
23.03 Consent of Lovelace, Roby & Company, P.A.
23.04 Consent of Donald J. Amaral
23.05 Consent of H. Loy Anderson, Jr.
23.06 Consent of Rev. Bedros Baharian
23.07 Consent of Stephen E. Ronai
24.01 Powers of Attorney (contained in Page S-2 to the Registration
Statement)
* To be filed by Amendment.
In accordance with Rule 411 under the Securities Act of 1933, as amended,
the following documents are hereby incorporated by reference:
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-18 (No. 33-43187-B)
(2) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-1 (No. 33-64720)
(3) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-18 (No. 33-44966-B)
(4) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992
(5) Filed as an Exhibit to the Registrant's Report on Form 8-K dated March
10, 1994
<PAGE>
(6) Filed as an Exhibit to the Registrant's Report on Form 10-K dated for the
fiscal year ended December 31, 1993
(7) Filed as an Exhibit to the Registrant's Report on Form 8-K dated May 4,
1995
(8) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1991
(9) Filed as an Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1994
(10) Filed as an Exhibit to the Registrant's Report on Form 8-K dated October
5, 1995
(11) Filed as an Exhibit to the Registrant's Report on Form 8-K dated January
3, 1996
(12) Filed as an Exhibit to the Registrant's Report on Form 8-K dated July
20, 1992
(13) Filed as an Exhibit to the Registrant's Report on Form 10-K for the
fiscal year ended December 31, 1995
(14) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4 (No. 333-5364)
_________ Shares
CAREMATRIX CORPORATION (formerly
The Standish Care Company)
Common Stock
UNDERWRITING AGREEMENT
, 1996
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
NATWEST SECURITIES LIMITED
ROBERTSON, STEPHENS & COMPANY
SMITH BARNEY INC.
As Representatives of the several Underwriters
c/o Dean Witter Reynolds Inc.
Two World Trade Center
65th Floor
New York, New York 10048
Dear Ladies and Gentlemen:
1. Introductory. CareMatrix Corporation (formerly The Standish Care
Company), a Delaware corporation (the "Company"), and the selling stockholders
named on Schedule B hereto (the "Selling Stockholders") propose to issue and
sell, pursuant to the terms of this Underwriting Agreement, to the several
Underwriters named in Schedule A hereto (the "Underwriters", which term also
shall include any underwriter substituted as hereinafter provided in Section 11)
an aggregate of 35,937,500 shares of Common Stock, par value $.01 per share (the
"Common Stock"), of the Company. The aggregate of 31,250,000 shares of Common
Stock so to be sold by the Company is herein called the "Firm Stock". The
Selling Stockholders also propose to sell to the Underwriters severally, on a
pro rata basis, at the option of the Underwriters, an aggregate of not more than
4,687,500 additional shares of Common Stock as provided in Section 3 of this
Agreement. The aggregate of 4,687,500 shares of Common Stock so proposed to be
sold is herein called the "Optional Stock". The Firm Stock and the Optional
Stock are collectively referred to herein as the "Stock". Dean Witter Reynolds
Inc., PaineWebber
<PAGE>
Incorporated, NatWest Securities Limited, Robertson, Stephens &
Company and Smith Barney Inc. are acting as representatives of
the several Underwriters and in such capacity are hereinafter
referred to as the "Representatives".
2. (a) Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters, as of the
date hereof, as of the Closing Date referred to in Section 3(b) and as of any
Option Closing Date as referred to in Section 3(c), that:
(i) A registration statement on Form S-1 (File No. 333- ) with
respect to the Stock, including a preliminary prospectus, copies of which have
heretofore been delivered to you, has been carefully prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended (the
"Act"), and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") under the Act, and has
been filed with the Commission under the Act, and one or more amendments to such
registration statement, including an amended preliminary prospectus, copies of
which have heretofore been delivered to you, may have been so prepared and
filed. After the execution of this Agreement, the Company will file with the
Commission a prospectus in the form most recently included in an amendment to
such registration statement (or, if no such amendment shall have been filed, in
such registration statement) with such changes or insertions as are required by
Rule 430A or permitted by Rule 424(b) under the Act and as have been provided to
and approved by the Underwriters. Alternatively, if the Company has elected to
rely upon Rule 434 under the Act, the Company will prepare and file a term sheet
(a "Term Sheet") in accordance with Rule 434 and Rule 424(b) promptly after the
execution of this Agreement. The information, if any, included in such
prospectus or in the Term Sheet, as the case may be, that was omitted from the
prospectus included in such registration statement at the time that it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (B) of Rule 430A is referred
to herein as the "Rule 430A Information" or (b) pursuant to paragraph (d) of
Rule 434 is referred to as the "Rule 434 Information". Such registration
statement, as amended at the time when it was declared effective, including all
financial statement schedules and exhibits thereto and including the Rule 430A
Information or the Rule 434 Information, if applicable, is herein called the
"Registration Statement". Each prospectus subject to completion included in such
registration statement or any amendment or post-effective amendment thereto
(including the prospectus subject to completion, if any, included in the
Registration Statement at the time it was declared effective) is herein called a
"Preliminary Prospectus". The final prospectus in the form first furnished to
the Underwriters for use in connection with the offering of the Stock is herein
called the "Prospectus"; provided, however, that if Rule 434 is relied on, the
term "Prospectus" shall refer to the Preliminary Prospectus last furnished to
the Underwriters in
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connection with the offering of the Stock together with the Term Sheet. If the
Company files a registration statement to register a portion of the Common Stock
and relies on Rule 462(b) for such registration statement to become effective
upon filing with the Commission (the "Rule 462 Registration Statement"), then
any reference to "Registration Statement" herein shall be deemed to be to both
the registration statement referred to above (No. 333- _________) and the Rule
462 Registration Statement, as each such registration statement may be amended
pursuant to the Act.
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued and no proceeding for that purpose has
been instituted or, to the Company's knowledge, threatened by the Commission or
the securities authority of any state or other jurisdiction. The Registration
Statement has become effective under the Act, no stop order suspending the
effectiveness of the Registration Statement or any part thereof has been issued
and no proceeding for that purpose has been instituted or, to the Company's
knowledge, threatened or contemplated by the Commission or the securities
authority of any state or other jurisdiction.
(iii) When any Preliminary Prospectus was filed with the
Commission, it (A) complied in all material respects with the applicable
requirements of the Act and the Securities Exchange Act of 1934 (the "Exchange
Act") and the respective Rules and Regulations thereunder and (B) did not
include any untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. When the Registration
Statement or any amendment thereto was declared effective, (A) at the Closing
Date (as defined herein) and Option Closing Date (as defined herein), if any, it
complied or will comply in all material respects with the requirements of the
Act and the Rules and Regulations and (B) it did not or will not include any
untrue statement of a material fact or omit to state any material fact necessary
to make the statements therein not misleading. When the Prospectus or any
amendment or supplement thereto (including any Term Sheet) is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment,
supplement or Term Sheet is not required to be so filed, when the Registration
Statement or the amendment thereto containing such amendment or supplement to
the Prospectus was or is declared effective) and at the Closing Date and Option
Closing Date, if any, the Prospectus, as amended or supplemented at any such
time, including any amendment or supplement effected by a Term Sheet, (A)
complied or will comply in all material respects with the applicable
requirements of the Act and the Rules and Regulations and (B) did not or will
not include any untrue statement of a material fact or omit to state any
material fact
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<PAGE>
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
representations, warranties and agreements in this subsection (iii) shall not
apply to information contained in the Registration Statement or the Prospectus
or any supplement thereto in reliance upon, and in conformity with, written
information furnished to the Company on behalf of any Underwriter through the
Representatives specifically for use in the preparation thereof. The Company and
the Underwriters hereby acknowledge that the following constitute the only
information furnished in writing to the Company by the Underwriters expressly
for use in preparation of the Registration Statement and the Prospectus: [(A)
the statements in the last paragraph on the cover page of the Prospectus; (B)
statements with respect to stabilization on page 2 of the Prospectus; (C) the
list of the Underwriters under the caption "Underwriting" in the Registration
Statement and the Prospectus; and (D) statements with respect to allowances and
reallowances to dealers on page [60] of the Prospectus].
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, (A)
neither the Company nor any of its subsidiaries has incurred any liabilities or
obligations (indirect, direct or contingent) or entered into any oral or written
agreements or other transactions not in the ordinary course of business that,
singly or in the aggregate, could reasonably be expected to be material to the
Company and its subsidiaries considered as a whole or that could reasonably be
expected to result in a material reduction in the earnings of the Company and
its subsidiaries considered as a whole, (B) neither the Company nor any of its
subsidiaries has sustained any loss or interference with its business or
properties from strike, fire, flood, windstorm, accident or other calamity
(whether or not covered by insurance) that, singly or in the aggregate, could
reasonably be expected to be material to the Company and its subsidiaries
considered as a whole, (C) there has been no material change in the indebtedness
of the Company, no change in the capital stock of the Company and no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock, and (D) there has not been any material adverse change, nor
any development that could, singly or in the aggregate, result in a material
adverse change in the condition (financial or otherwise), business prospects or
results of operations of the Company and its subsidiaries considered as a whole,
whether or not arising in the ordinary course of business.
(v) The historical combined financial statements,
together with the related notes, of Pre-Merger CareMatrix (as
defined below) set forth in the Prospectus and the Registration
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<PAGE>
Statement fairly present, on the basis stated in the Prospectus and the
Registration Statement, the combined financial position and the results of
operations and cash flows of Pre-Merger CareMatrix at the respective dates or
for the respective periods therein specified. Except as stated therein, such
financial statements and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods involved. The financial statement schedules, if any,
included in the Registration Statement fairly present the information required
to be stated therein. The selected financial and operating data set forth in the
Prospectus under the captions ["Summary Combined Financial Data"] and ["Selected
Financial Data of the Company"] fairly presents the information set forth
therein and has been compiled on a basis consistent with that of the audited
combined financial statements of Pre-Merger CareMatrix included in the
Prospectus.
(vi) The historical consolidated financial statements,
together with the related notes and schedules, of The Standish Care Company and
its subsidiaries ("Old Standish") as it existed prior to its September 27, 1996
merger with twelve affiliated corporations controlled by Abraham Gosman and
members of his family (collectively, "Pre-Merger CareMatrix") set forth in the
Prospectus and elsewhere in the Registration Statement fairly present, on the
basis stated in the Registration Statement, the financial position and the
results of operations and changes in financial position of Old Standish at the
respective dates or for the respective periods therein specified. Such financial
statements and related notes and schedules have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis except as
may be set forth in the Prospectus. The selected financial and operating data
set forth in the Prospectus under the caption "Selected Historical Financial
Data for Standish" fairly presents the information set forth therein and have
been compiled on a basis consistent with that of the audited consolidated
financial statements of Old Standish included in the Prospectus.
(vii) The pro forma financial statements and other pro forma
financial information of the Company included in the Prospectus have been
prepared in accordance with the Commission's rules and guidelines with respect
to pro forma financial statements and have been properly compiled on the bases
described therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give effect to
the transactions and circumstances referred to therein.
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(viii) Coopers & Lybrand LLP, which has expressed its opinion
on (x) the audited combined financial statements of Pre- Merger CareMatrix and
(y) the audited consolidated financial statements of Old Standish; included in
the Registration Statement, are independent public accountants as required by
the Act and the Rules and Regulations.
(ix) Each of the Company and its subsidiaries has been duly
organized and is validly existing and in good standing as a corporation under
the laws of its jurisdiction of organization, with power and authority
(corporate and other) to own, lease and operate its properties and to conduct
its businesses as described in the Prospectus; each of the Company and its
subsidiaries is in possession of and operating in compliance with all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders required for the conduct of its business, all of which
are valid and in full force and effect, except where any failure to do so or to
be valid and in full force and effect would not result in a material adverse
change in the condition (financial or otherwise), business prospects or results
of operations of the Company and its subsidiaries considered as a whole; neither
the Company nor any of its subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such franchise, grant,
authorization, license, permit, easement, consent, certificate or order which,
singly or in the aggregate, if the subject of an unfavorable decision, would
result in a material adverse change in the condition (financial or otherwise),
business prospects or results of operations of the Company and its subsidiaries
considered as a whole; and the Company and each of its subsidiaries is duly
qualified to do business and is in good standing as a foreign corporation in all
other jurisdictions where its ownership or leasing of properties or the conduct
of its business requires such qualification, except where the failure to be duly
qualified or to be in good standing would not have a material adverse effect on
the condition (financial or otherwise), business prospects or results of
operations of the Company and its subsidiaries taken as a whole.
(x) The Company has an authorized and outstanding capital
stock as set forth under the heading "Description of Capital Stock" in the
Prospectus; the issued and outstanding shares of Common Stock of the Company
conform to the description thereof in the Prospectus and have been duly
authorized and validly issued and are fully paid and nonassessable and are
listed on the [Nasdaq Small Cap System/Nasdaq National Market]; the stockholders
of the Company have no preemptive rights with respect to any shares of capital
stock of the Company and none of the issued shares of Common Stock have been
issued in violation of any preemptive rights; and all outstanding shares of
capital
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<PAGE>
stock of each subsidiary of the Company have been duly authorized and validly
issued, and are fully paid and nonassessable and are owned directly by the
Company or by one of its wholly owned subsidiaries of the Company free and clear
of any liens, encumbrances, equities or claims.
(xi) The Stock to be issued and sold by the Company to the
Underwriters hereunder has been duly and validly authorized and, when issued and
delivered against payment therefor as provided herein and in the Pricing
Agreement, will be duly and validly issued and fully paid and nonassessable and
will conform to the description thereof in the Prospectus; the stockholders of
the Company have no preemptive rights with respect to the Stock and no holder
thereof will be subject to personal liability for reason of being such a holder.
(xii) Except as disclosed in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any of its
subsidiaries is a party or of which any property of the Company or any
subsidiary is the subject, that are required to be disclosed in the Prospectus
(other than as described therein), or which, if determined adversely to the
Company or any subsidiary, would individually or in the aggregate result in a
material adverse change in the condition (financial or otherwise), business
prospects or results of operations of the Company and its subsidiaries
considered as a whole or which might materially and adversely affect the
consummation of the transactions contemplated hereby; and to the best of the
Company's knowledge no such proceedings are threatened or contemplated by
governmental authorities or threatened by others.
(xiii) Neither the Company nor any of its subsidiaries is, or
with the giving of notice or passage of time or both would be, in breach or
violation of any of the terms or provisions of or in default under (A) any
statute, law, rule or regulation applicable to the Company or any of its
subsidiaries, (B) any indenture, contract, lease, mortgage, deed of trust, note
agreement or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which it is bound, (C) its Certificate of
Incorporation, By-laws, or (D) any order, decree or judgment of any court or
governmental agency or body having jurisdiction over the Company or any of its
subsidiaries or any of its properties except, with respect to breaches,
violations or defaults contemplated by clauses (A), (B) or (D), for such
breaches, violations or defaults that would not, individually or in the
aggregate, result in a material adverse change in the condition (financial or
otherwise), business prospects or results of operations of the Company and its
subsidiaries considered as a whole. The performance of this Agreement and the
consummation of the transactions herein
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contemplated will not, with the giving of notice or passage of time or both,
result in a breach or violation of any of the terms or provisions of or
constitute a default under (W) any statute, law, rule or regulation applicable
to the Company or any of its subsidiaries, (X) any indenture, contract,
mortgage, lease, deed of trust, note agreement or other agreement or instrument
to which the Company or any of its subsidiaries is a party or by which it is
bound, (Y) the Company's or any subsidiary's Certificate of Incorporation or
By-Laws, or (Z) any order, decree or judgment of any court or governmental
agency or body having jurisdiction over the Company or any of its subsidiaries
or any of their respective properties, except, with respect to breaches,
violations or defaults contemplated by clauses (W), (X) or (Z), for such
breaches, violations or defaults that would not, individually or in the
aggregate, result in a material adverse change in the condition (financial or
otherwise), business prospects or results of operations of the Company and its
subsidiaries considered as a whole.
(xiv) No consent, approval, authorization, order, registration
or qualification of or with any court or governmental agency or body is required
for the issuance and sale of the Stock by the Company or for the consummation by
the Company of the transactions contemplated by this Agreement, including,
without limitation, the use of the proceeds from the sale of the Stock to be
sold by the Company in the manner contemplated in the Prospectus under the
caption "Use of Proceeds," except such as may be required by the National
Association of Securities Dealers, Inc. (the "NASD") or under the Act or the
securities or Blue Sky laws of any jurisdiction in connection with the purchase
and distribution of the Stock by the Underwriters.
(xv) This Agreement has been duly authorized, executed
and delivered by the Company.
(xvi) The Company and its subsidiaries have such certificates,
permits, licenses, franchises, consents, approvals, authorizations and
clearances as are necessary to own, lease or operate their respective properties
and to conduct their respective businesses in the manner described in the
Prospectus ("Licenses") and all such Licenses are valid and in full force and
effect. The Company and each of its subsidiaries are in compliance in all
material respects with their respective obligations under such Licenses and no
event has occurred that allows, or after notice or lapse of time or both would
allow, revocation, suspension or termination of any such License or a material
violation of any such laws or regulations. No such License contains a burdensome
restriction on the Company or any
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of its subsidiaries that is not adequately disclosed in the
Registration Statement and the Prospectus.
(xvii) Each of the Company and its subsidiaries has good and
marketable title in fee simple to all real property, if any, and good title to
all personal property owned by it, in each case free and clear of all liens,
security interests, pledges, charges, encumbrances, mortgages and defects,
except such as are described in the Prospectus or such as do not materially and
adversely affect the value of such property and do not unreasonably interfere
with the use made or proposed to be made of such property by the Company or any
of its subsidiaries, as the case may be; and any real property and buildings
held under lease by the Company or any of its subsidiaries are held by the
Company or such subsidiary, as the case may be, under valid, subsisting and
enforceable leases with such exceptions as are described in the Prospectus or
such as do not unreasonably interfere with the use made or proposed to be made
of such property and buildings by the Company or such subsidiary.
(xviii) The operations of the Company and its subsidiaries
with respect to any real property currently leased or owned or by any means
controlled by the Company or any subsidiary (the "Real Property") are in
compliance with all federal, state, and local laws, ordinances, rules, and
regulations relating to occupational health and safety and the environment
(collectively, "Laws"), except where the failure to be in compliance would not,
individually or in the aggregate, result in a material adverse change in the
condition (financial or otherwise), business prospects or results or operations
of the Company and its subsidiaries considered as a whole; neither the Company
nor any of its subsidiaries has authorized, conducted or has knowledge of the
generation, transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material, hazardous constituent,
toxic substance, pollutant, contaminant, petroleum product, natural gas,
liquified gas or synthetic gas defined or regulated under any environmental law
on, in or under any Real Property in violation of any applicable law, except for
any violation which would not, individually or in the aggregate, result in a
material adverse change in the condition (financial or otherwise), business
prospects or results of operations of the Company and its subsidiaries
considered as a whole; and there is no pending or, to the Company's knowledge,
threatened claim, litigation or any administrative agency proceeding involving
the Company or any of its subsidiaries, nor has the Company or any of its
subsidiaries received any written notice, or any oral notice to any executive
officer of the Company or any other employee responsible for receipt of any such
notice, from any governmental entity or third party, that: (A) alleges a
violation of any Laws
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by the Company or any of its subsidiaries; (B) alleges the Company or any of its
subsidiaries is a liable party under the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq. or any state
superfund law; (C) alleges possible contamination of the environment by the
Company or any of its subsidiaries; or (D) alleges possible contamination of the
Real Property.
(xix) Except as disclosed in the Prospectus, there are no
contracts, agreements or understandings between the Company and any person
granting such person the right to require the Company to file a registration
statement under the Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such securities
in the securities registered pursuant to the Registration Statement (or any such
right has been effectively waived) or any securities being registered pursuant
to any other registration statement filed by the Company under the Act.
(xx) All offers and sales of the Company's capital stock prior
to the date hereof were at all relevant times duly registered or exempt from the
registration requirements of the Act, and were duly registered or the subject of
an available exemption from the registration requirements of the applicable
state securities or Blue Sky laws.
(xxi) Except as set forth in the Prospectus, the Company and
its subsidiaries own, possess or have the right to use or can acquire on
reasonable terms all patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets, and other unpatented and unpatentable
proprietary or confidential information, systems or procedures) trade marks,
service marks and trade names (collectively, "Intangibles") presently employed
by them or necessary to their respective businesses as presently conducted or as
the Prospectus indicates the Company or any such subsidiary proposes to conduct;
to the knowledge of the Company, neither the Company nor any of its subsidiaries
has infringed or is infringing, and neither the Company nor any subsidiary has
received any written notice, or any oral notice to any executive officer of the
Company or any other employee responsible for receipt of any such notice, of
infringement of or of conflict with, asserted Intangibles of others that,
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a material adverse change in the condition
(financial or otherwise), business prospects, properties or results of
operations of the Company and its subsidiaries considered as a whole; and, to
the knowledge of the Company, there is no infringement by others of Intangibles
of the Company or any of its subsidiaries.
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(xxii) Each of Pre-Merger CareMatrix and Old Standish have
filed all foreign, federal, state and local tax returns that are required to be
filed by them and have paid all taxes shown as due on such returns as well as
all other taxes, assessments and governmental charges that are due and payable,
except where the failure to file or pay would not, individually or in the
aggregate, result in a material adverse change in the condition (financial or
otherwise) business prospects, properties or results of operations of the
Company and its subsidiaries considered as a whole; and no deficiency with
respect to any such return has been assessed or, to the Company's knowledge,
proposed.
(xxiii) No labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the Company's knowledge, is imminent; the
Company is not aware of any existing or imminent labor disturbance by the
employees of any of its principal builders, dealers, suppliers, manufacturers,
contractors, distributors or licensees which might reasonably be expected to
result in a material adverse change in the condition (financial or otherwise),
business prospects or results of operations of the Company and its subsidiaries
considered as whole.
(xxiv) Neither the Company nor any of its officers, directors
or affiliates has (A) taken, directly or indirectly, any action designed to
cause or result in, or that has constituted or might reasonably be expected to
constitute, the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Stock or (B) since the
filing of the Registration Statement (1) sold, bid for, purchased or paid anyone
any compensation for soliciting purchases of, the Stock or (2) paid or agreed to
pay to any person any compensation for soliciting another to purchase any other
securities of the Company.
(xxv) The Company is not, and will not be as a result of the
consummation of the transactions contemplated by this Agreement, an "investment
company" or an entity "controlled" by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.
(xxvi) The Company maintains accurate books and records
reflecting its assets and maintains internal accounting controls that provide
reasonable assurance that (A) transactions are executed with management's
authorization, (B) transactions are recorded as necessary to permit preparation
of financial statements and to maintain accountability for assets, (C) access to
assets is permitted only in accordance with management's
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authorization and (D) the reported accountability of assets is compared with
existing assets at reasonable intervals.
(xxvii) The Company and its subsidiaries carry or are entitled
to the benefits of insurance in such amounts and covering such risks as is
generally maintained by or on behalf of companies of established repute engaged
in the same or similar business, and all such insurance is in full force and
effect.
(xxviii) No transaction has occurred between or among the
Company, its subsidiaries and any of their respective officers, directors or
affiliates or, to the best of the Company's knowledge, any affiliate of any such
officer or director, that is required to be described in the Registration
Statement that is not so described.
(xxix) The Company has not taken and will not take, directly
or indirectly, any action designed to or that could reasonably be expected to
cause or result in the stabilization or manipulation of the price of the Common
Stock and the Company has not distributed and will not distribute any offering
material in connection with the offering and sale of the Stock other than any
preliminary prospectus filed with the Commission or the Prospectus or other
materials, if any, permitted by the Act or the Rules or Regulations.
(xxx) The Company has complied, and will continue to comply,
with all provisions of Section 517.075 of the Florida Statutes (Chapter 92-198,
Laws of Florida).
(b) Any certificate signed by an officer of the Company and delivered
to the Representatives or counsel for the Underwriters shall be deemed a
representation and warranty of the Company to each Underwriter as to the matters
covered thereby.
(c) Representations, Warranties and Agreements of the Selling
Stockholders. Each Selling Stockholder represents and warrants to, and agrees
with, the several Underwriters that:
(i) Such Selling Stockholder has full right, power
and authority to enter into this Agreement and the custody agreement
and power of attorney (the "Custody Agreement"). Such Selling
Stockholder has duly executed and delivered this Agreement. The Custody
Agreement has been duly executed and delivered on behalf of each
Selling Stockholder and the Custody Agreement constitutes the valid and
binding agreement of such Selling Stockholder enforceable against such
Selling Stockholder in accordance with its terms.
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(ii) Such Selling Stockholder has full right, power
and authority to sell, transfer, assign and deliver the Optional Stock
being sold by such Selling Stockholder hereunder. Immediately prior to
the delivery of the shares of Optional Stock being sold by such Selling
Stockholder, such Selling Stockholder was the sole registered owner of
such shares of Optional Stock and had good and valid title to such
shares of Optional Stock, free and clear of all adverse claims as
defined in Section 8-302 of the Uniform Commercial Code and, upon
registration of such shares of Optional Stock in the names of the
Underwriters or their nominees, assuming that such purchasers purchased
such shares of Optional Stock in good faith without notice of any
adverse claims as defined in Section 8-302 of the Uniform Commercial
Code, such purchasers will have acquired all the rights of such Selling
Stockholder in such shares of Optional Stock free of any adverse claim,
any lien in favor of the Company or restrictions on transfer imposed by
the Company.
(iii) The performance of this Agreement and the
Custody Agreement and the consummation of the transactions herein and
therein contemplated will not, with the giving of notice or the passage
of time or both, result in a breach or violation of any of the terms or
provisions of or constitute a default under any statute, rule or
regulation applicable to such Selling Stockholder, or any indenture,
mortgage, deed of trust, note or other agreement or instrument to which
such Selling Stockholder is a party or by which it is bound, or any
judgment, order or decree of any court or governmental agency or body
having jurisdiction over such Selling Stockholder or any of its
properties, or, if such Selling Stockholder is a corporation, the
certificate or articles of incorporation or bylaws of such Selling
Stockholder.
(iv) For a period of 180 days after the date of the
Prospectus, without the prior written consent of Dean Witter Reynolds
Inc., such Selling Stockholder will not offer to sell, contract to
sell, sell, distribute, grant any option to purchase, pledge,
hypothecate or otherwise dispose of or enter into any agreement to
sell, directly or indirectly, any shares of Common Stock, or any
securities convertible into, or exercisable or exchangeable for, shares
of Common Stock, except for (A) the Optional Stock being sold hereunder
or (B) the exercise of outstanding options granted by the Company or
pursuant to any options granted or to be granted pursuant to any
employee or non-employee director stock option plans (but not the sale,
distribution,
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pledge, hypothecation or other disposition of shares of Common Stock
received upon exercise of any such option).
(v) Such Selling Stockholder has duly executed and
delivered the Custody Agreement (A) appointing _________________ and
_______________, and each of them, as attorney-in-fact (the
"Attorneys-in-fact") with authority to execute and deliver this
Agreement on behalf of such Selling Stockholder, to authorize the
delivery of the shares of Optional Stock to be sold by such Selling
Stockholder hereunder and otherwise to act on behalf of such Selling
Stockholder in connection with the transactions contemplated by this
Agreement, and (B) appointing ____________________, as Custodian, to
hold in custody for delivery under this Agreement certificates for the
shares of Optional Stock to be sold by such Selling Stockholder
hereunder.
(vi) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by such Selling Stockholder of the transactions
contemplated by this Agreement, except such as may be required by the
NASD or under the Act or the securities or Blue Sky laws of any
jurisdiction in connection with the purchase and distribution of the
Stock by the Underwriters.
(vii) Such Selling Stockholder has not (A) taken,
directly or indirectly, any action designed to cause or result in, or
that has constituted or might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Stock or (B) since the
filing of the Registration Statement (1) sold, bid for, purchase or
paid anyone any compensation for soliciting purchases of, the Stock or
(2) paid or agreed to pay to any person any compensation for soliciting
another to purchase any other securities of the Company.
(viii) All information furnished or to be furnished
to the Company by or on behalf of such Selling Stockholder for use in
connection with the preparation of the Registration Statement and the
Prospectus, insofar as it relates to such Selling Stockholder, is or
will be true and correct in all respects and, with respect to the
Registration Statement, does not and will not contain an untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and, with respect to the Prospectus, does not
and will not contain any untrue statement of a material fact or omit to
state any
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<PAGE>
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(ix) Nothing has come to such Selling Stockholder's
attention that has caused such Selling Stockholder to believe that (A)
at the time the Registration Statement became effective and at the
Closing Date and the Option Closing Date, it included any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and (B) the Prospectus, at the time the
Registration Statement became effective and as of the Closing Date and
the Option Closing Date (unless the term "Prospectus" refers to a
prospectus which has been provided to the Underwriters by the Company
for use in connection with the offering of the Stock which differs from
the prospectus on file at the Commission at the time the Registration
Statement became effective, in which case at the time it is first
provided to the Underwriters for such use) and at the Closing Date and
the Option Closing Date, the Prospectus will include any untrue
statement of material fact or omit to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
representations, warranties and agreements in this subsection (ix)
shall not apply to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on
behalf of any Underwriter, through the Representatives, specifically
for use in the preparation thereof.
Each Selling Stockholder agrees that the shares of Optional
Stock represented by the certificates held in custody under the Custody
Agreement are for the benefit of, and coupled with and subject to the interests
of, the Underwriters, the other Selling Stockholders and the Company hereunder,
and that the arrangement for such custody and the appointment of the
Attorneys-in-fact are irrevocable; that the obligations of such Selling
Stockholder hereunder shall not be terminated by operation of law, whether by
the death or incapacity of any such Selling Stockholder, or any other event,
that if any of such Selling Stockholder should die or become incapacitated or
any other event occurs, before the delivery of the Optional Stock hereunder,
certificates for the Optional Stock to be sold by such Selling Stockholder shall
be delivered on behalf of such Selling Stockholder in accordance with the terms
and conditions of this Agreement and the Custody Agreement, and action taken by
the Attorneys-in-fact or any of them under the Power of Attorney
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<PAGE>
shall be as valid as if such death, incapacity or other event had not occurred,
whether or not the Custodian, the Attorneys-in-fact or any of them shall have
notice of such death, incapacity or other event.
Each Selling Stockholder further agrees that neither such
Selling Stockholder nor any of its officers, directors or affiliates will (a)
take, directly or indirectly, prior to the termination of the underwriting
syndicate contemplated by this Agreement, any action designed to cause or to
result in, or that might reasonably be expected to constitute, the stabilization
or manipulation of the price of any securities of the Company to facilitate the
sale or resale of any of the shares of the Stock, (b) sell, bid for, purchase or
pay anyone any compensation for soliciting purchases of, the Stock or (c) pay to
or agree to pay any person any compensation for soliciting another to purchase
any other securities of the Company.
3. Purchase by, and Sale and Delivery to, Underwriters; Closing Date.
(a) On the basis of the representations, warranties, covenants and agreements
herein contained, and subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriters the Firm Stock, and subject to the
terms and conditions herein set forth, the Underwriters agree, severally and not
jointly, to purchase from the Company, at the price per share set forth in
Schedule C, the number of shares of Firm Stock set forth opposite their names in
Schedule A, subject to adjustment in accordance with Section 11 hereof.
(b) The Company will deliver the Firm Stock to the Representatives for
the respective accounts of the several Underwriters (in the form of definitive
certificates, issued in such names and in such denominations as the
Representatives may direct by notice in writing to the Company given at or prior
to 12:00 Noon, New York Time, on the business day preceding the Closing Date or,
if no such direction is received, in the names of the respective Underwriters in
the amount set forth opposite each Underwriter's name on Schedule A hereto),
against payment of the purchase price therefor by certified or official bank
check or checks in same day funds, payable to the order of the Company, at the
offices of Brown & Wood LLP, One World Trade Center, New York, New York 10048.
The time and date of delivery and closing shall be at 10:00 A.M., New York Time,
on the third (fourth, if the pricing occurred after 4:30 P.M. New York Time on
any given day) full business day after the date hereof; provided, however, that
such date and/or time may be accelerated or extended by agreement between the
Company and the Representatives or postponed pursuant to the provisions of
Section 11 hereof. The time and date of such payment and delivery are herein
referred to as the "Closing Date". The Company shall make the certificates
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<PAGE>
for the Firm Stock available to the Representatives for examination on behalf of
the Underwriters not later than 10:00 A.M., New York Time, on the business day
preceding the Closing Date at the offices of Dean Witter Reynolds Inc. at Two
World Trade Center, New York, New York 10048.
(c) In addition, for the purpose of covering any over-allotments in
connection with the distribution and sale of the Common Stock as contemplated by
the Prospectus, the Selling Stockholders hereby grant the Underwriters an option
to purchase, severally and not jointly, up to 4,687,500 shares in the aggregate
of the Optional Stock. The purchase price per share to be paid for the Optional
Stock shall be the same price per share as for the Firm Stock, less the amount
of any dividend declared by the Company and payable on the Firm Stock but not
payable on the Optional Stock. The option granted hereby may be exercised as to
all or any part of the Optional Stock at any time and from time to time not more
than 30 days subsequent to the date hereof. If such 30th day shall be a Saturday
or Sunday or a holiday, the option granted hereby shall expire on the next
business day thereafter when the New York Stock Exchange is open for trading. No
Optional Stock shall be sold and delivered unless the Firm Stock previously has
been, or simultaneously is, sold and delivered. The right to purchase the
Optional Stock or any portion thereof may be surrendered and terminated at any
time upon notice by the Representatives to the Company and the Selling
Stockholders.
The option granted hereby may be exercised by the Representatives on
behalf of the Underwriters by giving written notice to the Company and the
Selling Stockholders setting forth the number of shares of the Optional Stock to
be purchased by them and the date and time for delivery of and payment for the
Optional Stock. Such date and time for delivery of and payment for the Optional
Stock (which may be the Closing Date) is herein called the "Option Closing Date"
and shall be not less than three nor later than ten days after written notice is
given. [All purchases of Optional Stock from the Selling Stockholders shall be
made on a pro rata basis.] Optional Stock shall be purchased for the account of
each Underwriter in the same proportion as the number of shares of Common Stock
set forth opposite such Underwriter's name in Schedule A hereto bears to the
total number of shares of Firm Stock (subject to adjustment by the
Representatives to eliminate odd lots). Upon exercise of the option by the
Representatives, the Selling Stockholders agree to sell to the Underwriters the
number of shares of Optional Stock set forth in the written notice of exercise
and the Underwriters agree, severally and not jointly, subject to the terms and
conditions herein set forth, to purchase such shares of Optional Stock.
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<PAGE>
The Selling Stockholders will deliver the Optional Stock to the
Representatives for the respective accounts of the several Underwriters (in the
form of definitive certificates, issued in such names and in such denominations
as the Representatives may direct by notice in writing to the Company and the
Selling Stockholders given at or prior to 12:00 Noon, New York Time, on the
business day preceding the Option Closing Date or, if no such direction is
received, in the names of the respective Underwriters), against payment of the
purchase price therefor by certified or official bank check or checks in same
day funds, payable to the order of the _______________ as custodian for the
Selling Stockholders at the offices of Brown & Wood LLP, One World Trade Center,
New York, New York 10048. The Selling Stockholders shall make the certificates
for the Optional Stock available to the Representatives for examination on
behalf of the Underwriters not later than 10:00 A.M., New York Time, on the
business day preceding the Option Closing Date at the offices of Dean Witter
Reynolds Inc. at Two World Trade Center, New York, New York 10048.
(d) It is understood that Dean Witter Reynolds Inc., individually and
not as Representatives of the several Underwriters, may (but shall not be
obligated to) make payment to the Company or the Selling Stockholders on behalf
of any Underwriter or Underwriters, for the Stock to be purchased by such
Underwriter or Underwriters. Any such payment by Dean Witter Reynolds Inc. shall
not relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.
The several Underwriters propose to make an initial public offering of
the Firm Stock at the initial public offering price and the Representatives
shall promptly advise the Company of the making of the initial public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the several Underwriters that:
(a)(i) If the Company elects to rely on Rule 434 under the
Rules and Regulations, the Company will prepare a Term Sheet that
complies with the requirements of Rule 434 under the Rules and
Regulations and the Company will provide the Underwriters with copies
of such Term Sheet and the form of prospectus used in reliance on Rule
434, in such number as the Underwriters may reasonably request. The
Company will timely file the Term Sheet with the Commission pursuant to
and in accordance with subparagraph (7) of Rule 424(b). The Company
will advise the Underwriters promptly of any such filing pursuant to
Rule 424(b) and shall provide evidence satisfactory to the Underwriters
of such timely filing.
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<PAGE>
(ii) If the Company elects not to rely on Rule 434, the
Company will provide the Underwriters with copies of the form of
Prospectus, in such number as the Underwriters may reasonably request,
and file or transmit for filing with the Commission such Prospectus in
accordance with Rule 424(b) of the Rules and Regulations by the close
of business in New York on the business day immediately succeeding the
date of the Pricing Agreement.
(b) The Company will advise the Underwriters promptly as to
when the Prospectus, and any supplement thereto, shall have been filed
(if required) with the Commission pursuant to Rule 424(b). The Company
will advise the Representatives promptly of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for
that purpose, and will use its best efforts to prevent the issuance of
any such stop order and to obtain as soon as possible the lifting
thereof, if issued.
(c) The Company will advise the Representatives promptly of
any request by the Commission for any amendment of or supplement to the
Registration Statement or the Prospectus or for additional information,
and will not at any time file any amendment to the Registration
Statement or supplement to the Prospectus that shall not previously
have been submitted to the Representatives a reasonable time prior to
the proposed filing thereof or to which the Representatives shall
reasonably object in writing within a reasonable time after receipt
thereof or which is not in compliance with the Act and the Rules and
Regulations.
(d) The Company will prepare and file with the Commission,
promptly upon the request of the Representatives, any amendments or
supplements to the Registration Statement or the Prospectus that in the
opinion of the Representatives may be necessary to enable the several
Underwriters to continue the distribution of the Stock and will use its
best efforts to cause the same to become effective as promptly as
possible. The Company will promptly file all reports and any definitive
proxy or information statements required to be filed with the
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act
subsequent to the date of the Prospectus and for so long as the
delivery of a prospectus is required in connection with the offering or
sale of the stock.
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<PAGE>
(e) If at any time after the effective date of the
Registration Statement when a prospectus relating to the Stock is
required to be delivered under the Act any event relating to or
affecting the Company or any of its subsidiaries occurs or has occurred
as a result of which the Prospectus would include an untrue statement
of a material fact or omit to state any material fact necessary to make
the statements therein, in the light of the circumstances under which
they were made, not misleading, or if it is necessary at any time to
amend the Prospectus to comply with the Act, the Company will promptly
notify the Representatives thereof and will prepare an amended or
supplemented prospectus (in form and substance satisfactory to counsel
to the Underwriters) that will correct such statement or omission or
effect such compliance; and, in case any Underwriter is required to
deliver a prospectus relating to the Stock nine months or more after
the effective date of the Registration Statement, the Company upon the
request of the Representatives and at the expense of such Underwriter
will prepare promptly such prospectus or prospectuses as may be
necessary to permit compliance with the requirements of Section
10(a)(3) of the Act.
(f) The Company will deliver to the Representatives and
counsel to the Underwriters, at or before the Closing Date, signed
copies of the Registration Statement and all amendments thereto
including all financial statements and exhibits thereto, and will
deliver to the Representatives such number of copies of the
Registration Statement, including such financial statements but without
exhibits, and of all amendments thereto, as the Representatives may
reasonably request. If the Registration Statement has not been declared
effective prior to the execution and delivery of this Agreement, the
Company will deliver or mail to or upon the order of the Underwriters,
from time to time until the effective date of the Registration
Statement, as many copies of the Preliminary Prospectus as the
Underwriters may reasonably request. The Company will deliver or mail
to or upon the order of the Representatives on the date of the initial
public offering, and thereafter from time to time during the period
when delivery of a prospectus relating to the Stock is required under
the Act, as many copies of the Prospectus (including any Term Sheet),
in final form or as thereafter amended or supplemented as the
Representatives may reasonably request; provided, however, that the
expense of the preparation and delivery
20
<PAGE>
of any prospectus required for use nine months or more after the
effective date of the Registration Statement shall be borne by the
Underwriters required to deliver such prospectus.
(g) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 60 days
after the close of the period covered thereby, an earnings statement
(in form complying with the provisions of Rule 158 under the Act) which
will be in reasonable detail (but which need not be audited) and which
will comply with Section 11(a) of the Act, covering a period of at
least twelve months beginning not later than the first day of the
Company's fiscal quarter next following the "effective date" (as
defined in Rule 158) of the Registration Statement.
(h) The Company will cooperate with the Representatives to
enable the Stock to be qualified for sale under the securities laws of
such jurisdictions as the Representatives may designate and at the
request of the Representatives will make such applications and furnish
such information as may be required of it as the issuer of the Stock
for that purpose; provided, however, that the Company shall not be
required to qualify to do business or to file a general consent to
service of process in any such jurisdiction. The Company will, from
time to time, prepare and file such statements and reports as are or
may be required of it as the issuer of the Stock to continue such
qualifications in effect for so long a period as the Representatives
may reasonably request for the distribution of the Stock. The Company
will advise the Underwriters promptly of the receipt by the Company of
any notification with respect to the suspension of the qualification of
the Stock for sale in any jurisdiction or the initiation or, if known
to the Company, threatening of any proceeding for such purpose.
(i) The Company will furnish to its stockholders annual
reports containing financial statements certified by independent public
accountants and shall also furnish quarterly summary financial
information in reasonable detail which may be unaudited. During the
period of five years from the date hereof, the Company will deliver (i)
to the Representatives and, upon request, to each of the other
Underwriters, copies of each annual report of the Company and each
other report furnished by the Company to its stockholders; and
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<PAGE>
(ii) to the Representatives, as soon as they are available, (A) copies
of any other reports (financial or other) which the Company shall
publish or otherwise make available to any of its security holders as
such, and (B) copies of any reports and financial statements furnished
to or filed with the Commission or any national securities exchange or
the NASD. So long as the Company has active subsidiaries, such
financial statements will be on a consolidated basis to the extent the
accounts of the Company and its subsidiaries are consolidated in
reports furnished to its stockholders generally. Separate financial
statements shall be furnished for all subsidiaries whose accounts are
not consolidated but that at the time are significant subsidiaries as
defined in the applicable Rules and Regulations.
(j) The Company will file with the Nasdaq National Market all
documents and notices required by the Nasdaq National Market of
companies that have issued securities that are traded in the
over-the-counter market and quotations for which are reported by Nasdaq
National Market.
(k) The Company will use the net proceeds received by
it from the sale of the Stock in the manner specified in the
Prospectus under "Use of Proceeds".
(l) The Company will file with the Commission such reports on
Form SR as may be required pursuant to Rule 463 under the Act.
(m) During a period of 180 days from the date of the Pricing
Agreement, the Company will not, without prior written consent of Dean
Witter Reynolds Inc., directly or indirectly, sell, offer to sell,
contract to sell, issue distribute, grant any option for the sale of,
or otherwise dispose of any shares of Common Stock or any security
convertible into, or exercisable or exchangeable for, shares of Common
Stock or register for sale under the Act any shares of Common Stock.
(n) At the time this Agreement is executed, the Company shall
have furnished to the Representatives a letter from each of its current
executive officers and directors and the persons listed on Schedule B
hereto addressed to the Representatives, in which each such person
agrees not to sell, offer to sell, contract to sell or otherwise
dispose of or enter any agreement to sell, directly or indirectly, or
announce an offering of, or cause the Company to register
22
<PAGE>
for sale under the Act any shares of Common Stock beneficially owned by
such person or any securities convertible into, or exercisable or
exchangeable for, shares of Common Stock for a period of 180 days
following the date of the Pricing Agreement without the prior written
consent of the Dean Witter Reynolds Inc.
5. Payment of Expenses. Whether or not the transactions thereunder are
consummated or this Agreement is otherwise terminated, the Company will pay
(directly or by reimbursement) all expenses incident to the performance of its
obligations under this Agreement, including but not limited to all expenses and
taxes incident to delivery of the Stock to the Representatives, all expenses
incident to the registration of the Stock under the Act and the printing of
copies of the Registration Statement, each Preliminary Prospectus, the
Prospectus, any amendments or supplements thereto including any Term Sheet, the
"Blue Sky" memorandum and this Agreement and furnishing the same to the
Underwriters and dealers except as otherwise provided in Sections 4(e) and 4(f),
the fees and disbursements of the Company's counsel and accountants, all fees
and expenses (including legal fees and disbursements of counsel for the
Underwriters) incurred in connection with qualification of the Stock for sale
under the laws of such jurisdictions as the Representatives may designate, all
fees and expenses (including legal fees and disbursements of counsel for the
Underwriters) paid or incurred in connection with filings made with the National
Association of Securities Dealers, Inc. (the "NASD"), the fees and expenses
incurred in connection with the listing of the Stock on the Nasdaq National
Market, the costs of preparing stock certificates, the costs and fees of any
registrar or transfer agent and all other costs and expenses incident to the
performance of its obligations hereunder which are not otherwise specifically
provided for in this Section.
If this Agreement is terminated by the Representatives in accordance
with the provisions of Section 3 or Section 8 hereof, the Company shall
reimburse the Underwriters for all of their out-of-pocket expenses, including
the fees and disbursements of Brown & Wood LLP, counsel for the Underwriters.
6. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Underwriter, each of its employees, officers,
directors and agents, and each person, if any, who controls any Underwriter
within the meaning of the Act, against any losses, claims, damages, liabilities
or expenses (including the reasonable cost of investigating and defending
against any claims therefor and counsel fees incurred in connection therewith),
joint or several, as incurred, which may be based upon the Act, or any other
federal or state statute or at common law or otherwise, arising out of any
untrue statement
23
<PAGE>
or alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereto, including the information deemed to be part
of the Registration Statement pursuant to Rule 430A(b) or Rule 434 of the Rules
and Regulations, if applicable, or the omission or alleged omission therefrom of
a material fact required to be stated therein or necessary to make the
statements therein not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto (including
any Term Sheet) or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or in based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made
therein in reliance upon and in conformity with written information furnished to
the Company by such Underwriter, directly or through the Representatives,
specifically for inclusion therein. Notwithstanding the foregoing, the Company
shall not be liable with respect to any claims made against any Underwriter or
any other indemnified person under this subsection unless such Underwriter or
indemnified person shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Underwriter or indemnified person (such notification by an Underwriter shall
suffice as notification on behalf of its officers, directors, employees, agents
and controlling persons); provided, however, that failure to notify the Company
of any such claim shall not relieve it from any liability hereunder to the
extent it is not materially prejudiced as a result thereof and in any event
shall not relieve it from any liability which it may have to such Underwriter or
other indemnified person otherwise than on account of the indemnity agreement
contained in this Section 6(a).
The Company shall be entitled to participate at its own expense in the
defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if the Company elects to assume the defense,
such defense shall be conducted by counsel chosen by it and satisfactory to such
Underwriter or indemnified person, as the case may be. In the event the Company
elects to assume the defense of any such suit and retain such counsel, the
Underwriter or Underwriters or other indemnified person or persons, defendant or
defendants in the suit, may retain additional counsel but shall bear the fees
and expenses of such counsel unless (i) the Company shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
include such Underwriter or Underwriters or
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other indemnified person or persons, and such Underwriter or Underwriters or
other indemnified person or persons have been advised by counsel that one or
more legal defenses may be available to it or them that may not be available to
the Company, in which case the Company shall not be entitled to assume the
defense of such suit notwithstanding its obligation to bear the fees and
expenses of such counsel and the Underwriters shall be entitled to use separate
legal counsel (provided that the Company shall not be liable for the fees and
expenses of more than one separate law firm (in addition to any local counsel)
for the Underwriters. The Company will not, without the prior written consent of
each Underwriter, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not such Underwriter
or other indemnified party is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent (i) includes an
unconditional release of such Underwriter and each such other indemnified person
or persons from all liability arising out of such claim, action, suit or
proceeding and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act by or on behalf of any indemnified party. The
Company agrees that a breach of the preceding sentence shall cause irreparable
harm to the Underwriters and that the Underwriters shall be entitled to
injunctive relief from any appropriate court ordering specific performance of
said provision. This indemnity agreement will be in addition to any liability
that the Company might otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter, each employee, officer, partner,
director and agent of the Underwriter and each person, if any, who controls such
Underwriter with the meaning of the Act, against any losses, claims, damages,
liabilities or expenses (including the reasonable cost of investigating and
defending against any claims therefor and counsel fees incurred in connection
therewith), joint or several, as incurred, which may be based upon the Act, or
any other statute or at common law, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement (or any amendment thereto), including the information deemed to be
part of the Registration Statement pursuant to Rule 430A(b) of the Rules and
Regulations, if applicable, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Prospectus (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of a
25
<PAGE>
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, unless such
statement or omission was made in reliance upon, and in conformity with, written
information furnished to the Company by such Underwriter, through the
Representatives, specifically for use in the preparation thereof; provided,
however, that such Selling Stockholder shall not be liable with respect to any
claims made against any Underwriter or any such employee, officer, partner,
director or agent or any such controlling person under this subsection unless
such Underwriter or employee, officer, partner, director or agent or controlling
person shall have notified such Selling Stockholder in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Underwriter or employee or agent or controlling person (such notification by an
Underwriter shall suffice as notification on behalf of its officers, partners,
directors, employees, agents or controlling persons), but failure to notify such
Selling Stockholder of such claim shall not relieve such Selling Stockholder
from any liability which such Selling Stockholder may have to such Underwriter
or employee or agent or controlling person otherwise than on account of its
indemnity agreement contained in this Section 6(b); and provided, further, that
each Selling Stockholder shall only be liable under this paragraph for that
proportion of any such losses, claims, damages, liabilities or expenses which
the number of shares of the Optional Stock set forth opposite his name in
Schedule B hereto bears to the total number of shares of Stock sold hereunder
and in no event shall such liability exceed the net proceeds received by such
Selling Stockholder from the sale of Stock hereunder.
Such Selling Stockholder shall be entitled to participate at his own
expense in the defense, or, if he so elects, to assume the defense of any suit
brought to enforce any such liability, but, if such Selling Stockholder elects
to assume the defense, such defense shall be conducted by counsel chosen by him
and reasonably satisfactory to such Underwriter or indemnified person, as the
case may be. In the event that any Selling Stockholder elects to assume the
defense of any such suit and retain such counsel, the Underwriter or
Underwriters or other indemnified person or persons, defendant or defendants in
the suit, may retain additional counsel but shall bear the fees and expenses of
such counsel. unless (i) such Selling Stockholder shall have specifically
authorized the retaining of such counsel or (ii) the parties to such suit
include such Underwriter or Underwriters or other indemnified person or persons
and such Selling Stockholder and such Underwriter or Underwriters or other
indemnified person or persons have been advised by counsel that one or more
legal defenses may be available to it or them which may not be available to such
Selling Stockholder, in which case such Selling Stockholder shall not be
entitled to assume the defense of such suit notwithstanding its obligation to
bear the fees an expenses of such counsel.
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(c) Each Underwriter severally agrees to indemnify and hold harmless
the Company, each of its directors, each of its officers who have signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Act [and each Selling Stockholder and each person, if any,
who controls a Selling Stockholder within the meaning of the act,] against any
losses, claims, damages, liabilities or expenses (including the reasonable cost
of investigating and defending against any claims therefor and counsel fees
incurred in connection therewith), joint or several, as incurred, which may be
based upon the Act, or any other federal or state statute or at common law, or
otherwise, arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereto,
including the information deemed to be part of the Registration Statement
pursuant to Rule 430A(b) or Rule 434 of the Rules and Regulations, if
applicable, or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue statement of
a material fact contained in any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto or the omission or alleged omission therefrom of
a material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading, but only
insofar as any such statement or omission was made in reliance upon, and in
conformity with, written information furnished to the Company by such
Underwriter, through the Representatives specifically for use in the preparation
thereof. Notwithstanding the foregoing, in no case is an Underwriter to be
liable with respect to any claims made against the Company or any indemnified
person against whom the action is brought unless the Company or such indemnified
person shall have notified such Underwriter in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon the Company or such indemnified person;
provided, however, that failure to notify such Underwriter of such claim shall
not relieve it from any liability hereunder to the extent such Underwriter is
not materially prejudiced as a result thereof and in any event shall not relieve
it from any liability which it may have to the Company or such person otherwise
than on account of its indemnity agreement contained in this Section 6(c).
Such Underwriter shall be entitled to participate at its own expense in
the defense, or, if it so elects, to assume the defense of any suit brought to
enforce any such liability, but, if such Underwriter elects to assume the
defense, such defense shall be conducted by counsel chosen by it and reasonably
satisfactory to the Company or such person, as the case may be. In the event
that any Underwriter elects to assume the defense of any such suit and retain
such counsel, the Company, officers and directors and any other Underwriter or
Underwriters or employee or employees or agent or agents or controlling person
or persons, defendant or defendants in the suit, shall bear the fees and
expenses of any additional counsel retained by them,
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respectively. The Underwriter against whom indemnity may be sought shall not be
liable to indemnify any person for any settlement of any such claim effected
without such Underwriter's consent. This indemnity agreement will be in addition
to any liability which such Underwriter might otherwise have.
(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
subsection (a), (b) or (c) above in respect of any losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to herein, then
each indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) as incurred, in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders, on the one hand, and the Underwriters, on the other, from
the offering of the Stock. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party, as incurred, in such proportion as is appropriate to reflect
not only such relative benefits but also the relative fault of the Company and
the Selling Stockholders, on the one hand, and the Underwriters, on the other,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or expenses (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders, on the one hand, and the
Underwriters, on the other, shall be deemed to be in the same proportion as the
total net proceeds from the offering (before deducting expenses) received by the
Company and the Selling Stockholders bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in the
table on the cover page of the Prospectus or if Rule 434 is used, the
corresponding location in the Term Sheet. The relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company or the Underwriters
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company, the
Selling Stockholders and the Underwriters agree that it would not be just and
equitable if contribution were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or expenses (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such claim. Notwithstanding the provisions of
this subsection (d), no Underwriter shall be required to contribute any amount
in excess
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of the amount by which the total price at which the shares of the Stock
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) as decided by a court of competent
jurisdiction shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability that the Company may otherwise have and shall extend,
upon the same terms and conditions, to each person, if any, who controls the
Company within the meaning of the Act; the obligations of the Underwriters under
this Section 6 shall be in addition to any liability that the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the respective Underwriter and to
each person, if any, who controls the respective Underwriter within the meaning
of the Act; and the obligations of any Selling Stockholder under this Section 6
shall be in addition to any liability that such Selling Stockholder may
otherwise have and shall extend, upon the same terms and conditions, to each
person, if any, who controls such Selling Stockholder within the meaning of the
Act.
7. Survival of Indemnities, Representations, Warranties, etc. The
respective indemnities, covenants, agreements, representations, warranties and
other statements of the Company, the Selling Stockholders and the several
Underwriters, as set forth in this Agreement or made by them respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless of
any investigation made by or on behalf of any Underwriter, the Selling
Stockholders, the Company or any of its officers or directors or any controlling
person, and shall survive delivery of and payment for the Stock and termination
of this Agreement.
8. Conditions of Underwriters' Obligations. The respective obligations
of the Underwriters hereunder to purchase and pay for the Firm Stock on the
Closing Date and the Optional Stock on the Option Closing Date shall be subject
to the accuracy, at and (except as otherwise stated herein) as of the date
hereof and the Closing Date or the Option Closing Date, as the case may be, of
the representations and warranties made herein by the Company and the Selling
Stockholders, of the statements of the Company's officers or directors in any
certificate furnished pursuant to the provisions hereof, to compliance at and as
of such Closing Date by the Company and the Selling Stockholders with its
covenants and agreements herein contained and other provisions hereof to be
satisfied at or prior to such Closing Date, and to the following additional
conditions:
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(a) The Registration Statement, including any Rule 162(b)
Registration Statement, has become effective. The Prospectus containing
the Rule 430A Information and any amendment or supplement thereto
(including any Term Sheet) shall have been filed with the Commission
pursuant to Rule 424(b) within the applicable time period prescribed
for such filing in accordance with Section 4(a) of this Agreement and
before the Closing Date the Company shall have provided evidence
satisfactory to the Representatives of such timely filing. No stop
order suspending the effectiveness of the Registration Statement shall
have been issued and no proceedings for that purpose shall have been
initiated or, to the knowledge of the Company or the Representatives,
threatened by the Commission, and any request for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the reasonable satisfaction of the Representatives.
(b) There shall not have come to the attention of the
Representatives any facts that would cause them to believe that the
Prospectus, at the time it was required to be delivered to a purchaser
of the Stock, contained an untrue statement of a material fact or
omitted to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(c) At the time of execution of this Agreement, the
Representatives shall have received from Coopers & Lybrand LLP a
letter, dated the date of such execution, in form and substance
previously approved by the Representatives, and to the effect that:
(i) They are independent certified public accountants
with respect to Pre-Merger CareMatrix, Old Standish and the Company and
its subsidiaries, within the meaning of the Act and the Rules and
Regulations;
(ii) In their opinion, the combined financial
statements and supporting schedules of Pre-Merger CareMatrix audited by
them and included in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of
the Act and the related published Rules and Regulations thereunder and,
if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited combined interim financial statements, selected
financial data, pro forma financial information and prospective
financial statements derived from audited financial statements of the
Company for the periods specified in such letter, as indicated in their
reports thereon, copies of which have been furnished to the
Representatives;
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(iii) The unaudited selected financial information
with respect to the combined results of operations and financial
position of Pre-Merger CareMatrix for the two most recent fiscal years
included in the Prospectus agrees with the corresponding amounts (after
restatement where applicable) in the audited combined financial
statements for the two such fiscal years;
(iv) On the basis of limited procedures, not
constituting an audit, including a review of the latest interim
unaudited financial statements of Pre-Merger CareMatrix, a reading of
the minutes of meetings of the boards of directors, executive
committees and stockholders of (x) each of the twelve affiliated
corporations controlled by Abraham Gosman and members of his family
combined to form Pre-Merger CareMatrix and (y) the Company, inquiries
of officials of both Pre-Merger CareMatrix and the Company responsible
for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their
attention that caused them to believe that:
(A) the unaudited combined statements of operations
and stockholders' deficit, combined balance sheets and
combined statements of cash flows of Pre- Merger CareMatrix
included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements
of the Act and the related published rules and regulations
thereunder, or are not in conformity with generally accepted
accounting principles applied on a basis substantially
consistent with the basis for the audited combined statements
of operations and stockholders' deficit, combined balance
sheets and combined statements of cash flows of Pre-Merger
CareMatrix included in the Prospectus;
(B) any other unaudited income statement data and
balance sheet items of Pre-Merger CareMatrix included in the
Prospectus do not agree with the corresponding items in the
unaudited combined financial statements of Pre-Merger
CareMatrix from which such data and items were derived, and
any such unaudited data and items were not determined on a
basis substantially consistent with the basis for the
corresponding amounts in the audited combined financial
statements included in the Prospectus;
(C) as of a specified date not more than three days
prior to the date of such letter, there has been any change in
the combined capital stock of the Company or any increase in
the combined long-term debt of the Company, any decreases in
the total assets of the Company or any decreases in
stockholders' equity of the Company, in each case as compared
with amounts shown in
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the latest pro forma combined balance sheet of the Company
included in the Prospectus, except in each case for changes,
increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter;
and
(D) for the period from the date of the latest pro
forma combined financial statements of the Company included in
the Prospectus to the specified date referred to in Clause (C)
there was any increase in the total or per share amounts of
combined loss of the Company or increases or decreases in
other items specified by the Representatives, in each case as
compared with the comparable period of the preceding year and
with any other period of corresponding length specified by the
Representatives, except in each case for increases or
decreases which the Prospectus discloses have occurred or may
occur or which are described in such letter;
(v) In addition to the examination referred to in
their reports included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (iii) and (iv) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information related to Pre-Merger
CareMatrix and specified by the Representatives which are derived from
the general accounting records of Pre-Merger CareMatrix, which appear
in the Prospectus or in Part II of, or in exhibits and schedules to,
the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of Pre- Merger CareMatrix and have found
them to be in agreement;
(vi) In their opinion, the consolidated financial
statements and supporting schedules of Old Standish audited by them and
included in the Registration Statement comply as to form in all
material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations thereunder and, if
applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited consolidated interim financial statements, selected
financial data, pro forma financial information and prospective
financial statements derived from audited financial statements of Old
Standish for the periods specified in such letter, as indicated in
their reports thereon, copies of which have been furnished to the
Representatives;
(vii) The unaudited selected financial
information with respect to the consolidated results of
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operations and financial position of Old Standish for the five most
recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatement where applicable) in the
audited consolidated financial statements of Old Standish for the five
such fiscal years;
(viii) On the basis of limited procedures, not
constituting an audit, including a review of the latest interim
unaudited financial statements of Old Standish, a reading of the
minutes of meetings of the boards of directors, executive committees
and stockholders of Old Standish, inquiries of officials of Old
Standish responsible for financial and accounting matters and such
other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) the unaudited consolidated statements of
operations, consolidated balance sheets and consolidated
statements of cash flows of Old Standish included in the
Prospectus do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder, or are not
in conformity with generally accepted accounting principles
applied on a basis substantially consistent with the basis for
the audited consolidated statements of operations,
consolidated balance sheets and combined statements of cash
flows of Old Standish included in the Prospectus; and
(B) any other unaudited income statement data and
balance sheet items of Old Standish included in the Prospectus
do not agree with the corresponding items in the unaudited
consolidated financial statements of Old Standish from which
such data and items were derived, and any such unaudited data
and items were not determined on a basis substantially
consistent with the basis for the corresponding amounts in the
audited consolidated financial statements of Old Standish
included in the Prospectus;
(ix) In addition to the examination referred to in
their reports included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures referred to
in paragraphs (vii) and (viii) above, they have carried out certain
specified procedures, not constituting an examination in accordance
with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the
Representatives which are derived from the general accounting records
of Old Standish and its subsidiaries, which appear in the Prospectus or
in Part II of, or in exhibits and schedules to, the Registration
Statement specified by the Representatives, and have compared certain
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of such amounts, percentages and financial information with the
accounting records of Old Standish and have found them to be in
agreement;
(x) On the basis of a reading of the unaudited
combined pro forma financial statements of the Company included in the
Registration Statement and the Prospectus, carrying out certain
specified procedures and inquiries of certain officials of Pre-Merger
CareMatrix, Old Standish and the Company and its subsidiaries who have
responsibility for financial and accounting matters, and proving the
arithmetic accuracy of the application of the pro forma adjustments to
the historical amounts in the combined financial statements of
Pre-Merger CareMatrix and the consolidated financial statements of Old
Standish, nothing came to their attention that caused them to believe
that the unaudited combined pro forma financial statements of the
Company do not comply as to form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X or
that the pro forma adjustments have not been properly applied to the
historical amounts in the compilation of such statements.
(d) The Representatives shall have received from Coopers &
Lybrand LLP a letter, dated the Closing Date, to the effect that such
accountants reaffirm, as of such Closing Date, and as though made on
such Closing Date, the statements made in the letter furnished by such
accountants pursuant to paragraph (c) of this Section 8, except that
the specified date will be a date not more than three business days
prior to the Closing Date.
(e) The Representatives shall have received from Nutter,
McClennen & Fish LLP, counsel for the Company, an opinion dated the
Closing Date, to the effect that:
(i) The Company has been duly incorporated and is
validly existing and in good standing as a corporation under the laws
of the State of Delaware, with the corporate power and authority to own
or lease its properties and to conduct its businesses as described in
the Prospectus; and the Company is duly qualified to do business and in
good standing as a foreign corporation in all other jurisdictions where
its ownership or leasing of properties or the conduct of its business
requires such qualification, except where the failure to be duly
qualified or to be in good standing would not have a material adverse
effect on the Company and its subsidiaries considered as a whole.
(ii) Each of the Company's subsidiaries has been duly
organized and is validly existing and in good standing as a corporation
under the laws of its jurisdiction of organization, with the corporate
power and authority to own or lease its properties and to conduct its
businesses as described in the Prospectus; and each of the Company's
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subsidiaries is duly qualified to do business and in good standing as a
foreign corporation in all jurisdictions where its ownership or leasing
of properties or the conduct of its business requires such
qualification, except where the failure to be duly qualified or to be
in good standing would not have a material adverse effect on the
Company and its subsidiaries considered as a whole.
(iii) The Company has an authorized capital stock as
set forth under the heading "Description of Capital Stock" in the
Prospectus; the issued and outstanding shares of Common Stock
(including the outstanding shares of the Stock) conform as to legal
matters to the description thereof in the Prospectus and have been duly
authorized and validly issued and are fully paid and nonassessable; the
stockholders of the Company have no preemptive rights with respect to
any shares of capital stock of the Company and none of the issued
shares of Common Stock have been issued in violation of any preemptive
rights; and all outstanding shares of capital stock of each subsidiary
of the Company have been duly authorized and validly issued, and are
fully paid and nonassessable and to such counsel's knowledge, are owned
directly by the Company or by one of its wholly owned subsidiaries free
and clear of any liens, encumbrances, equities or claims.
(iv) The Stock to be issued and sold by the Company
to the Underwriters under this Agreement has been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued and fully paid and
nonassessable and will conform as to legal matters to the description
thereof in the Prospectus; the certificates evidencing the Stock comply
with all applicable requirements of Delaware law.
(v) The Common Stock has been approved for listing on
the Nasdaq National Market. The Registration Statement on Form 8-A
relating to the Common Stock has become effective under the Securities
Exchange Act of 1934, as amended.
(vi) To the best of such counsel's knowledge, there
are no legal or governmental proceedings pending or threatened [other
than those set forth under "Business -- Legal Proceedings" in the
Prospectus] to which the Company or any subsidiary is a party or of
which any property of the Company is the subject, which individually or
in the aggregate are material; and to the best of such counsel's
knowledge no such proceedings are threatened by governmental
authorities or others.
(vii) This Agreement have been duly authorized,
executed and delivered by the Company.
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(viii) The performance of this Agreement and the
consummation of the transactions herein contemplated will not, with the
giving of notice or passage of time or both, result in a breach or
violation of any of the terms or provisions of or constitute a default
under any statute, rule or regulation applicable to the Company or any
of its subsidiaries (other than the securities or Blue Sky laws of any
jurisdiction, as to which such counsel need not express an opinion),
any contract, indenture, mortgage, deed of trust, loan agreement, note,
lease or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which it is bound, the Company's or
any such subsidiary's Certificate or Articles of Incorporation or
Bylaws, or, to the knowledge of such counsel after due inquiry, any
judgment, order or decree of any court or governmental agency or body
having jurisdiction over the Company or any of its subsidiaries or any
of their respective properties.
(ix) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by the Company of the transactions contemplated by this
Agreement, except such as may be required by the NASD or under the Act
or the securities or Blue Sky laws of any jurisdiction in connection
with the purchase and distribution of the Stock by the Underwriters.
(x) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no
stop order suspending the effectiveness thereof has been issued and no
proceedings for that purpose have been instituted or are pending or
contemplated under the Act.
(xi) The Registration Statement and the Prospectus
and each amendment or supplement thereto (including any Term Sheet)
(other than the financial statements and related schedules and other
financial or statistical information therein, as to which such counsel
need express no opinion), as of their respective effective or issue
dates and as of the Closing Date, complied as to form in all material
respects with the requirements of the Act and the respective Rules and
Regulations.
(xii) The descriptions in the Registration Statement
and the Prospectus of statutes, legal and governmental proceedings or
contracts and other documents are fair summaries thereof and fairly
present the information required to be shown; and such counsel does not
know of any statutes or legal or governmental proceedings required to
be described in the Registration Statement or the Prospectus that are
not described as required or of any contracts or documents of a
character required to be described in the Registration Statement or
Prospectus or to
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<PAGE>
be filed as exhibits to the Registration Statement which are
not described and filed as required.
(xiii) Except as described in the Registration
Statement and except as would not, singly or in the aggregate, result
in a material adverse effect on the Company and its subsidiaries
considered as a whole, to the best of our knowledge, none of the
Company or any of its subsidiaries is in violation of any federal,
state, local or foreign statute, law, rule, regulation, ordinance,
code, policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum
or petroleum products (collectively, "Hazardous Materials") or to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials.
(xiv) Each of Pre-Merger CareMatrix and Old Standish
has obtained all necessary consents and approvals from third parties
(including pursuant to all Agreements and Instruments (as defined
below)) and had as of September 27, 1996, the effective date of the
Merger (as defined below), the legal right, power and authority to
enter into and consummate the merger of Pre-Merger CareMatrix and Old
Standish (the "Merger"). The execution, delivery and performance by
each of Pre-Merger CareMatrix and Old Standish of the agreements,
certificates, assignments and filings relating to the Merger, the
consummation of the transactions contemplated thereby and compliance by
Pre- Merger CareMatrix and Old Standish with their respective
obligations thereunder were duly authorized by all necessary corporate
and stockholder action by Pre-Merger CareMatrix and Old Standish,
respectively, constitute legal, valid and binding obligations of
Pre-Merger CareMatrix and Old Standish, respectively, and do not and
will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of or default under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of any of Pre-Merger
CareMatrix, Old Standish or the Company or any of its subsidiaries
pursuant to, any material contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument
(together, "Agreements or Instruments") (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that would not
result in a material adverse effect on the Company and its subsidiaries
considered as a
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whole), nor will such action result in any violation of the provisions
of the charter or by-laws of the Company or any of its subsidiaries or
any applicable law, statute, rule, regulation, judgment, order, writ or
decree of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its
subsidiaries or any of their assets, properties or operations. All
filings, authorizations, approvals, consents, orders, registrations or
decrees of any governmental authority or agency relating to the Merger
were obtained. The Merger became effective in compliance with all
applicable laws and all of Pre-Merger CareMatrix's properties,
franchises, licenses, permits, approvals, registrations, leases, title
to properties and other rights have been duly transferred to, are held
by and have vested in the Company (directly or indirectly through a
wholly-owned subsidiary) by operation of law. None of the stockholders
of Pre-Merger CareMatrix or Old Standish have or had any dissenter's
rights as a result of the Merger.
(xv) The Company is not, and will not be as a result
of the consummation of the transactions contemplated by this Agreement,
an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(xvi) To the knowledge of such counsel, except as
disclosed in the Prospectus, no holders of securities of the Company
have rights to the registration of such securities under the
Registration Statement.
In addition, such counsel shall state that nothing came to their
attention that caused them to believe that (a) the Registration Statement (other
than the financial statements and schedules and the other financial and
statistical data therein, as to which they need express no belief), at the time
the Registration Statement became effective, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, or (b) the
Prospectus (other than the financial statements and schedules and the other
financial and statistical data therein, as to which they need express no
belief), on the date of such Prospectus and at the Closing Date, contained or
contains any untrue statement of a material fact or omitted or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The opinion of such counsel shall be limited to the laws of the United
States of America and the State of New York and the corporate law of the State
of Delaware.
(f) The Representatives shall have received from
Nutter, McClennen & Fish LLP, counsel for the Selling
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Stockholders, an opinion dated the Closing Date to the effect that:
(i) Each Selling Stockholder has full right, power
and authority to enter into this Agreement and the Custody Agreement.
Each Selling Stockholder has duly executed and delivered this
Agreement. The Custody Agreement has been duly executed and delivered
on behalf of each Selling Stockholder and constitutes the valid and
binding agreement of such Selling Stockholder enforceable against such
Selling Stockholder in accordance with its terms subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws affecting the enforcement of creditors'
rights generally and to equitable principles.
(ii) Each Selling Stockholder has full right, power
and authority to sell, transfer, assign and deliver the Optional Stock
being sold by such Selling Stockholder hereunder. Immediately prior to
the delivery of the shares of Optional Stock being sold by such Selling
Stockholder, such Selling Stockholder was the sole registered owner of
such shares of Optional Stock and, upon registration of such shares of
Optional Stock in the names of the Underwriters or their nominees,
assuming that such purchasers purchased such shares of Optional Stock
in good faith without notice of any adverse claims as defined in
Section 8-302 of the Uniform Commercial Code, such purchasers will have
acquired all the rights of such Selling Stockholder in such shares of
Optional Stock free of any adverse claim, any lien in favor of the
Company or restrictions on transfer imposed by the Company.
(iii) The performance of this Agreement and the
Custody Agreement and the consummation of the transactions herein and
therein contemplated will not, with the giving of notice or passage of
time or both, result in a breach or violation of any of the terms or
provisions of or constitute a default under any statute, rule or
regulation applicable to any Selling Stockholder, or, to the best of
such counsel's knowledge, any indenture, mortgage, deed of trust, note
agreement or other agreement or instrument to which any Selling
Stockholder is a party or by which it is bound, or any judgment, order
or decree known to such counsel after due inquiry of any court or
governmental agency or body having jurisdiction over any Selling
Stockholder or any of their properties or, if any Selling Stockholder
is a corporation, the certificate or articles of incorporation and
bylaws of any Selling Stockholder.
(iv) No consent, approval, authorization or order of
any court or governmental agency or body is required for the
consummation by any of the Selling Stockholders of the transactions
contemplated by this Agreement except such as may be required under the
Act or as may be required under
39
<PAGE>
the securities or Blue Sky laws of any jurisdiction in connection with
the purchase and distribution of the Stock by the Underwriters.
(v) Any transfer taxes which are required to be paid
in connection with the sale and delivery of the Optional Stock to the
Underwriters hereunder have been paid and all laws imposing such taxes
have been fully complied with.
(g) The Representatives shall have received from Brown & Wood
LLP, counsel for the Underwriters, their opinion or opinions dated the
Closing Date with respect to the incorporation of the Company, the
validity of the Stock, the Registration Statement, the Prospectus and
such other related matters as the Representatives may require. In
giving such opinion, such counsel may rely, as to all matters governed
by the laws of jurisdictions other than the law of the State of New
York and the federal law of the United States, upon opinions of counsel
satisfactory to the Representatives. The Company shall have furnished
to such counsel such documents as they may request for the purpose of
enabling them to pass upon such matters.
(h) The Representatives shall have received a certificate,
dated such Closing Date, of the Chief Executive Officer or the
President and the chief financial or accounting officer of the Company
to the effect that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or are pending or, to their best
knowledge, contemplated under the Act;
(ii) Neither (A) the Registration Statement or any
amendment or supplement thereto, as of the time when the Registration
Statement became effective, included any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, nor
(B) any Preliminary Prospectus or the Prospectus, as of their
respective dates and, with respect to the Prospectus, at all times
subsequent to its date up to the delivery of such certificate, included
any untrue statement of a material fact or omitted to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(iii) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
and except as set forth or contemplated in the Prospectus, neither the
Company nor any of its subsidiaries has incurred any liabilities or
obligations, direct or contingent, nor entered into any transactions,
not in the ordinary course of business, that in either case are
40
<PAGE>
material to the Company and its subsidiaries considered as a whole,
whether or not arising in the ordinary course of business, and there
has not been any material adverse change in the condition (financial or
otherwise), business, prospects or results of operations of the Company
and its subsidiaries considered as a whole, or any material change in
the capital stock or long-term debt of the Company and its subsidiaries
considered as a whole;
(iv) The representations and warranties of the
Company in this Agreement are true and correct at and as of such
Closing Date, and the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied
at or prior to such Closing Date; and
(v) Between the date of this Agreement and such
Closing Date, the business and operations conducted by the Company and
its subsidiaries have not sustained a loss by strike, fire, flood,
accident or other calamity (whether or not insured) of such a character
as to interfere materially with the conduct of the business and
operations of the Company and its subsidiaries considered as a whole.
(i) The Company and the Selling Stockholders shall have
furnished to the Representatives such additional certificates as the
Representatives may have reasonably requested as to the accuracy, at
and as of the Closing Date, of the representations and warranties made
herein by them, as to compliance at and as of the Closing Date by them
with their respective covenants and agreements herein contained and
other provisions hereof to be satisfied at or prior to the Closing Date
and as to other conditions to the obligations of the Underwriters
hereunder.
(j) The Stock shall have been approved for listing on
the Nasdaq National Market.
(k) The Company shall have furnished to the Underwriters
"lock-up" letters signed by its directors and executive officers and
each of the persons listed on Schedule B pursuant to which such
directors, officers and persons agreed that they will not offer, sell
or contract to sell, or otherwise dispose of or enter any agreement to
sell, directly or indirectly, any shares of Common Stock or any
securities convertible into or exchangeable for shares of Common Stock
for a period of 180 days after the date of the Prospectus without the
prior written consent of the Representatives.
(l) In the event the Underwriters exercise the option granted
in Section 3(c) hereof to purchase all or any portion of the Optional
Shares, the representations and warranties of the Company contained
herein and the statements in any certificates furnished by the Company
hereunder shall
41
<PAGE>
be true and correct as of the Option Closing Date, and you
shall have received:
(i) A letter from Coopers & Lybrand LLP, in form and
substance satisfactory to the Representatives and dated the Option
Closing Date, substantially the same in scope and substance as the
letter furnished to you pursuant to Section 8(c), except that the
specified date in the letter furnished pursuant to this Section 8(l)
shall be a date not more than three days prior to the Option Closing
Date.
(ii) A certificate, dated the Option Closing Date, of
the Chief Executive Officer or President and the chief financial or
accounting officer of the Company confirming that the certificate
delivered at the First Closing Date pursuant to Section 8(h) remains
true as of the Option Closing Date.
(iii) The opinion of Nutter, McClennen & Fish LLP,
counsel for the Company, in form and substance satisfactory to counsel
for the Underwriters, dated the Option Closing Date, to the same effect
as the opinion required by Section 8(e).
(iv) The opinion of Nutter, McClennen & Fish LLP,
counsel to the Selling Stockholders, in form and substance satisfactory
to counsel for the Underwriters, dated on the Option Closing Date, to
the same effect as the opinion required by Section 8(f).
(v) The opinion of Brown & Wood LLP, counsel for the
Underwriters, dated the Option Closing Date, relating to the Optional
Stock and otherwise to the same effect as the opinion required by
Section 8(g).
If any of the conditions hereinabove provided for in this Section shall
not have been satisfied when and as required by this Agreement, this Agreement
may be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram at or prior to the Closing Date, but the
Representatives shall be entitled to waive any of such conditions.
9. Termination. This Agreement may be terminated by the Representatives by
notice to the Company if at or prior to the Closing Date or the Option Closing
Date, as the case may be, pursuant to the last paragraph of Section 8 or (b) if
(i) trading in securities on the New York or American Stock Exchanges or in the
Common Stock on the Nasdaq [National Market or Small Cap System] shall have been
suspended or minimum or maximum prices shall have been established on either
such exchange or on the Nasdaq National Market, or a banking moratorium shall
have been declared by New York or United States authorities; (ii) there shall
have been any adverse change in the financial markets in the United States,
Japan or Europe or an outbreak or escalation
42
<PAGE>
of hostilities between the United States and any foreign power, or of any other
insurrection or armed conflict involving the United States that, in the judgment
of the Representatives, makes it impracticable or inadvisable to offer, sell or
deliver the Firm Stock or the Optional Stock as applicable, on the terms
contemplated by the Prospectus or this Agreement; (iii) there shall have been
since the execution of this Agreement or since the respective dates as of which
information is given in the Prospectus any material adverse change in the
condition (financial or otherwise), or business prospects or results of
operations of the Company and its subsidiaries considered as a whole; (iv) there
shall have been any development or prospective development involving the
business or properties or securities of the Company or any of its subsidiaries
or the transactions contemplated by this Agreement, which, in the judgment of
the Representatives, makes it impracticable or inadvisable to offer, sell or
deliver the Firm Stock or Option Stock, as applicable, on the terms contemplated
by the Prospectus or this Agreement or; (v) there shall be any litigation,
pending or threatened, which, in the judgment of the Representatives, makes it
impracticable or inadvisable to offer, sell or deliver the Firm Stock or the
Optional Stock as applicable on the terms contemplated by the Prospectus or this
Agreement. As used in this Section 9, the term "Prospectus" means the Prospectus
in the form first used to confirm sales of Stock.
10. Reimbursement of Underwriters. Notwithstanding any other provisions
hereof, if this Agreement shall be terminated by the Representatives under
Section 8, Section 9, Section 12 or otherwise automatically terminates pursuant
to Section 3(a), the Company will bear and pay the expenses specified in Section
5 hereof and, in addition to its obligations pursuant to Section 6, hereof, the
Company will reimburse the reasonable out-of-pocket expenses of the several
Underwriters (including reasonable fees and disbursements of counsel for the
Underwriters) incurred in connection with this Agreement and the proposed
purchase of the Stock, and promptly upon demand the Company will pay such
amounts to you as Representatives. In addition, the provisions of Section 6
shall survive any such termination.
11. Default By Underwriters. If any Underwriter or Underwriters shall
default in its or their obligations to purchase shares of Stock hereunder on the
Closing Date or the Option Closing Date and the aggregate number of shares that
such defaulting Underwriter or Underwriters agreed but failed to purchase does
not exceed 10% of the total number of shares which the Underwriters are
obligated to purchase on such Closing Date, the other Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the shares of Common Stock that such defaulting Underwriter or
Underwriters agreed but failed to purchase. If any Underwriter or Underwriters
shall so default and the aggregate number of shares with respect to which such
default or defaults occur is more than 10% of the total number of shares
underwritten and arrangements satisfactory to the Representatives and the
Company for the
43
<PAGE>
purchase of such shares of Common Stock by other persons are not made within 48
hours after such default, this Agreement shall terminate.
If the remaining Underwriters or substituted underwriters are required
hereby or agree to take up all or a part of the shares of Common Stock of a
defaulting Underwriter or Underwriters as provided in this Section 11, (i) the
Company shall have the right to postpone the Closing Date for a period of not
more than five full business days, in order that the Company may effect whatever
changes may thereby be made necessary in the Registration Statement or the
Prospectus, or in any other documents or arrangements, and the Company agrees
promptly to file any amendments to the Registration Statement or supplements to
the Prospectus that may thereby be made necessary, and (ii) the respective
numbers of shares of Common Stock to be purchased by the remaining Underwriters
or substituted underwriters shall be taken as the basis of their underwriting
obligation for all purposes of this Agreement. Nothing herein contained shall
relieve any defaulting Underwriter of its liability to the Company, the Selling
Stockholders or the Underwriters for damages occasioned by its default
hereunder. Any termination of this Agreement pursuant to this Section 11 shall
be without liability on the part of any non-defaulting Underwriter, the Selling
Stockholders or the Company, except for expenses to be paid or reimbursed
pursuant to Section 5 and except for the provisions of Section 6.
12. Default By the Company. If the Company shall default in its
obligations at any Closing Date to sell and deliver the number of shares of
Stock that it is obligated to sell hereunder, then this Agreement shall
terminate without any liability on the part of any non-defaulting party.
13. Notices. All communications hereunder shall be in writing and, if sent
to the Underwriters shall be mailed, delivered or telegraphed and confirmed to
the Underwriters c/o Dean Witter Reynolds Inc. at Two World Trade Center, 65th
Floor, Corporate Finance, New York, New York 10048, Attn: Samuel H. Wolcott,
III, except that notices given to an Underwriter pursuant to Section 6 hereof
shall be sent to such Underwriter at the address provided to the Representatives
or, if sent to the Company and/or the Selling Stockholders, shall be mailed,
delivered or telegraphed and confirmed c/o CareMatrix Corporation, 197 First
Avenue, Needham, MA 02194, Attn:
- --------------.
14. Successors. This Agreement shall inure to the benefit of and be binding
upon the several Underwriters, the Company and the Selling Stockholders and
their respective successors and legal representatives. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
other than the persons mentioned in the preceding sentence any legal or
equitable right, remedy or claim under or in respect of this Agreement, or any
provisions herein contained, this
44
<PAGE>
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person; except that the representations, warranties, covenants,
agreements and indemnities of the Company and the Selling Stockholders contained
in this Agreement shall also be for the benefit of the person or persons, if
any, who control any Underwriter or Underwriters within the meaning of Section
15 of the Act, and the indemnities of the several Underwriters shall also be for
the benefit of each director of the Company, each of its officers who has signed
the Registration Statement and the person or persons, if any, who control the
Company or any Selling Stockholder within the meaning of Section 15 of the Act.
15. Applicable Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of New York without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York. The Company
hereby consents to personal jurisdiction in the State of New York and
voluntarily submits to the jurisdiction of the courts of such state, including
the federal district courts located in such state, in any proceeding with
respect to this Agreement.
16. Counterparts. This Agreement may be executed by one or
more of the parties hereto in any number of counterparts each of
which shall be deemed to be an original, but all such
counterparts shall together constitute one and the same
instrument.
17. Authority of the Representatives. In connection with this Agreement, the
Representatives will act for and on behalf of the several Underwriters, and any
action taken under this Agreement by the Representatives will be binding on all
the Underwriters; and any action taken under this Agreement by the
Attorney(s)-in-fact will be binding on the related Selling Stockholders.
Any person executing and delivering this Agreement as Attorney-in-fact
for a Selling Stockholder represents by so doing that he has been duly appointed
as Attorney-in-fact by such Selling Stockholder pursuant to a validly existing
and binding Power of Attorney which authorizes such Attorney-in-fact to take
such action.
45
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter and your acceptance shall constitute a binding agreement
between us.
Very truly yours,
CAREMATRIX CORPORATION (formerly
The Standish Care Company)
By_______________________________
[SELLING STOCKHOLDERS LISTED
IN SCHEDULE B]
By_______________________________
Attorney-in-Fact
By_______________________________
Attorney-in-Fact
Acting on behalf of the
Selling Stockholders listed
in Schedule B.
Accepted and delivered,
as of the date first above written:
DEAN WITTER REYNOLDS INC.
PAINEWEBBER INCORPORATED
NATWEST SECURITIES LIMITED
ROBERTSON, STEPHENS & COMPANY
SMITH BARNEY INC.
Acting on their own behalf and as Representatives of the several
Underwriters referred to in the foregoing Agreement.
BY DEAN WITTER REYNOLDS INC.
By____________________________________
Authorized Signatory
46
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Shares of
Stock to be
Name Purchased
<S> <C>
Dean Witter Reynolds Inc.
PaineWebber Incorporated
NatWest Securities Limited
Robertson, Stephens & Company
Smith Barney Inc.
--------
Total.................................................................. ========
</TABLE>
Sch A-1
<PAGE>
SCHEDULE B
SELLING STOCKHOLDERS
Sch B-1
<PAGE>
SCHEDULE C
Persons Subject to Lock-Up Agreements
Sch C-1
<PAGE>
SCHEDULE D
CAREMATRIX CORPORATION
Shares of Common Stock
(Par Value $.01 Per Share)
1. The initial public offering price per share for the
Stock, determined as provided in said Section 3, shall be $_____.
2. The purchase price per share for the Stock to be paid by the several
Underwriters shall be $_________, being an amount equal to the initial public
offering price set forth above less $__________ per share; provided that the
purchase price per share for any Optional Stock purchased upon the exercise of
the over-allotment option described in Section 3(c) shall be reduced by an
amount per share equal to any dividends or distributions declared by the Company
and payable on the Firm Stock but not payable on the Optional Stock.
Sch D-1
Exhibit 10.102
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of the 29 day of July, 1996 between
CAREMATRIX OF MASSACHUSETTS, INC., a Delaware corporation (the "Company"), and
Marc Benson (the "Employee").
WHEREAS, the Company believes it is in the Company's best interest to
employ Employee, and Employee desires to be employed by the Company; and
WHEREAS, the Company and Employee desire to set forth the terms and
conditions on which Employee shall be employed by and provide services to the
Company.
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereby agree as follows:
1. Employment. The Company hereby employs Employee and Employee hereby
accepts such employment, all upon the terms and conditions hereinafter set
forth. In accepting such employment, Employee represents and warrants that he is
not under any restrictions in the performance of the duties contemplated under
this Agreement by a non-compete or similar agreement, and has never been
debarred or excluded from participation in any federal or state health care
program.
2. Term. Unless sooner terminated pursuant to the provisions of this
Agreement, the initial term of employment under this Agreement shall be for a
period of three (3) years commencing on August 26, 1996 (the "Effective Date")
and ending on the third (3rd) anniversary of the Effective Date. The term of
employment under this Agreement shall thereafter be automatically renewed upon
the then existing terms and conditions of this Agreement, for successive periods
of one (1) year commencing upon the expiration of the initial term of employment
under this Agreement or any renewal term and ending on the first (1st)
anniversary of the commencement of such renewal term unless either the Company
or Employee provides the other with written notice of its election to not renew
the term of employment under this Agreement at least sixty (60) days, but no
more than one hundred eighty (180) days, prior to the expiration of the then
existing term of this Agreement (the initial three (3) year term and all
successive one (1) year renewal terms of employment are collectively referred to
herein as the "Employment Period").
3. Salary. Employee shall be entitled to receive a salary from the Company
during the Employment Period at the rate of One Hundred Seventy-Five Thousand
and No/100 Dollars ($175,000) per annum (the "Salary"). The Salary shall be
payable in equal installments in accordance with the normal payroll policies of
the Company (which policies may be changed by the Company from time to time in
its sole discretion), but in no event less frequently than monthly, and shall be
subject to all appropriate withholding taxes. Employee's Salary and other
compensation under this Agreement may be allocated to and paid by any
<PAGE>
subsidiary or commonly controlled affiliated entity engaged directly or
indirectly in the same or similar business as the Company (which may or may not
be treated as consolidated subsidiaries for tax or financial reporting purposes)
(collectively, "Affiliates"), if any, as determined from time to time by the
Board of Directors of the Company.
4. Benefits; Bonuses. The Salary provided for in Section 3 shall be in
addition to such benefits and bonus programs as the Company, in its sole and
absolute discretion, shall from time to time provide to the Company's executive
officers, and shall include, without limitation, a monthly car allowance in the
amount of Five Hundred Fifty ($550.00) Dollars. Such benefits and bonus programs
are subject to change from time to time as determined by the Board of Directors
of the Company. In addition to the above, Employee shall be paid a signing bonus
in the amount of Thirty Thousand ($30,000) Dollars at the time of the Company's
first Salary payment to Employee.
5. Options. The Company shall grant to Employee options in an amount equal
to the quotient of $525,000 divided by the lesser of (i) Four ($4.00) Dollars,
or (ii) the average closing price per share of Standish Care Company's common
stock for the thirty (30) days immediately preceding the Effective Date (the
"Formula Price") to acquire shares of its common stock, subject to the vesting
requirements set forth below (the "Options"). Such Options shall have a strike
price equal to the Formula Price and be granted to Employee within ninety(90)
days after the closing of the merger with Standish Care company pursuant to the
terms of that certain Merger Agreement dated as of July 3, 1996 by and between
the Company and Standish Care Company (the "Merger"), and will be issued
pursuant to a qualified plan or plans adopted by the Company and approved by its
shareholders, which plan or plans shall contain such other terms, conditions and
restrictions as are customary for stock option plans of companies in the
business of the Company including, without limitation, provisions for the
acceleration of exercisability of all granted but unvested options in the event
of a change in control of the Company. The Options shall not be immediately
exercisable upon the date of grant, but shall vest and become exercisable by
Employee in equal one-third (1/3) increments upon each of the first three (3)
anniversaries of the Effective Date of this Agreement. The Options shall not be
exercisable subsequent to the date ten (10) years after their grant to Employee.
Employee shall have no rights to receive any ownership interests in the Company
or its Affiliates other than the ownership interests in the Company acquired as
a result of exercising the Options provided for pursuant this Section 5.
Notwithstanding anything contained herein to the contrary, in the event the
Merger is not consummated for any reason, Employee shall be entitled to such
Options from the Company at the time of an initial public offering of the
Company's common stock which may incur in lieu of the Merger in an amount equal
to the quotient of $525,000 divided by the initial offering price (and having a
strike price equal to such initial offering price).
2
<PAGE>
6. Duties. During the Employment Period, Employee agrees to serve
exclusively as the Chief Operating Officer of the Company. Employee shall
exercise such powers and comply with and perform such directions and duties in
relation to the business and affairs of the Company as are customarily and
ordinarily exercised and performed by the Chief Operating Officer of similar
entities and as may from time to time be requested by the Board of Directors of
the Company, and shall use his best efforts to improve, expand and operate the
business of the Company and its Affiliates. Notwithstanding any other term or
provision to the contrary contained herein, in no event shall Employee be
obligated to perform any act which would constitute or require the violation of
any federal, state or local law, rule, regulation, ordinance or the like.
Employee shall at all times report to, and his activities shall at all times be
subject to the direction and control of, the Board of Directors of the Company
as well as the President of the Company, which officer shall act as the
immediate supervisor of Employee. Employee shall have no authority to enter into
any contracts binding upon the Company, or to create any obligations on the part
of the Company, other than contracts or obligations imposing obligations on the
Company in an amount less than Two Thousand Five Hundred and No/100 Dollars
($2,500.00) and less than one (1) year in duration and such other contracts and
obligations as shall be specifically authorized from time to time by the Company
in writing. Employee agrees to devote his entire business time, energy and skill
to the service of the Company and its Affiliates and shall perform his duties in
a good faith, trustworthy and businesslike manner, in compliance with the laws
of the United States of America and all other political subdivisions, all for
the purpose of advancing the interests of the Company and its Affiliates.
Employee shall at no time engage in any other business activity whether or not
such activity is pursued for gain, profit or other pecuniary advantage.
Notwithstanding the foregoing, provided the same shall not interfere with the
performance by Employee of his duties under this Agreement and shall not violate
the terms and provisions of any other provision of the Agreement (including, but
not limited to, Section 14 of this Agreement), Employee may (i) participate as a
shareholder, director and/or officer of Senior Living, Inc., which owns a home
health care agency in Peoria, Illinois, and (ii) invest his personal assets in
businesses where the form or manner of such investment will not require services
on the part of Employee and in which his participation is solely that of a
passive investor and/or serve on the board of directors or as an officer of, or
as a volunteer for, charitable, civic or community organizations.
7. Location of Company Headquarters. Unless otherwise agreed to in writing
by Employee, the parties hereby agree that Employee shall perform his duties
primarily from the Company's offices in Needham, Massachusetts.
8. Business Expenses. Consistent with the Company's policies as in effect
from time to time (including, but not necessarily limited to, a satisfactory
itemized accounting for such expenditures), Employee shall be reimbursed for
ordinary and necessary expenses incurred in promoting the business of the
Company. In addition, Employee shall be reimbursed for
3
<PAGE>
business expenses, which shall include, without limitation, reasonable, actual
and verifiable out-of-pocket moving and relocation expenses (including, without
limitation, temporary lodging, travel costs, and customary closing costs for
purchasing a new home) not to exceed $20,000.00.
9. Confidentiality.
(a) In the course of this employment, the Company or its Affiliates
may disclose or make known to Employee, and Employee may be given access to or
may become acquainted with, certain information, trade secrets or both, all
relating to or useful in the business of the Company or its Affiliates
(collectively "Information") and which the Company considers proprietary and
desires to maintain confidential. As a material inducement to the Company in
entering this Agreement, Employee covenants and agrees that during the term of
this Agreement and at all times thereafter, Employee shall not in any manner,
either directly or indirectly, divulge, disclose or communicate to any person or
firm, except to or for the Company's benefit as directed by the Company, any of
the Information which he may have acquired in the course of or as an incident to
his employment by the Company, the parties agreeing that such information
affects the successful and effective conduct of the business and goodwill of the
Company and/or its Affiliates, and that any breach of the terms of this Section
is a material breach of this Agreement. Notwithstanding the foregoing, nothing
in this Section 9 shall preclude Employee from disclosing Information pursuant
to judicial order or Information which has been made public through the release
or disclosure by persons other than the Employee.
(b) All equipment, documents, memoranda, reports, records, files,
materials, samples, books, correspondence, lists, computer software, other
written and graphic records, and the like (collectively, the "Materials"),
affecting or relating to the business of the Company and/or its Affiliates,
which Employee shall prepare, use, construct, observe, possess or control shall
be and remain the Company's exclusive property or in the Company's exclusive
custody, and must not be removed from the premises of the Company or given to
any person or entity except as directed by the Company in writing. Promptly upon
termination of this Agreement for any reason, or completion of the tasks or
duties assigned pursuant hereto, the Materials, Information and all copies
thereof in the custody or control of Employee shall be delivered promptly to the
Company. Employee acknowledges that all documents and equipment relating to the
business of the Company and/or its Affiliates, in addition to all Information
and Materials, whether prepared by Employee or otherwise coming into Employee's
possession, are owned by and constitute the exclusive property of the Company or
in the Company's exclusive custody, and all such documents and equipment must
not be removed from the premises of the Company except as directed by the
Company in writing.
4
<PAGE>
(c) The covenants of Employee set forth in this Section 9 are separate
and independent covenants for which valuable consideration has been paid, the
receipt, adequacy and sufficiency of which are acknowledged by Employee, and
have also been made by Employee to induce the Company to enter into this
Agreement. Each of the aforesaid convenants may be availed of, or relied upon,
by the Company in any court of competent jurisdiction, and shall form the basis
of injunctive relief and damages including expenses of litigation (including,
but not limited to, reasonable attorney's fees upon trial and appeal) suffered
by the Company arising out of any breach of the aforesaid covenants by Employee.
The covenants of Employee set forth in this Section 9 are cumulative to each
other and to all other covenants of Employee in favor of the Company contained
in this Agreement and shall survive the termination of this Agreement for the
purposes intended. Should any covenant, term or condition in this Section 9
become or be declared invalid or unenforceable by a court of competent
jurisdiction, then the parties request that such court judicially modify such
unenforceable provision consistent with the intent of this Section 9 so that it
shall be enforceable as modified.
10. Events of Termination by the Company. This Agreement may be terminated
by the Company;
(a) Without cause, effective immediately upon delivery of written
notice to Employee by the Company;
(b) With cause, effective immediately upon delivery of written notice
to Employee by the Company, provided, however, that if such cause is of the type
described in clause (iv) below and susceptible to being cured, Employee shall
have a period of ten (10) days after delivery of written notice to Employee to
effect such cure or such longer period of time as may be required for such cure,
provided Employee has commenced such cure within such ten (10) days and is
diligently prosecuting such cure. A termination shall be deemed to be "with
cause" if the Company reasonably determines that Employee has:
(i) misappropriated the assets or opportunities of the Company or
its Affiliates;
(ii) been convicted of a felony involving violence, dishonesty,
conversion, theft or misappropriation of property of another, controlled
substances, moral turpitude or the regulatory good standing of the Company or
its Affiliates;
(iii) abused drugs or alcohol in a manner which prevents Employee
from performing his duties in the manner provided herein; or
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(iv) failed to perform his duties substantially in the manner
provided herein or refused to perform the duties properly assigned to him by the
Company in accordance with Section 6 hereof for any reason other than disability
or breaches any of his other obligations under this Agreement.
11. Events of Termination by Employee. This Agreement may be terminated by
Employee in the event of the failure of the Company to pay any sums due or grant
any Options to be granted hereunder to Employee or perform substantially any of
its other duties and obligations required to be performed or observed under this
Agreement, but only after written notice has been given by Employee to the
Company, provided, however, that the Company shall have a period of ten (10)
days from delivery of such notice within which to cure the same or such longer
period of time as may be required for such cure, provided the Company has
commenced such cure within such ten (10) days and is diligently prosecuting such
cure.
12. Other Termination of this Agreement. This Agreement shall immediately
terminate upon the occurrence of any of the following events:
(a) The death of Employee; or
(b) The "disability" of Employee as such term is defined in the
Company's long term disability insurance coverage.
13. Effects of Termination. Upon the termination of the Agreement:
(a) Employee's duties shall cease as of the effective date of
termination, provided, however, that Employee will in the event of a termination
pursuant to Paragraph 10(a) be responsible for arranging for the smooth
transition of duties to appropriate independent contractors and/or employees of
the Company.
(b) With respect to any termination other than pursuant to Section
10(a) or Section 11 of this Agreement, payments made on account of Employee's
Salary shall cease upon the effective date of termination; any amounts due on
account of Employee's Salary for account of services performed prior to the
effective date of termination which have not previously been paid will be paid
(pro rata through the effective date of termination) within thirty (30) days
following termination. With respect to a termination pursuant to Section 10(a)
or Section 11 of this Agreement, Employee's Salary shall continue to be paid for
an additional period of twelve (12) months at Employee's then current salary
after the termination. All payments made pursuant to this Section 13(b) shall be
made in accordance with the normal payroll policies of the Company but in no
event less frequently than monthly and subject to all appropriate withholding
taxes.
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(c) All expenses which are properly reimbursable to Employee pursuant
to Section 8 will be promptly reimbursed following termination.
(d) All other benefits and/or entitlements to participate in bonus
programs (except to the extent Employee is vested in such programs), if any,
will cease as of the effective date of termination provided that Employee shall
be entitled to such bonuses which have accrued prior to such termination,
subject to Employee's rights to continue medical insurance coverage at his own
expense as provided by applicable law or written Company policy; provided,
however, that all policies of insurance relating solely to Employee shall be
assigned to Employee within thirty (30) days following termination, provided
that such assignment shall be at no cost or expense to the Company, and provided
further that such assignment shall state that it is made subject to the terms
and conditions of the policy(ies).
(e) The rights, privileges, benefits, remedies and interests of the
Company and Employee under Section 5 of this Agreement shall be governed by the
terms and provisions of Section 5.
14. Non-Competition and Solicitation.
(a) Employee acknowledges that he has performed services or will
perform services hereunder, and will acquire knowledge and proprietary
information, which will directly affect the business of the Company and/or its
Affiliates to be conducted throughout the United States. Accordingly, the
parties deem it necessary to provide protective non-competition and
non-solicitation provisions in this Agreement.
(b) Employee agrees with the Company that;
(i) Employee shall not, without the prior written consent of the
Company, which consent shall be within the sole and exclusive discretion of the
Company, within ten (10) miles of any facility developed or being developed by
the Company during the term hereof (the "Area"), either directly or indirectly,
perform services or duties, or engage in the same or similar business as the
Company or any of its Affiliates in any capacity, whether as an owner,
shareholder, consultant, director, officer, manager, supervisor or employee of
any entity; and
(ii) Neither Employee nor any company or entity with which
Employee serves as a director, partner or controlling shareholder shall employ
or attempt to employ, or assist in employing, any employee of the Company or its
Affiliates (whether or not such employment is full-time, part-time, or is
pursuant to a written contract) other than his personal secretary for the
purpose of having such employee perform services for another company located in
the Area.
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(c) The covenants of Employee set forth in Section 14 shall commence
upon the Effective Date of this Agreement and continue through the date of
termination of the Employment Period for a period of twelve (12) months
following a termination pursuant to Section 109(b) or 12(b) of this Agreement,
or an election by Employee not to renew the term of the Employment Period
pursuant to Section 2 of this Agreement. Notwithstanding the foregoing, the
covenants of Employee referred to in this Section 14 shall be extended for a
period time equal to the period of time during which Employee shall be in
violation of such covenants and/or the pendancy of any proceedings brought by
the Company to enforce the provisions of such convenants.
(d) Notwithstanding any provision to the contrary set forth in this
Section 14, nothing contained in this Section 14 shall prohibit Employee from
performing the services and duties of a Chief Operating Officer (or other
position with similar duties) from and after the termination or expiration of
this Agreement for any reason whatsoever provided he does not do so for a person
or entity in the same or similar business as Company or its Affiliates and
provided that Employee does not violate Section 9 of this Agreement.
(e) The covenants of Employee set forth in this Section 14 are
separate and independent covenants for which valuable consideration has been
paid, the receipt, adequacy and sufficiency of which are acknowledged by
Employee, and have also been made by Employee to induce the Company to enter
into this Agreement. Each of the aforesaid covenants may be availed of, or
relied upon, by the Company in any court of competent jurisdiction, and shall
form the basis of injunctive relief and damages including expenses of litigation
(including, but not limited to, reasonable attorney's fees upon trial and
appeal) suffered by the Company arising out of any breach of the aforesaid
convenants by Employee. The covenants of Employee set forth in this Section 14
are cumulative to each other and to all other covenants of Employee in favor of
the Company contained in this Agreement and shall survive the termination of
this Agreement for the purposes intended. Should any covenant, term or condition
in this Section 14 become or be declared invalid or unenforceable by a court of
competent jurisdiction, then the parties request that such court judicially
modify such unenforceable provision consistent with the intent of this Section
14 so that it shall be enforceable as modified.
15. Entire Agreement. This Agreement represents the entire understanding
and agreement between the parties with respect to the subject matter hereof, and
supersedes all other negotiations, understandings and representations (if any)
made by and between such parties.
16. Amendments. The provisions of this Agreement may no be amended,
supplemented, waived or changed orally, but only by a writing signed by the
party as to whom
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enforcement of any such amendment, supplement, waiver or modification is sought
and making specific reference to this Agreement.
17. Assignments. The Company shall have the right to assign all of its
rights and obligations under this Agreement to any Affiliate of the Company or
any person or entity which purchases all or substantially all of the assets of
the Company or its Affiliates or with which the Company merges or consolidates
and, upon such assignment, this Agreement shall be binding upon and inure to the
benefit of such assign and the Company and its Affiliates shall be released and
discharged from all duties and obligations under this Agreement. Employee shall
execute such instruments as shall be reasonably requested by the Company and its
Affiliates to evidence such release. Employee shall have no right to assign or
delegate any rights or obligations under this Agreement.
18. Binding Effect. All of the terms and provisions of this Agreement,
whether so expressed or not, shall be binding upon, inure to the benefit of, and
be enforceable by the parties and their respective administrators, executors,
legal representatives, heirs, successors and permitted assigns.
19. Severability. If any part of this Agreement or any other Agreement
entered into pursuant hereto is contrary to, prohibited by or deemed invalid
under applicable law or regulation, such provision shall be inapplicable and
deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible.
20. Survival. Notwithstanding anything to the contrary herein, the
provisions of Sections 5, 9 and 13 through 27 shall survive and remain in effect
in accordance with their respective terms in the event this Agreement or any
portion hereof is terminated.
21. Notices. All notices, requests, consents and other communications
required or permitted under this Agreement shall be in writing (including telex
and telegraphic communication) and shall be (as elected by the person giving
such notice) hand delivered by messenger or courier service, telecommunicated,
or mailed (airmail if international) by registered or certified mail (postage
prepaid), return receipt requested, addressed to:
If to Employee: With a Copy to:
Marc Benson Clark & Stant, P.C.
515 Seagate Drive 900 One Columbus Center
Del Ray Beach, FL 33483 Virginia Beach, Virginia 23462
Attn: Lawrence R. Siegel, Esq.
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If to the Company: With a Copy to:
CareMatrix of Massachusetts, Inc. CareMatrix of Massachusetts, Inc.
197 First Avenue 197 First Avenue
Needham, MA 02194 Needham, MA 02194
Attn: President Attn: James M. Clary, III, Esq.
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery, (b) on the date telecommunicated if by
telegraph, (c) on the date of transmission with confirmed answer back if by
telex or telecopy, and (d) on the date upon which the return receipt is signed
or delivery is refused or the notice is designated by the postal authorities as
not deliverable, as the case may be, if mailed.
22. Waivers. The failure or delay of any party at any time to require
performance by another party of any provision of this Agreement, even if known,
shall not affect the right of such party to require performance of that
provision or to exercise any right, power or remedy hereunder, and any waiver by
any party of any breach of any provision of this Agreement should not be
construed as a waiver of any continuing or succeeding breach of such provision,
a waiver of the provision itself, or a waiver of any right, power or remedy
under this Agreement. No notice to or demand on any party in any case shall, of
itself, entitle such party to any other or further notice or demand in similar
or other circumstances.
23. Enforcement Costs. If any legal action or other proceeding is brought
for the enforcement of this Agreement, or because of an alleged dispute, breach,
default or misrepresentation in connection with any provisions of this
Agreement, the successful or prevailing party or parties shall be entitled to
recover reasonable attorney's fees, court costs and all expenses even if not
taxable as court costs (including, without limitation, all such fees, costs and
expenses incident to appeals and other post-judgment proceedings), incurred in
that action or proceeding, in addition to any other relief to which such party
or parties may be entitled. In the event that the Company brings a claim for
injunctive relief to an alleged violation of Sections 9 or 14, the Company shall
be deemed the prevailing party if it proves that Employee breached the express
language of this Agreement regardless of whether a court decides to award
injunctive relief. Attorney's fees shall include, without limitation, paralegal
fees, investigative fees, administrative costs, sales and use taxes and all
other charges billed by the attorney to the prevailing party.
24. Remedies Cumulative. Except as otherwise expressly provided herein, no
remedy herein conferred upon any party is intended to be exclusive of any other
remedy, and each and every such remedy shall be cumulative and shall be in
addition to every other remedy given
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hereunder or now or hereafter existing at law or in equity or by statute or
otherwise. No single or partial exercise by any party of any right, power or
remedy hereunder shall preclude any other or further exercise thereof.
25. Governing Law. This Agreement and all transactions contemplated by this
Agreement shall be governed by, and construed and enforced in accordance with,
the internal laws of the Commonwealth of Massachusetts without regard to
principles of conflicts of laws.
26. Supervening Law. The Company and Employee recognize that this
Agreement is subject to applicable state, local and federal laws and
regulations. The Company and Employee further recognize that the Agreement shall
be subject to amendments in such laws and regulations and to new legislation
such as federal or state economic stabilization programs or health insurance
programs. Any provisions of law that invalidate, or are otherwise inconsistent
with the terms of this Agreement or that would cause any party to be in
violation of law, shall be deemed to have superseded the terms of this
Agreement, provided, however, that the parties shall exercise their best efforts
to accommodate the terms and intent of this Agreement to the greatest extent
possible consistent with requirements of law.
27. Captions. The captions in this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
CAREMATRIX OF
MASSACHUSETTS
By: /s/
-----------------------------
Name: Andrew Gosman
Title: Vice-Chairman
/s/
---------------------------------
Name: Marc Benson
11
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333- ) of our report dated July 24, 1996, on our audits of the financial
statements of CareMatrix. We also consent to the reference to our firm under the
caption "Experts."
/s/ Coopers & Lybrand L.L.P
Boston, Massachusetts
September 3, 1996
<PAGE>
Exhibit 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Form S-1
(File No. ) of our report dated February 14, 1996, except as to information
presented in Notes I (paragraph 7 and 8) and R, for which the date is March 29,
1996, on our audits of the financial statements and financial statement schedule
of The Standish Care Company. We also consent to the reference to our firm under
the caption "Experts."
/s/ Coopers & Lybrand L.L.P
Boston, Massachusetts
September 4, 1996
Exhibit 23.03
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our Firm under the caption "Experts" and to the
use of our report (dated February 23, 1995) on the balance sheet of Bailey
Retirement Center, Inc. as of December 31, 1993 and the related statements of
operations, changes in stockholders' deficit, and cash flows for the year then
ended as an exhibit in this Registration Statement (Form S-1) and prospectus of
CareMatrix Corporation (formerly The Standish Care Company) for the registration
of 31,250,000 shares of its common stock.
/s/ Lovelace, Roby & Company, P.A.
LOVELACE, ROBY & COMPANY, P.A.
Certified Public Accountants
Orlando, Florida
September 3, 1996
Exhibit 23.04
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of
CareMatrix Corporation where it appears in this Registration Statement,
including the Prospectus constituting a part thereof, and any amendments.
/s/Donald J. Amaral
Donald J. Amaral
Exhibit 23.05
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of
CareMatrix Corporation where it appears in this Registration Statement,
including the Prospectus constituting a part thereof, and any amendments.
/s/H. Loy Anderson, Jr.
H. Loy Anderson, Jr.
Exhibit 23.06
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of
CareMatrix Corporation where it appears in this Registration Statement,
including the Prospectus constituting a part thereof, and any amendments.
/s/Bedros Baharian
Bedros Baharian
Exhibit 23.07
CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR
I hereby consent to the reference to me as a prospective director of
CareMatrix Corporation where it appears in this Registration Statement,
including the Prospectus constituting a part thereof, and any amendments.
/s/Stephen E. Ronai
Stephen E. Ronai
