As filed with the Securities and Exchange Commission on October 7, 1996
Registration No. 333-11455
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment
No. 1
to
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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THE STANDISH CARE COMPANY
(Exact Name Of Registrant As Specified In Its Charter)
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<CAPTION>
<S> <C> <C>
Delaware 8316 04-3069586
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
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)
-------------
Robert M. Kaufman
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)
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Copies of all communications to:
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<S> <C> <C>
Michael J. Bohnen, Esq. David A. Garbus, Esq. Joseph W. Armbrust, Jr., Esq.
Nutter, McClennen & Fish, LLP Robinson & Cole Brown & Wood LLP
One International 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
</TABLE>
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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]
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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.
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<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 October 7, 1996 6,250,000 Shares
[logo]
(formerly The Standish Care Company)
Common Stock
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All of the shares of Common Stock, par value $.05 per share (the "Shares"),
offered hereby are being offered by CareMatrix Corporation (the "Company").
Up to 937,500 additional Shares may be sold by certain stockholders of the
Company (the "Selling Stockholders") 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 Stockholders. See "Principal and Selling
Stockholders" and "Underwriting."
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The Common Stock is included in the Nasdaq Small Cap System under the symbol
"STAN." On October 3, 1996, the last reported sales price for the Common
Stock on the Nasdaq Small Cap System was $211/4 per Share, giving effect to a
one-for-five reverse stock split effective October 14, 1996. Prior to the
Offering, however, only a limited number of Shares have traded publicly. See
"Price Range of Common Stock and Dividends." The Company has been approved
for listing on the American Stock Exchange.
-------------
See "Risk Factors" beginning on page 7 for a discussion of certain
information that should be considered by prospective investors.
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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.
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Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
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<S> <C> <C> <C>
Per Share $ $ $
Total (3) $ $ $
========================================================================
</TABLE>
(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 $1,000,000.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an additional 937,500 Shares to cover over-allotments, if
any, from the Selling Stockholders pro rata. If all such Shares are
purchased, the total price to public, underwriting discounts and
commissions and proceeds to the Selling Stockholders will be $ , $
and $ , respectively. See "Underwriting."
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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.
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Dean Witter Reynolds Inc.
NatWest Securities Limited
PaineWebber Incorporated
Robertson, Stephens & Company
Smith Barney Inc.
, 1996
<PAGE>
[CareMatrix logo]
PROVIDING A
COMPREHENSIVE RANGE
OF ASSISTED LIVING SERVICES
TO AMERICA'S SENIORS.
[Photo of Elderly man and woman inside a photo of two windows from
outside a building]
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.
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 TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
SUPPORTIVE
EXTENDED CARE ASSISTED LIVING INDEPENDENT LIVING
[INTERIOR PHOTO [4 PHOTOS DEPICTING [INTERIOR
DEPICTING---------------------->RESIDENTS OF--------------------->PHOTO
RESIDENT AND ASSISTED LIVING DEPICTING
CAREGIVER] FACILITY] RESIDENTS]
| | |
| | |
| | |
| | |
| | |
| ALZHEIMER'S TREATMENT |
| [PHOTO |
| DEPICTING |
-----------------------------RESIDENT]--------------------------
CareMatrix expects to utilize its assisted living facilities to
serve as the foundation from which it will provide a continuum of
care for its residents. When integrated with supportive
independent living facilities, extended care facilities, and
Alzheimer's care programs, the Company will have the ability to
provide a less stressful transition for its residents either in the
same facility, within a campus setting, or to a nearby facility.
The provision of a full range of quality senior residential services
at each CareMatrix assisted living facility, permits residents to
age in place by meeting their changing personal and health care needs.
To accomplish this, CareMatrix is developing comprehensive service
packages and integrated campuses which will enable the Company to
become a leading provider of assisted living services to seniors
with a fully integrated matrix of social and health care services
models.
[PHOTO DEPICTING RESIDENTS IN DINING ROOM]
Fine dining is an integral part of each CareMatrix community. In
our handsome dining rooms, delicious chef-prepared meals, served
with a choice of wines, make dining truly elegant.
[PHOTO OF FACILITY EXTERIOR]
Comfortable, well-appointed common areas, including beautifully
landscaped courtyards and gardens are a hallmark of each CareMatrix
community. Residents enjoy companionship and security, enhanced by
services and a thoughtful, professional staff.
[PHOTO OF FACILITY EXTERIOR]
Our residents enjoy quality housing in senior care parks. As
residents' needs for health care and assistance become greater,
those needs can be met by professional caregivers who deliver
services in a highly cost-effective way.
[PHOTO DEPICTING RESIDENTS IN UNIT]
At CareMatrix, comfort, companionship, and distinctive apartment
living come together to give residents the independence they
desire along with the amenities and support necessary for security
and peace of mind.
<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
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Page
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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 Financial Data of Standish 26
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Standish 27
Business 36
Management 49
Certain Transactions 57
Principal and Selling Stockholders 62
Description of Capital Stock 64
Shares Eligible for Future Sale 69
Underwriting 70
Legal Matters 71
Experts 71
Index to Financial Statements F-1
</TABLE>
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.
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 (i) no exercise of the Underwriters'
option to purchase from the Selling Stockholders up to 937,500 additional
shares of Common Stock to cover over-allotments, if any, and (ii) a
one-for-five reverse stock split of the Company's Common Stock effective
October 14, 1996 (the "Reverse Split").
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 28 facilities, of which four 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/rehabilitation facilities and Alzheimer's care
programs, the Company believes that it will have the ability to provide a
less stressful transition for those of its residents who need a higher degree
of care to more supportive environments either within the same facility, in a
campus setting or in a nearby facility. The Company believes that by offering
such a continuum of care to its residents, it will be better able to respond
to resident needs than free-standing assisted living facilities that do not
provide the flexibility for their residents to age in place.
The Company intends to provide at all of its assisted living facilities a
full range of quality senior residential services that 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
within 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 lower 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 typically accommodates 80 to 100
residents. The average monthly service fee for residents will range from
approximately $900 to $2,000.
(bullet) Chancellor Place--These facilities, which will be free-standing
or integrated within 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.
4
<PAGE>
Upon the completion of the Offering, the Company will implement an
aggressive development and acquisition program designed to enhance the
Company's ability to achieve its growth strategy. The Company will seek to
cluster its facilities within selected geographic regions 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 as they age, 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 residence 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 October 4, 1996, twelve wholly owned subsidiaries of The Standish Care
Company ("Standish") were merged into twelve corporations controlled by
Abraham D. Gosman, members of his family and certain members of senior
management (collectively, "Pre-Merger CareMatrix"), with the stockholders of
Pre-Merger CareMatrix 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
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<S> <C>
Common Stock Offered 6,250,000 shares
Common Stock to be Outstanding After the Offering 17,116,000 shares (1) (2)
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."
American Stock Exchange symbol
</TABLE>
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(1) Does not include (i) an aggregate of 342,291 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 1,600,000 shares of Common Stock
reserved for issuance under the Company's stock option/equity incentive
plans, of which approximately 680,000 have been granted at an average
exercise price of approximately $14.50 per share. See "Capitalization,"
"Management" and "Shares Eligible for Future Sale."
(2) Includes 108,000 shares of Common Stock to be issued as a fee in connection
with the Merger and 18,800 shares of Common Stock issuable upon the expected
conversion of the Series A Preferred Stock. See Note 3 to Unaudited Pro
Forma Combined Balance Sheet and "Underwriting."
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, the purchase in July 1996 of certain assets from an entity
controlled by the Company's principal stockholder (the "Asset Purchase"), the
Reverse Split 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.
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Pro Forma
Pro Forma (2) As Adjusted (3)
------------------------ --------------------------
June 24,
1994 Six Six
(Inception) Year Ended Months Year Ended Months Year Ended Six Months
to December Ended December Ended December Ended
December 31, 31, June 30, 31, June 30, 31, June 30,
1994 (1) 1995 (1) 1996 (1) 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 $ (0.97) $ (0.43) $ (0.58) $ (0.24)
Shares outstanding 10,866 10,866 17,116 17,116
</TABLE>
<TABLE>
<CAPTION>
June 30, 1996
-------------------------------------------
Pro Forma
Historical Pro Forma As Adjusted
(1) (5) (6)
----------- ---------- --------------
(in thousands)
Balance Sheet Data:
<S> <C> <C> <C>
Cash and cash equivalents $ 2,028 $ 3,284 $104,064
Working capital (deficit) 1,286 (3,038) 98,900
Total assets 6,022 44,464 145,244
Long-term debt, less current maturities (7) 16,992 30,753 10,461
Stockholders' equity (deficit) (13,498) 3,326 125,556
</TABLE>
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(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, the Asset Purchase and the Reverse Split as
if such transactions had occurred as of January 1, 1995. See "Unaudited
Pro Forma Financial Information."
(3) Gives effect to (i) the Merger, the Asset Purchase and the Reverse Split
and (ii) the sale of Common Stock offered hereby (assuming a public
offering price of $21.25 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 $21.25 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 inception
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, the Company will enter into development
agreements whereby construction financing is obtained by the related or 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 related or 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
annual fees approximating 5% of gross revenues (less contractual adjustments
for uncollectible accounts). 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 initial
term with three to four five-year fair market value renewal options. 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. and certain like entities ("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 at acceptable terms, could have a material adverse effect on the
Company. See "--Need for Additional Financing," "Business--Development and
Acquisition" 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, with an aggregate capacity
of approximately 7,200 residents, targeted for completion over the next three
years is between $600 million and $700 million, which substantially exceeds
the financial resources of the Company and Chancellor. 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. Historically, 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, all loans from Mr. Gosman will be repaid. There
can be no assurance that any additional financing from Mr. Gosman, Chancellor
or any other sources
7
<PAGE>
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
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 a 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 . 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 could have a material adverse effect on
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.
Accordingly, there can be no assurance that the facilities listed in
"Business-- Development and Acquisition" as being in development or under
construction will ultimately be completed.
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. Because of the
inherent uncertainties associated with efforts to integrate and manage the
operations of the two companies, however, 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
8
<PAGE>
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. 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 $145.2 million, of
which approximately $18.5 million, or approximately 12.7% 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 could have a
material adverse effect on the Company. See "Unaudited Pro Forma Financial
Information."
Competition. The assisted living industry is highly competitive and, given
the relatively low barriers to entry and continuing healthcare 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. As a result, any increased competition could have
a material adverse effect on the Company. 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 $23.1 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 $100.8 million of the
remaining net proceeds to acquire and develop additional facilities. Although
the Company currently has four facilities under construction and an
additional 28 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 a controlling 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. Such ownership interests
in Chancellor and other healthcare entities that compete with the Company,
however, may create actual or potential conflicts of interest on
9
<PAGE>
the part of these members of the Company's management. In the case of such
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 Executive Committee of the Board of Directors. See "Business--Development
and Acquisitions" and "Certain Transactions."
Control by Management. Members of the Board of Directors and management
will be the beneficial owners of approximately 55.4% of the outstanding
Common Stock after the Offering. Abraham D. Gosman, together with 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 49.7% of the outstanding Common Stock
after the Offering. Accordingly, management will have the ability, and the
Gosmans may 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 to 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 could
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 healthcare items or services. The Medicare/Medicaid anti-kickback
law has been broadly interpreted to apply to certain contractual
relationships between healthcare 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 healthcare providers or suppliers from
10
<PAGE>
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, and any
interpretation inconsistent with the practices of the Company could have a
material adverse effect on 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 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 a
material adverse effect on the Company. 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. 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 the services it provides for skilled nursing
facilities will be dependent upon reimbursement from third-party payors,
including Medicare, state Medicaid programs and private insurers. 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 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
11
<PAGE>
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 healthcare 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 unrelated to the
operating performance of particular companies. These market fluctuations
could have a material adverse effect on 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
$15.17 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 October 4, 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
stockholders 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.
On October 14, 1996, the Company changed its name to CareMatrix Corporation
and effected the Reverse Split. 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 6,250,000 shares of
Common Stock being offered hereby (assuming a public offering price of $21.25
per share and after deducting the estimated underwriting discounts and
commissions and offering expenses) are estimated to be approximately
$123,843,750. 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 (8.25% as of October 1, 1996) 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 $214,050; 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 Stockholders
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 "STAN." All sales prices set forth below prior to
October 4, 1996 reflect the price of Standish common stock prior to the
Merger. 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,
adjusted to reflect the one-for-five Reverse Split.
<TABLE>
<CAPTION>
High Low
---- ----
<S> <C> <C>
Fiscal Year Ended December 31, 1994
First Quarter 33 3/4 25 5/8
Second Quarter 26 7/8 15
Third Quarter 20 5/8 11 1/4
Fourth Quarter 13 7/16 10
Fiscal Year Ended December 31, 1995
First Quarter 12 1/2 9 3/8
Second Quarter 13 1/8 10
Third Quarter 14 3/8 11 1/4
Fourth Quarter 20 5/8 11 1/4
Fiscal Year Ending December 31, 1996
First Quarter 22 21/32 14 3/8
Second Quarter 29 3/8 10 5/8
Third Quarter (through October 3, 1996) 27 1/2 17 1/2
</TABLE>
On October 3, 1996, the closing price for the Common Stock as quoted on
the Nasdaq Small Cap System was $21-1/4 as adjusted to give effect to the
Reverse Split. Prior to the Offering, however, only a limited number of
Shares have traded publicly. As of October 3, 1996, there were approximately
91 stockholders of record. The Common Stock has been approved for listing on
the American Stock Exchange.
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 $214,050 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.
<TABLE>
<CAPTION>
June 30, 1996
----------------------------------------
Pro Forma
Historical Pro Forma As Adjusted
---------- --------- -------------
(in thousands)
<S> <C> <C> <C> <C>
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 $.05; 75,000,000
shares authorized; 10,866,000 shares issued
and outstanding, pro forma; 17,116,000
shares issued and outstanding, pro forma as
adjusted (1) (2) (3) -- 543 856
Additional paid in capital -- 14,881 138,198
Retained earnings (accumulated deficit) (13,498) (13,498) (13,498)
---------- --------- -------------
Total stockholders' equity (deficit) (13,498) 3,326 125,556
---------- --------- -------------
Total capitalization $ 3,494 $ 34,079 $136,017
========== ========= =============
</TABLE>
- -------------
(1) Adjusted to give effect to the Reverse Split.
(2) Does not include (i) an aggregate of 342,291 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 1,600,000 shares of Common Stock
reserved for issuance under the Company's stock option/equity incentive
plans, of which approximately 680,000 have been granted at an average
exercise price of approximately $14.50 per share. See "Management,"
"Description of Capital Stock" and "Shares Eligible for Future Sale."
(3) Includes 108,000 shares of Common Stock to be issued as a fee in
connection with the Merger and assumes the conversion of the Series A
Preferred Stock into 18,800 shares of Common Stock. See Note 3 to
Unaudited Pro Forma Combined Balance Sheet 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 $(1.67) 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
6,250,000 shares of Common Stock offered hereby at an assumed offering price
of $21.25 per share, the adjusted pro forma net tangible book value of the
Company as of June 30, 1996 would have been $104,048,000 or $6.08 per share.
This represents an immediate increase in pro forma net tangible book value of
$7.75 per share to existing stockholders and an immediate dilution of $15.17
per share to new investors. All per share amounts have been restated to
reflect the Reverse Split effective October 14, 1996. The following table
illustrates this dilution per share:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price per share $21.25
Pro forma net tangible book value (deficit) per share $(1.67)
Increase per share attributable to the Offering 7.75
-------
Adjusted pro forma net tangible book value per share after
the offering 6.08
-------
Dilution to new investors $15.17
=======
</TABLE>
16
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
In connection with the Merger Agreement, Standish issued 10,000,000 shares
of Standish common stock (as adjusted to give effect to the Reverse Split) 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, the Reverse Split 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 such
transactions had occurred as of 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, the
Reverse Split 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 Offering Pro Forma
CareMatrix Standish Adjustments Pro Forma Adjustments As Adjusted
---------- -------- --------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 2,028 $ 356 $ 500 (1) $ 3,284 $100,780 (6) $104,064
400 (2)
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 5,521 106,301
Property, plant & equipment, net 1,444 10,916 1,667 (4) 14,527 14,527
500 (5)
Note receivable 770 770 770
Goodwill and other intangibles, 21,508 21,508
net 1,661 17,047 (4)
2,800 (5)
Other assets 523 1,615 2,138 2,138
---------- -------- --------- ----------- -------------
Total assets $ 6,022 $ 15,528 $ 44,464 $145,244
========== ======== ========= =========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued $ 841 $ 1,081 $ 2,250 (4) $ 4,172 $ 4,172
expenses
Accrued interest--stockholder 1,158 1,158 (1,158)(6) 0
Current portion of long-term 2,816 2,816
debt 3,316 500 (1)
(1,000)(2)
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) 1,400 (1,400)(6) 0
(920)(7)
Common stock 35 543 (3) 543 313 (6) 856
(35)(7)
Additional paid-in capital 8,964 14,881 (3) 14,881 123,531 (6)
(8,964)(7)
(214)(6) 138,198
Accumulated deficit (13,498) (10,292) 10,292 (7) (13,498) (13,498)
---------- -------- --------------- --------- -------------
Total stockholders' equity
(deficit) (13,498) (373) 3,326 125,556
---------- -------- --------- -------------
Total liabilities and
stockholders' equity $ 6,022 $ 15,528 $ 44,464 $145,244
========== ======== ========= =============
</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 Offering Pro Forma
CareMatrix Standish Adjustments Pro 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-- 1,406 1,406 1,406
related party
Community operating expense 3,209 3,209 3,209
Community rent expense 304 304 304
Selling, general and 931 931 931
administrative expense
Depreciation and amortization 65 393 341 (1)
expense
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 5,591 5,023 11,128 11,128
expenses
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 $ (0.43) $ (0.24)
Shares outstanding 10,866(5) 17,116 (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 Offering Pro Forma
CareMatrix Standish Adjustments Pro 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-- 2,123 2,123 2,123
related party
Community operating expense 5,961 5,961 5,961
Community rent expense 616 616 616
Selling, general and 2,347 2,347 2,347
administrative expense
Depreciation and amortization 3 680 682 (1)
expense
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 9,147 9,940 20,113 20,113
expenses
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 $ (0.97) $ (0.58)
Shares outstanding 10,866(5) 17,116(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 issuance of approximately 866,000 shares of Common Stock
(as adjusted to give effect to the Reverse Split) 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:
<TABLE>
<CAPTION>
<S> <C>
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
=========
</TABLE>
(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 6,250,000 shares of Common Stock and the use
of the net offering proceeds ($123,844 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:
<TABLE>
<CAPTION>
<S> <C>
Net proceeds to CareMatrix $123,844
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 (214)
----------
Net increase in cash $100,780
==========
</TABLE>
(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:
<TABLE>
<CAPTION>
Depreciation Expense
Adjustments
--------------------------
Year Ended Six Months
December Ended
Depreciable 31, June 30,
Item Amounts Lives 1995 1996
--------------------------------------------- ------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
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
=========== ===========
</TABLE>
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(dollar amounts in thousands)
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 pre-Reverse Split shares and the
4,330,000 pre-Reverse Split shares issued by CareMatrix in consideration
for Standish and the related merger costs, adjusted for the Reverse Split
to 10,866,000 shares in the aggregate.
(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 6,250,000 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, 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 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, the Reverse Split 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
Pro Forma As Adjusted (3)
Six Six
June 24, 1994 Year Ended Months Year Ended Months Year Ended Six Months
(Inception) to December Ended December Ended December Ended
December 31, 31, June 30, 31, June 30, 31, June 30,
1994 (1) 1995 (1) 1996 (1) 1995 (2) 1996 (6) 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 $ (0.97) $ (0.43) $ (0.58) $ (0.24)
Shares outstanding 10,866 10,866 17,116 17,116
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30, 1996
--------------------- ----------------------------------------------------
Pro Forma
1994 (1) 1995 (1) Historical (1) Pro Forma (5) As Adjusted (6)
--------- --------- --------------- -------------- ----------------
(Audited) (Unaudited) (Unaudited) (Unaudited)
Balance Sheet Data:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 2 $ 145 $ 2,028 $ 3,284 104,064
Working capital (deficit) 174 (691) 1,286 (3,038) 98,900
Total assets 330 2,410 6,022 44,464 145,244
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) 3,326 125,556
</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, the Asset Purchase and the Reverse Split
as if such transactions had occurred as of January 1, 1995. See
"Unaudited Pro Forma Financial Information."
(3) Gives effect to (i) the Merger, the Asset Purchase and the Reverse
Split and (ii) the sale of Common Stock offered hereby (assuming a
public offering price of $21.25 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 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 $21.25 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 October 4, 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 10,000,000 shares of its
Common Stock (as adjusted to give effect to the Reverse Split) 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 Company's 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. The Company's revenues following the Merger will
primarily consist of resident and management fees from the facilities it
owns, leases or manages, and development fees from the facilities it develops
for related and unrelated parties. The nature and amount of such revenues
will depend on the Company's ability to implement successfully its strategic
growth plans. See "Risk Factors" and "Business--Business Strategy." The
Company expects to incur losses from operations through at least the end of
1996 and may continue to have losses thereafter. See "Risk Factors--History
of Losses from Operations; Accumulated Deficit" and "--Dependence by the
Company on Related Party Agreements."
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
Company's 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. It is expected that once the Offering is
completed, Mr. 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 $98.9 million (including cash and cash
equivalents of $104.1 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. The Company and Chancellor are
presently in discussions with a number of parties to secure commitments
regarding sources of additional financing. Furthermore, the Company intends
to seek bank borrowings and other debt or equity financings to provide
additional sources of capital in the future. See "Risk Factors--Need for
Additional Financing."
25
<PAGE>
SELECTED FINANCIAL DATA OF STANDISH
(dollar amounts in thousands, except per share data)
The Merger 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 (as adjusted to give effect to the Reverse
Split).
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 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 $ 689 $ 1,193 $ 6,127 $ 7,702 $ 3,518 $ 4,380
Management fees and marketing
revenue 98 287 441 277 512 305 213
Development fees and
other revenue 83 30 97 305 222 158 77
------- -------- -------- -------- -------- -------- ---------
202 1,006 1,731 6,709 8,436 3,981 4,670
------- -------- -------- -------- -------- -------- ---------
Operating costs and expenses:
Community operating expense 162 1,179 1,013 5,042 5,961 2,750 3,208
Community rent expense -- -- -- 407 616 272 304
Selling, general and admin. expense 652 1,397 1,513 2,509 2,347 1,156 931
Depreciation and amortization 22 370 283 693 680 321 393
Provision for doubtful accounts -- 132 240 338 74 -- --
Severance costs -- -- -- -- 263 -- --
Transaction termination costs -- -- -- -- -- -- 186
Write-off of investments in development
projects -- -- -- 833 -- -- --
------- -------- -------- -------- -------- -------- ---------
Total operating costs and expenses 836 3,078 3,049 9,823 9,940 4,498 5,023
------- -------- -------- -------- -------- -------- ---------
Loss from operations (634) (2,072) (1,318) (3,114) (1,505) (518) (353)
Interest expense (168) (913) (352) (1,109) (1,500) (678) (824)
Interest income 44 145 42 20 153 81 29
Write-off of financing costs and other
related costs -- -- -- -- (528) -- --
Assignment fee from related party -- -- -- -- 1,000 -- --
Gain on sale of bonds -- -- 158 -- -- -- --
Gain on sale of land -- -- 376 -- -- -- --
Gain on sale of interest in affiliate -- 1,557 -- -- -- -- --
Other income -- -- -- -- -- -- 696
Minority interest 98 -- -- 31 87 50 48
------- -------- -------- -------- -------- -------- ---------
Loss before income taxes $ (660) $(1,282) $(1,094) $(4,172) $(2,293) $(1,065) $ (404)
------- -------- -------- -------- -------- -------- ---------
Provision for income taxes -- -- (1) -- -- -- --
------- -------- -------- -------- -------- -------- ---------
Net loss $ (660) $(1,282) $(1,095) $(4,172) $(2,293) $(1,065) $ (404)
======= ======== ======== ======== ======== ======== =========
Net loss per common share $ (5.25) $ (5.10) $ (4.75) $ (9.05) $ (3.55) $ (1.65) $ (0.65)
Weighted average number of common shares
outstanding 126 252 289 493 679 679 688
Balance Sheet Data:
Total assets $11,453 $ 3,505 $13,657 $13,419 $15,975 $17,600 $15,528
Convertible debt 231 -- -- 895 2,000 2,000 2,000
Long-term debt (excluding convertible
debt) 10,266 1,375 5,652 7,545 10,457 10,676 8,462
Stockholders' equity (deficit) (429) 927 6,065 2,327 18 1,211 (373)
</TABLE>
26
<PAGE>
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 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.
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<PAGE>
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:
<TABLE>
<CAPTION>
Year Ended Six Months
December 31, ended June 30,
1995 1994 1993 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
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)%
======= ======= ======= ======= =======
</TABLE>
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.
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.
28
<PAGE>
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.
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
29
<PAGE>
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.
Year ended December 31, 1995 Compared to the Year ended December 31, 1994
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
30
<PAGE>
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).
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,
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<PAGE>
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.
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.
Year ended December 31, 1994 Compared to the Year ended December 31, 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
32
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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, 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.
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
33
<PAGE>
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 ($20.80, adjusted to give effect
to the Reverse Split) 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 80,000
shares of Common Stock at an exercise price of $20.80 per share (as adjusted
to give effect to the Reverse Split).
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 shares of its Common Stock
for shares 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 eight
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
34
<PAGE>
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 $1.25 reduction in the initial
$20.00 per share conversion price (as adjusted to reflect the Reverse Split).
The conversion price at June 30, 1996 was $16.25 per share, as adjusted to
reflect the Reverse Split (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
pre-Reverse Split shares 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 pre-Reverse
Split warrants previously granted to Health Care REIT from $7.09 to $4.16 per
share (or from $35.45 to $20.80 per share, as adjusted to give effect to the
Reverse Split). To date, Standish has granted Health Care REIT, on account of
such financing, warrants to purchase approximately 7,167 shares of Common
Stock (as adjusted to give effect to the Reverse Split). The warrants are
exercisable from five to ten 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.
35
<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 nine 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 28 facilities, of which four 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/rehabilitation facilities and Alzheimer's care
programs, the Company believes that it will have the ability to provide a
less stressful transition for those of its residents who need a higher degree
of care to more supportive environments either within the same facility, in a
campus setting or in a nearby facility. The Company believes that by offering
such a continuum of care to its residents, it will be better able to respond
to resident needs than free-standing assisted living facilities that do not
provide the flexibility for their residents to age in place.
The Company intends to provide at all of its assisted living facilities a
full range of quality senior residential services that 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
within 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 generated
approximately $10 billion to $12 billion in revenues in 1995.
Generally, assisted living represents a combination of housing and 24-hour
per day personal support services designed to assist seniors with the
activities of daily living ("ADLs"), which include 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. The Company intends to provide
this range of services that will enable 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
companies 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
36
<PAGE>
Bureau, the portion of the U.S. population age 75 and older is expected to
increase by 28.7%, from approximately 13.0 million in 1990 to approximately
16.8 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.
Furthermore, 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
people to 4.8 million, or an increase of 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 income
of the elderly population has been increasing. Accordingly, the Company
believes that the number of seniors who are able to afford high-quality senior
residential services, such as those offered by the Company, has also increased.
In addition, the number of two-income households has increased over the
last decade and the geographical separation of senior family members from
their adult children has risen with the geographic mobility of the U.S.
population. As a result, many families that traditionally would have provided
the type of care and services offered by the Company to senior family members
are in less of 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
market regions. 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 less
stressful transition for its residents to environments with higher degrees of
care when required. The Company believes that by combining different levels
of care in a single 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 -------
----------
37
<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
serve nearly all income segments 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 lower income and
Medicaid-eligible individuals.
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 moderate income senior population. The
"Chancellor Gardens" models planned for these markets contain spacious
public areas, unit sizes 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 a variety of 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 units,
and provide a basic package of services in the monthly rate. The Company
operates such facilities in North Carolina and has targeted attractive
locations in Medicaid waiver states such as Florida, Georgia, Maryland and
Texas. See "--Government Funding."
Offer Personalized, Quality Care and Services. The Company's strategy
includes providing its residents with personalized, quality care and
services. The Company, through its facility-based 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 healthcare and social service staff in conjunction with the
resident, the 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. By positioning itself in
such cluster regions, the Company believes it can become the provider of
choice in a particular market 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. Regional markets currently targeted for cluster
development are located in a number of states, including 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, managed care
organizations and other referral sources 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.
38
<PAGE>
Service Models
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 service 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 only 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 service
categories that can be implemented either individually or in combination with
one another within the same facility or in a campus setting.
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 of services as an alternative
to 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 care 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 group.
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.
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 beyond the basic package. 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.
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
39
<PAGE>
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 more traditional
assisted living services.
Skilled Nursing/Rehabilitation. In certain cluster market regions, 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 setting or within 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 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 personnel 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,
typically 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 additional 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 employee awareness of the importance of
providing high quality care and services to residents.
Financial Management. Corporate personnel oversee cash management, billing
and collection, accounts payable, payroll and all other 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, care and services provided and the overall appearance
and cleanliness of the facility. See "--Business Strategy."
Marketing. The Company's marketing efforts are implemented on a regional
and local level, all under the supervision of the corporate marketing staff.
This structure 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 in which the Company is currently
operating and has targeted. 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
40
<PAGE>
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. Corporate personnel develop
the overall marketing strategies for each facility, produce all marketing
materials, maintain marketing databases, oversee direct 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 facility tours and providing
information to prospective 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: (i) the stand-alone assisted living facility, (ii) the
combined assisted living/supportive independent living facility, and (iii)
the stand- alone Alzheimer's care facility. Each combined facility
incorporates separate entrances for supportive independent living and
assisted living units. Community spaces are adjacent to a large lobby/living
room that opens into a secure courtyard. The assisted living and supportive
independent living areas are connected by a single story service core which
houses a combined kitchen and separate dining rooms that 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 design allows for greater development
flexibility and encourages social interaction. Current designs include
facilities ranging in size from 82 to 118 units for stand-alone assisted
living facilities. Combined assisted living/supportive independent living
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, range in size from 360 square
feet to 800 square feet and include a full kitchen and spacious walk-in
closets. Units in the Healthcare Services Model generally range in size from
320 square feet to 725 square feet, and many 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
television and telephone service.
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 Avg.
of Management Services Resident Rate/ Occupancy
Facility Location Care Level (1) Capacity Resident Rate
- --------------------------------------- ----------- ----------------- ----------------------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
OWNED/LEASED
- -------------
Florida
Bailey Suites (2) Gainesville Assisted Living Nov-94 14 $1,563 85%
Bailey Village (3) Gainesville Assisted Living Jul-92 72 1,482 88%
Courtyard at Lowry Place (4) (5) Tampa Alzheimer's Care Jan-94 74 1,638 50%
Maryland
Silver Spring (2) Silver Spring Skilled Nursing Sept-95 138 3,366 78%
New Hampshire
Sunny Knoll (6) Franklin Alzheimer's Care May-95 32 3,573 84%
North Carolina
Piedmont Village at Newton (2) Newton Assisted Living Mar-94 39 1,121 100%
Piedmont Village at Statesville (2) Statesville Assisted Living Mar-94 75 1,158 100%
Piedmont Village at Yadkinville (2) Yadkinville Assisted Living Mar-94 50 1,098 98%
Virginia
Dominion Village at Chesapeake (4) Chesapeake Assisted Living Nov-93 55 1,469 82%
Dominion Village at Poquoson (4) Poquoson Assisted Living Nov-93 45 1,956 92%
Dominion Village at Williamsburg (4) Williamsburg Assisted Living Nov-93 60 1,927 89%
------- -------- -------
Subtotal 654 1,986 86%
------- -------- -------
MANAGED (1)
- -------------
Connecticut
Westfield Court (7) Stamford Independent Living Sep-91 168 3,200 100%
Florida
Homestead Manor Homestead Skilled Nursing Dec-95 56 3,602 95%
Franco Miami Skilled Nursing Dec-95 120 6,357 49%
Massachusetts
Cadbury Commons (8) Cambridge Assisted Living Sept-96 82 N/A N/A
Courtland House of Leominster (9) Leominster Assisted Living May-96 74 2,461 25%
Standish Village at Lower Mills (10) Boston Assisted Living Apr-94 93 2,674 83%
Avery Crossing (7) Needham Assisted Living July-96 58 3,188 88%
Avery Manor (7) Needham Skilled Nursing July-96 142 7,766 74%
Pennsylvania
Fox Ridge Manor Dover Assisted Living Mar-96 136 1,313 86%
------- -------- -------
Subtotal 929 3,659 85%
------- -------- -------
Total 1,583 $2,968 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, subject to mortgages securing debt in the
aggregate amount of $1.1 million.
(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.
42
<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 over the next three years.
The Company believes that it is able to differentiate itself from many of
its competitors because of its in-house market research and development
capabilities. It has the ability to target potential markets, perform the
appropriate market studies, identify zoning issues 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 fees on a
percentage of completion basis. Development fees are intended to cover costs
and to return a targeted 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 third parties. The
Company expects that risks related to construction and the initial operation
of the facilities it develops will be borne primarily by related or 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 annual 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
initial term with three to four five-year fair market value renewal options.
There may also be an option to acquire the facility at fair market value at
the end of the initial term or option periods. The Company expects to
exercise the lease option at such time as the facilities reach stabilization.
The related party is likely to sell many of the developed facilities to REITs
(possibly including Meditrust, whose Chairman is Abraham D. Gosman) or other
financing sources; however, no such agreements are currently in place. 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 signing of a development contract, (ii) permitting and approvals
necessary to commence construction and (iii) completion of construction. Once
a market has been identified, site selection and signing of a development
contract 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.
43
<PAGE>
The following table sets forth certain information regarding facilities
for which the zoning, permitting or construction process has commenced and
which the Company is developing (except as noted) and/or expecting to manage.
For each of the locations set forth on the table, the anticipated owner has,
at a minimum, an option to purchase the real estate on which the facility is
to be or is being developed.
<TABLE>
<CAPTION>
Construction
Schedule
-------------------------
Resident Capacity Anticipated
-------------------------------- Post
Assisted Independent Skilled Anticipated Opening
Location Living Living Nursing Total Owner (1) Interest Status Start Completion
- ---------------- ------- ---------- ------- ----- ------------- ---------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Arizona
Yuma 80 40 -- 120 Joint Venture None Construction Commenced Q3-97
Peoria 80 40 -- 120 Joint Venture None Development Q1-97 Q4-97
Tucson 80 40 -- 120 Joint Venture None Development Q2-97 Q2-98
-------- ----------- -------- -----
240 120 0 360
Connecticut
Southington 96 -- -- 96 Joint Venture None Construction Commenced Q2-97
Darien 67 19 -- 86 Joint Venture Manager Construction Commenced Q3-97
Avon 108 -- -- 108 Third Party Manager Development Q4-96 Q3-97
Woodbridge 90 -- -- 90 Third Party Manager Development Q4-96 Q4-97
Cheshire 104 -- -- 104 Third Party Manager Development Q4-96 Q4-97
Ridgefield 55 70 -- 125 Related Party Manager (2) Development Q1-97 Q1-98
Milford 108 -- -- 108 Third Party Manager Development Q2-97 Q2-98
Hamden 108 -- -- 108 Third Party Manager Development Q2-97 Q2-98
-------- ----------- -------- -----
736 89 0 825
Florida
Palm Beach -- 101 -- 101 Related Party Manager (2) Construction(3) Commenced Q4-96
Jensen Beach 82 66 -- 148 Related Party Manager (2) Development Q1-97 Q4-97
Deerfield Beach 80 48 -- 128 Related Party Manager (2) Development Q1-97 Q4-97
Bonita Bay 82 66 -- 148 Related Party Manager (2) Development Q2-97 Q1-98
-------- ----------- -------- -----
244 281 0 525
Georgia
Atlanta 82 66 -- 148 Related Party Manager (2) Development Q1-97 Q1-98
Macon 82 66 -- 148 Related Party Manager (2) Development Q2-97 Q2-98
-------- ----------- -------- -----
164 132 0 296
Maine
Saco 30 -- -- 30 Related Party Manager (2) Development Q2-97 Q1-98
-------- ----------- -------- -----
30 0 0 30
Maryland
Ellicott City 82 66 -- 148 Related Party Manager (2) Development Q2-97 Q1-98
-------- ----------- -------- -----
82 66 0 148
Massachusetts(4)
Dedham -- -- 142 142 Related Party Manager (2) Construction(3) Commenced Q4-96
Millbury -- -- 154 154 Third Party None Construction Commenced Q4-96
-------- ----------- -------- -----
0 0 296 296
New Jersey
Princeton 83 -- 180 263 Related Party Manager (2) Construction(3) Commenced Q2-97
Park Ridge 100 -- 210 310 Related Party Manager (2) Development Q4-96 Q4-97
Livingston 118 -- -- 118 Related Party Manager (2) Development Q4-97 Q3-98
-------- ----------- -------- -----
301 0 390 691
New York(5)
Ossining 122 -- -- 122 Joint Venture Manager Construction Commenced Q2-97
Glen Cove 80 -- -- 80 Joint Venture Manager Development (3) Q4-96 Q3-97
Upper Nyack 148 -- -- 148 Related Party Manager (2) Development Q3-97 Q2-98
Great Neck 140 -- -- 140 Joint Venture Manager Development Q3-97 Q3-98
Rye Brook 166 -- -- 166 Joint Venture Manager Development Q3-98 Q3-99
-------- ----------- -------- -----
656 0 0 656
North Carolina
Durham 82 66 -- 148 Related Party Manager (2) Development Q4-96 Q4-97
-------- ----------- -------- -----
82 66 0 148
Texas
Houston 82 66 -- 148 Related Party Manager (2) Development Q4-96 Q3-97
-------- ----------- -------- -----
82 66 0 148
Virginia
Reston 82 66 -- 148 Related Party Manager (2) Development Q3-97 Q3-98
-------- ----------- -------- -----
82 66 0 148
Total 2,699 886 686 4,271
======== =========== ======== =====
</TABLE>
- -------------
(1) Joint Venture refers to a joint venture between Chancellor and a
third party.
(2) The Company has or intends to have an option to lease this facility.
(3) The Company will manage the facility on completion of construction
but does not have development rights.
(4) In addition, the Company derives earn-out revenues from four skilled
nursing facilities which it previously developed in Massachusetts but
does not currently manage.
(5) The New York facilities will be operated as senior residential
facilities with assisted living services to be provided by licensed
healthcare agencies.
44
<PAGE>
Facilities under development may not 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 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, operates and is
currently developing, 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-eligible residents 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 funding for assisted living has been limited. Some
state or local governments offer housing subsidies for rent or housing-
related services for low income seniors. 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.
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
45
<PAGE>
the low-income elderly eligible for nursing home placement (a "Medicaid
Waiver Program"). Under a Medicaid Waiver Program, states apply to the Health
Care Financing Administration 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 revenues 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. See "Risk Factors--Dependence on Reimbursement by Third Party
Payors."
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 facilities and
controlling reimbursement to the Company for services provided. Licensing,
certification and other applicable governmental regulations vary from
jurisdiction to jurisdiction and are revised periodically. It is not possible
to predict the content or impact of future legislation and regulations
affecting the health care industry. See "Risk Factors--Government
Regulation."
Many of the states in which the Company operates have adopted certificate
of need statutes applicable to the assisted living and 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 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
46
<PAGE>
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 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. Although the moratorium has been lifted, revenues at that
facility continue to be adversely affected.
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 Medicare and Medicaid programs. Although the Company does not receive
all 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 facilities maintain contracts with certain health
care providers and practitioners, including
47
<PAGE>
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. See "Risk Factors--Government Regulation."
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. See "Risk Factors--Liability and
Insurance."
Employees
As of September 30, 1996, the Company had approximately 300 full-time
employees. In addition, administrators of certain managed facilities, while
not employees of the Company, are under the supervision of the Company. None
of the Company's 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 facilities 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.
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.
48
<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.
<TABLE>
<CAPTION>
Name Age Position
-------------------- --- -------------------------------------------------
<S> <C> <C>
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
Michael J. Zaccaro 39 Executive Vice President--Operations
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
</TABLE>
Abraham D. Gosman has served as Chairman of the Board of Directors of the
Company since October 4, 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 October 4, 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 October 4, 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
October 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 October 4,
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
49
<PAGE>
structure, public and private financing, real estate development and
management. In addition, he has been a member 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
October 4, 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 October 4, 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
October 4, 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--Construction/Planning and Zoning of the Company since October 4,
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.
Michael J. Zaccaro has served as Executive Vice President--Operations of
the Company since October 4, 1996 and as Senior Vice President of Pre-Merger
CareMatrix from December 1995 until the closing of the Merger. From 1990 to
1995, Mr. Zaccaro served as a Senior Vice President of Continuum Care
Corporation and of GWZ Development Corp.
Marc H. Benson has served as Chief Operating Officer of the Company since
October 4, 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 October 4,
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 October
4, 1996. He has served as President, Chief Executive Officer and a director
of Palm Beach National Bank & Trust Company since June 1990.
50
<PAGE>
Rev. Bedros Baharian has served as a director of the Company since October
4, 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 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 October 4,
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 Rev. Baharian. 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 ten executive officers of
the Company aggregate $1,800,000. 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 $100,000 during the fiscal year ended
December 31, 1995 is set forth in the footnotes to the Summary Compensation
Table.
51
<PAGE>
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
Securities
Underlying
Name and Other Annual Options/SARs($) All Other
Principal Position Year Salary ($) Bonus ($) 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 pre-Reverse Split shares of its
Common Stock at a pre-Reverse Split 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 ($10.00 adjusted to give effect to
the Reverse Split), 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 under their respective
employment agreements. Mr. Doyle's 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."
52
<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 ($11.90 adjusted to give effect to the
Reverse Split). 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 (i) provides for a term through December 31,
1998, subject to renewal on a year-to-year basis, (ii) provides for an annual
base salary of $125,000 plus bonus compensation to be determined by the Board
of Directors in its sole discretion, and (iii) 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 average yearly 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 26,200 shares of
Common Stock at an exercise price of $20.00 per share vesting in equal
increments over three years beginning in August 1997 (as adjusted to reflect
the Reverse Split). 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
53
<PAGE>
substantially perform its duties under the 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 $25.00 (as adjusted to give effect to the Reverse Split) 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, his non-compete
note is subject to adjustment and Dr. Glovsky has the right to require the
Company to purchase up to 13,000 (as adjusted to give effect to the Reverse
Split) of his shares at a purchase price of $30.00 per share (as adjusted to
give effect to the Reverse Split).
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 9,000
shares of Common Stock at a purchase price of $11.90 per share (as adjusted
to reflect the Reverse Split). 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
54
<PAGE>
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. 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 October 3, 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 400,000
(as adjusted to give effect to the Reverse Split). 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 an aggregate of 1,701,180 shares of pre-Reverse Split
Common Stock were issued 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
pre-Reverse Split Common Stock for outstanding options to purchase a like
number of shares and the exercise price was set at $2.00 per share (the
closing sale price as reported by the Nasdaq Small Cap System for the trading
day immediately preceding the Board's determination to make such adjustment).
Directors who are not also employees of the Company are eligible to
participate in the Company's 1995 Non- Qualified Stock Option Plan. Under the
1995 Non-Qualified Stock Option Plan, each non- employee director, upon
becoming a director, is automatically granted options to purchase 1,200
post-Reverse Split shares of Common Stock, subject to vesting over three
years, and options to purchase additional shares hereafter are based upon the
formula provisions of said Plan. In June 1995, pursuant to the 1995
Non-Qualified Stock Option Plan, the Company granted options to purchase
1,200 post-Reverse Split shares of Common Stock to each of Messrs. DeVore and
Sterman and Dr. Rayport. Dr. Rayport surrendered his options when he resigned
as a director in July 1995.
OPTIONS GRANTS IN 1995
<TABLE>
<CAPTION>
Individual Grants
-----------------------------------------------------------------------
Number of Securities % of Total
Underlying Options Exercise or
Options Granted to Base Price
Name Granted(#) (1) Employees in 1995 ($/sh) (1) Expiration Date
- -------------------- -------------------- ------------------ ------------- ----------------
<S> <C> <C> <C> <C>
Michael J. Doyle 10,000 23.9% $11.90 7/1/05
Michael J. Brenan 9,000 21.5% $11.90 7/1/05
Kenneth M. Miles 7,000 16.7% $11.90 7/1/05
</TABLE>
- -------------
(1) As adjusted to give effect to the Reverse Split.
55
<PAGE>
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 10,000 and 5,000 shares, respectively (increased
upon consummation of the Merger to 100,000 and 50,000 shares, respectively,
and as adjusted to give effect to the Reverse Split), of Common Stock at an
exercise price of $14.70 per share, the closing sale price of the Common
Stock on the Nasdaq Small Cap System on the date of initial grant
authorization (adjusted to give effect to the Reverse Split). 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 October 1996, the Company adopted the 1996 Equity Incentive Plan (the
"Equity Plan") which provides for the award ("Award") of up to 1,200,000
shares of Common Stock (as adjusted to give effect to the Reverse Split) in
the form of incentive stock options ("ISOs"), non-qualified stock options
("Non-Qualified Stock Options"), restricted stock, performance shares 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 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, in the event of a consolidation or
merger in which the Company is not the surviving corporation of an
acquisition of substantially all the Company's shares or sale of
substantially all the Company's assets, then if the Committee so determines,
all outstanding Awards will terminate, provided that at least 20 days before
the effective date of such a corporate event, the Committee will either (i)
make all outstanding Awards exercisable immediately prior to the corporate
event, or (ii) if there is a surviving or acquiring corporation, arrange to
have that corporation or its affiliate grant to participants replacement
Awards. Common Stock subject to Awards that expire or are terminated prior to
exercise
56
<PAGE>
or Common Stock that 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.
The Equity Plan may be amended from time to time by the Committee 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. Furthermore, such amendment may not
affect adversely the rights of a participant with respect to any previously
made Award unless the participant consents.
Following the Merger, options to purchase approximately 460,000 shares of
Common Stock (as adjusted to give effect to the Reverse Split) 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 $14.75 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:
<TABLE>
<CAPTION>
June 24, 1994
(Inception) to Year Ended
---------------- ---------------
December 31,
------------------------------------
1994 1995
---------------- ---------------
<S> <C> <C>
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
================ ===============
</TABLE>
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%.
On September 1, 1996, the Company and a Chancellor Entity entered into a
Development and Turnkey Services Agreement (the "Global Services Agreement")
in connection with the development and management of assisted living,
supportive independent living and skilled nursing/rehabilitation facilities
by the Company for such Chancellor Entities. Pursuant to the Global Services
Agreement, upon the closing of the purchase of the real estate by the
Chancellor Entity and the receipt of final, non-appealable zoning approvals
for the facility to be developed, the parties expect to enter into a
development agreement, the form of which is attached to the Global Services
Agreement (the "Global Development Agreement"), prior to the commencement of
construction of the facility. The Global Development Agreement provides for a
development fee that the Company expects will range between 4% and 7% of
total project costs, depending on the individual transaction and determined
on the date of signing. Upon completion of the construction of a facility,
and pursuant to the Global Development Agreement, the parties will enter into
a management agreement, the form of which is attached to the Global
Development Agreement (the
57
<PAGE>
"Global Management Agreement"), pursuant to which the Company expects to earn
a management fee equal to approximately 5% of gross revenues. The Company
expects that each Global Management Agreement will have a 10 year term with
three five-year renewal options in favor of the Company. Each Global
Management Agreement is expected to contain an option granting the Company
the right to lease each facility at a fair market value rental to be a
negotiated percentage of total project costs determined on the date of
execution (the "Lease Option"). The Lease Option will have an initial 10-year
term and will grant the Company three to four five-year fair market value
renewal options. The Lease Option will contain an option to purchase the
facility at a price equal to the then fair market value. The Company also
expects that, to the extent solely development or solely management
opportunities present themselves with such Chancellor Entities, it will
utilize the Global Development Agreement or the Global Management Agreement
on a stand alone basis.
On July 3, 1996, the Company was assigned the right to co-develop and
manage an assisted/independent living facility in Darien, Connecticut from a
Chancellor Entity. The Company currently expects to enter into a Global
Development Agreement and a Global Management Agreement with Stony Brook
Court, LLC, in which a Chancellor Entity has a 50% interest.
On July 3, 1996, pursuant to an assignment agreement, the Company obtained
from a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Deerfield Beach, Florida and was
assigned rights under a purchase and sale agreement concerning a parcel of
land in such location by a Chancellor Entity. The Company simultaneously
assigned its rights under the purchase and sale agreement to another
Chancellor Entity. The Company expects to enter into a Global Development
Agreement and a Global Management Agreement relating to the proposed
Deerfield facility.
On July 3, 1996, pursuant to an assignment agreement, the Company obtained
from a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Macon, Georgia and assigned its
rights under a letter agreement dated June 3, 1996 granting a right to
purchase a parcel of land in such location to such Chancellor Entity. The
Company expects to enter into a Global Development Agreement and a Global
Management Agreement concerning the proposed Macon facility.
On July 3, 1996, pursuant to an assignment agreement, the Company obtained
from a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Livingston, New Jersey and assigned
its rights under a purchase and sale agreement, dated July 9, 1993, relating
to a parcel of land in Livingston to such Chancellor Entity. The Company
expects to enter into a Global Development Agreement and a Global Management
Agreement relating to the proposed Livingston facility.
On July 3, 1996, pursuant to an assignment agreement, the Company obtained
from a Chancellor Entity the right to develop an assisted/independent living
facility in Park Ridge, New Jersey and was assigned by such Chancellor Entity
its rights, duties and obligations under a management agreement with a third
party having an initial term of ten years and an option in favor of the
Company to renew for an additional ten year term. The Company is entitled to
receive as a management fee under such agreement a monthly fee equal to the
facility's positive cash flow each month, if any. The Company expects to
enter into a Global Development Agreement concerning this facility.
On July 3, 1996, pursuant to an assignment agreement, the Company was
granted by a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Jensen Beach, Florida and assigned to
such Chancellor Entity its right under a purchase agreement, dated February
27, 1996, relating to a parcel of land in Jensen Beach. The Company expects
to enter into a Global Development Agreement and a Global Management
Agreement relating to the proposed Jensen Beach facility.
On July 3, 1996, pursuant to an assignment agreement, the Company obtained
from a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Bonita Springs, Florida and assigned
to such Chancellor Entity its rights under an option agreement dated May 3,
1996 to purchase a parcel of land in Bonita Springs. The Company expects to
enter into a Global Development Agreement and a Global Management Agreement
relating to the proposed Bonita Springs facility.
On July 3, 1996, pursuant to an assignment agreement, the Company obtained
from a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Ridgefield, Connecticut and was
assigned rights under a purchase and option agreement concerning a parcel of
land in said location by a Chancellor Entity.
58
<PAGE>
The Company in turn assigned its rights under the purchase option agreement
to another Chancellor Entity. The Company expects to enter into a Global
Development Agreement and a Global Management Agreement relating to the
proposed Ridgefield facility.
On July 3, 1996, pursuant to an assignment agreement, the Company obtained
from a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Durham, North Carolina and assigned
its rights under a purchase agreement, dated May 29, 1996, relating to a
parcel of land in Durham to such Chancellor Entity. The Company expects to
enter into a Global Development Agreement and a Global Management Agreement
relating to the proposed Durham facility.
On July 3, 1996, pursuant to an assignment agreement, the Company was
granted by a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Atlanta, Georgia and assigned its
rights under four options to purchase certain parcels of land in that same
location to such Chancellor Entity. The Company expects to enter into a
Global Development Agreement and a Global Management Agreement relating to
the proposed Atlanta facility.
The Company is currently negotiating the specific terms of a Global
Management Agreement with a Chancellor Entity with respect to a senior
hotel/assisted living facility in Palm Beach, Florida currently being
developed by another party.
The Company expects to enter into agreements similar to the Global
Development Agreement and the Global Management Agreement with G&B Limited
Liability Company, in which a Chancellor Entity has a 50% interest, relating
to a facility to be located in Rye Brook, New York.
The Company expects to enter into separate Global Development Agreements
and Global Management Agreements with separate Chancellor Entities with
respect to assisted/independent living facilities in Saco, Maine, Ellicott,
Maryland, Upper Nyack, New York and Reston, Virginia.
The Company expects to enter into a Global Management Agreement with
respect to an assisted/independent living facility in Princeton, New Jersey.
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. The development agreement provides that the
Company will be paid a fixed price for the development, construction and
furnishing of the project. The Company expects to earn development fee income
to the extent the Company's total development costs are less than the
contract price.
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. The
development agreement provides that the Company will be paid a fixed price
for the development, construction and furnishing of the project; the Company
expects to earn development fee income to the extent the Company's total
development costs are less than the contract price.
The Company is currently negotiating a development agreement with Netwest
and Amber Lights Associates General Partnership, in which a Chancellor Entity
will have an 85% interest, to co-develop an assisted living/ supportive
independent living facility in Tucson, Arizona. The development agreement
will provide that the Company will be paid a fixed price for the development,
construction and furnishing of the Project; the Company expects to earn
development fee income to the extent its total costs are less than the fixed
price. In connection with the development of this facility, the Company was
assigned pursuant to an assignment agreement, dated July 3, 1996, rights
under a letter of intent, dated December 11, 1995, to participate in the
joint venture that will own the proposed Tucson facility and to develop such
facility for the joint venture. The Company in turn assigned its rights to
participate in the joint venture to another Chancellor Entity.
The Company has entered into a turnkey construction 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 is
entitled to a development fee of $200,000 and a construction supervision fee
of $5,000 per month during the course of construction of the project. The
Company has also entered
59
<PAGE>
into a management agreement, dated as of August 14, 1996, with Cambridge
House Partnership to manage this facility with a ten year initial term and
two five-year renewal options in favor of the Company. Pursuant to this
agreement, the Company shall receive a management fee equal to 5% of gross
revenues of the facility (less contractual adjustments for uncollectible
accounts).
The Company has entered into a management agreement, dated as of June 30,
1996, with a Chancellor Entity, to manage a facility in Dedham,
Massachusetts. Pursuant to this agreement, which extends for a 10-year
period, with three five-year renewal periods at the Company's option, the
Company shall receive a management fee equal to 5% of gross revenues of the
facility (less contractual adjustments for uncollectible accounts).
The Company has entered into a management agreement, dated June 30, 1996,
with a Chancellor Entity to manage skilled nursing and assisted living
facilities in Needham, Massachusetts. Pursuant to this agrement, which has a
20 year term with three five-year renewal periods at the Company's option,
the Company shall receive a management fee equal to 5% of gross revenues of
the facilities (less contractual adjustments for uncollectible accounts). The
Company acquired the management contract for the facilities from a Chancellor
Entity for $2.8 million in cash.
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 October 19, 1994, as amended, between Sun Healthcare Group,
Inc. and CCC of Florida, Inc. Pursuant to the Millbury construction contract,
the Company shall receive a development fee equal to the difference, if any,
between the contract price and the actual construction costs.
On October 3, 1996, the Company executed a turnkey construction contract
with Cragganmore Associates Limited Partnership ("Cragganmore"), in which a
Chancellor Entity has an 80% interest, to develop an assisted living facility
in Southington, Connecticut and pursuant to which the Company will receive a
development fee equal to the difference between the contract price and the
actual costs of development and construction. The Company was assigned the
right to enter into such contract pursuant to the assignment agreement, dated
July 3, 1996, with a Chancellor Entity, assigning to the Company the right to
develop this facility.
On July 3, 1996, pursuant to an assignment agreement, the Company obtained
from a Chancellor Entity the right to develop and manage an
assisted/independent living facility in Houston, Texas. On September 1, 1996,
the Company entered into a development agreement with such Chancellor Entity
which provides that the Company will earn a development fee of $875,000. The
Company also expects to enter into a management agreement substantially
similar to the Global Management Agreement.
On July 3, 1996, pursuant to an assignment agreement, the Company assigned
its rights, duties and obligations to a Chancellor Entity with respect to its
rights under a letter of intent to participate in the joint venture that
would own senior housing facilities to be developed in Glen Cove, Roslyn, and
Great Neck, New York and Wallingford, Connecticut. The Company retained the
rights under such letter of intent to develop and manage such facilities. On
October 3, 1996, the Company entered into a management agreement concerning
the proposed Glen Cove facility with a term of 15 years with two five-year
renewal options in favor of the Company and a management fee equal to 5% of
gross revenues. The Company expects to enter into a turnkey development
agreement with such Chancellor Entity to co-develop the senior housing
facility in Great Neck. Pursuant to this agreement the Company expects to
receive a development fee the amount of which will be negotiated prior to
construction.
The Company has entered into (i) an assignment agreement, dated as of June
6, 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, between West Bridgewater Medical
Investors Limited Partnership and Continuum Care of West Bridgewater, Inc.;
(ii) an assignment agreement, dated as of June 6, 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; (iii) an assignment agreement, dated as of June 6, 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; and (iv) an assignment agreement,
dated as of June 6, 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
60
<PAGE>
Corporation. The development of the facilities under each of the agreements
listed in clauses (i) through (iv) has been completed, and the Company is
entitled to receive future payments based upon occupancy levels and cash flow
coverage, the necessary minimum thresholds of which have not yet been
reached. In the aggregate, the Company expects to receive approximately
$1,000,000. Prior payments under these contracts were made to a Chancellor
Entity prior to the assignment of such agreements.
In July 1996, the Company purchased certain assets in connection with the
facility in Needham, Massachusetts from a Chancellor Entity at a purchase
price of $500,000.
Meditrust, a publicly traded real estate investment trust with assets in
excess of $1.7 billion and 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 accrues 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 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 $20.80 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 80,000 shares of Common Stock at
an exercise price equal to $20.80 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."
61
<PAGE>
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 October 4, 1996, by each Director and each Named Executive
Officer, by persons who beneficially own 5% or more of the outstanding shares
of Common Stock, by other Selling Stockholders 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.
<TABLE>
<CAPTION>
Shares of Common
Stock Beneficially
Owned After Offering
Shares of Common Assuming Full Exercise
Stock Beneficially of the Underwriters'
Name and Address of Beneficial Owner Owned Prior to Offering (1) Number of Shares Over-allotment Option (1)
- --------------------------------------- --------------------------- Being Sold Subject ----------------------------
to the Underwriters'
Number of Shares Percent(2) Over-allotment Option Number of Shares Percent(2)
---------------- ---------- ---------------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Abraham D. Gosman (3) 8,508,489 79.2% 829,027 7,783,103 45.8%
777 South Flagler Drive
West Palm Beach, FL 33401
Andrew D. Gosman 3,178,840 (4) 29.6% -- 3,178,840 (4) 18.7%
197 First Avenue
Needham, MA 02194
Michael M. Gosman 3,178,840 (4) 29.6% -- 3,178,840 (4) 18.7%
197 First Avenue
Needham, MA 02194
Michael J. Doyle 151,139 (5) 1.4% -- 151,139 (5) *
Kenneth M. Miles 60,900 (6) * -- 60,900 (6) *
Donald J. Amaral -- * -- -- --
H. Loy Anderson, Jr. 550 * -- 550 *
Rev. Bedros Baharian -- -- -- -- --
Stephen E. Ronai -- -- -- -- --
Jonathan R. Banton (7) 164,130 1.5% 16,120 148,044 *
Timothy J. Coburn (8) 54,347 * 5,338 49,020 *
Edward E. Goldman (9) 40,760 * 4,003 36,765 *
Joel A. Kanter (7) 200,000 1.9% 19,642 180,398 1.1%
Frederick R. Leathers (7) 111,413 1.0% 10,942 100,493 *
Kevin J. Maley (7) 40,760 * 4,003 36,765 *
Richard S. Mann (10) 81,644 * 8,018 73,990 *
Robert A. Miller (9) 111,413 1.0% 10,942 100,493 *
William A. Sanger (9) 81,521 * 8,006 73,531 *
Craig J. Wilkos (7) 54,347 * 5,338 49,020 *
Michael J. Zaccaro (7) 164,130 1.5% 16,120 148,044 *
All directors and executive officers as
a group (14 persons including certain of
the above-named individuals) 9,485,208 88.3% 864,789 8,620,419 50.7%
</TABLE>
- -------------
* Represents less than 1%.
62
<PAGE>
(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
9,000 shares subject to options held by Michael J. Brenan or the 12,704
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 10,740,775 shares of Common Stock as
of September 30, 1996, giving effect to the Reverse Split, (16,990,775
shares of Common Stock, giving effect to the Reverse Split, upon
completion of the Offering) and 27,000 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) Consists of (a) 703,432 shares of Common Stock owned directly, (b)
7,737,750 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 4,558,910 of such shares), and (c) 67,307 shares of Common
Stock currently issuable upon conversion of the Series B Preferred Stock
at an initial conversion price of $20.80 per share (as adjusted to give
effect to the Reverse Split), subject to customary anti-dilution
adjustments.
(4) 7,737,750 shares (71.9% 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 4,558,910 of the shares. Andrew and
Michael Gosman have shared voting power with respect to 3,178,840 shares.
(5) Includes 9,067 shares held by Mr. Doyle's spouse and 2,712 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) 10,000 shares which may be acquired
within 60 days pursuant to options dated as of February 28, 1995, (b)
10,000 shares which may be acquired within 60 days pursuant to options
dated as of July 1, 1995 and (c) 100,000 shares which may be acquired
within 60 days pursuant to the Management Options dated as of June 28,
1996.
(6) Includes (a) 10,900 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) 50,000 shares which may be acquired within
60 days pursuant to the Management Options dated as of June 28, 1996.
(7) The business address for the indicated Selling Stockholder is 197 First
Avenue, Needham, MA 02194.
(8) Mr. Coburn's address is 86 Juniper Lane, P.O. Box 1046, Glastonbury, CT
06033.
(9) The business address for the indicated Selling Stockholder is 777 South
Flagler Drive, Suite 1000E, West Palm Beach, Florida 33401.
(10) Mr. Mann's address is 55 William Street, Needham, Massachusetts 02194.
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 51.9% and 37.0% 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.
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<PAGE>
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, $.05
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 10,740,775 shares of Common Stock, 27,000 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.
Series A Preferred Stock
The Company has 27,000 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.
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<PAGE>
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 0.65122 to
reflect the eight dividends on the Series A Preferred Stock which Standish
(the predecessor of the Company) had failed to pay since approximately June
30, 1994 and the Reverse Split. 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. Because the Company had failed to pay dividends for four
quarterly dividend payment periods, 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. The holders of the Series A Preferred Stock
are entitled to one vote per share of Series A Preferred Stock.
The affirmative vote of the holders of 66-2/3% 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.
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.
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 340,236 shares
of Common Stock (as adjusted to give effect to the Reverse Split) 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.
65
<PAGE>
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 673 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.
The Series B Preferred Stock will be redeemed with the proceeds of the
Offering. See "Use of Proceeds."
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.
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
66
<PAGE>
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 & Trust, Inc. 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 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
67
<PAGE>
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
66-2/3% 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 80,000 shares
issuable to him on exercise of the warrants (excluding shares issuable upon
the conversion of the Series B Preferred Stock held by him that will be
redeemed by the Company with a portion of the net proceeds from this
Offering. See "Use of Proceeds.")
In addition, certain other stockholders have registration rights with
respect to an aggregate of approximately 243,133 shares (after giving effect
to the Reverse Split) of Common Stock upon the exercise of the outstanding
warrants and the convertible securities, exclusive of those held by Mr.
Gosman.
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 16,990,775 shares
of Common Stock outstanding. Of these shares, all of the 6,250,000 shares
sold in the Offering (7,187,500 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 9,485,208 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, its directors and executive officers and certain other
stockholders 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 the Underwriting Agreement 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.
69
<PAGE>
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:
<TABLE>
<CAPTION>
Name Number of Shares
- ---- ----------------
<S> <C>
Dean Witter Reynolds Inc.
NatWest Securities Limited
PaineWebber Incorporated
Robertson, Stephens & Company LLC
Smith Barney Inc.
----------------------
Total 6,250,000
======================
</TABLE>
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.
The Selling Stockholders have granted to the Underwriters an option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to an additional 937,500 shares of Common Stock pro rata from the
Selling Stockholders 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
70
<PAGE>
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 108,000 shares of Common
Stock (as adjusted to give effect to the Reverse Split) 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, its directors and executive officers and certain other
stockholders 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 the Underwriting Agreement 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.
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.
EXPERTS
The combined financial statements of CareMatrix 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.
71
<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>
<PAGE>
[CAREMATRIX LOGO]
[MAP OF THE UNITED STATES COLORED TO DEPICT STATES WHERE FACILITIES ARE
CURRENTLY UNDER DEVELOPMENT, UNDER CONSTRUCTION, OPERATED OR TO BE MANAGED BY
CAREMATRIX]
Total Resident
Location Capacity Status
- -----------------------------------------------------------
ARIZONA
Peoria 120 D
Tucson 120 D
Yuma 120 C
---
360
CONNECTICUT
Avon 108 D
Cheshire 104 D
Darien 86 C
Hamden 108 D
Milford 108 D
Ridgefield 125 D
Southington 96 C
Stamford 168 O
Woodbridge 90 D
---
993
FLORIDA
Bonita Bay 148 D
Deerfield Beach 128 D
Gainesville 14 O
Gainesville 72 O
Homestead 56 O
Jensen Beach 148 D
Miami 120 O
Palm Beach 101 C
Tampa 74 O
---
861
GEORGIA
Atlanta 148 D
Macon 148 D
---
296
MAINE
Saco 30 D
---
30
MARYLAND
Ellicott City 148 D
Silver Spring 138 O
---
286
MASSACHUSETTS
Boston 93 O
Cambridge 82 O
Dedham 142 C
Leominster 74 O
Millbury 154 C
Needham 58 O
Needham 142 O
---
745
NEW HAMPSHIRE
Franklin 32 O
---
32
NEW JERSEY
Livingston 118 D
Park Ridge 310 D
Princeton 263 C
---
691
NEW YORK
Glen Cove 80 D
Great Neck 140 D
Ossining 122 C
Rye Brook 166 D
Upper Nyack 148 D
---
656
NORTH CAROLINA
Durham 148 D
Newton 39 O
Statesville 75 O
Yadkinville 50 O
---
312
PENNSYLVANIA
Dover 136 O
---
136
TEXAS
Houston 148 D
---
148
VIRGINIA
Chesapeake 55 O
Poquoson 45 O
Reston 148 D
Williamsburg 60 O
---
308
D--Development C--Construction O--Operating/Managing
<PAGE>
[logo]
(formerly The Standish Care Company)
6,250,000 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.
<TABLE>
<CAPTION>
<S> <C>
Registration Fee $ 46,569
NASD Fee $ 14,875
American Stock Exchange
Listing Fee $ 50,000
Printing and Engraving Expenses $ 300,000
Legal Fees and Expenses $ 250,000
Accounting Fees and Expenses $ 175,000
Blue Sky Fees and Expenses $ 35,000
Miscellaneous $ 128,556
----------
TOTAL $1,000,000
==========
</TABLE>
- -------------
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 80,000 shares of Common Stock.
- -------------
*Does not reflect the Reverse Split.
In addition to the foregoing transactions, the Company has granted stock
options to purchase an aggregate of 201,040 shares of Common Stock to certain
of its officers and key employees under its Restated 1991 Combination Stock
Option Plan, an aggregate of 7,200 shares of Common Stock to three directors
under its 1995 Non-Qualified Stock Option Plan for Non-Employee Directors and
460,000 under its 1996 Equity Incentive Plan.
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>
- -------------
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------
<S> <C>
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)
3.11 Certificate of Amendment to Restated Certificate of Incorporation filed on October 3,
1996
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 30, 1996, between CMM and Continuum Care of
Dedham, Inc. (Dedham, Massachusetts) (*)
10.109 Management Agreement, dated as of July 1996, between CMM and Continuum Care of Needham,
Inc. (Needham, Massachusetts) (*)
10.110 Assignment Agreement, dated as of June 6, 1996, between CMM and Continuum Care of West
Bridgewater, Inc. (West Bridgewater, Massachusetts) (*)
10.111 Assignment Agreement, dated as of June 6, 1996, between CMM and Continuum Care of
Massachusetts, Inc. (Auburn, Massachusetts) (*)
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 6, 1996, between CMM and Continuum Care of
Massachusetts, Inc. (Plymouth, Massachusetts) (*)
10.114 Assignment Agreement, dated June 6, 1996, between CMM and Continuum Care of
Massachusetts, Inc. (Raynham, Massachusetts) (*)
10.115 Development Agreement, dated September 1, 1996, between CareMatrix of Cypress Station,
Inc. and Chancellor of Houston, Inc. (Houston, Texas) (*)
10.116 Assignment Agreement, dated July 3, 1996, by and among AMA Funding Corporation,
CareMatrix of Massachusetts, Inc., and Chancellor of Massachusetts, Inc. (Peoria,
Arizona) (*)
10.117 Turnkey Construction Agreement, dated August 14, 1996, by and among CMM, Atlantic on
the Hudson, LLC and Cambridge House Associates General Partnership (Ossining) (*)
10.118 Management Agreement, dated October 3, 1996, among CMM and The Mayfair at Glen Cove,
LLC and Hassett-Belfer Senior Housing, LLC. (Glen Cove, New York) (*)
10.119 Development Agreement, dated March 8, 1996, between CareMatrix of Emerald Springs Inc./
Netwest of Yuma, Inc. and Emerald Springs Associates General Partnership (Yuma) (*)
10.120 Development Agreement, dated August 28, 1996, between CareMatrix of Amethyst Arbor,
Inc./Netwest Development Corporation and Amethyst Arbor Associates General
Partnership (Peoria) (*)
10.121 [Intentionally Omitted]
10.122 Assignment Agreement, dated July 3, 1996, by and between Chancellor of Houston, Inc.
and CareMatrix of Massachusetts, Inc. (Houston, Texas) (*)
10.123 Assignment Agreement, dated July 3, 1996, by and between Continuum Care of
Massachusetts, Inc. and Chancellor of Massachusetts, Inc. (Ridgefield, Connecticut)
(*)
10.124 Assignment Agreement, dated June 6, 1996, by and between CCC of Florida, Inc. and
CareMatrix of Massachusetts, Inc. (Millbury, Massachusetts) (*)
II-8
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ---------- ---------------------------------------------------------------------------------------
10.125 Assignment Agreement, dated July 3, 1996, by and among AMA Funding Corporation,
CareMatrix of Massachusetts, Inc., and Chancellor of Massachusetts, Inc. (Tucson,
Arizona) (*)
10.126 Management Agreement, dated August 14, 1996, by and among CMM and Cambridge House
Associates General Partnership (Ossining) (*)
10.127 Assignment Agreement, dated July 3, 1996, by and between CarePlex of Southington, Inc.,
and Chancellor of Massachusetts, Inc. (Southington, Connecticut) (*)
10.128 Assignment Agreement, dated July 3, 1996, by and among The CarePlex Group, Inc.,
CareMatrix of Massachusetts, Inc. and Chancellor of Massachusetts, Inc. (Deerfield
Beach, Florida) (*)
10.129 Development Agreement, dated April 18, 1996, by and between Cheshire Care, LLC and
CareMatrix Corporation (Cheshire) (*)
10.130 Assignment Agreement, dated July 3, 1996, by and between CareMatrix of Massachusetts,
Inc. and Chancellor of Massachusetts, Inc. (Atlanta, Georgia) (*)
10.131 Purchase and Sale Agreement, dated May 1996, between CMM (f/k/a CareMatrix Corporation)
and Ensign-Bickford Realty Corporation (Avon, Connecticut) (*)
10.132 Assignment Agreement, dated July 3, 1996, by and between CareMatrix of Massachusetts,
Inc. and Chancellor of Massachusetts, Inc. (Macon, Georgia) (*)
10.133 Assignment Agreement, dated July 3, 1996, by and between CareMatrix of Massachusetts,
Inc. and Chancellor of Massachusetts, Inc. (Durham, North Carolina) (*)
10.134 Assignment Agreement, dated July 3, 1996, by and between CareMatrix of Massachusetts,
Inc. and Chancellor of Massachusetts, Inc. (Livingston, New Jersey) (*)
10.135 Assignment and Assumption of Management Agreement, dated July 3, 1996, by and between
CCC of New Jersey, Inc. and CareMatrix of Massachusetts, Inc. (Park Ridge, New
Jersey) (*)
10.136 Agreement, dated July 3, 1996, by and between CCC of New Jersey, Inc. and CareMatrix of
Massachusetts, Inc. (*)
10.137 Development Agreement, dated April 18, 1996, by and between Woodbridge Care, LLC and
CareMatrix Corporation (Woodbridge) (*)
10.138 Assignment Agreement, dated July 3, 1996, by and between CareMatrix of Massachusetts,
Inc., and Chancellor of Massachusetts, Inc. (Glen Cove, Roslyn, Great Neck,
Wallingford) (*)
10.139 Assignment Agreement, dated July 3, 1996, by and between CareMatrix of Massachusetts,
Inc. and Chancellor of Massachusetts, Inc. (Bonita Springs, Florida) (*)
10.140 Assignment Agreement, dated July 3, 1996, by and between CareMatrix of Massachusetts,
Inc. and Chancellor of Massachusetts, Inc. (Jensen Beach, Florida) (*)
10.141 Assignment Agreement, dated July 3, 1996, by and between CareMatrix of Stony Brook,
Inc. and CareMatrix of Massachusetts, Inc. (Darien, Connecticut) (*)
10.142 Agreement of Sale, dated September 6, 1996, by and between Reston Land Corporation and
CMM (Reston) (*)
10.143 Deposit Receipt and Sales Agreement, dated September 5, 1996, between Bonita Bay
Properties, Inc. and CMM (Bonita Bay, Florida) (*)
10.144 Development Agreement, dated April 18, 1996, by and between Cheshire Care, LLC and
CareMatrix Corporation (Cheshire) (*)
10.145 Development Agreement, dated April 18, 1996, by and between Woodbridge Care, LLC and
CareMatrix Corporation (Woodbridge) (*)
10.146 Global Services Agreement, dated September 1, 1996, between Chancellor Senior Housing
Group, Inc. and CMM (*)
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
II-9
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ---------- -------------------------------------------------------------------
23.07 Consent of Stephen E. Ronai
24.01 Powers of Attorney (contained in Page S-2 to the Registration Statement)
</TABLE>
- -------------
* To be filed by Amendment.
+ Filed herewith.
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
(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
II-10
<PAGE>
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
II-11
<PAGE>
THE STANDISH CARE COMPANY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charges to Charged to
beginning costs other Balance at end
Description of period and expenses accounts Deductions of period
- ------------------ ------------------ ------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
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 $ 0 $240,000 -- ($132,000) $108,000
Allowance for
doubtful
accounts -- 252,946 -- -- --
------------------ ------------- ------------- ---------- ---------------
Balance at
12/31/94 $108,000 $252,946 -- -- $360,946
Allowance for
doubtful
accounts -- 87,479 -- -- --
------------------ ------------- ------------- ---------- ---------------
Balance at
12/31/95 $360,946 $ 87,479 $ 0 $ 0 $448,425
================== ============= ============= ========== ===============
</TABLE>
S-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Amendment to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston, Commonwealth of Massachusetts, on October 4, 1996.
THE STANDISH CARE COMPANY
By: /s/ Robert M. Kaufman
-----------------------
Robert M. Kaufman
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below on this Amendment to Registration Statement hereby constitutes and
appoints Robert M. Kaufman, James M. Clary, III, and Michael J. Bohnen 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
Amendment to 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 Amendment
to 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/ Robert M. Kaufman
- --------------------- President and Treasurer October 4, 1996
Robert M. Kaufman (Principal Executive Officer and
Principal Accounting Officer)
- ---------------------
Abraham D. Gosman Chairman and Director October 4, 1996
/s/ Andrew D. Gosman
- ---------------------
Andrew D. Gosman Vice Chairman and Director October 4, 1996
/s/ Michael M. Gosman
- ---------------------
Michael M. Gosman Executive Vice President October 4, 1996
and Director
/s/ Michael J. Doyle
- ---------------------
Michael J. Doyle Chief Executive Officer October 4, 1996
and Director
</TABLE>
S-2
EXHIBIT 3.11
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
THE STANDISH CARE COMPANY
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
The Standish Care Company, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify as follows:
1. The name of the Corporation is The Standish Care Company, which is also
the name under which the Corporation was originally incorporated.
2. The original Certificate of Incorporation of the Corporation was filed
with the Secretary of State of Delaware on October 6, 1989. A Restated
Certificate of Incorporation was filed with the Secretary of State of Delaware
on November 18, 1991 (the "First Restated Certificate"), and a Restated
Certificate of Incorporation was filed with the Secretary of State of Delaware
on February 4, 1992 (the "Second Restated Certificate"). The Second Restated
Certificate has been amended by: (a) a Certificate of Amendment filed with the
Secretary of State of Delaware on August 23, 1993; (b) a Certificate of
Designations of Series A Cumulative Convertible Preferred Stock filed with the
Secretary of State of Delaware on August 31, 1993; (c) a Certificate of
Correction of Certificate of Designations of Preferred Stock filed with the
Secretary of State of Delaware on September 1, 1993; (d) a Certificate of
Retirement and Prohibition of Reissuance of Shares filed with the Secretary of
State of Delaware on October 21, 1993; (e) a Certificate of Amendment filed with
the Secretary of State of Delaware on June 8, 1994; (f) a Certificate for
Renewal and Revival of Certificate of Incorporation filed with the Secretary of
State of Delaware on May 3, 1995; (g) a Certificate of Amendment filed with the
Secretary of State of Delaware on June 30, 1995; and (h) a Certificate of
Designations of Series B Cumulative Convertible Preferred Stock filed with the
Secretary of State of Delaware on July 30, 1996.
3. The Second Restated Certificate, as amended, is hereby further amended by
striking out Article "FOURTH" thereof and by substituting in lieu thereof a new
Article "FOURTH," changing the total number of shares of stock which the
Corporation shall have authority to issue, to read as follows:
FOURTH: The total number of shares of stock which the Corporations shall
have authority to issue is:
75,000,000 shares of Common Stock, $0.01 par value per share; plus
345,268 shares of Preferred Stock, $0.01 par value per share.
IN WITNESS WHEREOF, the undersigned Chairman of the Board and Assistant
Secretary of The Standish Care Company have signed this Certificate of Amendment
of the Restated Certificate of Incorporation as of this 3rd day of October,
1996.
/s/ Michael J. Doyle
Michael J. Doyle, Chairman of the Board
ATTEST:
/s/ Kenneth M. Miles
Kenneth M. Miles, Assistant Secretary
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of Form S-1 (File No.
333-11455) of our report dated 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, 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
October 3, 1996
<PAGE>
EXHIBIT 23.02
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333-11455) 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
October 3, 1996
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, 1994) 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 No. 333-11455) and
prospectus of CareMatrix Corporation (formerly The Standish Care Company).
/s/ LOVELACE, ROBY & COMPANY, P.A.
LOVELACE, ROBY & COMPANY, P.A.
Certified Public Accountants
Orlando, Florida
October 3, 1996
