<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999.
/ / Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from --------- to ---------
COMMISSION FILE NUMBER: 0-19815
------------------------
CAREMATRIX CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3069586
(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
197 FIRST AVENUE, NEEDHAM, MA 02494
(Address of principal executive offices) (Zip Code)
(781) 433-1000
(Registrant's telephone number, including area code)
------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT MAY 11,
CLASS 1999
- ----------------------------------- --------------------------
<S> <C>
Common Stock, $.05 par value 18,029,197 shares
</TABLE>
- ---------------------------------------------------------
- ---------------------------------------------------------
<PAGE>
CAREMATRIX CORPORATION
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
FINANCIAL STATEMENTS
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998................................... 3
Consolidated Statements of Earnings for the three months ended March 31, 1999 and March 31, 1998......... 4
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 and March 31, 1998....... 5
Notes to Consolidated Financial Statements............................................................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................... 8
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK................................................. 12
PART II--OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS................................................................................. 13
ITEM 2: CHANGES IN SECURITIES............................................................................. 13
ITEM 5: OTHER INFORMATION................................................................................. 13
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.................................................................. 13
</TABLE>
2
<PAGE>
CAREMATRIX CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, 1999 1998
-------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 14,985,246 $28,217,373
Restricted cash........................................... 17,566,399 22,305,371
Receivables:
Accounts receivable, net................................ 29,271,571 25,334,127
Accounts receivable-related party....................... 24,613,110 21,662,515
Prepaid expenses and other current assets................. 6,143,369 4,875,075
-------------- ---------------
Total current assets................................ 92,579,695 102,394,461
Lease acquisition costs, net................................ 16,249,792 15,792,315
Property and equipment, net................................. 163,650,408 147,938,997
Other long-term assets, net................................. 57,530,773 41,023,981
Goodwill, net............................................... 42,098,289 42,496,693
-------------- ---------------
Total assets........................................ $ 372,108,957 $349,646,447
-------------- ---------------
-------------- ---------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 989,032 $ 848,600
Accounts payable.......................................... 10,294,646 9,315,591
Accrued compensation and benefits......................... 3,420,837 2,262,161
Accrued liabilities....................................... 12,461,262 14,800,794
Other current liabilities................................. 1,495,133 1,246,007
-------------- ---------------
Total current liabilities........................... 28,660,910 28,473,153
Mortgages and notes payable................................. 61,028,441 43,029,548
Borrowings under line of credit............................. 20,863,687 20,863,687
Convertible subordinated notes.............................. 115,000,000 115,000,000
Other long-term liabilities................................. 7,562,243 7,859,818
Commitments and contingencies
Shareholders' equity........................................ 138,993,676 134,420,241
-------------- ---------------
Total liabilities and shareholders' equity.......... $ 372,108,957 $349,646,447
-------------- ---------------
-------------- ---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
CAREMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
<S> <C> <C>
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
Revenues:
Resident operations............................................................ $ 38,400,412 $ 21,161,980
Resident operations--related party............................................. 5,881,700 2,586,386
Development fee income......................................................... 486,504 974,202
Development fee income--related party.......................................... 5,949,218 4,923,135
-------------- --------------
Total revenue............................................................ 50,717,834 29,645,703
-------------- --------------
Expenses:
Facility operating expenses.................................................... 26,326,830 15,466,910
Facility lease expense......................................................... 841,099 582,574
Facility lease expense--related party.......................................... 4,401,845 3,117,293
General and administrative..................................................... 5,174,785 4,464,136
Depreciation and amortization.................................................. 2,172,145 735,458
-------------- --------------
Total expenses........................................................... 38,916,704 24,366,371
-------------- --------------
Earnings from operations......................................................... 11,801,130 5,279,332
Other income (expense):
Interest income--related party................................................. 699,821 341,413
Interest and other income...................................................... 762,802 1,987,529
Interest expense............................................................... (3,515,544) (1,838,128)
-------------- --------------
Total other income (expense)............................................. (2,052,921) 490,814
-------------- --------------
Earnings before income taxes and preferred dividends............................. 9,748,209 5,770,146
Income taxes..................................................................... 3,850,543 2,400,381
-------------- --------------
Earnings before preferred dividends.............................................. 5,897,666 3,369,765
Preferred dividends.............................................................. 1,825 4,575
-------------- --------------
Net earnings..................................................................... $ 5,895,841 $ 3,365,190
-------------- --------------
-------------- --------------
Basic shares outstanding......................................................... 18,012,159 17,377,463
-------------- --------------
-------------- --------------
Basic earnings per share......................................................... $ 0.33 $ 0.19
-------------- --------------
-------------- --------------
Diluted shares outstanding....................................................... 22,383,985 18,013,269
-------------- --------------
-------------- --------------
Diluted earnings per share....................................................... $ 0.32 $ 0.19
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
CAREMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND MARCH 31, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
<S> <C> <C>
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
Net earnings..................................................................... $ 5,895,841 $ 3,365,190
Noncash items included in net earnings:
Depreciation of fixed assets................................................... 1,164,677 298,773
Amortization of intangible assets.............................................. 776,492 330,018
Amortization of lease acquisition costs........................................ 230,976 106,667
Increase in accounts receivable................................................ (6,799,606) (3,559,346)
Changes in current assets...................................................... (399,680) (401,748)
Increase in current liabilities................................................ (403,083) 682,165
Other noncash items............................................................ -- 28,350
-------------- --------------
Net cash provided by operating activities................................ 465,617 850,069
-------------- --------------
Cash flows from investing activities:
Additions to property and equipment, net....................................... (2,721,805) (701,954)
Purchase of SeniorCare Group, Ltd. facility.................................... (5,780,000) --
Increase in other long-term assets............................................. (15,408,837) (4,119,013)
Change in restricted cash...................................................... 4,738,972 (13,824,014)
Lease acquisition costs........................................................ (688,453) (3,633,358)
-------------- --------------
Net cash used by investing activities.................................... (19,860,123) (22,278,339)
-------------- --------------
Cash flows from financing activities:
Exercise of stock options and warrants......................................... 199,650 2,663,184
Repurchase of common shares.................................................... (1,513,992) --
Net proceeds from mortgage refinancing......................................... 8,736,198 --
Repayment of debt, net......................................................... (1,259,477) (267,590)
Other, net..................................................................... -- 42,048
-------------- --------------
Net cash provided by financing activities................................ 6,162,379 2,437,642
-------------- --------------
Decrease in cash and cash equivalents............................................ (13,232,127) (18,990,628)
Cash and cash equivalents, beginning of period................................... 28,217,373 152,619,435
-------------- --------------
Cash and cash equivalents, end of period......................................... $ 14,985,246 $ 133,628,807
-------------- --------------
-------------- --------------
Other noncash items:
Conversion of convertible debentures into equity............................... $ 2,000,000
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
CareMatrix Corporation (the "Company") develops, manages and operates
assisted living facilities and various other health care facilities.
The accompanying interim unaudited financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such regulations. The
financial statements reflect all adjustments and disclosures which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. All such
adjustments are of a normal recurring nature. The interim financial statements
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, for additional disclosures. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be achieved for the full year. Certain reclassifications
have been made on the prior year's financial statements to conform to the
current year's presentations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
2. RESTRICTED CASH
CASH COLLATERAL. Under the terms of an agreement to fix interest rates on
future leases with Chancellor Senior Housing Group, Inc., the Company is
required to maintain specified levels of cash collateral with a financial
institution. Interest on the funds held accrues to the benefit of the Company.
At March 31, 1999, the amount held as collateral was approximately $14.0
million. At December 31, 1998, the amount held was $19.1 million.
3. RELATED PARTY TRANSACTIONS
As used herein, a "Chancellor Entity" is Chancellor Senior Housing Group,
Inc. (a company primarily owned by Abraham D. Gosman, Chief Executive Officer
and Chairman of the Board of Directors of the Company, and certain members of
the Company's senior management) or a company in which Mr. Gosman and certain
members of the Company's senior management exercise significant control.
During the quarter ended March 31, 1999, the Company recognized revenue of
$5.1 million for marketing and management services provided to various
Chancellor Entities compared to revenue of $12.8 million for the year ended
December 31, 1998.
During the quarter ended March 31, 1999, the Company paid a Chancellor
Entity $2.0 million for development and management rights related to a senior
community in New Jersey. The development rights are being amortized as the
related fees are earned.
During the quarter ended March 31, 1999, the Company paid various Chancellor
Entities and partnerships $9.0 million related to prepaid rent for seven
facilities. The prepaid rent is being amortized over the terms of the related
leases.
The Company purchased two parcels of land from certain Chancellor Entities
for approximately $1.0 million.
6
<PAGE>
CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PURCHASE OF A SENIORCARE GROUP, LTD. FACILITY
The Company completed the acquisition of the tenth SeniorCare Group, Ltd.
facility in January 1999 (see Note 3 of Notes to Financial Statements included
in the Company's 1998 Annual Report on Form 10-K for the year ended December 31,
1998). In connection with the acquisition of this facility, the Company recorded
the related fixed assets at their estimated fair market value of $18.5 million
and assumed approximately $8.1 million in debt.
5. DEBT REFINANCING
During the quarter ended March 31, 1999, the Company refinanced certain
mortgage debt assumed in the SeniorCare acquisition. The new mortgage has a
principal amount of $16.7 million, bears interest at 30 day LIBOR plus 3% and
matures January 31, 2002. Interest payments are due monthly beginning in March
1999. The proceeds from the loan were used primarily to complete the acquisition
of SeniorCare and to repay the existing mortgage.
6. EARNINGS PER SHARE
Earnings per share has been computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per share."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1999
---------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- --------------------------------------------------------------------------- ------------ ------------ -----------
Earnings available to common shareholders.................................. $ 5,895,841 18,012,159 $ 0.33
Effect of dilutive securities:
Stock options and warrants............................................. -- 382,880
6.25% Convertible Debentures........................................... 1,164,571 3,982,684
Conversion of preferred stock.......................................... 1,774 6,262
------------ ------------ -----
Diluted earnings per share................................................. $ 7,062,186 22,383,985 $ 0.32
------------ ------------ -----
------------ ------------ -----
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- --------------------------------------------------------------------------- ------------ ------------ -----------
Earnings available to common shareholders.................................. $ 3,365,190 17,377,463 $ 0.19
Effect of dilutive securities:
Stock options and warrants............................................. -- 564,696
8.5% convertible debentures............................................ 12,961 71,110
------------ ------------ -----
Diluted earnings per share................................................. $ 3,378,151 18,013,269 $ 0.19
------------ ------------ -----
------------ ------------ -----
</TABLE>
7. REPURCHASE OF COMMON SHARES
In February 1999, the Company announced that its Board of Directors has
authorized a share repurchase program. The Company will offer to purchase up to
one million shares of its outstanding common stock from time to time in open
market transactions. As of March 31, 1999, the Company had repurchased 78,200
shares at an average price of $19.36.
8. SUBSEQUENT EVENTS
In April 1999, the Company was approved to be listed on the Nasdaq Stock
Market. The Company's common stock began trading under the symbol "CMDC" on
April 23, 1999.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a provider of assisted living services to the elderly. At
March 31, 1999, the Company operated 60 facilities in 18 states with a capacity
of approximately 7,300 residents. Of the facilities, 28 are owned/leased, and 32
are managed. In addition, the Company currently has under development 71
facilities with a capacity of approximately 11,000 residents. The Company
provides assistance with the activities of daily living and other personalized
support services in a residential setting for elderly residents who cannot live
independently but who do not need the level of medical care provided in a
skilled nursing facility. The Company also provides additional specialized care
and services to residents with certain low acuity medical needs and residents
with Alzheimer's disease or other forms of dementia. By offering this full range
of services, the Company is able to accommodate the changing needs of residents
as they age within a facility and develop further physical or cognitive
frailties.
The Company derives its revenues from three primary sources: (i) resident
fees for the delivery of independent and assisted living and other long-term
care services; (ii) management services income for management of and marketing
for facilities; and (iii) fee income from the development and construction of
facilities. Resident fees typically are paid monthly by residents, their
families or other responsible parties. Resident fees and management fees are
recognized as revenues when services are provided. Development fee revenue is
recognized on the percentage of completion basis using the achievement of
specific milestones in the development process.
The Company has made forward-looking statements in this Report (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or future results of operations of CareMatrix. Also, when the Company
uses words such as "believes," "expects," "anticipates" or similar expressions,
it is often, but not always, making forward-looking statements. Stockholders
should note that many factors could affect our future financial results and
could cause such results to differ materially from those expressed in our
forward-looking statements. Those factors include, but are not limited to, the
following:
- risks related to the Company's operating history and available financing;
- risks related to the Company's anticipated growth and acquisition
strategy;
- risks inherent in the construction and development industry;
- uncertainty about the changing regulatory environment;
- risks related to the Year 2000 problem;
- risks related to competition; and
- risks related to the Company's ability to attract and retain key
personnel.
THE QUARTER ENDED MARCH 31, 1999 COMPARED TO THE QUARTER ENDED MARCH 31, 1998
REVENUES. Resident operations revenue increased by $20.5 million for the
first quarter of 1999 compared to the same period in 1998. The increase is
comprised principally of revenue from facilities leased or owned for less than
one year, including $7.5 million from seven facilities acquired in the
SeniorCare Group, Ltd. ("SeniorCare") acquisition (see Note 3 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998), and from fees related to management
contracts and other services as a result of the increase in the number of
facilities under construction and in operation.
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THE QUARTER ENDED MARCH 31, 1999 COMPARED TO THE QUARTER ENDED MARCH 31, 1998
(CONTINUED)
Development fee income was $6.4 million in the first quarter of 1999 versus
$5.9 million in the same period in 1998. As a percentage of operating revenue,
development fee income in the first quarter of 1999 decreased to 12.7% from
19.9% in 1998.
FACILITY EXPENSES. Facility operating expenses were $26.3 million in the
first quarter of 1999 compared to $15.5 million in the same period of 1998, an
increase of $10.8 million. The increase is primarily due to an increase from
operating expenses from facilities leased or owned less than one year.
Facility lease expense was $5.2 million in the first quarter of 1999
compared to $3.7 million in the same period in 1998. The increase of $1.5
million is primarily due to facilities leased less than one year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
first quarter of 1999 increased to $5.2 million from $4.5 million in the same
period of 1998. As a percentage of operating revenue, general and administrative
expenses in the first quarter of 1999 declined to 10.2% from 15.1% in the first
quarter of 1998. The increase in absolute expense is due primarily to increases
in salary, benefits, travel, and advertising expenses relating to the hiring of
additional regional operational and marketing staff as a result of the Company's
continued growth.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first
quarter of 1999 increased $1.4 million compared to the same period in 1998. The
increase is due primarily to $1.1 million of depreciation from facilities open
less than one year and $0.3 million from the amortization of other intangible
assets.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE. Interest income for the
first quarter of 1999 was $1.5 million compared to $2.3 million for the same
period in 1998. The decrease is due to lower average cash balances during 1999
compared to 1998. Interest expense for the first quarter of 1999 increased to
$3.5 million from $1.8 million for the same period in 1998. The increase is
primarily due to interest expense of $1.1 million related to debt assumed in the
SeniorCare acquisition and $0.5 million from borrowings under the line of
credit.
INCOME TAXES. The Company's effective tax rate during the first quarter of
1999 was 39.5% compared to 41.6% in 1998. The decrease in the effective tax rate
is due to a reduction in the effective state tax rate to 4.5% for 1999 from 6.0%
for 1998.
THE QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997
REVENUES. Resident operations revenue increased by $13.9 million for the
first quarter of 1998 compared to the same period in 1997. The increase is
comprised of $11.6 million from facilities leased for less than one year and
$2.3 million from fees related to new management contracts as a result of the
increase in the number of facilities under construction and in operation.
Development fee income was $5.9 million in the first quarter of 1998 versus
$3.2 million in the same period in 1997. The increase is primarily due to higher
number of projects in development in 1998 compared to the number of projects in
1997.
FACILITY EXPENSES. Facility expenses for the first quarter of 1998
increased by $11.1 million compared to the same period in 1997. The increase in
facility expenses is comprised of an increase in lease expense of $2.3 million
and an increase in operating expenses of $8.8 million.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THE QUARTER ENDED MARCH 31, 1998 COMPARED TO THE QUARTER ENDED MARCH 31, 1997
(CONTINUED)
Facility lease expense was $3.7 million in the first quarter of 1998
compared to $1.4 million in the same period in 1997. The increase of $2.3
million is primarily due to facilities leased less than one year.
Facility operating expenses were $15.4 million in the first quarter of 1998
compared to $6.6 million in the same period of 1997, an increase of $8.8
million. The increase is primarily due to $8.3 million of operating expenses
from facilities leased less than one year. Comparable facility operating
expenses increased $0.6 million.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
first quarter of 1998 increased to $4.5 million from $3.6 million in the same
period of 1997. As a percentage of operating revenue, general and administrative
expenses in the first quarter of 1998 declined to 15.1% from 27.9% in the first
quarter of 1997. The increase in expense is primarily due to an increase in
salary and benefits expenses relating to the hiring of additional corporate
staff in anticipation of the Company's growth plans.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first
quarter of 1998 increased $0.2 million compared to the same period in 1997. The
increase is due primarily to $0.1 million of amortization of debt issuance costs
and $0.1 million of amortization of other intangible assets.
INTEREST INCOME. Interest income for the first quarter of 1998 was $2.3
million compared to $0.8 million for the same period in 1997. The increase is
primarily due to higher average cash balances due to the issuance in 1997 of
$115.0 million of 6 1/4% Convertible Subordinated Notes (the "Notes").
INTEREST EXPENSE. Interest expense for the first quarter of 1998 increased
to $1.8 million from $0.3 million for the same period in 1997. The increase is
primarily due to interest expense on the Notes.
INCOME TAXES. The Company's effective tax rate during the first quarter of
1998 was 41.6% compared to 40.2% in 1997. The increase in the effective tax rate
is due to the increase in the level of income subject to the federal tax rate of
35.0% for 1998, as compared to 34.0% for 1997, and the utilization in 1997 of
certain tax benefits that had been fully reserved in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents at March 31, 1999 were $15.0 million compared to
$28.2 million at December 31, 1998, a decrease of approximately $13.2 million.
Cash provided by operations was $0.5 million in the first quarter of 1999.
This is comprised of $8.1 million of net earnings before depreciation and
amortization offset by a $6.8 million increase in accounts receivable, primarily
from new facilities in development and operation, and a $0.8 million increase in
other working capital items.
Cash used in investing activities was $19.9 million in the first three
months of 1999 compared to a use of $22.3 million for the same period in 1998.
The use of cash was due to $5.8 million used to complete the SeniorCare
acquisition (see Note 4 of Notes to the Consolidated Financial Statements), $9.0
million used for prepaid rent for seven facilities, $2.7 million in additions to
property and equipment, $2.0 million used for the development and management
rights to a senior community, $1.0 million used for the purchase of two parcels
of lands, and $2.4 million used for purchase deposits on four parcels of land.
The Company
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
received $5.1 million from the return of cash held in a cash collateral account
(see Note 2 of Notes to the Consolidated Financial Statements).
Cash flows provided by financing activities were $6.2 million in the first
three months of 1999 compared to $2.4 million for the same period in 1998. The
increase is due primarily to the net proceeds from the mortgage refinancing (see
Note 5 of Notes to Consolidated Financial Statements) partially offset by $1.5
million used to repurchase the Company's common shares on the open market (see
Note 7 of Notes to Consolidated Financial Statements) and $1.3 million of debt
repayments, which includes $0.8 million related to assets held for sale (see
Note 5 of Notes to Consoldiated Financial Statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
The Company will require resources in the future to fund the planned
acquisition and development of additional assisted living, independent and
supportive independent and extended care facilities as well as its working
capital requirements and common stock repurchases. The Company expects to
partially fund these resource requirements with its cash on hand, borrowings
under its $35.0 million line of credit (of which $14.1 million was unused at
March 31,1999) as well as related party or third-party financing of facilities
under development or to be developed. Furthermore, the Company intends to seek
bank borrowings and other debt or equity financings to provide additional
sources of capital in the future. The Company is in the process of refinancing
some of the debt assumed in the SeniorCare acquisition and expects to raise
approximately $20.0 million through these refinancings.
YEAR 2000
The Year 2000 problem concerns the inability of information systems to
recognize properly and process date-sensitive information beyond December 31,
1999. In July 1998, the Company initiated a formal program to identify and
resolve Year 2000 issues. The scope of the program includes the investigation of
all Company functions and services, including embedded systems in what are not
traditionally considered information technology systems.
The Company has identified its resident billing and general ledger as
internal systems that present a high level of risk from a Year 2000 perspective.
The Company has also identified several key external systems that could pose a
significant risk to the Company: those of various governmental agencies,
particularly Medicare and Medicaid, its payroll provider, and its investment
management companies and other financial intermediaries. The Company has also
acquired several facilities and/or utilizes third-party management companies to
provide financial information. These acquired systems must also be brought into
the Company's program.
The Company has completed the planning and awareness and systems inventory
phases of the program. The assessment phase is scheduled to be completed in the
second quarter of fiscal 1999, with the correction phase being completed by the
third quarter of the same year. In April 1999, the Company completed the upgrade
of its general ledger system so that it is now Year 2000 compliant. The Company
is beginning the process of assessing the risk of supplier readiness, and in
selected cases will review the preparedness of individual suppliers for the Year
2000 problem.
The Company currently estimates the cost of the Year 2000 program will
approximate $200,000, with a range of plus or minus twenty-five percent. The
Company's corporate personnel who directly oversee functions at the facility
level will also assist in the Year 2000 program as part of their regular duties.
This is expected to help reduce Year 2000 costs. All costs, except long-lived
assets, are expensed as incurred.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
These costs include the costs of outside consultants, systems replacements, and
other equipment requirements. The costs incurred to date are not material.
Ultimately, the potential impact of the Year 2000 issue will depend not only
on the corrective measures the Company undertakes, but also on the way in which
the Year 2000 issue is addressed by governmental agencies, businesses and other
entities whose financial condition or operational capability is important to the
Company. Communications with significant third parties will be initiated to
determine the extent of risk created by those third parties' failure to
remediate their own Year 2000 issues; however, it is not possible, at present,
to determine the financial effect if their remediation efforts are not completed
in a timely manner. While the Company expects to resolve all Year 2000 risks
without a material adverse impact on its results of operations and financial
position, there can be no assurance as to the ultimate success of the program.
Uncertainties exist as to the Company's ability to detect all Year 2000 problems
as well as its ability to achieve successful and timely resolution of all Year
2000 issues. A "reasonably likely worst case" scenario of Year 2000 risks for
the Company could include the inability to receive reimbursement from Medicare
and Medicaid, and problems involving the inability of the Company's financial
intermediaries to accurately reflect the Company's cash position. The
consequences of these issues may include lost revenue and lower cash receipts.
The Company is unable to quantify the potential effect of these items on its
results of operations, liquidity, and financial position should some or a
combination of these events occur.
In addition, because the Company's day-to-day operations are heavily
dependent on its ability to communicate information throughout its network of
facilities, the Company would be particularly susceptible to any possible
effects that the Year 2000 issue has on local and national communications
systems, including without limitation, telephone and data lines, because of the
difficulty in implementing viable contingency plans. Any interruption or
malfunction of such systems could have a material adverse effect on the Company.
As the correction phase of the program is completed in mid-1999, the Company
expects to have developed contingency plans, which would augment existing
contingency plans, for the then current risks.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing and cash management activities. The
Company does not expect changes in interest rates to have a material effect on
income or cash flows for the year ended December 31, 1999, although there can be
no assurances that interest rates will not significantly change.
12
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to litigation in the ordinary course of business. The
Company does not believe that any such litigation will have a material adverse
effect on its business, financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a). The following exhibits are filed as part of this report:
3.01 Corrected Third Restated Certificate of Incorporation of CareMatrix
Corporation(2)
3.02 By-laws of CareMatrix Corporation, as amended through December 9, 1996(1)
10.00 Amendment to management agreement dated as of January 1, 1999 between Cambridge
House Associates General Partnership and CareMatrix of Massachusetts ("CMM")(*)
10.01 Amendment to management agreement dated as of January 1, 1999 between CCC of New
Jersey, Inc. and CMM (Park Ridge/AL)(*)
10.02 Amended and restated management agreement dated March 1, 1999 between CCC of New
Jersey, Inc. and CMM (Park Ridge/SNF)(*)
27 Financial Data Schedule(*)
(b). Reports on Form 8-K
None.
</TABLE>
- ------------------------
(*) Filed herewith.
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C> <C>
CAREMATRIX CORPORATION
By: /s/ ABRAHAM D. GOSMAN
-----------------------------------------
Abraham D. Gosman
CHIEF EXECUTIVE OFFICER
By: /s/ MICHAEL J. ZACCARO
-----------------------------------------
Michael J. Zaccaro
CHIEF OPERATING OFFICER AND
CHIEF ACCOUNTING OFFICER
</TABLE>
Dated: May 14, 1999
14
<PAGE>
Exhibit 10
AMENDMENT TO
MANAGEMENT AGREEMENT
THIS AMENDMENT TO MANAGEMENT AGREEMENT (this "Amendment") is dated as
of the 1st day of January, 1999, by and between CareMatrix of Massachusetts,
Inc., a Delaware corporation, with its principal place of business at 197 First
Avenue, Needham, Massachusetts 02494 (the "Manager"), and Cambridge House
Associates General Partnership, a New York general partnership, or its designee
or assignee, with its principal place of business at c/o Chancellor of Ossining,
Inc., 197 First Avenue, Needham, Massachusetts 02494 (the "Owner"), and amends
that certain Management Agreement dated as of August 14, 1996 between the
Manager and the Owner, as the same may have been previously amended to date.
WHEREAS, the Owner is the operator of a 122 unit senior housing
facility located in Ossining, New York (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company
to provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Owner and the Manager are parties to a certain Management
Agreement dated as of August 14, 1996 with respect the management of the
Facility (as previously amended to date, the "Original Agreement");
WHEREAS, the Owner and the Manager desire to amend the Original
Agreement, as more particularly set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Section 2.1 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"2.1 EMPLOYEES. The Manager shall recruit, evaluate, select,
and hire a qualified and properly licensed Executive Director who shall
be responsible for the functional operation of the Facility and
supervision of personnel at the Facility on a day-to-day basis, as well
as all resident assistance, custodial, food service, cleaning,
maintenance, secretarial and bookkeeping personnel for the day-to-day
operations of the Facility. Prior to the Conversion Date (hereinafter
defined) all personnel, including, without limitation, the Executive
Director, shall be employees of the Owner, and the Owner shall retain
full responsibility for payment of wages, salaries and other
compensation and benefits for the Executive Director and such other
personnel. Effective as of the Conversion Date, all such personnel,
including, without limitation, the Executive Director, shall be
employees of the Manager, and the Manager shall have full
responsibility for payment of wages, salaries and other compensation
and benefits of the Executive Director and such other personnel. The
Manager shall, subject to approval by the Owner, establish necessary
and desirable personnel policies and procedures, wage structures and
staff schedules. The Manager, subject to approval by Owner, shall have
authority to hire, discipline, promote and discharge employees of the
Owner
1
<PAGE>
who participate in the day-to-day operation and administration of the
Facility. Both the Manager and the Owner must approve the hiring and/or
firing of the Executive Director, Assistant Administrator and the
Director of Resident Services, which approval shall not be unreasonably
withheld or delayed. The Manager shall: (a) maintain or cause to be
maintained payroll records and prepare weekly and monthly payrolls,
withholding taxes and Social Security taxes; (b) prepare and submit all
required state and federal tax or benefit returns required with respect
to employees, including, without limitation, the returns required by
FICA, FUTA and all applicable unemployment compensation laws; (c)
maintain in force all required levels of workers' compensation
insurance; and (d) prepare and submit to the Owner any certificates of
payroll expenses as may be reasonably requested. Prior to the
Conversion Date, the Manager shall not be liable to any employee of the
Facility for wages, salaries and other compensation and benefits, or to
the Owner, unless the Manager was specifically required to obtain the
approval of the Owner before committing to a salary or benefit and such
approval was not obtained. The Manager shall not be liable to the Owner
or others for any action or omission on the part of any employee of the
Owner of the Facility, unless the employee was acting under the express
direction of the Manager or unless such employee was following an
express policy or procedure of the Manager and such direction, policy
or procedure is subsequently determined to be the result of gross
negligence. The Manager shall provide the Owner with quarterly reports
of all hiring, disciplinary actions, promotions and firings at the
Facility for the month."
2. Subsection 2.5(c) of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set
forth in any financing agreements executed in connection with any
Facility Financing (hereinafter defined) (any such financing agreement
or agreements are collectively referred to herein as a "Financing
Agreement")."
3 Section 3 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the
Manager shall pay itself, at its principal office as set forth above
(or at such other place as the Manager may from time to time designate
in writing), and at the times hereinafter specified, a monthly base
management fee (the "Base Management Fee") (i) for the period
commencing on the beginning of the Term and continuing until the date
(the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate
of occupancy permitting operation of the Facility for its intended
purpose, or (y) such date as is designated by the Manager in its sole
discretion, equal to the greater of (I) Ten Thousand Dollars ($10,000)
Dollars per month, or (II) five percent (5%) of Net Revenues
2
<PAGE>
(as hereinafter defined), and (i) for the period commencing on the
Conversion Date and continuing through the remainder of the Term, equal
to the sum of (x) all Facility Expenses (hereinafter defined), and (y)
the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II)
five percent (5%) of Net Revenues. In addition to the Base Management
Fee, as additional compensation for the services to be rendered by the
Manager during the Term, the Manager shall pay itself, at its principal
office as set forth above (or at such other place as the Manager may
from time to time designate in writing), and at the times hereinafter
specified, a monthly incentive management fee (the "Incentive
Management Fee") equal to eighty five percent (85%) of Net Cash Flow
(as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management
Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month
in which services were rendered. The Manager hereby acknowledges and
agrees that any and all Management Fees due hereunder shall be
subordinate to any Facility Financing, as well as to any preferred
returns to equity investors of the Owner. The Owner hereby represents
and warrants that as of the date hereof, there exists no Facility
Financing except that certain $16,664,000 mortgage loan by Finova
Capital Corporation, and that there are no preferred returns payable to
equity investors of the Owner. The Owner hereby covenants and agrees
with the Manager that at no time during the Term of this Agreement
shall (i) the total Facility Financing exceed the sum of (x) all costs
incurred by the Owner in connection with the acquisition, development,
construction and fill-up of the Facility, plus (y) all costs incurred
by the Owner in connection with any capital improvements to the
Facility, and (ii) the preferred returns payable to equity investors of
the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues
(defined below) less contractual adjustments for uncollectible
accounts.
"Gross Revenues" as used herein shall mean and include all
revenues received or receivable from or by reason of the operation of
the Facility, including, without limitation, all revenue of the
Facility for or on account of any and all goods provided and services
rendered or activities during the period from the date of this
Agreement and thereafter, the gross dollar amount of all such billings
by the Facility to or on behalf of residents directly or indirectly
connected with the Facility or the provision of all such goods and
services.
"Facility Expenses" as used herein shall mean and include all
personnel and other expenses incurred in connection with the operation
of the Facility, including, without limitation, all expenses described
in Section 4 below, but specifically excluding any Management Fees and
all Facility Financing.
"Net Cash Flow" as used herein shall mean the excess of (i)
all Net Revenue, over (ii) the sum of (x) all Facility Expenses, (y)
all Base Management Fees, and (z) all Facility Financing."
3
<PAGE>
4. Section 4 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and propertie
s of the Facility:
(a) Salary and expenses (including, without
limitation, payroll taxes, costs of employee benefit plans, travel,
insurance, and fidelity bonds) of all personnel employed by the Manager
to carry out all responsibilities detailed above.
(b) Salary and expenses (including, without
limitation, payroll taxes, cost of employee benefit plans, travel,
insurance and fidelity bonds) of all of the Manager's home office
personnel and overhead.
(c) From and after the Conversion Date, all expenses
described in Section 4.2 below, but specifically excluding any
Management Fees and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided
in this Agreement, the Owner shall bear all of the expenses of
operating and financing the Facility and rendering resident services
not expressly assumed by the Manager, including without limitation, the
following:
(a) Fees and expenses of independent professional
persons expressly retained by the Owner, or retained by the Manager for
the account of the Owner with the prior permission of the Owner, for
any purpose; salary, other compensation or benefits and expenses of all
staff employed at the Facility by the Owner, including, without
limitation, all administrative, medical, resident assistance and other
health care personnel and the Executive Director; custodial, food
service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations
of the Facility and to perform health care and related services in the
day-to-day operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition,
development, construction, and fill-up of Facility ("Facility
Financing").
(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner,
provided, however, that all interest and penalties incurred as a result
of the Manager's failure to timely file all returns which the Manager
is required to file pursuant to this Agreement, or to make timely
payment of all taxes, levies, imposts, or other charges, to the extent
4
<PAGE>
that sufficient funds were available to the Manager as of the date such
payments were due, shall be the responsibility of the Manager.
(d) Medical supplies and equipment, food, fuel,
kitchen and food service equipment, linens, beds, furniture, clothing
and all other supplies and equipment used in supplying services to
residents.
(e) Expenses connected directly or indirectly with
the design, acquisition, disposition or ownership of real and personal
property devoted, used, or consumed in the business of the Facility,
including, without limitation, purchase and/or construction of the land
and buildings used for such purpose, maintenance, repair and
improvement of property, all real estate and personal propertytaxes
assessed, premiums for property and liability insurance on property
owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is
a party. However, such fees shall not include those fees resulting from
or arising out of the gross negligence by the Manager and the Owner
shall provide such necessary funds to the Manager within 10 days after
receipt of such notice.
In the event that there are insufficient funds available to the Manager
to pay expenses which the Manager is authorized to incur and pay
hereunder, including, without limitation, any taxes to be paid on
behalf of the Owner by the Manager, the Manager shall promptly notify
the Owner of the amount necessary to cure and the reason for such
deficit and the Owner shall provide such necessary funds to the Manager
within 10 days after receipt of such notice."
5. Section 7.1 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"7.1 TERM. (a) This Agreement shall continue for a term
(as the same may be extended, the "Term") commencing on the date which
is 12 months prior to the anticipated date (as mutually agreed to by
the Owner and the Manager) for the opening of the Facility and
continuing for a period of 15 years after the date on which the
Facility receives its certificate of occupancy permitting the operation
of the Facility for its intended use. The Owner and Manager agree to
execute a certificate setting forth the date on which the Term
commences promptly after such opening.
(b) On the conditions that (i) the Manager is not in
default of its obligations hereunder beyond any applicable notice, cure
or grace period at the time of exercise, and (ii) the Facility has had
positive cash flow for each of the three years prior to the
commencement of the Extension Exercise Period (hereinafter defined),
the Manager shall have the option (each, an "Extension
5
<PAGE>
Option") to extend the Term for three additional periods of five years
each on the same terms and conditions as set forth in this Agreement.
Each Extension Option shall be exercised in writing by the Manager to
the Owner during the six month period (the "Extension Exercise Period")
commencing on the first day of the then last year of the Term."
6. Sections 13 and 14 of the Original Agreement are hereby deleted in
their entirety, and replaced with the following:
"13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager
will assign its interests in this Agreement, without the prior written
consent of the other; provided that (a) the Manager may assign (i) its
interests hereunder to an affiliate, and (ii) its Management Fees to a
lender as security for any financing arrangement of Manager, and (b)
the Owner may assign its interests hereunder to a lender as security
with respect to any Financing Agreement. Subject to the foreoging, this
Agreement shall be binding upon and inure to the benefit of the parties
and to their respective successors and assigns.
14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the
fee title holder to the Facility, or the land on which the Facility is
located, the Manager shall have the right to assume from the Owner any
option to purchase, right of first offer or right of first refusal
which the Owner may hold with respect to the Facility or the land on
which the Facility is located."
7. Section 16 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"16. NOTICES. Any notice, demand, consent, or other written
instrument to be given or received under this Agreement ("Notice")
required or permitted to be given shall be in writing signed by the
party giving such Notice and/or consent and shall be hand delivered,
sent by nationally recognized overnight carrier or sent, postage
prepaid, by Certified or Registered Mail, Return Receipt Requested, to
the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: General Counsel
As to Owner: Cambridge House Associates General Partnership
197 First Avenue
Needham, Massachusetts 02494
Attention: President
6
<PAGE>
Any party shall have the right to change the place to which such notice
shall be sent or delivered by similar notice sent in like manner to all
other parties hereto. All notices sent by certified mail or are hand
delivered shall be deemed received upon delivery or when delivery is
refused to the office or address of the addressee."
8. Except as modified by this Amendment, the terms and conditions set
forth in the Original Agreement shall remain unchanged and in full force and
effect.
[signatures on following page]
[remainder of this page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment, or caused
it to be executed by their respective duly authorized representatives, as an
instrument under seal as of the date first set forth above.
WITNESS: CAREMATRIX OF MASSACHUSETTS, INC.
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
----------------------- -----------------------------
Name: Elizabeth Derrico Name: David B. Currie
Title: Vice President
CAMBRIDGE HOUSE ASSOCIATES
GENERAL PARTNERSHIP
WITNESS: By: CHANCELLOR OF OSSINING, INC.,
general partner
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
----------------------- -----------------------------
Name: Elizabeth Derrico Name: David B. Currie
Title: Vice President
<PAGE>
Exhibit 10.1
AMENDMENT TO
MANAGEMENT AGREEMENT
THIS AMENDMENT TO MANAGEMENT AGREEMENT (this "Amendment") is dated as
of the 1st day of January, 1999, by and between CareMatrix of Massachusetts,
Inc., a Delaware corporation, with its principal place of business at 197 First
Avenue, Needham, Massachusetts 02494 (the "Manager"), and CCC of New Jersey,
Inc., a Delaware corporation, or its designee or assignee, with its principal
place of business at 197 First Avenue, Needham, Massachusetts 02494 (the
"Owner"), and amends that certain Management Agreement dated as of January 1,
1998 between the Manager and the Owner, as the same may have been previously
amended to date.
WHEREAS, the Owner is the operator of a 100 bed assisted/independent
living facility located in Park Ridge, New Jersey (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company
to provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Owner and the Manager are parties to a certain Management
Agreement dated as of January 1, 1998 with respect the management of the
Facility (as previously amended to date, the "Original Agreement");
WHEREAS, the Owner and the Manager desire to amend the Original
Agreement, as more particularly set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants set forth
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Section 2.1 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"2.1 EMPLOYEES. The Manager shall recruit, evaluate, select,
and hire a qualified and properly licensed Executive Director who shall
be responsible for the functional operation of the Facility and
supervision of personnel at the Facility on a day-to-day basis, as well
as all resident assistance, custodial, food service, cleaning,
maintenance, secretarial and bookkeeping personnel for the day-to-day
operations of the Facility. Prior to the Conversion Date (hereinafter
defined) all personnel, including, without limitation, the Executive
Director, shall be employees of the Owner, and the Owner shall retain
full responsibility for payment of wages, salaries and other
compensation and benefits for the Executive Director and such other
personnel. Effective as of the Conversion Date, all such personnel,
including, without limitation, the Executive Director, shall be
employees of the Manager, and the Manager shall have full
responsibility for payment of wages, salaries and other compensation
and benefits of the Executive Director and such other personnel. The
Manager shall, subject to approval by the Owner, establish necessary
and desirable personnel policies and procedures, wage structures and
staff schedules. The Manager, subject to approval by Owner, shall have
authority to hire, discipline, promote and discharge employees of the
Owner
<PAGE>
who participate in the day-to-day operation and administration of the
Facility. Both the Manager and the Owner must approve the hiring and/or
firing of the Executive Director, Assistant Administrator and the
Director of Resident Services, which approval shall not be unreasonably
withheld or delayed. The Manager shall: (a) maintain or cause to be
maintained payroll records and prepare weekly and monthly payrolls,
withholding taxes and Social Security taxes; (b) prepare and submit all
required state and federal tax or benefit returns required with respect
to employees, including, without limitation, the returns required by
FICA, FUTA and all applicable unemployment compensation laws; (c)
maintain in force all required levels of workers' compensation
insurance; and (d) prepare and submit to the Owner any certificates of
payroll expenses as may be reasonably requested. Prior to the
Conversion Date, the Manager shall not be liable to any employee of the
Facility for wages, salaries and other compensation and benefits, or to
the Owner, unless the Manager was specifically required to obtain the
approval of the Owner before committing to a salary or benefit and such
approval was not obtained. The Manager shall not be liable to the Owner
or others for any action or omission on the part of any employee of the
Owner of the Facility, unless the employee was acting under the express
direction of the Manager or unless such employee was following an
express policy or procedure of the Manager and such direction, policy
or procedure is subsequently determined to be the result of gross
negligence. The Manager shall provide the Owner with quarterly reports
of all hiring, disciplinary actions, promotions and firings at the
Facility for the month."
2. Subsection 2.5(c) of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set
forth in any financing agreements executed in connection with any
Facility Financing (hereinafter defined) (any such financing agreement
or agreements are collectively referred to herein as a "Financing
Agreement")."
3. Section 3 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the
Manager shall pay itself, at its principal office as set forth above
(or at such other place as the Manager may from time to time designate
in writing), and at the times hereinafter specified, a monthly base
management fee (the "Base Management Fee") (i) for the period
commencing on the beginning of the Term and continuing until the date
(the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate
of occupancy permitting operation of the Facility for its intended
purpose, or (y) such date as is designated by the Manager in its sole
discretion, equal to the greater of (I) Ten Thousand Dollars ($10,000)
Dollars per month, or (II) five percent (5%) of Net Revenues
2
<PAGE>
(as hereinafter defined), and (i) for the period commencing on the
Conversion Date and continuing through the remainder of the Term, equal
to the sum of (x) all Facility Expenses (hereinafter defined), and (y)
the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II)
five percent (5%) of Net Revenues. In addition to the Base Management
Fee, as additional compensation for the services to be rendered by the
Manager during the Term, the Manager shall pay itself, at its principal
office as set forth above (or at such other place as the Manager may
from time to time designate in writing), and at the times hereinafter
specified, a monthly incentive management fee (the "Incentive
Management Fee") equal to eighty five percent (85%) of Net Cash Flow
(as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management
Fee".
(b) All Management Fees will be paid in arrears and shall be
due and payable on or before the 15th day of each month following the
month in which services were rendered. The Manager hereby acknowledges
and agrees that any and all Management Fees due hereunder shall be
subordinate to any Facility Financing, as well as to any preferred
returns to equity investors of the Owner. The Owner hereby represents
and warrants that as of the date hereof, there exists no Facility
Financing except that certain $15,187,681 mortgage loan by Meditrust
Mortgage Investments, Inc., and that there are no preferred returns
payable to equity investors of the Owner. The Owner hereby covenants
and agrees with the Manager that at no time during the Term of this
Agreement shall (i) the total Facility Financing exceed the sum of (x)
all costs incurred by the Owner in connection with the acquisition,
development, construction and fill-up of the Facility, plus (y) all
costs incurred by the Owner in connection with any capital improvements
to the Facility, and (ii) the preferred returns payable to equity
investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues
(defined below) less contractual adjustments for uncollectible
accounts.
"Gross Revenues" as used herein shall mean and include all
revenues received or receivable from or by reason of the operation of
the Facility, including, without limitation, all revenue of the
Facility for or on account of any and all goods provided and services
rendered or activities during the period from the date of this
Agreement and thereafter, the gross dollar amount of all such billings
by the Facility to or on behalf of residents directly or indirectly
connected with the Facility or the provision of all such goods and
services.
"Facility Expenses" as used herein shall mean and include all
personnel and other expenses incurred in connection with the operation
of the Facility, including, without limitation, all expenses described
in Section 4 below, but specifically excluding any Management Fees and
all Facility Financing.
"Net Cash Flow" as used herein shall mean the excess of (i)
all Net Revenue, over (ii) the sum of (x) all Facility Expenses, (y)
all Base Management Fees, and (z) all Facility Financing."
3
<PAGE>
4. Section 4 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and
properties of the Facility:
(a) Salary and expenses (including, without
limitation, payroll taxes, costs of employee benefit plans, travel,
insurance, and fidelity bonds) of all personnel employed by the Manager
to carry out all responsibilities detailed above.
(b) Salary and expenses (including, without
limitation, payroll taxes, cost of employee benefit plans, travel,
insurance and fidelity bonds) of all of the Manager's home office
personnel and overhead.
(c) From and after the Conversion Date, all
expenses described in Section 4.2 below, but specifically excluding any
Management Fees and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided
in this Agreement, the Owner shall bear all of the expenses of
operating and financing the Facility and rendering resident services
not expressly assumed by the Manager, including without limitation, the
following:
(a) Fees and expenses of independent professional
persons expressly retained by the Owner, or retained by the Manager for
the account of the Owner with the prior permission of the Owner, for
any purpose; salary, other compensation or benefits and expenses of all
staff employed at the Facility by the Owner, including, without
limitation, all administrative, medical, resident assistance and other
health care personnel and the Executive Director; custodial, food
service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations
of the Facility and to perform health care and related services in the
day-to-day operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition,
development, construction, and fill-up of Facility ("Facility
Financing").
(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner,
provided, however, that all interest and penalties incurred as a result
of the Manager's failure to timely file all returns which the Manager
is required to file pursuant to this Agreement, or to make timely
payment of all taxes, levies, imposts, or other charges, to the extent
4
<PAGE>
that sufficient funds were available to the Manager as of the date such
payments were due, shall be the responsibility of the Manager.
(d) Medical supplies and equipment, food, fuel,
kitchen and food service equipment, linens, beds, furniture, clothing
and all other supplies and equipment used in supplying services to
residents.
(e) Expenses connected directly or indirectly with
the design, acquisition, disposition or ownership of real and personal
property devoted, used, or consumed in the business of the Facility,
including, without limitation, purchase and/or construction of the land
and buildings used for such purpose, maintenance, repair and
improvement of property, all real estate and personal property taxes
assessed, premiums for property and liability insurance on property
owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is
a party. However, such fees shall not include those fees resulting from
or arising out of the gross negligence by the Manager and the Owner
shall provide such necessary funds to the Manager within 10 days after
receipt of such notice.
In the event that there are insufficient funds available to the Manager
to pay expenses which the Manager is authorized to incur and pay
hereunder, including, without limitation, any taxes to be paid on
behalf of the Owner by the Manager, the Manager shall promptly notify
the Owner of the amount necessary to cure and the reason for such
deficit and the Owner shall provide such necessary funds to the Manager
within 10 days after receipt of such notice."
5. Section 7.1 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"7.1 TERM. (a) This Agreement shall continue for a term (as
the same may be extended, the "Term") commencing on the date which is
12 months prior to the anticipated date (as mutually agreed to by the
Owner and the Manager) for the opening of the Facility and continuing
for a period of 15 years after the date on which the Facility receives
its certificate of occupancy permitting the operation of the Facility
for its intended use. The Owner and Manager agree to execute a
certificate setting forth the date on which the Term commences promptly
after such opening.
(b) On the conditions that (i) the Manager is not in
default of its obligations hereunder beyond any applicable notice, cure
or grace period at the time of exercise, and (ii) the Facility has had
positive cash flow for each of the three years prior to the
commencement of the Extension Exercise Period (hereinafter defined),
the Manager shall have the option (each, an "Extension
5
<PAGE>
Option") to extend the Term for three additional periods of five years
each on the same terms and conditions as set forth in this Agreement.
Each Extension Option shall be exercised in writing by the Manager to
the Owner during the six month period (the "Extension Exercise Period")
commencing on the first day of the then last year of the Term."
6. Sections 13 and 14 of the Original Agreement are hereby deleted in
their entirety, and replaced with the following:
"13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager
will assign its interests in this Agreement, without the prior written
consent of the other; provided that (a) the Manager may assign (i) its
interests hereunder to an affiliate, and (ii) its Management Fees to a
lender as security for any financing arrangement of Manager, and (b)
the Owner may assign its interests hereunder to a lender as security
with respect to any Financing Agreement. Subject to the foreoging, this
Agreement shall be binding upon and inure to the benefit of the parties
and to their respective successors and assigns.
14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the
fee title holder to the Facility, or the land on which the Facility is
located, the Manager shall have the right to assume from the Owner any
option to purchase, right of first offer or right of first refusal
which the Owner may hold with respect to the Facility or the land on
which the Facility is located."
7. Section 16 of the Original Agreement is hereby deleted in its
entirety, and replaced with the following:
"16. NOTICES. Any notice, demand, consent, or other written
instrument to be given or received under this Agreement ("Notice")
required or permitted to be given shall be in writing signed by the
party giving such Notice and/or consent and shall be hand delivered,
sent by nationally recognized overnight carrier or sent, postage
prepaid, by Certified or Registered Mail, Return Receipt Requested, to
the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: General Counsel
As to Owner: CCC of New Jersey, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: President
6
<PAGE>
Any party shall have the right to change the place to which such notice
shall be sent or delivered by similar notice sent in like manner to all
other parties hereto. All notices sent by certified mail or are hand
delivered shall be deemed received upon delivery or when delivery is
refused to the office or address of the addressee."
8. Except as modified by this Amendment, the terms and conditions set
forth in the Original Agreement shall remain unchanged and in full force and
effect.
[signatures on following page]
[remainder of this page intentionally left blank]
7
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment, or caused
it to be executed by their respective duly authorized representatives, as an
instrument under seal as of the date first set forth above.
WITNESS: CAREMATRIX OF MASSACHUSETTS, INC.
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
----------------------- -----------------------------
Name: Elizabeth Derrico Name: David B. Currie
Title: Vice President
WITNESS: CCC OF NEW JERSEY, INC.
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
----------------------- -----------------------------
Name: Elizabeth Derrico Name: David B. Currie
Title: Vice President
<PAGE>
Exhibit 10.2
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT (this "Amendment") is
entered into on March 1, 1999, and is intended to be effective as of the 1st day
of January, 1999, by and between CareMatrix of Massachusetts, Inc., a Delaware
corporation, with its principal place of business at 197 First Avenue, Needham,
Massachusetts 02494 (the "Manager"), and CCC of New Jersey, Inc. (the "Owner"),
and amends and restates in its entirety that certain Management Agreement
originally entered into as of June 23, 1995 between the Manager's predecessor in
interest and the Owner's predecessor in interest, as the same may have been
previously amended, restated and assigned to date.
WHEREAS, the Owner is the operator of a 210 bed skilled nursing
facility located in Park Ridge, New Jersey (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company
to provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Manager has represented that it is experienced in the
management of similar facilities, is knowledgeable as to the state and federal
requirements governing the operation of senior housing facilities and that the
owners and employees of Manager are qualified management professionals;
WHEREAS, based upon the Manager's representations set forth herein, the
Owner has determined that the hiring of the Manager is cost-effective and
consistent with the Owner's desire to provide quality care to the residents at
the Facility at the lowest cost;
WHEREAS, the Owner has determined that the services provided by Manager
will augment the services provided by it and the employees of the Facility so as
to increase productivity;
WHEREAS, the Owner has determined that the hiring of the Manager on the
terms and conditions hereinafter set forth will not prevent the Owner from
exercising ultimate control over the policies and operations of the Facility;
and
WHEREAS, the Manager is willing to manage the day-to-day operations of
the Facility on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. GENERAL DUTIES. The Owner engages the Manager to manage and
supervise the Facility with the objective of providing quality care and services
to residents of the Facility and to carry out the general duties with respect to
the Facility under the general supervision and direction of the Owner which
include, but are not limited to, the following:
Supervise on behalf of the Owner, the performance of all such
administrative functions as may be necessary in the management of the Facility;
select, hire (or contract with), train, supervise, monitor the performance of,
and discipline, promote, terminate or fire (subject to the
<PAGE>
rights of the Owner under Section 2.1 of this Agreement to approve the hiring,
disciplining and termination of the Executive Director, the Assistant
Administrator and Director of Resident Services) all personnel involved in the
administration and day-to-day operation of the Facility, including, without
limitation, management, resident assistance and other related personnel,
custodial, food service, cleaning, maintenance and other operational personnel,
and secretarial or bookkeeping personnel; supervise the accounting, billing,
purchasing and bill payment functions for the Facility; establish systems of
accounts and supervise the maintenance of ledgers and other primary accounting
records by the personnel of the Facility; supervise the financial affairs of the
Facility; establish and supervise the implementation of operating and capital
budgets, including those required to establish reimbursement rates, if any, with
respect to state or federal entitlement programs as well as self-pay rates;
prepare and maintain true, complete and accurate records necessary for the
preparation of such operating budgets; determine which items of cost and expense
properly relate to resident care; establish and administer financial controls
over the operation of the Facility, develop and establish financial standards
and norms by which the income, costs and operations of the Facility may be
evaluated; serve as advisor and consultant in connection with policy decisions
to be made by the Owner; furnish reports to the Owner as the Owner may
reasonably request and provide the Owner with economic and statistical data in
connection with or relative to the operations of the Facility; represent the
Facility in its day-to-day dealings with creditors, residents, personnel, agents
for collection, and insurers; act as agent for the Owner in disbursing or
collecting the funds of the Facility and in paying the debts and fulfilling the
obligations of the Facility; coordinate and supervise a marketing plan for the
Facility to insure that the Facility obtains full occupancy as soon as possible
and, after the Facility has achieved full occupancy, assist in the development
of an annual marketing plan and budget to maintain the resident census at a
proper level; and do all other things necessary or proper for the daily
operation and management of the Facility, including everything necessary to
ensure compliance with all applicable local, state and federal laws governing or
applicable to senior housing facilities. In addition, in order to plan for
future operations and to establish long range policies and goals for the
Facility, the Manager will, under the general supervision of the Owner, meet on
at least a monthly basis with Owner's representatives and the Executive Director
to review financial and operational statistics of the Facility. The Executive
Director also will attend monthly regional administrator meetings and
educational programs.
The Manager further agrees that it will:
(a) perform its duties and responsibilities hereunder in compliance
with all applicable laws;
(b) supervise and direct the management and operation of the Facility,
exercising the degree of care used by an experienced management company, given
the financial resources available to the Facility, the location of the Facility,
the restrictions of applicable laws, and other existing circumstances; and
(c) consult with the Owner and keep the Owner advised as to all major
policy and business matters relating to the Facility.
2. SPECIFIC DUTIES. Without limiting the generality of the foregoing,
the Manager shall have the following specific duties:
2
<PAGE>
2.1 EMPLOYEES. The Manager shall recruit, evaluate, select, and
hire a qualified and properly licensed Executive Director who shall be
responsible for the functional operation of the Facility and supervision of
personnel at the Facility on a day-to-day basis, as well as all resident
assistance, custodial, food service, cleaning, maintenance, secretarial and
bookkeeping personnel for the day-to-day operations of the Facility. All
personnel, including, without limitation, the Executive Director, shall be
employees of the Manager, and the Manager shall have full responsibility for
payment of wages, salaries and other compensation and benefits of the Executive
Director and such other personnel. The Manager shall, subject to approval by the
Owner, establish necessary and desirable personnel policies and procedures, wage
structures and staff schedules. The Manager, subject to approval by Owner, shall
have authority to hire, discipline, promote and discharge employees of the Owner
who participate in the day-to-day operation and administration of the Facility.
Both the Manager and the Owner must approve the hiring and/or firing of the
Executive Director, Assistant Administrator and the Director of Resident
Services, which approval shall not be unreasonably withheld or delayed. The
Manager shall: (a) maintain or cause to be maintained payroll records and
prepare weekly and monthly payrolls, withholding taxes and Social Security
taxes; (b) prepare and submit all required state and federal tax or benefit
returns required with respect to employees, including, without limitation, the
returns required by FICA, FUTA and all applicable unemployment compensation
laws; (c) maintain in force all required levels of workers' compensation
insurance; and (d) prepare and submit to the Owner any certificates of payroll
expenses as may be reasonably requested. The Manager shall not be liable to the
Owner or others for any action or omission on the part of any employee of the
Owner of the Facility, unless the employee was acting under the express
direction of the Manager or unless such employee was following an express policy
or procedure of the Manager and such direction, policy or procedure is
subsequently determined to be the result of gross negligence. The Manager shall
provide the Owner with quarterly reports of all hiring, disciplinary actions,
promotions and firings at the Facility for the month.
2.2 PURCHASING. The Manager shall purchase, for the account of the
Owner, all necessary foodstuffs, supplies, materials, appliances, tools and
equipment necessary for the operation of the Facility. The Manager shall arrange
contracts on behalf of the Owner for electricity, gas, telephone, cable
television and any other utility or service necessary for the operation of the
Facility. The Manager shall, on behalf of the Owner, contract for and supervise
the making of any necessary repairs, alterations, and improvements to the
Facility; provided that in the case of any capital expenditure, alteration or
improvement, the cost of which exceeds Ten Thousand ($10,000) Dollars, the
Manager shall obtain the prior written approval of the Owner; and provided
further, that no such prior written approval shall be required if the
expenditure is made under circumstances reasonably requiring emergency action
(so long as the Manager attempts to notify the Owner on a concurrent basis). The
Manager shall prepare and submit to the Owner any certificates of purchasing
expenses incurred for the Facility as may be reasonably requested.
2.3 COLLECTION OF ACCOUNTS. The Manager shall supervise the
Facility bookkeeping personnel who shall prepare and submit bills and collect
for the account of the Owner any and all moneys owing to the Owner from
residents.
2.4 BOOKKEEPING. The Manager shall establish and maintain a record
and bookkeeping system for the operation and conduct of business of the Facility
in accordance with
3
<PAGE>
generally accepted accounting principles consistently applied. Books and records
at the Facility may be maintained by an employee of the Owner under the
supervision of the Manager. Full books of account with entries of all receipts
and expenditures related to the operation of the Facility shall be maintained at
the offices of the Manager and shall at all times during normal business hours
be open for inspection by representatives of the Owner.
2.5 FINANCIAL REPORTS. The Manager shall furnish to the Owner
the following financial reports:
(a) as soon as possible and not later than 30 days after the
close of each calendar month, a balance sheet as of the end of the month and a
statement of income and retained earnings for the month and for the
year-to-date, together with a comparison to the budget and a detailed statement
of receipts, disbursements, accounts payable and accounts receivable as of the
end of such monthly period; provided, however, that the computer services
charges connected with the preparation of such information shall not be an
expense of the Owner;
(b) as soon as possible, and not later than 60 days after the
close of each fiscal year, a year-end compilation report, including a balance
sheet as of the end of such year and a statement of income and retained
earnings; and
(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set forth in
any financing agreements executed in connection with any Facility Financing
(hereinafter defined) (any such financing agreement or agreements are
collectively referred to herein as a "Financing Agreement").
2.6 RESIDENTS. In accordance with the provisions of all applicable
state and federal statutes, as amended from time to time, the Manager shall use
its best efforts to maintain the resident census at the Facility in such numbers
and in such a manner as, in the Manager's judgment, will tend to maintain the
financial stability of the Facility and will comply with the covenants in any
Financing Agreement.
2.7 BUDGETS. The Manager shall prepare and submit for approval by
the Owner the following: (a) as soon as possible and not later than 30 days
before the close of each fiscal year, or on such earlier date as may be required
under any Financing Agreement, a detailed written capital and operating budget
for the next succeeding fiscal year, broken down by month and showing projected
expenditures and projected revenues for such budget period; and (b) such other
budgets as may be reasonably required of the Owner under any Financing Agreement
or by regulatory authorities showing, inter alia, projected ordinary and
extraordinary expenditures and protected revenues for such budget period.
2.8 INSURANCE. The Manager shall obtain, at the Owner's expense,
on behalf of the Owner and with the Owner's prior approval, all necessary
liability, fire and extended coverage, workers' compensation, and malpractice
insurance covering the Facility, its equipment, the employees of the Owner, and
the employees of Manager, if any, who relate to the operations of the Facility,
which policies of insurance shall name the Owner and the Manager as coinsured
and which policies shall comply with the terms of any Financing Agreement. The
Owner shall bear the expense of the above with respect to the Owner's employees,
equipment and the Facility. The
4
<PAGE>
Manager shall bear the expense of the above with respect to the Manager's
employees, if any. Such insurance shall be written by a responsible insurance
company or companies reasonably satisfactory to the Owner in kinds and amounts
and a certificate of insurance shall by provided to the Owner. The Owner shall
retain the right to designate any insurance agent or agency of its choice
through which such insurance shall be obtained.
2.9 TECHNICAL AND PROFESSIONAL SERVICES. The Manager may, with the
prior approval of the Owner and at the Owner's expense, secure such engineering,
legal, and other specialized technical and professional services as may be
necessary to advise or represent the Owner in connection with any matter
involving or arising out of the ownership and operation of the Facility or the
conduct of affairs of the Facility.
2.10 MARKETING. The Manager shall agree to coordinate and
supervise the agreed upon marketing plan for the Facility during the fill-up
phase (the "Marketing Plan"). Monthly statistical census analysis reports will
be generated by the Manager and delivered to the Owner. The Manager will
recommend adjustments in the Marketing Plan as needed to achieve full occupancy.
For purposes of this Agreement, the Facility will be considered to have achieved
full occupancy when ninety percent (90%) of its units have been occupied for a
continuous 90 day period. The Manager will assist the management staff in the
continued development and coordination of advertising and promotional materials,
internal and external public relations programs, sales and staff development
programs, and customer satisfaction programs. The Manager shall assist the
Facility's management staff to develop a yearly Marketing Plan and budget based
upon the Facility's yearly census program and image.
2.11 ADMINISTRATIVE. The Manager shall recommend the establishment
of, and implement and supervise procedures to provide staff review of all
operational areas, which status shall be reviewed in regularly scheduled
quarterly meetings and at other meetings as may be deemed necessary or desirable
by the Owner.
2.12 PLANT AND MAINTENANCE.
(a) attention shall be given to preventive maintenance (this
item may be provided by outside parties if economically feasible) and, to the
extent deemed feasible by the Manager and the Owner, the services of regular
Facility maintenance employees shall be used; and
(b) the Manager shall make recommendations to the Owner
regarding entering into contracts with qualified independent contractors for the
maintenance and repair of air conditioning systems and laundry equipment and for
extraordinary repairs beyond the capability of regular Facility maintenance
employees.
3. MANAGEMENT FEE. (a) As compensation for the services to be rendered
by the Manager during the Term (as hereinafter defined), the Manager shall pay
itself, at its principal office as set forth above (or at such other place as
the Manager may from time to time designate in writing), and at the times
hereinafter specified, a monthly base management fee (the "Base Management Fee")
equal to the sum of (i) all Facility Expenses (hereinafter defined), and (ii)
the greater of (x) Ten Thousand Dollars ($10,000) per month, or (y) five percent
(5%) of Net
5
<PAGE>
Revenues. In addition to the Base Management Fee, as additional compensation for
the services to be rendered by the Manager during the Term, the Manager shall
pay itself, at its principal office as set forth above (or at such other place
as the Manager may from time to time designate in writing), and at the times
hereinafter specified, a monthly incentive management fee (the "Incentive
Management Fee") equal to eighty five percent (85%) of Net Cash Flow (as
hereinafter defined). The Base Management Fee and the Incentive Management Fee
are collectively referred to herein as the "Management Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month in which
services were rendered. The Manager hereby acknowledges and agrees that any and
all Management Fees due hereunder shall be subordinate to any Facility
Financing, as well as to any preferred returns to equity investors of the Owner.
The Owner hereby represents and warrants that as of the date hereof, there
exists no Facility Financing except that certain $16,147,880 mortgage loan by
Meditrust Mortgage Investments, Inc., and that there are no preferred returns
payable to equity investors of the Owner. The Owner hereby covenants and agrees
with the Manager that at no time during the Term of this Agreement shall (i) the
total Facility Financing exceed the sum of (x) all costs incurred by the Owner
in connection with the acquisition, development, construction and fill-up of the
Facility, plus (y) all costs incurred by the Owner in connection with any
capital improvements to the Facility, and (ii) the preferred returns payable to
equity investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues
(defined below) less contractual adjustments for uncollectible accounts.
"Gross Revenues" as used herein shall mean and include all
revenues received or receivable from or by reason of the operation of the
Facility, including, without limitation, all revenue of the Facility for or on
account of any and all goods provided and services rendered or activities during
the period from the date of this Agreement and thereafter, the gross dollar
amount of all such billings by the Facility to or on behalf of residents
directly or indirectly connected with the Facility or the provision of all such
goods and services.
"Facility Expenses" as used herein shall mean and include all
personnel and other expenses incurred in connection with the operation of the
Facility, including, without limitation, all expenses described in Section 4
below, but specifically excluding any Management Fees and all Facility
Financing.
"Net Cash Flow" as used herein shall mean the excess of (i) all
Net Revenue, over (ii) the sum of (x) all Facility Expenses, (y) all Base
Management Fees, and (z) all Facility Financing.
4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and properties of the
Facility:
6
<PAGE>
(a) Salary and expenses (including, without limitation,
payroll taxes, costs of employee benefit plans, travel, insurance, and fidelity
bonds) of all personnel employed by the Manager to carry out all
responsibilities detailed above.
(b) Salary and expenses (including, without limitation,
payroll taxes, cost of employee benefit plans, travel, insurance and fidelity
bonds) of all of the Manager's home office personnel and overhead.
(c) Fees and expenses of independent professional persons
expressly retained by the Owner, or retained by the Manager for the account of
the Owner with the prior permission of the Owner, for any purpose; salary, other
compensation or benefits and expenses of all staff employed at the Facility by
the Owner, including, without limitation, all administrative, medical, resident
assistance and other health care personnel and the Executive Director;
custodial, food service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations of the
Facility and to perform health care and related services in the day-to-day
operations of the Facility's business.
(d) Taxes, imposts, levies or other charges on the existence,
operation, receipts, income or property of the Owner, provided, however, that
all interest and penalties incurred as a result of the Manager's failure to
timely file all returns which the Manager is required to file pursuant to this
Agreement, or to make timely payment of all taxes, levies, imposts, or other
charges, to the extent that sufficient funds were available to the Manager as of
the date such payments were due, shall be the responsibility of the Manager.
(e) Medical supplies and equipment, food, fuel, kitchen and
food service equipment, linens, beds, furniture, clothing and all other supplies
and equipment used in supplying services to residents.
(f) Expenses connected directly or indirectly with the design,
acquisition, disposition or ownership of real and personal property devoted,
used, or consumed in the business of the Facility, including, without
limitation, purchase and/or construction of the land and buildings used for such
purpose, maintenance, repair and improvement of property, all real estate and
personal property taxes assessed, premiums for property and liability insurance
on property owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is a party.
However, such fees shall not include those fees resulting from or arising out of
the gross negligence by the Manager and the Owner shall provide such necessary
funds to the Manager within 10 days after receipt of such notice.
4.2 OWNER EXPENSES. Except as otherwise expressly provided in this
Agreement, the Owner shall bear all of the expenses of operating and financing
the Facility and rendering resident services not expressly assumed by the
Manager, including, without limitation, the following:
7
<PAGE>
(a) Principal, interest and discounts on indebtedness incurred
or assumed by the Owner with respect to the acquisition, development,
construction and fill-up of Facility ("Facility Financing").
(b) The Management Fee.
In the event that there are insufficient funds available to the Manager to
pay expenses which the Manager is authorized to incur and pay hereunder, the
Manager shall promptly notify the Owner of the amount necessary to cure and the
reason for such deficit and the Owner shall provide such necessary funds to the
Manager within 10 days after receipt of such notice.
4.3 DEPOSIT AND DISBURSEMENT OF FUNDS.
(a) The Manager shall establish and administer the overall
rate structure of the Facility and shall supervise the issuance of bills and the
collection of accounts as the true and lawful attorney-in-fact for the Owner.
The Manager shall take possession of and endorse the name of the Owner on all
notes, checks, money orders, insurance payments, and any other instruments
received in payment of accounts described below.
(b) The Manager shall establish such accounts for the Facility
in the Owner's name, separate from all other accounts and funds of the Manager,
with a bank or banks whose deposits are insured by the Federal Deposit Insurance
Corporation ("FDIC") or with a savings and loan institution or institutions
whose deposits are insured by the Federal Savings and Loan Insurance Corporation
("FSLIC") as it deems necessary or desirable. The Manager, on behalf of the
Owner, shall use reasonable efforts to collect (using legal counsel approved by
the Owner, if necessary) all sums due and owing to Owner in connection with the
operation of the Facility. The Manager and the Owner shall deposit into such
accounts all monies furnished by the Owner as working funds and all receipts and
monies arising from the operation of the Facility or otherwise received by the
Owner or by the Manager for or on the behalf of the Owner.
(c) Draws on such accounts may be made by the sole signature
of an authorized representative of the Manager (or by wiring instructions from
such authorized representative of the Manager) and shall be paid to the Manager
to reimburse the Manager for payments made pursuant to this Agreement by the
Manager from its own accounts. The Owner hereby appoints the Manager, for the
term of this Agreement, as the Owner's true and lawful attorney-in-fact to
withdraw, by writing checks against such accounts, funds for reimbursement of
all amounts payable pursuant to this Agreement in connection with the operation
of the Facility. The Owner agrees to execute from time to time any additional
documents required by any bank wherein such documents are held to effectuate all
powers of attorney referred to herein. The Manager shall make disbursements and
payments from such accounts, on behalf and in the name of the Owner, in such
amounts and at such times as are deemed by the Manager to be appropriate or
required in connection with, first, payments required by any Financing
Agreement, and second, payments of ownership, maintenance and operating expenses
of the Facility and the other costs, expenses and expenditures provided for in
this Agreement including the Management Fee.
8
<PAGE>
5. DUTY OF MANAGER. The Manager shall render the services called for
hereunder in the utmost good faith and the Manager acknowledges that it is
acting in a fiduciary capacity with respect to the Owner and owes the Owner the
highest duty of care.
6. RELATIONSHIP OF THE PARTIES. The Owner and the Manager are neither
partners nor joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose on any
of them any liability as partners or joint venturers. All dealings between the
Owner and the Manager are at arms length as between non-related parties.
7. TERM AND TERMINATION.
7.1 TERM. (a) This Agreement shall continue for a term (as the
same may be extended, the "Term") commencing on June 23, 1995 and continuing for
a period of 15 years after the date on which the Facility receives its
certificate of occupancy permitting the operation of the Facility for its
intended use.
(b) On the conditions that (i) the Manager is not in default
of its obligations hereunder beyond any applicable notice, cure or grace period
at the time of exercise, and (ii) the Facility has had positive cash flow for
each of the three years prior to the commencement of the Extension Exercise
Period (hereinafter defined), the Manager shall have the option (each, an
"Extension Option") to extend the Term for three additional periods of five
years each on the same terms and conditions as set forth in this Agreement. Each
Extension Option shall be exercised in writing by the Manager to the Owner
during the six month period (the "Extension Exercise Period") commencing on the
first day of the then last year of the Term.
7.2 TERMINATION FOR CAUSE. Either party may terminate this
Agreement by delivering 30 days written notice (a "Termination Notice") to the
other party in the event that any of the following occurs:
(a) any illegal act engaged in by any party in the operation
of the Facility;
(b) if any party files or has a petition or complaint in
receivership or bankruptcy filed against it which has not been dismissed within
90 days of such filing; or
(c) the breach by any party (the "Breaching Party") of any
other material provision in, or obligation imposed by, this Agreement which
violation shall have not been cured to the reasonable satisfaction of the other
party (the "Claiming Party") within 30 days following the date on which the
Claiming Party delivers notice to the Breaching Party describing with
specificity both the claimed breach and the actions required to be taken in
order to cure the claimed breach; PROVIDED that in the event that the claimed
breach is not reasonably susceptible of being cured within 30 days, the cure
period shall be extended for such additional time as may be reasonably required,
PROVIDED FURTHER that in the event that the Claiming Party delivers a
Termination Notice and the Breaching Party commences legal proceedings
contesting the termination within 30 days following delivery of the Termination
Notice, then this Agreement shall not terminate unless and until a final
judicial resolution of such legal proceedings beyond the expiration of any
appeal period has been issued upholding said termination.
9
<PAGE>
7.3 TERMINATION FOR FAILURE TO PAY FEE ON A TIMELY BASIS. In
addition to the provisions of Section 7.2 above, the Manager may terminate this
Agreement upon thirty (30) days written notice of the Owner's failure to pay the
Management Fee when due unless the Owner cures the payment default within 10
days after receiving written notice from the Manager.
8. INDEMNIFICATION. The Owner shall indemnify the Manager and hold it
harmless of, for, and against all costs, claims, damages or expenses, including
reasonable attorney's fees (collectively "Costs"), incurred or suffered by the
Manager and arising out of acts performed within the scope of this Agreement.
Notwithstanding the foregoing, the Owner shall not have any obligation to
indemnify the Manager or hold it harmless of, from, and against Costs incurred
or suffered by the Manager as a result of the Manager's fraud, willful
misconduct, or gross negligence, or for Costs incurred or suffered by the
Manager as a result of the Manager's failure to keep true, accurate and complete
records. The Manager shall indemnify the Owner and hold it harmless of, from and
against all Costs incurred or suffered by the Owner as a result of any of the
Manager's fraud, willful misconduct, or gross negligence, or as a result of the
Manager's failure to submit proper reports to the appropriate regulatory
agencies or to keep true, accurate and complete records.
9. ACCESS TO BOOKS AND RECORDS. As a subcontractor that may be subject
to Section 1861(v) (1) (i) of the Social Security Act (the "Act"), the Manager
shall, upon written request and in accordance with the above-mentioned section
of the Act and regulations promulgated pursuant thereto, make available to the
Comptroller General, the Secretary of Health and Human Services, and their duly
authorized representatives, a copy of this Agreement and access to the Manager's
books, documents, and records necessary to verify the nature and extent of the
costs of services provided to the Owner. Such access will be available until the
expiration of four years after the services to which the costs are related have
been furnished.
The provisions of this Section shall apply only if this Agreement is
covered by the Act and such provisions shall become void and shall be of no
further force or effect if, at the time a request is made, this Agreement is not
subject to the Act. The Manager agrees that if it carries out any of the duties
of this Agreement through a subcontract with a related organization which
subcontract has a value or cost of $10,000 or more over a 12 month period, the
Manager will obtain an identical access requirement in such subcontract.
10. FIDELITY BOND. The Manager agrees to obtain a fidelity bond,
employee dishonesty insurance policy or other similar coverage, in form and
amount satisfactory to the Owner, covering those employees reasonably required
to by covered by the Owner.
11. AMENDMENTS. This Agreement shall not be changed modified,
terminated, or discharged, in whole or in part, except by an instrument in
writing signed by the Owner and the Manager, their respective successors or
assigns, or otherwise as provided herein. Such modifications shall be in writing
and signed by the Owner and the Manager.
12. GOVERNING LAW. The provisions of this Agreement shall be governed
by, construed, and interpreted in accordance with the laws of the Commonwealth
of Massachusetts. Any change in any applicable law which has the effect of
rendering any part of this Agreement invalid, illegal, or unenforceable shall
not render the remainder of this Agreement invalid, illegal,
10
<PAGE>
or unenforceable, and the parties hereto agree that in the event that any part
of this Agreement is rendered invalid, illegal, or unenforceable, that they
shall negotiate in good faith to amend any such part of this Agreement so as to
comply with any such law, as amended, and further the respective objectives of
the parties hereto.
13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager will
assign its interests in this Agreement, without the prior written consent of the
other; provided that (a) the Manager may assign (i) its interests hereunder to
an affiliate, and (ii) its Management Fees to a lender as security for any
financing arrangement of Manager, and (b) the Owner may assign its interests
hereunder to a lender as security with respect to any Financing Agreement.
Subject to the foregoing, this Agreement shall be binding upon and inure to the
benefit of the parties and to their respective successors and assigns.
14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the fee
title holder to the Facility, or the land on which the Facility is located, the
Manager shall have the right to assume from the Owner any option to purchase,
right of first offer or right of first refusal which the Owner may hold with
respect to the Facility or the land on which the Facility is located.
15. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
16. NOTICES. Any notice, demand, consent, or other written instrument
to be given or received under this Agreement ("Notice") required or permitted to
be given shall be in writing signed by the party giving such Notice and/or
consent and shall be hand delivered, sent by nationally recognized overnight
carrier or sent, postage prepaid, by Certified or Registered Mail, Return
Receipt Requested, to the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: General Counsel
As to Owner: CCC of New Jersey, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: President
Any party shall have the right to change the place to which such notice shall be
sent or delivered by similar notice sent in like manner to all other parties
hereto. All notices sent by certified mail or are hand delivered shall be deemed
received upon delivery or when delivery is refused to the office or address of
the addressee.
11
<PAGE>
17. PROPERTY: Trade names, marketing material, marketing ideas and
development material and records developed specifically for and related to this
Facility shall be the property of the Owner. Trade names, ideas and documents,
forms and development material not developed specifically for this Facility are
to be considered proprietary and will remain the property of the Manager. All
operational forms and documents including, but not limited to, policy and
procedure manuals, operational forms, level of care determination systems,
management policy books, inspection control manuals, and nursing management
books are and will remain the property of the Manager. All financial management
forms, documents and software systems including, but not limited to, bookkeeping
manuals, financial forms, financial spreadsheets, database or word processing
forms, financial accounting packages and outcome information systems are and
will remain the property of the Manager. Upon termination of this Agreement, the
Owner shall have the option to purchase operational material belonging to the
Manager, except for the financial accounting packages and outcome information
systems, at a mutually agreed upon price.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original.
[signatures on following page]
[remainder of this page intentionally left blank]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Management Agreement as
of the date first set forth above.
WITNESS: CAREMATRIX OF MASSACHUSETTS, INC.
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
----------------------- -----------------------------
Name: Elizabeth Derrico Name: David B. Currie
Title: Vice President
WITNESS: CCC OF NEW JERSEY, INC.
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
----------------------- -----------------------------
Name: Elizabeth Derrico Name: David B. Currie
Title: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> USD
<S> <C> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1998 JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1999 DEC-31-1998 SEP-30-1998 JUN-30-1998 MAR-31-1998
<EXCHANGE-RATE> 1 1 1 1 1
<CASH> 32,551,645 50,522,744 33,040,974 151,246,159 150,555,289
<SECURITIES> 0 0 0 0 0
<RECEIVABLES> 57,223,948 49,073,840 39,944,931 29,716,528 29,604,269
<ALLOWANCES> (3,339,267) (2,077,198) (1,495,206) (1,369,147) (1,133,770)
<INVENTORY> 0 0 0 0 0
<CURRENT-ASSETS> 92,579,695 102,394,461 82,660,722 187,835,271 182,435,544
<PP&E> 169,419,156 150,727,612 155,651,101 6,986,214 5,610,089
<DEPRECIATION> (5,768,748) (2,788,615) (9,543,791) (1,218,576) (556,084)
<TOTAL-ASSETS> 372,108,957 349,646,447 325,944,531 249,563,919 238,434,831
<CURRENT-LIABILITIES> 28,660,910 28,473,153 31,145,223 19,853,419 14,400,785
<BONDS> 196,892,128 178,893,235 167,513,935 115,000,000 115,000,000
0 0 0 0 0
71,000 73,000 73,000 73,000 183,000
<COMMON> 901,878 900,729 883,636 883,273 876,314
<OTHER-SE> 138,020,798 133,446,512 120,960,986 111,964,740 106,130,360
<TOTAL-LIABILITY-AND-EQUITY> 372,108,957 349,646,447 325,944,531 249,563,919 238,434,831
<SALES> 50,717,834 146,918,478 103,417,296 63,812,349 29,645,703
<TOTAL-REVENUES> 50,717,834 146,918,478 103,417,296 63,812,349 29,645,703
<CGS> 0 0 0 0 0
<TOTAL-COSTS> 31,569,774 92,030,009 65,773,739 40,735,799 19,166,777
<OTHER-EXPENSES> 7,346,930 24,181,801 17,162,961 11,152,284 5,199,594
<LOSS-PROVISION> 721,804 887,753 801,238 703,133 122,617
<INTEREST-EXPENSE> 3,515,544 8,493,224 5,886,303 3,666,710 1,838,128
<INCOME-PRETAX> 9,748,209 30,625,409 21,120,652 12,748,902 5,770,146
<INCOME-TAX> 3,850,543 12,556,418 8,659,468 5,226,777 2,400,381
<INCOME-CONTINUING> 5,895,841 18,058,941 12,452,959 7,515,725 3,365,190
<DISCONTINUED> 0 0 0 0 0
<EXTRAORDINARY> 0 0 0 0 0
<CHANGES> 0 0 0 0 0
<NET-INCOME> 5,895,841 18,058,941 12,452,959 7,515,725 3,365,190
<EPS-PRIMARY> 0.33 1.02 0.71 0.43 0.19
<EPS-DILUTED> 0.32 0.99 0.69 0.42 0.19
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CURRENCY> USD
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997
<EXCHANGE-RATE> 1 1
<CASH> 155,721,903 140,606,369
<SECURITIES> 0 0
<RECEIVABLES> 26,016,582 16,953,551
<ALLOWANCES> (1,105,432) (1,234,224)
<INVENTORY> 0 0
<CURRENT-ASSETS> 184,121,645 159,530,429
<PP&E> 5,372,474 4,894,109
<DEPRECIATION> (676,651) (731,598)
<TOTAL-ASSETS> 232,048,480 210,268,343
<CURRENT-LIABILITIES> 15,675,768 14,108,370
<BONDS> 115,000,000 100,000,000
0 0
233,000 233,000
<COMMON> 863,095 858,921
<OTHER-SE> 98,065,205 93,244,816
<TOTAL-LIABILITY-AND-EQUITY> 232,048,480 210,268,343
<SALES> 73,193,088 48,840,578
<TOTAL-REVENUES> 73,193,088 48,840,578
<CGS> 0 0
<TOTAL-COSTS> 46,900,813 31,369,268
<OTHER-EXPENSES> 17,318,703 12,443,850
<LOSS-PROVISION> 317,588 252,711
<INTEREST-EXPENSE> 3,357,716 1,428,600
<INCOME-PRETAX> 11,036,934 6,682,224
<INCOME-TAX> 4,436,847 2,686,254
<INCOME-CONTINUING> 6,576,387 3,978,095
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,576,387 3,978,095
<EPS-PRIMARY> 0.38 0.23
<EPS-DILUTED> 0.38 0.23
</TABLE>
