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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT 1934
For the quarterly period ended June 30, 2002.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-14012
EMERITUS CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1605464
(State or other jurisdiction (I.R.S Employer
of incorporation or organization) Identification No.)
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
(Address of principal executive offices)
(206) 298-2909
(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. [X] Yes [ ] No
As of July 31, 2002, there were 10,214,934 shares of the Registrant's Common
Stock, par value $.0001, outstanding.
EMERITUS CORPORATION
INDEX
Part I. Financial Information
Item 1. Financial Statements: . . . . . . . . . . . . . . . . . . . . . . . . . . . . Page No.
--------
Condensed Consolidated Balance Sheets as of June 30, 2002, and
December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Condensed Consolidated Statements of Operations for the
Three Months and Six Months ended June 30, 2002 and 2001 . . . . . . . . . . . 2
Condensed Consolidated Statements of Cash Flows for the Six
Months ended June 30, 2002 and 2001 . . . . . . . . . . . . . . . . . . . . . 3
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . 20
Part II. Other Information
Note: Items 1 through 5 of Part II are omitted because they are not applicable.
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . 21
Signature. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
EMERITUS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(In thousands, except share data)
ASSETS
June 30, December 31,
2002 2001
-------------- --------------
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10,959 $ 9,811
Short-term investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,625 1,376
Trade accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,232 1,172
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,164 2,859
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . 4,274 2,463
Property held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,242 2,242
-------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,496 19,923
-------------- --------------
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,672 131,200
Property held for development. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,040 1,040
Notes receivable from and investments in affiliates. . . . . . . . . . . . . . . . . 3,816 3,675
Restricted deposits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,852 5,520
Lease acquisition costs, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,482 4,864
Other assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,583 2,206
-------------- --------------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 148,941 $ 168,428
============== ==============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,981 $ 4,523
Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,723 2,105
Accrued employee compensation and benefits. . . . . . . . . . . . . . . . . . . . . 3,824 3,301
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,713 2,861
Accrued real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,435 1,415
Accrued dividends on preferred stock . . . .. . . . . . . . . . . . . . . . . . . . 10,505 7,429
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,381 8,690
Deferred revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,491 -
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601 1,699
-------------- --------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 81,654 32,023
-------------- --------------
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . . . . . . 68,709 131,070
Convertible debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,000 32,000
Deferred gain on sale of communities . . . . . . . . . . . . . . . . . . . . . . . . 20,227 18,671
Deferred rent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,491 2,404
Other long-term liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271 256
-------------- --------------
Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 205,352 216,424
-------------- --------------
Minority interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 736 1,145
Redeemable preferred stock
Commitments and contingencies
Shareholders' Deficit:
Preferred stock, $.0001 par value. Authorized 70,000 shares; issued and outstanding. - -
30,609 and 30,609 at June 30, 2002, and December 31, 2001, respectively
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and
outstanding 10,214,934 and 10,196,030 shares at June 30, 2002, and . . . . . . . - -
December 31, 2001, respectively. . . . . . . . . . . . . . . . . . . . . . . . . 1 1
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,397 67,686
Accumulated other comprehensive gain (loss). . . . . . . . . . . . . . . . . . . . . 113 (136)
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (150,658) (141,692)
-------------- --------------
Total shareholders' deficit. . . . . . . . . . . . . . . . . . . . . . . . . . (82,147) (74,141)
-------------- --------------
Total liabilities and shareholders' deficit. . . . . . . . . . . . . . . . . . $ 148,941 $ 168,428
============== ==============
See accompanying Notes to Condensed Consolidated Financial Statements
and Management's Discussion and Analysis
of Financial Condition and Results of Operations
1
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three Months ended Six Months ended
June 30, 2002 June 30,2002
---------------------------- ----------------------------
2002 2001 2002 2001
------------- ------------- ------------- -------------
Revenues:
Community revenue . . . . . . . . . . . $ 30,294 $ 32,646 $ 62,414 $ 65,346
Other service fees. . . . . . . . . . . 1,095 605 2,095 1,148
Management fees . . . . . . . . . . . . 2,626 1,926 5,651 3,464
------------- ------------- ------------- -------------
Total operating revenues. . . . 34,015 35,177 70,160 69,958
Expenses:
Community operations. . . . . . . . . . 21,084 19,900 41,646 40,547
General and administrative. . . . . . . 4,867 4,670 9,790 8,837
Depreciation and amortization . . . . . 1,675 1,856 3,526 3,672
Facility lease expense. . . . . . . . . 7,410 6,847 14,138 13,679
------------- ------------- ------------- -------------
Total operating expenses. . . . 35,036 33,273 69,100 66,735
------------- ------------- ------------- -------------
Income (loss) from operations . (1,021) 1,904 1,060 3,223
Other income (expense):
Interest income . . . . . . . . . . . . 113 318 222 558
Interest expense. . . . . . . . . . . . (2,852) (3,535) (5,778) (7,068)
Other, net. . . . . . . . . . . . . . . (174) (109) (741) (252)
------------- ------------- ------------- -------------
Net other expense . . . . . . . (2,913) (3,326) (6,297) (6,762)
------------- ------------- ------------- -------------
Net loss. . . . . . . . . . . . (3,934) (1,422) (5,237) (3,539)
Preferred stock dividends . . . . . . . . 1,732 1,620 3,729 3,231
------------- ------------- ------------- -------------
Net loss to common shareholders $ (5,666) $ (3,042) $ (8,966) $ (6,770)
============= ============= ============= =============
Loss per common share - basic and diluted $ (0.56) $ (0.30) $ (0.88) $ (0.67)
============= ============= ============= =============
Weighted average number of common shares
outstanding - basic and diluted . . . 10,200 10,151 10,198 10,136
============= ============= ============= =============
See accompanying Notes to Condensed Consolidated Financial Statements
and Management's Discussion and Analysis
of Financial Condition and Results of Operations
2
EMERITUS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Six Months Ended June 30,
------------------------------------
2002 2001
----------------- -----------------
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,237) $ (3,539)
Adjustments to reconcile net loss to net cash used in operating activities:
Minority interests. . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 (96)
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . 3,526 3,672
Amortization of deferred gain . . . . . . . . . . . . . . . . . . . . . . (149) (380)
Loss on sale of properties. . . . . . . . . . . . . . . . . . . . . . . . 515 -
Write off of deferred gain. . . . . . . . . . . . . . . . . . . . . . . . (12) -
Changes in operating assets and liabilities . . . . . . . . . . . . . . . (477) (1,419)
----------------- -----------------
Net cash used in operating activities . . . . . . . . . . . . . . . (1,719) (1,762)
----------------- -----------------
Cash flows from investing activities:
Acquisition of property and equipment . . . . . . . . . . . . . . . . . . . (808) (767)
Acquisition of property held for development. . . . . . . . . . . . . . . . - (2)
Purchase of minority partner interest . . . . . . . . . . . . . . . . . . . (3,070) -
Proceeds from sale of property and equipment. . . . . . . . . . . . . . . . 25,010 1,014
Investment in lease acquisition costs . . . . . . . . . . . . . . . . . . . (1,242) (126)
Repayments from (advances to) affiliates and other managed communities. . . (501) 4,267
Proceeds from sales of interest in affiliates . . . . . . . . . . . . . . . 750 -
Investment in affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . (107) -
Distributions to minority partners. . . . . . . . . . . . . . . . . . . . . (250) -
----------------- -----------------
Net cash provided by investing activities . . . . . . . . . . . . . 19,782 4,386
----------------- -----------------
Cash flows from financing activities:
Proceeds from sale of stock under employee stock purchase plan. . . . . . . 57 -
Decrease in restricted deposits . . . . . . . . . . . . . . . . . . . . . . 668 205
Repayment of short-term borrowings. . . . . . . . . . . . . . . . . . . . . (1,733) (1,650)
Debt issue and other financing costs. . . . . . . . . . . . . . . . . . . . (1,516) (7)
Proceeds from long-term borrowings. . . . . . . . . . . . . . . . . . . . . 37,341 144
Repayment of long-term borrowings . . . . . . . . . . . . . . . . . . . . . (51,732) (1,515)
----------------- -----------------
Net cash used in financing activities . . . . . . . . . . . . . . . (16,915) (2,823)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents. . . . . . . . 1,148 (199)
Cash and cash equivalents at the beginning of the period. . . . . . . . . . . 9,811 7,496
----------------- -----------------
Cash and cash equivalents at the end of the period. . . . . . . . . . . . . . $ 10,959 $ 7,297
================= =================
Supplemental disclosure of cash flow information cash paid during the period
for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,926 $ 7,023
Noncash investing and financing activities:
Notes receivable from buyer in sale/leaseback . . . . . . . . . . . . . . . $ - $ 635
Assumption of debt by buyer in sale/leaseback . . . . . . . . . . . . . . . $ - $ 3,162
Unrealized holding gains in investment securities . . . . . . . . . . . . . $ 249 $ 965
Accrued preferred stock dividends . . . . . . . . . . . . . . . . . . . . . $ 3,729 $ 3,231
See accompanying Notes to Condensed Consolidated Financial Statements
and Management's Discussion and Analysis
of Financial Condition and Results of Operations
3
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of condensed consolidated financial statements requires Emeritus
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, Emeritus evaluates its estimates,
including those related to resident programs and incentives, bad debts,
investments, intangible assets, income taxes, financing operations,
restructuring, long-term service contracts, contingencies, insurance
deductibles, and litigation. Emeritus bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
Emeritus believes the following critical accounting policies are most
significant to the judgments and estimates used in the preparation of its
condensed consolidated financial statements. Emeritus maintains allowances for
doubtful accounts for estimated losses resulting from the inability of its
residents to make required payments. If the financial condition of Emeritus's
residents were to deteriorate, resulting in an impairment of their ability to
make payments, additional charges may be required. Emeritus utilizes
third-party insurance for losses and liabilities associated with general and
professional liability claims subject to established deductible levels on a per
occurrence basis. Losses up to these deductible levels are accrued based upon
Emeritus's estimates of the aggregate liability for claims incurred. If these
estimates are insufficient, additional charges may be required. Emeritus holds
shares in ARV Assisted Living, Inc. amounting to less than 5% of its shares.
ARV is publicly traded and has a volatile share price. Emeritus records an
investment impairment charge when it believes this investment has experienced a
decline in value that is other than temporary. Future adverse changes in market
conditions or poor operating results underlying this investment could result in
losses or an inability to recover the carrying value of the investment that may
not be reflected in this investment's current carrying value, thereby possibly
requiring an impairment charge in the future. Emeritus records a valuation
allowance to reduce its deferred tax assets to the amount that is more likely
than not to be realized, which at this time shows a net asset valuation of zero.
While Emeritus has considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event Emeritus were to determine that it would be able to
realize its deferred tax assets in the future in excess of its net recorded
amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made.
BASIS OF PRESENTATION
The unaudited interim financial information furnished below, in the opinion of
the Company's management, reflects all adjustments, consisting of only normally
recurring adjustments, which are necessary to state fairly the condensed
consolidated financial position, results of operations, and cash flows of
Emeritus as of June 30, 2002, and for the three and six months ended June 30,
2002 and 2001. The Company presumes that those reading this interim financial
information have read or have access to its 2001 audited consolidated financial
statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations that are contained in the 2001 Form 10-K filed March 29,
2002, and amended on April 30, 2002. Therefore, the Company has omitted
footnotes and other disclosures herein, which are disclosed in the Form 10-K.
DEFERRED REVENUE
At June 30, 2002, deferred revenue of $2.5 million consists of the unearned
portion of the insurance surcharge and fees charged for move-in services as
discussed below.
4
EMERITUS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
(unaudited)
Due to dramatic increases in liability insurance premiums for the year 2002, the
Company decided to institute a one-time insurance surcharge and billed
approximately $1.4 million to the residents of its communities in the first
quarter of 2002. The associated revenue is being recognized on a straight-line
basis over the life of the insurance policy.
In 2001 and prior years, the Company recognized nonrefundable fees charged for
move-in services at the time the resident occupied the unit and the related
services were performed. This treatment was not materially different than
recognition of such fees over the average period of occupancy. However, in
2002, the Company began charging significantly higher fees for move-in services
than were previously charged. Therefore, the Company has instituted a policy
consistent with SEC Staff Accounting Bulletin 101 "Revenue Recognition", to
defer such fees and recognize them over the average period of occupancy,
approximately 16 months. This resulted in deferring approximately $1.8 million
of revenue at June 30, 2002, of which $1.2 million and $800,000 relate to fees
charged in the six-month and three-month periods ended June 30, 2002,
respectively. The Company has not deferred any of the costs incurred in the
performance of the move-in services.
EMERITRUST TRANSACTIONS
The Company manages 46 communities referred to as the Emeritrust communities,
including 25 Emeritrust I communities, 16 Emeritrust II Operating communities
and five Emeritrust II Development communities, under management agreements
described in the Company's Annual Report on Form 10-K for the year ended
December 31, 2001. The Company does not recognize management fees on the
Emeritrust communities as revenue in its condensed consolidated financial
statements to the extent that it is funding the cash operating losses that
include them, although the amounts of the funding obligation each year include
management fees earned by Emeritus under the management agreements.
Correspondingly, the Company recognizes the funding obligation under the
agreement, less the applicable management fees, as an expense in its condensed
consolidated financial statements under the category "Other, net". Conversely,
if the applicable management fees exceed the funding obligation, the Company
recognizes the management fees less the funding obligation as management fee
revenue in its condensed consolidated financial statements.
For the three months ended June 30, 2002 and 2001, (i) total management fees
earned and recognized as revenue for the Emeritrust I communities were
approximately $402,000 and $579,000, respectively; (ii) total management fees
earned for the Emeritrust II Development communities were $229,000, and
$126,000, respectively, of which $203,000 and $108,000, respectively, were
recognized as revenue; and (iii) management fees earned and recognized for the
Emeritrust II Operating communities, for which there is no funding obligation,
were $479,000 and $454,000, respectively. Thus, the management fees recognized
for all of the Emeritrust communities decreased $57,000 for the second quarter
of 2002 compared to the comparable period in 2001.
For the Emeritrust I communities there was no funding obligation for the three
months ended June 30, 2002 and 2001. The Company's funding obligations for the
Emeritrust II Development communities were $85,000 and $70,000 for the three
months ended June 30, 2002 and 2001, respectively. Thus, the Company's gross
funding obligations increased $15,000 for the second quarter of 2002 compared to
the comparable period in 2001.
For the six months ended June 30, 2002 and 2001, (i) total management fees
earned for the Emeritrust I communities were approximately $1.1 million for both
periods, of which $1.1 million and $875,000, respectively, were recognized as
revenue; (ii) total management fees earned for the Emeritrust II Development
communities were $397,000, and $240,000, respectively, of which $358,000 and
$185,000, respectively, were recognized as revenue; and (iii) management fees
earned and recognized for the
5
Emeritrust II Operating communities, for which there is no funding obligation,
were $965,000 and $919,000, respectively. Thus, the management fees recognized
for all of the Emeritrust communities increased $444,000 for the first two
quarters of 2002 compared to the comparable period in 2001.
For the Emeritrust I communities there was no funding obligation for the six
months ended June 30, 2002, compared to $387,000 for the six months ended June
30, 2001. The Company's funding obligations for the Emeritrust II Development
communities were $121,000 and $218,000 for the six months ended June 30, 2002
and 2001, respectively. Thus, the Company's gross funding obligations decreased
$484,000 for the first two quarters of 2002 compared to the comparable period in
2001.
PROPERTY HELD FOR SALE
Emeritus currently has two properties being held for sale. Assets to be
disposed of are reported at the lower of their carrying amount or fair market
value less costs to sell.
PROPERTY AND EQUIPMENT
In March 2002, the Company entered into a 15-year master lease arrangement with
Health Care REIT, Inc. ("HC REIT") for four communities, two of which Emeritus
previously held an ownership interest in and two of which it previously leased
from another lessor. With respect to one community, located in Fairfield,
California, the Company held a 50% economic interest with a related party
investor, which was owned or controlled by Daniel R Baty, the Company's chief
executive officer. Concurrently with the closing of the HC REIT transaction,
Emeritus purchased the related party investor's economic interest for his
investment basis of $2.1 million plus a 9% return, a $2.95 million total payment
and then sold the Fairfield facility to HC REIT. The Company recognized a loss
on the repurchase of approximately $158,000, which is included in "Other, net"
in the condensed consolidated statements of operations for the six months ended
June 30, 2002. Another community, located in Paso Robles, California, was 50%
owned by an outside investor. Also concurrently with the closing of the HC REIT
transaction, the Company purchased the remaining 50% interest in this community
for $2.65 million and then sold the Paso Robles facility to HC REIT. The
remaining two communities, located in Hattiesburg, Mississippi, and Urbana,
Illinois, were both under operating leases with a different lessor, which agreed
to convey those communities directly to HC REIT. Concurrently with the closing
of these four purchase and sale transactions, Emeritus entered into a master
lease arrangement with HC REIT for all four communities and recognized a loss of
approximately $372,000, which is recorded in "Other, net" in the condensed
consolidated statements of operations for the six months ended June 30, 2002.
The loss is primarily comprised of write-offs of existing loan fees and lease
acquisition costs for the four buildings. Additionally, the Company had a
deferred gain on sale associated with the transaction that approximated $1.8
million and new lease acquisition costs of $1.0 million that are both being
amortized over the lease period of 15 years.
In April 2002, the Company entered into agreements to acquire the ownership
interest of one community and the leasehold interest of seven communities for
the assumption of the mortgage debt relating to the owned community and the
lease obligations relating to the leased communities. The eight communities,
comprising 617 units in Louisiana and Texas, had been operated previously by
Horizon Bay Management L.L.C., a national seniors housing management company
that manages the WHSLH Realty, L.L.C. portfolio of senior housing properties.
In May and July, 2002, Emeritus assigned its rights under these agreements to
entities wholly owned by Daniel R. Baty, the Company's chief executive officer,
and entered into a five-year agreement expiring April 30, 2007, with the Baty
entities to manage the eight communities for a management fee of 5% of gross
revenue. In completing the agreements with Horizon Bay, Mr. Baty personally
guaranteed the mortgage and lease obligations. As a part of these agreements,
the Company has the right to acquire the interests of the Baty entities in the
eight communities at any time prior to April 30, 2007, by assuming the mortgage
debt and lease obligations and paying such Baty entities the amount of any cash
investment in the communities, plus 9% per annum. In the acquisition
agreements, Horizon Bay agreed to fund operating losses of the communities to
the extent of $2.5 million in the first twelve months
6
and $870,000 in the second twelve months following the closing. Under the
management agreements with the Baty entities, Emeritus has agreed to fund any
operating losses in excess of these limits over the five-year term of the
management agreement. We recognized management fee revenue of approximately
$133,000 from these communities for the quarter ended June 30, 2002.
ACCRUED DIVIDENDS ON PREFERRED STOCK
Since the third quarter of 2000, the Company has accrued its obligation to pay
cash dividends to both the Series A and Series B preferred shareholders, which
amounted to $10.5 million at June 30, 2002, including all penalties for
non-payment. Since dividends on the Series A shares were not paid for six
consecutive quarters, the Series A dividends were calculated on a compounded
cumulative basis, retroactively in the first quarter of 2002. This caused the
preferred stock dividends to be approximately $498,000 higher for the first two
quarters of 2002 as compared to the first two quarters of 2001. In addition,
since the Company had not paid these dividends for more than six consecutive
quarters, both the Series A and Series B shareholders became entitled to appoint
one additional director each to the Company's board of directors. At this time
neither of the Series A or Series B shareholders has chosen to appoint an
additional director to the Company's Board.
Series B dividends were to be paid in cash and in additional shares of Series B
preferred stock. For the paid-in-kind dividends for the first two quarters of
2000, 609 shares of Series B preferred stock were issued. Since then, no
additional shares had been issued until after the second quarter of 2002.
Effective July 1, 2002, 2,533 additional shares were issued as paid-in-kind
dividends to cover the period from July 1, 2000, through June 30, 2002.
LONG-TERM DEBT
On April 1, 2002, in conjunction with the HC REIT master lease transaction more
fully discussed under "Property and Equipment" above, the Company received $6.7
million in proceeds from a $6.8 million debt issuance under a separate loan
agreement with HC REIT. The loan agreement requires interest only payments and
bears interest at 12% per annum with fixed annual increases of 50 basis points
for a term of 36 months.
The current portion of long-term debt at June 30, 2002, has increased
approximately $46.5 million since December 31, 2001, primarily due to certain
debt instruments having maturity dates prior to June 30, 2003. Most
significantly, these debt instruments are a $6.8 million note to GMAC, which is
due February 1, 2003, and notes totaling $40.6 million to Deutsche Bank AG,
which are due May 31, 2003.
LOSS PER SHARE
Basic net loss per share is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted net loss per share is
computed on the basis of the weighted average number of shares outstanding plus
dilutive potential common shares using the treasury stock method. The capital
structure of Emeritus includes convertible debentures, redeemable and
non-redeemable convertible preferred stock, common stock warrants, and stock
options. The assumed conversion and exercise of these securities have been
excluded from the calculation of diluted net loss per share since their effect
is anti-dilutive. The loss per common share was calculated on a dilutive basis
without consideration of 10,193,900 and 8,087,358 common shares at June 30, 2002
and 2001, respectively, related to outstanding options, warrants, convertible
debentures, and convertible preferred stock.
UNREALIZED HOLDING GAINS ON INVESTMENT SECURITIES
The change in unrealized holding gains on investment securities for the
six-month period ended June 30, 2002, represents the change in value of the
Company's investment in ARV Assisted Living, Inc.
7
OTHER COMPREHENSIVE INCOME
Other comprehensive income includes the following transactions for the three and
six month period ended June 30, 2002 and 2001, respectively:
Three Months ended June 30, Six Months ended June 30,
------------------------------------ ------------------------------------
2002 2001 2002 2001
----------------- ----------------- ----------------- -----------------
(In thousands)
Net loss to common shareholders. $ (5,666) $ (3,042) $ (8,966) $ (6,770)
Other comprehensive income:
Unrealized holding gains on
investment securities. 121 861 249 965
----------------- ----------------- ----------------- -----------------
Comprehensive loss . . . . . . . $ (5,545) $ (2,181) $ (8,717) $ (5,805)
================= ================= ================= =================
LIQUIDITY
The Company has incurred significant operating losses since its inception and
has a working capital deficit of $59.2 million, although $2.5 million represents
deferred revenues and $10.5 million of preferred cash dividends is only due if
declared by the Company's board of directors. To date, the Company has been
dependent upon third party financing or disposition of assets to fund
operations. Management intends to continue to refinance or restructure debt as
necessary. The Company cannot, however, guaranty that third party financing and
refinancing or dispositions of assets will be available timely or on terms
acceptable to Emeritus. In April 2002, the Company completed a lease and debt
transaction having a beneficial impact on working capital of $6.7 million in
conjunction with the HC REIT master lease transaction, more fully discussed
elsewhere in the Notes to Condensed Consolidated Financial Statements and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations. With respect to the $40.6 million of mortgage debt that matures on
May 31, 2003, the Company has been in discussions with the lender and others
regarding restructuring or refinancing the debt and, although the Company
believes the issue will be resolved prior to the maturity of this debt, there
has been no agreement reached at this time and the Company has no commitment for
refinancing. If the Company is unable to restructure or refinance this debt,
the lender could declare the entire amount immediately due and payable at
maturity and could begin foreclosure proceedings with respect to the seven
assisted living properties that secure this debt. In addition, this would
result in defaults under other leases and loan agreements. Except for the
potential financial impact of being unable to refinance the aforementioned
mortgage debt, management believes Emeritus has sufficient funds to sustain
operations at least through June 30, 2003.
RECLASSIFICATIONS
Certain reclassifications of 2001 amounts have been made to conform to the 2002
presentation.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Emeritus is a Washington corporation organized by Daniel R. Baty and two other
founders in 1993. In November 1995, we completed our initial public offering
and began our expansion strategy.
Through 1998, we focused on rapidly expanding our operations in order to
assemble a portfolio of assisted living communities with a critical mass of
capacity. We pursued an aggressive acquisition and development strategy during
that time, acquiring 35 and developing 10 communities in 1996, acquiring 7 and
developing 20 communities in 1997, and developing 5 communities in 1998. During
1999 and continuing through 2001, we substantially reduced our pace of
acquisition and development activities. During 2002 we have resumed pursuing, on
a selective basis, management contract and acquisition opportunities, which we
believe will be beneficial to the Company.
In our consolidated portfolio, exclusive of insurance surcharges, but giving
effect to the deferral of move-in fees, our rate enhancement program brought
about an increase in average monthly revenue per occupied unit to $2,514 for the
first two quarters of 2002 from $2,375 for the first two quarters of 2001. This
represents an average revenue increase of $139 per month per occupied unit, or
5.9%. The average occupancy rate decreased to 81.5% for the first two quarters
of 2002 from 84.8% for the first two quarters of 2001.
In our total operated portfolio, which includes managed communities, exclusive
of insurance surcharges, but giving effect to the deferral of move-in fees, our
rate enhancement program brought about an increase in average monthly revenue
per occupied unit to $2,513 for the first two quarters of 2002 from $2,261 for
the first two quarters of 2001. This represents an average revenue increase of
$252 per month per occupied unit, or 11.1%. The larger increase in average
monthly revenue per occupied unit in our total portfolio as compared to that in
our consolidated portfolio is partially due to the addition of 16 communities
previously managed by Regent Assisted Living, Inc., discussed more fully below
in "Other Transactions". A majority of the Regent communities have Special Care
(Alzheimer's) units, which have a significantly higher rental rate than
non-Special Care units. The average occupancy rate decreased to 80.7% for the
first two quarters of 2002 from 82.0% for the first two quarters of 2001.
We intend to continue a selective growth strategy through acquiring and managing
new communities with operating characteristics consistent with our current
emphasis on stabilizing occupancy and enhancing our operating model and service
offerings.
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9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -CONTINUED
As of June 30, As of December 31, As of June 30,
2002 2001 2001
---------------------- ---------------------- ----------------------
Buildings Units Buildings Units Buildings Units
---------- ---------- ---------- ---------- ---------- ----------
Owned (1) . . . . . . . . . . . . . . . 16 1,579 16 1,579 16 1,579
Leased (1). . . . . . . . . . . . . . . 44 3,716 42 3,444 44 3,629
Managed/Admin Services. . . . . . . . . 95 8,763 70 6,620 71 6,710
Joint Venture/Partnership . . . . . . . 3 333 5 605 5 605
---------- ---------- ---------- ---------- ---------- ----------
Operated Portfolio . . . . . . . . 158 14,391 133 12,248 136 12,523
Percentage increase (decrease) (2) 18.8% 17.5% (2.2%) (2.2%) 0.7% 0.9%
New Developments (3). . . . . . . . . . - - - - 2 220
---------- ---------- ---------- ---------- ---------- ----------
Total. . . . . . . . . . . . . . . 158 14,391 133 12,248 138 12,743
---------- ---------- ---------- ---------- ---------- ----------
Percentage increase (decrease) (2) 18.8% 17.5% (3.6%) (3.9%) 0.7% 1.0%
- --------
(1) Included in our consolidated portfolio of communities.
(2) The percentage increase (decrease) indicates the change from the prior
period reported, or, in the case of June 30, 2001, from the end of the prior
year.
(3) The communities under development at June 30, 2001, were developed by third
parties, but are currently managed by Emeritus.
We rely primarily on our residents' ability to pay our charges for services from
their own or familial resources and expect that we will do so for the
foreseeable future. Although care in an assisted living community is typically
less expensive than in a skilled nursing facility, we believe that generally
only seniors with income or assets meeting or exceeding the regional median can
afford to reside in our communities. Inflation or other circumstances that
adversely affect seniors' ability to pay for assisted living services could
therefore have an adverse effect on our business. All sources of
resident-related revenue other than residents' private resources constitute less
than 10% of our total revenues.
We have incurred net operating losses since our inception and as of June 30,
2002, we had an accumulated deficit of approximately $150.7 million. These
losses resulted from a number of factors, including:
* occupancy levels at our communities that were lower for longer periods than we
originally anticipated and have declined in the last two years consistent with
industry patterns;
* financing costs that we incurred as a result of multiple financing and
refinancing transactions; and
* administrative and corporate expenses that we increased to facilitate our
growth and maintain operations.
During 1998, we decided to reduce acquisition and development activities and
dispose of select communities that had been operating at a loss. We believe that
slowing our acquisition and development activities has enabled us to use our
resources more efficiently and increase our focus on enhancing community
operations.
10
EMERITRUST TRANSACTIONS
We manage 46 communities referred to as the Emeritrust communities, including 25
Emeritrust I communities, 16 Emeritrust II Operating communities and five
Emeritrust II Development communities, under management agreements described in
our Annual Report on Form 10-K for the year ended December 31, 2001. We do not
recognize management fees on the Emeritrust communities as revenue in our
condensed consolidated financial statements to the extent that we are funding
the cash operating losses that include them, although the amounts of the funding
obligation each year include management fees earned by us under the management
agreements. Correspondingly, we recognize the funding obligation under the
agreement, less the applicable management fees, as an expense in our condensed
consolidated financial statements under the category "Other, net". Conversely,
if the applicable management fees exceed the funding obligation, we recognize
the management fees less the funding obligation as management fee revenue in our
condensed consolidated financial statements.
For the three months ended June 30, 2002 and 2001, (i) total management fees
earned and recognized as revenue for the Emeritrust I communities were
approximately $402,000 and $579,000, respectively; (ii) total management fees
earned for the Emeritrust II Development communities were $229,000, and
$126,000, respectively, of which $203,000 and $108,000, respectively, were
recognized as revenue; and (iii) management fees earned and recognized for the
Emeritrust II Operating communities, for which there is no funding obligation,
were $479,000 and $454,000, respectively. Thus, the management fees recognized
for all of the Emeritrust communities decreased $57,000 for the second quarter
of 2002 compared to the comparable period in 2001.
For the Emeritrust I communities there was no funding obligation for the three
months ended June 30, 2002 and 2001. Our funding obligations for the Emeritrust
II Development communities were $85,000 and $70,000 for the three months ended
June 30, 2002 and 2001, respectively. Thus, our gross funding obligations
increased $15,000 for the second quarter of 2002 compared to the comparable
period in 2001.
For the six months ended June 30, 2002 and 2001, (i) total management fees
earned for the Emeritrust I communities were approximately $1.1 million for both
periods, of which $1.1 million and $875,000, respectively, were recognized as
revenue; (ii) total management fees earned for the Emeritrust II Development
communities were $397,000, and $240,000, respectively, of which $358,000 and
$185,000, respectively, were recognized as revenue; and (iii) management fees
earned and recognized for the Emeritrust II Operating communities, for which
there is no funding obligation, were $965,000 and $919,000, respectively. Thus,
the management fees recognized for all of the Emeritrust communities increased
$444,000 for the first two quarters of 2002 compared to the comparable period in
2001.
For the Emeritrust I communities there was no funding obligation for the six
months ended June 30, 2002, compared to $387,000 for the six months ended June
30, 2001. Our funding obligations for the Emeritrust II Development communities
were $121,000 and $218,000 for the six months ended June 30, 2002 and 2001,
respectively. Thus, our gross funding obligations decreased $484,000 for the
first two quarters of 2002 compared to the comparable period in 2001.
OTHER TRANSACTIONS
In January 2002, we entered into management and accounting services agreements
with Regent Assisted Living, Inc. of Portland, Oregon, to manage or provide
administrative services to 18 of their communities. The agreements provide for
the Company receiving a fixed base management/service fee with some agreements
having provisions for incentive fees based upon improved community performance.
In February 2002, two of the communities were sold to a third party, owned or
controlled by Dan Baty. Concurrently, we entered into agreements with these Baty
entities to continue managing these communities for 5% of gross revenues. In
March 2002, we began managing one additional Regent community. In April
11
2002, one community that we had been managing for Regent was sold to another
entity and our management agreement terminated. Management fees recognized from
managing the Regent communities were approximately $743,000 in the first two
quarters of 2002.
In March 2002, we entered into a 15-year master lease arrangement with Health
Care REIT, Inc. ("HC REIT") for four communities, two of which we previously
held an ownership interest in and two of which we previously leased from another
lessor. With respect to one community, located in Fairfield, California, we
held a 50% economic interest with a related party investor, which was owned or
controlled by Daniel R Baty, our chief executive officer. Concurrently with the
closing of the HC REIT transaction, we purchased the related party investor's
economic interest for his investment basis of $2.1 million plus a 9% return, a
$2.95 million total payment and then sold the Fairfield facility to HC REIT. We
recognized a loss on the repurchase of approximately $158,000, which is included
in "Other, net" in the condensed consolidated statements of operations for the
six months ended June 30, 2002. Another community, located in Paso Robles,
California, was 50% owned by an outside investor. Also concurrently with the
closing of the HC REIT transaction, we purchased the remaining 50% interest in
this community for $2.65 million and then sold the Paso Robles facility to HC
REIT. The remaining two communities, located in Hattiesburg, Mississippi, and
Urbana, Illinois, were both under operating leases with a different lessor,
which agreed to convey those communities directly to HC REIT. Concurrently with
the closing of these four purchase and sale transactions, we entered into a
master lease arrangement with HC REIT for all four communities and recognized a
loss of approximately $372,000, which is recorded in "Other, net" in the
condensed consolidated statements of operations for the six months ended June
30, 2002. The loss is primarily comprised of write-offs of existing loan fees
and lease acquisition costs for the four buildings. Additionally, we had a
deferred gain on sale associated with the transaction that approximated $1.8
million and new lease acquisition costs of $1.0 million that are both being
amortized over the lease period of 15 years.
In April 2002, we entered into agreements to acquire the ownership interest of
one community and the leasehold interest of seven communities for the assumption
of the mortgage debt relating to the owned community and the lease obligations
relating to the leased communities. The eight communities, comprising 617 units
in Louisiana and Texas, had been operated previously by Horizon Bay Management
L.L.C., a national seniors housing management company that manages the WHSLH
Realty, L.L.C. portfolio of senior housing properties. In May and July, 2002,
we assigned our rights under these agreements to entities wholly owned by Daniel
R. Baty, the our chief executive officer, and entered into a five-year agreement
expiring April 30, 2007, with the Baty entities to manage the eight communities
for a management fee of 5% of gross revenue. In completing the agreements with
Horizon Bay, Mr. Baty personally guaranteed the mortgage and lease obligations.
As a part of these agreements, we have the right to acquire the interests of the
Baty entities in the eight communities at any time prior to April 30, 2007, by
assuming the mortgage debt and lease obligations and paying such Baty entities
the amount of any cash investment in the communities, plus 9% per annum. In the
acquisition agreements, Horizon Bay agreed to fund operating losses of the
communities to the extent of $2.5 million in the first twelve months and
$870,000 in the second twelve months following the closing. Under the
management agreements with the Baty entities, Emeritus has agreed to fund any
operating losses in excess of these limits over the five-year term of the
management agreement. We recognized management fee revenue of approximately
$133,000 from these communities for the quarter ended June 30, 2002.
RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates.
Management's discussion and analysis of our financial condition and results of
operations are based upon our condensed consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
12
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, we evaluate our estimates, including those
related to resident programs and incentives, bad debts, investments, intangible
assets, income taxes, financing operations, restructuring, long-term service
contracts, contingencies, insurance deductibles and litigation. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions.
We believe the following critical accounting policies are more significant to
the judgments and estimates used in the preparation of our condensed
consolidated financial statements. Revisions in such estimates are charged to
income in the period in which the facts that give rise to the revision become
known. We maintain allowances for doubtful accounts for estimated losses
resulting from the inability of our residents to make required payments. If the
financial condition of our residents were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required. We utilize third-party insurance for losses and liabilities
associated with general and professional liability claims subject to established
deductible levels on a per occurrence basis. Losses up to these deductible
levels are accrued based upon Emeritus's estimates of the aggregate liability
for claims incurred. If these estimates are insufficient, additional charges
may be required. We hold shares in ARV Assisted Living, Inc. amounting to less
than 5% of its shares. ARV is publicly traded and has a volatile share price.
We record an investment impairment charge when we believe this investment has
experienced a decline in value that is other than temporary. Future adverse
changes in market conditions or poor operating results underlying this
investment could result in losses or an inability to recover the carrying value
of the investment that may not be reflected in this investment's current
carrying value, thereby possibly requiring an impairment charge in the future.
We record a valuation allowance to reduce our deferred tax assets to the amount
that is more likely than not to be realized, which at this time shows a net
asset valuation of zero. While we have considered future taxable income and
ongoing prudent and feasible tax planning strategies in assessing the need for a
valuation allowance, in the event we were to determine that we would be able to
realize our deferred tax assets in the future in excess of our net recorded
amount, an adjustment to the deferred tax asset would increase income in the
period such determination was made.
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13
The following table sets forth, for the periods indicated, certain items from
our Condensed Consolidated Statements of Operations as a percentage of total
revenues and the percentage change of the dollar amounts from period to period.
Period-to-Period
Percentage
Increase
Percentage of Revenues (Decrease)
---------------------------------------------------------- ----------------------------
Three Months Six Months Three Months Six Months
ended ended ended ended
June 30, June 30, June 30, June 30,
---------------------------- ----------------------------
2002 2001 2002 2001 2001-2002 2001-2002
------------- ------------- ------------- ------------- ------------- -------------
Revenues. . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% (3.3%) 0.3%
Expenses:
Community operations . . . . . 62.0 56.6 59.4 58.0 5.9 2.7
General and administrative . . 14.3 13.3 14.0 12.6 4.2 10.8
Depreciation and amortization. 4.9 5.3 5.0 5.2 (9.8) (4.0)
Facility lease expense . . . . 21.8 19.5 20.2 19.6 8.2 3.4
------------- ------------- ------------- ------------- ------------- -------------
Total operating expenses . 103.0 94.6 98.5 95.4 5.3 3.5
------------- ------------- ------------- ------------- ------------- -------------
Income (loss) from operations . . . (3.0) 5.4 1.5 4.6 (153.6) (67.1)
Other income (expense)
Interest income. . . . . . . . 0.3 0.9 0.3 0.8 (64.5) (60.2)
Interest expense . . . . . . . (8.4) (10.0) (8.2) (10.1) (19.3) (18.3)
Other, net . . . . . . . . . . (0.5) (0.3) (1.1) (0.4) 59.6 194.0
13
------------- ------------- ------------- ------------- ------------- -------------
Net other expense. . . . . (8.6) (9.5) (9.0) (9.7) (12.4) (6.9)
------------- ------------- ------------- ------------- ------------- -------------
Net loss . . . . . . . . . (11.6%) (4.0%) (7.5%) (5.1%) 176.7% 48.0%
============= ============= ============= ============= ============= =============
The following discussion for the three and six months ended June 30, 2002, is
exclusive of insurance surcharges and the move-in fee deferral unless otherwise
noted.
Comparison of the three months ended June 30, 2002 and 2001
- ---------------------------------------------------------------------
Total Operating Revenues: Total operating revenues for the three months ended
June 30, 2002, decreased by $1.2 million to $34.0 million from $35.2 million for
the comparable period in 2001, or 3.3%.
The change in revenue is primarily the result of a decrease in community revenue
of approximately $2.4 million, which resulted from the combined effect of
several factors. In 2001, we disposed of two communities, which were not
included in our consolidated portfolio in the second quarter of 2002 but were
included in the comparable quarter of 2001. In the second quarter of 2002, we
changed our accounting method for resident move-in fees to amortize such fees
over the average period residents stay, where we had previously recognized all
fees as revenues upon payment. This change resulted in recording approximately
$1.8 million of deferred revenue at June 30, 2002. These decreases were
partially offset by the net effect of an increase in average monthly revenue per
unit and a decrease in the occupancy rate. The occupancy rate decreased 3.3
percentage points to 81.0% for the second quarter of 2002 from 84.3% for the
second quarter of 2001. Average monthly revenue per unit was $2,533 for the
second quarter of 2002 compared to $2,404 for the comparable quarter of 2001, an
increase of approximately 5.4%.
The decrease in community revenue was partially offset by an increase in
management fee revenue of $700,000 and other service fees of $490,000, most of
which were insurance surcharges of approximately $342,000 recognized in the
second quarter of 2002. Management fee revenue increased partly due to the
increased number of communities under management agreements. In addition,
improved performance of managed communities allowed us to recognize additional
base management fees and performance-driven contingent management fees.
Community Operations: Community operating expenses for the three months ended
June 30, 2002, increased by $1.2 million to $21.1 million from $19.9 million in
the second quarter of 2001, or 5.9%. The change was comprised of a decrease of
$650,000 due to the disposal of two communities and an increase totaling $1.8
million, primarily due to increases in liability, workers' compensation, and
health insurance costs of $1.1 million and added personnel expense associated
with our increasing emphasis on dementia care (Alzheimer's). Community
operating expenses as a percentage of total operating revenue increased to 58.9%
in the second quarter of 2002 from 56.6% in the second quarter of 2001.
General and Administrative: General and administrative (G&A) expenses for the
three months ended June 30, 2002, increased $197,000 to $4.9 million from $4.7
million for the comparable period in 2001, or 4.2%. As a percentage of total
operating revenues, G&A expenses increased to 13.6% for the three months ended
June 30, 2002, compared to 13.3% for the three months ended June 30, 2001. G&A
expenses rose primarily due to increases in the number of employees and normal
increases in employee salaries. Recent growth in total communities managed
through additional contracts has led to some added operational and
administrative employees. Since more than half of the communities we operate
are managed, G&A expense as a percentage of operating revenues for all
communities, including managed communities, may be more meaningful for
industry-wide comparisons. These percentages were 5.7% and 6.8% for the three
months ended June 30, 2002 and 2001, respectively.
Depreciation and Amortization: Depreciation and amortization for the three
months ended June 30, 2002, was $1.7 million compared to $1.9 million for the
comparable period in 2001. This decrease is primarily due to decreased
depreciable assets because of sales/leaseback arrangements. In 2002,
depreciation and
14
amortization represents 4.7% of total operating revenues, compared to 5.3% for
the comparable period in 2001. The decrease as a percentage of revenues is due
to decreased depreciable assets. Facility Lease Expense: Facility lease expense
for the three months ended June 30, 2002, was $7.4 million compared to $6.8
million for the comparable period of 2001, representing an increase of $563,000,
or 8.2%. While we leased 44 communities as of both June 30, 2002 and 2001, there
were changes in the composition of the leased communities during the periods. As
part of the HC REIT transaction discussed above, we refinanced two previously
mortgaged communities with leases. Of the total increase in operating lease
expense, approximately two-thirds resulted from the refinancing and the balance
was attributable to rent escalation provisions in existing leases. Facility
lease expense as a percentage of revenues was 20.7% for the three months ended
June 30, 2002, and 19.5% for the three months ended June 30, 2001.
Interest Income: Interest income for the three months ended June 30, 2002, was
$113,000 versus $318,000 for the comparable period of 2001. This decrease is
primarily attributable to smaller balances in interest-bearing notes from
affiliates, declining interest rates, and an adjustment in the second quarter of
2001 of $122,000 increasing interest income in the prior period.
Interest Expense: Interest expense for the three months ended June 30, 2002,
was $2.9 million compared to $3.5 million for the comparable period of 2001.
This decrease of $683,000, or 19.3%, is attributable to lower interest rates on
our variable rate debt and to the sale/leaseback of two communities as part of
the master lease arrangement with HC REIT, discussed above, which replaced
mortgage interest with new operating lease payments. As a percentage of total
operating revenues, interest expense decreased to 8.0% from 10.0% for the three
months ended June 30, 2002 and 2001, respectively, reflecting lower interest
rates .
Preferred dividends: For the three months ended June 30, 2002 and 2001, the
preferred dividends were approximately $1.7 million and $1.6 million,
respectively. Since dividends on the Series A shares were not paid for six
consecutive quarters, the Series A dividends were calculated on a compounded
cumulative basis, retroactively in the first quarter of 2002. This caused the
preferred dividends to be approximately $112,000 higher in the second quarter of
2002 as compared to the second quarter of 2001. In addition, since we have not
paid these dividends for six consecutive quarters, both our Series A and Series
B shareholders became entitled to elect one additional director each to our
board of directors at each annual shareholders' meeting until such time as we
have paid the accrued dividends, but have not chosen to do so.
Comparison of the six months ended June 30, 2002 and 2001
-------------------------------------------------------------------
Total Operating Revenues: Total operating revenues for the six months ended
June 30, 2002, increased by $202,000 to $70.2 million from $70.0 million for the
comparable period in 2001, or 0.3%.
The change in revenue is primarily the result of a decrease in community revenue
of approximately $2.9 million, which resulted from the combined effect of
several factors. In 2001, we disposed of three communities, the results of which
were not included in our consolidated portfolio in the first two quarters of
2002 but were included in the comparable quarters of 2001. In the second quarter
of 2002, we changed our accounting method for resident move-in fees to amortize
such fees over the average period residents stay, where we had previously
recognized all fees as revenue upon payment. This change resulted in recording
approximately $1.8 million of deferred revenue at June 30, 2002. This decrease
was partially offset by the net effect of an increase in average monthly revenue
per unit and a decrease in the occupancy rate. The occupancy rate decreased 3.3
percentage points to 81.5% for the first two quarters of 2002 from 84.8% for the
comparable period in 2001. Average monthly revenue per unit was $2,514 for the
first two quarters of 2002 compared to $2,375 for the comparable quarters of
2001, an increase of approximately 5.9%.
15
The decrease in community revenue was offset by an increase in management fee
revenue of $2.2 million and other service fee revenue of $950,000, most of which
were insurance surcharges of approximately $683,000 recognized in the first two
quarters of 2002. Management fee revenue increased partly due to the increased
number of communities under management agreements. In addition, improved
performance of managed communities allowed us to recognize additional base
management fees and performance-driven contingent management fees.
Community Operations: Community operating expenses for the six months ended
June 30, 2002, increased by $1.1 million to $41.6 million from $40.5 million in
the first two quarters of 2001, or 2.7%. The change was comprised of a decrease
of $1.0 million due to the disposal of three communities and an increase
totaling $2.1 million, primarily due to increases in liability, workers'
compensation, and health insurance costs of $1.7 million and added personnel
expense associated with our increasing emphasis on dementia care (Alzheimer's).
Community operating expenses as a percentage of total operating revenue
decreased to 57.9% in the second quarter of 2002 from 58.0% in the second
quarter of 2001.
General and Administrative: General and administrative (G&A) expenses for the
six months ended June 30, 2002, increased $953,000 to $9.8 million from $8.8
million for the comparable period in 2001, or 10.8%. As a percentage of total
operating revenues, G&A expenses increased to 13.6% for the six months ended
June 30, 2002, compared to 12.6% for the six months ended June 30, 2001. G&A
expenses rose primarily due to increases in the number of employees, normal
increases in employee salaries, and costs related to various employee benefit
programs. Recent growth in total communities managed through additional
contracts has led to some added operational and administrative employees.
Since more than half of the communities we operate are managed, G&A expense as a
percentage of operating revenues for all communities, including managed
communities, may be more meaningful for industry-wide comparisons. These
percentages were 5.7% and 6.5% for the six months ended June 30, 2002 and 2001,
respectively.
Depreciation and Amortization: Depreciation and amortization for the six months
ended June 30, 2002, was approximately $3.5 million compared to $3.7 million for
the six months ended June 30, 2001. This decrease is primarily due to decreased
depreciable assets because of sales/leaseback arrangements. In 2002,
depreciation and amortization represents 4.9% of total operating revenues,
compared to 5.2% for the comparable period in 2001. The decrease as a
percentage of revenues is due to decreased depreciable assets and increased
revenues.
Facility Lease Expense: Facility lease expense for the six months ended June
30, 2002, was $14.1 million compared to $13.7 million for the comparable period
of 2001, representing an increase of $459,000, or 3.4%. While we leased 44
communities as of both June 30, 2002 and 2001, there were changes in the
composition of the leased communities during the periods. The increase in
expense was primarily due to lease escalator provisions in existing leases.
Facility lease expense increases associated with the HC REIT transaction
discussed above, were offset through reduced costs from the disposal of three
communities in the first, third, and fourth quarters of 2001. Facility lease
expense as a percentage of revenues remained virtually unchanged and was
approximately 19.6% for the six months ended June 30, 2002 and 2001.
Interest Income: Interest income for the six months ended June 30, 2002, was
$222,000 versus $558,000 for the comparable period of 2001. This decrease is
primarily attributable to smaller balances in interest-bearing notes from
affiliates, declining interest rates, and an adjustment in the second quarter of
2001 of $122,000 increasing interest income in the prior period.
Interest Expense: Interest expense for the six months ended June 30, 2002, was
$5.8 million compared to $7.1 million for the comparable period of 2001. This
decrease of $1.3 million, or 18.3%, is attributable to lower interest rates on
our variable rate debt and to the sale/leaseback of two communities as part of
the master lease arrangement with HC REIT, as discussed above, which replaced
mortgage interest with new operating lease payments. As a percentage of total
operating revenues, interest expense decreased to 8.0%
16
from 10.0% for the six months ended June 30, 2002 and 2001, respectively,
reflecting increased revenues in conjunction with lower interest rates in the
first two quarters of 2002.
Other, net: Other, net (expense) increased by $489,000 to $741,000 for the six
months ended June 30, 2002, from $252,000 for the six months ended June 30,
2001. The net change is predominately comprised of the following items: During
the first two quarters of 2002, we repurchased a related party's economic
interest in a 172-unit community resulting in an expense of $158,000.
Additionally, the sale/leaseback of two communities and re-lease of two
additional communities resulted in a transaction-related expense of $372,000,
for a combined impact of $530,000 for the first two quarters of 2002. These
expenses compare to sale/leaseback related gains in the two quarters ended June
30, 2001, of $189,000. This increase of $719,000 is offset by both a decrease of
$198,000 in our net funding obligation expense associated with our obligation to
fund operating deficits of the Emeritrust I and Emeritrust II Development
communities and a property tax refund of approximately $64,000.
Preferred dividends: For the six months ended June 30, 2002 and 2001, the
preferred dividends were approximately $3.7 million and $3.2 million,
respectively. Since dividends on the Series A shares were not paid for six
consecutive quarters, the Series A dividends were calculated on a compounded
cumulative basis, retroactively in the first quarter of 2002. This caused the
preferred dividends to be approximately $498,000 higher in the first two
quarters of 2002 as compared to the first two quarters of 2001. In addition,
since we have not paid these dividends for six consecutive quarters, both our
Series A and Series B shareholders became entitled to elect one additional
director each to our board of directors at each annual shareholders' meeting
until such time as we have paid the accrued dividends, but have not chosen to do
so.
Same Community Comparison
We operated 60 communities on a comparable basis during both the three months
ended June 30, 2002 and 2001. The following table sets forth a comparison of
same community results of operations, excluding general and administrative
expenses, for the three months ended June 30, 2002 and 2001.
Three Months ended June 30,
(In thousands)
Dollar Percentage
2002 2001 Change Change
------------ ------------ -------- -----------
Revenue . . . . . . . . . . . $ 31,241 $ 32,131 $ (890) (2.8%)
Community operating expenses. (20,935) (18,935) (2,000) (10.6)
------------ ------------ -------- -----------
Community operating income. 10,306 13,196 (2,890) (21.9)
Depreciation & amortization . (1,482) (1,616) 134 8.3
Facility lease expense. . . . (7,266) (6,405) (861) (13.4)
------------ ------------ -------- -----------
Operating income. . . . . 1,558 5,175 (3,617) (69.9)
Interest expense, net . . . . (2,172) (2,653) 481 18.1
Other income (expense). . . . 32 (92) 124 N/A
------------ ------------ -------- -----------
Net income (loss) . . . . $ (582) $ 2,430 $(3,012) (124.0%)
============ ============ ======== ===========
The same communities represented $31.2 million or 91.8% of our total revenue of
$34.0 million for the second quarter of 2002. Same community revenues decreased
by $890,000 or 2.8% for the quarter ended June 30, 2002, from the comparable
period in 2001. In the second quarter of 2002, we began deferring resident
move-in fees to amortize such fees over the average period residents stay, where
we had previously recognized all fees as revenue upon payment. Excluding this
deferral of move-in fees, revenues would have increased approximately $903,000,
partially due to insurance surcharges to residents of approximately $338,000
recognized in the period and the combined effects of declines in occupancy and
rate increases. Average occupancy decreased to 81.2% in the second quarter of
2002 from 84.6% in the second quarter of 2001. Giving effect to the deferral of
move-in fees, average revenue per unit increased by 5.3%.
17
Community operating expenses increased approximately $2.0 million due to a
combination of factors, including higher liability insurance costs that were not
fully offset by rate surcharges, normal salary increases, increases in workman's
comp charges, health insurance and other employee costs, as well as normal
increases in other operating expense categories. Occupancy expenses, consisting
of facility lease expense, depreciation and amortization and interest expense
rose approximately $246,000 as a result of net effect of sale/leaseback
transactions relating to two communities, rent escalation related to other
communities and new subordinated debt financing, partially offset by lower
interest rates.
For the quarter ended June 30, 2002, net income decreased to a loss of $582,000
from $2.4 million income for the comparable period of 2001, as a result of the
combined effect of the deferral of move-in fees and increases in community
operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2002, net cash used in operating activities
was $1.7 million compared to $1.8 million for the comparable period in the prior
year. The primary components of operating cash used were the net loss of $5.2
million and the net increase in other operating assets and liabilities of
$477,200, partially offset by depreciation and amortization of $3.5 million.
The primary components of operating cash used for the six months ended June 30,
2001, were the net loss of $3.5 million, the net increase in other operating
assets and liabilities of $1.4 million, and amortization of deferred gain of
$380,000, partially offset by depreciation and amortization of $3.7 million.
Net cash provided by investing activities amounted to $19.8 million for the six
months ended June 30, 2002, and was comprised primarily of funds from the HC
REIT transaction previously discussed under "Other Transactions". Net cash
provided by investing activities amounted to $4.4 million for the six months
ended June 30, 2001, and was comprised primarily of repayment of advances by
third parties and affiliates of $4.3 million and proceeds from the
sale/leaseback of one community, which was partially offset by the acquisition
of property and equipment and investment in lease acquisition costs.
For the six months ended June 30, 2002, net cash used in financing activities
was $16.9 million primarily from long-term debt repayments, which include debt
repayments related to the HC REIT transaction previously discussed under "Other
Transactions", partially offset by decreases in restricted deposits and proceeds
of long-term borrowings. For the six months ended June 30, 2001, net cash used
in financing activities was $2.8 million primarily from the repayment of
short-term and long-term borrowings.
In February 2002, through Heller Healthcare Finance, we refinanced three of the
properties in our $71.8 million Deutsche Bank AG loan portfolio. The new loan
of $30.6 million matures February 2004 and provides for monthly principal
payments of approximately $39,000 in addition to interest at LIBOR plus four
percent. This refinancing in turn satisfied our extension agreement dated May
31, 2001, with Deutsche Bank AG to extend to May 31, 2003 the maturity date of
the remaining $46.3 million of debt, which is secured by the remaining seven
properties in the original portfolio. The remaining balance of our Deutsche
Bank AG loan of $40.6 million was reclassified from long-term to current portion
of long-term debt during the second quarter of 2002.
We have incurred significant operating losses since our inception and have a
working capital deficit of $59.2 million, although $2.5 million represents
deferred revenues and $10.5 million of preferred cash dividends is only due if
declared by our board of directors. To date, we have been dependent upon third
party financing or disposition of assets to fund operations. We intend to
continue to refinance or restructure debt as necessary with our current third
party lenders. We cannot, however, guaranty that third party financing and
refinancing or dispositions of assets will be available timely or on terms
acceptable to us. In April 2002, we completed a lease and debt transaction
having a beneficial impact on working capital of $6.7 million in conjunction
with the HC REIT master lease transaction, more fully discussed in the
18
Notes to Condensed Consolidated Financial Statements and elsewhere in
Management's Discussion and Analysis of Financial Condition and Results of
Operations. With respect to the $40.6 million of mortgage debt that matures on
May 31, 2003, we have been in discussions with the lender and others regarding
restructuring or refinancing of the debt and, although we believe the issue will
be resolved prior to the maturity of this debt, there has been no agreement
reached at this time and we have no commitment for refinancing. If we are unable
to restructure or refinance this debt, the lender could declare the entire
amount immediately due and payable at maturity and could begin foreclosure
proceedings with respect to the seven assisted living properties that secure
this debt. In addition, this default would result in defaults under other leases
and loan agreements. Except for the potential financial impact of being unable
to refinance the aforementioned mortgage debt, we believe we have sufficient
funds to sustain operations at least through June 30, 2003.
Many of our debt instruments and leases contain "cross-default" provisions
pursuant to which a default under one obligation can cause a default under one
or more other lease and loan obligations. Such cross-default provisions affect
14 owned assisted living properties and 36 operated under leases. Accordingly,
any event of default could cause a material adverse effect on our financial
condition if such debt or leases are cross-defaulted. At June 30, 2002, we are
in compliance with our debt and lease covenants.
IMPACT OF INFLATION
To date, inflation has not had a significant impact on Emeritus. Inflation
could, however, affect our future revenues and operating income due to our
dependence on the senior resident population, most of whom rely on relatively
fixed incomes to pay for our services. The monthly charges for a resident's
unit and assisted living services are influenced by the location of the
community and local competition. Our ability to increase revenues in proportion
to increased operating expenses may be limited. We typically do not rely to a
significant extent on governmental reimbursement programs. In pricing our
services, we attempt to anticipate inflation levels, but there can be no
assurance that we will be able to respond to inflationary pressures in the
future.
FORWARD-LOOKING STATEMENTS
"Safe Harbor" Statement under the Private Securities Litigation Reform Act of
1995: A number of the matters and subject areas discussed in this report that
are not historical or contain current facts deal with potential future
circumstances, operations, and prospects. The discussion of these matters and
subject areas is qualified by the inherent risks and uncertainties surrounding
future expectations generally, and also may materially differ from our actual
future experience as a result of such factors as: the effects of competition and
economic conditions on the occupancy levels in our communities; our ability
under current market conditions to maintain and increase our resident charges in
accordance with our rate enhancement program without adversely affecting
occupancy levels; our ability to control community operation expenses without
adversely affecting the level of occupancy and the level of resident charges;
the ability of our operations to generate cash flow sufficient to service our
debt and other fixed payment requirements; our ability to find sources of
financing and capital on satisfactory terms to meet our cash requirements to the
extent that they are not met by operations. We have attempted to identify, in
context, certain of the factors that we currently believe may cause actual
future experience and results to differ from our current expectations regarding
the matter or subject area discussed in this report. These and other risks and
uncertainties are detailed in our reports filed with the Securities and Exchange
Commission, including our Annual Reports on Form 10-K and Quarterly Reports on
Form 10-Q.
19
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings are affected by changes in interest rates as a result of our
short-term and long-term borrowings. We manage this risk by obtaining fixed
rate borrowings when possible. At June 30, 2002, our variable rate borrowings
totaled approximately $71.0 million. If market interest rates were to average
2% more, our annual interest expense and net loss would increase approximately
$1.4 million. This amount is determined by considering the impact of
hypothetical interest rates on our outstanding variable rate borrowings as of
June 30, 2002, and does not consider changes in the actual level of borrowings
that may occur subsequent to June 30, 2002. This analysis also does not
consider the effects of the reduced level of overall economic activity that
could exist in such an environment, or our current funding requirements for the
Emeritrust communities, nor does it consider actions that management might be
able to take with respect to our financial structure to mitigate the exposure to
such a change.
PART II. OTHER INFORMATION
Items 1 through 5 are not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
3.1 Restated Articles of Incorporation of registrant (Exhibit
3.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
3.2 Amended and Restated Bylaws of the registrant (Exhibit
3.2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
4.1 Forms of 6.25% Convertible Subordinated Debenture due 2006
(Exhibit 4.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
4.2 Indenture dated February 15, 1996, between the registrant
and Fleet National Bank ("Trustee") (Exhibit 4.2).. . . . . . . . . . . . . . . . . . . (2)
4.3 Preferred Stock Purchase Agreement (including Designation
of Rights and Preferences of Series A Convertible
Exchangeable Redeemable Preferred Stock of Emeritus
Corporation Agreement, Registration of Rights Agreement and
Shareholders Agreement) dated October 24, 1997, between the
registrant ("Seller") and Merit Partners, LLC ("Purchaser")
(Exhibit 4.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12)
10.1 Amended and Restated 1995 Stock Incentive Plan (Exhibit
99.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14)
10.2 Stock Option Plan for Nonemployee Directors (Exhibit 10.2). . . . . . . . . . . . . . . (2)
10.3 Form of Indemnification Agreement for officers and
directors of the registrant (Exhibit 10.3). . . . . . . . . . . . . . . . . . . . . . . (1)
10.4 Noncompetition Agreements entered into between the
registrant and each of the following individuals:
10.4.1 Daniel R. Baty (Exhibit 10.4.1), Raymond R.
Brandstrom (Exhibit 10.4.2) and Frank A. Ruffo
(Exhibit 10.4.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
10.6 Form of Stock Purchase Agreement dated July 31, 1995,
entered into between Daniel R. Baty and each of Michelle A.
Bickford, Jean T. Fukuda, James S. Keller, George T. Lenes
and Kelly J. Price (Exhibit 10.6).. . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
20
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
10.8 Scottsdale Royale in Scottsdale, Arizona, and Villa
Ocotillo in Scottsdale, Arizona. The following agreements
are representative of those executed in connection with
these properties:
10.8.1 Loan Agreement dated December 31, 1996, in the
amount of $12,275,000 by the registrant
("Borrower") and Lender (Exhibit 10.9.1).. . . . . . . . . . . . . . . . . . . (5)
10.8.2 Promissory Note dated December 31, 1996, in the
amount of $5,500,000 between the registrant to
Bank United (the "Lender") with respect to
Scottsdale Royale and Villa Ocotillo (Exhibit
10.9.3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.8.3 Deed of Trust, Security Agreement, Assignment of
Leases and Rents, and Fixture Filing (Financial
Statement) dated as of December 31, 1996, by the
registrant, as Trustor and debtor, to Chicago
Title Insurance Company, as Trustee, for the
benefit of the Lender, Beneficiary and secured
party with respect to Scottsdale Royale and Villa
Ocotillo (Exhibit 10.9.4). . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.9 Rosewood Court in Fullerton, California, the Arbor at Olive
Grove in Phoenix, Arizona, Renton Villa in Renton,
Washington, Seabrook in Everett, Washington, Laurel Lake
Estates in Vorhees, New Jersey, Green Meadows--Allentown in
Allentown, Pennsylvania, Green Meadows--Dover in Dover,
Delaware, Green Meadows--Latrobe in Latrobe, Pennsylvania,
Green Meadows--Painted Post in Painted Post, New York,
Heritage Health Center in Hendersonville, North Carolina.
The following agreements are representative of those
executed in connection with these properties:
10.9.1 Lease Agreement dated March 29, 1996, between the
registrant ("Lessee") and Health Care Property
Investors, Inc. ("Lessor") (Exhibit 10.10.1).. . . . . . . . . . . . . . . . . (3)
10.9.2 First Amendment Lease Agreement dated April 25,
1996, by and between the registrant ("Lessee")
and Health Care Property Investors, Inc.
("Lessor") (Exhibit 10.10.2).. . . . . . . . . . . . . . . . . . . . . . . . . (3)
10.11 Summer Wind in Boise, Idaho
10.11.1 Lease Agreement dated as of August 31, 1995,
between AHP of Washington, Inc. and the
registrant (Exhibit 10.18.1).. . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.11.2 First Amended Lease Agreement dated as of
December 31, 1996, by and between the registrant
and AHP of Washington, Inc. (Exhibit 10.16.2). . . . . . . . . . . . . . . . . (5)
10.12 Silver Pines (formerly Willowbrook) in Cedar Rapids, Iowa
10.12.1 Purchase and Sale Agreement (including Real
Estate Contract) dated January 4, 1995, between
Jabo, Ltd. ("Jabo") and the registrant (Exhibit
10.19.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.12.2 Assignment and Assumption Agreement with respect
21
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
to facility leases dated as of January 17, 1995,
by and between Jabo, as Assignor, and the
registrant, as Assignee (Exhibit 10.19.2). . . . . . . . . . . . . . . . . . . (1)
10.13 The Palisades in El Paso, Texas, Amber Oaks in San Antonio,
Texas and Redwood Springs in San Marcos, Texas. The
following agreements are representative of those executed
in connection with these properties.
10.13.1 Lease Agreement dated April 1, 1997, between ESC
III, L.P. D/B/A Texas-ESC III, L.P. ("Lessee")
and Texas HCP Holding , L.P. ("Lessor") (Exhibit
10.4.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.13.2 First Amendment to Lease Agreement dated April 1,
1997, between Lessee and Texas HCP Holding , L.P.
Lessor (Exhibit 10.4.2). . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.13.3 Guaranty dated April 1, 1997, by the registrant
("Guarantor") in favor of Texas HCP Holding ,
L.P. (Exhibit 10.4.3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.13.4 Assignment Agreement dated April 1, 1997, between
the registrant ("Assignor") and Texas HCP Holding
, L.P. ("Assignee") (Exhibit 10.4.4).. . . . . . . . . . . . . . . . . . . . . (6)
10.14 Carriage Hill Retirement in Bedford, Virginia
10.14.1 Lease Agreement dated August 31, 1994, between
the registrant, as Tenant, and Carriage Hill
Retirement of Virginia, Ltd. as Landlord (Exhibit
10.23.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.14.2 Supplemental Lease Agreement dated September 2,
1994 (Exhibit 10.23.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.15 Green Meadows Communities
10.15.1 Consent to Assignment of and First Amendment to
Asset Purchase Agreement dated September 1, 1995,
among the registrant, The Standish Care Company
and Painted Post Partnership, Allentown Personal
Car General Partnership, Unity Partnership,
Saulsbury General Partnership and P. Jules Patt
(collectively, the "Partnerships"), together with
Asset Purchase Agreement dated July 27, 1995,
among The Standish Care Company and the
Partnerships (Exhibit 10.24.1).. . . . . . . . . . . . . . . . . . . . . . . . (1)
10.15.2 Agreement to Provide Administrative Services to
an Adult Home dated October 23, 1995, between the
registrant and P. Jules Patt and Pamela J. Patt
(Exhibit 10.24.6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.15.3 Assignment Agreement dated October 19, 1995,
between the registrant, HCPI Trust and Health
Care Property Investors, Inc. (Exhibit 10.24.8). . . . . . . . . . . . . . . . (1)
10.15.4 Assignment and Assumption Agreement dated August
31, 1995, between the registrant and The Standish
Care Company (Exhibit 10.24.9).. . . . . . . . . . . . . . . . . . . . . . . . (1)
10.15.5 Guaranty dated October 19, 1995, by Daniel R.
Baty in favor of Health Care Property Investors,
22
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Inc., and HCPI Trust (Exhibit 10.24.10). . . . . . . . . . . . . . . . . . . . (1)
10.15.6 Guaranty dated October 19, 1995, by the
registrant in favor of Health Care Property
Investors, Inc. (Exhibit 10.24.11).. . . . . . . . . . . . . . . . . . . . . . (1)
10.15.7 Second Amendment to Agreement to provide
Administrative Services to an Adult Home dated
January 1, 1997, between Painted Post Partners
and the registrant (Exhibit 10.2). . . . . . . . . . . . . . . . . . . . . . . (10)
10.16 Carolina Communities
10.16.1 Lease Agreement dated January 26, 1996, between
the registrant and HCPI Trust with respect to
Countryside Facility (Exhibit 10.23.1).. . . . . . . . . . . . . . . . . . . . (2)
10.16.3 Promissory Note dated as of January 26, 1996, in
the amount of $3,991,190 from Heritage Hills
Retirement, Inc. ("Borrower") to Health Care
Property Investors, Inc. ("Lender")
(Exhibit 10.23.4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
10.16.4 Loan Agreement dated January 26, 1996, between
the Borrower and the Lender (Exhibit 10.23.5). . . . . . . . . . . . . . . . . (2)
10.16.5 Guaranty dated January 26, 1996, by the
registrant in favor of the Borrower (Exhibit
10.23.6).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
10.16.6 Deed of Trust with Assignment of Rents, Security
Agreement and Fixture Filing dated as of January
26, 1996, by and among Heritage Hills Retirement,
Inc. ("Grantor"), Chicago Title Insurance Company
("Trustee") and Health Care Property Investor,
Inc. ("Beneficiary") (Exhibit 10.23.7).. . . . . . . . . . . . . . . . . . . . (2)
10.16.7 Lease Agreement dated as of January 26, 1996,
between the registrant and Health Care Property
Investor, Inc. with respect to Heritage Lodge
Facility (Exhibit 10.23.8).. . . . . . . . . . . . . . . . . . . . . . . . . . (2)
10.16.8 Lease Agreement dated as of January 26, 1996,
between the registrant and Health Care Property
Investor, Inc. with respect to Pine Park Facility
(Exhibit 10.23.9). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
10.16.9 Lease Agreement dated January 26, 1996, between
the registrant and HCPI Trust with respect to
Skylyn Facility (Exhibit 10.23.10).. . . . . . . . . . . . . . . . . . . . . . (2)
10.16.10 Lease Agreement dated January 26, 1996, between
the registrant and HCPI Trust with respect to
Summit Place Facility (Exhibit 10.23.11).. . . . . . . . . . . . . . . . . . . (2)
10.16.11 Amendment to Deed of Trust dated April 25, 1996,
between Heritage Hills Retirement, Inc.
("Grantor"), and Health Care Property Investors,
Inc. ("Beneficiary") (Exhibit 10.21.12). . . . . . . . . . . . . . . . . . . . (5)
10.17 Development Property in Fairfield, California
10.17.1 Loan Agreement in the amount of $12,800,000 dated
January 10, 1997, between Fairfield Retirement
Center, LLC ("Borrower") and the Finova Capital
23
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Corporation ("Lender") (Exhibit 10.31.1).. . . . . . . . . . . . . . . . . . . (5)
10.17.2 Promissory Note dated January 10, 1997, in the
amount of $12,800,000 between Fairfield
Retirement Center, LLC ("Borrower") and Finova
Capital Corporation ("Lender") (Exhibit 10.31.2).. . . . . . . . . . . . . . . (5)
10.17.3 Deed of Trust, Security Agreement, Assignment
of Leases and Rents and Fixture Filing dated
January 10, 1997, between Fairfield Retirement
Center, LLC ("Trustor"), Chicago Title Company
("Trustee") and Finova Capital Corporation
("Beneficiary") (Exhibit 10.31.3). . . . . . . . . . . . . . . . . . . . . . . (5)
10.17.4 Guaranty Agreement dated January 10, 1997,
between the registrant ("Guarantor") and Finova
Capital Corporation ("Lender") (Exhibit
10.31.4).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.17.5 Fairfield restructuring agreement between the registrant and
Fairfield Assisted Living, L.L.C., dated March 28, 2002. . . . . . . . . . . . (25)
10.18 Garrison Creek Lodge in Walla Walla, Washington, Cambria
in El Paso Texas, and Sherwood Place in Odessa, Texas.
The following agreements are representative of those
executed in connection with these properties:
10.18.1 Lease Agreement dated July, August and
September 1996, between the registrant
("Lessee") and American Health Properties, Inc.
("Lessor") (Exhibit 10.3.1). . . . . . . . . . . . . . . . . . . . . . . . . . (4)
10.18.2 First Amendment to Lease Agreement dated
December 31, 1996, between the registrant
("Lessee") and AHP of Washington, Inc.,
("Lessor") (Exhibit 10.35.2).. . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.19 Cobblestone at Fairmont in Manassas, Virginia
10.19.1 Loan Agreement effective as of October 26,
1995, between the registrant and Health Care
REIT, Inc. (Exhibit 10.42.1).. . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.19.2 Deed of Trust, Security Agreement, Assignment
of Leases and Rents and Fixture Filing dated as
of October 26, 1995, by the registrant to
Health Care REIT, Inc. (Exhibit 10.42.2).. . . . . . . . . . . . . . . . . . . (1)
10.19.3 Note dated October 26, 1995, from the
registrant to Health Care REIT, Inc. (Exhibit
10.42.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1)
10.19.4 Unconditional and Continuing Guaranty dated as
of October 26, 1995, by Daniel R. Baty in favor
of Health Care REIT, Inc. (Exhibit 10.42.4). . . . . . . . . . . . . . . . . . (1)
10.20 Rosewood Court in Fullerton, California, The Arbor at
Olive Grove in Phoenix, Arizona, Renton Villa in Renton,
Washington, Seabrook in Everett, Washington and Laurel
Lake Estates in Voorhees, New Jersey, Green Meadows--
Allentown in Allentown, Pennsylvania, Green Meadows--
Dover in Dover, Delaware, Green Meadows--Latrobe in
Latrobe, Pennsylvania, Green Meadows--Painted Post in
24
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Painted Post, New York. The following agreements are
representative of those executed in connection with these
properties:
10.20.1 Second Amended Lease Agreement dated as of
December 30, 1996, by and between the
registrant and Health Care Property Investors,
Inc. (Exhibit 10.37.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.21 Cooper George Partners Limited Partnership
10.21.1 Deed of Trust, Trust Indenture, Assignment,
Assignment of Rents, Security Agreement,
Including Fixture Filing and Financing
Statement dated June 30, 1998, between Cooper
George Partners Limited Partnership
("Grantor"), Chicago Title Insurance Company
("Trustee") and Deutsche Bank AG, New York
Branch ("Beneficiary") (Exhibit 10.3.1). . . . . . . . . . . . . . . . . . . . (15)
10.21.2 Partnership Interest Purchase Agreement dated
June 4, 1998, between Emeritus Real Estate LLC
IV ("Seller") and Columbia Pacific Master Fund
98 General Partnership ("Buyer") (Exhibit
10.3.2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
10.21.3 Credit Agreement dated June 30, 1998, between
Cooper George Partners Limited Partnership
("Borrower") and Deutsche Bank AG, New York
Branch ("Lender") (Exhibit 10.3.3).. . . . . . . . . . . . . . . . . . . . . . (15)
10.21.4 Amended and Restated Agreement of Limited
Partnership of Cooper George Partners Limited
Partnership dated June 29, 1998, between
Columbia Pacific Master Fund '98 General
Partnership, Emeritus Real Estate IV, L.L.C.
and Bella Torre De Pisa Limited Partnership
(Exhibit 10.3.4).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
10.21.5 Guaranty and Limited Indemnity Agreement dated
June 30, 1998, between Daniel R. Baty
("Guarantor") and Deutsche Bank AG, New York
Branch ("Lender") (Exhibit 10.3.6).. . . . . . . . . . . . . . . . . . . . . . (15)
10.21.6 Promissory Note dated June 30, 1998, between
Cooper George Limited Partnership ("Borrower")
and Deutsche Bank, AG, New York Branch
("Lender") (Exhibit 10.3.7). . . . . . . . . . . . . . . . . . . . . . . . . . (15)
10.22 Registration Rights Agreement dated February 8, 1996,
with respect to the registrant's 6.25%
Convertible Subordinated Debentures due 2006 (Exhibit
10.44). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
10.23 Registration Rights Agreement dated February 8, 1996,
with respect to the registrant's 6.25%
Convertible Subordinated Debentures due 2006 (Exhibit
10.45). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2)
10.24 Office Lease Agreement dated April 29, 1996, between
Martin Selig ("Lessor") and the registrant ("Lessee")
25
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
(Exhibit 10.8). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3)
10.25 Colonie Manor in Latham, New York, Bassett Manor in
Williamsville, New York, West Side Manor in Liverpool, New
York, Bellevue Manor in Syracuse, New York, Perinton Park
Manor in Fairport, New York, Bassett Park Manor in
Williamsville, New York, Woodland Manor in Vestal, New York,
East Side Manor in Fayetteville, New York and West Side Manor
in Rochester, New York. The following agreement is
representative of those executed in connection with these
properties:
10.25.1 Lease Agreement dated September 1, 1996, between
Philip Wegman ("Landlord") and Painted Post
Partners ("Tenant") (Exhibit 10.4.1).. . . . . . . . . . . . . . . . . . . . . (4)
10.25.2 Agreement to Provide Administrative Services to an
Adult Home dated September 2, 1996, between the
registrant and Painted Post Partners ("Operator")
(Exhibit 10.4.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4)
10.25.3 First Amendment to Agreement to Provide
Administrative Services to an Adult Home dated
January 1, 1997, between Painted Post Partners and
the registrant (Exhibit 10.1). . . . . . . . . . . . . . . . . . . . . . . . . (10)
10.26 Columbia House Communities.
10.26.1 Management Services Agreement between the
Registrant ("Manager") and Columbia House, LLC
("Lessee") dated November 1, 1996, with respect to
Camlu Retirement (Exhibit 10.6.1). . . . . . . . . . . . . . . . . . . . . . . (4)
10.26.2 Management Services Agreement dated January 1,
1998, between the registrant ("Manager") and
Columbia House LLC ("Lessee") with respect to York
Care.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.26.3 Commercial Lease Agreement dated January 13, 1997,
between Albert M. Lynch ("Landlord") and Columbia
House, LLC ("Tenant") with respect to York Care
(Exhibit 10.3.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.26.4 Management Services Agreement dated June 1, 1997,
between the registrant ("Manager") and Columbia
House LLC ("Owner") with respect to Autumn Ridge
(Exhibit 10.3.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9)
10.26.5 Agreement to Provide Accounting and Administrative
Services dated October 1, 1997, between Acorn
Service Corporation ("Administrator") and Vancouver
Housing, L.L.C., ("Manager") with respect to Van
Vista and Columbia House (Exhibit 10.6.1). . . . . . . . . . . . . . . . . . . (12)
10.26.6 Assignment and First Amendment to Agreement to
Provide Management Services dated September 1,
1997, between the registrant, Columbia House,
L.L.C., Acorn Service Corporation and Camlu Coeur
d'Alene, L.L.C. with respect to Camlu. . . . . . . . . . . . . . . . . . . . . (13)
10.26.7 Assignment and First Amendment to Agreement to
Provide Management Services dated September 1,
1997, between the registrant, Columbia House,
26
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
L.L.C., Acorn Service Corporation and Autumn Ridge
Herculaneum, L.L.C. with respect to Autumn Ridge.. . . . . . . . . . . . . . . (13)
10.26.8 Management Services Agreement dated January 1,
1998, between the registrant ("Manager") and
Columbia House LLC ("Owner") with respect to Park
Lane.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.27 Vickery Towers in Dallas, Texas
10.27.1 Partnership Interest Purchase and Sale Agreement
dated June 4, 1998, between ESC GP II, Inc. and
Emeritus Properties IV, Inc. (together "Seller")
and Columbia Pacific Master Fund 98 General
Partnership and Daniel R. Baty (together
"Purchaser") (Exhibit 10.4.1). . . . . . . . . . . . . . . . . . . . . . . . . (15)
10.27.2 Amended and Restated Agreement of Limited
Partnership of ESC II, LP dated June 30, 1998,
between Columbia Pacific Master Fund '98 General
Partnership and Daniel R. Baty (Exhibit 10.4.2). . . . . . . . . . . . . . . . (15)
10.27.3 Agreement to Provide Management Services To An
Independent and Assisted Living Facility dated June
30, 1998, between ESC II, LP ("Owner") and ESC III,
LP ("Manager") (Exhibit 10.4.3). . . . . . . . . . . . . . . . . . . . . . . . (15)
10.28 Concorde in Las Vegas, Nevada
10.28.1 Purchase and Sale Agreement dated July 9, 1996,
between the registrant ("Purchaser") and Sunday
Estates, Inc. ("Seller") (Exhibit 10.56.1).. . . . . . . . . . . . . . . . . . (5)
10.28.2 First Amendment to Purchase and Sale Agreement
dated July 11, 1996, between the registrant the
Seller (Exhibit 10.56.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.29 Development Properties in Auburn, Massachusetts, Louisville,
Kentucky and Rocky Hill, Connecticut. The following
agreements are representative of those executed in connection
with these properties:
10.29.1 Lease Agreement dated February 1996, between the
registrant ("Lessee") and LM Auburn Assisted Living
LLC, and LM Louisville Assisted Living LLC,
("Landlords") with respect to the development
properties in Auburn and Louisville (Exhibit
10.58.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.29.2 Amended and Restated Lease Agreement dated February
26, 1996, between the registrant ("Lessee") and LM
Rocky Hill Assisted Living Limited Partnership,
("Landlord") with respect to the development
property in Rocky Hill (Exhibit 10.58.2).. . . . . . . . . . . . . . . . . . . (5)
10.29.3 Lease Agreement dated October 10, 1996, between the
registrant ("Lessee") and LM Chelmsford Assisted
Living LLC, ("Landlord") with respect to the
development property in Chelmsford (Exhibit
10.58.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.29.4 Promissory Note in the amount of $1,255,000 dated
27
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
December 1996, between the registrant ("Lender")
and LM Auburn Assisted Living LLC, ("Borrower")
with respect to the development property in
Auburn (Exhibit 10.58.4).. . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.29.5 Promissory Note in the amount of $1,450,000 dated
January 1997, between the registrant ("Lender")
and LM Louisville Assisted Living LLC,
("Borrower") with respect to the development
property in Louisville (Exhibit 10.58.5).. . . . . . . . . . . . . . . . . . . (5)
10.29.6 Promissory Note in the amount of $1,275,000 dated
January 1997, between the registrant ("Lender")
and LM Rocky Hill Assisted Living Limited
Liability Partnership, ("Borrower") with respect
to the development property in Rocky Hill
(Exhibit 10.58.6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.29.7 Promissory Note in the amount of $300,000 dated
January 1997, between the registrant ("Lender")
and LM Chelmsford Assisted Living LLC,
("Borrower") with respect to the development
property in Chelmsford (Exhibit 10.58.7).. . . . . . . . . . . . . . . . . . . (5)
10.30 Development Properties in Cheyenne, Wyoming and Auburn,
California. The following agreements are representative of
those executed in connection with these properties.
10.30.1 Management Agreement dated May 30, 1997, between
Willard Holdings, Inc., ("Owner") and the
registrant ("Manager") (Exhibit 10.5.1). . . . . . . . . . . . . . . . . . . . (9)
10.30.2 Lease Agreement dated May 30, 1997, between
Willard Holdings, Inc., ("Lessor") and the
registrant ("Lessee") (Exhibit 10.5.2).. . . . . . . . . . . . . . . . . . . . (9)
10.31 Senior Management Employment Agreements and Amendments
entered into between the registrant and each of the
following individuals:
10.31.1 Frank A. Ruffo (Exhibit 10.6.2), Kelly J. Price
(Exhibit 10.6.3), Gary D. Witte (Exhibit 10.6.4),
Sarah J. Curtis (Exhibit 10.6.4), and Raymond R.
Brandstrom (Exhibit 10.6.5). . . . . . . . . . . . . . . . . . . . . . . . . . (9)
10.31.2 Raymond R. Brandstrom (Exhibit 10.11.1), Gary D.
Witte ( Exhibit 10.11.2), Frank A. Ruffo (Exhibit
10.11.3), Sarah J. Curtis (Exhibit 10.11.4), and
Kelly J. Price (Exhibit 10.11.5) . . . . . . . . . . . . . . . . . . . . . . . (9)
10.32 La Casa Grande in New Port Richey, Florida, River Oaks in
Englewood, Florida, and Stanford Centre in Altamonte
Springs, Florida. The following agreements are
representative of those executed in connection with these
properties.
10.32.1 Stock Purchase Agreement dated September 30,
1996, between Wayne Voegele, Jerome Lang, Ronald
Carlson, Thomas Stanford, Frank McMillan, Lonnie
Carlson, and Carla Holweger ("Seller") and the
registrant ("Purchaser") with respect to La Casa
28
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Grande (Exhibit 10.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
10.32.2 First Amendment to Stock Purchase Agreement dated
January 31, 1997, between the Seller and the
registrant with respect to La Case Grande
(Exhibit 10.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
10.32.3 Stock Purchase Agreement dated September 30,
1996, between the Seller and the registrant with
respect to River Oaks (Exhibit 10.3).. . . . . . . . . . . . . . . . . . . . . (7)
10.32.4 First Amendment to Stock Purchase Agreement dated
January 31, 1997, between the Seller and the
registrant with respect to River Oaks (Exhibit
10.4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
10.32.5 Stock Purchase Agreement dated September 30,
1996, between the Seller and the registrant with
respect to Stanford Centre (Exhibit 10.5). . . . . . . . . . . . . . . . . . . (7)
10.32.6 First Amendment to Stock Purchase Agreement dated
January 31, 1997, between the Seller and the
registrant with respect to Stanford Centre
(Exhibit 10.6).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7)
10.33 Painted Post Partnership
10.33.1 Painted Post Partners Partnership Agreement dated
October 1, 1995 (Exhibit 10.24.7). . . . . . . . . . . . . . . . . . . . . . . (1)
10.33.2 First Amendment to Painted Post Partners
Partnership Agreement dated October 22, 1996,
between Daniel R. Baty and Raymond R. Brandstrom
(Exhibit 10.20.20).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5)
10.33.3 Indemnity Agreement dated November 3, 1996,
between the registrant and Painted Post Partners
(Exhibit 10.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10)
10.33.4 First Amendment to Indemnity Agreement dated
January 1, 1997, between the registrant and
Painted Post Partners (Exhibit 10.4).. . . . . . . . . . . . . . . . . . . . . (10)
10.33.5 Undertaking and Indemnity Agreement dated October
23, 1995, between the registrant, P. Jules Patt
and Pamela J. Patt and Painted Post Partnership
(Exhibit 10.5).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10)
10.33.6 First Amendment to Undertaking and Indemnity
Agreement dated January 1, 1997, between Painted
post Partners and the registrant (Exhibit 10.6). . . . . . . . . . . . . . . . (10)
10.33.7 First Amendment to Non-Competition Agreement
between the registrant and Daniel R. Baty
(Exhibit 10.1.1) and Raymond R. Brandstrom
(Exhibit 10.1.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11)
10.34 Ridgeland Court in Ridgeland, Mississippi
10.34.1 Master Agreement and Subordination Agreement
dated September 5, 1997, between the
registrant, Emeritus Properties I, Inc., and
Mississippi Baptist Health Systems, Inc.
(Exhibit 10.1.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12)
10.34.2 License Agreement dated September 5, 1997,
29
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
between the registrant and its subsidiary and
affiliated corporations and Mississippi Baptist
Health Systems, Inc. (Exhibit 10.1.2). . . . . . . . . . . . . . . . . . . . . (12)
10.34.3 Economic Interest Assignment Agreement and
Subordination Agreement dated September 5,
1997, between the registrant, Emeritus
Properties I, Inc., and Mississippi Baptist
Health Systems, Inc. (Exhibit 10.1.3). . . . . . . . . . . . . . . . . . . . . (12)
10.34.4 Operating Agreement for Ridgeland Assisted
Living, L.L.C. dated December 23, 1998, between
the registrant, Emeritust Properties XI, L.L.C.
and Mississippi Baptist Medical Enterprises,
Inc. (Exhibit 10.46.4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16)
10.34.5 Purchase and Sale Agreement dated December 23,
1998, between the registrant and Meditrust
Company LLC. (Exhibit 10.46.5).. . . . . . . . . . . . . . . . . . . . . . . . (16)
10.35 Development Property in Urbana, Illinois.
10.35.1 Lease Agreement dated September 10, 1997,
between ALCO IV, L.L.C. ("Lessor") and the
registrant ("Lessee") (Exhibit 10.2.1).. . . . . . . . . . . . . . . . . . . . (12)
10.35.2 Management Agreement dated September 10, 1997,
between the registrant ("Manager") and ALCO IV,
L.L.C. ("Owner") (Exhibit 10.2.2). . . . . . . . . . . . . . . . . . . . . . . (12)
10.35.3 Purchase agreement for Urbana between HRT of Illinois ("Seller")
and the registrant ("Purchaser") dated March 27, 2002. . . . . . . . . . . . . (25)
10.36 Amendment to Office Lease Agreement dated September 6,
1996, between Martin Selig ("Lessor") and the registrant. . . . . . . . . . . . . . . . (13)
10.37 Villa Del Rey in Escondido, California
10.37.1 Purchase and Sale Agreement dated December 19,
1996, between the registrant ("Purchaser") and
Northwest Retirement ("Seller") (Exhibit
10.1.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.38 Development Property in Paso Robles, California
10.38.1 Agreement of TDC/Emeritus Paso Robles
Associates dated June 1, 1995, between the
registrant and TDC Convalescent, Inc. (Exhibit
10.2.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.38.2 Loan Agreement in the amount of $6,000,000
dated February 15, 1997, between Finova Capital
Corporation ("Lender") and TDC/Emeritus Paso
Robles Associates ("Borrower") (Exhibit
10.2.2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.38.3 Promissory Note dated February 28, 1997, in the
amount of $6,000,000 between Finova Capital
Corporation ("Lender") and TDC/Emeritus Paso
Robles Associates ("Borrower") (Exhibit
10.2.3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.38.4 Deed of Trust, Security Agreement, Assignment
of Leases and Rents and Fixture Filing dated
February 18, 1997, between TDC/Emeritus Paso
30
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Robles Associates ("Trustor"), Chicago Title
Company ("Trustee") and Finova Capital
Corporation ("Beneficiary") (Exhibit 10.2.4).. . . . . . . . . . . . . . . . . (6)
10.38.5 Guaranty between TDC Convalescent, Inc.
("Guarantor") and Finova Capital Corporation
(Exhibit 10.2.5).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.38.6 Guaranty between the registrant ("Guarantor")
and Finova Capital Corporation (Exhibit
10.2.6). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6)
10.38.7 Purchase and Sale Agreement between TDC Convalescent, Inc.
("Seller") and the registrant ("Purchaser") dated March 26, 2002.. . . . . . . (25)
10.39 Development Property in Staunton, Virginia
10.39.1 Purchase and Sale Agreement dated February 5,
1997, between Greencastle Retirement Partners,
L.L.C. ("Purchaser") and Gail G. Brown
("Seller") (Exhibit 10.72.1).. . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.39.2 Assignment and Assumption of Purchase and Sale
Agreement dated February 12, 1997, between
Greencastle Retirement Partners, L.L.C. and the
registrant.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.40 Development Property in Jamestown New York
10.40.1 Purchase Agreement dated December 12, 1996,
between June Fagerstrom ("Seller") and Wegman
Family LLC ("Buyer") (Exhibit 10.73.1).. . . . . . . . . . . . . . . . . . . . (13)
10.40.2 Assignment and Assumption Agreement dated
December 30, 1997, between Wegman Family LLC
("Assignor") and Painted Post Partners
("Assignee") (Exhibit 10.73.2).. . . . . . . . . . . . . . . . . . . . . . . . (13)
10.41 Development Property in Danville, Illinois
10.41.1 Purchase and Sale Agreement dated October 14,
1997, between South Bay Partners, Inc.
("Purchaser") and Elks Lodge No. 332, BPOE
("Seller") (Exhibit 10.74.1).. . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.41.2 Assignment and Assumption of Purchase and Sale
Agreement dated October 21, 1997, between South
Bay Partners, Inc. and the registrant (Exhibit
10.74.2).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.42 Development Property in Biloxi, Mississippi
10.42.1 Management Agreement dated December 18, 1997,
between the registrant ("Manager") and ALCO
VII, L.L.C. ("Owner") (Exhibit 10.75.1). . . . . . . . . . . . . . . . . . . . (13)
10.42.2 Lease Agreement dated September 29, 2000,
between the registrant ("Lessee") and HR
Acquisition Corporation ("Lessor") (Exhibit
10.75.2).
10.43 Sanyo Electric Co., Ltd.
10.43.1 Agreement entered into on May 30, 1996, between
the registrant and Sanyo Electric Co., Ltd. for
the interest in jointly entering the
development, construction and /or operation of
31
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
the Senior Housing Business in Japan (Exhibit
10.76.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.43.2 Joint Venture Agreement entered into on July 9,
1997, between the registrant and Sanyo Electric
Co., Ltd. (Exhibit 10.76.2). . . . . . . . . . . . . . . . . . . . . . . . . . (13)
10.44 Lakeridge Place in Wichita Falls, Texas, Meadowlands
Terrace in Waco, Texas, Saddleridge Lodge in Midland,
Texas and Sherwood Place in Odessa, Texas. The following
agreements are representative of those executed in
connection with these properties.
10.44.1 Management and Consulting Agreement dated
February 1, 1998, between ESC I, L.P., and XL
Management Company L.L.C. (Exhibit 10.78.1). . . . . . . . . . . . . . . . . . (13)
10.45 1998 Employee Stock Purchase Plan (Exhibit 99.2). . . . . . . . . . . . . . . . . . . . (14)
10.46 River Oaks in Englewood, California, Stanford Center in
Alamonte Springs, La Casa Grande in New Port Richey,
Florida, Silver Pines in Cedar Rapids, Iowa, Villa Del
Rey in Escondido, California, Spring Meadows in Bozeman,
Montana, Juniper Meadows in Lewiston, Idaho and Fulton
Villa in Stockton, California.
10.46.1 Credit Agreement dated April 29, 1998, between
Emeritus Properties II, Inc., Emeritus
Properties V, Inc., and Emeritus Properties
VII, Inc. ("Borrowers") and Deutsche Bank AG,
New York Branch ("Lender") (Exhibit 10.2.1). . . . . . . . . . . . . . . . . . (15)
10.46.2 Amended and Restated Guaranty and Limited
Indemnity Agreement dated June 30, 1998,
between Emeritus Corporation ("Guarantor") and
Deutsche Bank AG ("Lender") (Exhibit 10.2.2).. . . . . . . . . . . . . . . . . (15)
10.46.3 Amendment to Credit Agreement and Restatement
of Article IX dated June 30, 1998, between
Emeritus Properties II, Inc., Emeritus
Properties III, Inc., Emeritus Properties V and
Emeritus Properties VII, Inc. (together
"Borrowers") and Deutsche Bank AG ("Lender")
(Exhibit 10.2.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
10.46.4 Guaranty and Limited Indemnity Agreement dated
April 29, 1998, between Emeritus Corporation
("Grantor") and Deutsche Bank AG, New York
Branch ("Lender") (Exhibit 10.2.4).. . . . . . . . . . . . . . . . . . . . . . (15)
10.46.5 Promissory Note dated June 30, 1998, between
Emeritus Properties III, Inc. ("Borrower") and
Deutsche Bank AG, New York Branch ("Lender")
(Exhibit 10.2.5).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
10.46.6 Future Advance Promissory Note dated April 29,
1998, between Emeritus Properties V, Inc.
("Borrower") and Deutsche Bank AG, New York
Branch ("Lender") (Exhibit 10.2.6).. . . . . . . . . . . . . . . . . . . . . . (15)
10.46.7 Extension Agreement dated May 31, 2001, between
Emeritus Properties II, Inc., Emeritus Properties V, Inc.,
32
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Emeritus Properties VII, Inc. ("Original Borrrowers"),
Emeritus Properties III, Inc. ("Additional Borrower"),
and Deutsche Bank AG, New York Branch ("Lender") (Exhibit 10.1).. . . . . . . . (22)
10.46.8 Loan Agreement dated February 8, 2002, between Heller
Healthcare Finance, Inc. ("Lender") and ESC - Puyallup, LLC,
ESC - Port St. Richie, LLC, and ESC - Bozeman, LLC ("Borrower").. . . . . . . . (24)
10.47 Courtyard at the Willows In Puyallup, Washington
10.47.1 Deed of Trust, Trust Indenture, Assignment,
Assignment of Rents, Security Agreement,
Including Fixture Filing and Financing
Statement dated June 30, 1998, between Emeritus
Properties III, Inc. ("Grantor") and Chicago
Title Insurance Company ("Trustee") and
Deutsche Bank AG, New York Branch
("Beneficiary") (Exhibit 10.7.1).. . . . . . . . . . . . . . . . . . . . . . . (15)
10.47.2 Mortgage, Open-End Mortgage, Advance Money
Mortgage, Trust Deed, Deed Of Trust, Trust
Indenture, Assignment, Assignment of Rents,
Security Agreement, Including Fixture Filing
and Financing Statement dated June 30, 1998,
between Emeritus Properties III, Inc.
("Grantor, Mortgagor") and Deutsche Bank, AG,
New York Branch (Exhibit 10.7.2).. . . . . . . . . . . . . . . . . . . . . . . (15)
10.48 Silver Pines in Cedar Rapids, Iowa, Spring Meadows in
Bozeman, Montana and Juniper Meadows in Lewiston, Idaho.
10.48.1 Promissory Note dated April 29, 1998, between
Emeritus Properties II ("Borrower") and
Deutsche Bank AG, New York Branch (Exhibit
10.8.1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
10.49 Richland Gardens in Richland, Washington, Charlton Place
in Tacoma Washington, The Pines of Goldsboro in
Goldsboro, North Carolina, Silverleaf Manor in Meridian,
Mississippi and Wilburn Gardens in Fredericksburg,
Virginia. The following agreement is representative of
those executed in connection with these properties.
10.49.1 Agreement To Provide Management Services To An
Assisted Living Facility dated February 2,
1998, between Richland Assisted, L.L.C.
("Owner") and Acorn Service Corporation
("Manager") (Exhibit 10.9.1).. . . . . . . . . . . . . . . . . . . . . . . . . (15)
10.50 Richland Gardens in Richland, Washington, The Pines of
Goldsboro in Goldsboro, North Carolina, Silverleaf Manor
in Meridian, Mississippi, Wilburn Gardens in
Fredericksburg, Virginia and Park Lane in Toledo, Ohio.
The following agreement is representative of those
executed in connection with these properties.
10.50.1 Marketing Agreement dated February 2, 1998,
between Acorn Service Corporation ("Acorn") and
Richland Assisted, L.L.C. ("RALLC") (Exhibit
10.10.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (15)
33
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
10.51 Kirkland Lodge in Kirkland, Washington
10.51.1 Purchase and Sale Agreement dated December 23,
1998, between the registrant and Meditrust
Company LLC. (Exhibit 10.46.5).. . . . . . . . . . . . . . . . . . . . . . . . (16)
10.51.2 Loan Agreement dated December 28, 1998, between
Emeritus Properties X, L.L.C and Guaranty
Federal Bank (Exhibit 10.65.2).. . . . . . . . . . . . . . . . . . . . . . . . (16)
10.51.3 Promissory Note Agreement dated December 28,
1998, between Emeritus Properties X, L.L.C and
Guaranty Federal Bank (Exhibit 10.65.3). . . . . . . . . . . . . . . . . . . . (16)
10.51.4 Guaranty Agreement dated December 28, 1998,
between the registrant and Guaranty Federal
Bank (Exhibit 10.65.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . (16)
10.52 Emeritrust Communities
10.52.1 Purchase and Sale Agreement dated December 30,
1998, between the registrant, Emeritus
Properties VI, Inc., ESC I, L.P. and AL
Investors LLC. (Exhibit 10.66.1).. . . . . . . . . . . . . . . . . . . . . . . (16)
10.52.2 Supplemental Purchase Agreement in Connection
with Purchase of Facilities dated December 30,
1998, between the registrant, Emeritus
Properties I, Inc. Emeritus Properties VI,
Inc., ESC I, L.P. and AL Investors LLC.
(Exhibit 10.66.2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16)
10.52.3 Management Agreement with Option to Purchase
dated December 30, 1998, between the
registrant, Emeritus Management I LP, Emeritus
Properties I, Inc, ESC I, L.P., Emeritus
Management LLC and AL Investors LLC. (Exhibit
10.66.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16)
10.52.4 Guaranty of Management Agreement and Shortfall
Funding Agreement dated December 30, 1998,
between the registrant and AL Investors LLC.
(Exhibit 10.66.4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (16)
10.52.5 Put and Purchase Agreement dated December 30,
1998, between Daniel R. Baty and AL Investors
LLC. (Exhibit 10.66.5) Second Emeritrust.. . . . . . . . . . . . . . . . . . . (16)
10.52.6 First Amendment to Management Agreement with Option
to Purchase (AL I - Emeritrust 25 Facilities) dated March 22, 2001,
between the registrant, Emeritus Management I LP, and AL
Investors LLC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.52.7 Amendment to Guaranty of Management Agreement and
Shortfall Funding Agreement (Emeritrust 25) dated March 22, 2001,
between the registrant and AL Investors LLC. . . . . . . . . . . . . . . . . . . (24)
10.52.8 Second Amendment to Put and Purchase Agreement (AL I -
Emeritrust 25 Facilities) dated March 22, 2001, between Daniel R.
Baty and AL Investors LLC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.52.9 Second Amendment to Management Agreement with Option to
Purchase (AL I - Emeritrust 25 Facilities) dated January 1, 2002,
between the registrant, Emeritus Management I LP, and AL
34
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Investors LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.52.10 Third Amendment to Put and Purchase Agreement (AL I -
Emeritrust 25 Facilities) dated January 1, 2002, between Daniel R. Baty
and AL Investors LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.52.11 Waiver, Consent, and Amendment to Management Agreement dated
May 1, 2002, (AL I-Laurel Place) between Emeritus Management, L.L.C.,
the registrant, and AL I Investors, L.L.C.. . . . . . . . . . . . . . . . . . . . . (25)
10.53 Emeritrust II Communities
10.53.1 Supplemental Purchase Agreement in Connection
with Purchase of Facilities (AL II--14
Operating Facilities) dated March 26,1999,
between the registrant, Emeritus Properties I,
Inc. ESC G.G. I, Inc., ESC I, L.P. and AL
Investors II LLC (Exhibit 10.1.1). . . . . . . . . . . . . . . . . . . . . . . (17)
10.53.2 Management Agreement with Option to Purchase
(AL II--14 Operating Facilities) dated March
26, 1999, between the registrant, Emeritus
Management I LP, Emeritus Properties I, Inc.,
ESC G.P. I, Inc., ESC I, L.P., Emeritus
Management LLC and AL Investors II LLC (Exhibit
10.1.2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17)
10.53.3 Guaranty of Management Agreement (AL II--14
Operating Facilities) dated March 26, 1999,
between the registrant and AL Investors II LLC
(Exhibit 10.1.3).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17)
10.53.4 Supplemental Purchase Agreement in Connection
with Purchase of Facilities (AL II--5
Development Facilities) dated March 26, 1999,
between the registrant, Emeritus Properties I,
Inc. and AL Investors Development LLC (Exhibit
10.1.4). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17)
10.53.5 Management Agreement with Option to Purchase
(AL II--5 Development Facilities) dated
March 26, 1999, between the registrant,
Emeritus Properties I, Inc., Emeritus
Management LLC and AL Investors Development LLC
(Exhibit 10.1.5).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17)
10.53.6 Guaranty of Management Agreement and Shortfall
Funding Agreement (AL II--5 Development
Facilities) dated March 26, 1999, between the
registrant and AL Investors Development LLC
(Exhibit 10.1.6).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17)
10.53.7 Put and Purchase Agreement (AL II Holdings--14
Operating Facilities and 5 Development
Facilities) dated March 26, 1999, between
Daniel R. Baty and AL II Holdings LLC, AL
Investors II LLC and AL Investors Development
LLC (Exhibit 10.1.7).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17)
10.53.8 Second Amendment to Management Agreement (AL II -
14 Operating Facilities) (GMAC) dated March 22, 2001, between the
35
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
registrant, Emeritus Management LLC, Emeritus Management I,
and AL Investors II LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.53.9 Second Amendment to Put and Purchase Agreement (AL
II Holdings - 14 Operating Facilities and 5 Development Facilities)
dated March 22, 2001, between Daniel R. Baty and AL II Holdings
LLC, AL Investors II LLC and AL Investors Development LLC. . . . . . . . . . . (24)
10.53.10 First Amendment to Management Agreement (AL II -
5 Development Facilities) dated January 1, 2002, between the
registrant, Emeritus Management LLC, and AL Investors
Development LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.53.11 Third Amendment to Put and Purchase Agreement (AL II
Holdings - 14 Operating Facilities and 5 Development Facilities)
dated January 1, 2002, between Daniel R. Baty and AL II Holdings
LLC, AL Investors II LLC, and AL Investors Development LLC. . . . . . . . . . . (24)
10.53.12 Third Amendment to Management Agreement (AL II -
14 Operating Facilities) (GMAC) dated January 1, 2002, between
the registrant, Emeritus Management LLC, Emeritus Management I LP,
and AL Investors II LLC.. . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.54 Meadow Lodge at Drum Lodge Hill in Chelmsford,
Massachusetts
10.54.1 Purchase and Sales Agreement dated April 23,
1999, between LM Chelmsford Assisted Living,
LLC ("Seller") and the registrant ("purchaser")
(Exhibit 10.1.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18)
10.55 Meadow Lodge at Drum Hill in Chelmsford, Massachusetts,
Cobblestones at Fairmont in Manassas, Virginia, Kirkland
Lodge in Kirkland, Washington and Ridgeland Pointe in
Ridgeland, Mississippi. The following agreements are
representative of those executed in conjunction with these
properties.
10.55.1 Fixed Rate Noted dated September 29, 1999,
between Amresco Capital, L.P. ("Payee") and the
registrant ("Maker") (Exhibit 10.2.1).. . . . . . . . . . . . . . . . . . . . (18)
10.55.2 Mortgage and Security Agreement dated September
29, 1999, between Amresco Capital, L.P.
(Mortgagee") and the registrant ("mortgagor")
(Exhibit 10.2.2). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18)
10.56 Series B Preferred Stock Purchase Agreement dated as of
December 10, 1999, between Emeritus Corporation and Saratoga
Partners IV, L.P. (Exhibit 4.1).. . . . . . . . . . . . . . . . . . . . . . . . . . . . (19)
10.57 Designation of Rights and Preferences of Series B
Convertible Preferred Stock as filed with the Secretary of
State of Washington on December 29, 1999 (Exhibit 4.2). . . . . . . . . . . . . . . . . (19)
10.58 Shareholders Agreement dated as of December 30, 1999, among
Emeritus Corporation, Daniel R. Baty, B.F., Limited
Partnership and Saratoga Partners IV, L.P. (Exhibit 4.3). . . . . . . . . . . . . . . . (19)
10.59 Registration Rights Agreement dated as of December 30, 1999,
between Emeritus Corporation and Saratoga Partners IV, L.P.
(Exhibit 4.4).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19)
10.60 Investment Agreement dated as of December 30, 1999, among
36
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Emeritus Corporation, Daniel R. Baty, B.F., Limited
Partnership and Saratoga Partners IV, L.P., Saratoga
Partners IV, L.P. and Saratoga Management Company LLC.
(Exhibit 4.5).. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19)
10.61 Canterbury Ridge in Urbana, Illinois
10.61.1 Lease agreement dated September 29, 2000, and
effective October 1, 2000, between HR
Acquisitions I Corporation ("Lessor") and
Emeritus Corporation ("Lessee").. . . . . . . . . . . . . . . . . . . . . . . (20)
10.62 Emerald Hills in Auburn
10.62.1 Lease agreement dated September 29, 2000, and
effective October 1, 2000, between HR
Acquisitions I Corporation ("Lessor") and
Emeritus Corporation ("Lessee").. . . . . . . . . . . . . . . . . . . . . . . (20)
10.62.2 Lease agreement dated September 5, 2001, between Health
Care Property Investors, Inc. ("Lessor"), and Emeritus
Corporation ("Lessee").. . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.63 Sierra Hills in Cheyenne, Wyoming
10.63.1 Lease agreement dated September 29, 2000, and
effective October 1, 2000, between HR
Acquisitions I Corporation ("Lessor") and
Emeritus Corporation ("Lessee").. . . . . . . . . . . . . . . . . . . . . . . (20)
10.63.2 Lease Assignment and Operations Transfer Agreement dated
September 30, 2001, between Emeritus Corporation ("Tenant")
and Sierra Hills Assisted Living Community, LLC, ("Assignee")
and Jon M. and Kristin P. Harder, husband and wife, Darryl E.
and Carol L. Fisher, husband and wife, Eric W. and Marti M.
Jacobson, husband and wife and Sunwest Management, Inc.
("Guarantor").. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.64 Villa Ocotillo in Scottsdale, Arizona
10.64.1 Purchase and sale agreement originally dated
October 21, 1997, and effective January 2001,
between Melchor and Isabel Balazs, as Trustees
("Purchaser") and Emeritus Corporation
("Seller"). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21)
10.64.2 Lease agreement dated December 29, 2000 and
effective December 29, 2000, between Melchor
Balazs and Isabel Balazs ("Lessor") and Emeritus
Corporation ("Lessee"). . . . . . . . . . . . . . . . . . . . . . . . . . . . (21)
10.64.3 Transfer of Operations Agreement dated August 14, 2001,
between Emeritus Corporation and Melchor Balazs. . . . . . . . . . . . . . . . (24)
10.65 Loyalton of Hattiesburg in Hattiesburg, Mississippi
10.65.1 Lease agreement dated June 10, 1998, and
effective October 1, 2000, between ALCO XII, LLC
("Lessor") and Emeritus Corporation ("Lessee"). . . . . . . . . . . . . . . . (21)
10.65.2 Purchase agreement for Hattiesburg between ALCO XII L.L.C.
("Seller") and the registrant ("Purchaser") dated March 27, 2002.. . . . . . (25)
10.66 Loyalton of Biloxi in Biloxi, Mississippi
10.66.1 Lease agreement dated September 29, 2000, and
effective October 1, 2000, between HR
37
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Acquisitions I Corporation ("Lessor") and
Emeritus Corporation ("Lessee").. . . . . . . . . . . . . . . . . . . . . . . (21)
10.66.2 Lease agreement dated September 5, 2001, between Health
Care Property Investors, Inc. ("Lessor"), and Emeritus
Corporation ("Lessee"). . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
10.67 Amended 1998 Employee Stock Purchase Plan (as amended and
restated on May 19, 1999, and August 17, 2001). (Appendix B). . . . . . . . . . . . (23)
10.68 Kingsley Place at Alexandria, Louisiana, Kingsley Place at Lake Charles,
Louisiana, Kingsley Place at Lafayette, Louisiana, Kingsley Place
of Shreveport, Louisiana, Kingsley Place of Henderson, Texas,
Kingsley Placeat Oakwell Farms, Texas, Kingsley Place at the Medical
Center, Texas, Kingsley Place at Stonebridge, Texas. The following
agreements are representative of those executed in connection
with these properties:
10.68.1 Horizon Bay Lease Facilities Purchase Agreement between Integrated
Living Communities of Alexandria, L.L.C, Integrated Living Communities
of Lake Charles, L.L.C., Integrated Living Communities of Lafayette, L.L.C.,
Integrated Living Communities of Henderson, L.P., Integrated Living
Communities of Oakwell, L.P., Integrated Living Communities of
San Antonio, L.P., and Integrated Living Communities of McKinney, L.P.,
(collectively, the "Seller") and the registrant ("Purchaser") dated
April 4, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.2 Horizon Bay Purchase Agreement between the registrant ("Purchaser")
and Senior Lifestyle Shreveport, L.L.C. ("Seller"), dated April 17, 2002. . . (25)
10.68.3 First Amendment to the Horizon Bay Lease Facilities Purchase
Agreement between the registrant ("Purchaser") and Integrated Living
Communities of Alexandria, L.L.C, Integrated Living Communities
of Lake Charles, L.L.C., Integrated Living Communities of Lafayette, L.L.C.,
Integrated Living Communities of Henderson, L.P., Integrated Living
Communities of Oakwell, L.P., Integrated Living Communities of
San Antonio, L.P., and Integrated Living Communities of McKinney, L.P.,
(collectively, the "Seller") dated May 1, 2002.. . . . . . . . . . . . . . . (25)
10.68.4 First Amendment to the Horizon Bay Purchase Agreement
between the registrant ("Purchaser") and Senior Lifestyle
Shreveport, L.L.C. ("Seller"), dated May 1, 2002. . . . . . . . . . . . . . . (25)
10.68.5 Amended and restated funding agreement between the registrant
and HB-ESC I, L.L.C., HB-ESC II, L.L.C., and HB-ESC V, L.P.,
dated May 1, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.6 Agreement to provide management services to assisted living
facilities (Lafayette) between HB-ESC II, L.P., and the registrant
dated May 1, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.7 Agreement to provide management services to assisted living
facilities (Lake Charles) between HB-ESC II, L.P., and the registrant
dated May 1, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.8 Agreement to provide management services to assisted living
facilities (Alexandria) between HB-ESC II, L.P., and the registrant
dated May 1, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.9 Agreement to provide management services to assisted living
facilities (Shreveport) between HB-ESC I, L.P., and the registrant
dated May 1, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
38
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
10.68.10 Agreement to provide management services to assisted living
facilities (Henderson) between HB-ESC V, L.P., and the registrant
dated May 9, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.11 Agreement to provide management services to assisted living
facilities (Medical Center) between HB-ESC V, L.P., and the registrant
dated May 9, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.12 Agreement to provide management services to assisted living
facilities (Oakwell Farms) between HB-ESC V, L.P., and the registrant
dated May 9, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.13 Agreement to provide management services to assisted living
facilities (Stonebridge) between HB-ESC V, L.P., and the registrant
dated May 9, 2002.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.68.14 Second Amendment to the Horizon Bay Purchase Agreement
between the registrant ("Purchaser") and Senior Lifestyle
Shreveport, L.L.C. ("Seller"), dated May 31, 2002.. . . . . . . . . . . . . . (25)
10.68.15 Third Amendment to the Horizon Bay Purchase Agreement
between the registrant ("Purchaser") and Senior Lifestyle
Shreveport, L.L.C. ("Seller"), dated June 14, 2002. . . . . . . . . . . . . . (25)
10.68.16 Fourth Amendment to the Horizon Bay Purchase Agreement
between the registrant ("Purchaser") and Senior Lifestyle
Shreveport, L.L.C. ("Seller"), dated June 28, 2002. . . . . . . . . . . . . . (25)
10.69 Willow Park and West Wind in Boise, Idaho, Sunshine Villa in Santa Cruz,
California, Orchard Park in Clovis, California, Willow Creek in Folsom,
California, Regent Court in Modesto, California, Villa Sera in Salinas,
California, Regent House in Merced, California, Regent Senior Living in
West Covina, California, Sheldon Park in Eugene, Oregon, Regency Park in
Portland, Oregon, Regent Court in Corvalis, Oregon, Hamilton House in
San Antonio, Texas, Regent Court at Scottsdale and Desert Flower
in Scottsdale, Arizona, Sterling Park in Redmond, Washington, Regent Court
in Kent, Washington, and Northshore House in Kenmore, Washington
The following agreements are representative of those executed in connection
with these properties:
10.69.1 Amended and Restated Agreement to provide management services
to Assisted Living Facilities between Regent Assisted Living, Inc.
("Owner"), and the registrant ("Manager") dated December 31, 2001. . . . . . (25)
10.69.2 Amended and Restated Agreement to provide accounting and
consulting services to California Assisted Living Facilities between
Regent Assisted Living, Inc. ("Owner"), and the registrant ("Manager")
dated December 31, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.69.3 Agreement to provide management services to Washington
Assisted Living Facilities between Regent Assisted Living, Inc.
("Owner"), and the registrant ("Manager") dated December 31, 2001. . . . . . (25)
10.69.4 Agreement to provide accounting and consulting services to
California Assisted Living Facilities (Willow Creek-Folsom) between
Regent Assisted Living, Inc. ("Owner"), and the registrant ("Manager")
dated February 15, 2001. . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.69.5 Lease and Working Capital Agreement between Sacramento County
Assisted, L.L.C.("Landlord") and Regent Assisted Living, Inc.("Tenant")
dated February 15, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
10.69.6 Assignment and Release Agreeement between Regent Assisted Living,
39
Footnote
Number Description Number
-------- ------------------------------------------------------------------------------- -----------
Inc.("Assignor"), the registrant ("Assignee"), and Sacramento County
Assisted, L.L.C. ("Landlord") dated July 2, 2002.. . . . . . . . . . . . . . (25)
10.69.7 First Amendment to Lease and Working Capital Agreement between
Sacramento County Assisted, L.L.C. ("Landlord") and the registrant
("Tenant") dated July 2, 2002. . . . . . . . . . . . . . . . . . . . . . . . (25)
10.70 Loyalton Court at Scottsdale, Arizona. The following agreements are
representative of those executed in connection with the property:
10.70.1 Agreement to provide management services to Assisted Living
Facilities (Scottsdale) between Scottsdale Assisted, L.L.C, ("Owner")
and the registrant ("Manager") dated February 8, 2002. . . . . . . . . . . . (25)
10.70.2 First Amendment to Management Agreement (Scottsdale) between
Scottsdale Assisted, L.L.C, ("Owner") and the registrant ("Manager")
dated February 15, 2002. . . . . . . . . . . . . . . . . . . . . . . . . . . (25)
21.1 Subsidiaries of the registrant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
23.1 Consent of KPMG LLP.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24)
99.1 Certification of Periodic Reports
99.1.1 Certification Daniel R. Baty. . . . . . . . . . . . . . . . . . . . . . . . . . (25)
99.1.2 Certification Raymond R. Brandstrom . . . . . . . . . . . . . . . . . . . . . . (25)
(1) Incorporated by reference to the indicated exhibit filed with the
Company's Registration Statement on Form S-1 (File No. 33-97508)
declared effective on November 21, 1995.
(2) Incorporated by reference to the indicated exhibit filed with the
Company's Annual Report on Form 10-K (File No. 1-14012) on March 29,
1996.
(3) Incorporated by reference to the indicated exhibit filed with the
Company's Second Quarter Report on Form 10-Q (File No. 1-14012) on
August 14, 1996.
(4) Incorporated by reference to the indicated exhibit filed with the
Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
November 14, 1996.
(5) Incorporated by reference to the indicated exhibit filed with the
Company's Annual Report on Form 10-K (File No. 1-14012) on March 31,
1997.
(6) Incorporated by reference to the indicated exhibit filed with the
Company's First Quarter Report on Form 10-Q (File No. 1-14012) on May
15, 1997.
(7) Incorporated by reference to the indicated exhibit filed with the
Company's Current Report on Form 8-K (File No. 1-14012) on May 16,
1997.
(8) Incorporated by reference to the indicated exhibit filed with the
Company's Current Report on Form 8-K Amendment No. 1 (File No.
1-14012) on July 14, 1997.
(9) Incorporated by reference to the indicated exhibit filed with the
Company's Second Quarter Report on Form 10-Q (File No. 1-14012) on
August 14, 1997.
(10) Incorporated by reference to the indicated exhibit filed with the
Company's Registration Statement on Form S-3 Amendment No. 2 (File No.
333-20805) on August 14, 1997.
(11) Incorporated by reference to the indicated exhibit filed with the
Company's Registration Statement on Form S-3 Amendment No. 3 (File No.
333-20805) on October 29, 1997.
(12) Incorporated by reference to the indicated exhibit filed with the
Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
November 14, 1997.
(13) Incorporated by reference to the indicated exhibit filed with the
Company's Annual Report on Form 10-K (File No. 1-14012) on March 30,
1998.
(14) Incorporated by reference to the indicated exhibit filed with the
Company's Registration Statement on Form S-8 (File No. 333-60323) on
July 31, 1998.
(15) Incorporated by reference to the indicated exhibit filed with the
Company's Second Quarter Report on Form 10-Q (File No. 1-14012) on
August 14, 1998
(16) Incorporated by reference to the indicated exhibit filed with the
Company's Annual Report on Form 10-K (File No. 1-14012) on March 31,
1999.
(17) Incorporated by reference to the indicated exhibit filed with the
Company's First Quarter Report on Form 10-Q (File No. 1-14012) on May
10, 1999.
(18) Incorporated by reference to the indicated exhibit filed with the
Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
November 15, 1999.
(19) Incorporated by reference to the indicated exhibit filed with the
Company's Form 8-K (File No. 1-14012) on January 14, 2000.
(20) Incorporated by reference to the indicated exhibit filed with the
Company's Third Quarter Report on Form 10-Q (File No. 1-14012) on
November 14, 2000.
(21) Incorporated by reference to the indicated exhibit filed with the
Company's Annual Report on Form 10-K (File No. 1-14012) on April 2,
2001.
(22) Incorporated by reference to the indicated exhibit filed with the
Company's Current Report on Form 8-K (File No. 1-14012) on July 18,
2001.
(23) Incorporated by reference to the indicated exhibit filed with the
Company's Definitive Proxy Statement on Form DEF 14A on August 17,
2001.
(24) Incorporated by reference to the indicated exhibit filed with the
Company's Annual Report on Form 10-K (File No. 1-14012) on March 29,
2002.
(25) Filed herewith.
40
(c) The Company filed no reports on Form 8-K during the quarter ended June 30,
2002.
41
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 2002
EMERITUS CORPORATION
(Registrant)
/s/ Raymond R. Brandstrom
-----------------------------------------
Raymond R. Brandstrom, Vice President
of Finance, Chief Financial Officer, and
Secretary
42