<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM 10-K/A
- --------------------------------------------------------------------------------
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998.
OR
( ) 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)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
WASHINGTON 91-1605464
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
(Address of principal executive offices)
(206) 298-2909
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $.0001 par value American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
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), (2) and has been subject to such filing
requirements for the past 90 days. Yes () No ( )
Indicate by check mark that there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-K contained in this form, and no disclosure
will be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ( )
Aggregate market value of voting stock held by non-affiliates of the registrant
as of March 23, 1999 was $72,089,716.
As of March 23, 1999, 10,487,050 shares of the Registrant's Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The information required by Part III of
Form 10-K (items 10-13) is incorporated herein by reference to the Registrant's
definitive Proxy Statement relating to its 1999 Annual Meeting of Stockholders
to be held on May 19, 1999.
<PAGE>
April 6, 1999
To the Readers of our Form 10-K:
This amendment is being filed to correct printing errors made on the
consolidated balance sheet in our original Form 10-K filing dated March 31,
1999.
On page F-4, Emeritus Corporation Consolidated Balance Sheets, the amounts
disclosed for "Notes receivable from and investments in affiliates" as well
"Trade accounts payable" were inverted between December 31, 1997 and 1998. This
filing reflects the correct amounts.
Regards,
/s/ Kelly J. Price
Chief Financial Officer,
Vice President, Finance and
Principal Accounting Officer
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of the report:
(1) FINANCIAL STATEMENTS. The following financial statements of the
Registrant and the Report of Independent Public Accountants therein
are filed as part of this Report on Form 10-K:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports............................................... F-2
Consolidated Balance Sheets................................................. F-4
Consolidated Statements of Operations....................................... F-5
Consolidated Statements of Comprehensive Operations......................... F-6
Consolidated Statements of Cash Flows....................................... F-7
Consolidated Statements of Shareholders' Equity (Deficit)................... F-9
Notes to Consolidated Financial Statements.................................. F-10
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES. Schedule II Valuation and Qualifying
Accounts (contained on page F-23) Other financial statement schedules
have been omitted because the information required to be set forth
therein is not applicable, is immaterial or is shown in the
consolidated financial statements or notes thereto.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Registrant
during the quarter ended December 31, 1998.
(c) EXHIBITS: The following exhibits are filed as a part of, or incorporated by
reference into, this Report on Form 10-K:
<TABLE>
<CAPTION>
Exhibit Description Reference
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 (2)
4.2).
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") (12)
and Merit Partners, LLC ("Purchaser") (Exhibit 4.1).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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 (2)
(Exhibit 10.4.3).
10.5 Shareholders Agreement dated as of April 17, 1995, and as amended September 27, 1995, among the
registrant, its Founders and certain Investors, as defined therein (Exhibit 10.5). (1)
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)
10.7 Series A Preferred Stock and Note Purchase Agreement dated as of April 17, 1995 among the registrant and
the investors listed on Schedule I thereto (Exhibit 10.7). (1)
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)
10.10 FLORIDA COMMUNITIES.
10.10.1 Lease Agreement dated March 15, 1996 between Meditrust Acquisition Corporation I ("Lessor")
and ESC I, G.P., Inc. ("Lessee") with respect to Park Club of Brandon (Exhibit 10.16.4). (2)
10.10.2 Lease Agreement dated March 15, 1996 between Meditrust Acquisition Corporation I ("Lessor")
and Emeritus Properties I, Inc., ("Lessee") with respect to Park Club of Fort Myers
(Exhibit 10.16.5). (2)
10.10.3 Lease Agreement dated March 15, 1996 between Meditrust Acquisition Corporation I ("Lessor")
and Emeritus Properties I, Inc., ("Lessee") with respect to Park Club of Oakbridge
(Exhibit 10.16.6). (2)
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 (1)
registrant (Exhibit 10.18.1).
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 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 , (6)
L.P. (Exhibit 10.4.3)
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)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
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,
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, (1)
Inc. (Exhibit 10.24.11).
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)
10.16.2 Management Services Agreement between the registrant and Sunrise Healthcare Corporation
("Manger") dated December 1997. (13)
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 (2)
10.23.4).
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") (2)
(Exhibit 10.23.7).
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 Letter of Intent dated January 31, 1996 between the registrant and Meditrust Acquisition Corporation I
relating to developments (Exhibit 10.33). (2)
10.18 Letter of Intent dated January 31, 1996 between the registrant and Meditrust Acquisition Corporation I
relating to acquisitions (Exhibit 10.34). (2)
10.19 Letter of Intent dated August 13, 1996 between the registrant and Meditrust Acquisition Corporation I
relating to acquisitions (Exhibit 10.24). (5)
10.20 Letter of Intent dated August 13, 1996 between the registrant and Meditust Acquisition Corporation I
relating to developments (Exhibit 10.24). (5)
10.21 Assignment, Assumption and Consent Agreement dated as of April 17, 1995 Between the registrant and
Columbia-Pacific Group, Inc. (Exhibit 10.32). (1)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.22 DEVELOPMENT PROPERTY IN FAIRFIELD, CALIFORNIA
10.22.1 Loan Agreement in the amount of $12,800,000 dated January 10, 1997, between Fairfield
Retirement Center, LLC ("Borrower") and the Finova Capital Corporation ("Lender")
(Exhibit 10.31.1). (5)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.22.2 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 (5)
10.31.2).
10.22.3 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)
10.22.4 Guaranty Agreement dated January 10, 1997 between the registrant ("Guarantor") and Finova
Capital Corporation ("Lender") (Exhibit 10.31.4). (5)
10.23 THE HEARTHSTONE IN MOSES LAKE, WASHINGTON AND MEADOWBROOK RETIREMENT
IN ONTARIO, OREGON. THE FOLLOWING AGREEMENT IS REPRESENTATIVE OF THAT
EXECUTED IN CONNECTION WITH THESE PROPERTIES.
10.23.1 Lease Agreement dated May 1, 1997 and May 23, 1997 between Emeritus Properties I, Inc.,
("Lessee") and Meditrust Acquisition Corporation I ("Lessor") (Exhibit 10.1.1). (9)
10.24 THE PINES AT TEWKSBURY IN TEWKSBURY, MASSACHUSETTS
10.24.1 Lease Agreement dated March 15, 1996 between Meditrust Acquisition Corporation I ("Lessor")
and Emeritus Properties I, Inc., ("Lessee") with respect to Tewksbury (Exhibit 10.37.1). (2)
10.25 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:
10.25.1 Lease Agreement dated July, August and September 1996 between the registrant ("Lessee") and
American Health Properties, Inc. ("Lessor") (Exhibit 10.3.1). (4)
10.25.2 First Amendment to Lease Agreement dated December 31, 1996 between the registrant ("Lessee")
and AHP of Washington, Inc., ("Lessor") (Exhibit 10.35.2). (5)
10.26 COBBLESTONE AT FAIRMONT IN MANASSAS, VIRGINIA
10.26.1 Loan Agreement effective as of October 26, 1995 between the registrant and Health Care REIT,
Inc. (Exhibit 10.42.1). (1)
10.26.2 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)
10.26.3 Note dated October 26, 1995 from the registrant to Health Care REIT, Inc. (Exhibit 10.42.3). (1)
10.26.4 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)
10.27 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 PAINTED POST, NEW YORK.
THE FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF THOSE EXECUTED IN
CONNECTION WITH THESE PROPERTIES:
10.37.1 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)
10.28 COOPER GEORGE PARTNERS LIMITED PARTNERSHIP
10.28.1 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)
10.28.2 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)
10.28.3 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)
10.28.4 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)
10.28.5 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)
10.28.6 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)
10.29 Registration Rights Agreement dated February 8, 1996 with respect to the registrant's 6.25% Convertible
Subordinated Debentures due 2006 (Exhibit 10.44). (2)
10.30 Registration Rights Agreement dated February 8, 1996 with respect to the registrant's 6.25% Convertible
Subordinated Debentures due 2006 (Exhibit 10.45). (2)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.31 LAKEWOOD INN IN COEUR D'ALENE, IDAHO, EVERGREEN LODGE IN FEDERAL WAY,
WASHINGTON, AND RIDGE WIND IN CHUBBOCK, IDAHO. THE FOLLOWING AGREEMENT
IS REPRESENTATIVE OF THOSE EXECUTED IN CONNECTION WITH THESE
PROPERTIES:
10.31.1 Lease Agreement dated April and June 1996 between Emeritus Properties I, Inc. ("Lessee") and
Meditrust Acquisition Corporation I ("Lessor") (Exhibit 10.5.1). (3)
10.32 LAKEWOOD INN IN COEUR D'ALENE, IDAHO
1032.1 Leasehold Improvement Agreement dated April and June 1996 between Meditrust Acquisition
Corporation I ("Lessor") and Emeritus Properties I ("Lessee") (Exhibit 10.6.1). (3)
10.33 Office Lease Agreement dated April 29, 1996 between Martin Selig ("Lessor") and the registrant (3)
("Lessee") (Exhibit 10.8).
10.34 COLONIAL PARK CLUB IN SARASOTA, FLORIDA, FAIRHAVEN ESTATES IN
BELLINGHAM, WASHINGTON, HIGHLAND HILLS IN POCATELLO, IDAHO AND
ANDERSON PLACE IN ANDERSON, SOUTH CAROLINA. THE FOLLOWING AGREEMENTS
ARE REPRESENTATIVE OF THOSE EXECUTED IN CONNECTION WITH THESE
PROPERTIES:
10.34.1 Lease Agreement dated August and October 1996 between Emeritus Properties I, Inc. ("Lessee")
and Meditrust Acquisition Corporation I ("Lessor") (Exhibit 10.1.1). (4)
10.35 COLONIAL PARK CLUB IN SARASOTA, FLORIDA.
10.35.1 Leasehold Improvement Agreement dated August 21, 1996 between Emeritus Properties I, Inc.
("Lessee") and Meditrust Acquisition Corporation I ("Lessor") (Exhibit 10.2.1). (4)
10.36 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:
10.36.1 Lease Agreement dated September 1, 1996 between Philip Wegman ("Landlord") and Painted Post
Partners ("Tenant") (Exhibit 10.4.1). (4)
10.36.2 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)
10.36.3 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)
10.37 COLUMBIA HOUSE COMMUNITIES.
10.37.1 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)
10.37.2 Management Services Agreement dated January 1, 19998 between the registrant ("Manager") and
Columbia House LLC ("Lessee") with respect to York Care. (13)
10.37.3 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)
10.37.4 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)
10.37.5 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)
10.37.6 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)
10.37.7 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 Autumn
Ridge Herculaneum, L.L.C. with respect to Autumn Ridge. (13)
10.37.8 Management Services Agreement dated January 1, 1998 between the registrant ("Manager") and
Columbia House LLC ("Owner") with respect to Park Lane. (13)
10.38 VICKERY TOWERS IN DALLAS, TEXAS
10.38.1 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)
10.38.2 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 (15)
10.4.2).
10.38.3 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)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.39 CONCORDE IN LAS VEGAS, NEVADA
10.39.1 Purchase and Sale Agreement dated July 9, 1996 between the registrant ("Purchaser") and
Sunday Estates, Inc. ("Seller") (Exhibit 10.56.1). (5)
10.39.2 First Amendment to Purchase and Sale Agreement dated July 11, 1996 between the registrant the
Seller (Exhibit 10.56.2). (5)
10.40 DEVELOPMENT PROPERTIES IN AUBURN AND CHELMSFORD, MASSACHUSETTS,
LOUISVILLE, KENTUCKY AND ROCKY HILL, CONNECTICUT. THE FOLLOWING
AGREEMENTS ARE REPRESENTATIVE OF THOSE EXECUTED IN CONNECTION WITH
THESE PROPERTIES:
10.40.1 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)
10.40.2 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)
10.40.3 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)
10.40.4 Promissory Note in the amount of $1,255,000 dated 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)
10.40.5 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)
10.40.6 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)
10.40.7 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)
10.41 PARK CLUB BRANDON, PARK CLUB FORT MYERS AND PARK CLUB OAKBRIDGE,
EVERGREEN LODGE AND THE PINES AT TEWKSBURY. THE FOLLOWING DOCUMENTS
ARE REPRESENTATIVE OF THOSE EXECUTED IN CONNECTION WITH THESE
PROPERTIES:
10.41.1 First Amendment to Facility Lease dated December 31, 1996 between Meditrust Acquisition
Corporation I ("Lessor") and Emeritus Properties I, Inc. ("Lessee") (Exhibit 10.59.1). (5)
10.41.2 Amended and Restated Memorandum of Lease dated December 31, 1996 between Meditrust
Acquisition Corporation I ("Lessor") and Emeritus Properties I, Inc. ("Lessee") (Exhibit (5)
10.59.2).
10.42 DEVELOPMENT PROPERTIES IN CHEYENNE, WYOMING AND AUBURN, CALIFORNIA.
THE FOLLOWING AGREEMENTS ARE REPRESENTATIVE OF THOSE EXECUTED IN
CONNECTION WITH THESE PROPERTIES.
10.42.1 Management Agreement dated May 30, 1997 between Willard Holdings, Inc., ("Owner") and the
registrant ("Manager") (Exhibit 10.5.1). (9)
10.42.2 Lease Agreement dated May 30, 1997 between Willard Holdings, Inc., ("Lessor") and the
registrant ("Lessee") (Exhibit 10.5.2). (9)
10.43 SENIOR MANAGEMENT EMPLOYMENT AGREEMENTS AND AMENDMENTS ENTERED INTO
BETWEEN THE REGISTRANT AND EACH OF THE FOLLOWING INDIVIDUALS:
10.43.1 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)
10.43.2 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) (15)
10.44 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.
10.44.1 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 Grande (Exhibit 10.1). (7)
10.44.2 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)
10.44.3 Stock Purchase Agreement dated September 30, 1996 between the Seller and the registrant with
respect to River Oaks (Exhibit 10.3). (7)
10.44.4 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)
10.44.5 Stock Purchase Agreement dated September 30, 1996 between the Seller and the registrant with
respect to Stanford Centre (Exhibit 10.5). (7)
10.44.6 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)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.45 PAINTED POST PARTNERSHIP
10.45.1 Painted Post Partners Partnership Agreement dated October 1, 1995 (Exhibit 10.24.7). (1)
10.45.2 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)
10.45.3 Indemnity Agreement dated November 3, 1996 between the registrant and Painted Post Partners (10)
(Exhibit 10.3).
10.45.4 First Amendment to Indemnity Agreement dated January 1, 1997 between the registrant and
Painted Post Partners (Exhibit 10.4). (10)
10.45.5 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)
10.45.6 First Amendment to Undertaking and Indemnity Agreement dated January 1, 1997 between Painted
post Partners and the registrant (Exhibit 10.6). (10)
10.45.7 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)
10.46 RIDGELAND COURT IN RIDGELAND, MISSISSIPPI
10.46.1 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)
10.46.2 License Agreement dated September 5, 1997 between the registrant and its subsidiary and
affiliated corporations and Mississippi Baptist health Systems, Inc. (Exhibit 10.1.2). (12)
10.46.3 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)
10.46.4 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)
10.46.5 Purchase and Sale Agreement dated December 23, 1998 between the registrant and
Meditrust Company LLC. (Exhibit 10.46.5) (16)
10.46.6 Loan Agreement dated December 28, 1998 between the registrant and Guaranty Federal Bank
(Exhibit 10.46.6) (16)
10.46.7 Promissory Note Agreement dated December 28, 1998 between Ridgeland Assisted Living,
L.L.C. and Guaranty Federal Bank. (Exhibit 10.46.7) (16)
10.46.8 Guaranty Agreement dated December 28, 1998 between the registrant and Guaranty Federal
Bank (Exhibit 10.46.8) (16)
10.47 DEVELOPMENT PROPERTY IN URBANA, ILLINOIS.
10.47.1 Lease Agreement dated September 10, 1997 between ALCO IV, L.L.C. ("Lessor") and the
registrant ("Lessee") (Exhibit 10.2.1). (12)
10.47.2 Management Agreement dated September 10, 1997 between the registrant ("Manager" and ALCO IV,
L.L.C. ("Owner") (Exhibit 10.2.2). (12)
10.48 Settlement Agreement dated April 25, 1997 by and between the registrant and Carematrix Corporation
(formerly The Standish Care Company). (13)
10.49 Amendment to Office Lease Agreement dated September 6, 1996 between Martin Selig ("Lessor") and the (13)
registrant.
10.50 VILLA DEL REY IN ESCONDIDO, CALIFORNIA
10.50.1 Purchase and Sale Agreement dated December 19, 1996 between the registrant ("Purchaser") and
Northwest Retirement ("Seller") (Exhibit 10.1.1). (6)
10.51 DEVELOPMENT PROPERTY IN PASO ROBLES, CALIFORNIA
10.51.1 Agreement of TDC/Emeritus Paso Robles Associates dated June 1, 1995 between the registrant
and TDC Convalescent, Inc. (Exhibit 10.2.1). (6)
10.51.2 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)
10.51.3 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)
10.51.4 Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture Filing dated
February 18, 1997 between TDC/Emeritus Paso Robles Associates ("Trustor"), Chicago Title
Company ("Trustee") and Finova Capital Corporation ("Beneficiary") (Exhibit 10.2.4). (6)
10.51.5 Guaranty between TDC Convalescent, Inc. ("Guarantor") and Finova Capital Corporation (Exhibit (6)
10.2.5).
10.51.6 Guaranty between the registrant ("Guarantor") and Finova Capital Corporation (Exhibit 10.2.6). (6)
10.52 DEVELOPMENT PROPERTY IN STAUNTON, VIRGINIA
10.52.1 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)
10.52.2 Assignment and Assumption of Purchase and Sale Agreement dated February 12, 1997 between
Greencastle Retirement Partners, L.L.C. and the registrant. (13)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.53 DEVELOPMENT PROPERTY IN JAMESTOWN NEW YORK
10.53.1 Purchase Agreement dated December 12, 1996 between June Fagerstrom ("Seller") and Wegman
Family LLC ("Buyer"). (Exhibit 10.73.1) (13)
10.53.2 Assignment and Assumption Agreement dated December 30, 1997 between Wegman Family LLC
("Assignor") and Painted Post Partners ("Assignee"). (Exhibit 10.73.2) (13)
10.54 DEVELOPMENT PROPERTY IN DANVILLE, ILLINOIS
10.54.1 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)
10.54.2 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)
10.55 DEVELOPMENT PROPERTY IN BILOXI, MISSISSIPPI
10.55.1 Management Agreement dated December 18, 1997 between the registrant ("Manager") and ALCO VII,
L.L.C. ("Owner"). (Exhibit 10.75.1) (13)
10.56 SANYO ELECTRIC CO., LTD.
10.56.1 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 the
Senior Housing Business in Japan. (Exhibit 10.76.1) (13)
10.56.2 Joint Venture Agreement entered into on July 9, 1997, between the registrant and Sanyo (13)
Electric Co., Ltd. (Exhibit 10.76.2)
10.57 DEVELOPMENT PROPERTY IN NORTH PHOENIX, ARIZONA, FLAGSTAFF ARIZONA AND
WASHINGTON COUNTY, MARYLAND. THE FOLLOWING AGREEMENT IS REPRESENTATIVE
OF THOSE EXECUTED IN CONNECTION WITH THESE PROPERTIES.
10.57.1 Leasehold Improvement Agreement dated December 30, 1997 between Emeritus Properties I, Inc.,
("Lessee") and Meditrust Acquisition Corporation I, ("Lessor"). (Exhibit 10.77.1) (13)
10.57.2 Facility Lease Agreement dated February 27, 1998 between Emeritus Properties I, Inc.,
("Lessee") and Meditrust Acquisition Corporation I, ("Lessor"). (Exhibit 10.6.1) (15)
10.58 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.
10.58.1 Management and Consulting Agreement dated February 1, 1997 between ESC I, L.P., and XL
Management Company L.L.C. (Exhibit 10.78.1) (13)
10.59 1998 Employee Stock Purchase Plan (Exhibit 99.2) (14)
10.60 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.
10.60.1 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)
10.60.2 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)
10.60.3 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)
10.60.4 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)
10.60.5 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)
10.60.6 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)
10.61 COURTYARD AT THE WILLOWS
10.61.1 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 (15)
Bank AG, New York Branch ("Beneficiary"). (Exhibit 10.7.1)
10.61.2 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)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.62 SILVER PINES IN CEDAR RAPIDS, IOWA, SPRING MEADOWS IN BOZEMAN, MONTANA AND JUNIPER MEADOWS IN LEWISTON,
IDAHO.
10.62.1 Promissory Note dated April 29, 1998 between Emeritus Properties II ("Borrower") and
Deutsche Bank AG, New York Branch. (Exhibit 10.8.1) (15)
10.63 RICHLAND GARDENS IN RICHLAND, WASHINGTON, WOODWAY INN 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.
10.63.1 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)
10.64 RICHLAND GARDENS IN RICHLAND, WASHINGTON, THE PINES OF GOLDSBORO IN GOLDSBORO, NORTH CAROLINA,
SILVERLEAF MANOR IN MERIDIAN, MISSISSIPPII, WILBURN GARDENS IN FREDERICKSBURG, VIRGINIA AND PARK LANE IN
TOLEDO, OHIO. THE FOLLOWING AGREEMENT IS REPRESENTATIVE OF THOSE EXECUTED IN CONNECTION WITH THESE
PROPERTIES.
10.64.1 Marketing Agreement dated February 2, 1998 between Acorn Service Corporation ("Acorn") and
Richland Assisted, L.L.C. ("RALLC"). (Exhibit 10.10.1) (15)
10.65 KIRKLAND LODGE IN KIRKLAND, WASHINGTON
10.65.1 Purchase and Sale Agreement dated December 23, 1998 between the registrant and Meditrust
Company LLC. (Exhibit 10.46.5) (16)
10.65.2 Loan Agreement dated December 28, 1998 between Emeritus Properties X, L.L.C and Guaranty
Federal Bank. (Exhibit 10.65.2) (16)
10.65.3 Promissory Note Agreement dated December 28, 1998 between Emeritus Properties X, L.L.C and
Guaranty Federal Bank. (Exhibit 10.65.3) (16)
10.65.4 Guaranty Agreement dated December 28, 1998 between the registant and Guaranty Federal Bank. (16)
(Exhibit 10.65.3)
10.66 EMERITRUST COMMUNITIES
10.66.1 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)
10.66.2 Supplemental Purchase Agreement in Connection with Purchase of Facilities dated
December 30, 1998 bewteen the registrant, Emeritus Properties I, Inc. Emeritus
Properties VI, Inc., ESC I, L.P. and AL Investors LLC. (Exhibit 10.66.2) (16)
10.66.3 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)
10.66.4 Guaranty of Management Agreement and Shortfall Funding Agreement dated December 30, 1998
between the registrant and AL Investors LLC. (Exhibit 10.66.4) (16)
10.66.5 Put and Purchase Agreement dated December 30, 1998 between Daniel R. Baty and AL Investors
LLC. (Exhibit 10.66.5) (16)
21.1 Subsidiaries of the registrant. (16)
23.1 Consent of KPMG LLP. (16)
27.1 Financial Data Schedule. (16)
</TABLE>
(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.
<PAGE>
(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
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Reports ................................................................................ F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 ................................................. F-4
Consolidated Statements of Operations for the years ended December 31, 1996, 1997 and 1998 ................... F-5
Consolidated Statements of Comprehensive Operations for the years ended December 31, 1996, 1997 and 1998 ..... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 ................... F-7
Consolidated Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1996, 1997 and 1998 F-9
Notes to Consolidated Financial Statements ................................................................... F-10
Schedule II - Valuation and Qualifying Accounts .............................................................. F-23
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Emeritus Corporation:
We have audited the accompanying consolidated balance sheets of
Emeritus Corporation and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of operations, comprehensive operations,
shareholders' equity (deficit) and cash flows for each of the years in the
three-year period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Emeritus
Corporation and subsidiaries as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998 in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for start-up costs and organization
costs.
/s/ KPMG LLP
Seattle, Washington
February 26, 1999, except as to Note 20,
which is as of March 29, 1999
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
The Board of Directors
Emeritus Corporation
Under date of February 26, 1999, except as to Note 20, which is as of March
29, 1999, we reported on the consolidated balance sheets of Emeritus
Corporation and subsidiaries as of December 31, 1998 and 1997 and the related
consolidated statements of operations, comprehensive operations,
shareholders' equity (deficit), and cash flows for each of the years in the
three year period ended December 31, 1998, as contained in the 1998 annual
report on Form 10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule of valuation and qualifying accounts. This
consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
consolidated financial statement schedule based on our audits.
In our opinion, such consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respect, the information set forth therein.
/s/ KPMG LLP
Seattle, Washington
February 26, 1999
F-3
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1998
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents .................................................................... $ 17,537 $ 11,442
Short-term investments ....................................................................... 17,235 4,491
Current portion of restricted deposits ....................................................... 550 2,160
Trade accounts receivable, net ............................................................... 2,191 2,235
Other receivables ............................................................................ 1,362 5,944
Prepaid expenses and other current assets .................................................... 3,716 5,719
Property held for sale ....................................................................... 8,202 3,661
--------- ---------
Total current assets ................................................................. 50,793 35,652
--------- ---------
Property and equipment, net .................................................................... 145,831 128,659
Property held for development .................................................................. 2,754 1,855
Notes receivable from and investments in affiliates ............................................ 6,422 10,247
Restricted deposits, less current portion ...................................................... 10,273 6,271
Lease acquisition costs, net.................................................................... 8,677 6,558
Other assets, net............................................................................... 3,823 3,628
--------- ---------
Total assets ......................................................................... $ 228,573 $ 192,870
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term borrowings ........................................................................ $ -- $ 5,000
Current portion of long-term debt ............................................................ 12,815 7,591
Margin loan on short-term investments ........................................................ 9,165 2,324
Trade accounts payable........................................................................ 2,541 7,115
Accrued employee compensation and benefits ................................................... 3,987 3,386
Accrued interest ............................................................................. 1,812 2,320
Accrued real estate taxes .................................................................... 1,940 2,915
Other accrued expenses........................................................................ 5,312 4,991
Other current liabilities..................................................................... 1,147 987
--------- ---------
Total current liabilities ............................................................ 38,719 36,629
--------- ---------
Deferred rent .................................................................................. 8,474 4,352
Deferred gains on sale of communities .......................................................... 12,314 19,483
Deferred income................................................................................. 114 216
Convertible debentures ......................................................................... 32,000 32,000
Long-term debt, less current portion............................................................ 108,117 119,674
Security deposits and other long-term liabilities 1,452 570
--------- ---------
Total liabilities..................................................................... 201,190 212,924
--------- ---------
Minority interests.............................................................................. 1,176 910
Redeemable preferred stock ..................................................................... 25,000 25,000
Shareholders' equity (deficit):
Common stock, $.0001 par value. Authorized 40,000,000 shares; issued and outstanding
10,974,650 and 10,484,050 shares at December 31, 1997 and 1998, respectively .................. 1 1
Additional paid-in capital..................................................................... 44,449 38,995
Accumulated other comprehensive income (loss) ................................................. 4,011 (4,420)
Accumulated deficit ........................................................................... (47,254) (80,540)
--------- ---------
Total shareholders' equity (deficit) ................................................. 1,207 (45,964)
--------- ---------
Total liabilities and shareholders' equity (deficit) ................................. $ 228,573 $ 192,870
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------
1996 1997 1998
------------------ ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Community revenue....................................................... $67,243 $114,299 $148,226
Other service fees...................................................... 1,494 3,370 2,796
Management fees......................................................... 189 103 798
------------------ ----------------- -----------------
Total operating revenues........................................ 68,926 117,772 151,820
------------------ ----------------- -----------------
Expenses:
Community operations.................................................... 48,900 82,783 110,569
General and administrative.............................................. 6,158 10,819 13,615
Depreciation and amortization........................................... 2,881 6,644 5,722
Rent.................................................................... 16,114 34,651 41,499
Other................................................................... -- 4,426 --
------------------ ----------------- -----------------
Total operating expenses........................................ 74,053 139,323 171,405
------------------ ----------------- -----------------
Loss from operations............................................ (5,127) (21,551) (19,585)
------------------ ----------------- -----------------
Other income (expense):
Interest income......................................................... 1,236 1,157 1,151
Interest expense........................................................ (4,259) (8,427) (14,192)
Other, net.............................................................. (52) 610 3,847
------------------ ----------------- -----------------
Net other expense............................................... (3,075) (6,660) (9,194)
------------------ ----------------- -----------------
Loss before extraordinary item and cumulative effect of change in
accounting principle............................................ (8,202) (28,211) (28,779)
------------------ ----------------- -----------------
Extraordinary loss on early extinguishment of debt........................ -- -- (937)
Cumulative effect of change in accounting principle....................... -- -- (1,320)
------------------ ----------------- -----------------
Net loss........................................................ (8,202) (28,211) (31,036)
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Preferred stock dividends................................................. -- 425 2,250
------------------ ----------------- -----------------
Net loss to common shareholders................................. $ (8,202) $(28,636) $(33,286)
------------------ ----------------- -----------------
------------------ ----------------- -----------------
Loss per common share before extraordinary item and cumulative effect of
change in accounting principle - basic and diluted...................... $ (0.75) $ (2.60) $ (2.96)
Extraordinary loss per common share - basic and diluted................... $ -- $ -- $ (.09)
Cumulative effect of change in accounting principle loss per common
share - basic and diluted............................................... $ -- $ -- $ (.12)
Net loss per common share -
basic and diluted....................................................... $ (0.75) $ (2.60) $ (3.17)
Weighted average number of common shares outstanding -
basic and diluted....................................................... 11,000 11,000 10,484
------------------ ----------------- -----------------
------------------ ----------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1997 1998
--------- -------- --------
<S> <C> <C> <C>
Net loss .................................................................................... $ (8,202) $(28,211) $(31,036)
Other comprehensive income (loss): ........................................................
Foreign currency translation adjustments ............................................... -- (4) (17)
Unrealized gains (losses) on investment securities:
Unrealized holding gains (losses) arising during the year ........................... 18 4,015 (7,955)
Reclassification for gains included in net loss ..................................... -- -- (459)
-------- -------- --------
Total other comprehensive income (loss) .......................................... 18 4,011 (8,431)
-------- -------- --------
Comprehensive loss .......................................................................... $ (8,184) $(24,200) $(39,467)
-------- -------- --------
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss .............................................................................. $ (8,202) $(28,211) $(31,036)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization ...................................................... 3,641 7,759 6,407
Amortization of deferred gains and income .......................................... (1,254) (1,887) (2,345)
Allowance for bad debts ............................................................ 128 317 695
Extraordinary loss on early extinguishment of debt ................................. -- -- 937
Cumulative effect of change in accounting principle ................................ -- -- 1,320
Other .............................................................................. (365) (75) 317
Changes in operating assets and liabilities:
Trade accounts receivable ..................................................... (1,615) (699) (771)
Other receivables ............................................................. (416) 533 (3,026)
Prepaid expenses and other current assets ..................................... (2,493) (947) (12)
Other assets .................................................................. (420) -- --
Trade accounts payable ........................................................ 458 (2,166) 4,992
Accrued employee compensation and benefits .................................... 2,034 853 (515)
Accrued interest .............................................................. 718 692 508
Accrued real estate taxes ..................................................... (336) 1,645 975
Other accrued expenses ........................................................ (443) (969) (1,770)
Other current liabilities ..................................................... 392 384 (157)
Security deposits and other long-term liabilities ............................. 274 293 (768)
Deferred rent ................................................................. 2,467 4,812 702
-------- -------- --------
Net cash used in operating activities ...................................... (5,432) (17,666) (23,547)
-------- -------- --------
Cash flows from investing activities:
Acquisition of property and equipment ................................................. (36,650) (17,471) (28,612)
Acquisition of property held for development .......................................... (30,069) (22,743) (1,780)
Proceeds from sale of property and equipment .......................................... 73,290 28,675 33,182
Purchase of investment securities ..................................................... (54) (13,285) (557)
Proceeds from the sale of investment securities ....................................... 670 3,207 5,421
Construction advances - leased communities ............................................ 43,411 25,139 25,613
Construction expenditures - leased communities ........................................ (37,024) (31,101) (22,586)
Advances to and investments in affiliates ............................................. (2,626) (4,188) (9,529)
Sale of investments in affiliates ..................................................... 800 -- 4,092
Acquisition of businesses and partnership interests ................................... (4,339) -- --
-------- -------- --------
Net cash provided by (used in) investing activities ........................ 7,409 (31,767) 5,244
-------- -------- --------
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in restricted deposits.............................................................. (6,247) (3,014) (647)
Proceeds from (repayment of) short-term borrowings, net ..................................... (520) 9,165 (1,841)
Proceeds from long-term borrowings .......................................................... 64,356 44,597 105,179
Repayment of long-term borrowings ........................................................... (69,977) (29,023) (82,019)
Increase in lease acquisition and deferred financing costs .................................. (6,554) (2,452) (2,235)
Proceeds from sale of redeemable preferred stock ............................................ -- 25,000 --
Proceeds from issuance of convertible debentures ............................................ 30,620 -- --
Repurchase of common stock .................................................................. -- (341) (5,406)
Other.......................................................................................... (123) 3 (806)
-------- -------- --------
Net cash provided by financing activities ........................................ 11,555 43,935 12,225
Effect of exchange rate changes on cash -- (4) (17)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............................. 13,532 (5,502) (6,095)
Cash and cash equivalents at beginning of year ................................................ 9,507 23,039 17,537
-------- -------- --------
Cash and cash equivalents at end of year ...................................................... $ 23,039 $ 17,537 $ 11,442
-------- -------- --------
-------- -------- --------
Supplemental disclosure of cash flow information - cash paid
during the year for interest .................................................................. $ 3,300 $ 9,444 $ 12,999
-------- -------- --------
-------- -------- --------
Noncash investing and financing activities:
Acquisition of business and controlling interest in a partnership:
Assets acquired........................................................................... $ 11,215 $ 37,347 $ 6,232
Liabilities assumed....................................................................... 7,042 36,997 4,798
Transfer of property held for development to property and equipment .......................... 22,500 26,345 --
Transfer of property and equipment to property held for sale ................................. -- 8,202 1,450
Assumption of debt by buyer through disposition of property .................................. -- -- (14,800)
Vehicles acquired through debt financing ..................................................... -- 2,375 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
EMERITUS CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(In thousands, except share data)
<TABLE>
<CAPTION>
Common stock Accumulated
--------------------------- other
Additional comprehensive Total
Number paid-in income Accumulated shareholders'
of shares Amount capital (loss) deficit equity (deficit)
--------------- ----------- ------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995............. 11,000,000 $ 1 $ 44,910 $ 400 $(10,416) $ 34,895
Common stock issue costs.................. -- -- (123) -- -- (123)
Unrealized loss on investment securities.. -- -- -- (382) -- (382)
Net loss for the year ended December 31, 1996. -- -- -- -- (8,202) (8,202)
--------------- ----------- ------------ -------------- ------------ ----------------
Balances at December 31, 1996.............. 11,000,000 $ 1 44,787 18 (18,618) 26,188
--------------- ----------- ------------ -------------- ------------ ----------------
Unrealized gain on investment securities... -- -- -- 3,997 -- 3,997
Foreign currency translation adjustment.... -- -- -- (4) -- (4)
Repurchase of common stock................. (25,600) -- (341) -- -- (341)
Stock options exercised.................... 250 -- 3 -- -- 3
Preferred stock dividends.................. -- -- -- -- (425) (425)
Net loss for the year ended December 31, 1997 -- -- -- -- (28,211) (28,211)
--------------- ----------- ------------ -------------- ------------ ----------------
Balances at December 31, 1997.............. 10,974,650 $ 1 44,449 4,011 (47,254) 1,207
--------------- ----------- ------------ -------------- ------------ ----------------
Unrealized loss on investment securities... -- -- -- (8,414) -- (8,414)
Foreign currency translation adjustment.... -- -- -- (17) -- (17)
Repurchase of common stock................. (491,600) -- (5,466) -- -- (5,466)
Stock options exercised.................... 1,000 -- 12 -- -- 12
Preferred stock dividends.................. -- -- -- -- (2,250) (2,250)
Net loss for the year ended December 31, 1998 -- -- -- -- (31,036) (31,036)
--------------- ----------- ------------ -------------- ------------ ----------------
Balances at December 31, 1998............... 10,484,050 $ 1 $ 38,995 $ (4,420) $(80,540) $ (45,964)
--------------- ----------- ------------ -------------- ------------ ----------------
--------------- ----------- ------------ -------------- ------------ ----------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Emeritus Assisted Living - Emeritus Corporation ("Emeritus" or the "Company") is
a nationally integrated assisted living organization focused on operating
residential style communities. These communities provide a residential housing
alternative for senior citizens who need help with the activities of daily
living, with an emphasis on assisted living and personal care services. The
Company also provides management services to third-party owners of assisted
living communities.
BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. In addition, the accounts of limited liability
companies and partnerships ("LLCs") have been consolidated where the Company
maintains effective control over the LLCs' assets and operations, not
withstanding a lack of technical majority ownership of the LLCs. All significant
intercompany balances and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Operating revenue consists of resident fee revenue and management services
revenue. Resident units are rented on a month-to-month basis and rent is
recognized in the month the unit is occupied. Service fees paid by residents for
assisted-living and other related services and management fees are recognized in
the period services are rendered. Management services revenue is comprised of
revenue from management contracts and is recognized in the month in which it is
earned in accordance with the terms of the management contract.
CASH AND CASH EQUIVALENTS
All short-term investments, consisting primarily of commercial paper and
certificates of deposit, with a maturity at date of purchase of three months or
less are considered to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
computed using the straight-line method over the estimated useful lives of the
assets as follows: buildings and improvements, 25 to 40 years; furniture,
equipment and vehicles, five to seven years; leasehold improvements, over the
lesser of the estimated useful life or the lease term.
For long-lived assets, including property and equipment, the Company evaluates
the carrying value of the assets by comparing the estimated future cash flows
generated from the use of the assets and their eventual disposition with the
assets' reported net book values. The carrying values of assets are evaluated
for impairment when events or changes in circumstances occur which may indicate
the carrying amount of the assets may not be recoverable.
INVESTMENTS
Investment securities are classified as available-for-sale and are recorded at
fair value. Unrealized holding gains and losses, net of any related tax effect,
are excluded from results of operations and are reported as a component of other
comprehensive income (loss).
Investments in 20% to 50% owned affiliates are accounted for under the equity
method except where lack of voting power exists. Investments in less than 20%
owned entities are accounted for under the cost method.
F-10
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
INTANGIBLE ASSETS
Intangible assets, which are comprised of deferred financing costs, (included in
other assets) as well as lease acquisition costs are amortized on the
straight-line method over the term of the related debt or lease agreement.
INCOME TAXES
Deferred income taxes are provided based on the estimated future tax effects of
temporary differences between financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates that are expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date. A valuation allowance is recorded for deferred tax assets when
it is more likely than not that such deferred tax assets will not be realized.
DEFERRED RENT
Deferred rent primarily represents lease incentives which are deferred and
amortized using the straight-line method over the lives of the associated
leases.
DEFERRED GAINS ON SALE OF COMMUNITIES
Deferred gains on sale/leasebacks of communities are deferred and amortized
using the straight-line method over the lives of the associated leases. The
Company has no continuing involvement in communities which it has sold and
leased back outside of operating the communities.
COMMUNITY OPERATIONS
Community operations represent direct costs incurred to operate the communities
and include costs such as resident activities, marketing, housekeeping, food
service, payroll and benefits, facility maintenance, utilities, taxes and
licenses.
STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES
and related Interpretations in measuring compensation costs for its stock option
plans. The Company discloses pro forma net income (loss) and net income (loss)
per share as if compensation cost had been determined consistent with Statement
of Financial Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION.
NET LOSS PER SHARE
Basic net income (loss) per share is computed based on weighted average shares
outstanding and excludes any potential dilution. Diluted net income (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 the Company includes convertible debentures,
redeemable convertible preferred stock, as well as stock options. The assumed
conversion and exercise of these securities have been excluded from the
calculation of diluted net loss per share as their effect is anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-11
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
FOREIGN CURRENCY TRANSLATION
Foreign currency amounts attributable to foreign operations have been translated
into U.S. dollars using year-end exchange rates for assets and liabilities,
historical rates for equity, and average annual rates for revenues and expenses.
Unrealized gains and losses arising from fluctuations in the year-end exchange
rates are recorded as a component of other comprehensive income (loss).
RECLASSIFICATIONS
Certain reclassifications of the 1996 and 1997 amounts have been made to conform
to the 1998 presentation.
(2) CHANGES IN ACCOUNTING PRINCIPLES
In April 1997, the Accounting Standards Executive Committee issued Statement of
Position 98-5 (SOP 98-5), REPORTING ON THE COSTS OF START-UP ACTIVITIES. This
statement provides guidance on financial reporting for start-up costs and
organization costs and requires such costs to be expensed as incurred. The
Company elected early adoption of this statement effective January 1, 1998 and
has reported a charge of $1,320,000 for the cumulative effect of this change in
accounting principle. The adoption of SOP 98-5 on January 1, 1998 resulted in
the Company expensing approximately $967,000 of start-up costs incurred in 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 130 (SFAS 130), REPORTING COMPREHENSIVE INCOME.
This statement establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
The purpose of reporting comprehensive income is to report a measure of all
changes in equity of an enterprise that result from recognized transactions and
other economic events of the period other than transactions with owners in their
capacity as owners. The Company adopted SFAS 130 effective January 1, 1998.
(3) RESTRICTED DEPOSITS
Restricted deposits consist of funds required by various Real Estate Investment
Trusts ("REITs") to be placed on deposit until the Company's communities meet
certain debt coverage and/or cash flow coverage ratios, at which time the funds
will be released to the Company. As of December 31, 1997 and 1998, the Company
had $10.8 million and $8.4 million in restricted deposits, respectively.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
In thousands 1997 1998
- ------------------------------------------------------------------------------------ ---------
<S> <C> <C>
Land and improvements........................................... $ 10,810 11,881
Buildings and improvements...................................... 104,199 108,221
Furniture and equipment......................................... 11,368 11,321
Vehicles ....................................................... 2,997 2,760
Leasehold improvements.......................................... 2,433 1,958
--------- -------
131,807 136,141
Less accumulated depreciation and amortization ................. 7,700 9,499
--------- -------
124,107 126,642
Construction in progress........................................ 21,724 2,017
--------- -------
$145,831 $128,659
--------- -------
--------- -------
</TABLE>
F-12
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(5) PROPERTY HELD FOR DEVELOPMENT
Property held for development is recorded at cost. Interest costs capitalized on
property held for development and construction in progress was $1.4 million,
$2.7 million and $0.1 million for 1996, 1997 and 1998, respectively.
At December 31, 1998, the Company was committed to enter into long-term
operating leases with a REIT for communities currently under development. In
March 1999, the Company completed a disposition of its leasehold interests in
these development communities (note 20).
(6) INVESTMENT SECURITIES
During 1997, the Company purchased common stock of ARV Assisted Living, Inc.
("ARV") in market transactions and at December 31, 1997, the Company held
1,077,200 shares of ARV common stock. Also in 1997, the Company initiated a
tender offer which was terminated in January 1998, for all of the remaining
outstanding common stock of ARV. The Company incurred costs of $3,418,000
associated with this activity in 1997.
During 1998, the Company sold a portion of the ARV common stock in market
transactions realizing gains approximating $450,000 which are included in other
income, net. Details regarding the ARV investment as of December 31, follow:
<TABLE>
<CAPTION>
Gross
Amortized Unrealized Fair Market
In thousands Cost Gains (Losses) Value
-------------------------------------------------------------------- ---------------- ----------------
<S> <C> <C> <C>
1997................................................. $ 13,220 $ 4,015 $ 17,235
-------- --------- --------
-------- --------- --------
1998................................................. $ 8,890 $ (4,399) $ 4,491
-------- --------- --------
-------- --------- --------
</TABLE>
(7) FINANCIAL INSTRUMENTS
The Company has financial instruments other than investment securities
consisting of cash and cash equivalents, trade accounts receivable, notes
receivable from and investments in affiliates, short-term borrowings, accounts
payable, convertible debentures, redeemable preferred stock and long-term debt.
The fair value of the Company's financial instruments based on their short-term
nature or current market indicators such as prevailing interest rates
approximate their carrying value with the exception of the convertible
debentures which had a fair value of $28.6 million versus a book value of $32.0
million at December 31, 1998.
(8) NOTES RECEIVABLE FROM AND INVESTMENTS IN AFFILIATED COMPANIES
In November 1996, the Company agreed to purchase up to 6,888,466 shares of
convertible preferred stock of Alert Care Corporation ("Alert"), an Ontario,
Canada-based owner and operator of assisted-living communities at prices
ranging from $0.67 to $0.74 per share (Cdn). In addition, the Company
acquired an option to purchase an additional 4,000,000 shares of convertible
preferred stock at an exercise price of $1.00 per share (Cdn), as well as an
option to purchase from Eclipse Capital Management ("Eclipse"), the majority
shareholder of Alert, and certain other shareholders of Alert, 9,050,000
issued and outstanding shares of common stock of Alert and 950,000 issued and
outstanding shares of Class A non-voting stock of Alert both at an exercise
price of $3.25 per share (Cdn). There was no cost in acquiring the option to
purchase additional shares from Alert and no value was assigned to the option
by the Company.
F-13
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The investment in Alert is accounted for under the cost method, as the Company's
equity ownership consists of non-voting preferred stock. Details regarding the
Alert holdings as of December 31 are as follows:
<TABLE>
<CAPTION>
Percentage
Ownership on
Total As-converted
In thousands (except share data) Shares Cost Basis
-------------------------------------------------------------------------- --------- ----------
<S> <C> <C> <C>
1997
Preferred shares.......................................... 7,588,466 $ 4,111 24.2%
---------- --------- -----
---------- --------- -----
1998
Preferred shares.......................................... 10,888,466 $ 6,391 31.3%
---------- --------- -----
---------- --------- -----
</TABLE>
Alert has entered into an exclusive management agreement to manage the Company's
future assisted-living communities in Ontario. Eclipse, through its wholly-owned
subsidiary, Eclipse Construction Inc., develops and constructs retirement homes
for Alert on a contract basis. Under the agreement, Eclipse has entered into an
exclusive development agreement with the Company to develop its future
construction projects in Ontario. No communities have been developed under these
agreements as of December 31, 1998.
During 1998, the Company sold its interest in a community located in Texas to a
partnership in which the principal shareholder of the Company is a partner.
Pursuant to the purchase and sale agreement, the Company advanced funds to the
partnership of $1.0 million and $800,000 subject to promissory notes bearing
interest at 9% and payable in 10 years and on demand, respectively. The $1.0
million note contains additional funding provisions whereby the Company funds
20% of the losses generated by the community up to $500,000, of which $350,000
is outstanding at December 31, 1998. The Company at its option can then convert
its $1.5 million investment into a 20% interest in the partnership. In addition,
the Company has advanced the partnership $450,000 under a repair note bearing
interest at 9% and due June 2008. At December 31, 1998, the Partnership's
obligations to the Company total $2.6 million.
In 1998, the Company entered into a $5.0 million credit agreement with Aurora
Bay Investments, L.L.C. ("Aurora Bay"), a limited liability company that
acquires, develops and operates Alzheimer's special care facilities. In
September 1998, the credit agreement was assumed by a related party for $4.2
million which equaled the total advances made under the facility.
(9) CONVERTIBLE DEBENTURES
The Company has $32.0 million of 6.25% convertible subordinated debentures (the
"Debentures") which are due in 2006. The Debentures are convertible into common
stock at the rate of $22 per share, which equates to an aggregate of
approximately 1,454,545 shares of the Company's common stock and bear interest
payable semiannually on January 1 and July 1 of each year. The Debentures are
unsecured and subordinated to all other indebtedness of the Company.
The Debentures are subject to redemption, as a whole or in part, at any time or
from time to time commencing after July 1, 1999 at the Company's option on at
least 30 days' and not more than 60 days' prior notice.
The redemption prices (expressed as a percentage of principal amount) are as
follows for the 12-month period beginning after July 1 of the following years:
<TABLE>
<CAPTION>
Year Price
--------------------------- ---------------------------
<S> <C>
1999 102%
2000 101%
2001 and thereafter 100%
</TABLE>
F-14
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(10) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
In thousands 1997 1998
----------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
Notes payable, interest only at rates from 10.5% to 18%
payable monthly, unpaid principal and interest due May 2000........ $ 7,000 $ --
Notes payable, interest only at the 30 day LIBOR rate plus 2.25%
payable monthly, unpaid principal and interest due March 1999...... 10,220 --
Notes payable, interest at rates from 6.9% to 12%, payable in
monthly installments, due through July 2009........................ 10,279 --
Notes payable, interest only at the LIBOR rate plus 2.95% (8.0% at
December 31, 1998) payable monthly, unpaid principal and interest
due April 2001..................................................... -- 73,235
Notes payable, interest only at the LIBOR plus 2.25% (7.3% at
December 31, 1998), payable monthly, unpaid principal and interest
due March 1999..................................................... -- 5,270
Note payable, interest at the prime rate plus .75% (8.5% at December
31, 1998), payable in monthly installments, unpaid principal and
interest due July 2004............................................. -- 12,800
Notes payable, interest at the LIBOR rate plus 2.50%, payable
monthly, unpaid principal and interest due April 1999.............. 26,000 --
Note payable, interest only at the LIBOR rate plus 2.25% payable
monthly, unpaid principal and interest due May 2000................ 3,500 --
Note payable, interest only through September 1998 at 9.28%,
principal and interest over remaining term, unpaid principal and
interest due April 2009............................................ 4,288 --
Note payable, interest at the prime rate plus .75% (8.5% at December
31, 1998), payable in monthly installments, unpaid principal and
interest due February 2003......................................... -- 5,965
Notes payable, interest only at 8.5% payable monthly, unpaid -- 11,140
principal and interest due December 2000...........................
Notes payable, interest at rates from 8.0% to 10.86%, payable in
monthly installments, due through July 2009........................ -- 15,892
Construction loan, total commitment of $17.0 million, interest only
through November 1998 at the 30 day LIBOR rate plus 2.75%,
principal and interest payments over remaining term, unpaid
principal and interest due through November 2001................... 14,066 --
Construction loan, total commitment of $4.9 million, interest
only at the prime rate plus 3.5% payable monthly, unpaid
principal and interest due February 2004........................... 4,799 --
Construction loan, total commitment of $4.7 million, interest only at
9.75%, payable monthly, unpaid principal and interest due May
1999............................................................... 4,695 --
Construction loan, total commitment of $12.8 million, interest only
during the construction term (completion date or 18 months after loan
closing) at the prime rate plus .75%, principal and interest over
remaining term, unpaid principal and interest due earlier of 90
months after loan closing or 6 years after the completion of 7,578 --
construction.......................................................
</TABLE>
F-15
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
December 31,
In thousands 1997 1998
----------------------------------------------------------------------------------------- -----------------
<S> <C> <C>
Construction loan, total commitment of $6.5 million, interest only
during the construction term at the prime rate plus 1.25%, principal
and interest at the prime rate plus 3.25% over remaining term,
unpaid principal and interest due January 2001..................... 5,216 --
Construction loan, total commitment $5.1 million, interest only at 9%,
payable monthly, unpaid principal and interest due February 2000... 4,444 --
Other................................................................. 4,452 2,963
------------------ -----------------
Subtotal......................................................... 106,537 127,265
------------------ -----------------
Debt with commitment to refinance with long-term debt subsequent
to year end -
Notes payable, interest only at rates between 9% and 11%, payable
monthly, unpaid principal and interest due through December
1998 to be refinanced through long-term debt in 1998, interest
only at the 30 day LIBOR rate plus 2.95%, due April 2001........ 14,395 --
------------------ -----------------
120,932 127,265
Less current portion.................................................. 12,815 7,591
------------------ -----------------
Long-term debt, less current portion............................. $108,117 $119,674
------------------ -----------------
------------------ -----------------
</TABLE>
Substantially all long-term debt is secured by the Company's property and
equipment.
During 1998, the Company consolidated approximately $60.3 million of outstanding
debt through a refinancing with a single lender and wrote off $937,000 of
related deferred costs as an extraordinary item.
Certain of the Company's indebtedness includes restrictive provisions related to
cash dividends, investments and borrowings, and require maintenance of specified
operating ratios, levels of working capital and net worth. As of December 31,
1998, the Company was in compliance with such covenants or obtained waivers for
noncompliance.
Principal maturities of long-term debt at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
In thousands
---------------------------------------------------- ----------------
<S> <C>
1999.............................................. $ 7,591
2000.............................................. 13,320
2001.............................................. 75,117
2002.............................................. 1,636
2003.............................................. 6,177
Thereafter........................................ 23,424
----------------
Total............................................. $127,265
----------------
----------------
</TABLE>
(11) SHORT-TERM BORROWINGS
The Company maintains a $5,000,000 unsecured revolving account from U.S. Bank
which bears interest at the prime rate (7.75% at December 31, 1998) and expires
in August 1999. The line of credit is guaranteed by a principal shareholder of
the Company.
F-16
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(12) MARGIN LOAN ON EQUITY SECURITIES
During 1997, the Company opened a margin account to facilitate the acquisition
of marketable securities. This account had a loan balance of $9,165,000 and
$2,324,000 at December 31, 1997 and 1998, respectively, secured by marketable
equity securities with respective market values of $17,235,000 and $4,491,000.
This loan is due upon the sale of the securities and bears interest at 0.375%
under broker call (6.125% as of December 31, 1998).
(13) INCOME TAXES
Income taxes reported by the Company differ from the amount computed by applying
the statutory rate primarily due to limitations on utilizing net operating
losses.
The tax effect of temporary differences and carryforwards that give rise to
significant portions of deferred tax assets and liabilities are comprised of the
following:
<TABLE>
<CAPTION>
December 31,
In thousands 1997 1998
------------------------------------------------------------------------------------- -------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization........................................ $(1,470) $(1,266)
Other................................................................ (361) --
-------------- -------------
Gross deferred tax liabilities............................... (1,831) (1,266)
-------------- -------------
Deferred tax assets:
Net operating loss carryforwards..................................... 10,966 19,563
Deferred gains on sale/leaseback..................................... 4,187 6,624
Unearned rental income............................................... 382 329
Vacation accrual..................................................... 349 403
Health insurance accrual............................................. 263 398
Other................................................................ 464 585
-------------- -------------
Gross deferred tax assets.................................... 16,611 27,902
Less valuation allowance............................................... (14,780) (26,636)
-------------- -------------
Deferred tax assets, net............................................... 1,831 1,266
-------------- -------------
Net deferred tax assets...................................... $ -- $ --
-------------- -------------
-------------- -------------
</TABLE>
The net increase in the total valuation allowance was $9,380,000 and $11,856,000
for 1997 and 1998, respectively. The increases were primarily due to the
increase in deferred gains on sale/leasebacks and the amount of net operating
loss carryforwards, for which management does not believe that it is more likely
than not that realization is assured.
For federal income tax purposes, the Company has net operating loss
carryforwards at December 31, 1998, available to offset future federal taxable
income, if any, of approximately $57,539,000 expiring beginning in 2011.
(14) RELATED-PARTY MANAGEMENT AGREEMENTS
During 1995, the Company's two most senior executive officers, CEO and now
former President, formed a New York general partnership (the "Partnership") to
facilitate the operation of assisted-living communities in the state of New
York, which generally requires that natural persons be designated as the
licensed operators of assisted-living communities. The Partnership operates ten
leased communities in New York. The Company has agreements with the Partnership
and the partners under which all of the Partnership's profits have been assigned
to the Company and the Company has indemnified the partners against losses. In
February 1999, the President of the Company ceased to be an officer of the
Company and has agreed to transfer his ownership in the Partnership to his
successor at a nominal value. As the Company has unilateral and perpetual
control over the Partnership's assets and operations, the results of operations
of the Partnership are consolidated with those of the Company.
F-17
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
A number of limited partnerships which are partly owned indirectly by Mr. Baty,
the Company's Chairman and Chief Executive Officer, develop, own and lease
senior housing projects, some of which cater to low income seniors. The Company
has agreements with these partnerships to provide certain administrative
support, due diligence and financial support services with respect to the
acquisition, development and administration of these communities. The agreements
have terms ranging from two to four years, with options to renew, and provide
for management fees ranging from 4% to 7% of gross operating revenues and fixed
administrative fees. Management fee revenue earned under these agreements was
approximately $103,000 and $535,000 in 1997 and 1998, respectively.
In 1998, the Company and XL Management Company L.L.C., ("XL Management"), an
affiliate of Holiday Retirement Corp., an owner and operator of
independent-living communities, entered into four management agreements whereby
XL Management will provide management services relating to four newly developed
assisted-living communities located in Texas. The agreements have initial terms
of two years six months with management fees based on 6% of gross revenues
payable monthly. Total fees in 1998 amounted to $187,000. The Company will pay a
bonus fee per community to XL Management based on occupancy; one year after
managing the communities, if occupancy is between 75% and 89%, XL Management
will receive a bonus fee of $25,000 and if occupancy is 90% or greater the bonus
fee will be $50,000. The Company's Chairman and Chief Executive Officer and
another member of the Company's board of directors are principal shareholders
and officers of Holiday.
In addition to the foregoing, the Company entered into 25 management
agreements with a related party for properties previously leased and owned
(note 18).
(15) SHAREHOLDERS' EQUITY
In December 1997, the Company purchased 25,600 shares of its common stock at an
aggregate cost of $341,000. In January 1998, the Company's board of directors
authorized a stock repurchase program to acquire up to an additional 500,000
shares of the Company's common stock. At December 31, 1998, the Company had
acquired a total of 517,200 shares of its common stock at an aggregate cost of
$5.7 million.
1995 STOCK INCENTIVE PLAN
The Company has a 1995 stock incentive plan ("1995 Plan") which combines the
features of an incentive and nonqualified stock option plan, stock appreciation
rights and a stock award plan (including restricted stock). The 1995 Plan is a
long-term incentive compensation plan and is designed to provide a competitive
and balanced incentive and reward program for participants.
The Company has authorized 1,600,000 shares of common stock to be reserved for
grants under the 1995 Plan of which 155,384 remained available for future awards
at December 31, 1998. Options generally vest between three-year to five-year
periods, at the discretion of the Compensation Committee of the Board of
Directors, in cumulative increments beginning one year after the date of the
grant and expire not later than ten years from the date of grant. The options
are granted at an exercise price equal to the fair market value of the common
stock on the date of the grant.
In November 1998, the Company offered, at the election of individual employees,
a repricing of options granted to date at an exercise price of $9.8125 which was
equal to the fair market value of the stock on the grant date. A total of
1,005,166 shares were forfeited and reissued under the repricing transaction.
F-18
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Had compensation cost for the Company's stock option plan been determined
pursuant to SFAS 123, the Company's pro forma net loss and pro forma net loss
per share, including the effect of the repricing, would have been as follows:
<TABLE>
<CAPTION>
Year ended December 31,
In thousands, except per share data 1996 1997 1998
-------------------------------------------------- --------------- ----------------- ---------------
<S> <C> <C> <C>
Net loss to common shareholders:
As reported.................................. $(8,202) $(28,636) $(33,286)
Pro forma.................................... (8,477) (29,236) (34,676)
Net loss per common share - basic and diluted:
As reported.................................. $ (0.75) $ (2.60) $ (3.17)
Pro forma.................................... (0.77) (2.66) (3.31)
</TABLE>
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 1996, 1997 and 1998: dividend yield of 0.0% for all periods;
expected volatility of 55% for 1996, 49.1% for 1997 and 48.9% for 1998;
risk-free interest rates of 5.47% to 6.39% for 1996, 5.45% to 5.50% for 1997,
and 4.51% to 4.70% for 1998; and an expected option term of 4.5 years and 5
years for 1996 and 1997, respectively, and for 1998 of 2 to 5 years, giving
effect to the option repricing.
A summary of the activity in the Company's stock option plans follows:
<TABLE>
<CAPTION>
1996 1997 1998
Weighted-Average Weighted-Average Weighted-Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
---------------------------- ------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................. 202,000 $14.38 484,900 $11.90 1,089,650 $12.86
Granted................. 363,500 $11.06 703,000 $13.43 1,471,666 $ 9.79
Exercised............... -- $ -- (250) $15.25 (1,000) $10.50
Canceled................ (80,600) $14.34 (98,000) $12.32 (1,116,950) $12.80
---------------------------- ------------------------------- ------------------------------
Outstanding at end of
year.................... 484,900 $11.90 1,089,650 $12.86 1,443,366 $ 9.84
Options exercisable at
year-end................ 37,950 $14.38 101,800 $12.40 308,352 $10.06
Weighted-average fair
value of options granted
during the year......... $ 5.67 $ 6.65 $ 4.11
</TABLE>
F-19
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following is a summary of stock options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-----------------------------------------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
------------------------------- -------------- ------------------ ------------------ -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
$ 9.63 407,500 9.88 $ 9.63 -- $ --
$ 9.81 1,005,166 8.36 $ 9.81 293,652 $ 9.81
$11.00 - 15.00 30,700 8.26 $ 13.55 14,700 $14.95
-------------- ------------------ ------------------ -------------- -----------------
1,443,366 8.79 $ 9.84 308,352 $10.06
-------------- ------------------ ------------------ -------------- -----------------
-------------- ------------------ ------------------ -------------- -----------------
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN
In July 1998, the Company adopted an Employee Stock Purchase Plan (the Plan) to
provide substantially all employees who have completed six months of service an
opportunity to purchase shares of its common stock through payroll deductions,
up to 15% of eligible compensation. A total of 200,000 shares are available for
purchase under the Plan. Monthly, participant account balances are used to
purchase shares of stock on the open market at the lesser of the fair market
value of shares on the first or last day of the participation period. Employees
may not exceed $25,000 in annual purchases. The Employee Stock Purchase Plan
expires in May 2008. At December 31, 1998, 900 shares have been purchased by
employees under the Plan.
(16) REDEEMABLE PREFERRED STOCK
The Company has authorized 5,000,000 shares of preferred stock, $0.0001 par
value. Pursuant to such authority, in October 1997, the Company issued and sold
25,000 shares of Series A cumulative convertible, exchangeable, redeemable
preferred stock for $25,000,000. Cumulative dividends of 9% are payable
quarterly. The preferred stock has a mandatory redemption date of October 24,
2004 at a price equal to $1,000 per share plus any accrued but unpaid dividends.
Each share of preferred stock may be converted, at the option of the holder,
into 55 shares of common stock. The preferred stock is also exchangeable in
whole only, at the option of the Company, to 9% subordinated convertible notes
due October 24, 2004. The 9% subordinated notes would contain the same
conversion rights, restrictions and other terms as the preferred stock.
The Company may redeem the preferred stock, in whole or in part, after October
24, 2001 for $1,050 per share plus accrued dividends, provided that the market
price of common stock is at least 130% of the conversion price for the preferred
stock. In the event of liquidation of the Company, the holders of outstanding
preferred stock shall be entitled to receive a distribution of $1,000 per share
plus accrued dividends.
(17) LEASES
At December 31, 1998, the Company leases office space and 54 assisted-living
communities . The office lease expires in 2006 and contains two five-year
renewal options. The community leases expire from 2004 to 2017 and contain two
to six five-year renewal options.
F-20
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Minimum lease payments under noncancelable operating leases at December 31, 1997
are as follows:
<TABLE>
<CAPTION>
In thousands
---------------------------------------------------- ----------------
<S> <C>
1999............................................... $ 29,818
2000............................................... 29,818
2001............................................... 29,824
2002............................................... 30,196
2003............................................... 30,445
Thereafter......................................... 205,320
----------------
----------------
$355,421
----------------
----------------
</TABLE>
Rent expense under noncancelable operating leases was approximately $16,114,000,
$34,651,000 and $42,217,000 for 1996, 1997 and 1998, respectively. A number of
operating leases provide for additional lease payments, computed as 5% of
gross community revenues, beginning 24 months after the inception of the
lease. In 1998, such additional rents were not significant.
(18) SALES AND ACQUISITIONS
During 1997, the Company completed several acquisitions of assisted-living,
independent-living and skilled nursing communities. These acquisitions have been
accounted for as purchases and, accordingly, the assets and liabilities of the
acquired communities were recorded at their estimated fair values at the dates
of acquisitions. No goodwill or other identifiable intangibles were recorded
with respect to any of the acquisitions. The results of operations of the
communities acquired have been included in the Company's consolidated financial
statements from the dates of the acquisition. Summary information concerning the
acquisitions is as follows:
<TABLE>
<CAPTION>
Total
Communities acquired Acquisition date purchase price Units
------------------------------------------------- -------------------- ------------------ -----------------
(in thousands)
<S> <C> <C> <C>
Villa Del Rey.................................. March 1997 $ 4,252 84
La Casa Grande................................. May 1997 12,900 200
River Oaks..................................... May 1997 11,200 155
Stanford Center................................ May 1997 8,900 118
------------------ -----------------
$ 37,252 557
------------------ -----------------
------------------ -----------------
</TABLE>
The foregoing acquisitions were generally financed through borrowings.
During 1997, the Company completed three acquisitions of communities through
operating lease transactions. The results of operations of the communities have
been included in the Company's consolidated financial statements from the dates
the leases commenced.
During 1997, the Company entered into sale/leaseback transactions with a REIT,
pursuant to which the REIT acquired one new community developed by the Company
and two existing communities and leased the communities back to the Company. The
Company has no continuing involvement outside of operating the communities.
F-21
<PAGE>
EMERITUS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The following summary, prepared on a pro forma basis, combines the results of
operations of the acquired businesses with those of the Company as if the
acquisitions through lease financings and sale/leaseback financings had been
consummated as of January 1, 1997.
<TABLE>
<CAPTION>
December 31,
In thousands, except per share data (unaudited) 1997
--------------------------------------------------------------- ------------------
<S> <C>
Revenues....................................................... $122,703
Net loss to common shareholders................................ (29,061)
Pro forma net loss per common share - basic and diluted........ $ (2.64)
</TABLE>
During 1998, the Company entered into a sale/leaseback transactions with a
REIT, pursuant to which the REIT acquired a community previously owned by the
Company and leased it back to the Company. The Company has no continuing
involvement outside of operating the community.
In 1998, the Company acquired two communities which it previously leased from a
REIT for an aggregate purchase price of $13.5 million. These acquisitions were
financed through borrowings.
In 1998 the Company sold interests in three assisted living communities for an
aggregate sales price of $25 million, including the assumption of a $14.8
million mortgage obligation and $1.8 million in notes receivable, to
partnerships in which the Company's principal shareholder is a partner and
realized cumulative gains of $475,000 which are included in other income, net.
The Company retains a management interest in each community through management
contracts and a residual economic interest in two of the communities.
In December 1998 the Company disposed of its leasehold interest in 22 leased
communities and three owned communities (the "Emeritrust communities"). The
Emeritrust communities were sold to an entity in which a principal
shareholder and a Board member of the Company are investors. Pursuant to the
transaction, the Company will manage all 25 communities in accordance with a
three year management contract and will receive management fees of 5% of
revenues currently payable as well as 2% of revenues which is contingent upon
the communities achieving positive cash flows. The management agreement
provides the Company an option to purchase the 22 previously leased
communities at a formula price and a right of first refusal on the three
previously owned communities. The management agreement further stipulates a
cash shortfall funding requirement by the Company to the extent the Emeritrust
communities generate cash deficiencies in excess of $4.5 million. Previously
deferred gains and the gain on this transaction collectively totaling
approximately $13 million have been deferred given the continuing financial
involvement of the Company stipulated in the management agreement.
(19) CONTINGENCIES
The Company is involved in legal proceedings, claims and litigation arising in
the ordinary course of business. In the opinion of management, the outcome of
these matters will not have a material effect on the Company's results of
operations or financial position.
The Company is self insured for certain employee health benefits. The Company's
policy is to accrue amounts equal to the actuarial liabilities which are based
on historical information along with certain assumptions about future events.
Changes in assumptions for such matters as health care costs and actual
experience could cause these estimates to change.
(20) SUBSEQUENT EVENT
In March 1999, the Company completed a disposition of its leasehold interests
in 19 additional communities, consisting of 14 currently operational
communities and five development communities (the "Emeritrust II
communities"). The Emeritrust II communities were sold to an entity in which
a principal shareholder and a Board member of the Company are investors.
Pursuant to the transaction, the Company will manage all 19 communities
in accordance with a three year management contract and will receive
management fees of 5% of revenues currently payable as well as 2% of revenues
which is contingent upon the communities achieving positive cash flows. The
management agreement provides the Company an option to purchase the 19
previously leased communities at a formula price. The management agreement
further stipulates a cash shortfall funding requirement by the Company to the
extent the development communities generate cash deficiencies in excess of
$2.3 million.
F-22
<PAGE>
EMERITUS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
------------------------------------------------ ------------- ---------------- ------------- -------------
Balance
at Charged to Balance
Beginning Other Costs (1) at End
Description of Year and Expenses Deductions of Year
------------------------------------------------ ------------- ---------------- ------------- -------------
<S> <C> <C> <C> <C>
Year ended December 31, 1996:
Valuation accounts deducted from assets:
Allowance for doubtful receivables $14 $128 $15 $127
------------- ---------------- ------------- -------------
------------- ---------------- ------------- -------------
Year ended December 31, 1997:
Valuation accounts deducted from assets:
Allowance for doubtful receivables $127 $317 $96 $348
------------- ---------------- ------------- -------------
------------- ---------------- ------------- -------------
Year ended December 31, 1998:
Valuation accounts deducted from assets:
Allowance for doubtful receivables $348 $695 $505 $538
------------- ---------------- ------------- -------------
------------- ---------------- ------------- -------------
</TABLE>
- -------------------
(1) Represents amounts written off
F-23
<PAGE>
SIGNATURES
Pursuant to the requirements of 13 of 15(d) 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: April 7, 1999
EMERITUS CORPORATION
(Registrant)
/s/ Daniel R. Baty
----------------------------------------------------
Daniel R. Baty, Chief Executive Officer and Director
/s/ Kelly J. Price
----------------------------------------------------
Kelly J. Price, Chief Financial Officer, Vice President, Finance
and Principal Accounting Officer
/s/ Tom A. Alberg
----------------------------------------------------
Tom A. Alberg, Director
/s/ Patrick Carter
----------------------------------------------------
Patrick Carter, Director
/s/ William E. Colson
----------------------------------------------------
William E. Colson, Director
/s/ David Hamamoto
----------------------------------------------------
David Hamamoto, Director
/s/ Motoharu Iue
----------------------------------------------------
Motoharu Iue, Director
