<Page>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED FEBRUARY 28, 2002
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from_____to_____.
Commission File Number: 0-18942
ILM II SENIOR LIVING, INC.
--------------------------
(Exact name of registrant as specified in its charter)
Virginia 06-1293758
- ----------------------- -------------------
(State of organization) (I.R.S. Employer
Identification No.)
1750 Tysons Boulevard, Suite 1200, Tysons Corner, VA 22102
- ---------------------------------------------------- ----------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (888) 357-3550
Securities registered pursuant to Section 12(b) of the Act:
<Table>
<Caption>
Name of each exchange on
Title of each Class which registered
- ------------------- -------------------------------
None None
</Table>
Securities registered pursuant to Section 12(g) of the Act:
SHARES OF COMMON STOCK $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Shares of common stock outstanding as of February 28, 2002: 5,181,236
Current Report on Form 8-K
Of Registrant Dated April 2, 2002
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<Page>
ILM II SENIOR LIVING, INC.
INDEX
<Table>
<Caption>
Page
-----
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Net Assets in Liquidation
February 28, 2002 (Unaudited) and August 31, 2001............................................4
Consolidated Statements of Changes in Net Assets in Liquidation
For the six and three months ended February 28, 2002 (Unaudited).............................5
Consolidated Statements of Income
For the six and three months ended February 28, 2002 (Unaudited).............................6
Consolidated Statement of Changes in Shareholders' Equity
For the six months ended February 28, 2001 (Unaudited).......................................7
Consolidated Statement of Cash Flows
For the six months ended February 28, 2001 (Unaudited).......................................8
Notes to Consolidated Financial Statements (Unaudited)....................................9-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................16-22
Part II. Other Information
Item 5. Other Information...........................................................................23
Item 6. Exhibits and Reports on Form 8-K............................................................24
Signatures....................................................................................................25
</Table>
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ILM II SENIOR LIVING, INC.
Part I. Financial Information
Item I. Financial Statements
(see next page)
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ILM II SENIOR LIVING, INC.
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis)
February 28, 2002 (Unaudited) and August 31, 2001
(Dollars in thousands, except per share data)
ASSETS
<Table>
<Caption>
FEBRUARY 28, AUGUST 31,
2002 2001
-------------- -------------
Investment properties, at fair value $ 45,500 $ 45,500
Cash and cash equivalents 905 1,298
Accounts receivable - related party 880 247
Prepaid expenses and other assets 4 11
-------------- -------------
$ 47,289 $ 47,056
============== =============
LIABILITIES
Accounts payable and accrued expenses $ 76 $ 129
Accounts payable - related party 894 966
Built-in gain taxes payable 2,886 3,705
Accrued liquidation expenses 3,468 2,404
Preferred shareholders' minority interest in
consolidated subsidiary 156 152
-------------- -------------
Total liabilities 7,480 7,356
-------------- -------------
Net assets in liquidation $ 39,809 $ 39,700
============== =============
</Table>
See accompanying notes.
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ILM II SENIOR LIVING, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis)
For the six and three months ended February 28, 2002 (Unaudited)
(Dollars in thousands, except per share data)
<Table>
<Caption>
Six Months Three Months
Ended Ended
February 28, February 28,
2002 2002
-------------- -------------
Net assets in liquidation, beginning of period $ 39,700 $ 40,008
Increase (decrease) during the period ended February 28, 2002:
Operating activities:
Rental and other 2,215 1,052
Interest income 9 4
General and administrative (116) (36)
Professional fees (573) (147)
Director's compensation (74) (38)
-------------- -------------
1,461 835
-------------- --------------
Liquidating activities:
Built-in gain tax 818 818
Provision for liquidation expenses (2,170) (1,852)
-------------- -------------
(1,352) (1,034)
-------------- -------------
Net increase (decrease) in assets in liquidation 109 (199)
-------------- -------------
Net assets in liquidation, end of period $ 39,809 $ 39,809
============== =============
</Table>
See accompanying notes.
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ILM II SENIOR LIVING, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Going Concern Basis)
For the six and three months ended February 28, 2001 (Unaudited)
(Dollars in thousands, except per share data)
<Table>
<Caption>
Six Months Three Months
Ended Ended
February 28, February 28,
2001 2001
-------------- -------------
REVENUES
Rental income $ 2,293 $ 1,154
Interest income 145 55
-------------- -------------
2,438 1,209
EXPENSES
Depreciation expense 595 298
Amortization expense 88 44
General and administrative 277 74
Professional fees 1,142 477
Directors' compensation 47 24
-------------- -------------
2,149 917
-------------- -------------
NET INCOME $ 289 $ 292
============== =============
Basic earnings per share of common stock $ 0.06 $ 0.06
============== =============
Cash dividends paid per share of common stock $ 2.05 $ 2.05
============== =============
</Table>
The above earnings and cash dividends paid per share of common stock are based
upon the 5,181,236 shares outstanding for each period.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Going Concern Basis)
For the six months ended February 28, 2001 (Unaudited)
(Dollars in thousands, except per share data)
<Table>
<Caption>
Common Stock
$.01 Par Value Additional
------------------------------- Paid-In Accumulated
Shares Amount Capital Deficit Total
------------- -------------- -------------- ---------------- --------------
Shareholders' equity at
August 31, 1999 5,181,236 $ 52 $ 44,823 $ (15,544) $ 29,331
Cash dividends paid - - - (2,202) (2,202)
Net income - - - 1,313 1,313
------------- -------------- -------------- ---------------- --------------
Shareholders' equity at
February 29, 2000 5,181,236 $ 52 $ 44,823 $ (16,433) $ 28,442
============= ============== ============== ================ ==============
Shareholders' equity at
August 31, 2000 5,181,236 $ 52 $ 44,823 $ (10,138) $ 34,737
Cash dividends paid - - - (10,633) (10,633)
Net income - - - 289 289
------------- -------------- -------------- ---------------- --------------
Shareholders' equity at
February 28, 2001 5,181,236 $ 52 $ 44,823 $ (20,482) $ 24,393
============= ============== ============== ================ ==============
</Table>
See accompanying notes.
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ILM II SENIOR LIVING, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Going Concern Basis)
For the six months ended February 28, 2001 (Unaudited)
(Dollars in thousands)
<Table>
<Caption>
Six Months
Ended
February 28,
2001
----------------
Cash flows from operating activities:
Net income $ 289
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense 683
Changes in assets and liabilities:
Accounts receivable - related party 110
Prepaid expenses and other assets (10)
Deferred rent receivable 6
Accounts payable and accrued expenses 133
Accounts payable - related party 596
Preferred shareholders' minority interest 4
----------------
Net cash provided by operating activities 1,811
Cash flows from investing activity:
Additions to operating investment properties (122)
----------------
Net cash used in investing activity (122)
Cash flows from financing activity:
Cash dividends paid to shareholders (10,633)
----------------
Net cash used in financing activity (10,633)
Net decrease in cash and cash equivalents (8,944)
Cash and cash equivalents, beginning of period 11,258
----------------
Cash and cash equivalents, end of period $ 2,314
================
</Table>
See accompanying notes.
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ILM II SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
1. GENERAL
The accompanying consolidated financial statements, footnotes and
discussions should be read in conjunction with the consolidated financial
statements and footnotes contained in ILM II Senior Living, Inc.'s (the
"Company") Annual Report on Form 10-K for the year ended August 31, 2001.
In the opinion of management, the accompanying interim consolidated
financial statements, which have not been audited, reflect all adjustments
necessary to present fairly the results for the interim periods.
In connection with the Company's adoption of a plan of liquidation as
of August 31, 2001, the accompanying consolidated financial statements for
the six- and three-month periods ended February 28, 2002, have been
prepared on the liquidation basis of accounting in accordance with
accounting principles generally accepted in the United States of America
for interim financial information, which, among other things, requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities. Key estimates include the valuation of investment properties
and the estimate of liquidation expenses. Actual results, therefore, could
differ from the estimates and assumptions used. The results of operations
for the six- and three-month periods ended February 28, 2002, are not
necessarily indicative of the results that may be expected for the year
ending August 31, 2002.
When the Company adopted the plan of liquidation on August 31, 2001,
accrued liquidation expenses of $2,404,000 were recorded. These costs
included estimates of legal fees ($500,000); potential Feldman litigation
settlement ($440,00); taxes ($400,000); commissions ($460,000) insurance
($290,000) and other costs ($314,000) such as accounting fees, tax
preparation and filing fees and other professional services. During the
six-month period ended February 28, 2002, an additional $2,170,000 was
provided for additional costs of liquidation including legal fees and
administration costs incurred as a result of the plan of liquidation. These
increases in the costs of liquidation were offset by an $818,000 decrease
in the final estimate for the built-in gain tax.
The actual costs could vary from the related provisions due to the
uncertainty related to the length of time required to complete the
liquidation and dissolution of the Company.
The Company was incorporated on February 5, 1990 under the laws of the
State of Virginia as a Virginia finite-life corporation, formerly
PaineWebber Independent Mortgage Inc. II. On September 12, 1990, the
Company sold to the public in a registered initial offering 5,181,236
shares of common stock, $.01 par value. The Company received capital
contributions of $51,812,356, of which $200,000 represented the sale of
20,000 shares to an affiliate at that time, PaineWebber Group, Inc.
("PaineWebber"). For discussion purposes, the term "PaineWebber" will refer
to PaineWebber Group, Inc., and all affiliates that provided services to
the Company in the past.
The Company elected to qualify and be taxed as a Real Estate Investment
Trust ("REIT") under the Internal Revenue Code of 1986, as amended, for
each taxable year of operations.
The Company originally invested the net proceeds of the initial public
offering in six participating mortgage loans collateralized by senior
housing facilities located in five different states ("Senior Housing
Facilities").
ILM II Holding, Inc. ("ILM II Holding"), a majority-owned subsidiary of
the Company, held title to the five remaining Senior Housing Facilities
which comprised the balance of the operating investment properties on the
accompanying statements of net assets in liquidation, subject to certain
mortgage loans payable to the Company. Such mortgage loans and the related
interest expense are eliminated in the consolidation of the financial
statements of the Company.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
1. GENERAL (CONTINUED)
The Company made charitable gifts of one share of the preferred stock
in ILM II Holding to each of 111 charitable organizations so that ILM II
Holding would meet the stock ownership requirements of a REIT as of January
30, 1997. The preferred stock has a liquidation preference of $1,000 per
share plus any accrued and unpaid dividends. Dividends on the preferred
stock accrue at a rate of 8% per annum on the original $1,000 liquidation
preference and are cumulative from the date of issuance. It is anticipated
that dividends will accrue and be paid at liquidation of ILM II Holding.
Cumulative dividends accrued as of February 28, 2002 on the preferred stock
in ILM II Holding totaled approximately $45,000.
As part of the fiscal 1994 Settlement Agreement with AHC, ILM II
Holding retained AHC as the property manager for all of the Senior Housing
Facilities pursuant to the terms of a management agreement. The management
agreement with AHC was terminated in July 1996. Subsequent to the effective
date of the settlement agreement with AHC, in order to maximize the
potential returns to the Company's existing Shareholders while maintaining
the Company's qualification as a REIT under the Internal Revenue Code, the
Company formed a new corporation, ILM II Lease Corporation ("Lease II"),
for the purpose of operating the Senior Housing Facilities under the terms
of a facilities lease agreement (the "Facilities Lease Agreement"). All of
the shares of capital stock of Lease II were distributed to the holders of
record of the Company's common stock and the Senior Housing Facilities were
leased to Lease II (see Note 2 for a description of the Facilities Lease
Agreement). Lease II is a public company subject to the reporting
obligations of the Securities and Exchange Commission. All responsibility
for the day-to-day management of the Senior Housing Facilities, including
administration of the property management agreement with AHC, was
transferred to Lease II. On July 29, 1996, the management agreement with
AHC was terminated and Lease II retained Capital Senior Management 2, Inc.
("Capital") to be the new property manager of its Senior Housing Facilities
pursuant to a management agreement (the "Management Agreement").
PLAN OF LIQUIDATION
On July 6, 2001, in its definitive proxy statement, the Company's Board
of Directors recommended to the Company's Shareholders that the Company's
Articles of Incorporation be amended to extend the Company's finite-life
existence from December 31, 2001 until December 31, 2008. On August 16,
2001, at the Company's Annual Meeting of Shareholders, the proposal to
extend the finite-life corporate existence of the Company was not approved
by the Company's Shareholders.
Pursuant to the Company's Articles of Incorporation, the Company has
adopted a plan of liquidation and announced that it would commence the
liquidation of its Senior Housing Facilities not later than December 31,
2001. As a result, the Company changed its basis of accounting, as of
August 31, 2001, from the going-concern basis to the liquidation basis.
Pursuant to the Company's plan of liquidation and in accordance with
its Articles of Incorporation, on November 16, 2001, the Company and ILM II
Holding entered into a purchase and sale agreement with BRE/Independent
Living, LLC, a Delaware limited liability company ("BRE"), pursuant to
which the Company agreed to sell, and BRE, agreed to purchase, all of the
Company's right, title and interest in and to its Senior Housing Facilities
and certain other related assets (the "BRE" Agreement"). In consideration
for the sale of the Senior Housing Facilities, BRE agreed, subject to
certain conditions and apportionments, to pay the Company $45.5 million,
approximately $2.275 million of which was paid as a refundable deposit into
escrow (the "BRE Deposit").
On January 15, 2002, the Company received a letter from BRE stating its
intention not to consummate the BRE transaction at the agreed upon purchase
price contained in the BRE Agreement. The Company determined that such
refusal to consummate the BRE Agreement in accordance with its terms
constituted a breach by BRE of the BRE Agreement. Accordingly, the Company
notified BRE that it was terminating the BRE Agreement. In a separate
letter to the Company, BRE instructed the escrow agent to refund the BRE
Deposit to BRE.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
1. GENERAL (CONTINUED)
Following BRE's breach, on January 23, 2002, the Company and ILM II
Holding entered into a purchase and sale agreement with Five Star Quality
Care, Inc., a publicly traded Maryland corporation ("FVE"), pursuant to
which the Company and ILM II Holding (for purposes of discussing the FVE
transaction, collectively, the "Seller") agreed to sell, and FVE agreed to
purchase, all of the Seller's right, title and interest in its senior and
assisted living facilities and certain related assets (the "FVE
Agreement"). In consideration for the sale of these facilities, FVE agreed,
subject to certain conditions, to pay the Seller $45.5 million in cash,
approximately $5 million of which was paid by FVE into escrow in the form
of a deposit.
On or about February 1, 2002, BRE filed suit against the Company, its
President and Chief Executive Officer, ILM II Holding and its President in
the Supreme Court of the State of New York alleging various causes of
action for breach of contract, tortious interference with contractual
relations and unjust enrichment. BRE seeks compensatory and punitive
damages in an amount in excess of $10 million to be determined at trial.
BRE alleges, among other things, that the Company and ILM II Holding
breached the no-solicitation provision of the BRE Agreement, the President
and Chief Executive Officer of the Company and the President of ILM II
Holding tortiously interfered with BRE's contractual relations with the
Company and ILM II Holding, and the Company and ILM II Holding were
unjustly enriched as a result of their alleged breach. The Company has
vigorously defended, and intends to continue to vigorously defend the BRE
Litigation, it being the Company's belief that the allegations contained in
that action are without merit. In this respect, the Company has filed a
motion to dismiss all of such claims initiated by BRE, however the Court
has not yet set a schedule for hearing and ruling on that motion.
On April 2, 2002 the Company and ILM II Holding sold all of their
right, title and interest in and to their senior and assisted living
facilities and certain other related assets to FVE and FVE paid the Company
a purchase price of $45.5 million.
The Company is in the process of liquidating and distributing its
assets in accordance with the Virginia Stock Corporation Act which provides
for the distribution of the Company's assets first to the Company's
creditors for purposes of discharging all of the Company's liabilities, and
then, to the extent assets are remaining, to the Company's Shareholders in
accordance with their respective rights and interests. Subsequent the
quarter end, on April 17, 2002, the Company made a partial liquidating
distribution to holders of record of the Company's common stock as of the
close of business on April 15, 2002, of approximately $24.7 million or
$4.77 per share, representing a portion of cash realized from the proceeds
of the transaction with FVE.
From the proceeds realized from the FVE transaction, the Company has
established and continues to maintain a reserve for the defense of the
previously disclosed litigation that BRE brought against the Company and
other defendants and a reserve sufficient for the proper management of
certain other claims and contingencies. The Company has vigorously
defended, and intends to continue to vigorously defend the BRE litigation,
it being the Company's belief that the allegations contained in that action
are without merit. In this respect, the Company has filed a motion to
dismiss all of such claims initiated by BRE, however the Court has not yet
set a schedule for hearing and ruling on that motion.
In addition to the reserve relating to the BRE Litigation, the Company
has reserved funds and intends to continue to maintain funds sufficient to
manage the Company's pursuit of an arbitration recovery on claims it has
against another party relating to the February 2001 termination of the
merger transaction with Capital Senior Living Corporation. That proceeding
is subject to confidentiality provisions arising from retainer agreements
with the respondent thereto dating from 1996. In the arbitration, there are
no asserted claims against the Company at issue, the Company is prosecuting
(and intends to continue to prosecute) these claims aggressively, and the
Company expects that the arbitration will be completed by the end of this
calendar year. The Company cannot predict the amount of a recovery, if any,
at this time.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
1. GENERAL (CONTINUED)
There can be no assurance or certainty that there will be any further
payments to the Company's common shareholders.
In connection with its adoption of a plan of liquidation as of August
31, 2001, the Company adopted the liquidation basis of accounting which,
among other things, requires that assets and liabilities be stated at their
estimated fair market value and that estimated costs of liquidating the
Company be provided to the extent that they are reasonably determinable.
The investment properties at February 28, 2002 were valued based on the
purchase and sale agreement described above.
The actual liquidation costs could vary from the related provisions due
to the uncertainty related to the length of time required to complete the
liquidation and dissolution of the Company. The accrued expenses do not
take into consideration possible litigation arising from the potential
representations and warranties made as part of the sale of the Senior
Housing Facilities. Such costs, if any, are unknown and are not estimable
at this time.
As reported, in December 2000, the Company distributed to shareholders
approximately $9.8 million ($1.89 per share of common stock) representing
the net proceeds from the sale of the Company's 75% interest in the Senior
Housing Facility located in Santa Barbara, California.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
2. OPERATING INVESTMENT PROPERTIES SUBJECT TO FACILITIES LEASE AGREEMENT
At February 28, 2002, through its consolidated subsidiary, the Company
owned five Senior Housing Facilities which were sold on April 2, 2002, to
FVE. The name, location and size of the properties are as set forth below:
<Table>
<Caption>
Year Rentable Resident
Name Location Facility Built Units (1) Capacity (1)
------ ---------- ---------------- ----------- --------------
The Palms Fort Myers, FL 1988 205 255
Crown Villa Omaha, NE 1992 73 73
Overland Park Place Overland Park, KS 1984 141 153
Rio Las Palmas Stockton, CA 1988 164 190
The Villa at Riverwood St. Louis County, MO 1986 120 140
</Table>
(1) Rentable units represent the number of apartment units and is a measure
commonly used in the real estate industry. Resident capacity equals the
number of bedrooms contained within the apartment units and corresponds
to measures commonly used in the healthcare industry.
In 1994, in order to maximize the potential returns to the existing
Shareholders while maintaining the Company's qualification as a REIT under
the Internal Revenue Code, the Company formed a new corporation, Lease II,
for the purpose of operating the Senior Housing Facilities under the terms
of a Facilities Lease Agreement dated September 1, 1995 between the
Company's consolidated affiliate, ILM II Holding, as owner of the
properties and lessor (the "Lessor"), and Lease II as lessee (the
"Lessee"). The facilities lease was a "triple-net" lease whereby the Lessee
paid all operating expenses, governmental taxes and assessments, utility
charges and insurance premiums, as well as the costs of all required
maintenance, personal property and non-structural repairs in connection
with the operation of the Senior Housing Facilities. ILM II Holding, as
Lessor, was responsible for all major capital improvements and structural
repairs to the Senior Housing Facilities. The Facilities Lease Agreement,
which was originally scheduled to expire on December 31, 2000, continued on
a month-to-month basis and terminated on April 2, 2002, when the Senior
Housing Facilities were sold.
Pursuant to the Facilities Lease Agreement, Lease II paid annual base
rent for the use of all of the Facilities in the aggregate amount of
$3,555,427. Lease II also paid variable rent, on a quarterly basis, for
each Senior Housing Facility in an amount equal to 40% of the excess of the
aggregate total revenues for the Senior Housing Facilities, on an
annualized basis, over $11,634,000. Variable rent was $580,000 and $306,000
for the six- and three-month periods ended February 28, 2002, respectively,
compared to $523,000 and $266,000 for the six- and three-month periods
ended February 28, 2001, respectively.
On July 29, 1996, Lease II retained Capital to be the property manager
of the Senior Housing Facilities and the Company guaranteed the payment of
all fees due to Capital pursuant to a Management Agreement. For the six-
and three-month periods ended February 28, 2002, Capital earned property
management fees from Lease II of $324,000 and $172,000, respectively. For
the six- and three-month periods ended February 28, 2001, Capital earned
property management fees from Lease II of $409,000 and $201,000,
respectively.
3. RELATED PARTY TRANSACTIONS
See accompanying notes.
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ILM II SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
Jeffry R. Dwyer, Secretary and Director of the Company, is a
shareholder of Greenberg Traurig, Counsel to the Company and its affiliates
since 1997. For the six- and three-month periods ended February 28, 2002,
Greenberg Traurig earned fees from the Company of $774,000 and $478,000,
respectively.
ACCOUNTS RECEIVABLE - RELATED PARTY at February 28, 2002, includes base
and variable rent due from Lease II. ACCOUNTS RECEIVABLE - RELATED PARTY at
August 31, 2001, includes variable rent due from Lease II. ACCOUNTS PAYABLE
- RELATED PARTY at February 28, 2002, and August 31, 2001, includes
unbilled legal fees due to Greenberg Traurig, Counsel to the Company and
its affiliate and a related party, as described above.
4. LEGAL PROCEEDINGS AND CONTINGENCIES
FELDMAN LITIGATION
On May 8, 1998 Andrew A. Feldman and Jeri Feldman, as Trustees for the
Andrew A. & Jeri Feldman Revocable Trust dated September 18, 1990,
commenced a purported class action on behalf of that trust and all other
shareholders of the Company and ILM I in the Supreme Court of the State of
New York, County of New York naming the Company, ILM I and their Directors
as defendants. The class action complaint alleged various theories of
redress and a broad range of damages.
On October 15, 1999, the parties entered into a Stipulation of
Settlement that was filed with the Court and approved by order dated
October 21, 1999. In issuing that order the Court entered a final judgment
dismissing the action and all non-derivative claims of the settlement class
against the defendants with prejudice. This litigation was settled at no
cost to the Company and ILM I. As part of the settlement, CSLC increased
its proposed merger consideration payable to the Company and ILM I
shareholders and was also responsible for a total of approximately $1.1
million (approximately 40% of which is allocable to the Company) in
plaintiffs' attorneys fees and expenses upon consummation of the proposed
merger. If the proposed merger was not consummated and if the Company and
ILM I were to consummate an extraordinary transaction with a third party,
then the Company and ILM I would be responsible for the plaintiffs'
attorneys fees and expenses.
On August 15, 2000, the merger of ILM I with CSLC was consummated and
on February 28, 2001, CSLC terminated the proposed merger with the Company.
Based upon the Stipulation of Settlement and the April 2, 2002, sale of the
Senior Housing Facilities, the Company is responsible for the Company's
share of the plaintiff"s attorney's fees and expenses.
As a result of this, a liability of $440,000 for a potential Feldman
litigation settlement was included in accrued liquidation expense on the
consolidated statements of net assets in liquidation at February 28, 2002
and August 31, 2001.
BUILT-IN GAIN TAX
The assumption of ownership of the Senior Housing Facilities through
ILM II Holding, which was organized as a so-called "C" corporation for tax
purposes, has resulted in a possible future tax liability which would be
payable upon the ultimate sale of the Senior Living Facilities (the
"built-in gain tax"). The amount of such tax would be calculated based on
the lesser of the total net gain realized from the sale transaction or the
portion of the net gain realized upon a final sale which is attributable to
the period during which the properties were held in a "C" corporation.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
Notes to Consolidated Financial Statements (Unaudited)
(continued)
4. LEGAL PROCEEDINGS AND CONTINGENCIES (CONTINUED)
Any future appreciation in the value of the Senior Housing Facilities
subsequent to the conversion of ILM II Holding to a REIT would not be
subject to the built-in gain tax. Based on management's current estimate of
the increase in the values of the Senior Housing Facilities which occurred
between April 1994 and January 1996, as supported by independent
appraisals, the sale of the Senior Housing Facilities on April 2, 2002,
resulted in a built-in gain tax of $2,930,901.
The Company had accrued an estimated liability of $3,705,000 on the
accompanying consolidated statements of net assets in liquidation at August
31, 2001, for the built-in gain tax. This estimated accrual was adjusted at
February 28, 2002, to reflect the actual built-in gain tax of $2,931,901
which was calculated based on the actual allocation of sale prices of the
Senior Housing Facilities and became payable upon the disposition of the
investment properties on April 2, 2002, subsequent to the quarter ended
February 28, 2002.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
On September 12, 1990, the Company sold to the public in a registered
initial offering pursuant to a Registration Statement filed on Form S-11 under
the Securities Act of 1933 (Registration Statement No. 33-33857), 5,181,236
shares of common stock, $.01 par value. The Company received capital
contributions of $51,812,356, of which $200,000 represented the sale of 20,000
shares to an affiliate at that time, PaineWebber Group, Inc. ("PaineWebber").
For discussion purposes, PaineWebber will refer to PaineWebber Group, Inc., and
all affiliates that provided services to the Company in the past.
The Company has elected to qualify and be taxed as a Real Estate Investment
Trust ("REIT") under the Internal Revenue Code of 1986, as amended, for each
taxable year of operations. As a REIT, the Company is allowed a deduction for
the amount of dividends paid to shareholders of the Company ("Shareholders"),
thereby effectively subjecting the distributed net income of the Company to
taxation at the shareholder level only. In order to qualify as a REIT, the
Company must distribute at least 90% of its taxable income on an annual basis
and meet certain other requirements.
ILM II Holding, a direct-owned subsidiary of the Company, held title to the
five Senior Housing Facilities, which comprised the balance of the investment
properties on the accompanying consolidated statement of net assets in
liquidation and balance sheet, subject to certain mortgage loans payable to the
Company. Such mortgage loans and the related interest expense are eliminated in
the consolidation of the financial statements of the Company. The capital stock
of ILM II Holding was originally owned by the Company and PaineWebber.
The Facilities Lease Agreement was between the Company's consolidated
affiliate, ILM II Holding, as owner of the Senior Housing Facilities and Lessor,
and Lease II as Lessee. The facilities lease was a "triple-net" lease whereby
the Lessee paid all operating expenses, governmental taxes and assessments,
utility charges and insurance premiums, as well as the costs of all required
maintenance, personal property and non-structural repairs in connection with the
operation of the Senior Housing Facilities. ILM II Holding, as the Lessor, was
responsible for all major capital improvements and structural repairs to the
Senior Housing Facilities. The Facilities Lease Agreement was originally
scheduled to expire on December 31, 2000, but was extended beyond its original
expiration date on a month-to-month basis and was terminated subsequent to the
balance sheet date on April 2, 2002, when the Senior Housing Facilities were
sold.
Annualized base rent was $3,555,427. Lease II also paid variable rent, on a
quarterly basis, for each Senior Housing Facility in an amount equal to 40% of
the excess, if any, of the aggregate total revenues for the Senior Housing
Facilities, on an annualized basis, over $11,634,000. Variable rental income for
the six- and three-month periods ended February 28, 2002 was $580,000 and
$306,000, respectively, compared to $523,000 and $266,000 for the six- and
three-month periods ended February 28, 2001, respectively.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
GENERAL (CONTINUED)
The Company completed its restructuring plans by qualifying ILM II Holding
as a REIT for Federal tax purposes. In connection with these plans, on November
21, 1996, the Company requested that PaineWebber sell all of its stock in ILM II
Holding to the Company for a price equal to the fair market value of the 1%
economic interest in ILM II Holding represented by the common stock. On January
10, 1997, this transfer of the common stock of ILM II Holding was completed at
an agreed upon fair value of $40,000, representing a $35,000 increase in fair
value. This increase in fair value is based on the increase in values of the
Senior Housing Facilities which occurred between April 1994 and January 1996, as
supported by independent appraisals.
Effective January 23, 1997, ILM II Holding recapitalized its common stock
and preferred stock by replacing the outstanding shares with 50,000 shares of
new common stock and 275 shares of a new class of non-voting, 8% cumulative
preferred stock issued to the Company ("the Preferred Stock). The number of
authorized shares of preferred stock and common stock in ILM II Holding were
also increased as part of the recapitalization. Following the recapitalization,
the Company made charitable gifts of one share of the Preferred Stock in ILM II
Holding to each of 111 charitable organizations so that ILM II Holding would
meet the stock ownership requirements of a REIT as of January 30, 1997. The
Preferred Stock has a liquidation preference of $1,000 per share plus any
accrued and unpaid dividends. Dividends on the Preferred Stock accrue at a rate
of 8% per annum on the original $1,000 liquidation preference and are cumulative
from the date of issuance. It is anticipated that dividends will accrue and be
paid at liquidation. Cumulative dividends in arrears as of February 28, 2002, on
the Preferred Stock in ILM II Holding totaled approximately $45,000.
The assumption of ownership of the Senior Housing Facilities through ILM II
Holding, which was organized as a so-called "C" corporation for tax purposes,
has resulted in a tax liability payable upon the sale of the Senior Living
Facilities (the "built-in gain tax"). The amount of such tax is calculated based
on the lesser of the total net gain realized from the sale transaction or the
portion of the net gain realized upon a final sale which is attributable to the
period during which the properties were held by a "C" corporation.
Any future appreciation in the value of the Senior Housing Facilities
subsequent to the conversion of ILM II Holding to a REIT would not be subject to
the built-in gain tax. Based on management's current estimate of the increase in
the values of the Senior Housing Facilities which occurred between April 1994
and January 1996, as supported by independent appraisals, the sale of the Senior
Housing Facilities on April 2, 2002, resulted in a built-in gain tax of
$2,931,901.
As a result of the adoption of the plan of liquidation, the built-in gain
tax became payable subsequent to the balance sheet date, upon the disposition of
the investment properties. The Company had accrued an estimated liability of
$3,705,000 on the accompanying consolidated statement of net assets in
liquidation at August 31, 2001, for the built-in gain tax. This estimated
accrual was adjusted at February 28, 2002, to reflect the actual built-in gain
tax of $2,931,901 which was calculated based on the actual sale prices of the
Senior Housing Facilities and became payable upon disposition of the investment
properties on April 2, 2002, subsequent to the quarter ended February 28, 2002.
PLAN OF LIQUIDATION
On July 6, 2001, in its definitive proxy statement, the Company's Board of
Directors recommended to the Company's Shareholders that the Company's Articles
of Incorporation be amended to extend the Company's finite-life existence from
December 31, 2001 until December 31, 2008. On August 16, 2001, at the Company's
Annual Meeting of Shareholders, the proposal to extend the finite-life corporate
existence of the Company was not approved by the Company's Shareholders.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
GENERAL (CONTINUED)
Pursuant to the Company's Articles of Incorporation, the Company has
adopted a plan of liquidation and announced that it would commence the
liquidation of its Senior Housing Facilities not later than December 31, 2001.
As a result, the Company changed its basis of accounting, as of August 31, 2001,
from the going-concern basis to the liquidation basis.
Pursuant to the Company's plan of liquidation and in accordance with its
Articles of Incorporation, on November 16, 2001, the Company and ILM II Holding
entered into a purchase and sale agreement with BRE/Independent Living, LLC, a
Delaware limited liability company ("BRE"), pursuant to which the Company agreed
to sell, and BRE agreed to purchase, all of the Company's right, title and
interest in and to its Senior Housing Facilities and certain other related
assets (the "BRE" Agreement"). In consideration for the sale of the Senior
Housing Facilities, BRE agreed, subject to certain conditions and
apportionments, to pay the Company $45.5 million, approximately $2.275 million
of which was paid as a refundable deposit into escrow (the "BRE Deposit").
On January 15, 2002, the Company received a letter from BRE stating its
intention not to consummate the BRE transaction at the agreed upon purchase
price contained in the BRE Agreement. The Company determined that such refusal
to consummate the BRE Agreement in accordance with its terms constituted a
breach by BRE of the BRE Agreement. Accordingly, the Company notified BRE that
it was terminating the BRE Agreement. In a separate letter to the Company, BRE
instructed the escrow agent to refund the BRE Deposit to BRE.
Following BRE's breach, on January 23, 2002, the Company and ILM II Holding
entered into a purchase and sale agreement with Five Star Quality Care, Inc., a
publicly traded Maryland corporation ("FVE"), pursuant to which the Company and
ILM II Holding (for purposes of discussing the FVE transaction, collectively,
the "Seller") agreed to sell, and FVE agreed to purchase, all of the Seller's
right, title and interest in its senior and assisted living facilities and
certain related assets (the "FVE Agreement"). In consideration for the sale of
these facilities, FVE agreed, subject to certain conditions, to pay the Seller
$45.5 million in cash, approximately $5 million of which was paid by FVE into
escrow in the form of a deposit.
On or about February 1, 2002, BRE filed suit against the Company, its
President and Chief Executive Officer, ILM II Holding and its President in the
Supreme Court of the State of New York alleging various causes of action for
breach of contract, tortious interference with contractual relations and unjust
enrichment. BRE seeks compensatory and punitive damages in an amount in excess
of $10 million to be determined at trial. BRE alleges, among other things, that
the Company and ILM II Holding breached the no-solicitation provision of the BRE
Agreement, the President and Chief Executive Officer of the Company and the
President of ILM II Holding tortiously interfered with BRE's contractual
relations with the Company and ILM II Holding, and the Company and ILM II
Holding were unjustly enriched as a result of their alleged breach. The Company
believes these allegations are without merit and will vigorously defend this
action.
RECENT EVENTS
On April 2, 2002 the Company and ILM II Holding sold all of their right,
title and interest in and to their senior and assisted living facilities and
certain other related assets to FVE and FVE paid the Company a purchase price of
$45.5 million.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
RECENT EVENTS (CONTINUED)
The Company is in the process of liquidating and distributing its assets in
accordance with the Virginia Stock Corporation Act which provides for the
distribution of the Company's assets first to the Company's creditors for
purposes of discharging all of the Company's liabilities, and then, to the
extent assets are remaining, to the Company's Shareholders in accordance with
their respective rights and interests. Subsequent the quarter end, on April 17,
2002, the Company made a partial liquidating distribution to holders of record
of the Company's common stock as of the close of business on April 15, 2002, of
approximately $24.7 million or $4.77 per share, representing a portion of cash
realized from the proceeds of the transaction with FVE.
From the proceeds realized from the FVE transaction, the Company has
established and continues to maintain a reserve for the defense of the
previously disclosed litigation that BRE brought against the Company and other
defendants and a reserve sufficient for the proper management of certain other
claims and contingencies. The Company has vigorously defended, and intends to
continue to vigorously defend the BRE litigation, it being the Company's belief
that the allegations contained in that action are without merit. In this
respect, the Company has filed a motion to dismiss all of such claims initiated
by BRE, however the Court has not yet set a schedule for hearing and ruling on
that motion.
In addition to the reserve relating to the BRE Litigation, the Company has
reserved funds and intends to continue to maintain funds sufficient to manage
the Company's pursuit of an arbitration recovery on claims it has against
another party relating to the February 2001 termination of the merger
transaction with Capital Senior Living Corporation. That proceeding is subject
to confidentiality provisions arising from retainer agreements with the
respondent thereto dating from 1996. In the arbitration, there are no asserted
claims against the Company at issue, the Company is prosecuting (and intends to
continue to prosecute) these claims aggressively, and the Company expects that
the arbitration will be completed by the end of this calendar year. The Company
cannot predict the amount of a recovery, if any, at this time.
There can be no assurance or certainty that there will be any further
payments to the Company's common shareholders.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
LIQUIDITY AND CAPITAL RESOURCES
Occupancy levels for the five remaining properties in which the Company had
invested averaged 87% and 88% for the three months ended February 28, 2002 and
2001, respectively. The Company's net operating cash flow was expected to be
relatively stable and predictable due to the structure of the Facilities Lease
Agreement. The annualized base rental payments owed to ILM II Holding were
$3,555,427. In addition, the Senior Housing Facilities generated gross revenues
which were in excess of the specified threshold in the variable rent
calculation, as discussed further above, which became effective in January 1997.
At February 28, 2002, the Company had cash and cash equivalents of $905,000
compared to $1,298,000 at August 31, 2001. Remaining cash amounts will be used
for the working capital requirements of the Company. The Company generally will
be obligated to distribute annually at least 90% of its taxable income to its
Shareholders in order to continue to qualify as a REIT under the Internal
Revenue Code.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
RESULTS OF OPERATIONS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2002 VERSUS THE SIX MONTHS ENDED
FEBRUARY 28, 2001
There was an $109,000 net increase in assets in liquidation for the
six-month period ended February 28, 2002, compared to income of $289,000 for the
six-month period ended February 28, 2001. Total revenue was $2,224,000
representing a decrease of $214,000 or 8.8%, compared to the same period of the
prior year. Rental income decreased $78,000 or 3.4%, to $2,215,000 for the
six-month period ended February 28, 2002, compared to $2,293,000 for the
six-month period ended February 28, 2001, due to increased rental income earned
pursuant to the terms of the Facilities Lease Agreement offset by a decrease in
variable rental income. The net decrease in rental income was accompanied by a
$136,000 or 93.8% decrease in interest income. Total expenses decreased $34,000,
or 1.6%, to $2,115,000 for the six-month period ended February 28, 2002,
compared to $2,149,000 for the six-month period ended February 28, 2001. This
overall decrease in expenses is due to an $818,000 or 100.0% decrease in the
estimate of the built-in gain tax based on the actual tax which became payable
upon final sale of the Senior Housing Facilities, subsequent to the balance
sheet date. Other expenses which decreased included depreciation expense of
$595,000 or 100%; amortization expense of $88,000 or 100%; general and
administrative costs of $161,000 or 58.1%; and professional fees of $569,000 or
49.8%. These decreases were offset by a $2,170,000 or 100.0% increase in the
provision for liquidation expenses as a result of transitioning to the
liquidation basis of accounting and recognizing the increased value of
investment properties at fair value as compared to the same period last year,
when the liquidation basis of accounting had not yet been adopted. This increase
in the provision for liquidation expenses was accompanied by a $27,000 or 57.4%
increase in Director's Compensation associated with the increased number of
Director's meetings held during the period. The decrease in professional fees is
due to certain legal and financial advisory fees which were reclassified to
liquidation expense as such fees were associated with the impending sale of the
properties and anticipated liquidation of the Company.
FOR THE THREE MONTHS ENDED FEBRUARY 28, 2002, VERSUS THE THREE MONTHS ENDED
FEBRUARY 28, 2001
There was a $199,000 net decrease in assets in liquidation for the
three-month period ended February 28, 2002, compared to income of $292,000 for
the three-month period ended February 28, 2001. Total revenue was $1,056,000
representing a decrease of $153,000 or 12.7%, compared to the same period of the
prior year. Rental income decreased $102,000 or 8.8%, to $1,052,000 for the
three-month period ended February 28, 2002, compared to $1,154,000 for the
three-month period ended February 28, 2001, due to increased rental income
earned pursuant to the terms of the Facilities Lease Agreement offset by
decreases in variable rental income. This net decrease in rental income was
accompanied by a $51,000 or 92.7% decrease in interest income. Total expenses
increased $338,000, or 36.9%, to $1,255,000 for the three-month period ended
February 28, 2002, compared to $917,000 for the three-month period ended
February 28, 2001. This overall increase in expenses is due to a $1,852,000 or
100.0% increase in liquidation expenses as a result of transitioning to the
liquidation basis of accounting and recognizing the increased value of
investment properties at fair value as compared to the same period last year,
when the liquidation basis of accounting had not yet been adopted. This increase
in provision for liquidation expenses was offset by an $818,000 or 100.0%
decrease in the built-in gain tax accompanied by decreases in depreciation
expense of $298,000 or 100%; amortization expense of $44,000 or 100%; general
and administrative costs of $38,000 or 51.4%; and professional fees of $330,000
or 69.2% along with minor increases in other expenses as well. The decrease in
professional fees is due to certain legal and financial advisory fees which were
reclassified to liquidation expense as such fees are associated with the
impending sale of the properties and anticipated liquidation of the Company.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
FORWARD-LOOKING INFORMATION
CERTAIN STATEMENTS INCLUDED IN THIS QUARTERLY REPORT ON FORM 10-Q
("QUARTERLY REPORT") CONSTITUTE "FORWARD-LOOKING STATEMENTS" INTENDED TO QUALIFY
FOR THE SAFE HARBORS FROM LIABILITY ESTABLISHED BY SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SECTION 21E OF THE
SECURITIES ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). THESE FORWARD-LOOKING
STATEMENTS GENERALLY CAN BE IDENTIFIED AS SUCH BECAUSE THE CONTEXT OF THE
STATEMENT WILL INCLUDE WORDS SUCH AS "BELIEVES," "COULD," "MAY," "SHOULD,"
"ENABLE," "LIKELY," "PROSPECTS," "SEEK," "PREDICTS," "POSSIBLE," "FORECASTS,"
"PROJECTS," "ANTICIPATES," "EXPECTS" AND WORDS OF ANALOGOUS IMPORT AND
CORRELATIVE EXPRESSIONS THEREOF, AS WELL AS STATEMENTS PRECEDED OR OTHERWISE
QUALIFIED BY: "THERE CAN BE NO ASSURANCE" OR "NO ASSURANCE CAN BE GIVEN."
SIMILARLY, STATEMENTS THAT DESCRIBE THE COMPANY'S FUTURE PLANS, OBJECTIVES,
STRATEGIES OR GOALS ALSO ARE FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS MAY
ADDRESS FUTURE EVENTS AND CONDITIONS CONCERNING, AMONG OTHER THINGS, THE
COMPANY'S CASH FLOWS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION; THE
CONSUMMATION OF ACQUISITION AND FINANCING TRANSACTIONS AND THE EFFECT THEREOF ON
THE COMPANY'S BUSINESS, ANTICIPATED CAPITAL EXPENDITURES, PROPOSED OPERATING
BUDGETS AND ACCOUNTING RESERVES; LITIGATION; PROPERTY EXPANSION AND DEVELOPMENT
PROGRAMS OR PLANS; REGULATORY MATTERS; AND THE COMPANY'S PLANS, GOALS,
STRATEGIES AND OBJECTIVES FOR FUTURE OPERATIONS AND PERFORMANCE. ANY SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED
IN SUCH FORWARD-LOOKING STATEMENTS. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT
TO A NUMBER OF ASSUMPTIONS REGARDING, AMONG OTHER THINGS, GENERAL ECONOMIC,
COMPETITIVE AND MARKET CONDITIONS. SUCH ASSUMPTIONS NECESSARILY ARE BASED ON
FACTS AND CONDITIONS AS THEY EXIST AT THE TIME SUCH STATEMENTS ARE MADE, THE
PREDICTION OR ASSESSMENT OF WHICH MAY BE DIFFICULT OR IMPOSSIBLE AND, IN ANY
CASE, BEYOND THE COMPANY'S CONTROL. FURTHER, THE COMPANY'S BUSINESS IS SUBJECT
TO A NUMBER OF RISKS THAT MAY AFFECT ANY SUCH FORWARD-LOOKING STATEMENTS AND
ALSO COULD CAUSE ACTUAL RESULTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE
PROJECTED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING
STATEMENTS CONTAINED IN THIS QUARTERLY REPORT ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY THE CAUTIONARY STATEMENTS IN THIS PARAGRAPH. MOREOVER, THE COMPANY
DOES NOT INTEND TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS TO REFLECT
ANY CHANGES IN GENERAL ECONOMIC, COMPETITIVE OR MARKET CONDITIONS AND
DEVELOPMENTS BEYOND ITS CONTROL.
READERS OF THIS QUARTERLY REPORT ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE
ON ANY OF THE FORWARD-LOOKING STATEMENTS SET FORTH HEREIN AND THAT ACTUAL FUTURE
RESULTS MAY DIFFER.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
PART II-OTHER INFORMATION
ITEM 1. THROUGH 4. NONE
ITEM 5. OTHER INFORMATION NONE
See accompanying notes.
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ILM II SENIOR LIVING, INC.
PART II-OTHER INFORMATION (continued)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None
(b) Reports on Form 8-K:
The Company filed a current report on Form 8-K dated February 1, 2002,
announcing that BRE/Independent Living, LLC, a Delaware limited liability
company, filed suit against the Company, its President and Chief Executive
Officer, ILM II Holding, Inc., and its President in the Supreme Court of the
State of New York alleging various causes of action for breach of contract,
tortious interference with contractual relations and unjust enrichment in
response to the Company's terminating the BRE Agreement. The Company further
announced that it believes these allegations are without merit and will
vigorously defend this action.
The Company filed a current report on Form 8-K dated January 23, 2002,
announcing that it had entered into a purchase and sale agreement with Five Star
Quality Care, Inc., a publicly traded Maryland corporation, to sell all of the
Company's right, title and interest in and to its senior and assisted living
facilities and certain other related assets to FVE in consideration for $45.5
million.
Subsequent to the balance sheet date, on April 2, 2002, the Company filed a
current report on Form 8-K announcing that it had completed the sale of all of
the Company's right, title and interest in and to its senior and assisted living
facilities and certain other related assets to Five Star Quality Care, Inc., in
consideration for $45.5 million. The sale was completed according to the terms
of the purchase and sale agreement previously reported on in the Company's Form
8-K dated January 23, 2002.
See accompanying notes.
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ILM II SENIOR LIVING, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BY: ILM II SENIOR LIVING, INC.
By: /s/ J. William Sharman, Jr.
---------------------------
J. William Sharman, Jr.
President and Director
Dated: May 13, 2002
See accompanying notes.
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