SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
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/ / Soliciting Material Pursuant to Section 240.14a-11(c)
or Section 240.14a-12
EMERITUS CORPORATION
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EMERITUS CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE 11, 2003
To the Shareholders of Emeritus Corporation:
The annual meeting of shareholders of Emeritus Corporation will be held in
the South Cascade Room of the Harbor Club, Norton Building, 801 Second Avenue,
17th Floor, Seattle, Washington 98104, on Wednesday, June 11, 2003, at 10:00
a.m., local time, and any adjournments thereof, to consider and act upon the
following matters:
1. To elect two directors into Class I of the Board of Directors.
2. To ratify the appointment of KPMG LLP as our independent public
accountants for fiscal year 2003.
3. To transact such other business as may properly come before the meeting
and any adjournments thereof.
The Board of Directors has fixed the close of business on April 24, 2003,
as the record date for the determination of shareholders entitled to notice of,
and to vote at, the annual meeting and any adjournments or postponements
thereof. Shareholders are cordially invited to attend the annual meeting in
person.
By Order of the Board of Directors
/s/ Daniel R. Baty
Daniel R. Baty
Chairman of the Board and Chief Executive Officer
Seattle, Washington
April 29, 2003
EMERITUS CORPORATION
3131 ELLIOTT AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
PROXY STATEMENT
This proxy statement, which was first mailed to our shareholders on or
about May 12, 2003, is furnished to shareholders in connection with the
solicitation of proxies by the Board of Directors for the annual meeting of
shareholders to be held at the South Cascade Room of the Harbor Club, Norton
Building, 801 Second Avenue, 17th Floor, Seattle, Washington 98104, on
Wednesday, June 11, 2003, at 10:00 a.m., local time and any adjournments or
postponements of the annual meeting. You may revoke your proxy in writing at
any time before it is exercised by filing with our Secretary a written
revocation or a duly executed proxy bearing a later date. You may also revoke
your proxy by attending the annual meeting and voting in person. If the
enclosed form of proxy is properly executed and returned, it will be voted in
accordance with the instructions given, unless revoked.
As of April 24, 2003, the record date for the annual meeting, there were
10,247,226 shares of common stock, 25,000 shares of Series A Convertible
Redeemable Exchangeable Preferred Stock (the "Series A Stock"), and 34,145
shares of Series B Convertible Preferred Stock (the "Series B Stock")
outstanding. Holders of common stock are entitled to one vote for each share.
Holders of Series A Stock are entitled to 27.5 votes for each share, or an
aggregate of 687,500 votes. Holders of Series B Stock are entitled to 138.5
votes per share, or an aggregate of 4,729,082 votes. Therefore the total number
of votes entitled to be cast at the annual meeting is 15,663,808 votes. Holders
of common stock, Series A Stock and Series B Stock representing a majority of
total votes entitled to be cast, present in person or represented by proxy, will
constitute a quorum.
Directors will be elected by a plurality of the votes present by proxy or in
person at the annual meeting. Shareholders are not entitled to cumulate votes
in the election of directors. Abstention from voting on the election of
directors will have no impact on the outcome of the election since no vote will
have been cast in favor of a nominee. The proposal to ratify the appointment of
the accountants will be approved if the votes cast in favor of the proposal
exceed the votes cast against the proposal. Abstentions from voting on this
proposal will have no impact on the outcome since no vote will have been cast
for or against the proposal. Broker nonvotes will have no effect on either the
election of the directors or the approval of the proposal to ratify the
appointment of the accountants because broker non-votes will not be considered
votes cast at the meeting. However, brokers who hold shares for the accounts of
their clients have discretionary authority to vote shares as to which
instructions are not given with respect to the election of directors or approval
of the proposal to ratify the appointment of accountants.
We will bear the cost of soliciting proxies. Certain of our directors,
officers, and regular employees, without additional compensation, will solicit
proxies personally or by telephone or telefax. In addition, we may reimburse
brokerage firms and other persons representing beneficial owners of shares of
common stock for their expenses in forwarding solicitation materials to such
beneficial owners.
As of the date hereof, we are not aware of any matters to be voted upon at the
annual meeting other than as stated in the accompanying Notice of Annual Meeting
of Shareholders. The accompanying proxy gives discretionary authority to the
person named therein to vote the shares in his best judgment if any other
matters are properly brought before the annual meeting.
ELECTION OF DIRECTORS
The Board of Directors is divided into three classes. One class is elected
each year by the shareholders. At the annual meeting, two directors will be
elected to serve for a term of three years, expiring on the date of the annual
meeting of shareholders in 2006. All of the nominees are currently directors.
If elected, the nominees will continue in office until a successor has been
elected or until resignation or removal in the manner provided by our Bylaws.
The names of directors nominated for the terms, as well as the directors whose
terms will continue after the annual meeting, are listed below.
Pursuant to a shareholders' agreement dated as of October 24, 1997,
Emeritus and Daniel R. Baty have agreed to take all necessary action to elect a
number of directors selected by NorthStar Capital Partners LLC that would
constitute at least one-seventh of the entire Board. Mr. Hamamoto was nominated
and elected under this arrangement. Pursuant to another shareholders' agreement
dated as of December 10, 1999, Emeritus and Mr. Baty have agreed to take all
necessary action to elect a number of directors selected by Saratoga Partners
IV, L.P. that would constitute not less than the percentage of the entire Board
that would equal Saratoga's percentage ownership of voting securities of
Emeritus. Saratoga was entitled to select at least two directors. Messrs.
Niemiec and Durkin were nominated and elected under this arrangement.
Under the Designation of Rights and Preferences of the series A and series B
stock, whenever the cash dividends have not been paid to such shareholders for
six consecutive quarters, the series A and B shareholders, as the case may be,
may designate one director in addition to the other directors that they are
entitled to designate under the shareholders' agreement. Under the series A
shareholders agreement, however, Northstar's right to select a director is
limited to circumstances in which it would not otherwise be entitled to name a
director. As of January 1, 2002, Saratoga became entitled to designate an
additional director under the Designation of Rights and Preferences, but thus
far has chosen not to do so.
NOMINEES FOR ELECTION
CLASS I DIRECTORS (TERMS TO EXPIRE IN 2006)
Patrick Carter (age 57) has served as a director of Emeritus since November
1995. From November 1985 until April 1999, Mr. Carter was Chief Executive
Officer and Managing Director of Westminster Health Care Holdings, Plc., a
publicly held operator of skilled-nursing facilities in the United Kingdom. Mr.
Carter is currently Chairman of The Bermudian Group Ltd., a U.K. insurance
company.
David W. Niemiec (age 53) has served as a director of Emeritus since December
30, 1999. From September 1998 to November 2001, Mr. Niemiec was a Managing
Director of Saratoga Management Company LLC, the manager of a group of private
equity investment funds operated under the name of Saratoga Partners.
Currently, he acts as an advisor to the group. Prior to joining the Saratoga
Group, he worked at the investment banking firm of Dillon, Read & Co. beginning
in 1974 and served as Vice Chairman from 1991 through September 1997, when the
firm was acquired by Swiss Bank Corporation. From September 1997 to February
1998, he was Managing Director of the successor firm, SBC Warburg Dillon Read,
Inc.
CONTINUING DIRECTORS
CLASS II DIRECTORS (TERMS TO EXPIRE 2004)
Raymond R. Brandstrom (age 50), one of Emeritus's founders, has served as a
director since its inception in 1993 and as Vice Chairman of the Board from
March 1999 to March 2000. From 1993 to March 1999, Mr. Brandstrom also served
as Emeritus's President and Chief Operating Officer. In March 2000, Mr.
Brandstrom was elected Vice President of Finance, Chief Financial Officer and
Secretary of Emeritus. From May 1992 to October 1996, Mr. Brandstrom served as
President of Columbia Pacific Group, Inc. and Columbia Pacific Management, Inc.,
both of which companies are wholly owned by Mr. Baty and are engaged in
developing independent living facilities and providing consulting services for
that market. From May 1992 to May 1997, Mr. Brandstrom served as Vice President
and Treasurer of Columbia Winery, a company affiliated with Mr. Baty that is
engaged in the production and sale of table wines.
David T. Hamamoto (age 43) has served as a director of Emeritus since November
1997. Mr. Hamamoto is a member of NorthStar Capital Partners LLC, a real estate
fund that he founded in July 1997. Between 1983 and July 1997, Mr. Hamamoto was
employed by Goldman Sachs, an investment banking firm, most recently as
co-founder and co-head of the Real Estate Principal Investment Area of the
Whitehall Funds. Mr. Hamamoto is also Co-Chairman, Co-Chief Executive Officer
and Co-President of NorthStar Capital Investment Corporation, a private
investment firm.
CLASS III DIRECTORS (TERMS TO EXPIRE IN 2005)
Daniel R. Baty (age 59), one of Emeritus's founders, has served as its Chief
Executive Officer and as a director since its inception in 1993 and became
Chairman of the Board in April 1995. Mr. Baty also has served as the Chairman
of the Board of Holiday Retirement Corporation since 1987 and served as its
Chief Executive Officer from 1991 through September 1997. Since 1984, Mr. Baty
has also served as Chairman of the Board of Columbia Pacific Group, Inc. and,
since 1986, as Chairman of the Board of Columbia Pacific Management, Inc.
Charles P. Durkin, Jr. (age 64) has served as a director of Emeritus since
December 30, 1999. Mr. Durkin is one of the founders of Saratoga Partners, a
private equity investment firm. Since Saratoga's formation as an independent
entity in September 1998, he has been a Managing Director of Saratoga Management
Company LLC, the manager of the Saratoga Partners funds. Prior to that, from
September 1997, he was a Managing Director of SBC Warburg Dillon Read, Inc., the
successor entity to Dillon, Read & Co., where Mr. Durkin started his investment
banking career in 1966 and became a Managing Director in 1974.
INFORMATION ON COMMITTEES OF THE BOARD OF DIRECTORS AND MEETINGS
The Board of Directors has established a compensation committee and an
audit committee. We have no nominating committee and the full Board selects
nominees for the election of directors.
Our compensation committee establishes salaries, incentives, and other
forms of compensation for directors, officers, and our other key employees,
administers the 1995 Stock Incentive Compensation Plan, and recommends policies
relating to benefit plans. Our compensation committee currently consists of
Messrs. Carter (Chairman), Niemiec and Brandstrom and it held two meetings
during 2002.
Our audit committee reviews our accounting practices, internal accounting
controls, and financial results and oversees the engagement of our independent
auditors. Our audit committee currently consists of Messrs. Carter and Niemiec,
and it held six meetings during 2002.
During 2002, there were seven meetings of the Board of Directors. All board
members attended at least 75% of the aggregate number of meetings of the Board
of Directors and each committee of which he was a member.
AUDIT COMMITTEE REPORT
Audit Committee members David Hamamoto (who resigned in September of 2002)
and Patrick Carter are independent as that term is defined in Section 121(A) of
the American Stock Exchange's listing standards. The other member, David Niemiec
is not considered independent under Section 121(A) because Saratoga Management
Company LLC, of which Mr. Niemiec was a principal until November 2001, received
a fee from Emeritus in connection with its sale of Series B Preferred Stock in
December 1999 and may, in addition, be deemed to be an affiliate of Emeritus.
Mr. Niemiec continues to be an adviser to Saratoga Management Company LLC.
However, the Board does not believe that Mr. Niemiec's past relationship and
continuing advisory capacity with Saratoga Partners impairs his independence and
believes that his presence on the Audit Committee is in the best interests of
the shareholders. On May 30, 2000, the Board of Directors adopted a written
Audit Committee Charter. The Audit Committee has reviewed and discussed the
audited financial statements for fiscal 2002 with the management of the Company.
Additionally, the Audit Committee has discussed with the independent accountants
the matters required to be discussed by Statement on Auditing Standards No. 61,
Communication with Audit Committees. The Audit Committee has received the
written disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1 and has discussed with the
independent accountants the independent accountants' independence. Based on the
discussions and reviews noted above, the Audit Committee recommended to the
Company's Board of Directors that the audited financial statements be included
in the Company's Annual Report on Form 10-K for fiscal year 2002.
Audit Committee
Patrick Carter (Chairman)
David W. Niemiec
DIRECTOR COMPENSATION
We currently pay our nonemployee directors $500 for each board meeting or
committee meeting they attend and reimburse them for all reasonable expenses
incurred in connection with their attendance. In September 1995, we established
the Emeritus Stock Option Plan for Nonemployee Directors. Under the plan,
nonemployee directors receive options to purchase 2,500 shares of our common
stock at the time of their initial election or appointment. In addition, each
nonemployee director automatically receives an option to purchase 2,000 shares
of our common stock immediately following each year's annual meeting of
shareholders. All options granted under the plan fully vest on the date of the
annual shareholders meeting that follows the date of grant, and expire 10 years
after the date of grant. The exercise price for these options is the fair
market value of our common stock on the grant date.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 24, 2003 certain information
with respect to the beneficial ownership of our common stock, and our
subordinated convertible debentures and preferred stock (on an as-converted
basis) by:
* each person that we know owns more than 5% of the common stock,
* each of our directors,
* each current officer named in the compensation tables, and
* all directors and executive officers as a group.
Beneficial ownership is determined in accordance with rules of the SEC and
includes shares over which the indicated beneficial owner exercises voting
and/or investment power. Shares of stock subject to options, convertible
debentures or warrants currently exercisable or exercisable within 60 days are
deemed outstanding for computing the percentage ownership of the person holding
the options, convertible debentures or warrants, but are not deemed outstanding
for computing the percentage ownership of any other person. Except as otherwise
indicated, we believe the beneficial owners of the common stock listed below,
based on information furnished by them, have sole voting and investment power
with respect to the shares listed opposite their names. Unless otherwise
indicated, the following officers, directors and shareholders can be reached at
the principal offices of Emeritus.
The table presents the beneficial ownership of the subordinated convertible
debentures as converted into common stock. In addition, the table presents the
beneficial ownership of the preferred stock as converted into common stock.
Northstar Capital Partners LLC owns 100% of the outstanding Series A preferred
stock, and Saratoga Partners IV, L.P. and its affiliates own or control the
voting power over 100% of the outstanding Series B preferred stock.
SHARES OF EMERITUS
COMMON STOCK
XXXXXXXXXXXXXXXXXXXXXXXXXXXXX AMOUNT AND NATURE OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP PERCENT OF CLASS
Daniel R. Baty (1)(2). . . . . . . . . . 4,835,071 43.74%
c/o Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Raymond R. Brandstrom (3). . . . . . . . 478,899 4.62%
Gary S. Becker (4) . . . . . . . . . . . 72,026 *
Suzette McCanless (5). . . . . . . . . . 59,030 *
Russell G. Kubik (6) . . . . . . . . . . 47,664 *
Patrick Carter (6) . . . . . . . . . . . 14,500 *
David Hamamoto (7)(8). . . . . . . . . . 1,386,126 6.39%
David W. Niemiec (9) . . . . . . . . . . 43,239 *
Charles P. Durkin, Jr. (10). . . . . . . 5,964,855 36.79%
Deerfield Capital, L.P. (11) . . . . . . 527,800 5.15%
780 Third Avenue 37th Floor
New York, NY 10017
B.F., Limited Partnership (12) . . . . . 3,582,330 32.95%
3131 Elliott Avenue, Suite 500
Seattle, WA 98121
Northstar Capital Partners LLC (7) . . . 1,373,626 6.29%
299 Park Avenue, 33rd Floor
New York, New York 10022
Saratoga Partners IV, L.P. (13). . . . . 5,956,355 36.76%
535 Madison Avenue
New York, NY 10022
All directors and executive officers as. 12,284,736 67.82%
a group (13persons) (1)(7)(13)(14)
_________________________________________________
* Less than 1%.
(1) Includes 1,073,411 shares held directly and 2,955,950 shares held by
B.F., Limited Partnership, of which Columbia Pacific, a company wholly-owned by
Mr. Baty, is the general partner and of which Mr. Baty is a limited partner. In
addition, this figure represents approximately 383,199 shares of Common Stock
into which certain subordinated debentures held by Columbia Select, L.P., are
convertible, and approximately 243,181 shares of Common Stock into which certain
subordinated debentures held by Catalina General, L.P., are convertible. B.F.,
Limited Partnership is the general partner of both such limited partnerships.
(2) Includes options exercisable within 60 days for the purchase of 179,330
shares.
(3) Includes options exercisable within 60 days for the purchase of 121,324
shares.
(4) Includes options exercisable within 60 days for the purchase of 55,664
shares.
(5) Includes options exercisable within 60 days for the purchase of 53,997
shares.
(6) Represents options exercisable within 60 days for the purchase of these
shares.
(7) The 1,373,626 shares are convertible Series A preferred stock held by
Northstar Capital Partners LLC, of which Mr. Hamamoto is a principal. (See
"CERTAIN TRANSACTIONS-Northstar Transaction.") Northstar Capital Partners LLC
owns 100% of the Series A preferred stock. The Series A preferred stock
currently votes with both the Series B preferred stock and the common stock, and
is entitled to 687,500 votes. This represents approximately 6.4% of the voting
power of currently outstanding Emeritus common and preferred stock.
(8) Includes options exercisable within 60 days for the purchase of 12,500
shares.
(9) Includes the following: (i) 1,344 shares of Common Stock into which
certain subordinated debentures held by Mr. Niemiec are convertible; (ii) 27,562
shares issuable to Mr. Niemiec upon conversion of Series B preferred stock; and
(iii) 5,833 shares issuable to Mr. Niemiec upon exercise of warrants
(collectively, the "Niemiec Shares"). Saratoga Management Company, LLC, an
affiliate of Saratoga Partners, is the attorney-in-fact and agent for the
Niemiec Shares; therefore Mr. Niemiec has no voting power over such shares. Mr.
Durkin, an Emeritus director, is a principal of Saratoga Management Company, LLC
and therefore shares voting power over the Niemiec Shares. This figure also
includes options exercisable within 60 days for the purchase of 8,500 shares.
Mr. Niemiec, a former principal of Saratoga Partners and its affiliates (See
"CERTAIN TRANSACTIONS - Saratoga Transactions."), currently serves as an advisor
to Saratoga Partners, and is deemed to have no voting or dispositive powers over
the Series B preferred stock, the warrants, and the subordinated debentures
currently held by Saratoga Partners and its affiliates.
(10) Includes 4,729,082 shares issuable upon conversion of Series B
preferred stock currently held by or voted by Saratoga Partners and its
affiliates, of which Mr. Durkin is a principal. (See "CERTAIN TRANSACTIONS -
Saratoga Transactions.") Saratoga Partners and its affiliates own or have the
power to vote 100% of the outstanding Series B preferred stock, which includes
574,082 shares (as-converted) that represent dividends paid on the Series B
preferred stock to date. Mr. Niemiec, a director of Emeritus and former
principal of Saratoga, is deemed to have beneficial ownership over some of these
shares - See footnote (9) hereof. The Series B preferred stock currently votes
with both the Series A preferred stock and the common stock on an as-converted
basis, which represents approximately 30% of the voting power of the currently
outstanding Emeritus common and preferred stock.
Also includes the following: (i) options exercisable within 60 days for the
purchase of 8,500 shares; (ii) warrants held by or voted by Saratoga Partners
and its affiliates currently exercisable to purchase 1,000,000 shares; and (iii)
227,273 shares of Common Stock into which certain subordinated debentures held
by or voted by affiliates of Saratoga Partners are convertible. See footnote
(9) hereof regarding certain Niemiec Shares included in these calculations. Mr.
Durkin may be deemed to have sole dispositive power over some of the above
warrants, debentures, and Series B preferred stock, as follows: (a) 13,367
warrants; (b) 3,055 shares of Common Stock into which the subordinated
debentures are convertible, and (c) 63,156 shares of Common Stock issuable upon
conversion of Series B preferred stock.
(11) Deerfield Capital, L.P. may be deemed to have shared voting and
dispositive power over the shares, based upon publicly available information
reported as of December 31, 2002, on Amendment No. 1 to Schedule 13-G.
Deerfield Capital, L.P. and Deerfield Partners, L.P., both Delaware limited
partnerships, are deemed to share voting and dispositive powers over 295,568 of
these shares. Snider Capital Corp. ("Snider Capital") is the general partner of
Deerfield Capital, which is the general partner of Deerfield Partners.
Deerfield Management Company, a New York limited partnership, and Deerfield
International Limited, a British Virgin Islands corporation, are deemed to share
voting and dispositive powers over 232,232 of these shares. Snider Management
Company ("Snider Management") is the general partner of Deerfield Management
Company, which is the sole shareholder of Deerfield International Limited. In
addition, Arnold H. Snider, as President and sole shareholder of Snider
Management and Snider Capital, is deemed to share voting and dispositive powers
with these entities over all 527,800 shares.
(12) B.F., Limited Partnership may be deemed to have voting and dispositive
power over some of these shares, based upon publicly available information as
reported as of July 3, 2002, on Schedule 13-D. Of these shares, 2,955,950 are
held of record by B.F., Limited Partnership, 383,199 are held of record by
Columbia Select, L.P., and 243,181 are held of record by Catalina General, L.P.
The shares held by Columbia Select, L.P. and Catalina General, L.P. represent
the number of common shares into which certain subordinated debentures are
convertible. B.F., Limited Partnership is the general partner of both such
limited partnerships.
(13) Represents 1,000,000 common shares that are issuable upon exercise of
warrants, 227,273 common shares into which certain subordinated debentures are
convertible, and 4,729,082 shares that are issuable upon conversion of Series B
preferred stock. The Series B preferred stock currently votes with both the
Series A preferred stock and the common stock on an as-converted basis. Mr.
Durkin, an Emeritus director, is a principal of Saratoga Partners and its
affiliates. Until November 2001, Mr. Niemiec, another Emeritus director, was
also a principal of Saratoga Partners and its affiliates.
(14) Includes options exercisable within 60 days for the purchase of 566,644
shares.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2002, regarding
Shares that may be issued under equity compensation plans maintained by the
Company.
XXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX XXXXXXXXXXXXXXXXX Number of shares remaining
XXXXXXXXXXXXXXXXX Number of shares to be XXXXXXXXXXXXXXXXX available for future issuance
XXXXXXXXXXXXXXXXX issued upon exercise of Weighted-average exercise under equity compensation
XXXXXXXXXXXXXXXXX outstanding options, price of outstanding options, plans(excluding shares
XXXXXXXXXXXXXXXXX warrants and rights warrants and rights reflected in column (a))
Plan Category (a) (b) (c)
- ---------------------------- ------------------------ ------------------------------- -------------------------------
Equity compensation plans
approved by shareholders . . 1,714,333 $ 2.82 880,445
- ---------------------------- ------------------------ ------------------------------- -------------------------------
Equity compensation plans
not approved by shareholders 0 $ 0 0
- ---------------------------- ------------------------ ------------------------------- -------------------------------
Total. . . . . . . . . . . . 1,714,333 $ 2.82 880,445
- ---------------------------- ------------------------ ------------------------------- -------------------------------
__________________
(1) Represents 207,129 shares available for purchase under the Employee Stock
Purchase Plan and 673,316 shares available for grant under the 1995 Stock
Incentive Plan, which includes director stock options.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents certain information with respect to
compensation we paid with respect to fiscal years ended December 31, 2002, 2001,
and 2000, to our Chief Executive Officer and to our other four most highly
compensated officers as of December 31, 2002:
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXX XXXXXXXX XXXXXXXX XXXXXXXXXXX Long-Term XXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXX XXXXXXXX XXXXXXXX XXXXXXXXXXX Compensation XXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXX Annual Compensation Awards
----------------------------------------------
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXX XXXXXXXX XXXXXXXX XXXXXXXXXXX XXXXXXXXXXX XXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXX XXXXXXXX XXXXXXXX Other Annual Securities All Other
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXX XXXXXXXX Bonus Compensation Underlying Compensation
Name and Principal Position Year Salary($) ($)(1) ($)(2) Options (#) ($)
- -------------------------------- ------ -------------------- --------- ------------- ------------ -------------
Daniel R. Baty (3) 2002 - - - 50,000 -
Chairman and Chief 2001 - - - 244,000 -
Executive Officer 2000 - - - - -
Raymond R. Brandstrom 2002 191,475 50,000 6,000 40,000 -
Vice President of Finance, 2001 185,000 30,000 8,420 162,000 -
Chief Financial Officer 2000 149,747 15,000 6,098 - -
Gary S. Becker 2002 181,125 60,000 6,264 40,000 -
Senior Vice President, 2001 175,000 40,000 7,124 63,500 -
Operations 2000 164,664 15,000 6,000 - -
Suzette McCanless 2002 181,125 45,000 6,000 35,000 -
Vice President, Operations 2001 175,000 30,000 6,824 63,500 -
- Eastern Division 2000 165,816 10,000 6,000 - -
Russell G. Kubik 2002 167,670 45,000 6,000 35,000 -
Vice President, Operations 2001 162,000 30,000 6,824 54,000 -
- Central Division 2000 152,432 10,000 6,000 - -
(#) The options granted in 2001 include the effect of an option exchange,
which occurred in fiscal year 2001. As a result of this exchange, the options
granted prior to 2001 were cancelled.
(1) Represents amounts paid with respect to the corresponding fiscal year
under the Company's corporate incentive plan.
(2) Consists of amounts paid for parking fees, health club memberships,
health insurance, and cellular telephone expense.
(3) Mr. Baty is not a full time employee of Emeritus and is not currently
paid a salary by us.
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides additional information regarding options
granted during the last fiscal year to each of the executive officers named in
the Summary Compensation Table.
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX XXXXXXXXXXXXXXXX XXXXXXXX XXXXXXXX Potential Realizable Value at
XXXXXXXXXXXXXXXXXXXXXXXX XXXXXXXXXXXXXX XXXXXXXXXXXXXXXX XXXXXXXX XXXXXXXX Assumed Annual Rates of
XXXXXXXXXXXXXXXXXXXXXXXX Number of Shares % of Total Options Exercise of XXXXXXXX Stock Price Appreciation
XXXXXXXXXXXXXXXXXXXXXXXX Underlying Granted to Base Price Expiration for Option Term
Options Granted Employees in 2002 ($/share) Date ------------------------------
Name (1) (2) (3) 5% (4) 10% (4)
- ------------------------ ---------------- ------------------ ----------- ---------- ----------- ----------
Daniel R. Baty 50,000 8.3% $ 2.95 2/10/2012 $240,262 $382,577
Raymond R. Brandstrom 40,000 6.7% $ 2.95 2/10/2012 $192,210 $306,062
Gary S. Becker 40,000 6.7% $ 2.95 2/10/2012 $192,210 $306,062
Suzette McCanless 35,000 5.8% $ 2.95 2/10/2012 $168,183 $267,804
Russell G. Kubik 35,000 5.8% $ 2.95 2/10/2012 $168,183 $267,804
__________________
(1) The options have terms of 10 years and vest 33% per year beginning one year
from the date of grant. The exercisability of the options may accelerate if
certain corporate transactions occur.
(2) We granted 601,000 stock options to employees in 2002.
(3) The option exercise price is equal to the closing price of our common stock
on the American Stock Exchange on the date of grant.
(4) The dollar gains under these columns result from calculations assuming 5%
and 10% growth rates as prescribed by the SEC and are not intended to forecast
future price appreciation of the Shares. The gains reflect a future value,
based upon the closing price of a Share on the applicable grant date, and assume
annual growth at these prescribed rates. Options have value to recipients,
including the named executive officers, only if the price of Shares advances
beyond the grant date price shown in the table during the option term.
FISCAL YEAR-END OPTION VALUES
None of the following executive officers exercised options during the
fiscal year ended December 31, 2002. The following table presents certain
information regarding options held as of December 31, 2002, by each of the
following executive officers:
FISCAL YEAR-END OPTION VALUES
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 2002 DECEMBER 31, 2002 ($)(1)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
Daniel R. Baty. . . . 81,326 212,674 $ 266,749 $ 1,146,313
Raymond R. Brandstrom 53,995 148,005 $ 177,104 $ 797,747
Gary S. Becker. . . . 21,165 82,335 $ 69,421 $ 443,786
Suzette McCanless . . 21,165 77,335 $ 69,421 $ 416,836
Russell G. Kubik. . . 17,999 71,001 $ 59,037 $ 382,695
__________________
(1) Calculated by determining the difference between the fair market value of
the securities underlying the options at December 31, 2002, and the exercise
price of the options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The compensation committee of the Board consists of two nonemployee
directors and our Vice President of Finance. The compensation committee is
responsible for establishing and administering our executive compensation
programs. Our objective is to pay competitively in order to attract quality
executive personnel who best meet our needs, retain and motivate these
executives to achieve superior performance, link individual compensation to
individual and company performance, and align executives' financial interests
with those of our shareholders.
Executive compensation generally consists of three components: base salary, cash
bonuses, and long-term incentive awards. The committee has established each
executive's compensation package by considering (a) the salaries of executive
officers in similar positions in companies in the same industry as Emeritus and
in related industries, (b) the experience and contribution levels of the
individual executive officer and (c) our financial performance. Companies used
as a reference for considering compensation levels include some, but not all, of
the companies constituting the peer group in our stock performance graph. The
committee also relies upon the recommendations of the chief executive officer in
matters related to the individual performance of the other executive officers
because the committee believes that the chief executive officer is the most
qualified to make this assessment. Base salaries for executive officers
generally are designed to be less than those paid by competitors in the assisted
living industry. These lower base salaries are combined with stock option grants
so that a significant portion of the executives' pay is tied to performance of
our stock.
Base Salaries. In 2002, base salaries were established as described above.
Stock Options. We grant stock options to provide a long-term incentive
opportunity that is directly linked to shareholder value. Options are granted
with an exercise price equal to the market value of the common stock on the date
of grant and become exercisable in 33 1/3 % annual increments beginning one year
after the date of grant. To encourage stock retention, all options are granted
as incentive stock options to the maximum extent possible under the Internal
Revenue Code.
Annual Incentives. To date, the committee has not established a regular annual
incentive or bonus plan for executive officers but awards discretionary cash
bonuses based on its review of individual performance and our financial results.
Four of our named executives were awarded cash bonuses for fiscal year 2002
based on management's report and the committee's assessment of individual
performance in 2002.
Our chief executive officer, Mr. Baty, a founder of Emeritus, has a
significant equity position. As of April 24, 2003, Mr. Baty owned shares
(directly and indirectly) and exercisable options representing approximately 44%
of our common stock. Because of his significant equity stake in Emeritus, Mr.
Baty has chosen to receive no base salary or bonus. This compensation pattern
was established prior to our initial public offering and the committee has
continued it, recognizing that the principal compensation of Mr. Baty will be
the inherent value of his equity stake. In 2002, Mr. Baty was awarded stock
options to purchase 50,000 shares at $2.95 per share.
Section 162(m) of the Internal Revenue Code includes potential limitations on
the deductibility for federal income tax purposes of compensation in excess of
$1 million paid or accrued with respect to any of the executive officers whose
compensation is required to be reported in our proxy statement. Certain
performance-based compensation that has been approved by shareholders is not
subject to the deduction limit. Our stock option plans are structured to qualify
options as performance-based compensation under Section 162(m). For 2002, the
committee does not expect that there will be any nondeductible compensation.
Compensation Committee
David W. Niemiec (Chairman)
Patrick Carter
Raymond R. Brandstrom
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Raymond R. Brandstrom is employed by the Company as its Vice President of
Finance.
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total return on shares of our
common stock with the cumulative total return of the AMEX Market Value Index and
a peer group selected by us for the period beginning on December 31, 1997, and
ending on December 31, 2002, the end of our last fiscal year. In making this
comparison, we have assumed an investment of $100 in shares of the Company's
common stock, the AMEX Market Value Index and the peer group, with all dividends
reinvested. Stock price performance shown above for the common stock is
historical and not necessarily indicative of future price performance.
[GRAPHIC OMITED]
Emeritus Corporation Peer Group AMEX Market
1997 100.00 100.00 100.00
1998 82.84 106.58 100.64
1999 50.98 31.56 128.10
2000 11.28 28.80 131.13
2001 16.55 32.67 123.81
2002 42.27 29.43 120.42
Given the relative volatility of the assisted living industry, we revise
our peer group from time to time to include companies that have entered the
assisted living market. As the industry begins to mature and consolidate, we
remove certain companies previously included in our peer group as they are
acquired or as their focus of services shifts away from the assisted living
residences.
The peer group consists of the following five companies: Alterra Healthcare
Corporation, formerly denoted as Alternative Living Services, Inc.; American
Retirement Corporation; ARV Assisted Living, Inc.; Capital Senior Living; and
Sunrise Assisted Living, Inc.
CHANGE OF CONTROL ARRANGEMENTS
Option Plan. In the event of (a) the merger or consolidation of Emeritus
in which it is not the surviving corporation or pursuant to which shares of
common stock are converted into cash, securities, or other property (other than
a merger in which holders of common stock immediately before the merger have the
same proportionate ownership of the capital stock of the surviving corporation
immediately after the merger); (b) the sale, lease, exchange, or other transfer
of all or substantially all of our assets (other than a transfer to a
majority-owned subsidiary); or (c) the approval by the holders of common stock
of any plan or proposal for our liquidation or dissolution, each outstanding
option under our stock option plan will automatically accelerate so that it will
become 100% vested and exercisable immediately before such transaction, except
to the extent that options are assumed by the successor corporation. The
vesting of such assumed options accelerates at the time an optionee's employment
is terminated by us for reasons other than "cause" or by the optionee for "good
reason" following a change of control.
CERTAIN TRANSACTIONS
EMERITRUST TRANSACTIONS
In two separate transactions during the fall of 1998 and the spring of
1999, we arranged for two investor groups to purchase an aggregate of 41 of our
operating communities and five communities under development for a total
purchase price of approximately $292.2 million. Of the 46 communities involved,
43 had been, or were proposed to be leased to us by Meditrust Company LLC under
sale/leaseback financing arrangements, and three had been owned by us. The
first purchase, consisting of 25 communities, which we call the Emeritrust I
communities, was completed in December 1998 and the second purchase, consisting
of 21 communities, 16 of which we call the Emeritrust II Operating communities
and five of which we call the Emeritrust II Development communities, was
completed in March 1999.
Of the $168.0 million purchase price for the Emeritrust I communities,
$138.0 million was financed through a three-year first mortgage loan with an
independent party and $30.0 million was financed through subordinated debt and
equity investments from the investor group. A group led by Holiday Retirement
Corporation, of which Mr. Baty is the chairman and a principal shareholder,
provided approximately $5.1 million of the equity. This group included Holiday
as to a 40% interest and Columbia Pacific Master Fund '98 as to a 32% interest,
with the remaining 28% interest being held by individual third party investors.
Columbia Pacific Master Fund is a limited partnership of which Mr. Baty's family
partnership is the general partner and share in 40% of income and gains after
the limited partners of Columbia Pacific Master Fund receive a return on their
investment plus a preferred return.
Of the $124.2 million purchase price for the Emeritrust II Operating
communities and Emeritrust II Development communities, approximately $99.6
million was financed through three-year first mortgage loans with independent
third parties and $24.6 million was financed through subordinated debt and
equity investments from another investor group. A group led by Holiday provided
approximately $4.9 million of the equity. This group included Holiday as to a
40% interest and C.P. '99 as to a 32% interest, with the remaining 28% interest
being held by individual third party investors. C.P. '99 Pool is a general
partnership, which is comprised of two 50% limited partnerships, the first of
which includes Mr. Baty's family partnership as its 40% general partner and the
other of which included Mr. Baty's family partnership as a 20% general partner.
The investor groups retained us to manage all of the communities through
December 31, 2001, and granted us options to purchase the communities during
2001. During 2000, the Emeritrust I communities failed to comply with covenants
under the $138 million mortgage loan and in 2001 it became clear that we would
not be able to purchase the communities under the options. As a result, the
mortgage loans were restructured and the management agreements and options to
purchase were extended to June 30, 2003 (to December 31, 2003 in the case of the
five Emeritrust II Development communities). The discussion below reflects the
terms of these arrangements as modified.
From January 1, 2002, through June 30, 2003, we will receive for the
Emeritrust I communities a base management fee of 3% of gross revenues generated
by the communities and an additional management fee of 4%, payable out of 50% of
cash flow. The availability of operating cash flow to pay management fees is
subject to first meeting mandatory owner distribution requirements, which
include repayment of fees and expenses related to restructuring the mortgage
loan and subsequent extension in September 2002. For the Emeritrust II
Operating communities and the Emeritrust II Development communities, we have
received and continue to receive a base management fee of 5% of gross revenues
and an additional management fee of 2%, payable to the extent that the
communities meet certain cash flow standards. Prior to January 1, 2002, the
management fees for the Emeritrust I communities were computed in this fashion.
Under the management agreements, we are obligated to reimburse the investor
groups for cumulative cash operating losses greater than $4.5 million in the
case of the Emeritrust I communities and $2.5 million in the case of the
Emeritrust II Development communities. Since these thresholds have been
exceeded, we are currently responsible for most cash operating losses generated
by these communities if they occur. There is no such funding arrangement with
respect to the Emeritrust II Operating communities. Our funding obligations for
the Emeritrust I communities have been $184,000, $1.3 million, and $4.9 million
for 2002, 2001 and 2000, respectively. Our funding obligations for the
Emeritrust II Development communities have been $137,000, $310,000 and $1.6
million in 2002, 2001, and 2000, respectively.
Although the amounts of our funding obligation each year include management fees
earned by us under the management agreements, we do not recognize these
management fees as revenue in our financial statements to the extent that we are
funding the cash operating losses that include them. Correspondingly, we
recognize the funding obligation under the agreement, less the applicable
management fees, as an expense in our financial statements under the category
"Other, net." Conversely, if the applicable management fees exceed our funding
obligation, we recognize the management fees less the funding obligation as
management fee revenue in our consolidated financial statements. Management
fees earned for the Emeritrust I communities have been $2.0 million, $4.0
million, and $2.1 million in 2002, 2001, and 2000, respectively, of which $1.8
million, $2.8 million, and zero, have been recognized in 2002, 2001, and 2000,
respectively. Management fees earned for the Emeritrust II Development
communities have been $764,000, $766,000, and $360,000, of which $699,000,
$673,000, and $174,000 have been recognized in 2002, 2001, and 2000,
respectively. Management fees earned for the Emeritrust II Operating
communities have been $1.9 million earned and recognized in each of the years,
2002, 2001, and 2000.
We have an option to purchase 43 of the 46 Emeritrust communities and a right of
first refusal with respect to the remaining three communities, both of which
expire June 30, 2003 for the Emeritrust Operating communities and December 31,
2003, for the Emeritrust Development communities. The option must be exercised
with respect to all communities or may not be exercised at all. If investor
groups require Mr. Baty to purchase certain of the communities, upon the
conditions described below, we have the right to exercise our option within 60
days of receiving notice of this action. The option price for the 43 Emeritrust
communities is equal to the original cost of the communities of approximately
$292 million, plus an amount that would provide the investor groups with an 18%
rate of return, compounded annually, on their original investment of $54.6
million (less any cash distributions received). In connection with the exercise
of the option, we are also obligated to pay certain costs and fees. Based upon
current market conditions and valuations, we believe the option purchase price
for these facilities exceeds their current fair market value.
The management agreements, including the options to purchase the related
communities, are subject to various termination provisions, including
cross-default provisions among all three groups of communities. The management
agreement for the Emeritrust I communities may be terminated if cash
distributions to the investor group do not meet certain levels or if the
communities fail to meet certain coverage requirements under the mortgage loan.
In addition, certain of the communities have been refinanced and, accordingly,
our ability to exercise the option will depend on whether we can assume or
refinance the debt secured by these communities. Termination of the management
agreements or failure to exercise the options could result in the loss of
management fees and the substantial decrease in the number of communities we
operate.
Under related agreements, the investor groups may require Mr. Baty to purchase
between ten and twelve of the Emeritrust communities, depending on the
occurrence of any one of the following events: (a) we do not exercise our
option to purchase the communities before the option expires, (b) we default
under the management agreements, (c) Mr. Baty's net worth falls below a certain
threshold, (d) we experience a change of control or (e) Mr. Baty ceases to be
our chief executive officer. If Mr. Baty is required to purchase some of the
communities, he will also have the option to purchase all of the Emeritrust
communities on the same terms under which we are entitled purchase the
communities, subject to our prior right to do so within a specified time period.
As a part of the mortgage restructuring in 2001 related to the Emeritrust I
communities, Mr. Baty agreed to make additional capital contributions to the
investor groups to fund a partial repayment of the mortgage debt of $1.25
million during the first quarter of 2001, with additional $250,000 reductions
each quarter thereafter, and agreed to pledge additional collateral to secure
his obligation to purchase the communities under these purchase requirements.
We are currently discussing further extensions of these arrangements with the
relevant parties.
BATY TRANSACTIONS
We manage 20 assisted living communities owned by eight entities that Mr.
Baty controls and in which he and/or his family partnership hold varying
ownership interests. The agreements under which we manage these communities are
summarized below.
(a) Management agreements, commencing from 1996 through 1998, cover
eight communities that are owned by entities in which Mr. Baty holds an indirect
22.2% interest. Of these agreements, five provide for fees equal to the greater
of 6% of revenue or $5,000 per month, one for a fee of 6% of revenue, one for a
fee of $10,000 per month and one for a fee of 4% or revenue with an additional
2% depending on cash flow. In five cases, agreements extend for indefinite
terms, unless terminated for cause, and in three cases, may be terminated on
short notice. We have a right of first refusal with respect to these
communities. During 2002, we received $960,000 in management fees under these
agreements.
(b) A management agreement, commencing in 1998 and covering one community
owned by an entity in which Mr. Baty holds an indirect 34.9% interest, provides
for fees equal to the greater of 6% of revenue or $5,000 per month and extends
for an indefinite term, unless terminated for cause. We have a right of first
refusal with respect to this community. During 2002, we received $107,000 in
management fees under this agreement.
(c) Management agreements, commencing from 1999 through 2000, and covering
two communities owned by an entity in which Mr. Baty holds an indirect 33.0%
interest, provide for fees equal to the greater of 6% of revenue or $5,000 per
month and extend for an indefinite term, unless terminated for cause. We have a
right of first refusal with respect to one community. During 2002, we received
$340,000 in management fees (including a one-time fill-up bonus of $50,000)
under this agreement.
(d) A management agreement, commencing in 1999 and covering one community
owned by an entity in which Mr. Baty holds an indirect 24.4% interest, provides
for of 5% of revenue and extends for an indefinite term, unless terminated for
cause. We have a right of first refusal with respect to this community. During
2002, we received $77,000 in management fees under this agreement.
(e) A management agreement, commencing in 1999 and covering one community
wholly owned by Mr. Baty's family partnership, provides for fees equal to the
greater of 5% of revenue or $5,000 per month, with an additional 2% depending on
cash flow, and extends for consecutive two-year terms, unless terminated by the
owner 90 days prior to expiration. During 2002, we received $170,000 in
management fees under this agreement.
(f) Management agreements, commencing in 1999 and 2000, cover four
communities that are owned by entities in which Mr. Baty holds an indirect 40%
interest. Of these agreements, two provide for fees equal to the greater of 6%
of revenue or $5,000 per month and two provide for a fee of 7% of revenue, with
a ceiling of $5,000 per month unless certain cash flow requirements are met.
The agreements extend for indefinite terms, unless terminated for cause. We
have a right of first refusal with respect to these communities. During 2002,
we received $1.0 million (including a one-time fill-up bonus of $50,000) in
management fees under these agreements.
(g) A management agreement, commencing January 2002 and covering one
community owned by an entity in which Mr. Baty holds an indirect 38.0% interest,
provides for fees equal to the greater of 5% of revenue or $5,000 per month and
is subject to termination by either party on short notice. During 2002, we
received $130,000 (including a one-time mobilization fee of $15,000) in
management fees under this agreement.
(h) Management agreements, commencing January 2002 and covering two
communities owned by an entity in which Mr. Baty holds an indirect 19.0%
interest, provide for fees equal to the greater of 5% of revenue or $5,000 per
month and are subject to termination by either party on short notice. During
2002, we received $235,000 in management fees (including one-time mobilization
fees of $30,000) under these agreements.
(i) A management agreement, commencing October 2002 and covering one
community owned by an entity in which Mr. Baty holds an indirect 40.0% interest,
provides for fees equal to the greater of 5% of revenue or $5,000 per month and
is subject to termination by either party on short notice. During 2002, we
received $23,000 in management fees under this agreement.
In June 1998, we sold a 295-unit independent and assisted living facility
located in Texas to a partnership consisting of Columbia Pacific Master Fund
'98, as to a 99% interest and to Mr. Baty personally, as to a 1% limited
partnership interest. The purchase price for the facility was $6.8 million plus
the assumption of a first mortgage of $14.8 million, which was guaranteed by Mr.
Baty in connection with the transaction, and a release of Emeritus from the
mortgage obligations. The purchase price was paid as follows:
* cash in the amount of $4.5 million;
* a promissory note in the amount of $1.5 million, of which $1.0 million was
repaid in 1999, bearing interest at 9% per annum and maturing in 10 years; and
* an $800,000 promissory note bearing interest at 9% per annum, due on demand.
In addition, in 1999, we loaned the partnership $450,000 for certain repairs,
which is evidenced by a promissory note bearing interest at 9% per annum. We
and the partnership have entered into a management agreement for a five-year
term, with automatic two-year extensions, with management fees of 6% of gross
revenue or $10,000 per month, whichever is greater. We have the right of first
refusal in the event of the sale of the facility. For 2002, we received
$180,000 in management fees. As of December 31, 2002, advances for working
capital to the partnership by us approximated $20,000. The balance of the
purchase notes of $500,000 and $800,000, and the repair note of $450,000, with
accrued interest of $724,000, remained outstanding as of December 31, 2002, and
continue to remain outstanding.
In June 1998, we sold a 30% general partnership interest in Cooper George
Partners Limited Partnership, a limited partnership in which we formerly held a
50% general partnership interest, to Columbia Pacific Master Fund.
Concurrently, Columbia Pacific Master Fund '98 purchased a 19% limited
partnership interest from an independent investor who formerly held a 50%
limited partnership interest. Our remaining 20% interest was converted to a
limited partnership interest. Cooper George Partners owns a 141-unit assisted
living community in Washington. The purchase price for the partnership interest
was $1.1 million payable in cash. In connection with the purchase, the
partnership agreement was modified to provide that profits, losses, and
distributions would be shared 80% by Columbia Pacific Master Fund and 20% by us.
Also in connection with the transaction, the facility was refinanced through a
$9.7 million first mortgage loan from Deutsche Bank, guaranteed by Mr. Baty, and
we received a distribution of $580,000 consisting of 20% of the net proceeds of
$2.9 million resulting from the refinancing. Cooper George Partners and we have
entered into a management agreement for a five-year term, with automatic
two-year extensions, with management fees of 6% of gross revenue or $10,000 per
month, whichever is greater. We have the right of first refusal in the event of
the sale of the facility. For 2002, we earned $169,000 in management fees.
In October of 2002, an entity controlled by Daniel R. Baty acquired a 72-unit
assisted living and dementia care community in Austin, Texas, which Emeritus is
managing. The management agreement is effective until terminated by either
party with written notice according to a specified notice period. The
management agreement consists of a fee of 5% of revenue or $5,000 per month,
whichever is greater.
On March 22, 2001, we entered into an agreement with Mr. Baty, which governed
the repayment of amounts owed by the foregoing entities in which Mr. Baty had a
financial or other interest at the time. Such amounts were to be repaid as soon
as possible except for the term notes, which are to be paid in accordance with
their terms. Such amounts were repaid during 2001 and 2002. Mr. Baty
guaranteed the repayment and a portion of the outstanding balances was secured
by a pledge of the membership interest of a limited liability company that owns
an assisted living facility. The agreement also establishes future operating,
accounting, and payment procedures, including prompt repayment of any balances
that are temporarily outstanding as a result of normal operations and interest
on average outstanding balances at LIBOR plus 3%, for entities in which Mr. Baty
has a financial interest. As of December 31, 2002, the aggregate of outstanding
balances (net of funds held by us for application to outstanding balances and
excluding the notes) was approximately $346,000.
In April 1998, we assigned our economic interest in a 172-unit assisted living
community located in Fairfield, California, to a limited liability company for
$2.8 million in cash. Our economic interest consisted of a 67% interest in the
profits, losses, and distributions of an operating limited liability company
that owns and operates the community, the right to receive payments of principal
and interest under a $2.4 million promissory note evidencing a loan by us to the
operating company, and the obligation to make additional capital contributions
under the agreement establishing the operating company. The limited liability
company to which we assigned our economic interest is comprised of a third party
investor as to a 25% interest and three investor pools with interests of 14.1%,
35.9% and 25%. Mr. Baty's family partnership is the 18.75% general partner in
the first two pools and the third pool includes Mr. Baty individually as its
18.75% general partner. We continue to manage the operations of the community
pursuant to a management agreement and to manage the affairs of the operating
limited liability company. We receive fees for these management activities
equal to 5% of gross revenues of the community. In January 2000, we repurchased
25% of our original interest in the community (16.7% of the operating limited
liability company) for a total of $791,000. In 2001, we entered into an
agreement with the related party investor to offset against interest payable any
amounts that we had previously funded or will fund the assisted living community
on their behalf. This agreement allowed for recognition of a note receivable in
the amount of approximately $477,000 that had previously been fully reserved.
In December 2001, we acquired an additional 16.7% interest in the community from
a third party minority owner for a purchase price of $250,000, payable in cash
and notes maturing at various times through January 2005, plus the assumption of
$77,000 of debt. As of December 31, 2001, our effective economic interest in
the community was 33.3% in the profits, losses, and distributions. In January
2002, we acquired an additional 16.7% interest in the community from a third
party minority owner for a purchase price of $299,000, payable in cash and notes
maturing at various times through February 2003. In March 2002, we acquired the
remaining 50% economic interest in the community from the entities controlled by
Mr. Baty for $2.95 million, which represented the return of the remaining
portion of the entity's original investment, plus a 9% preferred return on
investment, compounded annually. The price was paid in cash, financed through a
sale/leaseback arrangement including three other properties. During 2002, we
received $23,000 in management fees prior to this transaction.
In April 2002, we entered into agreements to acquire the ownership interest of
one community and the leasehold interest of seven communities for the assumption
of the mortgage debt relating to the owned community and the lease obligations
relating to the leased communities. The eight communities, comprising 617 units
in Louisiana and Texas, had been previously operated by Horizon Bay Management
L.L.C. In May 2002, we assigned our rights under these agreements to entities
wholly owned by Mr. Baty and entered into five-year management agreements
expiring April 30, 2007, with the Baty entities providing for a management fee
of 5% of gross revenue. As a part of these agreements, we have the right to
reacquire the one community and seven leased communities at any time prior to
April 30, 2007, by assuming the mortgage debt and lease obligations and paying
the Baty entities the amount of any cash investment in the communities, plus 9%
per annum. In the original agreements of acquisition with the Baty entities,
Horizon Bay agreed to fund operating losses of the communities to the extent of
$2.3 million in the first twelve months and $1.1 million in the second twelve
months following the closing. Under the management agreements with the Baty
entities, we have agreed to fund any operating losses in excess of these limits
over the five-year management term. In late 2002, the Baty entities and Horizon
Bay altered their agreement relating to operating losses whereby (i) Horizon Bay
paid the Baty entities $2 million and (ii) the Baty entities waived any further
funding by Horizon of operating losses of the communities. This alteration did
not change our funding commitment. During 2002, we received management fees of
$661,000, including $120,000 of mobilization fees.
On October 1, 2002, we entered into a lease agreement with Fretus Investors
LLC, for 24 assisted living communities in six states containing an aggregate of
approximately 1,650 units. Fretus acquired the communities from Marriott Senior
Living Services, a subsidiary of Marriott International. Fretus is a private
investment joint venture between Fremont Realty Capital, which holds a 65%
stake, and an entity controlled by Mr. Baty and in which he holds a 36%
interest, which holds a 35% minority stake. Mr. Baty is guarantor of a portion
of the debt and controls the entity that is the administrative member of Fretus.
Fretus, in turn, leased the communities to us. We have no obligation with
respect to the communities other than our responsibilities under the lease,
which includes an option to purchase solely at our discretion. The Fretus lease
is for an initial 10-year period with two 5-year extensions and includes an
opportunity for us to acquire the communities during the third, fourth, or fifth
year and the right under certain circumstances for the lease to be cancelled as
to one or more properties upon the payment of a termination fee. The lease is a
net lease, with base rental equal to (i) the debt service on the outstanding
senior mortgage granted by Fretus, and (ii) an amount necessary to provide a 12%
annual return on equity to Fretus. The initial senior mortgage debt is for
$45.0 million and interest is accrued at LIBOR plus 3.5%, subject to a floor of
6.25%. The Fretus equity is approximately $24.8 million but may increase as a
result of additional capital contributions for specified purposes and will
decrease as a result of cash distributions to investors. Based on the initial
senior mortgage terms and Fretus equity, current rental would be approximately
$500,000 per month. In addition to the base rental, the lease also provides for
percentage rental equal to a percentage (ranging from 7% to 8.5%) of gross
revenues in excess of a specified threshold commencing with the thirteenth month
of the lease. Total rent expense as of December 31, 2002, was approximately
$1.5 million.
NORTHSTAR TRANSACTION
In October 1997, a group of institutional investors led by NorthStar Capital
Partners LLC, of which Mr. Hamamoto is a principal, purchased 25,000 shares of
Series A Convertible Exchangeable Redeemable Preferred Stock, representing
approximately 10% ownership of Emeritus, for $25 million. The Series A Stock is
entitled to a 9% annual dividend, payable quarterly. Each share of Series A
Preferred Stock is convertible into that number of shares of common stock equal
to $1,000 (the liquidation value of a share of Series A Preferred Stock) divided
by the conversion price of $18.20 per share. Currently the Series A Preferred
Stock is convertible into an aggregate of 1,373,626 shares of our common stock.
The Series A Preferred Stock is also exchangeable into convertible debt at our
option. The conversion price is subject to adjustment in the event of stock
dividends, stock subdivisions and combinations, and extraordinary distributions.
The Series A Preferred Stock has a mandatory redemption date of October 24,
2004.
Pursuant to a shareholders' agreement entered into in connection with this
investment, Emeritus and Mr. Baty are required to take all necessary action to:
* elect one director selected by NorthStar;
* if NorthStar invests an additional $25 million in Emeritus, elect a second
additional director selected by NorthStar; and
* if the size of our board increases, elect additional directors so that
NorthStar's representation shall not be less than one-seventh of the entire
board.
These rights terminate in certain events relating to NorthStar's sale of
capital stock or a change in control of NorthStar. All NorthStar transfers are
subject to our right of first refusal. In addition, if Mr. Baty sells shares of
common stock representing 50% or more of his ownership position, NorthStar is
entitled to participate in that sale on a pro rata basis. NorthStar has agreed
not to purchase any additional shares of our voting securities, from now until
18 months after it ceases to own 5% of the outstanding common stock on a fully
diluted basis.
In January 2000, we paid NorthStar $2,250,000 and in April 2000, paid an
additional $350,000, which represented all dividends in arrears from 1999. For
the year 2000, we paid two quarters' of dividends that totaled $1.1 million.
Additionally, there are accumulated dividends for two quarterly payments of $1.4
million, accrued at the accelerated default rate of 11%. For the year 2001, the
Company accumulated dividends aggregating $2.7 million at the arrearage dividend
rate of 11%. In addition, because we have been unable to pay dividends to our
Series A shareholders for more than six consecutive quarters, beginning in 2002,
the Series A dividends were calculated on a compounded cumulative basis,
retroactively. The retroactive adjustment of Series A dividends for 2000 and
2001 were $19,000 and $275,000, respectively, which were recognized in 2002.
The cumulative compounding for 2002 was an additional $622,000. Thus, for the
year 2002, the Company accumulated dividends aggregating $3.7 million at the
arrearage rate of 11%. At December 31, 2002, the total amount of accumulated
Series A dividends was $7.8 million.
Under the Designation of Shareholder Rights, whenever the cash dividends have
not been paid for six consecutive quarters, NorthStar may designate one director
in addition to the other directors that it is entitled to designate under the
shareholders' agreement. Under the shareholders agreement, however, this right
to select a director is limited to circumstances in which NorthStar would not
otherwise be entitled to name a director.
SARATOGA TRANSACTIONS
On December 10, 1999, we entered into an agreement to sell 40,000 shares of our
Series B Preferred Stock to Saratoga Partners IV, L.P. and its related investors
("Saratoga") for a purchase price of $1,000 per share. On December 30, 1999, we
completed the sale of 30,000 shares of Series B Stock, and we agreed to complete
the sale of the remaining 10,000 shares during the first quarter of 2000. Mr.
Durkin, one of our directors, is a principal of Saratoga. Another director, Mr.
Niemiec, was a principal of Saratoga until November 2001, and he continues to
act as an advisor to Saratoga.
Our net proceeds from the sale of all 40,000 shares of the Series B Stock were
to be approximately $38.6 million, after fees and expenses of the transaction
estimated at $1.4 million. The purchase agreement and related documents
provided that we would use $23.0 million to $26.8 million of these proceeds to
purchase certain assisted living communities by June 30, 2000. If we did not do
so, such proceeds were to be placed in a separate bank account, the disbursement
of which would be subject to Saratoga's prior consent. Under a modification
letter agreement dated May 15, 2000, we changed our agreements with Saratoga to
(i) cancel the sale of the remaining 10,000 shares of Series B Stock, (ii)
remove all restrictions and requirements relating to the use of proceeds
received from the sale of the original 30,000 shares and (iii) on or before
August 8, 2000, issue to Saratoga a seven-year warrant to purchase one million
shares of our common stock at an exercise price of $4.30 per share (with such
shares approved for listing on the American Stock Exchange) or, in the
alternative, to make a cash payment to Saratoga. In August 2000, we issued the
warrant to Saratoga.
The holders of the Series B Stock are entitled to receive quarterly dividends
payable in a combination of cash and additional shares of Series B Stock. From
issuance to January 1, 2004, the dividend rate will be 6% of the stated value of
$1,000, of which 2% is payable in cash and 4% is payable in Series B Stock at
the rate of one share of Series B Stock for every $1,000 of dividend. After
January 1, 2004, the dividend rate will be 7%, of which 3% is payable in cash
and 4% is payable in Series B Stock. Dividends accumulate, whether or not
declared or paid. Prior to January 1, 2007, however, if the cash portion of the
dividend is not paid, the cash dividend rate will increase to 7% ("arrearage
rate"), until the unpaid cash dividends have been fully paid or until January 1,
2007, whichever first occurs. Emeritus can redeem all of the Series B Stock at
$1,000 per share plus unpaid dividends, if the closing price for the common
stock on the American Stock Exchange is at least 175% of the then conversion
price for 30 consecutive trading days. In 2001, we accrued $2.4 million in cash
dividends at the higher arrearage rate, and $1.3 million equivalent to 1,268
shares of Series B Stock as in-kind dividends, none of which were paid or issued
in 2001. Accordingly, we had a cumulative commitment to issue 1,883 shares of
Series B Stock at December 31, 2001. On July 1, 2002, we issued 2,533 shares of
Series B Stock, representing all in-kind dividends accrued and owing as of June
30, 2002. On October 1, 2002, we issued 331 shares of Series B Stock for the
third quarter in-kind dividends. On April 1, 2003, we issued 334 and 338 shares
of Series B Stock for the fourth quarter and first quarter in-kind dividends of
2002 and 2003, respectively.
Under the Designation of Rights of Series B Preferred Stock, and included in the
shareholders' agreement, whenever the cash dividends have not been paid for six
consecutive quarters, Saratoga may designate one director in addition to the
other directors that it is entitled to designate under the shareholders'
agreement. As of January 1, 2002, Saratoga became entitled to designate an
additional director under this arrangement, although it has elected not to do so
at this time.
The holders of the Series B Stock have the right at any time to convert each
share of Series B Stock into a number of shares of common stock equal to the
stated value of $1,000 divided by the conversion price. The conversion price is
currently $7.22 per share, subject to adjustment in certain events, including an
adjustment pursuant to a weighted average formula if we issue additional shares
of common stock, or securities convertible into or exercisable for common stock,
at a price less than the then current conversion price. The number of shares
issuable on exercise of the warrant and the related exercise price is subject to
similar adjustments.
After January 10, 2003, we were allowed to redeem all, but not less than all, of
the Series B Stock at $1,000 per share, plus unpaid dividends, if the closing
price of the common stock on the American Stock Exchange is at least 175% of the
then conversion price for 30 consecutive trading days ending not more than 10
days prior to the date we notify the holders of the redemption. If there is a
change in control of Emeritus, each holder of Series B Stock has the right to
require us to purchase all or a portion of the Series B Stock owned by such
holder for the stated value of $1,000 per share. If we dissolve, liquidate, or
wind up our affairs, the holders of Series B Stock are entitled to receive,
before any payment or distribution is made to the holders of common stock or any
other class of preferred stock ranking junior to the Series B Stock, out of our
assets available for distribution, the stated value of $1,000 per share and all
accrued and unpaid dividends to and including the date of payment to the holder.
The liquidation rights of the holders of Series B Stock are subject to the prior
rights of the holders of Series A Stock.
Each share of Series B Stock is entitled to a number of votes equal to the
number of shares of common stock into which it is convertible. Except as
required by law or as described below, the Series B Stock votes with the common
stock and Series A Stock as a single voting group.
We may not amend or alter the rights and preferences of the Series B Stock so as
to adversely affect the Series B Stock without the consent of the holders of a
majority of the outstanding shares of Series B Stock. In addition, we may not
increase the number of authorized shares of preferred stock or create another
series of preferred stock ranking prior to or pari passu with the Series B Stock
without the consent of the holders of at least 75% of the outstanding Series B
Stock.
Under the shareholders' agreement, Saratoga is entitled to board representation
at a percentage of the entire Board of Directors, rounded up to the nearest
whole director, that is represented by the voting power of the Series B Stock
owned by Saratoga and its related investors. The shareholders' agreement also
provides for a minimum of two Saratoga directors. Saratoga is currently
entitled to designate two of six members of the Board. Saratoga's right to
designate directors terminates if Saratoga has sold more than 50% of its initial
investment and its remaining shares represent less than 5% of the outstanding
shares of common stock on a fully diluted basis or it is unable to exercise
independent control over its shares.
The shareholders' agreement provides that neither Saratoga nor Mr. Baty is
permitted to purchase voting securities in excess of a defined limit. That
limit for Saratoga and its affiliates is 110% of the number of shares of common
stock (assuming conversion of the Series B Stock) owned by Saratoga and its
related investors immediately after the completion of the financing, plus the
Series B Stock (or underlying common stock) issuable as dividends on the Series
B Stock. That limit for Baty is the greater of 110% of the shares of common
stock owned by Baty as of December 10, 1999, or 100% of the Saratoga ownership
described in the preceding sentence. These restrictions will terminate 18
months after the date on which Saratoga and its related investors cease to hold
securities representing 5% of the outstanding shares of common stock on a fully
diluted basis.
The shareholders' agreement also provides that if Mr. Baty contemplates selling
30% or more of the common stock he owns, Saratoga and its related investors
would have the right to participate in the sale on a proportionate basis.
Pursuant to a registration rights agreement, Saratoga and its related investors
have the right to two demand registrations, one of which may be a shelf
registration effective for one year, and unlimited piggyback registrations,
subject to marketing restrictions imposed by underwriters.
Pursuant to an investment agreement, commencing January 1, 2007, (a) the holders
of the Series B Stock have the right to elect a number of directors (together
with other directors selected pursuant to the Designation of Rights of Series B
Preferred Stock included in the shareholders' agreement) that would be one
director less than a majority of the Board and (b) we will retain Saratoga
Management Company LLC to provide management and advisory services to evaluate
our strategy relating to shareholder value, real estate and corporate financing,
and other strategic initiatives, at an annual fee of $3.2 million. These rights
and obligations will terminate at such time that the Series B Stock is converted
or redeemed.
OTHER TRANSACTIONS
During 1995, Messrs. Baty and Brandstrom formed Painted Post Partners, a New
York general partnership, to facilitate the operation of assisted living
communities in the state of New York, a state that generally requires that
natural persons be designated as the licensed operators of assisted living
communities. We have entered into administrative services agreements with the
partnership for the term of the underlying leases. The administrative services
agreements provide for fees that would equal or exceed the profit of a community
operated efficiently at full occupancy and, unless reset by agreement of the
parties, will increase automatically on an annual basis in accordance with
changes in the Consumer Price Index. In addition, we have agreed to indemnify
the partners against losses and, in exchange, the partners have agreed to assign
any profits to us. As part of their general noncompetition agreements with us,
each of Messrs. Baty and Brandstrom has agreed that, in the event he ceases to
be a senior executive of Emeritus, he will transfer his interest in the
partnership for a nominal charge to his successor at Emeritus or other person
designated by us.
We have entered into noncompetition agreements with Messrs. Baty and Brandstrom.
These agreements provide that they will not compete with us, directly or
indirectly, in the ownership, operation or management of assisted living
communities anywhere in the United States and Canada during the terms of their
employment and for a period of two years following the termination of their
employment. The agreements also provide, however, that they may hold (1) up to
a 10% limited partnership interest in a partnership engaged in such business,
(2) less than 5% of the outstanding equity securities of a public company
engaged in such business, or (3) interests in the New York partnership described
above. These agreements do not limit Mr. Baty's current role with Holiday
Retirement Corporation. Mr. Baty has agreed, however, that if Holiday operates
or manages assisted living communities, other than as a limited component of
independent living communities consistent with its current operations, he will
not personally be active in the management, operation, or financing of such
facilities nor will he hold any separate ownership or other interest therein.
PROPOSAL FOR RATIFICATION OF APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected KPMG LLP, independent public
accountants, to continue as our independent auditors for the fiscal year ending
December 31, 2003. KPMG LLP has audited our accounts since July 28, 1995. The
Board of Directors is submitting its selection of KPMG LLP to the shareholders
for ratification.
Appointment of the Company's independent accountants is not required to be
submitted to a vote of the shareholders of the Company for ratification.
However, the Board of Directors has chosen to submit this matter to the
shareholders as a matter of good corporate practice. If the shareholders fail
to ratify the appointment, the Board will reconsider whether to retain KPMG LLP,
and may retain that firm or another without re-submitting the matter to the
Company's shareholders. Even if the appointment is ratified, the Board of
Directors may, in its discretion, direct the appointment of different
independent accountants at any time during the year if it determines that such a
change would be in the best interests oft the Company and the shareholders.
The following table presents the aggregate fees for professional audit
services rendered by KPMG LLP for the audit of the Company's annual financial
statements for 2002, and fees billed for other services rendered by KPMG LLP.
Audit fees, . . . . . . . . . . . . . . . . . . . . . . . . $170,000
========
Financial information systems design and implementation (1) $ 0
========
All other fees:
Audit related services (2). . . . . . . . . . . . . . 315,900
Other non-audit services (3). . . . . . . . . . . . . 93,400
--------
Total all other fees. . . . . . . . . . . . . . . . . . . . $409,300
========
(1) KPMG LLP did not provide services related to design and implementation
of financial information systems.
(2) Audit related services consisted principally of audits of financial
statements of certain consolidated partnerships and the Company's employee
benefit plan, consultation regarding financial implications of transactions,
audits of significant acquisitions, review of registration statements and
issuance of consents.
(3) Other non-audit services consisted of tax compliance services.
The Audit Committee has considered whether KPMG LLP's provision of
non-audit services is compatible with maintaining the independence of KPMG LLP.
A representative of KPMG LLP is expected to be present at the annual meeting
with the opportunity to make a statement, if the representative so desires, and
is expected to be available to respond to appropriate questions from
shareholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
RATIFICATION OF KPMG LLP AS OUR INDEPENDENT PUBLIC
ACCOUNTANTS
OTHER BUSINESS
The Board of Directors does not intend to present any business at the
annual meeting other than as set forth in the accompanying Notice of Annual
Meeting of Shareholders, and has no present knowledge that any others intend to
present business at the annual meeting. If, however, other matters requiring
the vote of the shareholders properly come before the annual meeting or any
adjournment or postponement thereof, the person named in the accompanying form
of proxy will have discretionary authority to vote the proxies held by him in
accordance with his judgment as to such matters.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Officers and directors of the Company and persons who own more than ten percent
of the Company's stock are required to report to the Securities and Exchange
Commission their ownership and changes in ownership of the Company's stock.
Regulations of the Commission require us to disclose to our shareholders those
filings that were not made on time. Based solely on our review of copies of the
reports received by us, or written representations received from reporting
persons that no such forms were required to be filed for those persons, we
believe that during fiscal year 2002, our officers and directors complied with
all applicable filing requirements.
SHAREHOLDER PROPOSALS
Shareholder proposals intended for inclusion in the proxy materials for the
Company's 2004 annual meeting of shareholders must be received in writing by the
Company not later than April 2, 2004.
Such proposals should be directed to the Corporate Secretary, Emeritus
Corporation, 3131 Elliott Avenue, Suite 500, Seattle, Washington 98121. For a
timely submitted shareholder proposal to be included in the proxy statement, it
must meet certain requirements of the Securities and Exchange Commission.
ANNUAL REPORT
A copy of our 2002 Annual Report, which includes our Annual Report on Form
10-K for the fiscal year ended December 31, 2002, accompanies this proxy
statement.
By Order of the Board of Directors
/s/ Daniel R. Baty
Daniel R. Baty
Chairman of the Board and Chief Executive Officer
Seattle, Washington
April 29, 2003
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EMERITUS CORPORATION
PROXY FOR THE 2003 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD JUNE 11, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
THE UNDERSIGNED HEREBY APPOINT(S) DANIEL R. BATY, AS THE PROXY WITH FULL POWER
OF SUBSTITUTION AND HEREBY AUTHORIZES HIM TO REPRESENT AND TO VOTE AS DESIGNATED
BELOW ALL THE SHARES OF COMMON STOCK OF EMERITUS CORPORATION HELD OF RECORD BY
THE UNDERSIGNED ON APRIL 24, 2003, AT THE 2003 ANNUAL MEETING OF SHAREHOLDERS TO
BE HELD AT THE SOUTH CASCADE ROOM OF THE HARBOR CLUB, NORTON BUILDING, 801
SECOND AVENUE, 17TH FLOOR, SEATTLE, WASHINGTON 98104, AT 10:00 A.M. ON WEDNESDAY,
JUNE 11, 2003, WITH AUTHORITY TO VOTE UPON THE FOLLOWING MATTERS AND WITH
DISCRETIONARY AUTHORITY AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE
THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
IMPORTANT - PLEASE DATE AND SIGN ON THE OTHER SIDE
X FOLD AND DETACH HERE X
- --------------------------------------------------------------------------------
PLEASE MARK X
YOUR VOTES
AS INDICATED
IN THIS
EXAMPLE
FOR ALL NOMINEES WITHHOLD
LISTED BELOW AUTHORITY
(EXCEPT AS MARKED TO VOTE FOR ALL
TO THE CONTRARY) NOMINEES LISTED BELOW
1. ELECTION OF DIRECTORS:
ELECTION OF THE FOLLOWING NOMINEES TO SERVE
AS DIRECTORS IN THE CLASS INDICATED AND FOR
THE TERM INDICATED UNTIL THEIR SUCCESSORS ARE
ELECTED AND QUALIFIED:
CLASS I (TERM EXPIRING 2006): . . . . . . . . . . . . . . . . . . . . . . . . WITHHOLD AUTHORITY
01 PATRICK CARTER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TO VOTE FOR THE FOLLOWING
02 DAVID NIEMIEC
(WRITE THE NAME(S) OF NOMINEE(S) IN THIS SPACE)
UNLESS OTHERWISE DIRECTED ALL VOTES WILL BE APPORTIONED EQUALLY BETWEEN THOSE
PERSONS FOR WHOM AUTHORITY IS GIVEN TO VOTE.
2. RATIFICATION OF THE APPOINTMENT OF KPMG LLP AS THE . . . . . . . AGAINST ABSTAIN FOR
COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR FISCAL YEAR 2003
_______
|
|
I PLAN TO ATTEND THE ANNUAL MEETING
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS
AS MAY PROPERLY BE BROUGHT BEFORE THE MEETING OR ANY ADJOURNMENT OR
POSTPONEMENT THEREOF. THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
MANNER DIRECTED HEREIN BY THE UNDERSIGNED. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED "FOR ALL NOMINEES" IN ITEM 1 AND "FOR" ALL THE OTHER ITEMS.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT FROM THE COMPANY PRIOR TO THE EXECUTION
OF THIS PROXY OF A NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND A PROXY
STATEMENT DATED MAY 12, 2003.
PLEASE SIGN BELOW EXACTLY AS YOUR NAME APPEARS ON YOUR STOCK CERTIFICATE. WHEN
SHARES ARE HELD JOINTLY, EACH PERSON MUST SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH. AN
AUTHORIZED PERSON SHOULD SIGN ON BEHALF OF CORPORATIONS, PARTNERSHIPS AND
ASSOCIATIONS AND GIVE HIS OR HER TITLE.
YOUR VOTE IS IMPORTANT. PROMPT RETURN OF THIS PROXY CARD WILL
HELP SAVE THE EXPENSE OF ADDITIONAL SOLICITATION EFFORTS.
SIGNATURE(S)_______________________________________ DATED___________________, 2003
- --------------------------------------------------------------------------------
X FOLD AND DETACH HERE X