UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549



FORM 10-K/A
Amendment No. 3



(Mark One)



[X]         Amendment to Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2001



OR



[   ]         Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______________ to _______________.



Commission File Number 1-11999



ALTERRA HEALTHCARE CORPORATION(Exact Name of Registrant as Specified in its Charter)



|DELAWARE(State of Incorporation)

10000 Innovation Drive
Milwaukee, WI 
(Address of Principal Executive Offices) | 39-1771281(I.R.S. Employer Identification No.)

53226(Zip Code)
|---------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------



(414) 918-5000(Registrant's Telephone Number)



SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

|TITLE OF EACH CLASS                               | NAME OF EXCHANGE ON WHICH REGISTERED
|------------------------------------------------- | ------------------------------------
|Common Stock, Par Value $.01 Per Share            | American Stock Exchange             
|5.25% Convertible Subordinated Debenture Due 2002 | American Stock Exchange             
|Series A Junior Preferred Stock Purchase Rights   | American Stock Exchange             

SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:

NONE

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                  YES X    NO



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [  ]



The aggregate market value of the voting stock held by non-affiliates of the Registrant was $3,110,684 as of March 29, 2002.  The number of outstanding shares of the Registrant's Common Stock was 22,219,168 shares as of March 29, 2002.



---







This Report on Form 10-K/A amends and restates in their entirety the following Items of the Annual Report on Form 10-K of Alterra Healthcare Corporation (the "Company") for the fiscal year ended December 31, 2001 (the "2001 Form 10-K"):



Item 8 of the 2001 Form 10-K has been amended to provide corrected information for the line item "Changes in investments in and advances to unconsolidated affiliates" for year 2001 on the "Consolidated Statements of Cash Flows."



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|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                 |                                                                                              | Page 
|------------------------------------------------ | -------------------------------------------------------------------------------------------- | -----
|Alterra Healthcare Corporation and Subsidiaries: |                                                                                             
|                                                 |                                                                                              |      
|                                                 | Independent Auditors' Report                                                                 | 31   
|                                                 |                                                                                              |      
|                                                 | Consolidated Balance Sheets as of December 31, 2001 and 2000                                 | 32   
|                                                 |                                                                                              |      
|                                                 | Consolidated Statements of Operations for Years Ended December 31, 2001, 2000
					and 1999  | 33   
|                                                 |                                                                                              |      
|                                                 | Consolidated Statements of Changes in Stockholders' Equity for Years Ended
					December 31, |      
|                                                 | 2001, 2000 and 1999                                                                          | 34   
|                                                 |                                                                                              |      
|                                                 | Consolidated Statements of Cash Flows for Years Ended December 31, 2001, 2000
					and 1999  | 35   
|                                                 |                                                                                              |      
|                                                 | Notes to Consolidated Financial Statements                                                   | 36-52

---





INDEPENDENT AUDITORS' REPORT



The Board of Directors
		
		Alterra Healthcare Corporation

We have audited the accompanying consolidated balance sheets of Alterra
		Healthcare Corporation and subsidiaries (the Company) as of December 31, 2001
		and 2000, and the related consolidated statements of operations, changes in
		stockholders' equity (deficit) and cash flows for each of the years in the
		three-year period ended December 31, 2001. These consolidated financial
		statements are the responsibility of the Company's management. Our
		responsibility is to express an opinion on these consolidated financial
		statements based on the results of our audits.

We conducted our audits in accordance with auditing standards generally
		accepted in the United States of America. Those standards require that we plan
		and perform the audit to obtain reasonable assurance about whether the
		consolidated financial statements are free of material misstatement. An audit
		includes examining, on a test basis, evidence supporting the amounts and
		disclosures in the financial statements. An audit also includes assessing the
		accounting principles used and significant estimates made by management, as
		well as evaluating the overall financial statement presentation. We believe
		that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
		fairly, in all material respects, the consolidated financial position of the
		Company as of December 31, 2001 and 2000, and the results of its operations and
		its cash flows for each of the years in the three-year period ended December
		31, 2001, in conformity with accounting principles generally accepted in the
		United States of America.

The accompanying consolidated financial statements have been prepared assuming
		that the Company will continue as a going concern. As discussed in Note 1 to
		the consolidated financial statements, the Company has suffered recurring
		losses from operations and was in violation of certain debt covenants and cross
		covenants as of December 31, 2001. As a result of the covenant violations and
		cross covenant violations, the Company is in default on the related debt.
		Additionally, the Company did not make certain scheduled loan principal and
		lease payments beginning in March of 2001. These conditions raise substantial
		doubt about the Company's ability to continue as a going concern. Management's
		plans in regard to these matters are also described in Note 1. The consolidated
		financial statements do not include any adjustments that might result from the
		outcome of these uncertainties.



KPMG LLP

Chicago, Illinois
		
		March 29, 2002

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ALTERRA HEALTHCARE CORPORATION AND SUBSIDIARIES
	
				CONSOLIDATED BALANCE SHEETS
		

		December 31, 2001 and 2000
		

		(In thousands except share data)



|                                                                                                                                                                                                                                                                              |   | 2001          |   |   | 2000      |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | - | - | --------- | -
|ASSETS                                                                                                                                                                                                                                                                        |   |               |   |   |           |  
|Current assets:                                                                                                                                                                                                                                                               |   |               |   |   |           |  
|Cash and cash equivalents                                                                                                                                                                                                                                                     | $ | 19,996        |   | $ | 23,688    |  
|Accounts receivable, net                                                                                                                                                                                                                                                      |   | 10,539        |   |   | 11,782    |  
|Notes receivable, net                                                                                                                                                                                                                                                         |   | 500           |   |   | 4,963     |  
|Assets held for sale                                                                                                                                                                                                                                                          |   | 88,166        |   |   | 154,775   |  
|Other current assets                                                                                                                                                                                                                                                          |   | 31,346        |   |   | 56,832    |  
|Total current assets                                                                                                                                                                                                                                                          |   | 150,547       |   |   | 252,040   |  
|Property and equipment, net                                                                                                                                                                                                                                                   |   | 727,416       |   |   | 786,439   |  
|Restricted cash and investments                                                                                                                                                                                                                                               |   | 3,312         |   |   | 21,507    |  
|Goodwill, net                                                                                                                                                                                                                                                                 |   | 104,915       |   |   | 115,717   |  
|Other assets                                                                                                                                                                                                                                                                  |   | 52,010        |   |   | 52,062    |  
|Total assets                                                                                                                                                                                                                                                                  | $ | 1,038,200     |   | $ | 1,227,765 |  
|                                                                                                                                                                                                                                                                              |   |               |   |   |           |  
|                                                                                                                                                                                                                                                                              |   |               |   |   |           |  
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                                                                                |   |               |   |   |           |  
|Current liabilities:                                                                                                                                                                                                                                                          |   |               |   |   |           |  
|Current installments of long-term obligations, including
						convertible debt                                                                                                                                                                                               | $ | 977,651       |   | $ | 214,890   |  
|Current debt maturities on assets held for sale                                                                                                                                                                                                                               |   | 140,054       |   |   | 98,828    |  
|Short-term notes payable                                                                                                                                                                                                                                                      |   | 10,753        |   |   | 9,986     |  
|Accounts payable - trade                                                                                                                                                                                                                                                      |   | 4,450         |   |   | 10,805    |  
|Accounts payable - construction                                                                                                                                                                                                                                               |   | --            |   |   | 1,049     |  
|Accrued expenses                                                                                                                                                                                                                                                              |   | 62,336        |   |   | 42,778    |  
|Deferred rent and refundable deposits                                                                                                                                                                                                                                         |   | 16,048        |   |   | 2,930     |  
|Total current liabilities                                                                                                                                                                                                                                                     |   | 1,211,292     |   |   | 381,266   |  
|Long-term obligations, less current installments                                                                                                                                                                                                                              |   | 82,752        |   |   | 403,036   |  
|Convertible debt                                                                                                                                                                                                                                                              |   | --            |   |   | 395,914   |  
|Deferred gain on sale and other                                                                                                                                                                                                                                               |   | 5,593         |   |   | 5,286     |  
|Minority interest                                                                                                                                                                                                                                                             |   | --            |   |   | 4,506     |  
|Redeemable preferred stock                                                                                                                                                                                                                                                    |   | 5,489         |   |   | 4,898     |  
|Stockholders' equity (deficit):                                                                                                                                                                                                                                               |   |               |   |   |           |  
|Preferred stock, 2,500,000 shares authorized; 1,550,000 and 1,250,000 of which
					have been designated at December 31, 2001 and 2000, respectively, none of which
					are outstanding                                                                                      |   | --            |   |   | --        |  
|Common stock, $.01 par value; 100,000,000 shares authorized; of which
					22,111,671 and 22,219,168 were issued and outstanding, respectively, on
					December 31, 2001, and 22,111,671 and 22,109,810 were issued and outstanding,
					respectively, on December 31, 2000 |   | 221           |   |   | 221       |  
|Treasury stock, $.01 par value; 11,639 shares in 2001 and 2000                                                                                                                                                                                                                |   | (163          | ) |   | (163      | )
|Additional paid-in capital                                                                                                                                                                                                                                                    |   | 179,526       |   |   | 179,384   |  
|Accumulated deficit                                                                                                                                                                                                                                                           |   | (
				446,510 | ) |   | (146,583  | )
|Total stockholders' equity (deficit)                                                                                                                                                                                                                                          |   | (266,926      | ) |   | 32,859    |  
|Total liabilities and stockholders' equity (deficit)                                                                                                                                                                                                                          | $ | 1,038,200     |   | $ | 1,227,765 |  
|                                                                                                                                                                                                                                                                              |   |               |   |   |           |  
|See accompanying notes to consolidated financial statements.                                                                                                                                                                                                                 

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ALTERRA HEALTHCARE CORPORATION AND SUBSIDIARIES
	

	CONSOLIDATED STATEMENTS OF OPERATIONS
	
	Years ended December 31, 2001, 2000 and 1999
	


	(In thousands, except per share data)



|                                                                                                                |   | 2001     |   |   | 2000     |   |   | 1999    |  
|--------------------------------------------------------------------------------------------------------------- | - | -------- | - | - | -------- | - | - | ------- | -
|Revenue:                                                                                                        |   |          |   |   |          |   |   |         |  
|Resident service fees                                                                                           | $ | 502,670  |   | $ | 452,880  |   | $ | 349,770 |  
|Other                                                                                                           |   | 6,152    |   |   | 13,615   |   |   | 26,411  |  
|Operating revenue                                                                                               |   | 508,822  |   |   | 466,495  |   |   | 376,181 |  
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Operating expenses (income):                                                                                    |   |          |   |   |          |   |   |         |  
|Residence operations                                                                                            |   | 351,707  |   |   | 313,514  |   |   | 224,213 |  
|Lease expense                                                                                                   |   | 69,445   |   |   | 82,352   |   |   | 69,375  |  
|Lease income                                                                                                    |   | (21,336  | ) |   | (28,222  | ) |   | (25,507 | )
|General and administrative                                                                                      |   | 48,881   |   |   | 50,360   |   |   | 44,898  |  
|Loss on disposal                                                                                                |   | 189,287  |   |   | 22,515   |   |   | --      |  
|Depreciation and amortization                                                                                   |   | 42,198   |   |   | 36,210   |   |   | 21,178  |  
|Non-recurring charge                                                                                            |   | --       |   |   | 4,232    |   |   | 47,280  |  
|Total operating expenses                                                                                        |   | 680,182  |   |   | 480,961  |   |   | 381,437 |  
|Operating loss                                                                                                  |   | (171,360 | ) |   | (14,466  | ) |   | (5,256  | )
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Other (expense) income:                                                                                         |   |          |   |   |          |   |   |         |  
|Interest expense, net                                                                                           |   | (77,882  | ) |   | (62,628  | ) |   | (32,259 | )
|Amortization of financing costs                                                                                 |   | (9,786   | ) |   | (8,595   | ) |   | (3,679  | )
|Convertible debt paid in kind ("PIK") interest                                                                  |   | (24,303  | ) |   | (12,483  | ) |   | --      |  
|Equity in losses of unconsolidated affiliates                                                                   |   | (16,902  | ) |   | (14,762  | ) |   | (1,462  | )
|Minority interest in profits of consolidated subsidiaries                                                       |   | 426      |   |   | 1,264    |   |   | 4,018   |  
|Total other expense, net                                                                                        |   | (128,447 | ) |   | (97,204  | ) |   | (33,382 | )
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Loss before income taxes, extraordinary gain and the cumulative effect of a
					change in accounting principle |   | (299,807 | ) |   | (111,670 | ) |   | (38,638 | )
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Income tax (expense) benefit                                                                                    |   | (120     | ) |   | (14,672  | ) |   | 14,669  |  
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Loss before extraordinary gain and cumulative effect of a change in accounting
					principle                   | $ | (299,927 | ) | $ | (126,342 | ) | $ | (23,969 | )
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Extraordinary gain on early extinguishment of debt (net of $5,232 tax expense)                                  |   | --       |   |   | 8,536    |   |   | --      |  
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Cumulative effect of change in accounting principle (net of $2,509 tax benefit)                                 |   | --       |   |   | --       |   |   | (3,837  | )
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Net loss                                                                                                        | $ | (299,927 | ) | $ | (117,806 | ) | $ | (27,806 | )
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Basic loss per common share:                                                                                    |   |          |   |   |          |   |   |         |  
|Loss before extraordinary item , and a change in accounting principle                                           | $ | (13.52   | ) | $ | (5.71    | ) | $ | (1.09   | )
|Extraordinary item                                                                                              |   | --       |   |   | 0.39     |   |   | --      |  
|Change in accounting principle                                                                                  |   | --       |   |   | --       |   |   | (0.17   | )
|Basic loss per common share                                                                                     | $ | (13.52   | ) | $ | (5.33    | ) | $ | (1.26   | )
|                                                                                                                |   |          |   |   |          |   |   |         |  
|Diluted loss per common share:                                                                                  |   |          |   |   |          |   |   |         |  
|Loss before extraordinary item , and a change in accounting principle                                           | $ | (13.52   | ) | $ | (5.71    | ) | $ | (1.09   | )
|Extraordinary item                                                                                              |   | --       |   |   | 0.39     |   |   | --      |  
|Change in accounting principle                                                                                  |   | --       |   |   | --       |   |   | (0.17   | )
|Diluted loss per common share                                                                                   | $ | (13.52   | ) | $ | (5.33    | ) | $ | (1.26   | )
|Weighted average common shares outstanding:                                                                     |   |          |   |   |          |   |   |         |  
|Basic                                                                                                           |   | 22,192   |   |   | 22,108   |   |   | 22,088  |  
|Diluted                                                                                                         |   | 22,192   |   |   | 22,108   |   |   | 22,088  |  
|See accompanying notes to consolidated financial statements.                                                   

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ALTERRA HEALTHCARE CORPORATION AND SUBSIDIARIES




|                                       | Common Stock,
				

					Treasury Stock
		

				And Additional
		

					Paid-In Capital |  
|-------------------------------------- | --------------------------------------------------------------------------------------- | -
|                                       | Shares 
 Outstanding                                                                    |  
|                                       |                                                                                         |  
|Balances at December 31, 1998          | 22,019                                                                                  | $
|                                       |                                                                                         |  
|Shares issued - options exercised      | 81                                                                                      |  
|Net loss                               | --                                                                                      |  
|Balances at December 31, 1999          | 22,100                                                                                  | $
|                                       |                                                                                         |  
|Shares issued - options exercised      | 10                                                                                      |  
|Net loss                               | --                                                                                      |  
|Balances at December 31, 2000          | 22,110                                                                                  | $
|                                       |                                                                                         |  
|Shares issued - restricted stock grant | 109                                                                                     |  
|Net loss                               | --                                                                                      |  
|Balances at December 31, 2001          | 22,219                                                                                  | $









See accompanying notes to consolidated financial statements.

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ALTERRA HEALTHCARE CORPORATION AND SUBSIDIARIES
	

	CONSOLIDATED STATEMENTS OF CASH FLOWS
	


	Years ended December 31, 2001, 2000 and 1999
	


	(In thousands)



|                                                                                             |   | 2001     |   |   | 2000     |   |   | 1999     |  
|-------------------------------------------------------------------------------------------- | - | -------- | - | - | -------- | - | - | -------- | -
|Cash flows from operating activities:                                                        |   |          |   |   |          |   |   |          |  
|Net loss                                                                                     | $ | (299,927 | ) | $ | (117,806 | ) | $ | (27,806  | )
|Adjustment to reconcile net loss to net cash (used in) provided by operating
				activities: |   |          |   |   |          |   |   |          |  
|Depreciation and amortization                                                                |   | 42,198   |   |   | 36,210   |   |   | 21,178   |  
|PIK interest                                                                                 |   | 24,303   |   |   | 12,483   |   |   | --       |  
|Amortization of deferred financing costs                                                     |   | 9,786    |   |   | 8,595    |   |   | 3,679    |  
|Extraordinary gain on extinguishment of debt                                                 |   | --       |   |   | (13,768  | ) |   | --       |  
|Loss on disposal                                                                             |   | 189,287  |   |   | 22,515   |   |   | --       |  
|Deferred income taxes                                                                        |   | 120      |   |   | 19,904   |   |   | (16,732  | )
|Equity in net loss from investments in unconsolidated affiliates                             |   | 16,902   |   |   | 14,762   |   |   | 1,442    |  
|Minority interest in losses of consolidated subsidiaries                                     |   | (426     | ) |   | (1,264   | ) |   | (4,018   | )
|(Decrease) increase in net resident receivable                                               |   | 350      |   |   | (4,633   | ) |   | (3,106   | )
|Decrease in pre-opening costs                                                                |   | --       |   |   | --       |   |   | 7,856    |  
|Decrease (increase) in income tax receivable                                                 |   | 42       |   |   | 5,438    |   |   | (5,557   | )
|Decrease (increase) in other current assets                                                  |   | 7,176    |   |   | (12,912  | ) |   | (7,569   | )
|(Decrease) increase in accounts payable                                                      |   | (12,723  | ) |   | (231     | ) |   | 1,082    |  
|Increase in accrued expenses and deferred rent                                               |   | 4,161    |   |   | 8,653    |   |   | 10,011   |  
|Increase in past due interest and late fees                                                  |   | 17,900   |   |   | --       |   |   | --       |  
|(Decrease) increase in accrued development reserve costs                                     |   | (1,147   | ) |   | (11,555  | ) |   | 13,348   |  
|Changes in other assets and liabilities, net                                                 |   | 11,683   |   |   | 5,018    |   |   | 11,550   |  
|Net cash (used in) provided by operating activities                                          |   | 9,685    |   |   | (28,591  | ) |   | 5,358    |  
|                                                                                             |   |          |   |   |          |   |   |          |  
|Cash flows (used in) from investing activities:                                              |   |          |   |   |          |   |   |          |  
|Payments for property, equipment and project development costs                               |   | (23,932  | ) |   | (86,092  | ) |   | (181,794 | )
|Net proceeds from sale of property and equipment                                             |   | 73,926   |   |   | 2,217    |   |   | 18,263   |  
|Decrease (increase) in notes receivable, net of reserve                                      |   | 4,463    |   |   | (9,349   | ) |   | (21,544  | )
|Acquisitions of facilities, net of cash                                                      |   | --       |   |   | (20,896  | ) |   | (21,806  | )
|Changes in investments in and advances to unconsolidated affiliates                          |   | 188      |   |   | (4,126   | ) |   | --       |  
|Purchase of limited partnership interests                                                    |   | (782     | ) |   | (35,742  | ) |   | (64,355  | )
|Increase in long-term investments                                                            |   | --       |   |   | --       |   |   | (23,821  | )
|Net cash provided by (used in) investing activities                                          |   | 53,863   |   |   | (153,988 | ) |   | (295,057 | )
|                                                                                             |   |          |   |   |          |   |   |          |  
|Cash flows from financing activities:                                                        |   |          |   |   |          |   |   |          |  
|Proceeds (repayments) of short-term borrowings                                               |   | 767      |   |   | (19,228  | ) |   | (1,130   | )
|Repayments of long-term obligations                                                          |   | (99,050  | ) |   | (106,980 | ) |   | (78,258  | )
|Proceeds from issuance of debt                                                               |   | 5,491    |   |   | 127,432  |   |   | 273,049  |  
|Proceeds from issuance of convertible debt                                                   |   | --       |   |   | 197,926  |   |   | --       |  
|Payments for financing costs                                                                 |   | (1,068   | ) |   | (18,427  | ) |   | (8,550   | )
|Proceeds from sale/leaseback transactions                                                    |   | 26,458   |   |   | --       |   |   | 78,387   |  
|Issuance of preferred stock, common stock and other capital contributions                    |   | 142      |   |   | 4,568    |   |   | 797      |  
|Contributions by minority partners and minority stockholders                                 |   | 20       |   |   | 2,248    |   |   | 3,511    |  
|Net cash provided by financing activities                                                    |   | (67,240  | ) |   | 187,539  |   |   | 267,806  |  
|                                                                                             |   |          |   |   |          |   |   |          |  
|Net (decrease) increase in cash and cash equivalents                                         |   | (3,692   | ) |   | 4,960    |   |   | (21,893  | )
|                                                                                             |   |          |   |   |          |   |   |          |  
|Cash and cash equivalents:                                                                   |   |          |   |   |          |   |   |          |  
|Beginning of year                                                                            |   | 23,688   |   |   | 18,728   |   |   | 40,621   |  
|End of year                                                                                  | $ | 19,996   |   | $ | 23,688   |   | $ | 18,728   |  
|                                                                                             |   |          |   |   |          |   |   |          |  
|Supplemental disclosure of cash flow information:                                            |   |          |   |   |          |   |   |          |  
|Cash paid for interest, net of amounts capitalized                                           | $ | 89,887   |   | $ | 79,898   |   | $ | 46,523   |  
|Cash (refunded) paid during year for income taxes                                            | $ | (50      | ) | $ | (4,596   | ) | $ | 1,424    |  
|Debt assumed                                                                                 | $ | --       |   | $ | 48,887   |   | $ | --       |  
|                                                                                             |   |          |   |   |          |   |   |          |  
|Non cash items:                                                                              |   |          |   |   |          |   |   |          |  
|Synthetic lease assets consolidated                                                          | $ | 112,236  |   | $ | --       |   | $ | --       |  
|Synthetic lease debt consolidation                                                           | $ | 119,726  |   | $ | --       |   | $ | --       |  
|Notes issued in exchange for joint venture interests                                         | $ | 14,565   | 1 | $ | --       |   | $ | --       |  

See accompanying notes to consolidated financial statements.

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ALTERRA HEALTHCARE CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999



1.         Nature of Business and Summary of
			Significant Accounting Policies

1. Business
2. Going Concern
3. Principles of Consolidation
4. Use of Estimates
5. Recent Accounting Pronouncements
6. Cash Equivalents
7. Fair Value of Financial Instruments and Concentration of Credit Risk
8. Long-Lived Assets
9. Assets Held For Sale
10. Deferred Financing Costs
11. Revenue
12. Income Taxes
13. Net Loss Per Common Share
14. Reclassifications

Certain reclassifications have been made to the 2000 and 1999 financial
			statements to conform with the 2001 presentation.

1. Acquisitions and Joint Venture Activity

The Company completed the following acquisitions during 2000:

- Fourteen assisted living residences located in several states were purchased in
	May 2000 for $20.9 million net of acquired cash, and in the purchase the
	Company assumed $48.9 million in debt and recorded goodwill of $6.2 million.

The Company completed the following joint venture settlements during 2001:

- In October 2001 the Company closed on the buyout of joint venture partner
	interests in 15 residences with an aggregate capacity of 643 residents in
	connection with a modification and settlement agreement with one investor
	group. The Company issued a $700,000 note in consideration for the acquired
	interests and amended the terms of its joint venture arrangement with respect
	to the ten residences still operated in a joint venture with this investor
	group.
- In December 2001 the Company terminated its joint venture with Pioneer
	Development Company by exchanging ownership interests in 12 joint venture (556
	resident capacity) entities jointly owned with this group, resulting in the
	Company and Pioneer each acquiring sole ownership in six of these residences.
	The Company received $1.6 million in cash and a $500,000 note for a net payment
	related to its joint venture interests.
- In December 2001 the Company terminated its joint venture with Manor Care, Inc.
	relating to 13 residences in connection with consummating a global settlement
	of various pending litigations and arbitration proceedings between the Company
	and Manor Care and its affiliates. In addition, the Company was released of its
	joint debt guarantee associated with a $57.7 million revolving line of credit.
	The Company issued $12.0 million in notes in exchange for the release of its
	debt guarantee, the termination of the joint venture interests, and the
	settlement of all pending litigation and arbitration proceedings with Manor
	Care.

---

1. Notes Receivable
2. Assets Held for Sale and Other Current Assets

1. Assets Held for Sale
2. Other Current Assets

Other current assets are comprised of the following at December 31 (in
				thousands):



|                           |   | 2001   |  |   | 2000   | 
|-------------------------- | - | ------ |  | - | ------ | 
|                           |   |        |  |   |        | 
|Restricted cash            | $ | 12,920 |  | $ | 27,598 | 
|Supply inventory           |   | 10,157 |  |   | 12,115 | 
|Prepaid expenses           |   | 5,479  |  |   | 4,713  | 
|Other current assets       |   | 2,790  |  |   | 12,406 | 
|Total other current assets | $ | 31,346 |  | $ | 56,832 | 

5.         Property and Equipment

A summary of property and equipment at
		December 31 follows (in thousands):



|                                     |   | 2001    |   |   | 2000    |  
|------------------------------------ | - | ------- | - | - | ------- | -
|Land and improvements                | $ | 65,660  |   | $ | 82,218  |  
|Buildings and leasehold improvements |   | 659,955 |   |   | 632,690 |  
|Furniture, fixtures, and equipment   |   | 88,271  |   |   | 94,109  |  
|Construction in progress             |   | --      |   |   | 41,850  |  
|Total property and equipment         |   | 813,886 |   |   | 850,867 |  
|Less accumulated depreciation        |   | (86,470 | ) |   | (64,428 | )
|Property and equipment, net          | $ | 727,416 |   | $ | 786,439 |  

At December 31, 2001 and 2000, property and equipment includes $205.7 million
		and $63.4 million, respectively, of buildings and improvements held under
		capital and financing leases. The related accumulated amortization totaled
		$10.0 million and $2.2 million at December 31, 2001 and 2000, respectively.

Interest is capitalized in connection with the construction of residences and
		is amortized over the estimated useful lives of the residences. Interest
		capitalized in 2001, 2000 and 1999 was approximately $1.9 million, $3.9 million
		and $10.3 million, respectively.

In preparation for FASB 142, the Company reclassified to goodwill approximately
		$93.8 million and $105.4 million of net intangible building and leasehold
		interests as of December 31, 2001 and 2000, respectively.

1. Unconsolidated Affiliates and Managed Residences

The Company manages certain residences operated by joint ventures, primarily in
		the start-up or lease-up phases of operations, in which it either has no
		ownership or a minority ownership position, typically less than 10%.
		Historically, the Company has subsequently elected to purchase or acquire the
		remaining ownership interest in a majority of these residences, at which point
		the residences are included in consolidated operating results. As of December
		31, 2001, the Company owned minority interests in entities owning or leasing
		(and also managed) 42 residences and managed six other residences. As of
		December 31, 2000, the Company owned minority equity interests in entities
		owning or leasing (and also managed) 71 residences and managed four other
		residences. Included in other assets of the Company's balance sheet are net
		advances from affiliates of $1.6 million as of December 31, 2001.

---

The results of operations of these unconsolidated and managed residences for
2001, 2000 and 1999 are as follows (in thousands):



|                             |   | 2001    |   |   | 2000    |   |   | 1999    |  
|---------------------------- | - | ------- | - | - | ------- | - | - | ------- | -
|Residence service fees       | $ | 77,874  |   | $ | 86,147  |   | $ | 58,409  |  
|Residence operation expenses |   | 58,514  |   |   | 76,577  |   |   | 65,374  |  
|Residence profit (loss)      |   | 19,360  |   |   | 9,570   |   |   | (6,965  | )
|Management fee expense       |   | 4,869   |   |   | 11,309  |   |   | 23,919  |  
|Financing expense            |   | 30,758  |   |   | 43,692  |   |   | 31,965  |  
|Loss before tax              | $ | (16,267 | ) | $ | (45,431 | ) | $ | (62,848 | )
|                             |   |         |   |   |         |   |   |         |  

Financing expense on these residences includes $21.3 million and $28.2 million
		of lease and mortgage expense in 2001 and 2000, respectively, which represents
		lease income to the Company from these residences. The Company retains
		ownership in the underlying assets and then leases the assets to the
		unconsolidated and managed affiliates.

1. Restricted Cash and Investments

Restricted cash and investments consist of debt service reserves with interest
		rates ranging from 4.8% to 6.8% and maturities ranging from one to twelve
		months.

1. Other Assets

Other assets are comprised of the following
		at December 31 (in thousands):



|                              |   | 2001   |  |   | 2000  
|----------------------------- | - | ------ |  | - | ------
|Deferred financing costs, net | $ | 35,081 |  | $ | 35,286
|Lease security deposits       |   | 7,266  |  |   | 10,630
|Deposits and other            |   | 9,663  |  |   | 6,146 
|Total other assets            | $ | 52,010 |  | $ | 52,062

---





1. Long-term Debt, Capital Leases, Redeemable Preferred Stock, and Financing
		Obligations

Long-term debt, capital leases, and financing obligations consist of the
		following at December 31 (in thousands):





|                                                                                                                           |   | 2001      |  |   | 2000     
|-------------------------------------------------------------------------------------------------------------------------- | - | --------- |  | - | ---------
|5.25% convertible subordinated debentures due December 15, 2002, callable by
				the Company on or after December 31, 2000 | $ | 112,043   |  | $ | 112,043  
|                                                                                                                           |   |           |  |   |          
|7.00% convertible subordinated debentures due June 1, 2004, callable by the
				Company on or after June 15, 2000          |   | 40,355    |  |   | 40,355   
|                                                                                                                           |   |           |  |   |          
|6.75% convertible subordinated debentures due June 30, 2006, callable by the
				Company on or after July 15, 2000         |   | 34,850    |  |   | 34,850   
|                                                                                                                           |   |           |  |   |          
|9.75% Series A convertible debentures due May 31, 2007, callable by the Company
				on or after May 31, 2003               |   | 42,500    |  |   | 42,500   
|                                                                                                                           |   |           |  |   |          
|9.75% Series B convertible debentures due May 31, 2007, callable by the Company
				on or after May 31, 2003               |   | 137,221   |  |   | 121,019  
|                                                                                                                           |   |           |  |   |          
|9.75% Series C convertible debentures due May 31, 2007, callable by the Company
				on or after May 31, 2003               |   | 49,795    |  |   | 45,147   
|                                                                                                                           |   |           |  |   |          
|Total convertible debt                                                                                                     | $ | 416,764   |  | $ | 395,914  
|                                                                                                                           |   |           |  |   |          
|Mortgages payable, due from 2004 through 2037; weighted average interest rate
				of 7.10%                                 | $ | 27,535    |  | $ | 538,677  
|                                                                                                                           |   |           |  |   |          
|Capital and financing lease obligation payable through 2016; weighted average
				interest rate of 11.32%                  |   | 37,140    |  |   | 10,682   
|                                                                                                                           |   |           |  |   |          
|Serial and term revenue bonds maturing serially from 2000 through 2013;
				interest rates ranging from 4.00% to 9.50%     |   | 3,645     |  |   | 6,290    
|                                                                                                                           |   |           |  |   |          
|Notes payable through 2007; weighted average interest rate of 8.83%                                                        |   | 14,432    |  |   | --       
|                                                                                                                           |   |           |  |   |          
|Capital leases, financing obligations and mortgage payable in default and
					subject to acceleration                     |   | 700,941   |  |   | 161,106  
|Total long-term obligations                                                                                                |   | 1,200,457 |  |   | 1,112,668
|Less current installments                                                                                                  |   | 1,117,705 |  |   | 313,718  
|Total long-term obligations, less current installments                                                                     | $ | 82,752    |  | $ | 798,950  



As of December 31, 2001 and 2000, the Company was in violation of its fixed
		charge covenant with several of its credit facilities. In addition, in order to
		conserve its liquidity, the Company did not make certain 2001 debt service and
		lease payments. As the Company's principal credit, lease and other financing
		facilities are cross-defaulted to a material default occurring under other
		credit, lease or financing facilities, a payment default by the Company under
		one such facility results in the Company being in default under other such
		facilities. As a result of these defaults, two previously unconsolidated
		synthetic lease SPEs were consolidated during the second quarter of 2001.
		Obligations in the amount of $700.9 million are currently classified as current
		liabilities because the applicable lenders have the right to accelerate their
		loans due to the existence of a default.

The mortgages payable are secured through security agreements and guarantees by
		the Company. In addition, certain security agreements require the Company to
		maintain collateral and debt reserve funds. These funds are recorded as
		restricted cash and long-term investments.

At December 31, 2000, the Company has outstanding $3.4 million of mortgage
		notes payable that were assumed in conjunction with non-cash acquisition
		activities in 1999.

---

In December 1999 the Company entered into a bridge loan arrangement with an
		affiliated group (the "Bridge Lender") in connection with the Company's
		repurchase of 19 Alterra residences then leased from a healthcare REIT (the
		"REIT Residences"). Pursuant to this arrangement, the Company borrowed $14.0
		million (the "Tranche A Loan") for working capital purposes and $30.0 million
		("Tranche B Loan") as bridge financing for its initial purchase of seven REIT
		Residences in December 1999. The Tranche A Loan had a term of up to 12 months
		and bore interest at an initial annual rate of 8% for the first three months,
		9% for the next three months and increasing thereafter by 0.5% per month. The
		Tranche A Loan was secured by mortgages on certain land and a stock pledge of a
		subsidiary corporation (the "Holding Subsidiary") formed to serve as the
		holding company for the subsidiary formed to acquire the REIT Residences. The
		Tranche B Loan had a term of up to six months, bore interest at an annual rate
		of 10% for the first three months and at a rate escalating by 0.5% per month
		thereafter. The Tranche B Loan was secured by mortgages on the seven REIT
		Residences acquired with the proceeds from the Tranche B Loan.

In February 2000 the Company acquired the remaining 12 REIT Residences. In
		connection therewith, the Company obtained $60.0 million of mortgage financing
		from one of its bank lenders and utilized $30.0 million of the proceeds to
		purchase the 12 REIT Residences and $30.0 million to repay the Tranche B Loan.
		The Tranche A Loan was repaid in conjunction with the 2000 Equity-Linked
		Transaction described below.

On May 31, 2000, the Company completed a financing transaction in which it
		issued $173.0 million of convertible debentures and convertible preferred
		shares to several investors, including affiliates of the Company. The
		securities issued were initially convertible at $4.00 per share, bear a 9.75%
		semi-annual payment-in-kind ("PIK") coupon or dividend and have a seven year
		maturity. The Company may call the securities at any time after three years if
		the trading price of the Company's Common Stock averages at least $8.00 for the
		preceding 30 trading days. This initial closing contemplated that the Company
		had the option to issue up to an additional $29.9 million of these debentures
		within 180 days following the May 31, 2000 closing. The Company recorded a gain
		on the early extinguishment of debt of $8.5 million related to its retirement
		of $41.4 million of convertible debt in the initial closing. On August 10,
		2000, the Company exercised its option to issue the additional $29.9 million of
		securities, thereby increasing the overall financing transaction to a total of
		$203.0 million (the May 31, 2000 and August 10, 2000 closings are referred to
		together as the "2000 Equity-Linked Transaction"). The securities issued in
		this transaction include the following:

Series A Stock.
		
		1,250,000 shares of the Series A Stock were sold for the stated value, $4.00
		per share, representing aggregate proceeds of $5 million. The holders of the
		Series A Stock are entitled to cumulative PIK dividends at the rate of 9.75% of
		the stated value, payable semiannually on January 1 and July 1 of each year
		commencing on January 1, 2001. If at any time the Company's Common Stock is not
		listed or admitted to trading on a national exchange, the dividend rate
		increases to 12.25%. The Series A Stock ranks senior to the Company's Common
		Stock with respect to dividend rights and rights on liquidation, winding up or
		dissolution. Specifically, no dividend or distribution may be made to the
		holders of the Common Stock, and no Common Stock may be repurchased or redeemed
		by the Company, unless all accrued and unpaid dividends on shares of Series A
		Stock have been paid. The Series A Stock is entitled to receive, in the event
		of liquidation of the Company, an amount in cash equal to the stated value of
		the Series A Stock for each share outstanding, plus an amount in cash equal to
		the accrued but unpaid dividends thereon to the date of liquidation, before any
		payment may be made to the holders of the Common Stock. The Series A Stock is
		redeemable at the Company's option commencing on May 31, 2003, if the Company's
		Common Stock trades at an average price of at least $8.00 per share for the
		preceding 30 trading day period. The then outstanding shares of Series A Stock
		must be redeemed by the Company at stated value, plus all accrued but unpaid
		dividends, upon the earlier of (i) May 31, 2007 or (ii) the date of redemption
		by the Company of the Series A and B convertible pay-in-kind debentures. The
		holders of the convertible preferred shares may convert at any time into shares
		of Common Stock of the Company. The effective conversion price is $2.68 per
		share as of December 31, 2001. The holders of the Series A Stock are entitled
		to vote on all matters voted on by the holders of Common Stock, other than the
		election of directors. However, the holders of the Series A Stock are also
		entitled to elect, as a class, four of nine members of the Company's Board of
		Directors. As of December 31, 2001, the $5.5 million principal balance includes
		$591,000 of accrued but undeclared PIK dividends relating to the dividend
		payment dates of July 1, 2001 and January 1, 2002.

Series A Debentures.
		
		The $42.5 million original aggregate principal amount of 9.75% Series A
		convertible pay-in-kind debentures due May 31, 2007 bear PIK interest at 9.75%
		per annum payable semi-annually in the form of additional Series B debentures
		on January 1 and July 1 of each year, commencing on January 1, 2001. The Series
		A convertible debentures are redeemable at the Company's option commencing on
		May 31, 2003, if the Company's Common Stock trades at an average price of at
		least $8.00 per share for the preceding 30 trading day period. The holders of
		the Series A convertible debentures may convert at any time into shares of
		Common Stock of the Company, at the initial conversion price of $4.00 per share
		(effective conversion price of $2.68 per share at December 31, 2001, due to the
		operation of applicable anti-dilution provisions).

---

Series B Debentures.
		
		The $112.6 million original aggregate principal amount of 9.75% Series B
		convertible pay-in-kind debentures due May 31, 2007 bear PIK interest at 9.75%
		per annum payable semi-annually in the form of additional Series B debentures
		on January 1 and July 1 of each year, commencing January 1, 2001. The Series B
		convertible debentures are redeemable at the Company's option commencing on May
		31, 2003, if the Company's Common Stock trades at an average price of at least
		$8.00 per share for the preceding 30 trading day period. The holders of the
		Series B convertible debentures may convert at any time, at an initial
		conversion price of $400.00 per share (effective conversion price of $268 per
		share at December 31, 2001, due to the operation of applicable anti-dilution
		provisions), into non-voting Series B preferred shares, each share of which has
		rights (other than voting rights) substantially similar to 100 shares of Common
		Stock of the Company.

Series C Debentures.
		
		The $42.8 million original aggregate principal amount of 9.75% Series C
		convertible pay-in-kind debentures due May 31, 2007 bear PIK interest at 9.75%
		per annum payable semi-annually in the form of additional Series C debentures
		on January 1 and July 1 of each year, commencing on January 1, 2001. The Series
		C convertible debentures are redeemable at the Company's option commencing on
		May 31, 2003, if the Company's Common Stock trades at an average price of at
		least $8.00 per share for the preceding 30 trading day period. The holders of
		the Series C convertible debentures may convert at any time into shares of the
		Common Stock of the Company, at the initial conversion price of $4.00 per share
		(effective conversion price of $2.68 per share at December 31, 2001, due to the
		operation of applicable anti-dilution provisions).

Principal payments on long-term debt, capital leases, and financing obligations
		for the next five years and thereafter are as follows (in thousands):





|2002                                                            | $1,117,705 | 
|--------------------------------------------------------------- | ---------- | 
|2003                                                            | 617        | 
|2004                                                            | 32,568     | 
|2005                                                            | 379        | 
|2006                                                            | 14,317     | 
|Thereafter                                                      | 34,871     | 
|Total long-term debt, capital leases, and financing obligations | $1,200,457 | 



Included in the 2002 principal payment obligation is $58.4 million of 2001
		indebtedness that has matured and is past due as of December 31, 2001.

10.         Short-term Notes Payable

In March 2001, the Company obtained a $7.5 million Bridge Loan that has a
		six-month term and is secured by first mortgages on several residences and
		bears interest at an escalating interest rate, commencing at 10% per annum. At
		the Company's election, the Bridge Loan was extended by an additional six
		months whereupon the Bridge Loan became convertible into convertible
		subordinated debentures of the Company having rights and terms substantially
		similar to the Series B 9.75% pay-in-kind convertible debentures, but having a
		conversion price equal to $75 per share of Series B preferred stock (a Common
		Stock equivalent price of $0.75 per share). The bridge lenders also are
		entitled to participate in any transaction involving the issuance by the
		Company of equity or equity-linked securities during the term of the Bridge
		Loan. As of December 31, 2001, the outstanding Bridge Loan had a balance of $6
		million.

In addition, as of December 31, 2001, short-term notes payable consist of a
		$4.9 million line of credit bearing interest at 5.75%.

As of December 31, 2000, short-term notes payable consist of a $9.9 million
		line of credit bearing interest at the then current prime rate.

---

11.         Accrued Expenses

Accrued expenses are comprised of the
		following at December 31 (in thousands):





|                                                        |   | 2001   |   | 2000  
|------------------------------------------------------- | - | ------ | - | ------
|Accrued salaries and wages                              | $ | 10,190 | $ | 10,808
|Accrued interest                                        |   | 21,744 |   | 6,604 
|General liability deductible reserve                    |   | 9,526  |   | 800   
|Accrued property taxes                                  |   | 7,859  |   | 6,593 
|Accrued vacation                                        |   | 5,813  |   | 5,599 
|Accrued charges related to exiting development activity |   | --     |   | 1,147 
|Other                                                   |   | 7,204  |   | 11,227
|Total accrued expenses                                  | $ | 62,336 | $ | 42,778



During 2001 the Company implemented a self-insurance program related to
		liability coverage. The reserve as of December 31, 2001, is based on actuarial
		estimates of the magnitude of the expected losses.

During the fourth quarter of 2000, management implemented operating initiatives
		focused on overall rate and occupancy improvement and overhead reductions. As a
		consequence of this decision, the Company recorded one time nonrecurring,
		pretax charges of $4.2 million. This included $1.1 million of severance of
		various general and administrative positions, $1.1 million to discontinue our
		pharmacy joint venture, and $2.0 million to terminate a management agreement.
		As of December 31, 2001, the Company has paid $4.2 million and the reserve has
		been eliminated.

12.         
		Stockholders' Equity



13.         
Stock Option Plan



At December 31, 2001, 850,977 shares were available for grant under the 1995
		Plan. The per share weighted-average exercise price of stock options granted
		during 2001 and 2000 were $1.31 and $3.83 on the date of grant using the Black
		Scholes option-pricing model with the following weighted-average assumption:
		expected dividend yield 0.0%, risk-free interest rate of 5.0%, expected
		volatility of 50% for 2001 and 2000 grants and an expected life of seven years.

In conjunction with the 1997 merger of the Company and Sterling House
		Corporation, Sterling stock options that were outstanding were exchanged for
		options to purchase the Company's Common Stock, adjusted for the exchange ratio
		operative in the merger. Under the terms of the Sterling House Corporation 1995
		Incentive Stock Option Plan, all options became vested and immediately
		exercisable as a result of the Sterling merger.

---





|            |  | Net Loss  |   |  | Net Loss
				Per Share |  
|----------- |  | --------- | - |  | ---------------------- | -
|            |  | 2001      |   |  | 2000                   |  
|As reported |  | $(299,927 | ) |  | $(117,806              | )
|Pro forma   |  | $(300,250 | ) |  | $(117,953              | )



Stock option activity during the periods
		indicated is as follows:

|                             | Number ofShares |   |   | Wtd.Avg
Exercise Price
|---------------------------- | --------------- | - | - | ----------------------
|Balance at December 31, 1999 | 1,596,038       |   | $ | 14.20                 
|Granted                      | 121,656         |   |   | 5.69                  
|Exercised                    | (9,778          | ) |   | 0.09                  
|Forfeited                    | (742,729        | ) |   | 14.06                 
|Balance at December 31, 2000 | 965,187         |   | $ | 12.65                 
|Granted                      | 1,000,000       |   |   | 1.31                  
|Exercised                    | --              |   |   | 0.00                  
|Forfeited                    | 267,170         |   |   | 14.06                 
|Balance at December 31, 2001 | 1,698,017       |   |   | $ 5.75                
|                             |                 |   |   |                       

Stock options outstanding at December 31, 2001 are as follows:



|  | Range of
					
					exercise
					prices |  | Number		
					Outstanding
					12/31/01 |  | Average
					
					Remaining
					
					Contractual
					Life |  |       | Wtd.-Avg.
					
					Exercise
					Price |  | Number
					
					Exercisable
					at 12/31/01 |  |   | Wtd.-Avg.
					
					Exercise
					Price
|- | ---------------------------------------- |  | --------------------------------------- |  | ------------------------------------------------------------- |  | ----- | ---------------------------------------- |  | ---------------------------------------------- |  | - | ----------------------------------------
|$ | 0.09 - 1.40                              |  | 1,001,229                               |  | 7.0                                                           |  | $1.31 |                                          |  | 1,229                                          |  | $ | 0.09                                    
|$ | 1.40 - 8.69                              |  | 367,041                                 |  | 5.2                                                           |  | 5.88  |                                          |  | 318,465                                        |  |   | 5.91                                    
|$ | 8.70 - 17.94                             |  | 55,807                                  |  | 5.4                                                           |  | 15.66 |                                          |  | 55,807                                         |  |   | 15.66                                   
|$ | 17.95 - 20.81                            |  | 247,644                                 |  | 7.0                                                           |  | 18.81 |                                          |  | 192,043                                        |  |   | 18.81                                   
|$ | 20.82 - 29.56                            |  | 26,296                                  |  | 6.3                                                           |  | 29.34 |                                          |  | 21,528                                         |  |   | 29.29                                   
|  | Total:                                   |  | 1,698,017                               |  | 6.2                                                           |  | $5.75 |                                          |  | 589,072                                        |  | $ | 11.88                                   



14.         Income Taxes

The components of the provision for income taxes for the years ended December
		31 are as follows (in thousands):



|                              |   | 2001 |  |   | 2000   |  |   | 1999    |  
|----------------------------- | - | ---- |  | - | ------ |  | - | ------- | -
|Income tax expense (benefit): |   |      |  |   |        |  |   |         |  
|Current:                      |   |      |  |   |        |  |   |         |  
|Federal                       | $ | --   |  | $ | --     |  | $ | (410    | )
|State                         |   | 120  |  |   | 573    |  |   | 65      |  
|Total current                 |   | 120  |  |   | 573    |  |   | (345    | )
|                              |   |      |  |   |        |  |   |         |  
|Deferred:                     |   |      |  |   |        |  |   |         |  
|Federal                       |   | --   |  |   | 12,797 |  |   | (12,831 | )
|State                         |   | --   |  |   | 1,302  |  |   | (1,493  | )
|Total deferred                |   | --   |  |   | 14,099 |  |   | (14,324 | )
|Total                         | $ | 120  |  | $ | 14,672 |  | $ | (14,669 | )

---





Deferred tax assets and liabilities consist
		of the following at December 31 (in thousands):



|                                                |   | 2001          |   |   | 2000    |  
|----------------------------------------------- | - | ------------- | - | - | ------- | -
|Deferred tax assets:                            |   |               |   |   |         |  
|Net operating loss carryforwards                | $ | 116,712       |   | $ | 51,227  |  
|Development write-off                           |   | 7,990         |   |   | 6,503   |  
|Deferred gain sale/leaseback                    |   | 2,337         |   |   | 2,550   |  
|Building reserve                                |   | 58,649        |   |   | 8,830   |  
|Accrued expenses                                |   | 8,348         |   |   | 3,669   |  
|Investment in consolidated affiliates           |   | 1,017         |   |   | 1,076   |  
|Other                                           |   | 1,096         |   |   | 729     |  
|Total deferred tax assets                       |   | 196,149       |   |   | 74,584  |  
|Less valuation allowance                        |   | (
				161,447 | ) |   | (53,042 | )
|Deferred tax assets, net of valuation allowance | $ | 34,702        |   | $ | 21,542  |  
|                                                |   |               |   |   |         |  
|Deferred tax liabilities:                       |   |               |   |   |         |  
|Acquisition basis                               |   | 1,715         |   |   | 1,715   |  
|Depreciation                                    |   | 32,987        |   |   | 19,827  |  
|Deferred tax liabilities                        | $ | 34,702        |   | $ | 21,542  |  



|                    | 2001   |  | 2000    |  | 1999 
|------------------- | ------ |  | ------- |  | -----
|Statutory rate      | 35.0%  |  | 35.0%   |  | 35.0%
|State taxes, net    | 4.0%   |  | 4.0%    |  | 2.3  
|Valuation allowance | (36.1) |  | (47.5)  |  | --   
|PIK interest        | (2.8)  |  | (3.9)   |  | --   
|Other               | (0.1)  |  | (0.7)   |  | 0.7  
|                    | 0.0%   |  | (13.1)% |  | 38.0%

The Company has approximately $299.3 million of tax net operating loss
		carryforwards at December 31, 2001. Any unused net operating loss carryforwards
		will expire commencing in the year 2007 through 2021. The utilization of net
		operating loss carryforwards may be further limited as to future use due to the
		change in control provisions in the Internal Revenue Code. In addition, the
		Company has alternative minimum tax credit carryforwards of approximately
		$136,000 which are available to reduce future federal regular income taxes, if
		any, over an indefinite period.

15.         Disclosures About Fair Value of Financial
	Instruments















---







The carrying amount of mortgage notes payable approximates fair value because
		the stated interest rates approximate fair value.

The fair value of the Company's convertible debentures is estimated based on
		quoted market prices. At December 31, 2001, the Company's convertible
		debentures had a book value of $187.3 million. At December 31, 2001, there is
		not a meaningful market for these bonds and based on quoted market prices, the
		fair value of these convertible securities was estimated to be 10% to 15% of
		the par value.

16.         Commitments and Contingencies

The Company has entered into sale/leaseback agreements with certain REITs as a
		source of financing the development, construction, and to a lesser extent,
		acquisitions of assisted living residences. Under such agreements, the Company
		typically sells to the REIT one or more residences at a negotiated value and
		simultaneous with such sale, the Company enters into a lease agreement for such
		residences. The initial terms of the leases vary from ten to 15 years and
		include aggregate renewal options ranging from 15 to 30 years. The Company is
		responsible for all operating costs, including repairs, property taxes, and
		insurance. The annual minimum lease payments are based upon a percentage of the
		negotiated sales value of each residence. The residences sold in sale/leaseback
		transactions typically are sold for an amount equal to or less than their fair
		market value. The leases are accounted for as operating leases with any
		applicable gain or loss realized in the initial sales transaction being
		deferred and amortized into income in proportion to rental expense over the
		initial term of the lease.

Effective July 1, 2001, the Company concluded the restructuring of one of its
		leased portfolios which includes 42 residences with an aggregate capacity of
		1,640. The restructuring includes the amendment of certain lease covenants and
		terms and the conversion of 42 individual leases into a single master lease,
		which is accounted for as an operating lease. The master lease is for an
		initial term of sixteen years and includes one fifteen year renewal option.

Subsequent to the formation of the master lease effective July 1, 2001, the
		Company added an additional seven residences to the master lease. Due to the
		inclusion of a purchase option in each of the subsequent lease agreements,
		these leases have been accounted for as financing leases.

The Company is required by certain REITs to obtain a letter of credit as
		collateral for leased residences. Outstanding letters of credit at December 31,
		2001 and 2000 were $3.8 million.

In addition to leased residences, the Company leases certain office space and
		equipment under noncancelable operating leases that expire at various times
		through 2017. Rental expense on all such operating leases, including
		residences, for the years ended December 31, 2001, 2000, and 1999 was $69.5
		million, $82.4 million and $69.4 million, respectively.

Future minimum lease payments for the next five years and thereafter under
		noncancelable leases at December 31, 2001, are as follows (in thousands):



|                                                    |  | Capital |  |   | Operating
|--------------------------------------------------- |  | ------- |  | - | ---------
|2002                                                |  | $ 4,045 |  |   | $63,558  
|2003                                                |  | 4,095   |  |   | 65,107   
|2004                                                |  | 14,602  |  |   | 66,622   
|2005                                                |  | 2,836   |  |   | 68,188   
|2006                                                |  | 2,836   |  |   | 69,881   
|Thereafter                                          |  | 54,821  |  |   | 251,450  
|Total minimum lease payment                         |  | 83,235  |  | $ | $584,806 
|Less amount representing interest                   |  | 46,095  |  |   |          
|Future minimum capital and financing lease payments |  | 37,140  |  |   |          
|Less current portion                                |  | --      |  |   |          
|Long-term capital lease obligations                 |  | $37,140 |  |   |          

---

As of December 31, 2001 and 2000, the Company was in violation of its fixed
		charge covenants with several of its credit facilities. In addition, in order
		to conserve its liquidity, the Company did not make certain 2001 debt service
		and lease payments. As the Company's principal credit, lease and other
		financing facilities are cross-defaulted to a material default occurring under
		other credit, lease or financing facilities, a payment default by the Company
		under one such facility results in the Company being in default under other
		such facilities. Obligations in the amount of $700.9 million are currently
		classified as current liabilities because the applicable lenders have the right
		to accelerate their loans due to the existence of a pending default.

The Company has an option under most of its joint venture arrangements to
		purchase the equity interests of its joint venture partners based upon agreed
		upon terms and conditions (call option). If the Company elects not to exercise
		this option, the joint venture partner can require the Company to buy out the
		joint venture partner's equity interest at the current fair market value (put
		option). Based on a number of assumptions, including assumptions as to the time
		at which such options will be exercised and the fair market value of such
		residences at the date such options are exercised, the Company estimates that
		it may require approximately $10.0 million to $15.0 million to satisfy these
		purchase obligations during 2002.

From time to time, the Company is involved in various legal proceedings
		relating to claims arising in the ordinary course of its business. Neither the
		Company nor its subsidiaries is a party to any legal proceeding, the outcome of
		which, individually or in the aggregate, is expected to have a material adverse
		affect on the Company's financial condition or results of operations, with the
		possible exception of the following matters.

The Company elected not to fund certain debt service and lease payment
		obligations due during 2001 without the consent of the applicable lender or
		lessor. Through additional payments, prepayments associated with asset sales
		and application of escrowed amounts, as of December 31, 2001, the Company had
		$6.6 million of delinquent outstanding scheduled debt service to lenders or
		lessors who hold mortgages on, or from whom the Company leases, 82 residences
		in the aggregate (3,316 resident capacity). The Company has received a written
		notice of acceleration from lenders with respect to indebtedness aggregating
		$210.2 million. In addition, indebtedness of approximately $58.4 million has
		fully matured and is past due. Many of our other credit and lease facilities
		are in technical default as a result of these payment defaults associated with
		other loan and lease facilities, but several of these lenders and lessors have
		executed limited in time waivers. The Company is also in default under various
		financial and other covenants contained in certain credit and lease
		arrangements. The Company has received written notices of default from most of
		these lenders or lessors, three lessors have terminated leases for 17
		residences (940 resident capacity) and other lenders have elected to apply
		deposits and reserve funds held by such lenders against the past due payments.
		Five lenders have activated or are in the process of activating "cash traps" of
		bank accounts relating to the operation of residences mortgaged to such
		lenders, either pursuant to arrangements set forth in the applicable loan
		documents or as subsequently negotiated with the Company. One lender has
		commenced litigation in state court in Milwaukee, Wisconsin, seeking the
		appointment of a receiver for the 20 residences that serve as collateral for
		the $51.7 million of remaining mortgage financing provided by this lender. As a
		result of a negotiated forbearance agreement, the receivership action has been
		stayed temporarily by this lender as restructuring discussions are underway.
		The Company is also in litigation with a former lessor with respect to their
		damage claim associated with the early termination of their 11 residence lease
		portfolio.

The Company's convertible debentures include subordination provisions that
		prohibit the Company from making interest payments to the debenture holders
		(other than payment-in-kind coupon payments) after the occurrence of payment
		defaults on the Company's senior indebtedness. As such, the Company defaulted
		in making coupon payments on its 5.25%, 6.75% and 7.00% convertible
		subordinated debentures aggregating approximately $5.5 million and $5.8 million
		in July 2001 and January 2002, respectively.

The Company is seeking to address all of its pending defaults of its senior and
		junior capital structure obligations through the Restructuring Plan. However,
		the Restructuring Plan is largely dependent upon the Company's ability to
		negotiate consensual modifications and waivers with its various capital
		structure constituents. Absent an agreed upon resolution with these third
		parties, the Company's lenders, lessors, and debenture holders may begin
		exercising remedies under their applicable financing agreements that could
		substantially hinder or disrupt the Company's efforts to restructure and result
		in a liquidation of the Company.

The Company is also a defendant in a criminal negligence action involving one
		of the Company's residences. It is possible that if convicted of a crime, the
		Company's ability to obtain and renew certain of its licenses and to
		participate in certain government payor programs could be materially and
		adversely affected.



---

1. Earnings Per Common Share
2. Subsequent Events

Effective March 6, 2002, the Company entered into a settlement agreement with
		the lenders with respect to defaulted indebtedness aggregating approximately
		$50.5 million (plus $4.5 million of accrued and unpaid interest and late fees
		and approximately $4.0 million due under an interest rate cap agreement that was terminated March 2001). under a
		credit facility secured by mortgages on 14 residences. The settlement is
		structured to immediately shift the economics of ownership and control over the
		disposition of the mortgaged residences to the lenders. In exchange, the
		Company receives the lenders' binding commitment to execute and deliver a
		waiver of any deficiency claims (including accrued interest and obligations related to the terminated interest rate cap agreement) and release of the Company's guaranty with
		respect to this indebtedness upon satisfaction of certain conditions.
		Management has estimated the prospective deficiency claim related to this
		credit facility at between $23 to $34 million. Until March 31, 2003, or such
		earlier time as the lenders sell a residence or replace the Company as manager,
		the Company is obligated to manage the residences for a management fee equal to
		six percent of facility revenue through June 30, 2002 and seven percent
		thereafter. Any net operating income from the residences is paid to the lenders
		as debt service.

Effective March 20, 2002, the Company closed on a refinancing of three
		properties (resident capacity of 137) included in the settlement mentioned
		above. These assets were financed in a sale/leaseback transaction and will be
		accounted for as a financing. The aggregate sales price was $11.8 million.

As of March 29, 2002, six additional residences (258 resident capacity) were
		either sold or leases were terminated. The sale or lease termination of these
		assets resulted in the retirement of approximately $16.6 million of debt and
		lease obligations.





---

Quarterly Financial Summary
	
	(Unaudited)
	
	(In thousands, except per share data)



|                         |   | 12/31   |   |   | 9/30    |   |   | 6/30     |   |   | 3/31    |  
|------------------------ | - | ------- | - | - | ------- | - | - | -------- | - | - | ------- | -
|2001                     |   |         |   |   |         |   |   |          |   |   |         |  
|Operating revenues       | $ | 127,492 |   | $ | 126,100 |   | $ | 126,927  |   | $ | 128,303 |  
|Operating income (loss)  |   | 2,143   |   |   | (8,480  | ) |   | (158,025 | ) |   | (6,998  | )
|Net loss                 |   | (27,271 | ) |   | (42,804 | ) |   | (192,230 | ) |   | (37,622 | )
|Basic (loss) per share   | $ | (1.23   | ) | $ | (1.94   | ) | $ | (8.69    | ) | $ | (1.70   | )
|Diluted (loss) per share | $ | (1.23   | ) | $ | (1.94   | ) | $ | (8.69    | ) | $ | (1.70   | )
|                         |   |         |   |   |         |   |   |          |   |   |         |  
|2000                     |   |         |   |   |         |   |   |          |   |   |         |  
|Operating revenues       | $ | 125,317 |   | $ | 122,583 |   | $ | 112,039  |   | $ | 106,556 |  
|Operating (loss) income  |   | (17,284 | ) |   | 2,026   |   |   | (9,415   | ) |   | 10,207  |  
|Net loss                 |   | (82,760 | ) |   | (16,696 | ) |   | (13,032  | ) |   | (5,318  | )
|Basic loss per share     | $ | (3.74   | ) | $ | (0.76   | ) | $ | (0.59    | ) | $ | (0.24   | )
|Diluted loss per share   | $ | (3.74   | ) | $ | (0.76   | ) | $ | (0.59    | ) | $ | (0.24   | )







|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

The following table sets forth the cash and non-cash compensation awarded or
	paid by the Company for services rendered during each of the years in the three
	year period ended December 31, 2001 to its Chief Executive Officer and to its
	other most highly compensated executive officers other than the Chief Executive
	Officer who are required to be included therein ("Named Executives").

|Name and Principal Position                                                        | Year                             |  | Salary($)                                     |  | Bonus($)                                    |    | Other Annual
					Compensation        | Long-Term Compensation
					
						Awards (1)
					
					Securities UnderlyingOptions(#)
|---------------------------------------------------------------------------------- | -------------------------------- |  | --------------------------------------------- |  | ------------------------------------------- | -- | ------------------------------------- | ----------------------------------------------------------------------------------------
|                                                                                   |                                  |  |                                               |  |                                             |    |                                       |                                                                                         
|Patrick F. Kennedy
				Chief Executive Officer and
						
					President (2)       | 2001
				
				2000
				
				1999 |  | ---
				
				---
				
						---               |  | ---
				
					---
				
				---              |    | ---
				
				---
				
				---         | ---
				
					---
				
					---                                                         
|Steven L. Vick
				Former President and
					
					Chief Operating Officer
				(3) | 2001
				
				2000
				
				1999 |  | $362,579
				
				$269,415
				
	$273,367     |  | 150,000
				
				225,000
				
				---       |    | $79,854
				
					---
				
				---    | 500,000
				
							---
				
						44,757                                               
|Chet H. Bradeen
				Senior VP of Operations
				(4)                                | 2001
				
				2000
				
				1999 |  | $109,230
				
						---
				
						---        |  | $55,000
				

				---
				

				---         |    | ---
				
				---
				
					---        | ---
				
				---
				
			---                                                            
|Anthony R. Geonnotti, Jr.
				Senior Vice President                                | 2001
				
				2000
				
				1999 |  | $178,695
				
				$169,300
				
			$112,173   |  | 24,153
				
							20,183
				
						12,107 |    | ---
				
				---
				
					---        | --
				
							10,000
				
							--                                                    
|Andrea L. Peck
				Senior VP of Employee Services                                  | 2001
				
				2000
				
				1999 |  | $251,307
				
			$50,639
				
				---         |  | $17,500
	
				$7,500
		
					---            | -- | --		

			--                           | ---
				

				---
				

				---                                                         
|Mark W. Ohlendorf
				Chief Financial Officer and
					
					Senior Vice President | 2001
				
				2000
				
				1999 |  | $346,291
				
				$278,919
				

				$221,743 |  | $160,000
				

				$225,000
				

				---   |    | $181,776
				

				---
				
						--- | 500,000
				

				---
				

				---                                                     

1. Represents options granted under the Company's Amended and Restated 1995
		Incentive Compensation Plan (the "1995 Plan"). Generally, subject to
		accelerated vesting upon a change in control, one-fourth of the options become
		exercisable on each of the first through fourth anniversaries of the grant
		date, except with respect to (i) options granted to these individuals in 1998
		which became exercisable 50% on the second anniversary of the grant date, 75%
		on the third anniversary of the grant date and 100% on the fourth anniversary
		of the grant date, (ii) options granted to Messrs. Vick and Ohlendorf prior to
		November 1, 2000, the date of their new employment agreements, all of which
		expired to the extent not exercised prior to January 15, 2001, and (iii)
		options granted to Mr. Vick, all of which, to the extent not exercised by
		November 30, 2000 and February 15, 2002, respectively, have expired.
2. Mr. Kennedy was elected to the position of Chief Executive Officer on November
		2, 2001 and the position of President on January 18, 2002. Mr. Kennedy's
		services are provided to the Company pursuant to a Consulting Services
		Agreement between the Company and Holiday Retirement Consulting, LLC. See
		"Executive Compensation - Consulting and Employment Agreements."
3. Mr. Vick resigned as an executive officer and director of the Company as of
		February 15, 2002. The terms of Mr. Vick's separation arrangement with the
		Company are described under the caption "Executive Compensation -- Consulting
		and Employment Agreements."
4. Mr. Bradeen joined the Company in June 2001.

---

Option Grants in Last Fiscal Year

The following table sets forth information concerning options issued to the Named Executives during 2001.

|Name                      | Number of Securities 
UnderlyingOptions Granted | Percent of
Total Options 
Granted in 2001to Employees | Exercise Price Per Share | Expiration Date | Grant Date Present Value (3)
|------------------------- | ----------------------------------------------- | ----------------------------------------------------- | ------------------------ | --------------- | ----------------------------
|Patrick F. Kennedy        | ---                                             | ---                                                   | ---                      | ---             | ---                         
|Steven L. Vick (1)        | 500,000                                         | 50%                                                   | $1.31                    | 1/5/11          | 440,000                     
|Chet H. Bradeen           | ---                                             | ---                                                   | ---                      | ---             | ---                         
|Anthony R. Geonnotti, Jr. | ---                                             | ---                                                   | ---                      | ---             | ---                         
|Mark W. Ohlendorf (2)     | 500,000                                         | 50%                                                   | $1.31                    | 1/5/11          | 440,000                     
|Andrea L. Peck            | ---                                             | ---                                                   | ---                      | ---             | ---                         



1. Represents options granted to Mr. Vick on January 5, 2001 pursuant to his employment agreement.  The options provided for three-year vesting, subject to special accelerated vesting in the event Mr. Vick's employment was terminated under certain circumstances and full vesting in the event of a "change of control" of the Company.  Pursuant to Mr. Vick's separation agreement, all outstanding options granted to Mr. Vick were extinguished as of February 15, 2002.
2. Represents options granted to Mr. Ohlendorf on January 5, 2001 pursuant to his employment agreement.  The options provide for three-year vesting, subject to special accelerated vesting in the event Mr. Ohlendorf's employment is terminated under certain circumstances and full vesting in the event of a "change of control" of the Company.
3. The Black-Scholes option pricing model was chosen to estimate the grant date present value of the options set forth in this table.  The Company's use of this model should not be construed as an endorsement of its accuracy at valuing options.  Accordingly, there is no assurance that the value realized by an executive, if any, will be at or near the value estimated by the Black-Scholes model.  Future compensation resulting from option grants is based solely on the performance of the Company's stock price.  The following weight-averaged assumptions were made for purposes of calculating the original Grant Date Present Value for options granted by the Company:  an option term of ten years, average volatility of 50%, divided yield of 0.0%, a risk-free interest rate of 5.00%, and a projected exercise period of seven years.

---

2001 Aggregated Option Exercises and Year-end Option Values

The following table sets forth information concerning the value of options
	exercised by the Named Executives during 2001 and the value at December 31,
	2001 of unexercised options held by each such officer.



|Name                      | Number of
						
						Shares Acquired
						On Exercise | Value
						Realized | Number of Securities
						
						Underlying Unexercised Options At 12/31/01
						Exercisable/Unexercisable | Value of
						
						Unexercised
						In-the-Money (1)
|------------------------- | -------------------------------------------------------- | -------------------- | ------------------------------------------------------------------------------------------------------------ | --------------------------------------------------------
|Patrick F. Kennedy        | ---                                                      | ---                  | ---                                                                                                          | ---                                                     
|Steven L. Vick            | ---                                                      | ---                  | --/500,000                                                                                                   | 0/0                                                     
|Mark W. Ohlendorf         | ---                                                      | ---                  | --/500,000                                                                                                   | 0/0                                                     
|Anthony R. Geonnotti, Jr. | ---                                                      | ---                  | 15,692/11,250                                                                                                | 0/0                                                     
|Andrea L. Peck            | ---                                                      | ---                  | ---                                                                                                          | ---                                                     
|Chet H. Bradeen           | ---                                                      | ---                  | ---                                                                                                          | ---                                                     

(1)         Calculated on the basis of the fair market
				value of the underlying securities on December 31, 2001 ($0.11 per share) minus
				the exercise price.



Compensation Committee Interlocks and Insider Participation

The Company's Compensation Committee is comprised of Timothy J. Buchanan,
	Robert Haveman and William G. Petty, Jr. There are no compensation
	committee interlocks.



Consulting and Employment Agreements

Consulting Services Agreement with Holiday Retirement Consulting
		.
	
	In November 2001, the Company entered into a Consulting Services Agreement
	with Holiday Retirement Consulting Services, LLC ("Holiday Consulting"), an
	affiliate of Holiday Retirement Corp. Pursuant to the Consulting Services
	Agreement, Holiday Consulting is providing management and consulting services
	to the Company, including the services of Patrick F. Kennedy, the Company's
	Chief Executive Officer and President, as well as consulting and advisory
	services provided by other Holiday Consulting personnel. The Holiday Consulting
	Services Agreement has a six-month initial term, subject to renewal for an
	additional six months upon the Company's request, and may be terminated by
	either party upon 30 days' notice to the other. Pursuant to this agreement,
	Holiday Consulting is entitled to receive a fee of $60,000 per month together
	with reimbursement of out-of-pocket expenses incurred by Holiday Consulting
	personnel in connection with this agreement. In addition, Holiday Consulting is
	entitled to earn a $1.5 million cash flow success fee if, during the term of
	this agreement, the Company is able to achieve cash flow breakeven for three
	consecutive calendar months (reflecting payment of all scheduled debt service,
	but excluding debt service on the Company's outstanding Subordinated Debentures
	and excluding restructuring charges). Pursuant to the Consulting Services
	Agreement, Holiday Consulting has agreed to refrain, during the twelve month
	period following the termination of this agreement, from disclosing or
	utilizing confidential information of Alterra and from soliciting for
	employment persons employed by Alterra in a managerial position. During 2001,
	$120,000 of consulting fees were paid to Holiday Consulting pursuant to this
	agreement.

---

Employment Agreement with Chet Bradeen
		.
	
	In June 2001, the Company entered into an employment agreement with Chet
	Bradeen with a term that expires upon the earlier of the third anniversary of
	the agreement or termination of employment. Pursuant to the agreement, Mr.
	Bradeen serves as Senior Vice President of Operations of the Company. Pursuant
	to the agreement, Mr. Bradeen is to receive an annual base salary of not less
	than $250,000, to be reviewed annually by the Board of Directors, Chief
	Executive Officer, President or Chief Financial Officer. Mr. Bradeen is also
	entitled to an incentive bonus of up to 50% of his base salary, to be
	determined by the Board of Directors, the Chief Executive Officer, President or
	Chief Operating Officer and, subject to approval by the President and Chief
	Operating Officer, may be granted a retention bonus, to be paid starting in
	December 2001. If Mr. Bradeen's employment is terminated by the Company other
	than for cause or by Mr. Bradeen for "good reason" (as defined in the
	agreement), Mr. Bradeen is entitled to (i) continue to receive payment of
	salary and benefits under this agreement for the remainder of the agreement
	term, but not to exceed twelve months and (ii) receive, within 30 days of such
	termination provided Mr. Bradeen shall then execute a general release for the
	benefit of the Company, 75% of an amount (the "Base Sum") equal to the sum of
	his then current annual salary, any approved but unpaid applicable bonus, the
	premiums for all medical and other insurance coverages and his annual
	automobile allowance. An additional 25% of the Base Sum will be payable at the
	end of the twelve months following his termination. Finally, the employment
	agreement provides that Mr. Bradeen will not disclose certain proprietary
	information belonging to the Company or, in certain circumstances, otherwise
	compete with the Company for a period of twelve months following his
	termination of employment.

Employment Agreement with Steven L. Vick.
		
	
	As of November 1, 2000, the Company entered into an employment agreement with
	Mr. Vick with a term that expires on December 31, 2003. Pursuant to the
	employment agreement, Mr. Vick served the Company as Chief Operating
	Officer until his resignation on February 15, 2002. The employment agreement
	provided that Mr. Vick shall receive a base salary in an amount determined
	by the Board; provided, however, that in no event may such base salary be less
	than $350,000 in 2001. Pursuant to the agreement, Mr. Vick received an
	incentive bonus for 2000 in the amount of $125,000 and was entitled to an
	incentive bonus in future years based on an incentive compensation program
	approved by the Compensation Committee of the Board of Directors. Pursuant to a
	separation agreement between Mr. Vick and the Company setting forth the terms
	of the separation from Alterra, Mr. Vick was awarded an incentive bonus for
	2001 in the amount of $150,000. Pursuant to Mr. Vick's employment agreement,
	Mr. Vick received a non-qualified option grant for 500,000 shares on January 5,
	2001, which options were exercisable at $1.31 per share and which options
	vested over a three-year period, subject to special accelerated vesting in the
	event Mr. Vick's employment was terminated under certain circumstances and full
	vesting in the event of a "change of control" of the Company, as defined in the
	employment agreement. Pursuant to Mr. Vick's separation agreement, all
	outstanding options granted to Mr. Vick were extinguished as of February 15,
	2002. In addition, pursuant to Mr. Vick's employment agreement, the Company
	awarded Mr. Vick 33,378 shares of Common Stock on January 5, 2001, which
	shares were "restricted stock" under the Company's 1995 Plan and, as such, were
	subject to being forfeited to the Company if the executive's employment with
	the Company terminated under certain circumstances prior to the lapsing of such
	restrictions, which occurred over a three-year term (subject to certain
	acceleration provisions). Upon his resignation from the Company, 22,252 of Mr.
	Vick's restricted shares were forfeited in accordance with the terms of the
	restricted stock grant. During the term of his employment by the Company
	pursuant to this agreement, the Company agreed to nominate Mr. Vick to serve as
	a director of the Company. Finally, Mr. Vick's separation agreement provides
	that Mr. Vick will not disclose or use certain proprietary information
	belonging to the Company or solicit customers or certain management employees
	of the Company for a period of twelve months following his termination of
	employment.

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Employment Agreement with Mark W. Ohlendorf.
		
	
	As of November 1, 2000, the Company entered into an employment agreement with
	Mr. Ohlendorf with a term that expires on December 31, 2003. Pursuant to
	the employment agreement, Mr. Ohlendorf serves the Company as Chief
	Financial Officer. The agreement is automatically renewed for additional
	consecutive one-year terms unless timely notice of non-renewal is given by
	either the Company or Mr. Ohlendorf. The employment agreement provides
	that Mr. Ohlendorf shall receive a base salary in an amount determined by
	the Board; provided, however, that in no event may such base salary be less
	than $325,000 in 2001, $340,000 in 2002 and $350,000 in 2003. Pursuant to the
	agreement, Mr. Ohlendorf received incentive bonuses for 2001 and 2000 in
	the amount of $160,000 and $125,000, respectively, and is entitled to an
	incentive bonus in future years based on an incentive compensation program
	approved by the Compensation Committee of the Board of Directors. Pursuant to
	this employment agreement, Mr. Ohlendorf received a non-qualified option
	grant for 500,000 shares on January 5, 2001, which options are exercisable at
	$1.31 per share and which options vests over a three-year period, subject to
	special accelerated vesting in the event Mr. Ohlendorf's employment is
	terminated under certain circumstances and full vesting in the event of a
	"change of control" of the Company, as defined in the employment agreement. In
	addition, pursuant to the employment agreement, the Company awarded
	Mr. Ohlendorf 75,980 shares of Common Stock on January 5, 2001, which
	shares are "restricted stock" under the Company's 1995 Plan and, as such, are
	subject to being forfeited to the Company if the executive's employment with
	the Company terminates under certain circumstances prior to the lapsing of such
	restrictions, which will occur over a three-year term (subject to certain
	acceleration provisions). Mr. Ohlendorf is entitled to a payment equal to
	36 months of his then current base salary plus annualized bonus pay during the
	contract term in the event of a "change of control" of the Company if his
	employment is thereafter terminated by the Company without "cause" or by him
	for "good reason." Absent a change of control, if Mr. Ohlendorf's
	employment is terminated by the Company "without cause" or by him for "good
	reason," then he is eligible to continue to receive his base salary (together
	with any applicable bonus) and employee benefits for a period of 18 months.
	Finally, the employment agreement provides that Mr. Ohlendorf will not
	disclose certain proprietary information belonging to the Company or otherwise
	compete with the Company for a period of twelve months following his
	termination of employment except for termination by the Company without cause
	or by Mr. Ohlendorf for "good reason."

Employment Agreement with Andrea L. Peck
		
		.
	
	In June 2001, the Company entered into a post-employment compensation
	agreement with Andrea Peck. Pursuant to the agreement, Ms. Peck serves the
	Company as Senior Vice President of Employee Services. The agreement remains in
	effect until the modification of the agreement or until the expiration of the
	term of post-employment payments contemplated by the agreement. The agreement
	provides that Ms. Peck shall receive an annual base salary of not less than
	$210,000, to be reviewed periodically by the Company's Board of Directors,
	Chief Operating Officer or Chief Financial Officer. If Ms. Peck's employment is
	terminated due to a reduction in work force and the Company does not offer her
	another position of comparable employment, the Company agrees to continue to
	pay Ms. Peck's base salary for a 52 week period following termination. Pursuant
	to the agreement, Ms. Peck has agreed not to disclose certain proprietary
	information belonging to the Company or otherwise compete with the Company for
	a period of 52 weeks following her termination of employment.



1995 Incentive Compensation Plan

The 1995 Plan provides key employees (who may also be directors) of the Company
	and its subsidiaries performance incentives and also provides a means of
	encouraging stock ownership in the Company by such persons. Under the 1995
	Plan, key employees of the Company or its affiliates are eligible to receive
	stock options to purchase shares of, and grants of shares of "restricted stock"
	of, the Company's Common Stock. The 1995 Plan currently allows a maximum number
	of shares to be subject to options and restricted stock awards of 2,500,000.
	Options and restricted stock awards are granted under the 1995 Plan on the
	basis of the optionee's contribution to the Company, and no option may exceed a
	term of ten years. Options granted under the 1995 Plan may be either incentive
	stock options or options that do not qualify as incentive stock options. The
	Company's Compensation Committee is authorized to designate the recipients of
	options and restricted stock grants, the dates of grants, the number of shares
	subject to options or grants, the option price, the terms of payment on
	exercise of the options, the vesting and restriction provisions and the time
	during which the options may be exercised. The price of incentive stock options
	granted under the 1995 Plan cannot be less than the fair market value of the
	shares at the time the options are granted.

In addition, in connection with the Sterling merger, the Company assumed
	options to acquire shares of the Common Stock of Sterling (the "Assumed
	Options"), and (as of April 10, 2001) the Assumed Options represented options
	to acquire an aggregate of 48,994 shares of Common Stock.

Including the Assumed Options and non-plan options, as of March 29, 2002,
	options to purchase an aggregate of 1,198,017 shares of Common Stock were
	granted and outstanding at a weighted average exercise price of $7.61 per
	share, of which options to purchase 864,684 shares were exercisable at such
	date.

Compensation of the Board of Directors

Directors of the Company who are not parties to services agreements with the
	Company and are not employees of the Company are entitled to an annual retainer
	of $20,000, payable in January of each year, together with attendance fees of
	$1,000 and $500 per meeting for Board, Audit Committee and Compensation
	Committee meetings attended in person or telephonically, respectively. Prior to
	2001, directors of the Company who were not parties to services agreements with
	the Company and were not employees of the Company were entitled to an annual
	retainer of $12,000, payable in quarterly installments. In lieu of their annual
	retainer for the 36 month period commencing June 1, 1996, each of Messrs.
	Burleson, Haveman, and Tubergen were granted a non-qualified stock option
	pursuant to the 1995 Plan to purchase up to 12,420 shares of the Common Stock
	at an exercise price of $8.69 per share, such options vesting one-third on June
	1, 1997, one-third on June 1, 1998 and one-third on June 1, 1999, and expiring
	on May 8, 2006. In October 1998, each of Messrs. Burleson, Haveman, Petty and
	Tubergen, each of whom were non-employee directors, were granted a
	non-qualified stock option pursuant to the 1995 Plan to purchase 8,000 shares
	of the Common Stock at an exercise price of $19.81 per share, which options
	vest 25% per year on each of the first, second, third and fourth anniversaries
	of the date of grant, subject to accelerated vesting in the event of a change
	in control. Directors are also entitled to reimbursement of reasonable
	out-of-pocket expenses incurred by them in attending meetings of the Board of
	Directors.

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SIGNATURE



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized.















Dated: April 24, 2002