<PAGE>
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BROOKDALE LIVING COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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8361 36-4103821
DELAWARE (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
(STATE OR OTHER CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
JURISDICTION OF
INCORPORATION OR ---------------
ORGANIZATION)
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 456-0239
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
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MARK J. SCHULTE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BROOKDALE LIVING COMMUNITIES, INC.
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 456-0239
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
WAYNE D. BOBERG, ESQ. J. VAUGHAN CURTIS, ESQ.
WINSTON & STRAWN KIMBERLY A. KNIGHT, ESQ.
35 WEST WACKER DRIVE ALSTON & BIRD
CHICAGO, ILLINOIS 60601 1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
If any of the securities being registered on this Form are to offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM PROPOSED
AMOUNT OFFERING MAXIMUM AMOUNT OF
TITLE OF CLASS OF SECURITIES TO BE PRICE PER AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, par value
$0.01 per share................. 7,187,500 $17.00 $122,187,500 $42,134
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</TABLE>
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(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2)Estimated solely for the purpose of computing the amount of the
registration fee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 18, 1996
PROSPECTUS
, 1996
6,250,000 SHARES
BROOKDALE LIVING COMMUNITIES, INC.
COMMON STOCK
All of the 6,250,000 shares of common stock, $0.01 par value per share (the
"Common Stock"), offered hereby (the "Offering") are being sold by Brookdale
Living Communities, Inc. ("Brookdale" or the "Company"). Upon completion of the
Offering, The Prime Group, Inc. and its affiliates (collectively, "PGI") and
management of the Company will own 38.3% of the Common Stock (35.0% if the
Underwriters' over-allotment option is exercised in full). See "Risk Factors--
Significant Influence by Existing Stockholders and Management."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $15.00 and $17.00 per share. See "Underwriting" for a discussion of the
factors to be considered in determining the initial public offering price.
The Company intends to apply for listing of the Common Stock on the New York
Stock Exchange.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share................. $ $ $
Total(3).................. $ $ $
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</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933.
(2) Before deducting expenses payable by the Company, estimated at $1,500,000.
(3) The Company has granted to the Underwriters an option, exercisable within
30 days hereof, to purchase up to an aggregate of 937,500 additional shares
of Common Stock at the price to the public less underwriting discounts and
commissions for the purpose of covering over-allotments, if any. If the
Underwriters exercise such option in full, the total Price to the Public,
Underwriting Discounts and Commissions and Proceeds to the Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain prior conditions including the right of the Underwriters to
reject orders in whole or in part. It is expected that delivery of such shares
will be made in New York, New York, on or about , 1996.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
WILLIAM BLAIR & COMPANY
<PAGE>
[PHOTOS/GRAPHICS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN
THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY
BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Except as otherwise indicated, the
information contained in this Prospectus assumes (i) the consummation at the
closing of the Offering of the transactions resulting in the formation of the
Company including the contribution of the Original Facilities (as defined
herein) and operations relating thereto and the acquisition of the Acquired
Facilities (as defined herein) (collectively, the "Formation") and (ii) the
Underwriters' over-allotment option is not exercised. Unless the context
requires otherwise, all references to the "Company" or "Brookdale" in this
Prospectus mean the Company, its predecessors and those entities owned or
controlled by the Company as though the Formation had occurred. See "The
Company and the Formation."
Brookdale Living Communities, Inc. ("Brookdale" or the "Company") provides
senior and assisted living services to the elderly through its facilities that
are located in urban and suburban areas of major metropolitan markets. The
Company operates nine senior and assisted living facilities containing a total
of 1,968 units and, as of August 31, 1996, Brookdale's units were approximately
99% occupied. The Company owns seven of such facilities and manages two
facilities pursuant to management contracts. With facilities that contain an
average of 220 units, the Company believes Brookdale is able to achieve
economies of scale within its facilities and provide senior and assisted living
services in a more cost-effective manner. The Company plans to acquire
approximately three to five facilities per year containing an aggregate of
approximately 800 to 1,000 units, and to commence development of at least three
new facilities per year containing approximately 200 units each. The Company
had pro forma revenues and net income for the six months ended June 30, 1996 of
$19.1 million and $0.7 million, respectively. All of the Company's revenues are
derived from private pay sources.
Brookdale's facilities are designed for middle to upper income residents who
desire an upscale residential environment providing the highest level of
quality, care and value. Brookdale's objective is to allow its residents to age
in place by providing them with a continuum of senior and assisted living
services. By providing residents a range of service options as their needs
change, the Company seeks to achieve a greater continuity of care, thereby
enabling seniors to maintain their residency for a longer time period. The
ability to allow residents to age in place is beneficial to Brookdale's
residents as well as their families who are burdened with care option decisions
for their elderly relatives. In addition to studio, one-bedroom and two-bedroom
units, the Company provides all residents with basic services, such as meal
service, 24-hour emergency response, housekeeping, concierge services,
transportation and recreational activities. For residents who require
additional supplemental care services, the Company provides assistance with
certain activities of daily living. The average age of Brookdale's residents is
approximately 82 years old, and many of these residents require some level of
assistance with activities of daily living. Supplemental care services are
provided either by the Company or by outside services or agencies. It is the
Company's intention to bring "in-house" as many of these services as
practicable.
The Company's operating philosophy is to provide the highest quality of
personalized care for its residents in order to enhance their physical and
mental well-being. A key element of this philosophy is to establish
affiliations between Brookdale's facilities and local hospitals. Each of the
Hallmark facility in Chicago, Illinois, the Heritage facility in Des Plaines,
Illinois and the Devonshire facility in Lisle, Illinois (collectively, the
"Original Facilities"), are affiliated with local hospitals. In addition, the
Company is arranging hospital affiliations for each of Hawthorn Lakes in Vernon
Hills, Illinois, Edina Park Plaza in Edina, Minnesota, The Springs of East Mesa
in Mesa, Arizona and The Gables at Brighton in Brighton, New York
(collectively, the "Acquired Facilities") and intends to arrange such
affiliations for facilities that it acquires or develops in the future.
Hospital affiliations provide for on-site physician and nursing services,
facilitate the provision of health care services and wellness programs to the
Company's residents and provide the Company with a source of referrals.
3
<PAGE>
The Company believes that the senior and assisted living industry is emerging
as a preferred alternative to meet the growing demand for a cost-effective
residential setting in which to care for the elderly who cannot or choose not
to live independently due to physical or cognitive frailties and who may
require assistance with some of the activities of daily living or the
availability of nursing or other medical care. In general, senior and assisted
living consists of a combination of housing and the availability of 24-hour a
day personal support services and assistance with certain activities of daily
living. The Company believes that factors contributing to the growth of the
senior and assisted living industry include: (i) the aging of the U.S.
population; (ii) consumer preference for greater independence in a residential
setting as compared to institutional settings, such as skilled nursing
facilities; (iii) its cost effectiveness compared to skilled nursing care and
home health care; and (iv) the decreasing ability of relatives to provide care
for the elderly in the home. According to industry analysts, annual revenues in
the senior and assisted living industry are estimated to have been
approximately $10 to $12 billion in 1995 and are expected to grow significantly
over the next several years. The senior and assisted living industry remains
highly fragmented, with only 5% of the industry's units operated by the 20
largest companies in the industry which provides substantial opportunities for
industry consolidation.
The Company's business and growth strategy is based on the following key
elements: (i) acquiring senior and assisted living facilities in major
metropolitan markets; (ii) leveraging its development expertise to construct
its prototype facility in major metropolitan markets; (iii) providing a full
continuum of senior and assisted living services to residents of its
facilities; (iv) utilizing sophisticated marketing programs to maintain high
occupancy rates; and (v) utilizing its operational expertise to enhance the
services provided and improve the profitability of existing and acquired
facilities. As part of its strategy, the Company expects to enter into a $75
million secured line of credit to fund a portion of its future acquisitions
(the "Acquisition Line").
Brookdale Living Communities, Inc. was incorporated in Delaware in September
1996 to continue and expand the business and operations of the senior and
assisted living division of The Prime Group, Inc. and its affiliates
(collectively, "PGI"). Since 1981, PGI has been engaged in the ownership,
development, acquisition and operation of over 20 million square feet of income
producing properties and, since 1985, has been active in development,
construction, marketing and operation of senior and assisted living facilities
for the elderly. The Company's principal executive offices are located at 77
West Wacker Drive, Suite 3900, Chicago, Illinois 60601, and its telephone
number is (312) 456-0239.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...................... 6,250,000 shares
Common Stock to be outstanding after the Offering........ 10,125,000 shares (1)
Use of Proceeds.......................................... To pay the cash portion of the
purchase price for the Acquired
Facilities, to pay certain
amounts to or on behalf of PGI
and various third parties in
connection with the Formation,
to finance a portion of future
acquisitions and developments
and for working capital and
other general corporate
purposes. See "Use of
Proceeds."
Proposed New York Stock Exchange symbol..................
</TABLE>
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(1) Does not include 383,500 shares of Common Stock subject to options expected
to be granted at the initial public offering price. See "Management--Stock
Incentive Plan."
4
<PAGE>
SUMMARY FINANCIAL DATA
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<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- -----------------------------
PRO FORMA PRO FORMA
AS ADJUSTED AS ADJUSTED
1993 1994 1995 1995 1995 1996 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA (1)(2):
Revenue:
Resident fees.......... $ 6,637 $ 15,205 $ 21,935 $ 37,029 $10,576 $11,187 $ 18,919
Management services
income ............... -- -- -- 285 -- -- 152
------- -------- -------- -------- ------- ------- --------
Total revenue........ 6,637 15,205 21,935 37,314 10,576 11,187 19,071
Facilities operating
expenses............... (5,279) (11,270) (13,253) (21,081) (6,605) (6,320) (10,306)
General and
administrative (3)..... -- -- -- (3,600) -- -- (1,800)
Depreciation and
amortization........... (1,626) (3,286) (3,721) (5,670) (1,907) (1,582) (2,596)
------- -------- -------- -------- ------- ------- --------
Operating income (loss). (268) 649 4,961 6,963 2,064 3,285 4,369
Interest and financing
fees expense, net...... (1,791) (4,053) (6,385) (7,209) (3,221) (2,786) (3,191)
------- -------- -------- -------- ------- ------- --------
Income (loss) before
extraordinary item..... (2,059) (3,404) (1,424) (246) (1,157) 499 1,178
Extraordinary item (gain
on extinguishment of
debt).................. -- -- 3,274 -- -- -- --
------- -------- -------- -------- ------- ------- --------
Net income (loss)....... $(2,059) $ (3,404) $ 1,850 $ (246) $(1,157) $ 499 $ 1,178
======= ======== ======== ======== ======= ======= ========
UNAUDITED PRO FORMA
DATA:
Income (loss) before
income taxes and
extraordinary item..... $(2,059) $ (3,404) $ (1,424) $ (246) $(1,157) $ 499 $ 1,178
Pro forma benefit
(provision) for income
taxes (4).............. 824 1,362 570 98 463 (200) (471)
------- -------- -------- -------- ------- ------- --------
Income (loss) before
extraordinary item..... (1,235) (2,042) (854) (148) (694) 299 707
Extraordinary item (gain
on extinguishment of
debt), net of income
taxes of $1,310 (4).... -- -- 1,964 -- -- -- --
------- -------- -------- -------- ------- ------- --------
Pro forma net income
(loss)................. $(1,235) $ (2,042) $ 1,110 $ (148) $ (694) $ 299 $ 707
======= ======== ======== ======== ======= ======= ========
Pro forma net income
(loss) per share (5)... $ (0.01) $ 0.07
======== ========
Pro forma common shares
outstanding (5)........ 10,125 10,125
======== ========
SELECTED OPERATING AND
OTHER DATA:
Total units operated
(6)................... 577 918 918 1,968 918 918 1,968
Occupancy rate (6)..... 79.9% 95.6% 98.1% 98.6% 98.3% 99.6% 98.1%
Average monthly revenue
per unit (7).......... $ 1,454 $ 1,732 $ 2,015 $ 1,932 $ 1,954 $ 2,040 $ 1,997
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1996
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PRO FORMA
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA (2):
Cash...................................................... $ 5,449 $ 16,885
Total assets.............................................. 99,639 218,751
Total long-term debt...................................... 99,491 128,045
Stockholders' and partners' equity (deficit).............. (4,296) 84,341
</TABLE>
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(1) The historical financial and operating data for each of the three years
ended December 31, 1993, 1994 and 1995 and for each of the six months ended
June 30, 1995 and June 30, 1996 represent combined historical financial
data for the senior and assisted living division of The Prime Group, Inc.,
including among other things, a combination of the businesses of the
partnerships which as of June 30, 1996 owned the Original Facilities. See
"The Company and the Formation."
(2) The pro forma statements of operations data for the year ended December 31,
1995 and the six months ended June 30, 1996 give effect to (a) the
contribution of the Original Facilities and operations relating thereto;
(b) the acquisition of the Acquired Facilities; (c) the initial
capitalization of the Company; and (d) the Offering. The pro forma balance
sheet as of June 30, 1996 gives effect to these transactions as if they
occurred on such date. See the Unaudited Pro Forma Combined Condensed
Financial Statements.
(3) Historically, general and administrative expenses have not been incurred
with regard to the Original Facilities, however, upon the completion of the
Offering, the Company will incur and report general and administrative
expenses as a separate item. See Pro Forma Combined Condensed Statements of
Operations.
(4) Includes a pro forma income tax adjustment for federal and state income
taxes to reflect the Original Facilities as a C Corporation. See Note 1 of
Notes to the Combined Financial Statements of the Original Facilities.
(5) Reflects the issuance of 6,250,000 shares of Common Stock in connection
with the Offering and 3,875,000 shares of Common Stock in connection with
the Formation.
(6) Total units operated represent the total units operated as of the end of
the period for the Original Facilities (the Hallmark was not acquired until
June 1994). Occupancy rate is calculated by dividing total occupied units
by total units operated as of the end of the period for the Original
Facilities. Pro forma amounts include the Original Facilities, the Acquired
Facilities and the managed facilities.
(7) Average monthly revenue per unit represents the average of the total
monthly resident fees divided by occupied units at the end of the period
averaged over the respective period presented and for period of time in
operation during the period for the Original Facilities. Pro forma amounts
include the Original Facilities and the Acquired Facilities.
5
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the factors set forth below,
as well as the other information contained in this Prospectus, in evaluating
an investment in the Common Stock offered hereby.
RECENT ORGANIZATION; RECENT NET LOSSES
The Company was organized in September 1996 to own, operate, acquire and
develop senior and assisted living facilities. The Original Facilities and
operations relating thereto were formerly owned and operated by PGI and will
be contributed to the Company upon completion of the Offering. The Company
will also acquire the Acquired Facilities upon completion of the Offering. The
Original Facilities incurred a net loss before extraordinary items of
approximately $1.4 million in 1995, compared to net losses of approximately
$3.4 million and $2.1 million in 1994 and 1993, respectively. The Original
Facilities had net income of approximately $0.5 million for the six months
ended June 30, 1996, compared to a net loss of approximately $1.2 million for
the six months ended June 30, 1995. On a pro forma basis, giving effect to the
acquisition of the Acquired Facilities and the Company entering into the
management contracts for the managed facilities, the Company would have had a
net loss in 1995 and net income for the six months ended June 30, 1996 of
approximately $0.1 million and $0.7 million (after pro forma income taxes),
respectively. There can be no assurance that the Company's operations will be
profitable in the future. The inability to achieve profitability at a newly
acquired or developed facility on a timely basis could have a material adverse
effect on the Company's business, financial condition and results of
operations and the market price of the Common Stock. See "Selected Financial
Data" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
UNCERTAINTY OF PROPOSED ACQUISITIONS; DIFFICULTIES OF INTEGRATING THE ACQUIRED
FACILITIES
The Company has entered into agreements to purchase the Acquired Facilities
for an aggregate purchase price of $79.0 million. The closings of the Acquired
Facilities are subject to certain customary conditions, including conditions
regarding the status of title to real property being acquired, limited partner
consents, the results of environmental investigations performed on the
Company's behalf, the transfer or issuance of applicable licenses and permits
and consents to the assumption of certain financing. Although the Company
expects the proposed acquisitions of the Acquired Facilities to be consummated
simultaneously with the closing of the Offering, there can be no assurance
that the conditions to closing will be satisfied in a timely manner, if at
all. Any delay or failure to consummate the purchase of any of the Acquired
Facilities could have an adverse effect on the Company's operating results.
The Acquired Facilities contain approximately one-third of the total units
operated by the Company. There can be no assurance that the Company will
successfully assume operational control over the Acquired Facilities or
integrate them with the Original Facilities. If the Company is unsuccessful in
operating the Acquired Facilities and integrating them into the Original
Facilities, the Company's business, financial condition and results of
operations could be materially and adversely affected. See "The Company and
the Formation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
FUTURE ACQUISITION RISKS; DIFFICULTIES OF INTEGRATION
The Company currently plans to acquire three to five additional facilities
per year that are or can be repositioned as senior and assisted living
facilities. While the Company is actively pursuing acquisition opportunities,
except for the Acquired Facilities, it has not entered into any agreements for
any material acquisitions. There can be no assurance that the Company's
acquisitions will be completed at the rate currently expected, if at all. The
success of the Company's acquisitions will be determined by numerous factors,
including the Company's ability to identify suitable acquisition
opportunities, competition for such acquisitions, the purchase price, the
financial performance of the facilities after acquisition and the ability of
the Company to integrate effectively the operations of acquired facilities.
Any failure by the Company to achieve its acquisition plans or to integrate or
operate acquired facilities effectively may have a material adverse effect on
the Company's business, financial condition and results of operations. See
"Business--Business and Growth Strategy."
6
<PAGE>
DEVELOPMENT AND CONSTRUCTION RISKS
In addition to acquisitions, the Company currently plans to commence
development of approximately three new senior and assisted living facilities
per year containing approximately 200 units each in urban and suburban areas
in major metropolitan markets. The Company's ability to achieve its
development plans will depend upon a variety of factors, many of which are
beyond the Company's control. Further, due to the time required for site
selection, governmental approvals, construction and rental, it is expected
that a facility will not achieve a 90% occupancy rate (a stabilized rate) for
at least 32 months, if at all, after a final determination is made by the
Company to proceed with any particular development. The successful development
of additional facilities will involve a number of risks, including the
possibility that the Company may be unable to locate suitable sites at
acceptable prices or may be unable to obtain, or may experience delays in
obtaining, necessary zoning, land use, building, occupancy, licensing and
other required governmental permits and authorizations. The Company may also
incur construction costs that exceed original estimates, may not complete
construction projects on schedule and may experience competition in the search
for suitable development sites. There can be no assurance that the Company
will not suffer delays in its development program, which could slow the
Company's growth. The Company relies and will continue to rely on third-party
general contractors to construct its new facilities. There can be no assurance
that the Company will not experience difficulties in working with general
contractors and subcontractors, which could result in increased construction
costs and delays. Further, facility development is subject to a number of
contingencies over which the Company will have little control and that may
adversely affect project cost and completion time, including shortages of, or
the inability to obtain, labor or materials, the inability of the general
contractor or subcontractors to perform under their contracts, strikes,
adverse weather conditions and changes in applicable laws or regulations or in
the method of applying such laws and regulations. Accordingly, if the Company
is unable to achieve its development plans, its business, financial condition
and results of operations could be materially and adversely affected. See
"Business--Business and Growth Strategy."
NEED FOR ADDITIONAL FINANCING
To achieve its acquisition and development plans and growth objectives, the
Company will need to obtain significant additional financial resources. The
Company estimates the cost to acquire and develop the new facilities targeted
for acquisition or development over the next two years is approximately $190
million in the aggregate, which substantially exceeds the net proceeds of the
Offering and the Company's committed debt financing. Accordingly, the
Company's future growth will depend on its ability to obtain significant
additional financing on acceptable terms. As its financing needs require, the
Company will from time to time seek additional financing through a variety of
sources, which may include equity financing, debt financing, such as tax-
exempt bonds, conventional mortgage financing and bank financing, leases with
third parties or other financing methods which, if equity securities are
employed, may result in dilution to the Company's stockholders. There can be
no assurance that future financing will be available as needed or on terms
acceptable to the Company. A lack of funds may require the Company to delay or
eliminate all or some of its development projects and acquisition plans and
could therefore adversely affect the Company's growth plans. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources."
ADVERSE CONSEQUENCES OF INDEBTEDNESS; FLOATING RATE DEBT
The Company was subject to mortgage and other indebtedness in an aggregate
principal amount of approximately $128.0 million at June 30, 1996 on a pro
forma basis. The Company intends to finance its senior and assisted living
facilities through tax-exempt bond financing, conventional mortgage financing,
operating leases with third parties or other financing methods, including
lines of credit such as the Acquisition Line. The amount of indebtedness and
lease payments is expected to increase substantially as the Company pursues
its growth strategy. As a result, an increasing amount of the Company's cash
flow will be devoted to debt service and related lease payments, and the
Company will continue to be subject to risks normally associated with
7
<PAGE>
significant financing leverage. At June 30, 1996 on a pro forma basis,
approximately $65.0 million in principal amount of the Company's indebtedness
bore interest at floating rates. Therefore, increases in prevailing interest
rates could increase significantly the Company's interest payment obligations.
In addition, indebtedness the Company may incur in the future may also bear
interest at floating rates. There can be no assurance the Company will
generate sufficient cash flow from operations to cover required interest,
principal and operating lease payments. Any payment or other default could
cause the lender to foreclose upon the facilities securing such indebtedness
or, in the case of an operating lease, could result in the termination of the
lease, with a consequent loss of income and asset value to the Company. In
addition, it is anticipated that the terms of the Company's credit facilities
or letters of credit will restrict the payment of dividends by the Company or
distributions by its wholly-owned limited partnerships to the Company if
certain financial ratios are not met. See Notes to Pro Forma Combined
Condensed Statements of Operations for the year ended June 30, 1996 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Heritage, Devonshire, Hawthorn Lakes and Edina Park Plaza facilities
have been financed with tax-exempt bonds, the aggregate outstanding principal
balance of which is $93.6 million at June 30, 1996. In order to continue the
tax-exempt treatment of the interest paid on these bonds, the facilities must
comply with certain federal income tax requirements, principally pertaining to
the maximum income level of a specified portion of the facilities' residents.
Failure to satisfy these requirements would constitute an event of default
under such bonds, thereby accelerating their maturity. In certain cases, the
Company's ability to increase prices at facilities with such bond financing
(in response to higher operating costs or other factors) could be limited if
it affects the ability of the Company to attract and retain residents with
qualifying income.
DIFFICULTIES OF MANAGING RAPID GROWTH
The Company expects that the number of facilities it owns and operates will
increase substantially as the Company pursues its development and acquisition
strategy. This planned growth will place significant demands on the Company's
management resources. In order to manage its growth effectively, the Company
must continue to expand its operational, financial and management information
systems and continue to attract, train, motivate, manage and retain key
employees. If the Company is unable to manage its growth effectively, its
business, financial condition and results of operations could be materially
and adversely affected. See "Business--Business and Growth Strategy" and
"Management."
DEPENDENCE ON SENIOR MANAGEMENT AND SKILLED PERSONNEL
The Company depends significantly on the continued services of Mark J.
Schulte, its President and Chief Executive Officer. The loss of his services
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company also depends on its ability
to continue to attract and retain management personnel who will be responsible
for the day-to-day operations of its senior and assisted living facilities. If
the Company is unable to hire qualified management personnel to operate its
facilities, the Company's business, financial condition and results of
operations could be materially and adversely affected. See "Management."
LACK OF ARM'S-LENGTH NEGOTIATIONS; BENEFITS TO AFFILIATES
The terms of the transactions between the Company and PGI that comprise a
portion of the Formation were not determined by arm's-length negotiations and
no independent third-party appraisals of the Original Facilities and
operations relating thereto were obtained on behalf of the Company.
Accordingly, there can be no assurance that the terms of these arrangements,
including, but not limited to, the number of shares of Common Stock and cash
received by PGI in exchange for its interests in the Original Facilities and
operations relating thereto, are as favorable to the Company as those the
Company would have obtained from unaffiliated third parties. See "Certain
Transactions."
8
<PAGE>
PGI will realize substantial benefits from the Offering. In particular, upon
completion of the Offering, PGI will own 3,487,500 shares of Common Stock with
a market value of approximately $55.8 million (assuming no exercise of the
Underwriters' over-allotment option and an initial public offering price of
$16.00 per share, the mid-point of the filing range). In addition to PGI's
receipt of Common Stock in connection with PGI's contribution of the Original
Facilities and operations relating thereto to the Company, the Company will
pay to PGI $12.0 million to retire certain indebtedness secured by a pledge of
cash flow from the Hallmark facility. Further, certain collateral will be
returned to PGI as a result of the Company's assumption of certain mortgage
indebtedness on one of the Original Facilities and PGI will receive partner
distributions prior to the Offering to the extent that the unrestricted cash
balances of the Original Facilities exceed $2.0 million. At the Formation, in
accordance with the Formation Agreement, Mark J. Schulte will transfer all of
his interests in the operations relating to the Original Facilities to the
Company in exchange for 387,500 shares of Common Stock from the Company, and,
in accordance with his equity participation agreement with PGI, he will
receive a cash payment from PGI. See "The Company and the Formation" and "Use
of Proceeds."
SIGNIFICANT INFLUENCE BY EXISTING STOCKHOLDERS AND MANAGEMENT
PGI will beneficially own approximately 34.4% of the outstanding Common
Stock after completion of the Offering (31.5% if the Underwriters' over-
allotment option is exercised in full). Executive officers and directors of
the Company as a group will beneficially own approximately 38.3% of the
outstanding Common Stock after the Offering (35.0% if the Underwriters' over-
allotment option is exercised in full). As a result, PGI and the Company's
executive officers and directors will have significant influence over all
matters requiring approval by the Company's stockholders, including business
combinations and the election of directors. See "Principal Stockholders."
COMPETITION
The long-term care industry is highly competitive, and the Company believes
that the senior and assisted living segment, in particular, will become even
more competitive in the future. The Company will be competing with numerous
other companies providing similar services such as home health care agencies,
other senior and assisted living providers, retirement communities and
convalescent centers. In general, regulatory and other barriers to entry in
the senior and assisted living industry are not substantial. In pursuing its
business and growth strategy, the Company expects to face competition in its
efforts to develop and acquire facilities. Some of the Company's present and
potential competitors are significantly larger and have, or may obtain,
greater financial resources than the resources available to the Company.
Consequently, there can be no assurance that the Company will not encounter
increased competition that could limit its ability to attract residents or
expand its business or otherwise have a material adverse effect on its
business, financial condition and results of operations. Moreover, if the
development of new senior and assisted living facilities outpaces demand for
those facilities in certain markets, such markets may become saturated. Such
an oversupply of facilities could cause the Company to experience decreased
occupancy rates, depressed margins and lower operating results. See
"Business--Competition."
GOVERNMENTAL REGULATION
The Company's senior and assisted living facilities are subject to
regulation and licensing by state and local health and social service agencies
and other regulatory authorities, which requirements vary from state to state.
Senior and assisted living facilities in some states are subject to periodic
survey or inspection by governmental authorities. In Illinois, where the
Original Facilities are located, and perhaps in certain other states in which
the Company may operate in the future, the Company may be unable to provide
certain higher levels of assisted living services without obtaining the
appropriate licenses, if applicable. In addition, some states have adopted
certificate of need or similar laws applicable to assisted living and nursing
facilities which generally require that the appropriate state agency approve
certain acquisitions or capital expenditures and determine that a need exists
for certain new bed additions or new services. Many states have placed a
moratorium on granting certificates of
9
<PAGE>
need or otherwise stated their intent not to grant approval for such
expenditures. To the extent certificates of need or other similar approvals
are required for expansion of Company operations, such expansion could be
adversely affected by the failure or inability to obtain the necessary
approvals or possible delays in obtaining such approvals.
Although the Company currently does not participate in the Medicare or
Medicaid programs, the hospitals with which it has affiliations do participate
in those programs and the Company intends to participate in the Medicare
program at the skilled nursing facility to be constructed at the Devonshire
facility. Also, all of the Company's residents are eligible for Medicare
benefits. Therefore, certain aspects of the Company's business are and will be
subject to federal and state laws and regulations which govern financial and
other arrangements between and among health care providers, suppliers and
vendors. These laws prohibit certain direct and indirect payments and fee-
splitting arrangements designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider or other entity
or person for medical products and services. These laws include, but are not
limited to, the federal "anti-kickback law" which prohibits, among other
things, the offer, payment, solicitation or receipt of any form of
remuneration in return for the referral of Medicare and Medicaid patients. The
Office of the Inspector General of the Department of Health and Human
Services, the Department of Justice and other federal agencies interpret these
statutes liberally and enforce them aggressively. Members of Congress have
proposed legislation that would significantly expand the federal government's
involvement in curtailing fraud and abuse and increase the monetary penalties
for violation of these provisions. Violation of these laws can result in,
among other things, loss of licensure, civil and criminal penalties for
individuals and entities, and exclusion of health care providers or suppliers
from participation in the Medicare and/or Medicaid programs.
In addition, although the Company is not a Medicare or Medicaid provider or
supplier, it is subject to these laws because (i) the state laws typically
apply regardless of whether Medicare or Medicaid payments are at issue, (ii)
the Company plans to build and operate a skilled nursing facility at its
Devonshire facility and may establish licensed home health agencies which are
intended to participate in Medicare, and (iii) as required under some state
licensure laws, and for the convenience of its residents, some of the
Company's senior and assisted living facilities maintain contracts with
hospitals, who in turn maintain contracts with certain health care providers
and practitioners, including pharmacies, home health agencies and hospices,
through which the health care providers make their health care items or
services (some of which may be covered by Medicare or Medicaid) available to
facility residents. There can be no assurance that such laws will be
interpreted in a manner consistent with the practices of the Company.
The success of the Company will depend in part upon its ability to satisfy
applicable regulations and requirements and to procure and maintain required
licenses as the regulatory environment for senior and assisted living
facilities evolves. There can be no assurance that federal, state or local
laws or regulatory procedures which might adversely affect the Company will
not be imposed or expanded. Any failure by the Company to comply with
applicable regulatory requirements could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Governmental Regulation."
ENVIRONMENTAL RISKS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
held liable for the cost of removal or remediation of certain hazardous or
toxic substances that could be located on, in or under such property. Such
laws and regulations often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of the hazardous or
toxic substances. In addition, the Company's skilled nursing facility to be
built at the Devonshire facility will be subject to laws relating to the
disposal of biohazardous waste. The costs of any required remediation or
removal of these substances could be substantial and the liability of an owner
or operator as to any affected property is generally not limited under such
laws and regulations and could exceed the property's value and the aggregate
assets of the owner or operator. In connection with the ownership or operation
of its facilities, the Company could be liable for these remediation costs or
fines. As a result, the presence, with or without the Company's
10
<PAGE>
knowledge, of hazardous or toxic substances at any property held or operated by
the Company, or acquired or operated by the Company in the future, could have a
material adverse effect on the Company's business, financial condition and
results of operations.
LIABILITY AND INSURANCE
The services provided by the Company subject it to significant liability
risks. In recent years, the senior and assisted living industry has experienced
an increase in the number of lawsuits alleging negligence and other legal
theories, many of which involve significant legal costs and substantial claims.
The Company intends to secure by completion of the Offering, insurance policies
in amounts and with such coverage as it deems appropriate for its operations.
There can be no assurance, however, that the Company will be able to continue
to obtain sufficient liability insurance coverage in the future or that such
coverage will be available on acceptable terms. A successful claim in excess of
the Company's coverage or not covered by the Company's insurance could have a
material adverse effect on the Company's business, financial condition and
results of operations. Claims against the Company, regardless of their merit or
outcome, may involve significant legal costs and require management to devote
considerable time which would otherwise be utilized in the operation of the
Company. See "Business--Insurance."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 10,125,000 shares of
Common Stock outstanding (or 11,062,500 shares if the Underwriters' over-
allotment option is exercised in full). Of these shares, the 6,250,000 shares
sold in the Offering (or a maximum of 7,187,500 if the Underwriters' over-
allotment option is exercised in full) will be freely tradable without
restriction or limitation under the Securities Act of 1933, as amended (the
"Securities Act") except for any shares purchased by "affiliates" of the
Company, as such term in defined in Rule 144 promulgated under the Securities
Act. The remaining 3,875,000 shares are "restricted securities" within the
meaning of Rule 144. The Company, its management and PGI have agreed with the
Underwriters, subject to certain exceptions, not to sell or otherwise dispose
of any shares of Common Stock, any options to purchase Common Stock or any
securities convertible into or exchangeable for shares of Common Stock for a
period of 180 days after the date of this Prospectus (the "lock-up period")
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"). After expiration of the lock-up period, PGI will be
entitled to certain demand and incidental registration rights with respect to
its shares. If PGI, by exercising its demand registration rights, causes a
large number of shares to be registered and sold in the public market, such
sales could have an adverse effect on the market price for the Common Stock.
Further, the Company intends to register promptly following completion of the
Offering 750,000 shares of Common Stock reserved for issuance pursuant to the
Company's stock option programs, under which options to purchase 383,500 shares
will be outstanding upon completion of the Offering, of which options for
348,500 shares will vest and become exercisable at the rate of 25% per year
commencing on the first anniversary of their date of grant and options for
35,000 shares will vest and become exercisable at the rate of 33.33% per year
commencing on the first anniversary of their date of grant. All restricted
shares of Common Stock will be eligible for sale to certain qualified
institutional buyers in accordance with Rule 144A under the Securities Act.
Sales of substantial amounts of shares of Common Stock in the public market
after the Offering or the perception that such sales could occur could
adversely affect the market price of the Common Stock and the Company's ability
to raise equity. See "Management--Stock Incentive Plan," "Description of
Capital Stock-Registration Rights Agreement," "Shares Eligible for Future Sale"
and "Underwriting."
ABSENCE OF PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering. The initial public offering price of the Common
Stock will be determined by negotiation between the Company and the
representatives of the Underwriters and may bear no relationship to the price
at which the Common Stock will trade after completion
11
<PAGE>
of the Offering. For factors that will be considered in determining the initial
public offering price, see "Underwriting." After completion of the Offering,
the market price of the Common Stock could be subject to significant
fluctuations in response to various factors and events, including the liquidity
of the market for the shares of Common Stock, variations in the Company's
operating results, changes in earnings estimates by securities analysts,
publicity regarding the industry or the Company and the adoption of new
statutes or regulations (or changes in the interpretation of existing statutes
or regulations) affecting the health care industry in general or the senior and
assisted living industry in particular. In addition, the stock market in recent
years has experienced broad price and volume fluctuations that often have been
unrelated to the operating performance of particular companies. These market
fluctuations may adversely affect the market price of the shares of Common
Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Restated Certificate of Incorporation and Amended and Restated
By-laws, as well as Delaware corporate law, contain certain provisions that
could have the effect of making it more difficult for a third party to acquire,
or discouraging a third party from attempting to acquire, control of the
Company. These provisions could limit the price that certain investors might be
willing to pay in the future for shares of Common Stock. Certain of these
provisions allow the Company to issue, without stockholder approval, preferred
stock having rights senior to those of the Common Stock. Other provisions
impose various procedural and other requirements, including advance notice and
super-majority voting provisions, that could make it more difficult for
stockholders to effect certain corporate actions. In addition, the Company's
Board of Directors is divided into three classes, each of which serves for a
staggered three-year term, which may make it more difficult for a third party
to gain control of the Board of Directors. As a Delaware corporation, the
Company is subject to Section 203 of the Delaware General Corporation Law (the
"DGCL") which, in general, prevents an "interested stockholder" (defined
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined therein) for three
years following the date such person became an interested stockholder unless
certain conditions are satisfied. Pursuant to a Board resolution adopted at the
time of formation of the Company, the Section 203 limits do not apply to any
"business combination" between the Company and PGI. See "Description of Capital
Stock."
IMMEDIATE AND SUBSTANTIAL DILUTION
The existing stockholders of the Company acquired their shares of Common
Stock at an average cost substantially below the assumed initial public
offering price set forth on the cover page of this Prospectus. Therefore,
purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share of approximately
$7.85. See "Dilution."
12
<PAGE>
THE COMPANY AND THE FORMATION
The Company was incorporated in Delaware on September 4, 1996 and is wholly-
owned by an affiliate of The Prime Group, Inc. At the completion of the
Offering, the shares owned by such affiliate will be repurchased by the
Company in accordance with a subscription agreement between the Company and
such affiliate at a nominal price. Pursuant to the Formation Agreement (as
defined herein), in connection with the completion of the Offering, PGI will
contribute the Original Facilities and operations relating thereto to the
Company in exchange for 3,487,500 shares of Common Stock, $12.0 million in
cash from the net proceeds of the Offering to retire certain indebtedness
secured by a pledge of cash flow from the Hallmark and the assumption by the
Company of certain indebtedness in the aggregate amount of $99.5 million.
Further, certain collateral will be returned to PGI as a result of Brookdale's
assumption of certain mortgage indebtedness on one of the Original Facilities
and PGI will receive partner distributions prior to the Offering to the extent
that the unrestricted cash balances of the Original Facilities exceed $2.0
million. At the Formation, in accordance with the Formation Agreement, Mark J.
Schulte, President and Chief Executive Officer of the Company, will transfer
all of his interests in the operations relating to the Original Facilities to
the Company in exchange for 387,500 shares of Common Stock from the Company,
and, in accordance with his equity participation agreement with PGI, he will
receive a cash payment from PGI. In addition, at the completion of the
Offering, the Company will acquire the ownership interests of various third
parties in (i) certain of the Original Facilities for $4.5 million in cash and
(ii) the Acquired Facilities for an aggregate amount of $48.6 million in cash
and the assumption of debt in the aggregate amount of $28.6 million. The
Company, at the completion of the Offering, will also enter (i) a management
agreement with PGI to manage the Island on Lake Travis facility and (ii) a
management agreement with an option to purchase with respect to the Kenwood
facility. The transactions described above are referred to herein collectively
as the "Formation." See "Use of Proceeds," "Business--Facilities" and "Certain
Transactions."
In order to consummate the Formation with regard to the Original Facilities,
the Company must replace the current credit enhancement on $65 million of tax-
exempt bonds that are secured by the Devonshire and Heritage facilities. The
Company anticipates that a bank or banks will provide such credit enhancement
and is in negotiation with various financial institutions. The Company has
received a non-binding term sheet from a financial institution whereby letters
of credit with a maturity of three years from the closing of the Offering
would be provided as replacement credit enhancement. In addition to the
mortgages on the Devonshire and Heritage facilities, estimated cash collateral
amount of $11.5 million ($5.0 million of which will be placed in escrow and
drawn upon to fund construction of the skilled nursing facility at the
Devonshire) from the net proceeds of the Offering would be pledged as
additional collateral and the letters of credit would be guaranteed to the
extent of 30% by the Company. See "Risk Factors--Adverse Consequences of
Indebtedness" and "Use of Proceeds."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 6,250,000 shares of
Common Stock offered hereby are estimated to be approximately $91.5 million
(at an assumed initial public offering price of $16.00 per share, the midpoint
of the filing range) or approximately $105.5 million if the Underwriters'
over-allotment option is exercised in full, after deducting the estimated
underwriting discounts and commissions and offering expenses payable by the
Company. The Company intends to use approximately $48.6 million of the net
proceeds to fund the cash portion of the purchase price for the Acquired
Facilities, approximately $4.5 million of the net proceeds to purchase a third
party's interests in the Devonshire and Heritage facilities and approximately
$5.0 million of the net proceeds to complete the construction of the Company's
skilled nursing facility at the Devonshire (which amount will be deposited
with the banks providing the credit enhancement for the tax-exempt bonds
referred to below). In addition, the Company intends to use approximately
$12.0 million of the net proceeds to retire certain indebtedness of PGI which
is secured by a pledge of PGI's rights to cash flow from the Hallmark. The
Company also intends to use approximately $6.5 million of the net proceeds as
cash collateral for the proposed credit enhancement on $65 million of tax-
exempt bonds that are secured by the Devonshire and the Heritage facilities.
The balance of the net proceeds, approximately $14.9 million (or approximately
$28.9 million if the Underwriters' over-allotment option is exercised in
full), will be used to finance a portion of the future acquisitions and
developments of additional senior and assisted living facilities and for
working capital and general corporate purposes. Pending such uses, the Company
intends to invest the net proceeds in short-term, interest-bearing securities
or certificates of deposit. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Business--Business and Growth Strategy" and "Certain
Transactions."
13
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common Stock
and currently plans to retain future earnings, if any, to finance the growth of
the Company's business rather than to pay cash dividends. Payments of any cash
dividends in the future will depend on the financial condition, results of
operations and capital requirements of the Company as well as other factors
deemed to be relevant by the Board of Directors. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
14
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the capitalization of
the Original Facilities and (ii) the pro forma capitalization of the Company,
as adjusted to give effect to the Formation and the receipt and application of
the net proceeds of the Offering as discussed in "Use of Proceeds." The table
should be read in conjunction with the Unaudited Pro Forma Combined Condensed
Financial Statements of the Company and the Combined Financial Statements of
the Original Facilities, and the related notes to each thereto, contained
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30, 1996
--------------------
PRO FORMA
ACTUAL AS ADJUSTED
<S> <C> <C>
Unrestricted cash and cash equivalents................... $ 5,449 $ 16,885
======= ========
Total long-term debt(1).................................. $99,491 $128,045
Stockholders' and partners' equity (deficit):
Preferred Stock, $0.01 par value, 20,000,000 shares
authorized; none issued and outstanding................. -- --
Common Stock, $0.01 par value, 75,000,000 shares
authorized; 10,125,000 shares issued and outstanding,
pro forma as adjusted(2)................................ -- 102
Additional paid-in capital............................... -- 84,239
Accumulated deficit...................................... (4,296) --
------- --------
Total stockholders' and partners' equity (deficit)..... (4,296) 84,341
------- --------
Total capitalization................................. $95,195 $212,386
======= ========
</TABLE>
- ---------------------
(1) See Note g of the Company's Notes to the Unaudited Pro Forma Combined
Condensed Balance Sheet, Note 4 of Original Facilities Notes to Combined
Financial Statements and Note 3 of Activelife Facilities Notes to Combined
Financial Statements for information regarding the Company's long-term
indebtedness.
(2) Does not include 383,500 shares of Common Stock subject to options
expected to be granted at the initial public offering price. See
"Management--Stock Incentive Plan."
15
<PAGE>
DILUTION
The Company's net deficit in tangible book value as of June 30, 1996 prior
to the Offering was approximately $6.2 million, or $1.60 per share. Net
deficit in tangible book value per share as of June 30, 1996 is equal to the
Original Facilities total tangible assets less its total liabilities, divided
by the 3,875,000 shares of Common Stock to be received by PGI and management
of the Company related to the Formation. After giving effect to the sale of
the 6,250,000 shares of Common Stock offered by the Company hereby at an
assumed initial public offering price of $16.00 per share, the midpoint of the
filing range, the pro forma net tangible book value of the Common Stock at
June 30, 1996 would have been approximately $82.5 million, or $8.15 per share.
This represents an immediate increase in pro forma net tangible book value of
$9.75 per share to existing stockholders and immediate dilution of $7.85 per
share to purchasers of Common Stock in the Offering. The following table
illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $16.00
Net deficit in tangible book value prior to the Offering....... $(1.60)
Increase attributable to new investors......................... 9.75
------
Pro forma net tangible book value after the Offering............. 8.15
------
Dilution per share to new investors.............................. $ 7.85
======
</TABLE>
The following table summarizes the differences between PGI and the new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid and the average price per share
paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ --------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
<S> <C> <C> <C> <C> <C>
New investors........... 6,250,000 61.7% $100,000,000 114.6% $16.00
PGI and
management(1)(2)....... 3,875,000 38.3 (12,702,000) (14.6) (3.28)
---------- ----- ------------ -----
Total............... 10,125,000 100.0% $ 87,298,000 100.0% $ 8.62
========== ===== ============ =====
</TABLE>
- ---------------------
(1) Does not include 383,500 shares of Common Stock subject to options
expected to be granted at the initial public offering price.
(2) Total consideration provided by PGI and management for the shares of
common stock includes Original Facilities partners' deficit at June 30,
1996 of $4.3 million, distributions to PGI of $15.4 million ($12.0 from
the net proceeds of the Offering and partner distributions prior to the
Offering to the extent that the unrestricted cash balances of the Original
Facilities exceed $2.0 million) net of the elimination of net deficit of
third party interests being purchased by the Company of $7.0 million.
16
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected financial and operating data for the
Original Facilities and selected pro forma data for the Company. The selected
financial data as of June 30, 1996 and for the six months then ended and as of
December 31, 1994 and 1995, and for the years ended December 31, 1993, 1994 and
1995, have been derived from the audited combined financial statements of the
Original Facilities included elsewhere in this Prospectus. The selected
financial data as of December 31, 1991, 1992 and 1993 and for the years ended
December 31, 1991 and 1992 have been derived from the combined financial
statements of the Original Facilities not included in this Prospectus. The
selected financial data as of June 30, 1995 and for the six months then ended
have been derived from the unaudited combined financial statements of the
Original Facilities included elsewhere in this Prospectus. In the opinion of
management, the unaudited combined financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the combined financial position and combined results of
operations for the unaudited periods. The combined results of operations for
the six months ended June 30, 1995 and 1996 are not necessarily indicative of
the results to be expected for the full year.
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenue:
Resident fees.......... $ 3,185 $ 5,044 $ 6,637 $15,205 $21,935 $10,576 $11,187
Facilities operating
expenses............... (3,245) (3,910) (5,279) (11,270) (13,253) (6,605) (6,320)
General and
administrative
expenses (1)........... -- -- -- -- -- -- --
Depreciation and
amortization........... (1,224) (1,281) (1,626) (3,286) (3,721) (1,907) (1,582)
------- ------- ------- ------- ------- ------- -------
Operating income (loss). (1,284) (147) (268) 649 4,961 2,064 3,285
Interest and financing
fees expense........... (2,050) (1,742) (1,791) (4,053) (6,385) (3,221) (2,786)
------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item..... (3,334) (1,889) (2,059) (3,404) (1,424) (1,157) 499
Extraordinary item (gain
on extinguishment of
debt).................. -- -- -- -- 3,274 -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)....... $(3,334) $(1,889) $(2,059) $(3,404) $ 1,850 $(1,157) $ 499
======= ======= ======= ======= ======= ======= =======
UNAUDITED PRO FORMA
DATA:
Income (loss) before
income taxes and
extraordinary item..... $(3,334) $(1,889) $(2,059) $(3,404) $(1,424) $(1,157) $ 499
Pro forma benefit
(provision) for income
taxes (2).............. 1,333 756 824 1,362 570 463 (200)
------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item..... (2,001) (1,133) (1,235) (2,042) (854) (694) 299
Extraordinary item (gain
on extinguishment of
debt), net of income
taxes of $1,310 (2).... -- -- -- -- 1,964 -- --
------- ------- ------- ------- ------- ------- -------
Pro forma net income
(loss)................. $(2,001) $(1,133) $(1,235) $(2,042) $ 1,110 $ (694) $ 299
======= ======= ======= ======= ======= ======= =======
Pro forma income (loss)
before extraordinary
item, per share........ $ (0.08) $ 0.03
======= =======
Pro forma extraordinary
item, per share........ $ 0.19 $ --
======= =======
Pro forma net income per
share (3).............. $ 0.11 $ 0.03
======= =======
Pro forma common shares
outstanding (3)........ 10,125 10,125
======= =======
SELECTED OPERATING AND
OTHER DATA:
Total units operated
(4).................... 323 323 577 918 918 918 918
Occupancy rate (4)...... 66.9% 95.4% 79.9% 95.6% 98.1% 98.3% 99.6%
Average monthly revenue
per unit (5)........... $ 1,229 $ 1,365 $1,454 $1,732 $ 2,015 $ 1,954 $ 2,040
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31, JUNE
--------------------------------------------- 30,
1991 1992 1993 1994 1995 1996
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets.......... $66,726 $70,255 $65,149 $102,579 $100,325 $99,639
Total long-term debt.. 70,578 70,848 71,510 101,242 99,627 99,491
Partners' deficit..... (6,052) (7,941) (9,999) (4,351) (3,408) (4,296)
</TABLE>
- ---------------------
(1) Historically, general and administrative expenses have not been incurred
with regard to the Original Facilities, however, upon the completion of
the Offering, the Company will incur and report general and administrative
expenses as a separate item. See Pro Forma Combined Condensed Statements
of Operations.
(2) Includes a pro forma income tax adjustment for federal and state income
taxes to reflect the Original Facilities as a C Corporation. See Note 1 of
Notes to the Combined Financial Statements of the Original Facilities.
(3) Reflects the issuance of 6,250,000 shares of Common Stock in connection
with the Offerings and 3,875,000 shares of Common Stock in connection with
the Formation.
(4) Total units operated represent the total units operated as of the end of
the period for the Original Facilities (the Hallmark was not acquired
until June 1994). Occupancy rate is calculated by dividing total occupied
units divided by total units operated as of the end of the period for the
Original Facilities.
(5) Average monthly revenue per unit represents the average of total monthly
resident fees divided by occupied units at the end of the period averaged
over the respective period presented and for the period of time in
operation over the period for the Original Facilities.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data" and the Original Facilities' Combined Financial Statements and
Notes thereto, each appearing elsewhere in this Prospectus. Such historical
information includes the operations, assets and liabilities of the business
and facilities relating to the Original Facilities which will become a portion
of the assets and liabilities of the Company as part of the Formation, and
forms the basis for "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Except for "Overview," the discussion of
historical results set forth below does not include financial information
relating to the Acquired Facilities and the managed facilities. See "The
Company and the Formation." Historical results as set forth herein are not
necessarily indicative of future results from operations.
OVERVIEW
The Company operates nine senior and assisted living facilities containing a
total of 1,968 units. Seven of such facilities are owned by the Company and
two facilities are managed by Brookdale pursuant to management contracts. The
Company's senior and assisted living facilities offer residents a supportive,
"home-like" setting and assistance with certain activities of daily living.
Residents of Brookdale's facilities are typically unable or choose not to live
independently, but do not require the 24-hour nursing care provided in skilled
nursing facilities. By providing residents a range of service options as their
needs change, the Company seeks to achieve greater continuity of care,
enabling seniors to age in place and thereby maintain their residency for a
longer time period. The ability to allow residents to age in place is
beneficial to Brookdale's residents as well as their families who are burdened
with care option decisions for their elderly relatives.
Upon the completion of the Offering, PGI will contribute its interests in
the Original Facilities and operations relating thereto to the Company in
exchange for 3,487,500 shares of Common Stock, $12.0 million in cash from the
net proceeds of the Offering and the assumption by the Company of certain
indebtedness in the aggregate amount of $99.5 million. Further, certain
collateral will be returned to PGI as a result of Brookdale's assumption of
certain mortgage indebtedness on one of the Original Facilities and PGI will
receive partner distributions prior to the Offering to the extent that the
unrestricted cash balances of the Original Facilities exceed $2.0 million. At
the Formation in accordance with the Formation Agreement, Mark J. Schulte,
President and Chief Executive Officer of the Company, will transfer all of his
interests in the operations relating to the Original Facilities to the Company
in exchange for 387,500 shares of Common Stock from the Company, and, in
accordance with his equity participation agreement with PGI, he will receive a
cash payment from PGI. In addition, at the completion of the Offering, the
Company will acquire the ownership interests of various third parties in (i)
certain of the Original Facilities for $4.5 million in cash and (ii) the
Acquired Facilities for an aggregate amount of $48.6 million in cash and the
assumption of debt in the aggregate amount of $28.6 million. Further, at the
completion of the Offering, the Company will enter (i) a management contract
with PGI to manage the Island on Lake Travis facility and (ii) a management
contract with an option to purchase with respect to the Kenwood facility. See
"The Company and the Formation" and "Use of Proceeds."
The Company currently plans to acquire approximately three to five
facilities per year containing an aggregate of approximately 800 to 1,000
units, and to commence development of at least three new facilities per year
containing approximately 200 units each in major urban and suburban areas in
major metropolitan markets. The Company anticipates that it will use a
combination of net proceeds from the Offering, equity and debt financing and
cash generated from operations to fund this development activity. In order to
achieve its growth plans, the Company will be required to obtain a substantial
amount of additional financing. There can be no assurance that future
financing will be available as needed or on terms acceptable to the Company. A
lack of funds may require the Company to delay all or some of its acquisition
plans and development projects. See "Risk Factors--Future Acquisition Risks;
Difficulties of Integration," "--Development and Construction Risks," "--Need
for Additional Financing" and "--Liquidity and Capital Resources."
The Company derives its revenues from resident fees and management fees. On
a pro forma basis after giving effect to the Formation, most of the Company's
operating revenue has come from resident fees, which
19
<PAGE>
comprised 99.2%, of total operating revenues for both the year ended December
31, 1995 and the six months ended June 30, 1996. Resident fees typically are
paid monthly by residents, their families or other responsible parties. All of
the Company's revenue has been derived from private pay sources. Management
services income, which on a pro forma basis after giving effect to the
Formation, accounted for the remaining 0.8% of the Company's revenues for both
the year ended December 31, 1995 and the six months ended June 30, 1996,
consists of management fees which typically range from 3.0% to 5.0% of a
managed facility's total gross revenues. Resident fees and management fees are
recognized as revenues when services are provided. After the Offering, the
Company will not receive management fees with regard to its owned facilities;
however, it will receive fees under the management contracts for the Island on
Lake Travis and Kenwood facilities.
The Company classifies its operating expenses into the following categories:
(i) facility operating expenses, which include labor, food, marketing and
other direct facility expenses and real estate taxes; (ii) general and
administrative expenses, which primarily include corporate headquarters and
other overhead costs; and (iii) depreciation and amortization.
RESULTS OF OPERATIONS
The following table sets forth certain data from the respective combined
statements of operations of the Original Facilities:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------ ------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Resident fees.................... 100.0% 100.0% 100.0% 100.0% 100.0%
Facility operating expenses.... (79.5) (74.1) (60.4) (62.5) (56.5)
General and administrative
expenses (1).................. -- -- -- -- --
Depreciation and amortization.. (24.5) (21.6) (17.0) (18.0) (14.1)
------ ------ ------ ------ ------
Income (loss) from operations.. (4.0) 4.3 22.6 19.5 29.4
Interest expense............... (27.0) (26.7) (29.1) (30.4) (24.9)
------ ------ ------ ------ ------
Income (loss) before
extraordinary item............ (31.0) (22.4) (6.5) (10.9) 4.5
Extraordinary item............. -- -- 14.9 -- --
------ ------ ------ ------ ------
Net income (loss)................ (31.0)% (22.4)% 8.4% (10.9)% 4.5%
====== ====== ====== ====== ======
Selected Operating and Other
Data:
Total units operated (2)......... 577 918 918 918 918
Occupancy rate (2)............... 79.9% 95.6% 98.1% 98.3% 99.6%
Average monthly revenue per unit
(3)............................. $1,454 $1,732 $2,015 $1,954 $2,040
</TABLE>
- ---------------------
(1) Historically, general and administrative expenses have not been incurred
with regard to the Original Facilities, however, upon the completion of
the Offering, the Company will incur and report general and administrative
expenses as a separate item. See Pro Forma Combined Condensed Statements
of Operations.
(2) Total units operated represents total units operated as of the end of the
period for Original Facilities (the Hallmark was not acquired until June
1994). Occupancy rate is calculated by dividing total occupied units by
total units operated as of the end of the period for the Original
Facilities.
(3) Average monthly revenue per unit represents the average of the total
monthly resident fees divided by occupied units at the end of the period,
averaged over the respective period presented and for the period of time
in operation during the period for the Original Facilities.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 TO SIX MONTHS ENDED JUNE 30, 1995
Revenue. Resident fees revenue increased approximately $611,000, or 5.8%, to
$11.2 million for the six months ended June 30, 1996. The increase was
primarily due to a 5% increase in average monthly revenue per unit and a 1.3%
increase in occupancy percentage from the six months ended June 30, 1995 to
the six months ended June 30, 1996. The occupancy rate for the Original
Facilities during the six months ended June 30, 1996 was 99.6% as compared to
98.3% during the six months ended June 30, 1995. The average monthly revenue
per unit increased by $86 per unit, to $2,040 per unit, for the six months
ended June 30, 1996 as compared to $1,954 per unit for the six months ended
June 30, 1995.
20
<PAGE>
Operating Expenses. Facility operating expenses decreased approximately
$285,000, or 4.3%, to $6.3 million for the six months ended June 30, 1996. The
primary reason for the decrease was due to more efficient operations at the
Original Facilities and economies of scale created by the increase in
occupancy and revenue. This was evidenced by the decrease in these expenses as
a percentage to revenue of 56.5%, for the six months ended June 30, 1996
compared to 62.5% for the six months ended June 30, 1995. In addition,
property management fees (such management fees, which were paid to PGI, will
not be payable after the Formation) decreased approximately $62,000, or 11.8%,
due primarily to a reduction of the Hallmark's management fees, effective
January 1, 1996, from 5.0% of net operating income to 3.0%.
Depreciation and amortization expense decreased approximately $325,000, or
17.0%, to $1.6 million for the six months ended June 30, 1996 primarily due to
amortization of deferred marketing fees related to the Heritage facility that
became fully amortized in August 1995. Amortization expense contributed
approximately $394,000 to depreciation and amortization expense in 1995 and
were partially offset by an increase in depreciable assets at each of the
Original Facilities.
Interest and financing fees expense decreased approximately $435,000, or
13.5%, to $2.8 million for the six months ended June 30, 1996 due primarily to
the refinancing of the Hallmark mortgage payable at the end of 1995. This
refinancing resulted in savings of approximately $342,000 as the new note
bears a fixed rate of interest of 7.265% per annum whereas the old note
accrued interest at a rate of LIBOR plus 2.5% per annum. For the six months
ended June 30, 1995, the interest rate on the old note ranged from 8.75% to
9.0%. In addition, the Devonshire and the Heritage facilities experienced
lower interest rates on their variable rate bonds for the first six months of
1996 than for the same period in 1995, which resulted in additional savings of
approximately $160,000. Interest rates on these bonds (exclusive of credit
enhancement and other fees) averaged approximately 3.4% for the six months
ended June 30, 1996 as compared to an average rate of approximately 3.9% for
the six months ended June 30, 1995. These decreases in interest expense were
slightly offset by increased financing fees associated with the Devonshire and
the Heritage bonds for the six month period ended June 30, 1996.
Net Income (Loss). Net income increased approximately $1.7 million to
approximately $499,000 for the six months ended June 30, 1996 compared to a
net loss of $1.2 million for the six months ended June 30, 1995 due primarily
to an increase in operating revenue and a decrease in operating expenses, as
described above.
COMPARISON OF YEAR ENDED DECEMBER 31, 1995 TO YEAR ENDED DECEMBER 31, 1994
Revenue. Resident fees revenue increased approximately $6.7 million, or
44.3%, to $21.9 million in 1995. Of this increase, $4.9 million related to a
full year of operations at the Hallmark facility in 1995 versus seven months
in 1994, while the remainder of this increase was due primarily to increases
in average monthly revenue per unit at the Original Facilities and occupancy
rates for 1994 as compared to 1995. The occupancy rate for the Original
Facilities during 1995 increased 2.5% to 98.1% from 95.6% during 1994. The
average monthly revenue per unit increased by $283 per unit, to $2,015 per
occupied unit, for 1995 as compared to $1,732 per unit for 1994.
Operating Expenses. Facility operating expenses increased approximately $2.0
million, or 17.6%, to $13.3 million in 1995. The primary reason for the
increase was an increase of $1.9 million in facility operating expenses at the
Hallmark facility due to a full year of operations versus only seven months in
1994. Real estate taxes increased approximately $120,000, or 13.4%, to $1.0
million in 1995 again due to a full year of taxes being expensed for the
Hallmark facility. Real estate taxes at both the Devonshire and Heritage
facilities were consistent from year to year. Property management fees (such
management fees, which were paid to PGI, will not be payable after the
Formation) increased approximately $327,000, or 44.0%, to $1.1 million in 1995
primarily due to a full year of fees assessed at the Hallmark facility and
increased revenues at the Devonshire and Heritage facilities. However, the
Original Facilities were run more efficiently and economies of scale created
by the increase in occupancy and revenue are evidenced by the reduction of
these expenses as a percentage revenue decreasing to 60.4% for the year ended
December 31, 1995 from 74.1% for the year ended December 31, 1994.
21
<PAGE>
Depreciation and amortization expense increased approximately $435,000, or
13.2%, to $3.7 million in 1995. Of this increase, approximately $511,000
related to a full year of depreciation at the Hallmark and $121,000 related to
an increase of depreciable assets at the Original Facilities. These increases
were partially offset by a decrease of $197,000 in the amortization of
deferred marketing costs at the Heritage facility that became fully amortized
in mid 1995.
Interest and financing fees expense increased 57.5%, or $2.3 million, to
$6.4 million. Of this increase, approximately $1.7 million was due to twelve
months of interest expense at the Hallmark facility for 1995 in comparison to
only seven months in 1994. In addition, approximately $612,000 of additional
interest expense related to the variable-rate bonds that encumber both the
Devonshire and Heritage facilities was recognized in 1995 due to increased
interest rates. Interest rates on the bonds (exclusive of credit enhancement
and other fees) averaged 3.94% in 1995 versus 2.87% in 1994. The Devonshire
and Heritage facilities also realized an increase in financing fees in 1995 as
a standard fee of 1.35% of the outstanding bond balance was imposed. This
created a $135,000 increase in financing fees from the prior year. The above
mentioned increases were partially offset by a $117,000 reduction to interest
expense related to a note payable to an affiliate that was paid off in 1994.
In December 1995, the owner of the Hallmark facility repaid its original
mortgage note from the proceeds of a new note at a discount of approximately
$3.3 million, which was recognized as an extraordinary gain on the
extinguishment of debt.
Net Income (Loss). Net income increased approximately $5.3 million to $1.9
million in 1995 compared to a net loss of $3.4 million in 1994 due primarily
to an extraordinary gain on the extinguishment of the mortgage debt on the
Hallmark facility debt and increased revenues at the Original Facilities, both
described above. Partially offsetting the extraordinary gain and increase in
operating revenue was an increase in operating expenses, as described above.
COMPARISON OF YEAR ENDED DECEMBER 31, 1994 TO YEAR ENDED DECEMBER 31, 1993
Revenue. Resident fees revenue increased approximately $8.6 million, or
129.1%, to $15.2 million in 1994. The increase was primarily due to the
addition of the Hallmark facility in 1994 that contributed approximately $4.7
million to total revenues. In addition, the Heritage facility experienced a
$3.4 million increase in revenues due to a full year of operations in 1994
(the Heritage facility opened in September 1993). The balance of the increase
was related to an increase in the average monthly revenue per unit for the
Devonshire and Heritage facilities of $99 to $1,553 for 1994 from $1,454 for
1993 and a 18.7% increase in occupancy rate to 98.6% for 1994 from 79.9% for
1993. Overall average monthly revenue per unit increased $278 and overall
occupancy percentage increased 15.7% from 1993 to 1994 to $1,732 and 95.6%,
respectively.
Operating Expenses. Facility operating expenses increased approximately $6.0
million, or 113.5%, to $11.3 million in 1994, primarily due to the addition of
the Hallmark facility and a full year of operations at the Heritage facility.
Real estate taxes increased approximately $470,000, or 112.9%, to $887,000 due
to the factors mentioned above and a higher assessed real estate valuation for
the Devonshire facility. Property management fees (such management fees, which
were paid to PGI, will not be payable after the Formation) increased
approximately $418,000, or 128.3%, to $744,000 due to increased revenue.
However, the Original Facilities experienced economies of scale created by the
increase in occupancy and revenue as evidenced by the reduction of these
expenses as a percentage of revenue decreasing to 74.1% for 1994 from 79.5%
for 1993.
Depreciation and amortization expense increased approximately $1.7 million,
or 102.1%, to $3.3 million. Of this increase, the addition of the Hallmark
facility contributed $700,000 in depreciation and a full year of operations
for the Heritage facility resulted in an additional $966,000 of depreciation
and amortization.
Total interest and financing fees expense increased approximately $2.3
million, or 126.3%, to $4.1 million due primarily to $1.4 million in interest
expense incurred in 1994 on the mortgage note secured by the Hallmark
22
<PAGE>
facility. In addition, interest and related financing fees on the variable
rate bonds related to the Heritage facility increased $942,000 in 1994 as
these amounts were expensed commencing in September 1993. Prior to this time,
interest and financing fees were capitalized as part of the cost of the
building. The balance of the increase was due to increased interest rates on
the Devonshire's variable rate bonds.
Net Loss. Net loss increased approximately $1.3 million, or 65.4%, to $3.4
million in 1994 compared to a net loss of $2.1 million in 1993 due primarily
to an increase in total expenses as described above. Partially offsetting the
increase in operating expenses was an increase in operating revenue, as
described above.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided (used) by operations totaled $2.4 million and $1.0 million
for the six months ended June 30, 1996 and 1995, respectively, and $1.4
million, $2.3 million and ($1.1) million for each of the three years ended
December 31, 1995, 1994 and 1993, respectively. The variance in cash flows
from operations during the foregoing periods resulted primarily from the
effects of increases in various liabilities in 1994 due to the acquisition of
the Hallmark facility and improved operating results of the Original
Facilities during the six months ended June 30, 1996. Cash totaled $5.4
million, $4.4 million, $4.2 million, $4.1 million and $496,810 at June 30,
1996 and 1995 and December 31, 1995, 1994 and 1993, respectively.
Net cash used in investing activities totaled approximately $149,000 and
$94,000 for the six months ended June 30, 1996 and 1995, respectively, and
approximately $167,000, $43.8 million and $12.9 million for the years ended
December 31, 1995, 1994 and 1993, respectively. Brookdale's investing
activities included capital expenditures of $42.1 million related to the
acquisition of the Hallmark facility in 1994, $9.9 million for the completion
of the Heritage facility in 1993 and improvements to existing operations
totaling $106,825 and $79,754 for the six months ended June 30, 1996 and 1995,
respectively, and $238,633, $1.1 million and $144,100 for the years ended
December 31, 1995, 1994 and 1993, respectively.
Management believes that its capital expenditure program is adequate to
expand, improve and equip its existing facilities, and expects to finance such
expenditures primarily through cash flows from operations. Excluding the
acquisition and development of new facilities, management believes that
capital expenditures related to the construction of the 82-bed skilled nursing
facility adjacent to the Devonshire facility will approximate $5.0 million and
the expansion of the Hawthorn Lakes facility will approximate $5.0 million.
The funds necessary for such capital expenditures will be derived from the
Offering, accumulated cash balances and cash generated from operations.
Net cash (used in) provided by financing activities was approximately
($967,000) and ($566,000) for the six months ended June 30, 1996 and 1995,
respectively, and ($1.2) million, $45.1 million and $12.1 million for the
years ended December 31, 1995, 1994 and 1993, respectively. The activity
primarily relates to the payment of debt principal and distributions to
partners and additional financing and partner contributions to fund the
acquisition of the Hallmark facility in 1994 and the completion of the
Heritage facility in 1993.
Brookdale plans to retain future earnings, if any, to finance the growth of
its business rather than to pay cash dividends. Payments of any cash dividends
in the future will depend on the financial condition, results of operations
and capital requirements of the Company as well as other factors deemed
relevant by the Board of Directors.
The Company currently plans to acquire approximately three to five
facilities per year containing an aggregate of approximately 800 to 1,000
units, and to commence development of at least three new facilities per year
containing approximately 200 units each in urban and suburban areas in major
metropolitan markets. The Company anticipates that it will use a combination
of net proceeds from the Offering, equity and debt financing and cash
generated from operations to fund its acquisition and development activity. In
order to achieve its growth plans, the Company will be required to obtain a
substantial amount of additional financing.
23
<PAGE>
The Company expects to enter into the $75.0 million Acquisition Line and has
received preliminary term sheets from two financial institutions. The term
sheets provide that such amount would be available for two years to be
collateralized by a first mortgage on facilities to be acquired and in loan
amounts equal to approximately 65% to 75% of the purchase price and approved
capital expenditures. The mortgage loans made under the Acquisition Line would
bear interest at 30-day LIBOR plus 2% per annum with monthly interest-only
payments. The mortgage loans would mature approximately one year after closing
such loans with the option of the Company to extend for an additional six
months. There can be no assurance that the Acquisition Line will be available
on the above terms. See "Risk Factors--Need for Additional Financing."
The Company has $99.5 million of long-term indebtedness as of June 30, 1996
($128.0 million pro forma after giving effect to the Formation) of which $65.0
million is tax-exempt bonds with floating rates. See Unaudited Pro Forma
Combined Condensed Financial Statements contained elsewhere in this
Prospectus. The interest rates (exclusive of credit enhancement and other
fees) on such debt averaged 2.87% in 1995 and 3.94% in 1994. Such tax-exempt
bonds contain covenants requiring the facilities to maintain a minimum number
of units for income qualified residents. The Company may enter into similar
bond financing in the future. See "Risk Factors--Adverse Consequences of
Indebtedness."
Following the Offering, the Company will be dependent on third-party
financing for its acquisition and development program. Except for the
Acquisition Line, the Company has no other arrangements for financing. There
can be no assurance that financing for the Company's acquisition and
development program will be available to the Company on acceptable terms or at
all. Moreover, to the extent the Company acquires facilities that do not
generate positive cash flow (after financing costs), the Company may be
required to seek additional capital for working capital and liquidity
purposes. See "Risk Factors--Need for Additional Financing."
IMPACT OF INFLATION
Resident fees from senior and assisted living facilities owned by the
Company and management fees from facilities operated by the Company are its
primary sources of revenue. These revenues are affected by monthly fee rates
and facility occupancy rates. The rates charged for the delivery of senior and
assisted living services are highly dependent upon local market conditions and
the competitive environment in which the facilities operate. In addition,
employee compensation expense is a principal cost element of facility
operations. Substantially all of the Company's resident agreements are for
terms of approximately one year and allow, at the time of renewal, for
adjustments in the monthly fees payable thereunder, and thus may enable the
Company to seek increases in monthly fees due to inflation or other factors.
Any such increase would be subject to market and competitive conditions and
could result in a decrease in occupancy at the Company's facilities. The
Company believes, however, that the short-term nature of its resident
agreements generally serves to reduce the risk to the Company of the adverse
effect of inflation. There can be no assurance that resident fees will
increase or that costs will not increase due to inflation or other causes. See
"Risk Factors--Adverse Consequences of Indebtedness; Floating Rate Debt."
24
<PAGE>
BUSINESS
OVERVIEW
Brookdale provides senior and assisted living services to the elderly
through its facilities that are located in urban and suburban areas of major
metropolitan markets. The Company operates nine senior and assisted living
facilities containing a total of 1,968 units and, as of August 31, 1996,
Brookdale's units were approximately 99% occupied. The Company owns seven of
such facilities and manages two facilities pursuant to management contracts.
With facilities that contain an average of 220 units, the Company believes
Brookdale is able to achieve economies of scale within its facilities and
provide senior and assisted living services in a more cost-effective manner.
The Company plans to acquire approximately three to five facilities per year
containing an aggregate of approximately 800 to 1,000 units, and to commence
development of at least three new facilities per year containing approximately
200 units each. Brookdale had pro forma revenues and net income for the six
months ended June 30, 1996 of $19.1 million and $0.7 million, respectively.
All of the Company's revenues are derived from private pay sources. See "Risk
Factors--Future Acquisition Risks; Difficulties of Integration," "--
Development and Construction Risks" and "--Need for Additional Financing."
Brookdale's facilities are designed for middle to upper income residents who
desire an upscale residential environment providing the highest level of
quality, care and value. The Company's objective is to allow its residents to
age in place by providing them with a continuum of senior and assisted living
services. By providing residents a range of service options as their needs
change, Brookdale seeks to achieve a greater continuity of care, thereby
enabling seniors to maintain their residency for a longer time period. The
ability to allow residents to age in place is beneficial to Brookdale's
residents as well as their families who are burdened with care option
decisions for their elderly relatives. In addition to studio, one-bedroom and
two-bedroom units, the Company provides all residents with basic services,
such as meal service, 24-hour emergency response, housekeeping, concierge
services, transportation and recreational activities. For residents who
require additional supplemental care services, the Company provides assistance
with certain activities of daily living. The average age of Brookdale's
residents is approximately 82 years old, and many of these residents require
some level of assistance with their activities of daily living. Supplemental
care services are provided either by the Company or by outside services or
agencies. It is the Company's intention to bring "in-house" as many of these
services as practicable.
THE SENIOR AND ASSISTED LIVING INDUSTRY
The senior and assisted living industry is a rapidly growing component of
the non-acute health care system for the elderly. According to industry
analysts, the senior and assisted living industry generated approximately $10
to $12 billion in revenues in 1995 and are expected to grow significantly over
the next several years. The senior living industry serves the needs of the
elderly who require or prefer occasional assistance with the activities of
daily living and who no longer desire, or cannot maintain, an independent
lifestyle. It is estimated that 35% of the people over age 85 require
assistance with at least one activity of daily living, such as bathing,
eating, personal hygiene, grooming and dressing. The senior and assisted
living industry remains highly fragmented, with only 5% of the industry's
units operated by the 20 largest companies in the industry, which provides
opportunities for industry consolidation.
The rapid growth of the senior and assisted living industry is supported by
several significant trends, including the following:
FAVORABLE DEMOGRAPHICS. The primary consumers of senior and assisted living
services are persons over age 65. This group represents one of the fastest
growing segments of the U.S. population. According to U.S. Bureau of the
Census data, the number of people in the U.S. age 65 and older increased by
more than 27% from 1981 to 1994, growing from 26.2 million to 33.2 million.
The segment of the population over 85 years of age, which comprises the
largest percentage of residents at senior care facilities, is projected to
increase by more than 40% between the years 1990 and 2000. Brookdale believes
that these trends, depicted in the graph below, will contribute to continued
strong demand for senior and assisted living services.
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PROJECTED PERCENTAGE CHANGE IN THE ELDERLY POPULATION OF THE U.S.
[GRAPH APPEARS HERE]
CONSUMER PREFERENCE. The Company believes that senior and assisted living
facilities provide prospective residents and their families with an attractive
alternative to skilled nursing facilities. Senior and assisted living
facilities, which are generally furnished by residents, allow residents to age
in place and preserve their independence in a more residential setting. The
Company believes these factors result in a higher quality of life than that
experienced in the more institutional or clinical settings, such as skilled
nursing facilities.
COST-EFFECTIVE ALTERNATIVE. The annual per resident cost for senior and
assisted living care is significantly less than the annual per resident cost
for skilled nursing care. The Company believes that the cost of senior and
assisted living care (which includes housing and meal preparation) compares
favorably with home health care when the costs associated with housing and meal
preparation are added to the costs of home health care. Pricing pressure is
also forcing skilled nursing facilities to shift their focus toward providing
more intense levels of care enabling them to charge higher fees, thus adding to
the shortage of facilities where less intensive care is available. The rapid
growth of the elderly population coupled with continuing constraints on the
supply and availability of long term care beds is leading to a continued
shortage of long term care beds for the elderly, as the table below
illustrates.
DECLINE IN NURSING BEDS PER THOUSAND
FOR INDIVIDUALS 85 YEARS OR OLDER
[GRAPH APPEARS HERE]
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CHANGING FAMILY DYNAMICS. As a result of the growing number of two-income
families, many children are not able to care for elderly parents in their own
homes. Two-income families are, however, better able to provide financial
support for elderly parents. In addition, other factors, such as the growth in
the divorce rate and single-parent households, as well as the increasing
geographic dispersion of families, have contributed to the growing inability
of children to care for aging parents in the home.
BUSINESS AND GROWTH STRATEGY
The Company's business and growth strategy is based on the following key
elements:
ACQUIRE EXISTING SENIOR AND ASSISTED LIVING FACILITIES. The Company believes
that significant opportunities exist to take advantage of the fragmented
senior and assisted living industry by selectively acquiring existing
facilities. Simultaneously with the Offering, the Company will purchase the
Acquired Facilities, consisting of the Gables at Brighton, a 103-unit facility
in the Rochester, New York metropolitan area and 588 units in three facilities
located in the Chicago, Illinois, Minneapolis, Minnesota and Phoenix, Arizona
metropolitan areas. The Company's acquisition strategy will focus primarily on
facilities that are designed or can be repositioned by the Company for middle
to upper-income private pay residents. Acquisitions will primarily consist of
large facilities, similar to the Company's current facilities that contain an
average of 220 units, located in urban and suburban areas of major
metropolitan markets. The Company believes that its future acquisitions will
offer opportunities to enhance income by bringing supplemental services in-
house and by operating its facilities more efficiently by implementing the
Company's standardized operating procedures. See "Risk Factors--Uncertainty of
Proposed Acquisitions; Difficulties of Integrating the Acquired Facilities"
and
"--Future Acquisition Risks; Difficulties of Integration."
DEVELOP THE BROOKDALE PROTOTYPE FACILITY IN TARGETED MARKETS. The Company
intends to leverage its development expertise and construct its prototype
facility in selected sites located in urban and suburban areas of major
metropolitan markets. The Company's prototype facility, which is flexible and
can be adapted to the specific requirements of individual markets and site
requirements, contains 175 units, but can be constructed to accommodate
between 150 and 225 units. The prototype offers a mix of studio, one-bedroom
and two-bedroom units and common areas providing premium amenities. The
Company intends to begin development of three facilities in each of the next
five years, and anticipates that each development will require approximately
20 to 24 months from pre-development to completion of construction. See "Risk
Factors--Development and Construction Risks."
PROVIDE A FULL CONTINUUM OF SENIOR AND ASSISTED LIVING SERVICES. The
Company's strategy is to provide a full continuum of senior and assisted
living services allowing its residents' to age in place. This allows the
Company's residents to obtain a range of care as they become more frail or as
their health care needs become more acute. These services are provided either
by the Company or by outside services or agencies. It is the Company's
strategy to increase the availability of additional services and to capture
the majority of the revenue generated by providing these services through
Company employees. In addition, one of Brookdale's goals is to establish
hospital affiliations for each of its facilities. Hospital affiliations
provide for on-site physician and nursing services and facilitate the
provision of health care services and wellness programs to the Company's
residents and provide the Company a referral source. In order to offer
residents a complete range of care options, the Company is presently
developing an 82-bed skilled nursing facility on the campus of the Devonshire
facility. The Company may pursue the development of additional skilled nursing
facilities at its other facilities in selected markets. See "Risk Factors--
Development and Construction Risks," "Use of Proceeds" and "Business--Hospital
Affiliation."
UTILIZE SOPHISTICATED MARKETING AND MANAGEMENT PROGRAMS. The Company
utilizes sophisticated marketing and management programs to achieve high
occupancy rates and financial performance, which as of August 31, 1996 was
approximately 99% in the Original Facilities. The Company believes that its
programs will improve the occupancy rates of facilities that the Company
acquires in the future. The Company's marketing programs are designed to
create community awareness of the Company, its facilities and its services,
and to
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cultivate relationships with referral sources such as health care providers,
physicians, clergy, area agencies for the elderly, home health agencies and
social workers. In addition, hospital affiliations have been successfully
implemented by the Company at the Original Facilities, which provide referrals
of prospective residents. The Company believes that the success of its
marketing programs is demonstrated not only by its high occupancy rates, but
also by the Company's ability to maintain waiting lists at its facilities for
prospective residents who pay a deposit in order to be included on such lists.
See "Business--Company Operations--Marketing and Sales."
UTILIZE OPERATIONAL EXPERTISE TO ENHANCE PROFITABILITY. The Company has
developed and successfully implemented sophisticated management and
operational procedures at its Original Facilities resulting in strong
operating margins and occupancy rates at these facilities. These procedures
include securing national vendor contracts where feasible to ensure consistent
low pricing, implementing sophisticated budgeting and financial controls at
each facility and establishing standardized training and operations
procedures. The Company believes that the systematic implementation of its
management and operations policies will enable the Company to enhance the
financial performance of acquired and developed facilities and continue to
improve the profitability of its stabilized facilities. See "Risk Factors--
Future Acquisition Risks; Difficulties of Integration."
EXPAND FACILITIES WHERE ECONOMICALLY ADVANTAGEOUS. The Company has found
that certain senior and assisted living facilities with stabilized occupancies
benefit from additions and expansions offering increased capacity, as well as
additional levels of service for higher acuity residents. Furthermore, the
expansion of existing facilities allows the Company to enhance its economies
of scale by increasing the revenue base while leveraging the existing
facility's infrastructure such as laundry and the kitchen. In addition to the
82-bed skilled nursing facility at the Devonshire facility, the Company is
currently planning to expand its Hawthorn Lakes facility in Vernon Hills,
Illinois with an additional 57 units. See "Risk Factors--Development and
Construction Risks."
FACILITIES
The following table sets forth certain information regarding the Company's
facilities:
<TABLE>
<CAPTION>
YEAR ACQUIRED OR OCCUPANCY OWNED OR
FACILITY LOCATION UNITS OPENED DEVELOPED RATE(1) MANAGED(2)
<S> <C> <C> <C> <C> <C> <C>
The Hallmark(3)......... Chicago, IL 341 1990 Acquired 100% Owned
The Devonshire(3)....... Lisle, IL 323 1990 Developed 98% Owned
The Heritage(3)......... Des Plaines, IL 254 1993 Developed 100% Owned
The Island on Lake
Travis(4).............. Lago Vista, TX 206 1988 N/A 97% Managed
Hawthorn Lakes(5)....... Vernon Hills, IL 202 1987 Acquired 99% Owned
Edina Park Plaza(5)..... Edina, MN 201 1987 Acquired 96% Owned
The Springs of East
Mesa(5)................ Mesa, AZ 185 1986 Acquired 99% Owned
The Kenwood(6).......... Minneapolis, MN 153 1987 N/A 100% Managed
The Gables at
Brighton(5)............ Brighton, NY 103 1988 Acquired 100% Owned
-----
Total Units(7)...... 1,968
</TABLE>
- ---------------------
(1) The occupancy rate, which is calculated by dividing the number of occupied
units by the number of available units, was determined as of August 31,
1996.
(2) All facilities indicated as "Owned" are 100% owned by Brookdale.
(3) This facility is one of the Original Facilities.
(4) See "Certain Transactions" for a description of the management agreement
for this facility.
(5) This facility is one of the Acquired Facilities.
(6) The management agreement for this facility is expected to have a ten-year
term, cancellable upon six months' notice after the 29th month of its
term, and a base management fee of 3.0% of gross revenues. In addition,
the management agreement is expected to provide the Company with an option
to purchase this facility.
(7) Excluding the planned 82-bed skilled nursing facility at the Devonshire
facility and the 57-unit expansion at the Hawthorn Lakes facility.
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SERVICES
The Company's senior and assisted living facilities offer residents personal
support services and assistance with certain activities of daily living in a
supportive, home-like setting. Residents of the Company's facilities are
typically unable or choose not to live independently, but do not require the
24-hour nursing care provided in skilled nursing facilities. The Company's
service options are designed to meet residents' changing needs and to achieve
a continuity of care, enabling seniors to age in place and thereby maintain
their residency for a longer time period.
BASIC CARE PROGRAM
The basic care package, which is received by all residents, includes meal
service, housekeeping services within the resident's unit, social and
recreational activities, scheduled transportation to medical centers and
shopping, security, emergency call response, access to on-site medical
services and medical education and wellness programs.
SUPPLEMENTAL CARE SERVICES
In addition to the basic care services, the Company offers custom tailored
supplemental care services for residents who desire or need such services.
Optional supplemental care services include check-in services and shopping,
escort and companion services. Residents with cognitive or physical frailties
and higher level service needs are either accommodated with supplemental
services in their own units or, in certain facilities, are cared for in a more
structured and supervised environment on a separate wing or floor of the
facility with a dedicated staff and with separate dining rooms and activity
areas. Residents with such frailties typically receive personal care and
assistance and personal care with activities of daily living.
At present, many residents receive supplemental services from outside third
parties. The Company has also established a program providing various levels
and combinations of supplemental care services called "Personally Yours"(TM).
This personal service program provides certain non-licensed services, such as
companion services, assistance with dressing and bathing, medication
reminders, check-in services, shopping and escort services. The Company plans
to expand its supplemental service offerings in order to capture incremental
revenue and enable its residents to remain in its facilities longer. In
addition, where practicable, the Company intends to obtain licensure to
provide licensed home health services to residents.
Certain services, such as physician care, infusion therapy, physical and
speech therapy and other home health care services, are provided to many of
Brookdale's residents who need these services by third parties. The Company
assists residents in locating qualified providers for such health care
services.
COMPANY OPERATIONS
OVERVIEW
The Company continually reviews opportunities to expand the amount of
services it provides to its residents. To date, the Company has been able to
increase its monthly service fees on an annual basis and has experienced
increasing facility operating margins at the Original Facilities through a
combination of the implementation of efficient operating procedures and the
economies of scale associated with its larger than average facilities. The
Company's operating procedures include securing national vendor contracts
where appropriate to obtain consistent low pricing, implementing sophisticated
budgeting and financial controls at each facility and establishing
standardized training and operations procedures. The Company believes that
successful senior and assisted living operators must combine health care,
hospitality and real estate operations expertise.
Brookdale has implemented intensive standards, policies and procedures
systems, including detailed staff manuals, which the Company believes has
contributed to Brookdale's high facility operating margins. The Company has
centralized accounting, finance and other operating functions at its corporate
headquarters so that, consistent with its operating philosophy, facility-based
personnel focus on resident care. Headquarters staff in Chicago, Illinois are
responsible for: the establishment of Company-wide policies and procedures
relating to, among other things, resident care, facility design and facility
operations; billings and collections; accounts payable; finance and
accounting; development of employee training materials and programs; marketing
activities; the hiring and training of management and other facility-based
personnel; compliance with applicable local and state regulatory requirements;
and implementation of the Company's acquisition and development plans.
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<PAGE>
FACILITY STAFFING AND TRAINING
Each facility has an Executive Director responsible for the day-to-day
operations of the facility, including quality of care, social services and
financial performance. Each Executive Director receives specialized training
from the Company. In addition, a portion of each Executive Director's
compensation is directly tied to the operating performance of the facility and
to the maintenance of high occupancy levels. The Company believes that the
quality and size of its facilities, coupled with its competitive compensation
philosophy, have enabled it to attract high-quality, professional
administrators. Each Executive Director is supported by a Resident Services
Director who is directly responsible for day-to-day care of the residents, and
by a Marketing Director, who oversees marketing and community outreach
programs. Other key positions at each facility include the Food Service
Director, the Activities Director, the Housekeeping Director, the Engineering
Director and the Business Manager. See "Risk Factors--Dependence on Senior
Management and Skilled Personnel."
The Company believes that quality of care and operating efficiency can be
maximized by direct resident and staff contact. Employees involved in resident
care, including the administrative staff, are trained in the support and care
needs of the residents and emergency response techniques. The Company has
adopted formal training and evaluation procedures to help ensure quality care
for its residents. The Company has extensive policy and procedure manuals for
each department, and holds ongoing training sessions for management and staff
at each site. See "Risk Factors--Difficulties of Managing Rapid Growth."
QUALITY ASSURANCE
The Company maintains quality assurance programs at each of its facilities
through its corporate headquarters staff. The Company's quality assurance
program is designed to achieve a high degree of resident and family member
satisfaction with the care and services provided by the Company. The Company's
quality control measures include, among other things, facility inspections
conducted by corporate staff on at least a monthly basis. These inspections
cover: the appearance of the exterior and grounds; the appearance and
cleanliness of the interior; the professionalism and friendliness of staff;
resident care plans; the quality of activities and the dining program;
observance of residents in their daily living activities; and compliance with
government regulations.
The Company's quality control measures also include the survey of residents
and family members on a regular basis to monitor the quality of services
provided to residents. The survey process begins with a visitor's survey sent
one week following a potential resident's visit to a facility to ascertain his
or her opinions and initial impressions. Detailed annual written surveys and
exit surveys are used to appraise and monitor the level of satisfaction of
residents and their families with facility operations and services.
In order to foster a sense of community as well as to respond to residents'
desires, at each facility the Company has initiated the establishment of a
resident council, an advisory committee elected by the residents, that meets
monthly with the Executive Director of the facility. Separate resident
committees also exist for food service, activities, marketing and hospitality.
These committees promote resident involvement and satisfaction and enable
facility management to be more responsive to the residents' needs and desires.
MARKETING AND SALES
The Company's marketing strategy is intended to create awareness of the
Company and its services among potential residents and their family members
and referral sources, such as hospital discharge planners, physicians, clergy,
area agencies for the elderly, skilled nursing facilities, home health
agencies and social workers. Brookdale's marketing staff develops overall
strategies for promoting the Company and monitors the success of the Company's
marketing efforts. Each facility has a Director of Marketing who oversees the
facility's marketing and outreach programs and supervises the on-site
marketing staff and move-in coordinators. Besides direct contacts with
prospective referral sources, the Company also relies on print advertising,
yellow pages advertising, direct mail, signage and special events, such as
grand openings for new facilities, health fairs and community receptions. In
addition, resident referral programs have been established and are promoted at
each facility. See "Risk Factors--Competition."
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<PAGE>
HOSPITAL AFFILIATIONS
Another key element in the Company's strategy is to establish affiliations
between Brookdale's facilities and hospitals. The Original Facilities have
affiliation agreements with local hospitals. In addition, the Company is in
the process of arranging hospital affiliations for each of the Acquired
Facilities, and intends to arrange such affiliations for facilities that it
acquires or develops in the future. Hospital affiliations provide for on-site
physician and nursing services and facilitate the provision of health care
services and wellness programs to the Company's residents and provide the
Company with a referral source.
ACQUISITIONS AND DEVELOPMENT
The Company evaluates markets for acquisition and development opportunities
based on demographics and market studies. The Company's acquisition and
development strategy will focus on the urban and suburban areas of major
metropolitan areas.
ACQUISITIONS
The Company currently expects to acquire three to five facilities per year
containing an aggregate of approximately 800 to 1,000 units. The Company may
acquire facilities as a means of entry to new markets and may also seek to
acquire facilities within its existing markets to gain further market share
and leverage its existing market awareness. Acquisitions are expected to
primarily consist of large facilities that are similar to the Company's
current facilities, which average approximately 220 units per facility. In
reviewing acquisition opportunities, the Company considers, among other
things, underlying demographics, facility location within its neighborhood or
community, the current reputation of the facility in the marketplace and the
ability of the Company to improve a facility's operations. Further, the
Company evaluates the opportunity to improve or enhance services and operating
results through the implementation of the Company's standard operating
procedures. See "Risk Factors--Future Acquisition Risks; Difficulties of
Integration" and "--Need for Additional Financing."
The Company acquired The Hallmark, a 341-unit facility in Chicago, Illinois
in June 1994. Simultaneously with the Offering, the Company will purchase the
Acquired Facilities consisting of the Gables at Brighton, a 103-unit facility
in Brighton, New York, and 588 units in three facilities located in the
Chicago, Illinois, Minneapolis, Minnesota and Phoenix, Arizona metropolitan
areas. In addition, in connection with its acquisition of the Acquired
Facilities, the Company will enter into a management contract to operate a
150-unit facility in Minneapolis, Minnesota which also provides Brookdale with
an option to acquire such facility. The Company believes that the Acquired
Facilities are similar to the Company's existing facilities and offer
opportunities to enhance income through changes such as bringing supplemental
services in-house and implementing the Company's standardized operating
procedures. Management has extensive contacts in the senior and assisted
living and the health care industries, and the Company is frequently presented
with opportunities to acquire, develop or manage senior and assisted living
facilities. The Company is involved in ongoing discussions with owners of
facilities for future acquisition opportunities. The Company has a full time
staff, including its Director of Acquisitions, dedicated to seeking,
negotiating and closing acquisition transactions. See "Risk Factors--
Uncertainty of the Proposed Acquisitions; Difficulties of Integrating the
Acquired Facilities."
DEVELOPMENT
The Company developed the 323-unit Devonshire facility that opened in 1990
and the 254-unit Heritage facility that opened in 1993. The Company currently
intends to commence the development of approximately three facilities per
year. The Company's flexible prototype facility contains 175 units, but can be
constructed to accommodate between 150 to 225 units. The size of a particular
facility will depend on site size, zoning and underlying market
characteristics. The Company's 175-unit prototype contains approximately
165,000 square feet in a four-story building and contains a mix of studio,
one-bedroom and two-bedroom units. In addition to the living units, the
Company's prototype contains common areas for residents, including a living
room, library,
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<PAGE>
billiards room, multi-purpose room, arts and crafts room, exercise room,
convenience store, beauty/barber shop, mail room, dining room and private
dining room. The Company anticipates that new developments will require eight
to 10 months for pre-construction development, 12 to 14 months for
construction and approximately 12 months to achieve stabilized occupancy. The
development costs for the 175-unit prototype are estimated to be approximately
$20 million, or approximately $110,000 per unit.
The Company evaluates markets in which to develop its prototype based on a
number of factors, including demographic profiles of both potential residents
and their adult children, existing competitors and lack of new entrants,
estimated market demand and zoning prospects. Site selection is based on
established criteria relating to land cost and conditions, visibility,
accessibility, immediate adjacencies, community perception and zoning
prospects. Full market feasibility studies, which include evaluations of all
potential competitors, extensive interviews with key community sources and
health care providers and demographic studies, are conducted for each site.
The Company is presented with potential sites by independent brokers,
developers, health care organizations and financial institutions and through
internal site identification. If a site meets the Company's general market
criteria, then the Company will order a preliminary market study by an
independent third party. If the market study indicates that the site meets its
selection criteria, the Company will then conduct a more in-depth analysis of
the market to ensure there is a demonstrated need for senior and assisted
living services and that the site is appropriate in terms of location, size
and zoning. If the market and site meet all of the Company's selection
criteria, the property will be purchased for development. See "Risk Factors--
Development and Construction Risks" and "--Need for Additional Financing."
COMPETITION
The senior and assisted living services and health care industries are
highly competitive and the Company expects that the senior and assisted living
business in particular will become more competitive in the future. The Company
will continue to face competition from numerous local, regional and national
providers of senior and assisted living services. The Company will compete
with such facilities primarily on the bases of cost, quality of care, array of
services provided and physician referrals. The Company will also compete with
companies providing home based health care based on those factors as well as
the reputation, geographic location and physical appearance of facilities and
family preferences. Some of the Company's competitors operate on a not-for-
profit basis or as charitable organizations, or have, or may obtain, greater
financial resources than those of the Company.
Moreover, in the implementation of the Company's business and growth
strategy, the Company expects to face competition for the acquisition and
development of senior and assisted living facilities. Consequently, there can
be no assurance that the Company will not encounter increased competition in
the future which could limit its ability to attract residents or expand its
business and could have a material adverse effect on the Company's financial
condition, results of operations and prospects. See "Risk Factors--
Competition."
GOVERNMENTAL REGULATION
Senior and assisted living facilities are subject to varying degrees of
regulation and licensing by local and state health and social service agencies
and other regulatory authorities. While regulations and licensing requirements
often vary significantly from state to state, they typically address, among
other things: personnel education, training and records; facility services;
physical plant specifications; furnishing of resident units; food and
housekeeping services; emergency evacuation plans; and resident rights and
responsibilities. In most states, senior and assisted living facilities also
are subject to state or local building codes, fire codes and food service
licensure or certification requirements. Assisted living facilities may be
subject to periodic survey or inspection by governmental authorities. In
Illinois, where the Original Facilities are located, and perhaps in certain
other states in which the Company may operate in the future, the Company may
be unable to provide certain higher levels of assisted living services without
obtaining the appropriate licenses, if applicable. The Company's success will
depend in part on its ability to satisfy such regulations and requirements and
to acquire and maintain required licenses. The Company's operations could also
be adversely affected by, among other things, regulatory developments such as
revisions in licensing and certification standards.
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Some states have adopted certificate of need or similar laws applicable to
assisted living and nursing facilities which generally require that the
appropriate state agency approve certain acquisitions or capital expenditures
and determine that a need exists for certain new bed additions or new
services. Many states have placed a moratorium on granting certificates of
need or otherwise stated their intent not to grant approval for such
expenditures. To the extent certificates of need or other similar approvals
are required for expansion of Company operations, such expansion could be
adversely affected by the failure or inability to obtain the necessary
approvals, or possible delays in obtaining such approvals.
Although the Company currently does not participate in the Medicare or
Medicaid programs, the hospitals with which it has affiliations do participate
in those programs and the Company intends to participate in the Medicare
program at the skilled nursing facility to be constructed at the Devonshire
facility. Also, all of the Company's residents are eligible for Medicare
benefits. Therefore, certain aspects of the Company's business are and will be
subject to federal and state laws and regulations which govern financial and
other arrangements between and among healthcare providers, suppliers and
vendors. These laws prohibit certain direct and indirect payments and fee-
splitting arrangements designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider or other entity
or person for medical products and services. These laws include, but are not
limited to, the federal "anti-kickback law" which prohibits, among other
things, the offer, payment, solicitation or receipt of any form of
remuneration in return for the referral of Medicare and Medicaid patients. The
Office of the Inspector General of the Department of Health and Human
Services, the Department of Justice and other federal agencies interpret these
statutes liberally and enforce them aggressively. Members of Congress have
proposed legislation that would significantly expand the federal government's
involvement in curtailing fraud and abuse and increase the monetary penalties
for violation of these provisions. Violation of these laws can result in,
among other things, loss of licensure, civil and criminal penalties for
individuals and entities, and exclusion of health care providers or suppliers
from participation in the Medicare and/or Medicaid programs.
In addition, although the Company is not a Medicare or Medicaid provider or
supplier, it is subject to these laws because (i) the state laws typically
apply regardless of whether Medicare or Medicaid payments are at issue, (ii)
the Company plans to build and operate a skilled nursing facility at its
Devonshire facility and may establish licensed home health agencies which are
intended to participate in Medicare, and (iii) as required under some state
licensure laws, and for the convenience of its residents, some of the
Company's senior and assisted living facilities maintain contracts with
hospitals, who in turn maintain contracts with certain health care providers
and practitioners, including pharmacies, home health agencies and hospices,
through which the health care providers make their health care items or
services (some of which may be covered by Medicare or Medicaid) available to
facility residents. There can be no assurance that such laws will be
interpreted in a manner consistent with the practices of the Company.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist which also may require modifications to existing and planned
properties to create access to the properties by disabled persons. While the
Company believes that its properties are substantially in compliance with
present requirements or are exempt therefrom, if required changes involve a
greater expenditure than anticipated or must be made on a more accelerated
basis than anticipated, additional costs would be incurred by the Company.
Further legislation may impose additional burdens or restrictions with respect
to access by disabled persons, the costs of compliance with which could be
substantial.
The Company and its activities are subject to zoning and other state and
local government regulations. Zoning variances or use permits are often
required for construction. Severely restrictive regulations could impair the
ability of the Company to open additional facilities at desired locations or
could result in costly delays, which could adversely affect the Company's
business and growth strategy and results of operations. See "Risk Factors--
Development and Construction Risks" and "-- Governmental Regulation."
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EMPLOYEES
The Company has approximately 608 employees, of which 23 are employed at the
Company's headquarters. The Company believes employee relations are good.
INSURANCE
The provision of personal and health care services entails an inherent risk
of liability. Compared to more institutional long term care facilities, senior
and assisted living residences offer residents a greater degree of
independence in their daily lives. This increased level of independence,
however, may subject the resident and the Company to certain risks that would
be reduced in more institutionalized settings. The Company currently maintains
liability insurance intended to cover such claims which it believes is
adequate based on the nature of the risks, its historical experience and
industry standards. See "Risk Factors -- Liability and Insurance."
EXECUTIVE OFFICES
The Company's executive office is located in Chicago, Illinois, where the
Company leases approximately 4,500 square feet under an agreement with an
affiliate of PGI. See "Certain Transactions."
LEGAL PROCEEDINGS
The Company is involved in various lawsuits and claims arising in the normal
course of business. In the opinion of management of the Company, although the
outcomes of these suits and claims are uncertain, in the aggregate they should
not have a material adverse effect on the Company's business, financial
condition and results of operations.
34
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
Company's directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY(1)
<S> <C> <C>
Michael W. Reschke.......... 40 Chairman of the Board, Director
Mark J. Schulte............. 43 President and Chief Executive Officer, Director
Craig G. Walczyk............ 37 Vice President--Chief Financial Officer
Matthew F. Whitlock......... 32 Vice President--Acquisitions
Mark J. Iuppenlatz.......... 37 Vice President--Development
Mary Pat Scoltock........... 34 Vice President--Marketing
Stephan T. Beck............. 40 Vice President--Operations
Sheryl A. Wolf.............. 34 Controller
Margaret B. Shontz.......... 37 Vice President--Human Resources
Richard S. Curto............ 44 Vice Chairman of the Board, Director
</TABLE>
- ---------------------
(1) The Company anticipates that four individuals unaffiliated with PGI will
be nominated and elected as directors prior to or upon the effectiveness
of the Registration Statement that contains this Prospectus. Certain of
such individuals will also comprise the members of the Compensation
Committee and the Audit Committee.
Michael W. Reschke is Chairman of the Board of Directors of the Company. Mr.
Reschke founded PGI in 1981 and, since that time, has served as PGI's
Chairman, Chief Executive Officer and President. For the last 15 years, Mr.
Reschke has directed and managed the development, finance, construction,
leasing, marketing, acquisition, renovation and property management activities
of PGI. Mr. Reschke is also a member of the Board of Directors of Ambassador
Residential, Inc., a publicly traded real estate investment trust involved in
multi-family residential projects and the successor in interest to the former
multi-family division of PGI. Mr. Reschke is also Chairman of the Board of
Prime Retail, Inc., a publicly traded real estate investment trust involved in
factory outlet centers and the successor in interest to the former retail
division of PGI. Mr. Reschke is licensed to practice law in the State of
Illinois and is a certified public accountant. Mr. Reschke is a member of the
Chairman's Roundtable and the Executive Committee of the National Realty
Committee, as well as a full member of the Urban Land Institute.
Mark J. Schulte is President and Chief Executive Officer of the Company and
is also a director of the Company. From January 1991 to immediately prior to
the Offering, Mr. Schulte was employed by PGI in its Senior Housing Division,
most recently serving as Executive Vice President, with primary responsibility
for overseeing all aspects of PGI's Senior Housing Division. Prior to joining
PGI, Mr. Schulte had 13 years of experience in development and operation of
multi-family housing, senior housing, senior and assisted living and health
care facilities. Mr. Schulte is licensed to practice law in the State of New
York. Mr. Schulte serves on the Executive Committee of the American Seniors
Housing Association.
Craig G. Walczyk is Vice President--Chief Financial Officer of the Company.
From November 1992 to immediately prior to the Offering, Mr. Walczyk was
employed by PGI as Vice President, Director of Corporate Accounting. Prior to
joining PGI, Mr. Walczyk was an Audit Senior Manager with the accounting firm
of Ernst & Young LLP from September 1982 to October 1992. Mr. Walczyk is a
certified public accountant and a member of the American Institute of
Certified Public Accountants and the Illinois CPA Society.
Matthew F. Whitlock is Vice President--Acquisitions of the Company. From
August 1996 to immediately prior to the Offering, Mr. Whitlock was employed by
PGI in its Senior Housing Division as Director of
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<PAGE>
Acquisitions. Prior to joining PGI, Mr. Whitlock was employed by the Forum
Group, previously one of the largest operators of senior and assisted living
facilities, as an acquisition specialist from August 1995 to July 1996. Mr.
Whitlock was a principal with Concordia Group, a senior and assisted living
consulting firm, from June 1991 to July 1995.
Mark J. Iuppenlatz is Vice President--Development of the Company. From
September 1996 to immediately prior to the Offering, Mr. Iuppenlatz was
employed by PGI in its Senior Housing Division as Director of Development.
Prior to joining PGI's Senior Housing Division, Mr. Iuppenlatz was employed by
Schlotzsky's, Inc., a publicly traded restaurant company, as Vice President--
Real Estate from January 1995 to August 1996. Mr. Iuppenlatz was employed by
PGI as Director of Marketing and Leasing from October 1991 to 1994 and as
Director of Leasing from January 1989 to September 1991.
Mary Pat Scoltock is Vice President--Marketing of the Company. From April
1989 to immediately prior to the Offering, Ms. Scoltock was employed by PGI,
most recently serving as Corporate Director of Marketing of its Senior Housing
Division.
Stephan T. Beck is Vice President--Operations of the Company. From January
1993 to immediately prior to the Offering, Mr. Beck was employed by PGI, most
recently serving as Corporate Director of Operations of its Senior Housing
Division. Prior to joining PGI, Mr. Beck was employed by Classic Residence by
Hyatt as Executive Director of the Hallmark, which was then owned by Classic
Residence by Hyatt, from August 1990 to December 1992.
Sheryl A. Wolf is Controller of the Company. From September 1991 to
immediately prior to the Offering, Ms. Wolf was employed by PGI, most recently
serving as Corporate Director of Finance of its Senior Housing Division.
Margaret B. Shontz is Vice President--Human Resources of the Company. From
February 1989 to immediately prior to the Offering, Ms. Shontz was employed by
PGI, most recently serving as Director of Human Resources of its Senior
Housing Division.
Richard S. Curto is Vice Chairman of the Board of Directors of the Company.
Mr. Curto joined PGI in May 1994 and, since that time, has served as Executive
Vice President. Since joining PGI, Mr. Curto has been responsible for the
capital markets transactions and other project related financings of PGI. From
September 1981 to April 1994, Mr. Curto served as Senior Vice President in the
Fixed Income Department of Kemper Financial Services, a $65 billion money
management firm overseeing the activities of the lending and equity investment
group related to real property. Mr. Curto is a member of the Urban Land
Institute and the National Realty Committee.
The Board of Directors will be divided into three classes, each class
consisting of approximately one-third of the total number of directors. Class
I directors will hold office until the 1997 annual meeting of stockholders;
Class II directors will hold office until the 1998 annual meeting of
stockholders; and Class III directors will hold office until the 1999 annual
meeting of stockholders.
No family relationship exists among any of the directors or executive
officers of the Company. No arrangement or understanding exists between any
director or executive officer or any other person pursuant to which any
director or executive officer was selected as a director or executive officer
of the Company. Executive officers of the Company are elected or appointed by
the Board of Directors and hold office until their successors are elected, or
until the earliest of their death, resignation or removal.
COMMITTEES OF THE BOARD OF DIRECTORS
Audit Committee. The members of the Audit Committee will be determined from
and upon the election of the non-employee directors. The Audit Committee,
among other things, makes recommendations concerning the
36
<PAGE>
engagement of independent auditors, reviews the results and scope of the
annual audit and other services provided by the Company's independent auditors
and reviews the adequacy of the Company's internal accounting controls.
Compensation Committee. The members of the Compensation Committee will be
determined from and upon the election of the non-employee directors. The
Compensation Committee makes recommendations to the full Board of Directors
concerning salary and bonus compensation and benefits for executive officers
of the Company. In addition, the Compensation Committee has the power and
authority to implement and administer the Company's Stock Incentive Plan.
COMPENSATION OF DIRECTORS; INDEMNIFICATION AGREEMENTS
The Company intends to pay its directors who are not employees of the
Company a fee for their services as directors. They will receive annual
compensation of $12,000 plus a fee of $1,000 for attendance at each meeting of
the Board of Directors and $500 for attendance at each committee meeting. The
members of the Board will receive reimbursement of all travel and lodging
expenses related to their attendance at both board and committee meetings. The
Company anticipates that it will grant to each non-employee director certain
options to purchase Common Stock. See "Management--Stock Incentive Plan."
The Company intends to enter into indemnification agreements with each of
the Company's directors. The indemnification agreements will require, among
other things, that the Company indemnify such directors to the fullest extent
permitted by law, and advance to the directors all related expenses, subject
to reimbursement if it is subsequently determined that indemnification is not
permitted. The Company also must indemnify and advance all expenses incurred
by directors seeking to enforce their rights under the indemnification
agreements, and cover directors under the Company's directors' and officers'
liability insurance.
EXECUTIVE COMPENSATION
The Company was organized in September 1996. Accordingly, the Company did
not pay any cash compensation to its executive officers for the year ended
December 31, 1995. The following table sets forth the annual base salary
expected to be paid to the Company's Chairman of the Board, Chief Executive
Officer and each of the other five most highly compensated executive officers
during the year ending December 31, 1996. In addition, the Company's executive
officers will be eligible to receive cash bonuses and additional stock options
at the discretion of the Compensation Committee of the Board of Directors.
<TABLE>
<CAPTION>
1996
BASE
NAME PRINCIPAL POSITION(S) SALARY
<S> <C> <C>
Michael W. Reschke Chairman of the Board $100,000
Mark J. Schulte President and Chief Executive Officer 240,000
Craig G. Walczyk Vice President--Chief Financial Officer 125,000
Matthew F. Whitlock Vice President--Acquisitions 95,000(1)
Mark J. Iuppenlatz Vice President--Development 135,000(1)
Mary Pat Scoltock Vice President--Marketing 100,000
Stephan T. Beck Vice President--Operations 100,000
</TABLE>
- ---------------------
(1) In addition to a base salary, these individuals are expected to receive a
substantial portion of their total compensation from an incentive bonus
program that for Mr. Whitlock is based on facilities acquired and for Mr.
Iuppenlatz is based on facilities developed.
STOCK INCENTIVE PLAN
The Company has established a Stock Incentive Plan (the "Stock Incentive
Plan") for the purpose of attracting and retaining directors, executive
officers and other key employees. Each option granted pursuant to the Stock
Incentive Plan shall be designated at the time of grant as either an
"incentive stock option" or as a "non-qualified stock option."
37
<PAGE>
The Stock Incentive Plan provides for the grants of options ("Options") to
purchase a specified number of shares of Common Stock. Under the Stock
Incentive Plan, 750,000 shares of Common Stock will be available for grants.
Participants in the Stock Incentive Plan, who may be directors, officers or
employees of the Company or its subsidiaries, will be selected by the
Compensation Committee. In the case of directors who are not also employees,
such grants will be made as discretionary grants under a specified formula set
forth in the Stock Incentive Plan. See "Management--Compensation of
Directors."
The Stock Incentive Plan authorizes the Compensation Committee to grant
incentive stock options at an exercise price to be determined by it, provided
that such price cannot be less than 100% of the fair market value of the
Common Stock on the date on which the Option is granted. If an incentive stock
option is to be granted to an employee who owns over 10% of the total combined
voting power of all classes of the Company's stock, then the exercise price
may not be less than 110% of the fair market value of the Common Stock covered
by such option on the day it is granted. The exercise price of non-qualified
stock options may be any price determined by the Compensation Committee.
Upon completion of the Offering, the Company will grant 348,500 Options (the
"Initial Grants") to the following key officers and employees of the Company:
Michael W. Reschke (75,000); Mark J. Schulte (75,000); Craig G. Walczyk
(30,000); Matthew F. Whitlock (30,000); Mark J. Iuppenlatz (30,000); Mary Pat
Scoltock (30,000); Stephan T. Beck (30,000); Sheryl A. Wolf (15,000); Margaret
B. Shontz (15,000); and certain other employees (18,500).
The Initial Grants will vest at the rate of twenty-five percent per year
over the next four years commencing on the first anniversary of their date of
grant and will have a term of 10 years. The exercise price of the Options
issued pursuant to the Initial Grants will be the initial public offering
price of the Common Stock. The exercise price for any Option is generally
payable in cash or, in certain circumstances, by the surrender, at the fair
market value on the date on which the Option is exercised, of shares of Common
Stock.
Any unvested Options held by an optionee will automatically be forfeited if
the optionee leaves employment for any reason other than a "change in control"
(as defined in the Stock Incentive Plan). Upon a change in control, all
unvested Options will vest. The rights of any participants to exercise an
Option may not be transferred in any way other than by will or laws of descent
and distribution or pursuant to a qualified domestic relations order.
The Company also anticipates that it will grant an aggregate of 35,000
Options to its non-employee directors that will vest at the rate of 33.33% per
year over the next three years commencing on the first anniversary of their
date of grant and will have a term of ten years. The exercise price of these
Options will be the initial public offering price of the Common Stock. The
exercise price for any of these Options will generally be payable in cash or,
in certain circumstances, by the surrender, at the fair market value on the
date on which the Option is exercised, of shares of Common Stock.
The Compensation Committee may amend any award previously granted,
prospectively or retroactively. No such amendment may impair the rights of any
participant under any award without the consent of such participant (except
for any amendment made to cause the Stock Incentive Plan to qualify for an
exemption provided by Rule 16b-3 of the Securities Exchange Act of 1934, as
amended). In addition, in the event of certain extraordinary events, the
Compensation Committee may make adjustments in the aggregate number and kind
of shares reserved for issuance, the number and kind of shares covered by
outstanding awards and the exercise prices specified therein as may be
determined to be appropriate.
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with each of the executive
officers named in the executive compensation table. These agreements provide
that the executive officers shall devote substantially all of their business
time to the operation of the Company, except Mr. Michael W. Reschke who shall
only be
38
<PAGE>
required to devote such time as he deems necessary to fulfill his duties and
obligations to the Company as Chairman of the Board. The agreements establish
the initial base salaries set forth in the executive compensation table and
provide for an initial three year term for Messrs. Reschke, Schulte, Whitlock
and Iuppenlatz and an initial one year term for Ms. Scoltock and Messrs.
Walczyk and Beck which is automatically extended for an additional year after
expiration of the initial term and any extension period unless the Company
provides the executive officer with at least 30 days' prior written notice
that such term shall not be extended. If any of the agreements are terminated
by the Company "without cause" (as such term is defined in the agreements),
the executive so terminated will be entitled to a lump sum payment. Except for
Messrs. Reschke and Schulte, such lump sum payment will be an amount equal to
six months base salary for those with employment agreements with three year
initial terms and three months base salary for those with employment
agreements with one year initial terms. With regard to Messrs. Reschke and
Schulte, such executives will receive a lump sum payment of the greater of 50%
of their base salary for the remainder of the term of their agreements or an
amount equal to their base salary for one year. In the event an executive
voluntarily terminates his employment with the Company, the executive will
have a non-compete agreement for a period of two years for Messrs. Schulte,
Whitlock and Iuppenlatz and one year for Mr. Beck and Ms. Scoltock. Mr.
Reschke is bound by the non-compete agreement between PGI and the Company. See
"Certain Transactions."
39
<PAGE>
CERTAIN TRANSACTIONS
The following agreements were entered into between the Company and PGI in
connection with the Formation and the Offering:
Formation Agreement. At the Formation and pursuant to a formation agreement
by and among the Company, Mark J. Schulte and PGI (the "Formation Agreement"),
PGI has agreed to transfer to the Company, or to cause its respective
subsidiaries or affiliates to transfer to the Company, their respective
interests in the Original Facilities and operations relating thereto. In
return for such contribution, the Company will exchange 3,487,500 shares of
its Common Stock and pay $12.0 million in cash from the net proceeds of the
Offering to retire certain indebtedness secured by a pledge of cash flow from
the Hallmark and will assume certain indebtedness in the aggregate amount of
$99.5 million. The Company has assumed or agreed to assume all the liabilities
of the Original Facilities and operations relating thereto in accordance with
the Formation Agreement. Further, certain collateral will be returned to PGI
as a result of Brookdale's assumption of certain mortgage indebtedness on one
of the Original Facilities. In accordance with the Formation Agreement, Mark
J. Schulte will transfer all of his interests in the operations relating to
the Original Facilities to the Company in exchange for 387,500 shares of
Common Stock from the Company, and, in accordance with his equity
participation agreement with PGI, he will receive a cash payment from PGI.
Except as expressly set forth in the Formation Agreement with regard to title,
liens, claims and certain other items and PGI's representations that the
Original Facilities have been operated in the ordinary course since June 30,
1996, no party is making any representation or warranty as to the assets,
businesses or liabilities transferred or assumed as part of the Formation, as
to any consents or approvals required in connection therewith, as to the value
or as to freedom from counterclaim with respect to any claim of any party.
Except as expressly set forth in the Formation Agreement, all assets are being
transferred on an "as is," "where is" basis. In the Formation Agreement, PGI
has agreed to maintain unrestricted cash of $2.0 million in the Company at the
time of the Formation. Any amounts of unrestricted cash in excess of $2.0
million will be distributed to PGI as partner distributions from the Original
Facilities at or before the Formation.
The Company will indemnify PGI and its affiliates against certain losses,
claims, damages or liabilities including those arising out of: (i) any
inaccurate representation or breach of warranty by the Company under the
Formation Agreement; and (ii) any indebtedness, lease, contract or other
obligation assumed by the Company pursuant to the Formation Agreement. The
Company will also indemnify PGI, as a controlling person, against any loss,
claim, damage or liability arising out of the Offering, except for losses,
claims, damages or liabilities arising from the inaccuracy of information
supplied in writing by PGI for inclusion in this Prospectus. PGI will
similarly indemnify the Company and its subsidiaries with respect to any
inaccurate representation or breach of warranty by PGI under the Formation
Agreement.
Space Sharing Agreement. The Company and an affiliate of PGI will enter into
a Space Sharing Agreement for approximately 4,500 square feet of office space
located at 77 West Wacker Drive in Chicago, Illinois to be used as
headquarters for the Company. The Agreement will have an initial term of four
months and will have a month to month term thereafter, at a base rental rate
of approximately $8,800 per month plus pro rata share of real estate taxes and
operating expenses.
Registration Rights Agreement. The Company will grant demand and incidental
registration rights to PGI for the registration of shares of Common Stock
owned by PGI under the Securities Act of 1933. See "Description of Capital
Stock--Registration Rights Agreement."
Voting Agreement. PGI will enter into a Voting Agreement pursuant to which
it will agree to vote all of its shares of Common Stock at any meeting at
which directors are elected in favor of the election of independent directors
so that after such election, if such persons are elected, there will be at
least four independent directors. The Voting Agreement will continue in effect
until the earlier of three years from the date of the Offering and the date
PGI first owns less than 10% of the outstanding Common Stock.
Non-Compete Agreement. The Company and PGI will enter a Non-Compete
Agreement that will prevent PGI from developing, acquiring or operating senior
and assisting living and skilled nursing care facilities for a
40
<PAGE>
period expiring on the earlier of (i) four years from the date of the Offering
or (ii) one year from the date of a merger or sale of all or substantially all
of the stock or assets of the Company; however, PGI will be permitted to
maintain its ownership interest in the Island on Lake Travis facility. In
addition, to the extent PGI were to acquire a group of properties that included
facilities similar to those operated by the Company, then the Company would
have the right and opportunity to purchase such similar facilities at a price
equal to the fair market value.
Management Agreement. The Company and PGI will enter a management agreement
for a term of two years with respect to the Island on Lake Travis facility. The
Company will be paid a monthly fee of 5.0% of the gross revenues of such
facility for each month. The management agreement may be terminated by PGI only
for cause as set forth in the management agreement during its initial term and
upon 60 days' prior written notice at any time after the expiration of the
initial term. The Company may terminate the management agreement at any time
upon 60 days' advance notice.
In the future, transactions between the Company and its officers, directors,
principal stockholders and their affiliates will be on terms no less favorable
to the Company than could be obtained from unrelated third parties and any such
transactions will be approved by a majority of the disinterested members of the
Board of Directors.
41
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of , 1996 and as
adjusted to reflect the sale of the shares offered hereby, by (i) each person
known by the Company to be the beneficial owner of more than 5% of the Common
Stock; (ii) each director of the Company; (iii) each named executive officer
of the Company; and (iv) all executive officers and directors of the Company
as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OWNERSHIP
SHARES -----------------
BENEFICIALLY BEFORE AFTER
NAME OWNED (1) OFFERING OFFERING
<S> <C> <C> <C>
The Prime Group, Inc.(2)......................... 3,487,500 -- 34.4%
Michael W. Reschke(3)............................ 3,487,500 100.0% 34.4%
Mark J. Schulte.................................. 387,500 -- 3.8%
Executive officers and directors
as a group (2 persons).......................... 3,875,000 100.0% 38.3%
</TABLE>
- ---------------------
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking, relationship
or otherwise has or shares voting power and/or investment power and as to
which such person has the right to acquire such voting and/or investment
power within 60 days. Percentage of beneficial ownership as to any person
as of a particular date is calculated by dividing the number of shares
beneficially owned by such person by the sum of the number of shares
outstanding as of such date and the number of shares as to which such
person has the right to acquire voting and/or investment power within 60
days.
(2) Information presented includes 3,487,500 shares of Common Stock held by
The Prime Group, Inc. and certain of its affiliates. The address of The
Prime Group, Inc. is 77 West Wacker Drive, Chicago, Illinois 60601.
(3) Information includes 3,487,500 shares of Common Stock held by The Prime
Group, Inc. and certain of its affiliates. Mr. Reschke is the Chairman and
Chief Executive Officer of The Prime Group, Inc. Mr. Reschke's business
address is 77 West Wacker Drive, Chicago, Ilinois 60601.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's Restated Certificate of Incorporation (the "Certificate")
provides that the authorized capital stock of the Company consists of
75,000,000 shares of Common Stock, par value $0.01 per share (the "Common
Stock"), and 20,000,000 shares of Preferred Stock, par value $0.01 per share
(the "Preferred Stock"). Upon completion of the Offering, 10,125,000 shares of
Common Stock will be issued and outstanding (11,062,500 shares if the
Underwriters' over-allotment option is exercised in full), and no shares of
Preferred Stock will be issued or outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share on all
matters submitted to a vote of stockholders. The Certificate does not provide
for cumulative voting, and, accordingly, the holders of a majority of the
shares of Common Stock entitled to vote in any election of directors may elect
all of the directors standing for election. The Certificate provides that
whenever there is paid, or declared and set aside for payment, to the holders
of the outstanding shares of any class of stock having preference over the
Common Stock as to the payment of dividends, the full amount of dividends and
of sinking fund or retirement fund or other retirement payments, if any, to
which such holders are entitled, then dividends may be paid on the Common
Stock out of any assets legally available therefor, but only when and as
declared by the Board of Directors. The Certificate also provides that in the
event of any liquidation, dissolution or winding up of the Company, after
there is paid to or set aside for the holders of any class of stock having
preference over the Common Stock the full amount to which such holders are
entitled and after payment or provision for payment of all debts and
liabilities of the Company, the holders of the Common Stock shall be entitled
to receive the remaining assets of the Company available for distribution, in
cash or in kind. The holders of Common Stock have no preemptive, subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of Common Stock will be subject to the rights of the holders of any
shares of any series of Preferred Stock that the Company may issue in the
future.
PREFERRED STOCK
The Certificate provides that the Board of Directors of the Company is
authorized to issue Preferred Stock in series and to fix and state the voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative participating, optional or other special rights of
the shares of each such series and the qualifications, limitations and
restrictions thereof. Such action may be taken by the Board without
stockholder approval. Under the Certificate, each share of each series of
Preferred Stock is to have the same relative rights as, and be identical in
all respects with, all other shares of the same series. While providing
flexibility in connection with possible financings, acquisitions and other
corporate purposes, the issuance of Preferred Stock, among other things, could
adversely affect the voting power of the holders of Common Stock and, under
certain circumstances, be used as a means of discouraging, delaying or
preventing a change in control of the Company. There will be no shares of
Preferred Stock outstanding upon completion of the Offering, and the Company
has no present plan to issue shares of its Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Limitations of Director Liability. Section 102(b)(7) of the Delaware General
Corporation Law ("DGCL") authorizes corporations to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for breach of directors' fiduciary duty of care. Although
Section 102(b)(7) does not change directors' duty of care, it enables
corporations to limit available relief to equitable remedies such as
injunction or rescission. The Certificate limits the liability of directors to
the Company or its stockholders to the full extent permitted by Section
102(b)(7). Specifically, directors of the Company are not personally liable
for monetary damages to the Company or its stockholders for breach of the
director's fiduciary duty as a director, except for liability: (i) for any
breach of the director's duty of loyalty to the Company or its stockholders;
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law; (iii) for
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<PAGE>
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the DGCL; or (iv) for any transaction from which
the director derived an improper personal benefit.
Indemnification. To the maximum extent permitted by law, the By-laws provide
for mandatory indemnification of directors and officers of the Company against
any expense, liability and loss to which they may become subject, or which
they may incur as a result of being or having been a director or officer of
the Company. In addition, the Company must advance or reimburse directors and
officers for expenses incurred by them in connection with indemnifiable
claims.
The Company also maintains directors' and officers' liability insurance.
CERTAIN ANTI-TAKEOVER PROVISIONS
Upon completion of the Offering, the Certificate and the By-laws will
contain, among other things, certain provisions described below that may
reduce the likelihood of a change in the Board of Directors or voting control
of the Company without the consent of the Board of Directors. These provisions
could have the effect of discouraging, delaying or preventing tender offers or
takeover attempts that some or a majority of the stockholders might consider
to be in the stockholders' best interest, including offers or attempts that
might result in payment of a premium over the market price for the Common
Stock.
Classification of Board of Directors. The Certificate and By-laws of the
Company divide the Board of Directors into three classes, designated Class I,
Class II and Class III, respectively, each class to be as nearly equal in
number as possible. The term of Class I, Class II and Class III directors will
expire at the 1997, 1998 and 1999 annual meetings of stockholders,
respectively, and in all cases directors elected will serve until their
respective successors are elected and qualified. At each annual meeting of
stockholders, directors will be elected to succeed those in the class whose
terms then expire, each elected director to serve for a term expiring at the
third succeeding annual meeting of stockholders after such director's
election, and until the director's successor is elected and qualified. Thus,
only one-third of the directors stand for re-election each year, requiring at
least two stockholders' meetings at which directors are elected to replace a
majority of the Board.
Filling of Board Vacancies; Removal. Any vacancy occurring in the Board of
Directors, including any vacancy created by an increase in the number of
directors, shall be filled for the unexpired term by the concurring vote of a
majority of the directors then in office, whether or not a quorum, and any
director so chosen shall hold office for the remainder of the full term of the
class in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
Directors may only be removed with cause by the affirmative vote of the
holders of at least a majority of the outstanding shares of capital stock then
entitled to vote at an election of directors.
Other Constituencies. The Board of Directors, when evaluating any offer,
bid, proposal or similar communication of another party to (i) make a tender
or exchange offer for any equity security of the Company, (ii) merge or
consolidate the Company with or into another corporation or corporations or
(iii) purchase or otherwise acquire all or substantially all of the facilities
and assets of the Company, shall, in connection with the exercise of its
judgment in determining what is in the best interests of the Company and its
stockholders, give due consideration to all relevant factors, including,
without limitation, the social, economic and regulatory effects on the
Company, on employees, providers and payors of the Company and its
subsidiaries, on residents and families served by the Company and its
subsidiaries, on operations of the Company's subsidiaries and on the
communities in which the Company and its subsidiaries operate or are located.
Stockholder Action by Unanimous Written Consent. Any action required or
permitted to be taken by the stockholders must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing by such holders, unless such consent is unanimous.
Call of Special Meetings. Special meetings of stockholders may be called at
any time but only by the Chairman of the Board, by the President, by a
majority of the directors then in office or by stockholders
44
<PAGE>
possessing at least 25% of the voting power of the issued and outstanding
voting stock entitled to vote generally in the election of directors.
By-law Amendments. The stockholders may amend the By-laws by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of stock
of the Company entitled to vote thereon. Directors may also amend the By-laws
by a two-thirds vote of the directors then in office.
Certificate Amendments. Except as set forth in the Certificate or as
otherwise specifically required by law, no amendment of any provision of the
Certificate shall be made unless such amendment has been first proposed by the
Board of Directors upon the affirmative vote of at least two-thirds of the
directors then in office and thereafter approved by the affirmative vote of
the holders of at least a majority of the outstanding shares of stock of the
Company entitled to vote thereon; provided, however, if such amendment is to
the provisions described above or the provisions in the Certificate relating
to the decrease in the authorized number of shares of Preferred Stock, Board
authority to issue Preferred Stock or the removal or decreasing of the
limitation on directors liability, such amendment must be approved by the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of stock entitled to vote thereon.
Stockholder Nominations and Proposals. With certain exceptions, the By-laws
require that stockholders intending to present nominations for directors or
other business for consideration at a meeting of stockholders notify the
Company's Secretary by the later of 60 days before the date of the meeting and
15 days after the date notice of the meeting is mailed or public notice of the
meeting is given.
Certain Statutory Provisions. Section 203 of the DGCL provides, in general,
that a stockholder acquiring more than 15% of the outstanding voting shares of
a corporation subject to the statute (an "Interested Stockholder"), but less
than 85% of such shares, may not engage in certain "Business Combinations"
with the corporation for a period of three years subsequent to the date on
which the stockholder became an Interested Stockholder unless (i) before such
person became an Interested Stockholder, the corporation's board of directors
approved either the Business Combination or the transaction in which the
stockholder became in Interested Stockholder or (ii) the Business Combination
is approved by the corporation's board of directors and authorized by a vote
of at least two-thirds of the outstanding voting stock of the corporation not
owned by the Interested Stockholder.
Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which
the Interested Stockholder receives or could receive a benefit on other than a
pro rata basis with other stockholders, including mergers, certain asset
sales, certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or a transaction in which the Interested
Stockholder receives certain other benefits.
Pursuant to a Board resolution adopted at the time of formation of the
Company, the Section 203 limits do not apply to any "Business Combination"
between the Company and PGI.
REGISTRATION RIGHTS AGREEMENT
The Company has granted demand and incidental registration rights to PGI for
the registration of shares of Common Stock owned by PGI under the Securities
Act. Three demand registrations are permitted during the first five years
following the initial public offering of the Common Stock and one registration
per year each year thereafter until PGI owns less than ten percent of the
outstanding Common Stock. The Company will pay the fees and expenses of the
demand registrations and the incidental registrations, while PGI will pay all
underwriting discounts and commissions. These registration rights are subject
to certain conditions and limitations, including the right of underwriters to
limit the number of shares owned by PGI included in such registration.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is LaSalle National
Bank.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock,
and no prediction can be made as to the effect, if any, that market sales of
shares or the availability of such shares for sale will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect the prevailing market price of the Common Stock and the
ability of the Company to raise capital through a sale of its securities.
Upon completion of the Offering, the Company will have 10,125,000 shares of
Common Stock outstanding, (11,062,500 shares if the Underwriters' over-
allotment option is exercised in full). Of those shares, the 6,250,000 shares
sold in the Offering (7,187,500 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without restriction
(except as to affiliates of the Company) or further registration under the
Securities Act of 1933, as amended. The balance of 3,875,000 shares of Common
Stock outstanding will be restricted securities ("Restricted Securities")
within the meaning of Rule 144 under the Securities Act.
In general, under Rule 144 under the Securities Act as currently in effect,
a person (or persons whose shares are aggregated) who has beneficially owned
Restricted Securities for at least two years, and including the holding period
of any prior owner unless such prior owner is an affiliate, would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding shares of Common Stock or the
average weekly trading volume of the Common Stock on the New York Stock
Exchange during the four calendar weeks preceding such sale. Sales under Rule
144 are also subject to certain manner of sale provisions, notice requirements
and the availability of current public information about the Company. Any
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the three months preceding a
sale, and who has beneficially owned shares for at least three years
(including any period of ownership of preceding non-affiliated holders), would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner of sale provisions, public information requirements or
notice requirements. An "affiliate" is a person that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or under
common control with, such issuer.
Rule 144A under the Securities Act as currently in effect generally permits
unlimited resales of certain Restricted Securities of any issuer provided that
the purchaser is a qualified institution that owns and invests on a
discretionary basis at least $100 million in securities (and in the case of a
bank or savings and loan association, has a net worth of at least $25 million)
or is a registered broker-dealer that owns and invests on a discretionary
basis at least $10 million in securities. Rule 144A allows PGI to sell its
shares of Common Stock to such institutions and registered broker-dealers
without regard to any volume or other restrictions. There can be no assurance
that the availability of such resale exemption will not have an adverse effect
on the trading price of the Common Stock.
The Company, its directors and officers and PGI have agreed not to offer to
sell, sell, distribute, grant any option to purchase, pledge, hypothecate or
otherwise dispose of, directly or indirectly, any shares of Common Stock or
securities convertible into, or exercisable or exchangeable for, shares of
Common Stock owned by them prior to the expiration of 180 days from the date
of this Prospectus, except (i) with the prior written consent of DLJ, (ii) in
the case of the Company, the grant of options to purchase shares of Common
Stock under the Company's Stock Incentive Plan, (iii) in the case of the
directors and executive officers of the Company, for the exercise by such
individuals of outstanding options and (iv) for the sale of shares in the
Offering. PGI may sell all 3,487,500 of its shares of Common Stock subject to
the volume and other limitations of Rule 144 after the expiration of the two
year holding period of Rule 144. The Commission has proposed an amendment to
Rule 144 under the Securities Act which, if adopted as currently proposed,
would reduce the holding periods set forth in Rule 144 by one year.
PGI has the right to include its shares in any future registration of
securities effected by the Company under the Securities Act, subject to the
right of any underwriter in such offering requiring PGI to reduce the number
of
46
<PAGE>
shares PGI otherwise has the right to have included in such registration. If
the Company is required to register shares held by PGI pursuant to the
exercise of its registration rights, such sales may have an adverse effect on
the Company's stock price and its ability to raise needed capital. See "Risk
Factors--Shares Eligible for Future Sale," "Principal Stockholders" and
"Description of Capital Stock--Registration Rights Agreement."
The Company intends to file a registration statement under the Securities
Act registering the shares of Common Stock reserved for issuance upon the
exercise of options granted under the Stock Incentive Plan. See "Management--
Stock Incentive Plan." This registration statement is expected to be filed
soon after the date of this Prospectus and will become effective automatically
upon filing. Accordingly, shares registered under such registration statements
will be available for sale in the open market, unless such shares are subject
to vesting restrictions with the Company and except to the extent that the
holders of such options are subject to the 180-day lock-up agreements
described above.
47
<PAGE>
UNDERWRITING
Subject to the terms and certain conditions contained in the Underwriting
Agreement, the underwriters named below (the "Underwriters"), for whom
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), Salomon Brothers
Inc and William Blair & Company, L.L.C. are acting as representatives
(collectively, the "Representatives"), have severally agreed to purchase from
the Company an aggregate of 6,250,000 shares of Common Stock. The number of
shares of Common Stock that each Underwriter has agreed to purchase is set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation.............
Salomon Brothers Inc............................................
William Blair & Company, L.L.C..................................
---------
Total....................................................... 6,250,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay
for all the shares of Common Stock offered hereby (other than the shares of
the Common Stock covered by the over-allotment option described below) if any
are taken.
Prior to the Offering, there has been no established trading market for the
shares of Common Stock. The initial price to the public for the shares of
Common Stock offered hereby has been determined by negotiation between the
Company and the Representatives. The factors considered in determining the
initial price to the public include the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the historical results of operations of the Company, the prospects
for future earnings of the Company, the recent market prices of securities of
generally comparable companies and the general condition of the securities
markets at the time of the Offering.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters and the Company against certain liabilities, including
liabilities under the Securities Act of 1933, as amended.
The Underwriters have advised the Company that they propose to offer the
shares of Common Stock to the public initially at the price to the public set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not to exceed $
per share. The Underwriters may allow, and such dealers may reallow, discounts
not in excess of $ per share to any other Underwriter and certain other
dealers.
The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to an aggregate of
937,500 additional shares of Common Stock at the initial public offering price
less underwriting discounts and commissions, solely to cover over-allotments.
To the extent that the Underwriters exercise such option, each of the
Underwriters will be committed, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite such Underwriter's name in the preceding table bears
to the total number of shares offered.
The Underwriters do not intend to confirm sales of shares of Common Stock to
any accounts over which they exercise discretionary authority.
Subject to certain exceptions, the Company, certain of its existing
stockholders (including PGI) and directors and executive officers have agreed
not to offer, sell, contract to sell, or otherwise dispose of any shares of
Common Stock or any securities convertible or exchangeable into any shares of
Common Stock prior to the expiration of 180 days from the date of this
Prospectus, without the prior written consent of DLJ. See "Shares Eligible for
Future Sale."
48
<PAGE>
At the request of the Company, up to 100,000 shares of Common Stock offered
hereby have been reserved for sale to certain individuals, including directors
and employees of the Company and PGI and members of their families. The price
of such shares to such persons will be the initial public offering price set
forth on the cover page hereof less underwriting discounts and commissions.
The number of shares available to the general public will be reduced to the
extent those persons purchase reserved shares. Any shares not so purchased
will be offered hereby at the public offering price set forth on the cover of
this Prospectus.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Winston & Strawn, Chicago, Illinois. Alston & Bird,
Atlanta, Georgia, is acting as counsel for the Underwriters in connection with
certain legal matters relating to the sale of Common Stock offered hereby.
EXPERTS
The balance sheet of Brookdale Living Communities, Inc. as of September 4,
1996, the combined financial statements of the Original Facilities as of
December 31, 1994 and 1995 and June 30, 1996, and for each of the three years
in the period ended December 31, 1995 and for the six months ended June 30,
1996, the combined financial statements of the Activelife Facilities as of
December 31, 1994 and 1995 and June 30, 1996, and for the respective periods
then ended, and the financial statements of the Gables at Brighton as of
December 31, 1995 and June 30, 1996, and for the respective periods then
ended, appearing in this Prospectus and Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given upon the authority of the firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C. a Registration Statement on Form S-1 (the
"Registration Statement") under the Securities Act with respect to the Common
Stock offered hereby. As used herein, the term "Registration Statement" means
the initial Registration Statement and any and all amendments thereto. This
Prospectus omits certain information contained in the Registration Statement
as permitted by the rules and regulations of the Commission. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits
thereto. Statements herein concerning the contents of any contract or other
document are not necessarily complete and in each instance reference is made
to such contract or other document filed with the Commission as an exhibit to
the Registration Statement, each such statement being qualified by and subject
to such reference in all respects.
As a result of the Offering, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith will file reports and other information with the
Commission. Reports, registration statements, proxy statements and other
information filed by the Company with the Commission can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at the Commission's Regional Offices: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and Seven World Trade Center, New York, New York
10048. Copies of such materials can be obtained at prescribed rates from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549. In addition, registration statements and certain other
documents filed with the Commission through its Electronic Data Gathering,
Analysis and Retrieval ("EDGAR") system are publicly available through the
Commission's site on the Internet's World Wide Web, located at
http://www.sec.gov. The Registration Statement, including all exhibits thereto
and amendments thereof, has been filed with the Commission through EDGAR.
49
<PAGE>
The Company intends to furnish holders of the Common Stock with annual
reports containing among other information, audited financial statements
certified by an independent public accounting firm and quarterly reports
containing unaudited condensed financial information for the first three
quarters of each fiscal year. The Company also intends to furnish such other
reports as it may determine or as may be required by law.
50
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BROOKDALE LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Pro Forma Combined Condensed Balance Sheet as of June 30, 1996.......... F-3
Pro Forma Combined Condensed Statement of Operations for the year ended
December 31, 1995...................................................... F-4
Pro Forma Combined Condensed Statement of Operations for the six months
ended June 30, 1996.................................................... F-5
Notes to Pro Forma Combined Condensed Balance Sheet..................... F-6
Notes to Pro Forma Combined Condensed Statements of Operations for the
year ended
December 31, 1995...................................................... F-9
Notes to Pro Forma Combined Condensed Statements of Operations for the
six months ended
June 30, 1996.......................................................... F-10
Report of Independent Auditors.......................................... F-11
Balance Sheet as of September 4, 1996................................... F-12
Notes to Balance Sheet.................................................. F-13
ORIGINAL FACILITIES
Report of Independent Auditors.......................................... F-14
Combined Balance Sheets as of December 31, 1994 and 1995 and as of June
30, 1996............................................................... F-15
Combined Statements of Operations for the years ended December 31, 1993,
1994 and 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996............................................................... F-16
Combined Statements of Changes in Partners' Deficit for the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30,
1996................................................................... F-17
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995 and for the six months ended June 30, 1995 (unaudited)
and 1996............................................................... F-18
Notes to Combined Financial Statements.................................. F-19
ACTIVELIFE FACILITIES
Report of Independent Auditors.......................................... F-24
Combined Balance Sheets as of December 31, 1994 and 1995 and as of June
30, 1996............................................................... F-25
Combined Statements of Operations for the years ended December 31, 1994
and 1995 and for the six months ended June 30, 1995 (unaudited) and
1996................................................................... F-26
Combined Statements of Changes in Partners' Deficit for the years ended
December 31, 1994 and 1995 and the six months ended June 30, 1996...... F-27
Combined Statements of Cash Flows for the years ended December 31, 1994
and 1995 and for the six months ended June 30, 1995 (unaudited) and
1996................................................................... F-28
Notes to Combined Financial Statements.................................. F-29
GABLES AT BRIGHTON ASSOCIATES
Report of Independent Auditors.......................................... F-32
Balance Sheets at December 31, 1995 and June 30, 1996................... F-33
Statements of Income for the year ended December 31, 1995 and for the
six months ended
June 30, 1995 (unaudited) and 1996..................................... F-34
Statements of Changes in Partners' Capital for the year ended December
31, 1995 and for the six months ended June 30, 1996.................... F-35
Statements of Cash Flows for the year ended December 31, 1995 and for
the six months ended June 30, 1995 (unaudited) and 1996................ F-36
Notes to Financial Statements........................................... F-37
</TABLE>
F-1
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited Pro Forma Combined Condensed Balance Sheet is presented as if,
at June 30, 1996, the Company had sold 6,250,000 shares of its common stock at
a sale price of $16 per share, issued 3,875,000 shares of its common stock to
PGI and management and acquired interests in the Original Facilities and the
Acquired Facilities as described under "Use of Proceeds". The unaudited Pro
Forma Combined Condensed Statements of Operations for the year ended December
31, 1995 and for the six months ended June 30, 1996 are presented as if the
above transactions occurred as of the beginning of each period presented. The
unaudited Pro Forma Combined Condensed financial statements should be read in
conjunction with all of the financial statements contained elsewhere in the
Prospectus. In management's opinion, all adjustments necessary to reflect the
effects of the Formation and Offering have been made.
The unaudited Pro Forma Combined Condensed Balance Sheet and Statements of
Operations are not necessarily indicative of what the actual financial
position or results of operations would have been assuming the Formation and
Offering had occurred at the dates indicated above, nor do they purport to
represent the future financial position or results of operations of the
Company.
F-2
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORIGINAL ACTIVELIFE GABLES AT PRO FORMA PRO FORMA AS
COMPANY FACILITIES FACILITIES BRIGHTON SUBTOTAL ADJUSTMENTS ADJUSTED
------- ---------- ---------- --------- -------- ----------- ------------
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash
equivalents............ $ 1 $ 5,449 $ 1,854 $ 604 $ 7,908 (b) $ 8,977 $ 16,885
Cash-restricted......... -- 2,238 912 -- 3,150 (c) (912) 2,238
Accounts receivable..... -- 94 67 -- 161 (d) (67) 94
----- ------- ------- ------ -------- ------- --------
Total current assets.... 1 7,781 2,833 604 11,219 7,998 19,217
Real estate, net........ -- 89,629 29,014 5,682 124,325 (a) 55,937 180,262
Cash-restricted......... -- -- -- -- -- (c) 11,500 11,500
Deferred costs, net..... -- 1,916 886 -- 2,802 (e) (944) 1,858
Other................... 350 314 147 69 880 (f) 5,034 5,914
----- ------- ------- ------ -------- ------- --------
Total assets............ $ 351 $99,640 $32,880 $6,355 $139,226 $79,525 $218,751
===== ======= ======= ====== ======== ======= ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'
AND PARTNERS' EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Debt, current........... $ -- $ 346 $ 340 $ -- $ 686(g) $ (84) $ 602
Accrued interest
payable................ -- 362 233 -- 595 -- 595
Accrued real estate
taxes.................. -- 1,078 697 -- 1,775 -- 1,775
Accounts payable........ -- 161 258 52 471 (h) (310) 161
Tenant security
deposits............... -- 2,296 769 221 3,286 -- 3,286
Due to affiliates and
other.................. 350 548 1,989 64 2,951 (i) (2,403) 548
----- ------- ------- ------ -------- ------- --------
Total current
liabilities............ 350 4,791 4,286 337 9,764 (2,797) 6,967
Debt, long-term......... -- 99,145 36,027 -- 135,172 (g) (7,729) 127,443
----- ------- ------- ------ -------- ------- --------
Total liabilities....... 350 103,936 40,313 337 144,936 (10,526) 134,410
Stockholders' and
partners' equity
(deficit):
Common stock............ -- -- -- -- -- (j) 102 102
Paid in capital......... 1 -- -- -- 1 (k) 84,238 84,239
Partners' equity
(deficit).............. -- (4,296) (7,433) 6,018 (5,711)(l) 5,711 --
----- ------- ------- ------ -------- ------- --------
Total stockholders' and
partners' equity
(deficit).............. 1 (4,296) (7,433) 6,018 (5,710) 90,051 84,341
----- ------- ------- ------ -------- ------- --------
Total liabilities and
stockholders' and
partners equity
(deficit).............. $ 351 $99,640 $32,880 $6,355 $139,226 $79,525 $218,751
===== ======= ======= ====== ======== ======= ========
</TABLE>
See accompanying notes to the Pro Forma Combined Condensed Balance Sheet.
F-3
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ORIGINAL ACTIVELIFE GABLES AT PRO FORMA PRO FORMA
FACILITIES FACILITIES BRIGHTON SUBTOTAL ADJUSTMENTS AS ADJUSTED
---------- ---------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Resident fees........... $22,054 $12,337 $ 2,638 $37,029 $ -- $ 37,029
Management services
income................. -- -- -- -- (a) 285 285
------- ------- ------- ------- ------- ---------
Total revenue........... 22,054 12,337 2,638 37,029 285 37,314
Facility operating
expenses............... (13,253) (8,312) (1,822) (23,387)(b) 2,306 (21,081)
General administration
expenses............... -- -- -- -- (c) (3,600) (3,600)
Depreciation and
amortization........... (3,721) (1,010) (292) (5,023)(d) (647) (5,670)
------- ------- ------- ------- ------- ---------
Income from operations.. 5,080 3,015 524 8,619 (1,656) 6,963
Interest income......... -- -- -- -- (e) 1,668 1,668
Interest expense........ (6,504) (2,996) -- (9,500)(f) 623 (8,877)
------- ------- ------- ------- ------- ---------
Income (loss) before
income taxes........... (1,424) 19 524 (881) 635 (246)
Pro forma (provision)
benefit for income
taxes.................. 570 -- -- 570 (h) (472) 98
------- ------- ------- ------- ------- ---------
Pro forma net income
(loss) (g)............. $ (854) $ 19 $ 524 $ (311) $ 163 $ (148)
======= ======= ======= ======= ======= =========
Pro forma net loss per
share.................. $ (0.08) $ (.01)
======= =========
Pro forma common shares
outstanding (i)........ 10,125 10,125
======= =========
</TABLE>
See accompanying notes to the Pro Forma Combined Condensed Statement of
Operations.
F-4
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ORIGINAL ACTIVELIFE GABLES AT PRO FORMA PRO FORMA,
FACILITIES FACILITIES BRIGHTON SUBTOTAL ADJUSTMENTS AS ADJUSTED
---------- ---------- --------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenue
Resident fees........... $11,247 $6,301 $1,371 $18,919 $ -- $18,919
Management services
income................. -- -- -- -- (a) 152 152
------- ------ ------ ------- ------ -------
Total revenue........... 11,247 6,301 1,371 18,919 152 19,071
Facility operating
expenses............... (6,320) (4,178) (901) (11,399)(b) 1,093 (10,306)
General administration
expenses............... -- -- -- -- (c) (1,800) (1,800)
Depreciation and
amortization........... (1,582) (512) (148) (2,242)(d) (354) (2,596)
------- ------ ------ ------- ------ -------
Income from operations.. 3,345 1,611 322 5,278 (909) 4,369
Interest income......... -- -- -- -- (e) 834 834
Interest expense........ (2,846) (1,496) -- (4,342)(f) 317 (4,025)
------- ------ ------ ------- ------ -------
Income before income
taxes.................. 499 115 322 936 242 1,178
Pro forma provision for
income taxes........... (200) -- -- (200)(g) (271) (471)
------- ------ ------ ------- ------ -------
Pro forma net income.... $ 299 $ 115 $ 322 $ 736 $ (29) $ 707
======= ====== ====== ======= ====== =======
Pro forma net income per
share.................. $ 0.03 $ 0.07
======= =======
Pro forma common shares
outstanding (h)........ 10,125 10,125
======= =======
</TABLE>
See accompanying notes to the Pro Forma Combined Condensed Statement of
Operations.
F-5
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<C> <S> <C>
(a) Real estate, net:
Adjustments to the historical cost balances to reflect the
acquisition purchase prices of the Activelife Facilities
($39,316) and the Gables at Brighton facility ($5,018) from
the proceeds of the Offering and additional borrowings....... $ 44,334
Increase in basis resulting from the elimination ($7,043--see
Note k) and purchase for cash ($4,560) of the Third Party
owner's interests in the Original Facilities................. 11,603
--------
$ 55,937
========
(b) Cash:
Gross proceeds from Offering.................................. $100,000
Less: estimated cost of the Offering ($1,500) and underwriters
discount ($7,000)............................................ (8,500)
Elimination of historical cost cash accounts of the Activelife
Facilities and the Gables at Brighton facility not being
acquired by the Company...................................... (2,458)
Payments to be made to PGI and Third Party owner from the
proceeds of the Offering for (i) the reduction of a debt
obligation of PGI that is collateralized by PGI's ownership
interest in The Hallmark ($12,000), (ii) consideration for
Third Party owner's interests in the Original Facilities
($4,560) and (iii) distributions made to PGI of unrestricted
cash in excess of $2,000 from the Original Facilities prior
to the Offering ($3,449)..................................... (20,009)
Payment made for the acquisition of the Activelife Facilities
($32,692) and the Gables at Brighton facility ($10,479), net
of liabilities assumed ($30,253 and $221, respectively) and
repayment of the Activelife Facilities mortgage note payable
from proceeds of the Offering ($5,385)....................... (48,556)
Cash restricted for construction of the assisted nursing
facility at The Devonshire ($5,000) and cash to collateralize
certain letters of credit ($6,500) from proceeds of the
Offering..................................................... (11,500)
--------
$ 8,977
========
(c) Current cash-restricted:
Elimination of historical cost cash-restricted accounts of the
Activelife Facilities not being acquired by the Company...... $ (912)
========
Long-term cash-restricted:
Cash to be used for the construction of the assisted nursing
facility at The Devonshire ($5,000) and cash to collateralize
certain letters of credit ($6,500) from proceeds of the
Offering..................................................... $ 11,500
========
(d) Accounts receivable:
Elimination of historical cost accounts receivable accounts of
the Activelife Facilities not being acquired by the Company.. $ (67)
========
(e) Deferred costs, net:
Elimination of historical cost deferred costs accounts of the
Activelife Facilities not being acquired by the Company
($886) and deferred costs of the Original Facilities related
to letters of credit which are being replaced ($58).......... $ (944)
========
(f) Other assets:
Elimination of historical cost other asset accounts of the
Activelife Facilities and the Gables at Brighton facility not
being acquired by the Company................................ $ (216)
</TABLE>
F-6
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET--(CONTINUED)
<TABLE>
<C> <S> <C>
Reclassification of deferred offering costs, incurred by an
affiliate, to paid in capital................................ (350)
Provision to reflect deferred income taxes at a 40% effective
rate related to the Company assuming ownership of the
Original Facilities. The asset primarily relates to
differences in basis of real estate assets for book purposes
and federal income tax purposes.............................. 5,600
--------
$ 5,034
========
(g) Debt, current:
Repayment of the Activelife Facilities mortgage note payable
from proceeds of the Offering................................ $ (84)
========
Debt, long-term:
Repayment of the Activelife Facilities mortgage note payable
from proceeds of the Offering................................ $ (5,301)
Elimination of historical cost mortgage note payable of the
Activelife Facilities not being assumed by the Company....... (2,428)
--------
$ (7,729)
========
(h) Accounts payable:
Elimination of historical cost accounts payable accounts of
the Activelife Facilities and the Gables at Brighton facility
not being assumed by the Company............................. $ (310)
========
(i) Due to affiliates and Other:
Elimination of historical cost due from affiliates accounts of
the Activelife Facilities and the Gables at Brighton facility
not being assumed by the Company............................. $ (1,970)
Elimination of historical cost other liabilities accounts of
the Activelife Facilities and the Gables at Brighton facility
not being assumed by the Company............................. (83)
Repayment of deferred offering costs of the Company incurred
by an affiliate.............................................. (350)
--------
$ (2,403)
========
(j) Common stock:
Issuance of 6,250 shares of common stock, $.01 par value,
pursuant to the initial public offering...................... $ 63
Issuance of 3,875 shares of common stock, $.01 par value, to
PGI in consideration for its contribution of its interests in
the Original Facilities...................................... 39
--------
$ 102
========
(k) Paid in capital:
Issuance of 6,250 shares of common stock, $.01 par value,
pursuant to the initial public offering at an assumed
offering price of $16 per share.............................. $ 99,937
Issuance of 3,875 shares of common stock, $.01 par value, to
PGI in consideration for its contribution of its interests in
the Original Facilities...................................... (39)
Estimated costs of the Offering ($1,500) and underwriters
discount ($7,000)............................................ (8,500)
Payments to be made to PGI from the proceeds of the Offering
for the reduction of a debt obligation of PGI that is
collateralized by a portion of PGI's ownership interest in
The Hallmark(+) ($12,000) and distributions made to PGI of
unrestricted cash in excess of $2,000 from the Original
Facilities prior to the Offering ($3,449).................... (15,449)
Reclassification of carry over historical cost basis of the
net assets of the Original Facilities........................ (4,296)
</TABLE>
F-7
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET--(CONTINUED)
<TABLE>
<C> <S> <C>
Elimination of net deficit balance for interests being
purchased for cash from the Third Party owner................. 7,043
Elimination of deferred costs of the Original Facilities
related to letters of credit which are being replaced......... (58)
Provision to reflected deferred income taxes at a 40% effective
rate related to the Company assuming ownership of the Original
Facilities. The asset primarily relates to differences in
basis of real estate assets (see Note f)...................... 5,600
-------
$84,238
=======
(+) In June 1996, an affiliate of PGI entered into a loan
agreement with a balance of $32.7 million at June 30, 1996
that is due on June 13, 1997 with a one year extension
period. The loan agreement requires PGI to pledge a portion
of its ownership interest in The Hallmark as collateral. Upon
the distribution of the $12,000 to PGI, its ownership
interest in The Hallmark will be released from the collateral
encumbrance.
(l) Partners' Equity (Deficit):
Reclassification of historical partners' deficit of the
Original Facilities........................................... $ 4,296
Elimination of historical net partners' deficit of the
Activelife Facilities (deficit--$7,433) and the Gables at
Brighton facility (equity--$6,018)............................ 1,415
-------
$ 5,711
=======
</TABLE>
F-8
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<C> <S> <C>
(a) Management services income:
Management services income for management services
performed by the Company for The Island on Lake Travis
and The Kenwood......................................... $ 285
=============
(b) Facility operating expenses:
Elimination of historical management fees paid by the
Original Facilities ($1,071), the Activelife Facilities
($755) and the Gables at Brighton facility ($108) and
administrative fees paid by the Original Facilities
($372) which will not be incurred by the Company........ $ 2,306
=============
(c) General and administrative expenses:
Estimated increase in salaries and related benefits
associated with former employees of PGI and new
employees who will become the senior officers and
managers of the Company and additional administrative
and financial reporting expenses which would have been
incurred by the Company had it been operating as a
public company during the year:
Salaries and wages....................................... $ (2,600)
Directors' and officers' insurance and fees.............. (75)
Legal and accounting..................................... (210)
Other.................................................... (715)
-------------
$ (3,600)
=============
(d) Depreciation and amortization:
Adjustments to historical depreciation expense associated
with (*):
Decrease in expense associated with the change in
depreciable lives of the Original Facilities............ $ 667
Additional expense associated with the increase in basis
resulting from the purchase of non-PGI owner's interest
in the Original Facilities.............................. (333)
Additional net expense associated with the increase in
fair value and increase in depreciable lives of the
Acquired Facilities:
Activelife Facilities.................................... (964)
Gables at Brighton facility.............................. (17)
-------------
$ (647)
=============
*The Company has determined that the estimated useful lives of buildings to
be 45 years and furniture and equipment to be 5 years, as compared to 40
years and 3-12 years, respectively used by the Original Facilities. This
change was made to better reflect the estimated periods during which such
assets will remain in service. For financial statement reporting purposes,
the above will be recorded prospectively as a change in estimate for the
Original Facilities. All Acquired Facilities will be depreciated using these
lives. Depreciation expense included in the "Pro Forma As Adjusted" column
was based upon the Company's new estimated useful lives.
(e) Interest income:
Interest income earned at 5% on unrestricted cash
($16,885) and 6% on restricted cash ($13,738)........... $ 1,668
=============
(f) Interest expense:
Elimination of interest expense incurred related to the
debt of the Activelife Facilities being repaid ($450)
and not being assumed ($173)............................ $ 623
=============
(g) Pro forma net income (loss):
Pro forma net income (loss) is before the extraordinary
item relating to the gain on extinguishment of debt and
represents income (loss) from continuing operations. The
extraordinary item is not included due to the non-
recurring nature of the transaction.....................
(h) (Provision) benefit for income taxes:
The Original Facilities and the entities that operated
the Activelife Facilities and the Gables at Brighton
facility prior to the acquisition were not taxable
entities. This adjustment provides pro forma (provision)
benefit for income taxes at a 40% effective rate........ $ 838
=============
(i) Pro forma income (loss) per share is based upon the
number of common shares issued consisting of the 3,875
shares issued to PGI and management in exchange for
their interest in the Original Facilities plus the
issuance of all 6,250 shares in the initial offering.... 10,125 shares
</TABLE>
F-9
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(IN THOUSANDS)
<TABLE>
<C> <S> <C>
(a) Management services income:
Management services income for management services
performed by the Company for The Island on Lake Travis
and The Kenwood......................................... $ 152
=============
(b) Facility operating expenses:
Elimination of historical management fees paid by the
Original Facilities ($461), the Activelife Facilities
($388) and the Gables at Brighton facility ($58) and
administrative fees paid by the Original Facilities
($186) which will not be incurred by the Company........ $ 1,093
=============
(c) General and administrative expenses:
Estimated increase in salaries and related benefits
associated with former employees of PGI and new
employees who will become the senior officers and
managers of the Company and additional administrative
and financial reporting expenses which would have been
incurred by the Company had it been operating as a
public company during the period:
Salaries and wages....................................... $ (1,300)
Directors' and officers' insurance and fees.............. (38)
Legal and accounting..................................... (105)
Other.................................................... (357)
-------------
$ (1,800)
=============
(d) Depreciation and amortization:
Adjustments to historical depreciation expense associated
with(*):
Decrease in expense associated with the change in
depreciable lives of the Original Facilities............ $ 295
Additional net expense associated with the increase in
basis resulting from the purchase of Third Party owner's
interest in the Original Facilities..................... (167)
Additional expense associated with the increase in fair
value and increase in depreciable lives of the Acquired
Facilities:
Activelife............................................... (475)
Gables at Brighton facility.............................. (7)
-------------
$ (354)
=============
*The Company has determined that the estimated useful lives of buildings to
be 45 years and furniture and equipment to be 5 years, as compared to 40
years and 3-12 years, respectively used by the Original Facilities. This
change was made to better reflect the estimated periods during which such
assets will remain in service. For financial statement reporting purposes,
the above will be recorded prospectively as a change in estimate for the
Original Facilities. All Acquired Facilities will be depreciated using these
lives. Depreciation expense included in the "Pro Forma As Adjusted" column
was based upon the Company's new estimated useful lives.
(e) Interest income:
Interest income earned at 5% on unrestricted cash
($16,885) and 6% on restricted cash ($13,738)........... $ 834
=============
(f) Interest expense:
Elimination of interest expense incurred related to the
debt of the Activelife Facilities being repaid ($223)
and not being assumed ($94)............................. $ 317
=============
(g) (Provision) benefit for income taxes:
The adjustment provides pro forma (provision) benefit for
income taxes at a 40% effective rate.................... $ (271)
=============
(h) Pro forma net income per share is based upon the number
of common shares issued, consisting of the 3,875 shares
issued to PGI and management in exchange for their
interest in the Original Facilities plus the issuance of
all 6,250 shares in the initial offering................ 10,125 Shares
</TABLE>
F-10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Brookdale Living Communities, Inc.
We have audited the accompanying balance sheet of Brookdale Living
Communities, Inc., a Delaware corporation, as of September 4, 1996. This
balance sheet is the responsibility of the Company's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Brookdale Living Communities, Inc.
as of September 4, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 10, 1996
F-11
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
BALANCE SHEET
SEPTEMBER 4, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash.................................................................. $ 1,000
Deferred offering costs............................................... 350,000
--------
Total assets.......................................................... $351,000
========
<CAPTION>
LIABILITIES AND STOCKHOLDERS'S EQUITY
<S> <C>
Due to affiliate...................................................... $350,000
--------
Total liabilities..................................................... 350,000
Stockholder's equity:
Common Stock, $.01 par value, 100 shares authorized, issued and
outstanding.......................................................... 1
Additional paid-in capital............................................ 999
--------
Total stockholder's equity............................................ 1,000
--------
Total liabilities and stockholder's equity............................ $351,000
========
</TABLE>
See notes to balance sheet.
F-12
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO BALANCE SHEET
SEPTEMBER 4, 1996
1. ORGANIZATION
Brookdale Living Communities, Inc. (the "Company") was incorporated in
Delaware under the Delaware General Corporation Law on September 4, 1996. The
Company was formed in order to consolidate and expand the Original Facilities
owned by The Prime Group, Inc. and its affiliates ("PGI"). In connection with
a proposed public offering (the "Offering") more fully described elsewhere in
this Registration Statement and Prospectus, the Company will sell shares of
its common stock to the public and PGI will contribute its interests in three
partnerships (The Ponds of Pembroke Limited Partnership, River Oaks Partners
and The Hallmark Limited Partnership) in exchange for 3,487,500 shares of
common stock of the Company.
2. DEFERRED OFFERING COSTS
As of September 4, 1996, PGI has incurred approximately $350,000 of legal,
accounting and related costs on behalf of the Company in connection with the
Offering which have been presented as deferred offering costs on the balance
sheet. These costs, in addition to offering costs incurred after September 4,
1996 through the date the Offering, will be deducted from the gross proceeds
of the Offering.
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of
Brookdale Living Communities, Inc.
We have audited the accompanying combined balance sheets of the Original
Facilities as of December 31, 1994 and 1995 and June 30, 1996 and the related
combined statements of operations, changes in partners' deficit and cash flows
for each of the three years in the period ended December 31, 1995 and for the
six months ended June 30, 1996. These financial statements are the
responsibility of the Original Facilities' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Original
Facilities at December 31, 1994 and 1995 and June 30, 1996, and the combined
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995 and for the six months ended June 30, 1996
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
July 30, 1996
F-14
<PAGE>
ORIGINAL FACILITIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
ASSETS
Current assets:
Cash................................. $ 4,126,904 $ 4,201,277 $ 5,449,211
Cash--restricted..................... 2,046,858 2,618,005 2,238,262
Accounts receivable.................. 120,952 160,580 94,365
Due from affiliates.................. 25,484 93,500 135,479
------------ ------------ ------------
Total current assets................. 6,320,198 7,073,362 7,917,317
Real estate, at cost:
Land................................. 8,336,937 8,336,937 8,336,937
Buildings and improvements........... 88,420,115 88,382,978 88,430,651
Furniture and equipment.............. 3,658,545 3,794,756 3,853,908
------------ ------------ ------------
100,415,597 100,514,671 100,621,496
Accumulated depreciation............. (6,400,363) (9,476,602) (10,992,243)
------------ ------------ ------------
94,015,234 91,038,069 89,629,253
Deferred costs, net.................. 1,999,981 1,982,270 1,915,627
Other................................ 243,773 231,521 177,704
------------ ------------ ------------
Total assets......................... $102,579,186 $100,325,222 $ 99,639,901
============ ============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Mortgage note payable................ $ 302,506 $ 334,165 $ 346,488
Accrued interest payable............. 884,171 204,063 361,640
Accrued real estate taxes............ 1,127,500 992,570 1,077,808
Accounts payable..................... 1,052,049 199,602 160,502
Tenant security deposits............. 2,148,232 2,259,846 2,295,902
Due to affiliates.................... 205,679 272,578 448,961
Other................................ 270,833 177,614 100,324
------------ ------------ ------------
Total current liabilities............ 5,990,970 4,440,438 4,791,625
Mortgage note payable................ 35,939,119 34,292,835 34,144,212
Bonds payable........................ 65,000,000 65,000,000 65,000,000
------------ ------------ ------------
Total liabilities.................... 106,930,089 103,733,273 103,935,837
Partners' deficit.................... (4,350,903) (3,408,051) (4,295,936)
------------ ------------ ------------
Total liabilities and partners'
deficit............................. $102,579,186 $100,325,222 $ 99,639,901
============ ============ ============
</TABLE>
See notes to combined financial statements.
F-15
<PAGE>
ORIGINAL FACILITIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE
Resident fees........... $ 6,636,864 $15,204,692 $21,934,680 $10,576,109 $11,186,541
EXPENSES
Facility operating...... 4,537,630 9,639,741 11,176,692 5,585,988 5,361,478
Real estate taxes....... 416,478 886,533 1,005,620 496,284 497,772
Depreciation and
amortization........... 1,625,596 3,285,812 3,720,612 1,907,458 1,582,284
Interest................ 1,337,315 3,310,052 5,507,289 2,822,141 2,303,443
Financing fees.......... 452,654 743,002 877,500 398,616 481,163
Property management
fee--affiliate......... 325,898 743,977 1,071,195 522,690 461,084
----------- ----------- ----------- ----------- -----------
Total expenses.......... 8,695,571 18,609,117 23,358,908 11,733,177 10,687,224
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item..... (2,058,707) (3,404,425) (1,424,228) (1,157,068) 499,317
Extraordinary item--gain
on extinguishment of
debt................... -- -- 3,274,207 -- --
----------- ----------- ----------- ----------- -----------
Net income (loss)....... $(2,058,707) $(3,404,425) $ 1,849,979 $(1,157,068) $ 499,317
=========== =========== =========== =========== ===========
UNAUDITED PRO FORMA
DATA:
Income (loss) before
income taxes and
extraordinary item..... $(2,058,707) $(3,404,425) $(1,424,228) $(1,157,068) $ 499,317
Pro forma benefit
(provision) for income
taxes.................. 823,483 1,361,770 569,691 462,827 (199,727)
----------- ----------- ----------- ----------- -----------
Income (loss) before
extraordinary item..... (1,235,224) (2,042,655) (854,537) (694,241) 299,590
Extraordinary item, net
of income taxes of
$1,309,683............. -- -- 1,964,524 -- --
----------- ----------- ----------- ----------- -----------
Pro forma net income
(loss)................. $(1,235,224) $(2,042,655) $ 1,109,987 $ (694,241) $ 299,590
=========== =========== =========== =========== ===========
Pro forma income (loss)
before extraordinary
item per share......... $ (0.08) $ 0.03
=========== ===========
Pro forma extraordinary
item, net per share.... $ 0.19 $ --
=========== ===========
Pro forma net income per
share.................. $ 0.11 $ 0.03
=========== ===========
Pro forma common shares
outstanding............ 10,125,000 10,125,000
=========== ===========
</TABLE>
See notes to combined financial statements.
F-16
<PAGE>
ORIGINAL FACILITIES
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<S> <C>
Partners' deficit at January 1, 1993 $(7,940,627)
Net loss........................................................ (2,058,707)
-----------
Partners' deficit at December 31, 1993 (9,999,334)
Contributions................................................... 9,052,856
Net loss........................................................ (3,404,425)
-----------
Partners' deficit at December 31, 1994 (4,350,903)
Contributions................................................... 54,875
Distributions................................................... (962,002)
Net income...................................................... 1,849,979
-----------
Partners' deficit at December 31, 1995 (3,408,051)
Contributions................................................... 25,585
Distributions................................................... (1,412,787)
Net income...................................................... 499,317
-----------
Partners' deficit at June 30, 1996................................ $(4,295,936)
===========
</TABLE>
See notes to combined financial statements.
F-17
<PAGE>
ORIGINAL FACILITIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------- ---------------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....... $(2,058,707) $(3,404,425) $ 1,849,979 $ (1,157,068) $ 499,317
Adjustments to reconcile
net income (loss) to
net cash (used in)
provided by operating
activities
Extraordinary item..... -- -- (3,274,207) -- --
Depreciation and
amortization.......... 1,625,596 3,285,812 3,720,612 1,907,458 1,582,284
Changes in operating
assets and
liabilities:
Decrease (increase)
in accounts
receivable.......... 33,783 (103,585) (39,628) (18,324) 66,215
Decrease (increase)
in other assets..... (82,640) (99,646) 12,252 61,255 53,817
Increase (decrease)
in accrued interest
payable............. (100,350) 714,707 (680,108) 64,938 157,577
Increase (decrease)
in accrued real
estate taxes........ 165,022 600,016 (134,930) 183,757 85,238
(Decrease) increase
in accounts payable. 58,759 74,473 (46,029) (100,841) (39,100)
Increase in tenant
security deposits... 313,457 1,026,802 111,614 83,628 36,056
(Decrease) increase
in other
liabilities......... (1,028,177) 187,963 (93,219) (64,930) (77,290)
----------- ----------- ----------- ------------- ------------
Net cash (used in)
provided by operating
activities............. (1,073,257) 2,282,117 1,426,336 959,873 2,364,114
INVESTING ACTIVITIES
Additions to real
estate................ (10,071,182) (43,224,823) (238,633) (79,754) (106,825)
Decrease in
construction costs
payable............... (2,888,133) (606,781) -- -- --
Reimbursement of
building improvements
from tenants.......... -- -- 139,559 -- --
(Increase) decrease in
due from affiliate.... 36,944 41,800 (68,016) (13,667) (41,979)
----------- ----------- ----------- ------------- ------------
Net cash used in
investing activities... (12,922,371) (43,789,804) (167,090) (93,421) (148,804)
FINANCING ACTIVITIES
Repayment of mortgage
note payable.......... -- -- (32,967,418) (313,960) (136,300)
Repayment of bonds
payable............... -- (4,000,000) -- -- --
Repayment of note
payable -- affiliate.. -- (2,510,081) -- -- --
Proceeds from mortgage
note payable.......... 401,000 36,241,625 34,627,000 -- --
Proceeds from notes
payable -- affiliate.. 261,464 -- -- -- --
Decrease (increase) in
cash -- restricted.... 12,329,275 6,410,576 (571,147) 791,869 379,743
(Decrease) increase in
arbitrage rebate
payable............... 1,215 (73,678) (806,418) (806,418) --
Increase in deferred
financing costs....... (614,511) (110,126) (626,662) (366,051) --
Increase (decrease) in
due to affiliate...... (230,930) 126,609 66,899 (199,906) 176,383
Contributions from
partners.............. -- 9,052,856 54,875 328,146 25,585
Distributions to
partners.............. -- -- (962,002) -- (1,412,787)
----------- ----------- ----------- ------------- ------------
Net cash provided by
(used in) financing
activities............. 12,147,513 45,137,781 (1,184,873) (566,320) (967,376)
----------- ----------- ----------- ------------- ------------
Net (decrease) increase
in cash................ (1,848,115) 3,630,094 74,373 300,132 1,247,934
Cash at beginning of
period................. 2,344,925 496,810 4,126,904 4,126,904 4,201,277
----------- ----------- ----------- ------------- ------------
Cash at end of period... $ 496,810 $ 4,126,904 $ 4,201,277 $ 4,427,036 $ 5,449,211
=========== =========== =========== ============= ============
</TABLE>
See notes to combined financial statements.
F-18
<PAGE>
ORIGINAL FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Original Facilities represent a combination of three partnerships
described below ("Partnerships") that own, operate, and manage assisted living
facilities ("Properties") in the greater Chicagoland area. Two of the
Properties are under the common control of The Prime Group, Inc. and its
affiliates ("PGI") and a third party owner ("Third Party"). Pursuant to the
formation transactions more fully described elsewhere in this Registration
Statement and Prospectus, the Original Facilities will be contributed or
otherwise transferred to a newly formed corporation, Brookdale Living
Communities, Inc. (the "Company"), whose shares are being registered pursuant
to this Registration Statement.
The Partnerships and Properties owned and operated by the Original
Facilities are as follows:
<TABLE>
<CAPTION>
PARTNERSHIP PROPERTY
<S> <C>
The Ponds of Pembroke Limited Partnership The Devonshire
River Oaks Partners The Heritage
Hallmark Partners, L.P. The Hallmark
</TABLE>
All significant intercompany accounts and transactions have been eliminated
in combination.
RESIDENT FEE REVENUE
Resident fee revenue is recorded when services are rendered and consist of
fees for basic housing, support services and fees associated with additional
services such as personalized health and assisted living care.
REAL ESTATE
At December 31, 1994, the Properties were carried at cost which was not in
excess of net realizable value as determined by management. In March 1995, the
Financial Accounting Standards Board issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of,"
under which the Partnerships would be required to recognize impairment losses
for the Properties when indicators of impairment are present and the
Properties' expected undiscounted cash flows are not sufficient to recover the
Properties' carrying value. The Partnerships adopted Statement No. 121
effective January 1, 1995 with no impact on the accompanying combined
financial statements.
Expenditures for ordinary maintenance and repairs are expensed to operations
as incurred. Significant renovations and improvements which improve and/or
extend the useful life of the asset are capitalized and depreciated over their
estimated useful life. Interest and other direct costs incurred during
construction periods are capitalized as a component of the building cost.
Depreciation is calculated using the straight-line method over the estimated
useful lives of assets, which are as follows:
<TABLE>
<S> <C>
Buildings..................... 40 years
Building improvements and
furniture fixtures........... 3-12 years
</TABLE>
DEFERRED COSTS
Deferred financing costs are amortized using the straight-line method over
the term of the mortgage notes and bonds. Deferred marketing costs, consisting
primarily of the costs of the marketing facilities, were amortized using the
straight-line method over the estimated lease up period of 22 months through
June 1995 when they were fully amortized.
F-19
<PAGE>
ORIGINAL FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
INCOME TAXES
The Partnerships pay no income taxes and the income or loss from the
Partnerships is includable on the respective federal income tax returns of the
partners.
The Partnerships net basis of real estate assets as reported in the
financial statements exceeds the basis used for federal income tax purposes by
approximately $2.4 million due to the use of accelerated depreciation methods
for federal income tax purposes.
USE OF ESTIMATES
The preparation of the combined financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data for the six months ended June 30, 1995 is
unaudited; however, in the opinion of management, such interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the combined results of operations and cash flows
for the period.
PRO FORMA PRESENTATION (UNAUDITED)
The pro forma net income per share for the year ended December 31, 1995 and
the six months ended June 30, 1996 were determined based upon the 6.25 million
shares of common stock assumed to be issued by the Company in the initial
public offering based on an assumed offering price of $16 per share and 3.875
million shares of common stock issued to PGI in exchange for its ownership in
the Original Facilities.
The pro forma (provision) benefit for income taxes for the Original
Facilities is based on the historical combined financial data of the Original
Facilities as if the entities comprising the Original Facilities had operated
as taxable corporations for all periods presented and is recorded at the
federal and state statutory rates in effect during the period (40%).
2. CASH--RESTRICTED
The Heritage and The Hallmark have Life Care Escrow deposits required under
the Illinois Life Care Facility Act Section 7(b) equal to six months of debt
service payments. The Life Care Escrow will be funded from time to time in
accordance with a schedule provided by the Illinois Department of Public
Health. The amount on deposit at December 31, 1994 and 1995 was $384,393 and
$652,503 respectively and at June 30, 1996 was $870,036.
In accordance with the new mortgage note payable described in Note 5, The
Hallmark is required to maintain escrow deposits for real estate taxes,
repairs, and other operating activities. The total of all escrow accounts at
December 31, 1995 was $1,080,351 and at June 30, 1996 was $467,237.
Included in restricted cash at December 31, 1994 and 1995 and June 30, 1996
is $856,047, $885,151, and $900,989, respectively of restricted bond proceeds.
Pursuant to Internal Revenue Code Section 148(f), The Heritage was required to
rebate to the United States government any interest earnings in excess of the
interest cost of the Bond proceeds not yet used for Project costs. During
1995, the Partnership paid $806,418 (included in cash-restricted and accounts
payable at December 31, 1994) to the United States government as a final
settlement of its arbitrage rebate payable. No amounts were paid in 1993 or
1994.
F-20
<PAGE>
ORIGINAL FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
3. DEFERRED COSTS
Deferred costs consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
Financing costs...................... $2,029,891 $2,656,553 $2,656,553
Marketing costs...................... 1,181,623 -- --
---------- ---------- ----------
3,211,514 2,656,553 2,656,553
Less: Accumulated amortization....... (1,211,533) (674,283) (740,926)
---------- ---------- ----------
$1,999,981 $1,982,270 $1,915,627
========== ========== ==========
</TABLE>
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
MORTGAGE NOTES PAYABLE
Mortgage note payable, financial
institution, interest at 7.265% per annum
with monthly principal and interest
assuming a 30 year amortization period,
through maturity in January 2006. (A)...... $34,627,000 $34,490,700
Mortgage note payable, financial
institution, interest at LIBOR plus 2 1/2%
per annum, with quarterly principal and
interest payments as defined through
maturity. (B).............................. $36,241,625
BONDS PAYABLE
Variable rate tax-exempt bonds issued by
state and local governmental authorities.
(C)........................................ $65,000,000 $65,000,000 $65,000,000
</TABLE>
- ---------------------
(A) The mortgage note payable is collateralized by The Hallmark's real estate.
(B) The Hallmark repaid $32,967,418 of this note as a final settlement on
December 18, 1995 from proceeds of the above mentioned mortgage note
payable which resulted in an extraordinary gain of $3,274,207.
(C) Permanent financing for the development for The Devonshire and The
Heritage has been provided by $65,000,000 (The Devonshire--$33,000,000;
The Heritage--$32,000,000) of tax-exempt Qualified Residential Rental
Bonds (the "Bonds"). The Bonds mature on December 15, 2019 and December
15, 2025.
Under the terms of the bond loan agreement, The Devonshire and The Heritage
are to make interest-only payments monthly, calculated using a floating
rate determined by the Remarketing Agent of the Bonds. The rates ranged
from 1.90% to 5.25% during 1993, 1.65% to 5.50% during 1994, 2.55% to 5.20%
during 1995 and 2.90% to 4.40% during the six months ended June 30, 1996.
The rates at December 31, 1994 were 4.95% and 5.10%, December 31, 1995 were
5.05% and 5.20%, and June 30, 1996 were 3.30% and 3.40%.
The maximum annual interest rate on the Bonds is 15%. Under certain
conditions, the interest rate on the Bonds may be converted to a fixed rate
at the request of the respective Partnership.
The Bonds are collateralized by irrevocable letters of credit issued by
various banks in the aggregate amount of $66,714,699 (the "Letters of
Credit") that expire December, 1996 and March, 1997. A Letter of Credit fee
of .5% per annum of the stated amount of the Letters of Credit is due
quarterly in advance. The Letters of Credit with the various banks are
collateralized by separate Standby Purchase Agreements entered into with
the Third Party to reimburse the banks for any funds drawn on the Letters
of Credit. The Letters of Credit and Standby Purchase Agreements are
collateralized by first mortgages on The Devonshire and The
F-21
<PAGE>
ORIGINAL FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Heritage. The due dates of the bonds would be accelerated upon the
expiration of the Letters of Credit and Standby Purchase Agreements unless
they are extended or replaced. However, The Devonshire and The Heritage
have entered into separate Standby Bond Purchase and Indemnity Agreements
with the Third Party pursuant to which the Third Party agrees to provide
standby credit enhancement to issuers of replacement Letters of Credit or,
if replacement Letters of Credit are not obtained, to buy the bonds. The
Standby Purchase and Indemnity Agreements expire on March 22, 1998. PGI has
provided the Third Party with certain collateral totaling $2,220,000 to
secure the obligations of The Devonshire under its Standby Bond Purchase
and Indemnity Agreements with the Third Party. Beginning in 1995, the
Partnerships are subject to annual base fees related to the Letters of
Credit and Standby Purchase Agreements equal approximately 1.35% of the
base value. The Partnerships incurred fees of $452,654, $743,002 and
$877,500 during the years ended December 31, 1993, 1994 and 1995
respectively, and $398,616 (unaudited) and $481,163 during the six months
ended June 30, 1995 and 1996, respectively.
Each bondholder may tender bonds on any business day and receive a price
equal to the principal amount thereof, plus accrued interest through the
tender date. Upon tender, the Remarketing Agent shall immediately remarket
the Bonds. In the event the Remarketing Agent fails to remarket any bonds,
the partnerships are obligated to purchase those bonds, for which they may
draw on the Letters of Credit.
Included in interest expense for the years ended December 31, 1993 and 1994
is $205,243 and $117,318, respectively, of interest expense related to a
$2,510,081 note payable to an affiliate that was repaid in 1994. The note
payable bore interest at 10% per annum.
Interest expense is stated net of interest income of $56,974, $155,608 and
$118,642 for the years ended December 31, 1993, 1994 and 1995, respectively and
$45,008 (unaudited) and $61,336 for the six months ended June 30, 1995 and
1996, respectively.
The aggregate amount of all principal payments for the mortgage note payable
and bonds payable are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C>
1996......................... $ 334,165
1997......................... 359,267
1998......................... 386,255
1999......................... 415,269
2000......................... 446,465
Thereafter................... 97,685,579
-----------
$99,627,000
===========
</TABLE>
Total interest paid on the mortgage note payable and bonds payable was
$1,289,396, $2,633,635, and $6,306,039 for the years ended December 31, 1993,
1994, and 1995, respectively and $2,802,211 (unaudited) and $2,207,202 for the
six months ended June 30, 1995 and 1996, respectively. During 1993, $588,919 of
interest was capitalized related to the construction of The Heritage.
5. TAX INCREMENTAL FINANCING
The Heritage is located in a redevelopment area designated by a local
municipality as a tax incremental financing district ("TIF"). Under the terms
of the redevelopment agreement, The Heritage is eligible to receive up to
$1,136,889 for all eligible development costs, as defined through a Tax
Incremental Financing Bond ("Bond"). The Bond matures on December 1, 2007 and
bears interest at 10%, with principal and interest payable annually on each
December 1. The Bond is subject to optional redemption in whole, or in part, at
any time, at a redemption price equal to the principal outstanding at the date
redeemed. The Bond is subject to mandatory redemption, in part, by the
application of annual sinking fund installments by the municipality on each
December 1 thereafter, at a redemption price equal to the principal outstanding
at the date redeemed. The Bond is payable
F-22
<PAGE>
ORIGINAL FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
solely from real estate tax incremental revenues and certain sales tax receipts
generated in the TIF. Payments are to be made to the extent of available TIF
revenues. The insufficiency of TIF revenues generated in the redevelopment area
for any given year shall not be considered a default in payment, but all past
due amounts shall be a continuing obligation payable from future TIF revenues.
Any unpaid amounts including interest, at maturity, will be forgiven. As the
collectibility of the bond principal and interest is dependent upon sufficient
revenues being generated in the redevelopment area, revenue is recognized by
The Heritage when principal and interest are received. For the years ended
December 31, 1993, 1994, and 1995, The Heritage received principal and interest
payments totaling $77,906, $144,389 and $144,089, respectively. No payments
were received during the six months ended June 30, 1995 and 1996.
6. EMPLOYEE BENEFIT PLAN
In August 1994, PGI established 401(k) plans for all employees that meet
minimum employment criteria. The plans provide that the participants may defer
up to 15% of their eligible compensation on a pre-tax basis subject to certain
maximum amounts. The Partnerships will contribute an additional 25% of the
employee's contribution to the plan, up to $500 per employee per annum.
Employees are always 100% vested in their own contributions and vested in
Partnerships contributions over five years. The Partnership made contributions
in the amount of $33,456 and $16,480 for the years ended December 31, 1994 and
1995 respectively and $17,115 (unaudited) and $22,259 for the six months ended
June 30, 1995 and 1996, respectively. Such amounts are included in general and
administrative expense in Combined Statements of Operations.
7. RELATED PARTY TRANSACTIONS
In connection with the organization of the Partnerships and the development
and financing of the Properties, PGI and an affiliate are entitled to payments
and fees for various services provided. Such amounts incurred for the years
ended December 31, 1993, 1994, and 1995 and the six months ended June 30, 1995
and 1996 and are summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- --------------------
1993 1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Property management fee (a)... $325,898 $743,977 $1,071,195 $522,690 $461,084
Administration fee (b)........ -- 291,247 372,000 186,000 186,000
Incentive leasing fee (c)..... -- 500,000 -- -- --
</TABLE>
- ---------------------
(a) PGI is entitled to a property management fee equal to 5% of total operating
income (3% for The Hallmark effective January 1, 1996).
(b) PGI is entitled to an annual administration fee of $186,000 for providing
administrative services to The Devonshire and The Heritage. The fee is
included in general and administrative expense in the combined statements
of operations.
(c) PGI was entitled to an incentive leasing fee from The Hallmark based upon
achieving certain leasing levels, as defined. The fee is included in
general and administrative expense in the combined statements of operation.
Amounts due to affiliates are for amounts due for the above fees and advances
made by affiliates. Amounts due from and due to affiliates are non-interest
bearing and payable upon demand.
8. FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash, cash-restricted and variable rate and fixed rate mortgage notes payable
are reflected in the accompanying combined balance sheets at amounts considered
by management to reasonably approximate fair value. Management estimates the
fair value of its long-term fixed rate notes payable generally using discounted
cash flow analysis based upon the Original Facilities' current borrowing rate
for debt with similar maturities.
F-23
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors of
Brookdale Living Communities, Inc.
We have audited the accompanying combined balance sheets of the Activelife
Facilities as of December 31, 1994 and 1995 and June 30, 1996 and the related
combined statements of operations, changes in partners' deficit and cash flows
for each of the two years in the period ended December 31, 1995 and for the
six months ended June 30, 1996. These financial statements are the
responsibility of the Activelife Facilities' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Activelife
Facilities at December 31, 1994 and 1995 and June 30, 1996, and the combined
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1995 and for the six months ended June 30, 1996 in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 5, 1996
F-24
<PAGE>
ACTIVELIFE FACILITIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 1,618,778 $ 2,055,227 $ 1,853,593
Cash--restricted........................ 785,066 792,223 912,494
Accounts receivable..................... 123,405 82,208 67,016
----------- ----------- -----------
Total current assets.................... 2,527,249 2,929,658 2,833,103
Real estate, at cost:
Land.................................... 1,731,721 1,731,721 1,731,721
Buildings and improvements.............. 33,082,584 33,169,840 33,205,110
Furniture and equipment................. 1,108,073 1,190,196 1,339,346
----------- ----------- -----------
35,922,378 36,091,757 36,276,177
Accumulated depreciation................ (5,809,951) (6,773,607) (7,262,272)
----------- ----------- -----------
30,112,427 29,318,150 29,013,905
Deferred financing fees, net of
accumulated amortization of $442,302
and $488,898 at December 31, 1994 and
1995, respectively and $512,197 at June
30, 1996............................... 955,459 908,863 885,564
Other................................... 216,660 185,457 147,580
----------- ----------- -----------
Total assets............................ $33,811,795 $33,342,128 $32,880,152
=========== =========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities:
Mortgage notes payable.................. $ 297,959 $ 323,283 $ 342,007
Accrued interest payable................ 236,343 234,307 233,225
Accrued real estate taxes............... 636,793 655,859 697,449
Accounts payable and accrued expenses... 483,062 439,333 257,662
Tenant security deposits................ 796,956 780,676 769,050
Due to affiliates....................... 1,576,992 1,852,587 1,959,727
Other................................... 61,970 39,074 29,711
----------- ----------- -----------
Total current liabilities............... 4,090,075 4,325,119 4,288,831
Mortgage notes payable.................. 36,003,130 36,022,624 36,024,676
----------- ----------- -----------
Total liabilities....................... 40,093,205 40,347,743 40,313,507
Partners' deficit....................... (6,281,410) (7,005,615) (7,433,355)
----------- ----------- -----------
Total liabilities and partners' deficit. $33,811,795 $33,342,128 $32,880,152
=========== =========== ===========
</TABLE>
See notes to combined financial statements.
F-25
<PAGE>
ACTIVELIFE FACILITIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------ ----------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE
Resident fees.................. $11,495,016 $12,336,745 $6,083,096 $6,300,976
EXPENSES
Facility operating............. 6,505,485 6,867,193 3,234,765 3,380,348
Real estate taxes.............. 654,188 689,255 332,892 409,677
Depreciation and amortization.. 994,336 1,010,252 493,009 511,964
Interest....................... 2,994,039 2,995,823 1,498,319 1,496,213
Property management fee--
affiliate..................... 701,054 755,130 344,986 387,514
----------- ----------- ---------- ----------
Total expenses................. 11,849,102 12,317,653 5,903,971 6,185,716
----------- ----------- ---------- ----------
Income (loss) before
extraordinary item............ (354,086) 19,092 179,125 115,260
Extraordinary item--loss on
extinguishment of debt........ (304,407) -- -- --
----------- ----------- ---------- ----------
Net income (loss).............. $ (658,493) $ 19,092 $ 179,125 $ 115,260
=========== =========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-26
<PAGE>
ACTIVELIFE FACILITIES
COMBINED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<S> <C>
Partners' deficit at January 1, 1994.............................. $(5,356,726)
Contributions................................................... 500,000
Distributions................................................... (766,191)
Net loss........................................................ (658,493)
-----------
Partners' deficit at December 31, 1994............................ (6,281,410)
Distributions................................................... (743,297)
Net income...................................................... 19,092
-----------
Partners' deficit at December 31, 1995............................ (7,005,615)
Distributions................................................... (543,000)
Net income...................................................... 115,260
-----------
Partners' deficit at June 30, 1996................................ $(7,433,355)
===========
</TABLE>
See notes to combined financial statements.
F-27
<PAGE>
ACTIVELIFE FACILITIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER SIX MONTHS ENDED JUNE
31, 30,
---------------------- -----------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............ $ (658,493) $ 19,092 $ 179,125 $ 115,260
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization.............. 994,336 1,010,252 493,009 511,964
Interest expense added to
mortgage note payable
principal................. 151,524 172,774 83,731 94,135
Extraordinary item......... 304,407 -- -- --
Changes in operating assets
and liabilities:
Increase in cash-
restricted.............. (64,613) (7,157) (74,744) (120,271)
(Increase) decrease in
accounts receivable..... (73,962) 41,197 87,888 15,192
(Increase) decrease in
other assets............ (7,177) 31,203 63,477 37,877
Increase (decrease) in
accrued interest
payable................. 794 (2,036) (997) (1,082)
Increase (decrease) in
accrued real estate
taxes................... 2,459 19,066 (6,140) 41,590
(Decrease) in accounts
payable................. (117,733) (43,729) (220,538) (181,671)
Increase (decrease) in
tenant security
deposits................ 32,423 (16,280) (21,313) (11,626)
(Decrease) in other
liabilities............. (36,317) (22,896) (11,120) (9,363)
---------- ---------- ---------- ----------
Net cash provided by
operating activities........ 527,648 1,201,486 572,378 492,005
INVESTING ACTIVITIES
Additions to real estate..... (176,055) (169,379) (88,882) (184,420)
---------- ---------- ---------- ----------
Cash used in investing
activities.................. (176,055) (169,379) (88,882) (184,420)
FINANCING ACTIVITIES
Repayment of mortgage notes
payable..................... (5,514,747) (297,956) (145,935) (158,359)
Mortgage note payable
prepayment fee.............. (200,000) -- -- --
Proceeds from mortgage note
payable..................... 5,670,000 170,000 85,000 85,000
Increase in deferred
financing costs............. (203,332) -- -- --
Increase in due to affiliate. 124,320 275,595 115,786 107,140
Contributions from partners.. 500,000 -- -- --
Distributions to partners.... (766,191) (743,297) (290,581) (543,000)
---------- ---------- ---------- ----------
Net cash used in provided by
financing activities........ (389,950) (595,658) (235,730) (509,219)
---------- ---------- ---------- ----------
Net (decrease) increase in
cash........................ (38,357) 436,449 247,766 (201,634)
Cash and cash equivalents at
beginning of period......... 1,657,135 1,618,778 1,618,778 2,055,227
---------- ---------- ---------- ----------
Cash and cash equivalents at
end of period............... $1,618,778 $2,055,227 $1,866,544 $1,853,593
========== ========== ========== ==========
</TABLE>
See notes to combined financial statements.
F-28
<PAGE>
ACTIVELIFE FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The Activelife Facilities ("Activelife") represents a combination of three
partnerships described below ("Partnerships") that own, operate, and manage
assisted living facilities ("Properties"). The Properties are under the common
control of the principals of Activelife Management Corporation ("AMC").
Pursuant to the formation transactions more fully described elsewhere in this
Registration Statement and Prospectus, the Activelife Facilities will be
acquired by a newly formed corporation, Brookdale Living Communities, Inc.
(the "Company"), whose shares are being registered pursuant to this
Registration Statement.
The Partnerships and Properties owned and operated by AMC are as follows:
<TABLE>
<CAPTION>
PARTNERSHIP PROPERTY LOCATION
<S> <C> <C>
East Mesa Senior Living Limited Partnership Springs of East Mesa Mesa, Arizona
Edina Park Plaza Associates Limited Partnership Edina Park Plaza Edina, Minnesota
Hawthorn Lakes Associates Limited Partnership Hawthorn Lakes Vernon Hills, Illinois
</TABLE>
The Partnerships maintain their books and records on the basis of accounting
used for federal income tax purposes. The differences between federal income
tax basis and generally accepted accounting principles affecting the
Partnerships relate to differences in the basis of real estate assets and the
use of accelerated depreciation methods with shorter depreciable lives used
for federal income tax basis, resulting in the net book value of real estate
assets being approximately $15.2 million lower for federal income tax basis.
All significant intercompany accounts and transactions have been eliminated
in combination.
RESIDENT FEES REVENUE
Resident fees revenue is recorded when services are rendered and consist of
fees for basic housing, support services and fees associated with additional
services such as personalized health and assisted living care.
REAL ESTATE
At December 31, 1994 and 1995 the Properties were carried at cost which was
not in excess of net realizable value as determined by management. In March
1995, the Financial Accounting Standards Board issued Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of," under which the Partnerships would be required to recognize
impairment losses for the Properties when indicators of impairment are present
and the Properties' expected undiscounted cash flows are not sufficient to
recover the Properties' carrying value. The Partnerships adopted Statement No.
121 effective January 1, 1996 with no impact on the accompanying combined
financial statements.
Expenditures for ordinary maintenance and repairs are expensed to operations
as incurred. Significant renovations and improvements which improve and/or
extend the useful life of the asset are capitalized and depreciated over their
estimated useful life.
Depreciation is calculated using the straight-line method over the estimated
useful lives of assets, which are as follows:
<TABLE>
<S> <C>
Buildings...................................................... 40 years
Building improvements and furniture and equipment.............. 5-10 years
</TABLE>
F-29
<PAGE>
ACTIVELIFE FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
CASH AND CASH EQUIVALENTS
The Partnerships consider all cash accounts and money market funds and
certificates of deposit with an original maturity of three months or less when
purchased to be cash and cash equivalents.
DEFERRED FINANCING FEES
Deferred financing fees are amortized using the straight-line method over the
term of the mortgage notes payable.
INCOME TAXES
The Partnerships pay no income taxes and the income or loss from the
Partnerships is includable on the respective federal income tax returns of the
partners.
USE OF ESTIMATES
The preparation of the combined financial statements in accordance with
generally accepted accounting principles requires management to make estimates
and assumptions that affect amounts reported in the combined financial
statements and accompanying notes. Actual results could differ from those
estimates.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data for the six months ended June 30, 1995 is
unaudited; however, in the opinion of management, such interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the combined results of operations and cash flows for
the period.
2. CASH--RESTRICTED
In accordance with mortgage note payable agreements described in Note 3, the
Partnerships are required to maintain escrow deposits for real estate taxes,
repairs, and other operating activities.
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1994 1995 1996
<S> <C> <C> <C>
MORTGAGE NOTES PAYABLE
Fixed rate mortgage notes payable issued by
local municipalities (A) (B).............. $28,896,474 $28,672,794 $28,553,926
Mortgage note payable, financial
institution, interest at 8.25% per annum
with monthly principal and interest
assuming a 25 year amortization period,
with a lump-sum payment at maturity in
March 2004. (A) (C)....................... 5,498,166 5,423,890 5,384,399
Interest reduction loan provided by Housing
and Redevelopment Authority of Edina,
Minnesota (HRA) (A) (D)................... 1,906,449 2,249,223 2,428,358
----------- ----------- -----------
$36,301,089 $36,345,907 $36,366,683
=========== =========== ===========
</TABLE>
- ---------------------
(A) Mortgage notes payable are collateralized by the Partnerships' real estate
assets.
(B) The notes bear interest at 8% ($15,411,080 and $15,264,543 at December 31,
1994 and 1995, respectively and $15,186,774 at June 30, 1996) and 8.525%
($13,485,394 and $13,408,251 at December 31, 1994 and 1995, respectively
and $13,367,152 at June 30, 1996), with monthly principal and interest
payments through maturity in 2027.
F-30
<PAGE>
ACTIVELIFE FACILITIES
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(C) In February 1994, the mortgage note payable was refinanced resulting in an
extraordinary loss on extinguishment of debt of $304,407.
(D) The Elderly Housing Interest Reduction Agreement (arising out of tax
increment financing) between the HRA and the Partnership provides that the
HRA will make loans upon request of the Partnership in monthly installments
to the Partnership totaling $170,000 each year for a period of 20 years,
commencing in 1987, for the payment of interest on the mortgage note
payable issued by HRA. The loan bears interest at the greater of 12-1/2%
simple interest per annum or the statutory minimum, as defined, and shall
be payable with interest at maturity. Included in the balance is accrued
interest of $616,338 and $789,112 at December 31, 1994 and 1995,
respectively and $883,247 at June 30, 1996. Advances plus all unpaid
interest are payable in one installment due 20 years after the anniversary
date of the last payment request on the loan.
The aggregate amount of all principal payments for the mortgage notes payable
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
<S> <C>
1996......................... $ 323,283
1997......................... 350,928
1998......................... 380,734
1999......................... 413,159
2000......................... 448,211
Thereafter................... 34,429,592
-----------
$36,345,907
===========
</TABLE>
Total interest paid on the mortgage notes payable was $2,841,721 and
$2,825,085 for the years ended December 31, 1994, and 1995, respectively and
$1,415,585 (unaudited) and $1,403,160 for the six months ended June 30, 1995
and 1996, respectively.
4. RELATED PARTY TRANSACTIONS
In connection with the organization of the Partnerships and the development
and financing of the Properties, AMC is entitled to payments and fees for
various services provided. Such amounts incurred for the years ended December
31, 1994, and 1995 and the six months ended June 30, 1995 (unaudited) and 1996
and are summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31 SIX MONTHS ENDED JUNE 30,
----------------------- ---------------------------
1994 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C> <C>
Property management fees
(a).................... $ 701,054 $ 755,130 $ 344,986 $ 387,514
Development fees (b).... 175,405 224,142 72,887 63,504
</TABLE>
- ---------------------
(a) AMC is entitled to the following management fees:
.Base fees range from 3% to 4% of gross revenue or the greater of 5% of
monthly gross revenue or $5000.
. Incentive fees range from 1% to 2% of gross revenue and 29% of cash flow
from operations, as defined. The payment of incentive fees is subject to
available cash and distributions to partners equal to certain levels of
return on capital, as defined.
(b) AMC and affiliated entities are entitled to fees for services rendered in
connection with the identification, financings, computer usage and leasing
of the Properties.
Amounts due to affiliates are for amounts due for the above fees and advances
made by affiliates and are non-interest bearing and payable upon demand from
available cash.
5. FAIR VALUES OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, cash-restricted and fixed rate mortgage notes
payable are reflected in the accompanying combined balance sheets at amounts
considered by management to reasonably approximate fair value. Management
estimates the fair value of its long-term fixed rate notes payable generally
using discounted cash flow analysis based upon AMC's current borrowing rate for
debt with similar maturities.
F-31
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Brookdale Living Communities, Inc.
We have audited the accompanying balance sheets of the Gables at Brighton
Associates (the "Partnership") as of December 31, 1995 and June 30, 1996 and
the related statements of income, changes in partners' capital and cash flows
for the year ended December 31, 1995 and for the six months ended June 30,
1996. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Gables at Brighton
Associates at December 31, 1995 and June 30, 1996, and the results of its
operations and its cash flows for the year ended December 31, 1995 and for the
six months ended June 30, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
September 3, 1996
F-32
<PAGE>
GABLES AT BRIGHTON ASSOCIATES
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
<S> <C> <C>
ASSETS
Current assets:
Cash................................................. $ 562,453 $ 603,662
Other................................................ 99,692 69,338
----------- -----------
Total current assets................................. 662,145 673,000
Real estate, at cost:
Land................................................. 702,666 702,666
Building and improvements............................ 6,873,764 6,884,969
Furniture and equipment.............................. 399,591 431,419
----------- -----------
7,976,021 8,019,054
Accumulated depreciation............................. (2,188,848) (2,336,942)
----------- -----------
5,787,173 5,682,112
----------- -----------
Total assets......................................... $ 6,449,318 $ 6,355,112
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable and accrued expenses................ $ 44,840 $ 51,640
Tenant security deposits............................. 226,254 221,486
Due to affiliate..................................... 8,165 10,435
Other................................................ 123,518 53,145
----------- -----------
Total current liabilities............................ 402,777 336,706
Partners' capital.................................... 6,046,541 6,018,406
----------- -----------
Total liabilities and partners' capital.............. $ 6,449,318 $ 6,355,112
=========== ===========
</TABLE>
See notes to financial statements.
F-33
<PAGE>
GABLES AT BRIGHTON ASSOCIATES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
YEAR ENDED --------------------------
DECEMBER 31, 1995 1995 1996
<S> <C> <C> <C>
(UNAUDITED)
REVENUE
Resident fees..................... $2,638,072 $ 1,305,407 $ 1,370,856
EXPENSES
Facility operating................ 1,485,766 676,343 730,389
Real estate taxes................. 227,562 112,838 112,008
Depreciation...................... 292,334 148,377 148,094
Property management fee--
affiliate........................ 107,975 56,862 58,484
---------- ------------- ------------
Total expenses.................... 2,113,637 994,420 1,048,975
---------- ------------- ------------
Net income........................ $ 524,435 $ 310,987 $ 321,881
========== ============= ============
</TABLE>
See notes to financial statements.
F-34
<PAGE>
GABLES AT BRIGHTON ASSOCIATES
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<S> <C>
Partners' capital at January 1, 1995 .............................. $ 6,247,080
Distributions.................................................... (724,974)
Net income....................................................... 524,435
-----------
Partners' capital at December 31, 1995 ............................ 6,046,541
Distributions.................................................... (350,016)
Net income....................................................... 321,881
-----------
Partners' capital at June 30, 1996................................. $ 6,018,406
===========
</TABLE>
See notes to financial statements.
F-35
<PAGE>
GABLES AT BRIGHTON ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED ---------------------
DECEMBER 31, 1995 1995 1996
(UNAUDITED)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................... $ 524,435 $ 310,987 $ 321,881
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation....................... 292,334 148,377 148,094
Changes in operating assets and
liabilities:
Decrease in other assets......... 486 19,672 30,354
(Decrease) increase in accounts
payable and accrued expenses.... (9,979) (9,684) 6,800
Increase (decrease) in tenant
security deposits............... 12,175 10,674 (4,768)
Increase (decrease) in other
liabilities..................... 83,111 10,775 (70,373)
--------- --------- ---------
Net cash provided by operating
activities.......................... 902,562 490,801 431,988
INVESTING ACTIVITIES
Additions to real estate............. (54,059) (17,894) (43,033)
--------- --------- ---------
Cash used in investing activities.... (54,059) (17,894) (43,033)
--------- --------- ---------
FINANCING ACTIVITIES
(Decrease) increase in due to
affiliate........................... (1,748) (562) 2,270
Distributions to partners............ (724,974) (421,339) (350,016)
--------- --------- ---------
Net cash used in financing
activities.......................... (726,722) (421,901) (347,746)
--------- --------- ---------
Net increase in cash................. 121,781 51,006 41,209
Cash at beginning of period.......... 440,672 440,672 562,453
--------- --------- ---------
Cash at end of period................ $ 562,453 $ 491,678 $ 603,662
========= ========= =========
</TABLE>
See notes to financial statements.
F-36
<PAGE>
GABLES AT BRIGHTON ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
Gables at Brighton Associates (the "Partnership") is a general partnership
that owns, operates, and manages an assisted living facility known as The
Gables at Brighton ("Property") located in Rochester, New York. Pursuant to the
formation transactions more fully described elsewhere in this Registration
Statement and Prospectus, the Property will be acquired by a newly formed
corporation, Brookdale Living Communities, Inc., whose shares are being
registered pursuant to this Registration Statement.
RESIDENT FEE REVENUE
Resident fee revenue is recorded when services are rendered and consist of
fees for basic housing, support services and fees associated with additional
services such as personalized health and assisted living care.
REAL ESTATE
At December 31, 1995, the Property was carried at cost which was not in
excess of net realizable value as determined by management. In March 1995, the
Financial Accounting Standards Board issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of,"
under which the Partnership would be required to recognize impairment losses
for the Property when indicators of impairment are present and the Property's
expected undiscounted cash flows are not sufficient to recover the Property's
carrying value. The Partnership adopted Statement No. 121 effective January 1,
1996 with no impact on the accompanying financial statements.
Expenditures for ordinary maintenance and repairs are expensed to operations
as incurred. Significant renovations and improvements which improve and/or
extend the useful life of the asset are capitalized and depreciated over their
estimated useful life. Interest incurred during construction periods is
capitalized as a component of the building cost.
Depreciation is calculated using the straight-line method over the estimated
useful lives of assets, which are as follows:
<TABLE>
<S> <C>
Building and improvements.. 20-27.5 years
Furniture and equipment.... 5-7 years
</TABLE>
INCOME TAXES
The Partnership pays no income taxes and the income or loss from the
Partnership is includable on the respective federal income tax returns of the
partners.
USE OF ESTIMATES
The preparation of the financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data for the six months ended June 30, 1995 is
unaudited; however, in the opinion of management, such interim data includes
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the results of operations and cash flows for the period.
2. RELATED PARTY TRANSACTIONS
In connection with the operation of the Property, an affiliate of one of the
partners is entitled to management fees equal to 2.5% of resident fees and 5%
of cash flows, as defined. Amounts due to affiliate are for amounts due for the
above fees and are non-interest bearing and payable upon demand.
F-37
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDER-
WRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE COMMON STOCK OF-
FERED HEREBY. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HERE-
UNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMA-
TION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
The Company and the Formation............................................. 13
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 14
Capitalization............................................................ 15
Dilution.................................................................. 16
Selected Financial Data................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 19
Business.................................................................. 25
Management................................................................ 35
Certain Transactions...................................................... 40
Principal Stockholders.................................................... 42
Description of Capital Stock.............................................. 43
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 48
Legal Matters............................................................. 49
Experts................................................................... 49
Additional Information.................................................... 49
Index to Financial Statements............................................. F-1
</TABLE>
------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPAT-
ING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
6,250,000 SHARES
BROOKDALE LIVING COMMUNITIES, INC.
COMMON STOCK
----------------
PROSPECTUS
----------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
WILLIAM BLAIR & COMPANY
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various costs and expenses in connection
with the issuance and distribution of the securities being registered hereby,
other than underwriting discounts and commissions. The Company will bear all
of such expenses. All amounts are estimated except for the Securities and
Exchange Commission ("SEC") registration fee, the National Association of
Securities Dealers, Inc. ("NASD") filing fee and the New York Stock Exchange,
Inc. ("NYSE") listing fee.
<TABLE>
<S> <C>
SEC registration fee............................................. $42,134
NASD filing fee.................................................. 12,719
NYSE listing fee................................................. *
Blue Sky fees and expenses (including attorneys' fees and
expenses)....................................................... 30,000
Accounting fees and expenses..................................... *
Legal fees and expenses.......................................... *
Printing and engraving expenses.................................. *
Transfer agent and registrar's fees.............................. *
-------
Total........................................................ $
=======
</TABLE>
- ---------------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the Delaware General Corporation Law ("Section 145"), a
corporation may indemnify its directors, officers, employees and agents and
its former directors, officers, employees and agents and those who serve, at
the corporation's request, in such capacities with another enterprise, against
expenses (including attorneys' fees), as well as judgments, fines and
settlements in non-derivative lawsuits, actually and reasonably incurred in
connection with the defense of any action, suit or proceeding in which they or
any of them were or are made parties or are threatened to be made parties by
reason of their serving or having served in such capacity. Section 145
provides, however, that such person must have acted in good faith and in a
manner he or she reasonably believed to be in (or not opposed to) the best
interests of the corporation and, in the case of a criminal action, such
person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, Section 145 does not permit indemnification in an
action or suit by or in the right of the corporation, where such person has
been adjudged liable to the corporation, unless, and only to the extent that,
a court determines that such person fairly and reasonably is entitled to
indemnity for expenses the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter
has been successfully defended.
The Company's Amended and Restated By-laws (the "By-laws") provide for
mandatory indemnification of directors and officers generally to the same
extent authorized by Section 145. Under the By-laws, the Company shall advance
expenses incurred by an officer or director in defending any such action if
the director or officer undertakes to repay such amount if it is determined
that he or she is not entitled to indemnification. The Company has obtained
directors' and officers' liability insurance.
The Company intends to enter into indemnification agreements with each of
the Company's directors. The indemnification agreements will require, among
other things, that the Company indemnify such directors to the fullest extent
permitted by law, and advance to the directors all related expenses, subject
to reimbursement if it is subsequently determined that indemnification is not
permitted. The Company also must indemnify and advance all expenses incurred
by directors seeking to enforce their rights under the indemnification
agreements, and cover directors under the Company's directors' and officers'
liability insurance.
II-1
<PAGE>
The Underwriting Agreement provides for indemnification by the Underwriters
of the directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"), under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information as to all securities sold by
the Company within the last three years that were not registered under the
Securities Act. As to all such transactions, an exemption is claimed under
Section 4(2) of the Securities Act.
On September 4, 1996, the Company issued 100 shares of Common Stock to
Michael W. Reschke for $10 per share, or an aggregate purchase price of
$1,000. This Common Stock was purchased solely for investment purposes to
facilitate the organization of the Company. Upon completion of the Offering,
all of the shares so acquired by Mr. Reschke will be redeemed by the Company
for an aggregate redemption price of $1,000.
Simultaneously with the completion of the Offering, the Company also will
issue 3,487,000 shares of Common Stock to PGI and 387,500 shares of Common
Stock to Mark J. Schulte in exchange for their respective interests in the
Original Facilities and the operations relating thereto.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1* Form of Restated Certificate of Incorporation of the Compa-
ny..........................................................
3.2* Form of Amended and Restated By-laws of the Company.........
4.1* Form of certificate representing Common Stock of the Compa-
ny..........................................................
5.1* Opinion of Winston & Strawn regarding legality of shares be-
ing registered..............................................
10.1* Form of Formation Agreement by and between the Company and
PGI.........................................................
10.2* Form of Space Sharing Agreement by and between the Company
and PGI.....................................................
10.3* Form of Registration Rights Agreement by and between the
Company and PGI.............................................
10.4* Form of Voting Agreement....................................
10.5* Form of Non-Competition Agreement by and between the Company
and PGI.....................................................
10.6 Subscription Agreement dated September 4, 1996 by and be-
tween the Company and Michael W. Reschke....................
10.7* Form of Employment Agreement by and between the Company and
Michael W. Reschke..........................................
10.8* Form of Employment Agreement by and between the Company and
Mark J. Schulte.............................................
10.9* Form of Employment Agreement by and between the Company and
Craig G. Walczyk............................................
10.10* Form of Employment Agreement by and between the Company and
Matthew F. Whitlock.........................................
10.11* Form of Employment Agreement by and between the Company and
Mark J. Iuppenlatz..........................................
10.12* Form of Employment Agreement by and between the Company and
Mary Pat Scoltock...........................................
10.13* Form of Employment Agreement by and between the Company and
Stephan T. Beck.............................................
10.14* Form of Amended and Restated Management Agreement by and be-
tween the Company and The Island on Lake Travis, Ltd........
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
10.15* Form of Management Agreement by and between the Company and
The Kenwood.................................................
10.16* Form of Stock Incentive Plan................................
10.17* Form of Indemnification Agreement...........................
10.18* Form of Amended and Restated Agreement of Limited Partner-
ship of Hallmark Partners, L.P..............................
10.19* Form of Amended and Restated Partnership Agreement of River
Oaks Partners...............................................
10.20* Form of Amended and Restated Agreement of Limited Partner-
ship of The Ponds of Pembroke Limited Partnership...........
10.21 Real Estate Purchase Agreement dated September 16, 1996 by
and between PGI and Gables at Brighton Associates...........
10.22 Real Estate Purchase Agreement dated September 16, 1996 by
and between PGI and Edina Park Plaza Associates Limited
Partnership.................................................
10.23 Real Estate Purchase Agreement dated September 16, 1996 by
and between PGI and East Mesa Senior Living Limited Partner-
ship........................................................
10.24 Real Estate Purchase Agreement dated September 16, 1996 by
and between PGI and Hawthorn Lakes Associates...............
10.25 Letter Agreement dated September 17, 1996 by and among PGI,
KILICO Realty Corporation and Kemper Investors Life Insur-
ance Company ...............................................
21.1* Subsidiaries of the Company.................................
23.1 Consent of Ernst & Young LLP................................
23.2* Consent of Winston & Strawn (to be included in opinion filed
as Exhibit 5.1).............................................
24.1 Powers of attorney (included on signature page included in
this Part II)...............................................
27.1 Financial Data Schedule.....................................
</TABLE>
- ---------------------
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company
II-3
<PAGE>
has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned Company hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF
ILLINOIS, ON THE 18TH DAY OF SEPTEMBER, 1996.
Brookdale Living Communities, Inc.
/s/ Mark J. Schulte
By __________________________________
Mark J. Schulte
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Mark J. Schulte, Craig G. Walczyk and
Sheryl A. Wolf, or any of them, their true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for them and in
their name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this registration
statement or a registration statement filed pursuant to Rule 462(b) of the
Securities Act of 1933, and to file the same with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premise, as fully to all intents and
purposes as they might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON SEPTEMBER 18, 1996 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Michael W. Reschke Chairman of the Board, Director
___________________________________________
Michael W. Reschke
/s/ Mark J. Schulte President and Chief Executive Officer
___________________________________________ (principal executive officer), Director
Mark J. Schulte
/s/ Craig G. Walczyk Vice President--Chief Financial Officer
___________________________________________ (principal financial officer)
Craig G. Walczyk
/s/ Sheryl A. Wolf Controller (principal accounting officer)
___________________________________________
Sheryl A. Wolf
/s/ Richard S. Curto Vice Chairman of the Board, Director
___________________________________________
Richard S. Curto
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1.1* Form of Underwriting Agreement..............................
3.1* Form of Restated Certificate of Incorporation of the Compa-
ny..........................................................
3.2* Form of Amended and Restated By-laws of the Company.........
4.1* Form of certificate representing Common Stock of the Compa-
ny..........................................................
5.1* Opinion of Winston & Strawn regarding legality of shares be-
ing registered..............................................
10.1* Form of Formation Agreement by and between the Company and
PGI.........................................................
10.2* Form of Space Sharing Agreement by and between the Company
and PGI.....................................................
10.3* Form of Registration Rights Agreement by and between the
Company and PGI.............................................
10.4* Form of Voting Agreement....................................
10.5* Form of Non-Competition Agreement by and between the Company
and PGI.....................................................
10.6 Subscription Agreement dated September 4, 1996 by and be-
tween the Company and Michael W. Reschke....................
10.7* Form of Employment Agreement by and between the Company and
Michael W. Reschke..........................................
10.8* Form of Employment Agreement by and between the Company and
Mark J. Schulte.............................................
10.9* Form of Employment Agreement by and between the Company and
Craig G. Walczyk............................................
10.10* Form of Employment Agreement by and between the Company and
Matthew F. Whitlock.........................................
10.11* Form of Employment Agreement by and between the Company and
Mark J. Iuppenlatz..........................................
10.12* Form of Employment Agreement by and between the Company and
Mary Pat Scoltock...........................................
10.13* Form of Employment Agreement by and between the Company and
Stephan T. Beck.............................................
10.14* Form of Amended and Restated Management Agreement by and be-
tween the Company and The Island on Lake Travis, Ltd........
10.15* Form of Management Agreement by and between the Company and
The Kenwood.................................................
10.16* Form of Stock Incentive Plan................................
10.17* Form of Indemnification Agreement...........................
10.18* Form of Amended and Restated Agreement of Limited Partner-
ship of Hallmark Partners, L.P..............................
10.19* Form of Amended and Restated Partnership Agreement of River
Oaks Partners...............................................
10.20* Form of Amended and Restated Agreement of Limited Partner-
ship of The Ponds of Pembroke Limited Partnership...........
10.21 Real Estate Purchase Agreement dated September 16, 1996 by
and between PGI and Gables at Brighton Associates...........
10.22 Real Estate Purchase Agreement dated September 16, 1996 by
and between PGI and Edina Park Plaza Associates Limited
Partnership.................................................
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
10.23 Real Estate Purchase Agreement dated September 16, 1996 by
and between PGI and East Mesa Senior Living Limited Partner-
ship........................................................
10.24 Real Estate Purchase Agreement dated September 16, 1996 by
and between PGI and Hawthorn Lakes Associates...............
10.25 Letter Agreement dated September 17, 1996 by and among PGI,
KILICO Realty Corporation and Kemper Investors Life Insur-
ance Company ...............................................
21.1* Subsidiaries of the Company.................................
23.1 Consent of Ernst & Young LLP................................
23.2* Consent of Winston & Strawn (to be included in opinion filed
as Exhibit 5.1).............................................
24.1 Powers of attorney (included on signature page included in
this Part II)...............................................
27.1 Financial Data Schedule.....................................
</TABLE>
- ---------------------
*To be filed by amendment.
II-7
<PAGE>
Exhibit 10.6
BROOKDALE LIVING COMMUNITIES, INC.
SUBSCRIPTION AGREEMENT
----------------------
WHEREAS, pursuant to the Certificate of Incorporation of Brookdale
Living Communities, Inc. (the "Company"), which was filed with the State of
Delaware on September 4, 1996, the Company has been authorized to issue 100
shares of common stock, par value $.01 per share (the "Common Stock");
WHEREAS, the undersigned wishes to subscribe for and acquire all of
the authorized shares of Common Stock on the terms and subject to the conditions
set forth below; and
WHEREAS, by unanimous action by the Board of Directors of the Company,
the Company has determined to issue all of the authorized shares of Common Stock
to the undersigned.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
1. Subscription. The undersigned does hereby subscribe for and
promises to pay for and acquire 100 shares of Common Stock (the "Shares") for
the sum of $1,000, which sum shall be payable to the Company in cash in a single
sum on demand by the Company.
2. Representations and Warranties. The undersigned represents and
warrants to the Company, its sole incorporator and its Board of Directors that:
(a) this subscription is made and such Shares will be acquired by the
undersigned solely for investment purposes and with no present intention to
sell or otherwise dispose of the same or any part thereof, other than to
the Company in accordance with the mandatory call provisions set forth
herein;
(b) the undersigned neither has knowledge of nor anticipates any
circumstance, condition or event which might hereafter occur which would
cause the sale of such Shares by the undersigned, other than in accordance
with the mandatory call provisions set forth herein;
(c) upon the delivery of a certificate evidencing such Shares the
undersigned will execute and deliver to and for the benefit of the Company
such additional instruments as the Company may require to evidence such
intent; and
(d) this subscription is made and such Shares will be accepted by the
undersigned with the understanding that such shares will not have been
registered under the Securities Act
<PAGE>
of 1933, as amended (the "Act"), or the equivalent securities laws of any
State and the Company has no present intention to register the same under
the Act or any such laws.
3. Mandatory Call. Anything herein to the contrary notwithstanding,
at any time at its option, the Company may repurchase any or all of the Shares
issued to the undersigned for $10.00 per Share.
4. Legend. Each certificate representing the Shares of Common Stock
subject to this Subscription Agreement shall bear the following legend:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
QUALIFIED UNDER ANY STATE SECURITIES LAW, AND CANNOT BE TRANSFERRED IN
THE ABSENCE OF REGISTRATION AND QUALIFICATION UNLESS IN THE OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AN EXEMPTION FROM SUCH
REGISTRATION AND QUALIFICATION REQUIREMENTS IS AVAILABLE. ANY SALE,
TRANSFER, ASSIGNMENT, EXCHANGE, DONATION, GIFT, DISTRIBUTION, PLEDGE,
HYPOTHECATION OR ENCUMBRANCE OF THE SHARES OF COMMON STOCK REPRESENTED
BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS, INCLUDING
WITHOUT LIMITATION, THE MANDATORY CALL PROVISIONS, OF A SUBSCRIPTION
AGREEMENT DATED AS OF SEPTEMBER 4, 1996 BY AND BETWEEN THE COMPANY AND
MICHAEL W. RESCHKE.
5. Assignment. This subscription and the rights, benefits and
privileges hereunder may not be transferred or assigned.
Dated as of the 4th day of September, 1996.
/s/ Michael W. Reschke
--------------------------------------
Michael W. Reschke
Agreed to and Acknowledged as of
the 4th day of September, 1996:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
-------------------------------
Name: Mark J. Schulte
Its: President
2
<PAGE>
Exhibit 10.21
PURCHASE AND SALE AGREEMENT
SELLER:
GABLES AT BRIGHTON ASSOCIATES
c/o Allegis Realty Investors LLC
242 Trumbull Street
Hartford, CT 06103-1205
PURCHASER:
THE PRIME GROUP, INC.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
PROPERTY:
The Gables at Brighton
Brighton, New York
August__, 1996
<PAGE>
<TABLE>
<CAPTION>
INDEX PAGE
----
<S> <C> <C>
Section 1 The Property..........................................1
1.1 Description.......................................1
1.2 As-Is Purchase....................................2
1.3 Agreement to Convey...............................3
Section 2 Price and Payment.....................................3
2.1 Purchase Price....................................3
2.2 Payment...........................................3
2.3 Closing...........................................4
Section 3 Inspections and Approvals.............................4
3.1 Inspections.......................................4
3.2 Title and Survey..................................5
3.3 Contracts.........................................6
3.4 Permitted Encumbrances............................6
3.5 Purchaser's Rights to Terminate...................7
3.6 Confidentiality...................................7
Section 4 Prior to Closing......................................7
4.1 Insurance.........................................7
4.2 Operation.........................................7
4.3 New Contracts.....................................8
4.4 New Leases........................................8
4.5 Updated Information...............................8
Section 5 Representations and Warranties........................8
5.1 By Seller.........................................8
5.2 By Purchaser......................................9
5.3 Mutual...........................................10
Section 6 Costs and Prorations.................................10
6.1 Purchaser's Costs................................10
6.2 Seller's Costs...................................11
6.3 Prorations.......................................12
6.4 Taxes............................................12
6.5 In General.......................................12
6.6 Purpose and Intent...............................12
</TABLE>
<PAGE>
-ii-
<TABLE>
<CAPTION>
<S> <C> <C>
Section 7 Damage, Destruction or Condemnation .......................... 12
7.1 Material Event ......................................... 13
7.2 Immaterial Event ....................................... 13
7.3 Termination and Return of Deposit ...................... 13
Section 8 Notices ...................................................... 13
Section 9 Closing and Escrow ........................................... 14
9.1 Escrow Instructions .................................... 14
9.2 Seller's Deliveries .................................... 15
9.3 Purchaser's Deliveries ................................. 16
9.4 Possession ............................................. 16
9.5 Insurance .............................................. 16
9.6 Utility Service and Deposits ........................... 16
9.7 Notice Letters ......................................... 16
9.8 Post-Closing Collections ............................... 16
9.9 Conditions to Seller's Obligations to Close ............ 16
9.10 Conditions to Purchaser's Obligations to Close ......... 16
Section 10 Default ...................................................... 17
10.1 Purchaser Default ...................................... 17
10.2 Seller Default ......................................... 17
10.3 Failure of Condition ................................... 18
10.4 Licensing Contingency .................................. 18
Section 11 Miscellaneous ................................................ 19
11.1 Entire Agreement ....................................... 19
11.2 Severability ........................................... 19
11.3 Applicable Law ......................................... 19
11.4 Assignability .......................................... 19
11.5 Successors Bound ....................................... 20
11.6 Breach ................................................. 20
11.7 No Public Disclosure ................................... 20
11.8 Captions ............................................... 20
11.9 Attorney's Fees ........................................ 20
11.10 No Partnership ........................................ 20
</TABLE>
<PAGE>
-iii-
<TABLE>
<CAPTION>
<S> <C>
11.11 TIME OF ESSENCE............... 21
11.12 COUNTERPARTS.................. 21
11.13 RECORDATION................... 21
11.14 PROPER EXECUTION.............. 21
11.15 TAX PROTEST................... 21
11.16 TIME TO EXECUTE AND DELIVER .. 21
11.17 LIMITATION OF LIABILITY....... 21
</TABLE>
<PAGE>
-iv-
List of Exhibits
- ----------------
Exhibit 1.1.1 Legal Description
Exhibit 1.1.3 Inventory of Personal Property
Exhibit 1.1.6 Schedule of Leases and Security Deposits
Exhibit 3.1.1 Form of Access Agreement
Exhibit 3.2 Title Commitment No. 9516-25029 REV2 issued by Chicago Title
Insurance Company
Exhibit 3.3 Schedule of Contracts
Exhibit 9.2.1 Form of Special or Limited Warranty Deed
Exhibit 9.2.2 Form of Bill of Sale
Exhibit 9.2.3 Form of Assignment and Assumption of Leases
Exhibit 9.2.4 Form of Assignment and Assumption of Contracts
Exhibit 9.2.5 Form of Property Name Assignment
Exhibit 9.2.6 Form of Assignment of Warranties and Guarantees
Exhibit 9.2.8 Form of FIRPTA Affidavit
Exhibit 9.2.9 Form of Resident Notification Letter
Exhibit 9.3 ERISA Certificate
Exhibit 9.6 Form of Notice to Utility Company
[The foregoing exhibits have been omitted. The Company hereby agrees to furnish
supplementally a copy of any omitted exhibit to the Securities and Exchange
Commission upon request.]
<PAGE>
Term Sheet
----------
Purchaser: The Prime Group, Inc.
Notice Address: 77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attention: Mark J. Schulte
Phone: (312) 917-1500
Fax: (312) 782-3867
Seller: Gables at Brighton Associates
Notice Address: c/o Allegis Realty Investors LLC
242 Trumbull Street
Hartford, CT 06103-1205
Attention: Kevin M. Crean
Phone: (860) 275-2376
Fax: (860) 275-4225
Property: The Gables at Brighton
Brighton, New York
Price: $10,700,000.00
Interim Date: September 6, 1996
Approval Date: September 30, 1996
Date of Closing: November 15, 1996
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, dated as of the __ day of August, 1996, is made by and
between GABLES AT BRIGHTON ASSOCIATES, a New York general partnership
("Seller"), with an office in care of Allegis Realty Investors LLC, 242 Trumbull
Street, Hartford, Connecticut 06103-1205 and THE PRIME GROUP, INC., an Illinois
corporation ("Purchaser"), with an office at 77 West Wacker Drive, Suite 3900,
Chicago, Illinois 60601.
RECITALS:
Seller desires to sell certain improved real property commonly known as The
Gables at Brighton located at 2001 Clinton Avenue, Brighton, New York, along
with certain related personal and intangible property, and Purchaser desires to
purchase such real, personal and intangible property.
NOW, THEREFORE, in consideration of the foregoing, of the covenants,
promises and undertakings set forth herein, and for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Seller and Purchaser agree as follows:
1. The Property.
------------
1.1 Description. Subject to the terms and conditions of this Agreement,
and for the consideration herein set forth, Seller agrees to sell and transfer,
and Purchaser agrees to purchase and acquire, all of Seller's right, title, and
interest in and to the following (collectively, "Property"):
1.1.1 Certain land ("Land") located in Brighton, Monroe County, New
York and more specifically described in Exhibit 1.1.1 attached hereto;
1.1.2 The buildings, parking areas, improvements, and fixtures now
or as of Closing situated in, on, over and under the Land (the "Improvements");
1.1.3 All furniture, furnishings, fixtures, personal property,
machinery, apparatus, and equipment owned by Seller and currently used in the
operation, repair and maintenance of the Land and Improvements and situated
thereon (collectively, the "Personal Property"), including but not limited to
those items described on Exhibit 1.1.3 attached hereto. The Personal Property
to be conveyed is subject to depletions, replacements and additions in the
ordinary course of Seller's business;
1.1.4 All easements, hereditaments, and appurtenances belonging to
or inuring to the benefit of Seller and pertaining to the Land, if any;
<PAGE>
-2-
1.1.5 Any street or road abutting the Land to the center lines
thereof;
1.1.6 The leases or occupancy agreements, including those in effect on
the date of this Agreement which are identified on the Schedule of Leases
attached hereto as Exhibit 1.1.6, and any new leases entered into pursuant
to Section 4.4, which as of the Closing (as hereinafter defined) affect all
or any portion of the Land or Improvements ("Leases"), and any security
deposits actually held by Seller with respect to any such Leases;
1.1.7 Subject to Section 3.3, all contracts and agreements relating to
the operation or maintenance of the Land, Improvements or Personal Property
the terms of which extend beyond midnight of the day preceding the date of
Closing;
1.1.8 The name "The Gables at Brighton" and the telephone numbers used
at the Property;
1.1.9 Assignable warranties and guaranties issued in connection with
the Improvements or Personal Property;
1.1.10 All transferable consents, authorizations, variances or
waivers, licenses, permits and approvals from any governmental or quasi-
governmental agency, department, board, commission, bureau or other entity
or instrumentality solely in respect of the Land or Improvements
(collectively, "Approvals"); and
1.1.11 All existing surveys, blueprints, drawings, plans and
specifications (including, without limitation, structural, HVAC, mechanical
and plumbing, water and sewer plans and specifications), construction
drawings and other documentation for or with respect to the Property or any
part thereof, but excluding material which is or which contains
confidential or proprietary information or material and material relating
to valuation; and all available resident lists and data, stationary, logos,
and promotional, marketing and advertising materials concerning the
Property or any part thereof.
1.2 "AS-IS" Purchase
Except as otherwise expressly provided in this Agreement and the
Exhibits attached hereto, the Property is being sold in an "AS IS" condition and
"WITH ALL FAULTS" as of the date of this Agreement and of Closing. Except as
expressly set forth in this Agreement, no representations or warranties have
been made or are made and no responsibility has been or is assumed by Seller or
by any partner, officer, person, firm, agent or representative acting or
purporting to act on behalf of Seller as to the condition or repair of the
Property or the value, expense of operation, or income potential thereof or as
to any other fact or condition which has or might affect the Property or the
condition, repair, value, expense of operation or income potential of the
property or any portion thereof. The parties agree that all understandings and
agreements heretofore made between them or their respective agents or
representatives are merged in this Agreement and the Exhibits hereto annexed,
which,
<PAGE>
-3-
together with the documents delivered upon the consummation of the transaction
contemplated by this Agreement, fully and completely express their agreement,
and that this Agreement has been entered into after full investigation, or with
the parties satisfied with the opportunity afforded by this Agreement for
investigation, neither party relying upon any statement or representation by the
other unless such statement or representation is specifically embodied in this
Agreement or the Exhibits annexed hereto or in other documents executed and
delivered by Seller at Closing. Seller makes no representations or warranties as
to whether the Property contains asbestos or harmful or toxic substances or
pertaining to the extent, location or nature of same. Further, to the extent
that Seller has provided to Purchaser information from any inspection,
engineering or environmental reports concerning asbestos or harmful or toxic
substances, Seller makes no representations or warranties with respect to the
accuracy or completeness, methodology of preparation or otherwise concerning the
contents of such reports. Purchaser acknowledges that Seller has requested
Purchaser to inspect fully the Property and investigate all matters relevant
thereto and to rely solely upon the results of Purchaser's own inspections or
other information obtained or otherwise available to Purchaser, rather than any
information (other than that specifically embodied in this Agreement or the
Exhibits annexed hereto or in other documents executed and delivered by Seller
at Closing) that may have been provided by Seller to Purchaser.
Purchaser waives and releases Seller from any present or future claims
arising from or relating to the presence or alleged presence of asbestos or
harmful or toxic substances in, on, under or about the Property including,
without limitation, any claims under or on account of (i) the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as the same may
have been or may be amended from time to time, and similar state statutes, and
any regulations promulgated thereunder, (ii) any other federal, state or local
law, ordinance, rule or regulation, now or hereafter in effect, that deals with
or otherwise in any manner relates to, environmental matters of any kind, or
(iii) this Agreement or the common law. The terms and provisions of this Section
1.2 shall survive Closing hereunder.
1.3 Agreement to Convey. Seller agrees to convey, and Purchaser agrees
to accept, title to the Land and Improvements by special warranty deed in the
condition described in Section 3.4 and title to the Personal Property, by bill
of sale, in the form of Exhibit 9.2.2 attached hereto.
2. Price and Payment.
2.1 Purchase Price. The purchase price for the Property ("Purchase
Price") is TEN MILLION SEVEN HUNDRED THOUSAND DOLLARS ($10,700,000) U.S.
2.2 Payment. Payment of the Purchase Price is to be made in cash as
follows:
2.2.1 (a) Purchaser has made an earnest money deposit of TWO HUNDRED
FIFTY THOUSAND DOLLARS ($250,000) ("Initial Deposit") prior to or
contemporaneously with the execution of this Agreement.
<PAGE>
-4-
(b) On or before the Approval Date, the Purchaser shall make an
additional deposit of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) (the
"Additional Deposit") (collectively, the Initial Deposit and the Additional
Deposit shall be referred to hereinafter as "Deposit.")
(c) The Deposit, as installments of same are paid, will be placed and
held in escrow by Chicago Title Insurance Company ("Title Company") in an
interest bearing account at a mutually acceptable banking institution or in
other instruments mutually approved by Purchaser and Seller. Any interest or
other earnings earned by the Deposit shall be considered as part of the Deposit.
Except as otherwise provided in this Agreement, the Deposit will be applied to
the Purchase Price at Closing.
2.2.2 At Closing, the Purchaser shall pay Seller TEN MILLION SEVEN
HUNDRED THOUSAND DOLLARS ($10,700,000), inclusive of the Deposit and subject to
adjustment for the prorations as provided herein, to a bank account designated
by Seller via wire transfer in immediately available funds.
2.3 Closing. Payment of the Purchase Price and the closing hereunder
("Closing") will take place pursuant to an escrow closing on or before November
15, 1996 (or such later date to which the Closing date shall have been extended
pursuant to Section 10.4) ("Date of Closing"), at the offices of the Title
Company (Chicago, Illinois national office) at 10:00 local time or at such
other time and place as may be agreed upon in writing by Seller and Purchaser.
3. Inspections and Approvals.
3.1 Inspections.
3.1.1 Seller agrees to allow Purchaser or Purchaser's agents or
representatives reasonable access to the Property (during business hours) for
purposes of any physical or environmental inspection of the Property and review
of the Leases, expenses and other matters; PROVIDED, HOWEVER, PURCHASER SHALL
NOT CONDUCT OR ALLOW ANY PHYSICALLY INTRUSIVE TESTING OF, ON OR UNDER THE
PROPERTY WITHOUT FIRST OBTAINING SELLER'S WRITTEN CONSENT AS TO THE TIMING AND
SCOPE OF WORK TO BE PERFORMED AND, UPON REQUEST OF SELLER, ENTERING INTO AN
ACCESS AGREEMENT IN THE FORM ATTACHED HERETO AS EXHIBIT 3.1.1. PURCHASER'S
BREACH OF THE FOREGOING PROHIBITION SHALL ENTITLE SELLER, AT ITS OPTION,
IMMEDIATELY AND WITHOUT THE CURE PERIOD PROVIDED IN SECTION 11.6 HEREOF TO
DECLARE THIS AGREEMENT TO BE TERMINATED AND TO RETAIN AS PROVIDED IN SECTION
10.1 HEREOF THE DEPOSIT AS LIQUIDATED DAMAGES.
<PAGE>
-5-
3.1.2 Subject to the other provisions of this Agreement, during the
Inspection Period, Purchaser and its agents, engineers, surveyors, appraisers,
auditors and other representatives shall have the right to enter upon the
Property to inspect, examine, survey, conduct engineering and environmental
studies, and appraise the Property. During the Inspection Period, Seller shall
make all Seller's books, files and records relating to the Property (excluding
material which is or which contains confidential or proprietary information or
material and material relating to valuation) available for examination by
Purchaser and Purchaser's agents and representatives, who shall have the right
to make copies of such books, files and records. Purchaser shall have the right
to audit and to have certified, thoroughly and completely, all at its sole cost
and expense, all income and expenses and operational results of the Property for
the two (2) calender years prior to the Date of Closing and for the current
calendar year to date. Purchaser agrees that, in making any physical or
environmental inspections of the Property, Purchaser or Purchaser's agents will
carry not less than One Million Dollars ($1,000,000) comprehensive general
liability insurance with contractual liability endorsement which insures
Purchaser's indemnity obligations hereunder, and, upon request of Seller, will
provide Seller with written evidence of same, will not interfere with the
activity of tenants or any persons occupying or providing service at the
Property in any material respect, will not reveal to any third party (other than
prospective lenders or other sources of financing or equity) not approved by
Seller the results of its inspections, and will restore promptly any physical
damage caused by the inspections. Purchaser shall give Seller reasonable prior
notice of its intention to conduct any inspections, and Seller reserves the
right to have a representative present. Purchaser agrees to provide Seller with
a copy of any inspection report upon Seller's written request, which agreement
shall survive Closing. Purchaser agrees (which agreement shall survive Closing
or termination of this Agreement) to indemnify, defend, and hold Seller free and
harmless from any loss, injury, damage, claim, lien, cost or expense, including
reasonable attorney's fees and costs, arising out of a breach of the foregoing
agreements by Purchaser in connection with the inspection of the Property, or
otherwise from the exercise by Purchaser or its agents or representatives of the
right of access under this Section 3.1 (collectively, "Purchaser's Indemnity
Obligations"). Any inspections shall be at Purchaser's expense.
3.1.3 Except as otherwise expressly set forth in this Agreement,
Seller makes no representations or warranties as to the truth, accuracy or
completeness of any materials, data or other information supplied to Purchaser
in connection with Purchaser's inspection of the Property (e.g., that such
materials are complete, accurate or the final version thereof, or that all such
materials are in Seller's possession). It is the parties' express understanding
and agreement that such materials are provided only for Purchaser's convenience
in making its own examination and determination prior to the Approval Date, as
hereinafter defined, as to whether it wishes to purchase the Property, and, in
doing so, Purchaser shall rely exclusively on its own independent investigation
and evaluation of every aspect of the Property and not on any materials supplied
by Seller. Purchaser expressly disclaims any intent to rely on any such
materials provided to it by Seller in connection with its inspection and agrees
that it shall rely solely on its own independently developed or verified
information.
3.2 Title and Survey. Prior to or contemporaneously with execution
of this Agreement, Seller has caused to be delivered to Purchaser a commitment
for title insurance on the Land, together with copies of all items shown as
exceptions to title therein, issued by the Title Company and identified as
Commitment No.9516-25029 REV2 a copy of which is attached hereto as Exhibit 3.2
("Title
<PAGE>
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Commitment"), and a 1988 survey of the Land ("Survey"). Purchaser shall have
until September 6, 1996 ("Interim Date") to provide written notice to Seller of
any matters shown by the Title Commitment or Survey which are not satisfactory
to Purchaser, which notice ("Title Notice") must specify the reason such
matter(s) are not satisfactory. The parties shall then have until the Approval
Date specified in Section 3.5 to make such arrangements or take such steps as
they shall mutually agree to satisfy Purchaser's objection(s); provided,
however, that Seller shall have no obligation whatsoever to expend or agree to
expend any funds, to undertake or agree to undertake any obligations or
otherwise to cure or agree to cure any title or survey objections, and Seller
shall not be deemed to have any obligation to cure unless Seller expressly
undertakes such an obligation by a written notice to or written agreement with
Purchaser given or entered into on or prior to the Approval Date and which
recites that it is in response to a Title Notice. Purchaser's sole right with
respect to any Title Commitment or Survey matter to which it objects in a Title
Notice given in a timely manner shall be to elect on or before the Approval Date
to terminate this Agreement pursuant to Section 3.5 hereof. All matters shown in
the Title Commitment and/or Survey with respect to which Purchaser fails to give
a Title Notice on or before the last date for so doing, or with respect to which
a timely Title Notice is given but Seller fails to undertake an express
obligation to cure as provided above, shall be deemed to be approved by
Purchaser as "Permitted Encumbrances" as provided in Section 3.4 hereof,
subject, however, to Purchaser's termination right provided in Section 3.5
hereof.
3.3 Contracts. On or before the Interim Date, Purchaser shall notify
Seller in writing if Purchaser elects not to assume at Closing any of the
service, maintenance, supply or other contracts relating to the operation of the
Property which are identified on Exhibit 3.3 attached hereto. If Purchaser does
not exercise its right to terminate this Agreement on or before the Approval
Date, Seller shall give notice of termination of such disapproved contract(s);
provided, if by the terms of the disapproved contract Seller has no right to
terminate same on or prior to Closing, or if any fee or other compensation is
due thereunder as a result of such termination, Purchaser shall be required at
Closing to assume all obligations thereunder until the effective date of the
termination and to assume the obligation to pay or to reimburse Seller for the
payment of the termination related charge.
3.4 Permitted Encumbrances. Unless Purchaser terminates this
Agreement pursuant to Section 3.5 hereof following its opportunity fully to
inspect the Property, the state of title thereto and all other matters relating
to the Property, including its feasibility for Purchaser's intended use and its
suitability as an investment, Purchaser shall be deemed to have approved and to
have agreed to purchase the Property subject to the following:
3.4.1 All exceptions to title shown in the Title Commitment or
matters shown on the Survey which Purchaser has approved or is deemed to have
approved pursuant to Section 3.2 hereof;
3.4.2 All contracts and leases which Purchaser has approved or is
deemed to have approved pursuant to Sections 3.3, 4.3 and 4.4 hereof;
3.4.3 The lien of non-delinquent real and personal property taxes and
assessments;
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3.4.4 Rights of parties in possession pursuant to the Leases;
3.4.5 Discrepancies, conflicts in boundary lines, shortages in area,
encroachments, and any state of facts which an inspection of the premises would
disclose and which are not shown by the public records; and
3.4.6 Intentionally omitted;
3.4.7 Subject to the proration provisions hereof, any service,
installation, connection, maintenance or construction charges due after Closing
for sewer, water, electricity, telephone, cable television or gas.
All of the foregoing are referred to herein collectively as "Permitted
Encumbrances".
3.5 Purchaser's Right to Terminate. Purchaser shall have the right by
giving Seller written notice ("Termination Notice") on or before September 30,
1996 ("Approval Date") to terminate its obligation to purchase the Property. If
the Termination Notice is timely given, Seller shall direct the Title Company
promptly to return the Deposit to Purchaser and neither party shall have any
further liability hereunder except for Purchaser's Indemnity Obligations set
forth in Section 3.1.2 hereof.
3.6 Confidentiality. Unless Seller specifically and expressly otherwise
agrees in writing, Purchaser agrees that all information regarding the Property
of whatsoever nature made available to it by Seller or Seller's agents or
representatives ("Proprietary Information") is confidential and shall not be
disclosed to any other person except those assisting Purchaser with the
transaction, or Purchaser's lender or other source of financing or equity, if
any, and then only upon Purchaser making such person aware of the
confidentiality restriction and procuring such person's agreement to be bound
thereby. In the event the purchase and sale contemplated hereby fails to close
for any reason whatsoever, Purchaser agrees to return to Seller, or cause to be
returned to Seller all Proprietary Information. Further, Purchaser agrees not to
use or allow to be used any Proprietary Information for any purpose other than
to determine whether to proceed with the contemplated purchase, or if same is
consummated, in connection with the operation of the Property post-Closing.
Notwithstanding any other term of this Agreement, the provisions of this Section
3.6 shall survive Closing or the termination of this Agreement.
4. Prior to Closing.
Until Closing, Seller or Seller's agent shall:
4.1 Insurance. Keep the Property insured against fire and other hazards
covered by extended coverage endorsement and comprehensive public liability
insurance against claims for bodily injury, death and property damage occurring
in, on or about the Property.
4.2 Operation. Operate and maintain the Property in a businesslike manner
and substantially in accordance with Seller's past practices with respect to the
Property, and make any and
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all repairs and replacements reasonably required to deliver the Property to
Purchaser at closing in its present condition normal wear and tear excepted,
provided that in the event of any loss or damage to the Property the rights of
the parties shall be as described in Section 7.
4.3 New Contracts. Enter into only those third party contracts which
are necessary to carry out its obligations under Section 4.2 and which shall be
cancelable on thirty (30) days written notice without penalty or termination
fee. If Seller enters into any such contract, it shall promptly provide written
notice thereof to Purchaser and unless Purchaser, within seven (7) days
thereafter, notifies Seller in writing of its intention to assume such contract,
it shall be treated as a contract disapproved by Purchaser under Section 3.3
hereof.
4.4 New Leases. Continue its present rental program and efforts at
the Property to rent vacant space, utilizing its standard Lease form as
presently being utilized at the Property. If Seller enters into any such
Lease(s), it shall promptly provide a true copy thereof to Purchaser.
4.5 Updated Information. Promptly deliver to Purchaser copies of any
operating statements for the Property which come into possession of Seller for
any period during calendar 1996 prior to the Date of Closing.
5. Representations and Warranties.
5.1 By Seller. Seller represents and warrants to Purchaser that:
5.1.1 Seller is a general partnership duly organized, validly
existing and in good standing under the laws of the State of New York, is
authorized to do business in the State of New York, has duly authorized the
execution and performance of this Agreement, and such execution and performance
will not violate any material term of its partnership agreement.
5.1.2 To the best of Seller's knowledge, there is no action,
proceeding or investigation pending or threatened against Seller or the Property
before any court or governmental agency or instrumentality which, if adversely
concluded, would prevent Seller from consummating the transaction contemplated
hereby or would adversely affect the Property in any material respect.
5.1.3 To the best of Seller's knowledge, Seller has not received any
written notice from any governmental authority having jurisdiction over the
Property that the Property is in violation of any zoning, building, fire or
health code.
5.1.4 To the best of Seller's knowledge, the Schedule of Leases
attached hereto as Exhibit 1.1.6 is accurate in all material respects and
identifies all leases of units at the Property in effect as of the date hereof.
To the best of Seller's knowledge, Seller has not received any written notice
from any tenant under any of the Leases that Seller is in default of its
obligations thereunder,
<PAGE>
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other than those notices, if any, which are contained in the lease files
maintained at the Property by Seller's Property manager.
5.1.5 To the best of Seller's knowledge, the Schedule of Contracts
attached hereto as Exhibit 3.3 is accurate in all material respects and
identifies all service contracts relating to the Property to which Seller is a
party and which are in effect as of the date hereof. To the best of Seller's
knowledge, Seller has not received any written notice from any tenant under any
of said contracts that Seller is in default of its obligations thereunder, other
than those notices, if any, which are contained in the files maintained at the
Property by Seller's property manager.
Whenever a representation or warranty is made in this Agreement on the basis of
the best of knowledge of Seller, or whether Seller has received written notice,
such representation and warranty is made with the exclusion of any facts
disclosed to or otherwise known by Purchaser at the time made by Seller, and is
made solely on the basis of the actual, as distinguished from implied, imputed
and constructive, knowledge on the date that such representation or warranty is
made, without inquiry or investigation or duty, of Kevin M. Crean and Lawrence
S. Puzzo, the employees of the agent of Aetna Life Insurance Company, a
constituent general partner of Seller, having responsibility for the management
and sale of the Property on behalf of Aetna Life Insurance Company, without
attribution to such specific employees of facts and matters otherwise within the
personal knowledge of any other officers or employees of Aetna Life Insurance
Company or its agents, or of 2001 Associates, Limited Partnership, the other
constituent general partner of Seller, or its constituent partners, or their
agents, or third parties, including but not limited to tenants and property
managers of the Property or the employees thereof.
The representations and warranties set forth in this Section 5.1 shall
survive the Closing but written notification of any claim arising therefrom must
be received by Seller within one (1) year of the Date of Closing or such claim
shall be forever barred and Seller shall have no liability with respect thereto.
The aggregate liability of the Seller with respect to all claims hereunder shall
not exceed $100.000.00.
5.2 By Purchaser. Purchaser represents and warrants to Seller that:
5.2.1 Purchaser is a corporation duly organized, validly existing and
in good standing under the laws of the State of Illinois, is authorized to do
business in the State of New York, has duly authorized the execution and
performance of this Agreement, and such execution and performance will not
violate any material term of its certificate of incorporation or by-laws.
5.2.2 Purchaser is acting as principal in this transaction with
authority to close the transaction.
<PAGE>
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5.2.3 No petition in bankruptcy (voluntary or otherwise), assignment
for the benefit of creditors, or petition seeking reorganization or arrangement
or other action under Federal or State bankruptcy laws is pending against or
contemplated by Purchaser.
5.2.4 Unless Purchaser has terminated its obligation to purchase the
Property pursuant to Section 3.5, by the Approval Date and subject to the
representations and warranties of Seller expressly set forth in this Agreement
Purchaser will have or will be deemed to have inspected the Property fully and
completely (at its expense) and will have or will be deemed to have ascertained
to its satisfaction the extent to which the Property complies with applicable
zoning, building, environmental, health and safety and all other laws, codes
and regulations.
5.2.5 Unless Purchaser has terminated its obligation to purchase the
Property pursuant to Section 3.5, by the Approval Date Purchaser will have or
will be deemed to have reviewed the Leases, contracts, expenses and other
matters relating to the Property and, based upon its own investigations,
inspections, tests and studies, will have or will be deemed to have determined
whether to purchase the Property and to assume Seller's obligations under the
Leases, contracts and otherwise with respect to the Property.
5.2.6 Unless otherwise disclosed to Seller in writing, neither
Purchaser nor any affiliate of or principal in Purchaser is other than a citizen
of, or partnership, corporation or other form of legal person domesticated in
the United States of America.
5.2.7 Purchaser will not use the assets of an employee benefit plan
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and covered under Title I, Part 4 of ERISA or Section
4975 of the Internal Revenue Code of 1986, as amended, in the performance or
discharge of its obligations hereunder, including the acquisition of the
Property. Purchaser shall not assign its interest hereunder to any person or
entity which does not expressly make this covenant and warranty for the benefit
of Seller.
5.3 Mutual. Each of Seller and Purchaser represents to the other that it
has had no dealings, negotiations, or consultations with any broker,
representative, employee, agent or other intermediary except Cushman & Wakefield
of Florida, Inc. in connection with the Agreement or the sale of the Property.
Seller and Purchaser agree that each will indemnify, defend and hold the other
free and harmless from the claims of any other broker(s), representative(s),
employee(s), agent(s) or other intermediary(ies) claiming to have represented
Seller or Purchaser, respectively, or otherwise to be entitled to compensation
in connection with this Agreement or in connection with the sale of the
Property.
6. Costs and Prorations.
--------------------
6.1 Purchaser's Costs. Purchaser will pay the following costs of closing
this transaction:
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6.1.1 The fees and disbursements of its counsel, inspecting architect
and engineer, if any;
6.1.2 One-half (1/2) of any escrow fees and real estate transfer,
stamp or documentary tax(es);
6.1.3 One-half (1/2) of any sales or use taxes relating to the
transfer of personal property to Purchaser;
6.1.4 One-half (1/2) of the cost of an ALTA owner's title insurance
policy without extended coverage or special endorsements, issued in connection
with this transaction, whether pursuant to the Title Commitment or otherwise;
6.1.5 The cost of any title insurance in excess of the cost(s) of an
ALTA owner's policy without extended coverage or special endorsements,
including, any additional premium charge(s) for endorsements and/or deletion(s)
of exception items and any cancellation charge(s) imposed by any title company
in the event a title insurance policy is not issued, unless caused by willful
default of Seller hereunder;
6.1.6 One-half (1/2) of the reasonable cost of the Survey;
6.1.7 Any recording fees; and
6.1.8 Any other expense(s) incurred by Purchaser or its
representative(s) in inspecting or evaluating the Property or closing this
transaction.
6.2 Seller's Costs.
--------------
Seller will pay:
6.2.1 The fees and disbursements of Seller's counsel;
6.2.2 One-half (1/2) of any escrow fees, and real estate transfer,
stamp or documentary taxes;
6.2.3 One-half (1/2) of any sales or use taxes relating to the
transfer of personal property to Purchaser;
6.2.4 One-half (1/2) of the cost of an ALTA owner's title insurance
policy without extended coverage or special endorsements, issued in connection
with this transaction, whether pursuant to the Title Commitment or otherwise;
6.2.5 One-half (1/2) of the reasonable cost of the Survey; and
<PAGE>
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6.2.6 The broker's fee payable to Cushman & Wakefield of Florida,
Inc. pursuant to its written agreement with Seller.
6.3 Prorations. A statement of prorations and adjustments shall be
prepared by Purchaser in conformity with the provisions of this Agreement and
submitted to Seller for review and approval or disapproval not less than three
(3) days prior to the Date of Closing. For purposes of prorations, Purchaser
shall be deemed to be the owner of the Property on the Date of Closing. Rents
and any other amounts payable by tenants, personal property taxes, installment
payments of special assessment liens, vault charges, sewer charges, utility
charges, security and other deposits paid under the Leases, together with
interest thereon if required by law, prepayments under the Service Contracts
being assumed by Purchaser, assignable license and permit fees and normally
prorated operating expenses actually collected, billed or paid as of the Date of
Closing shall be prorated as of the Date of Closing and be adjusted against the
Purchase Price due at the Closing, provided that within sixty (60) days after
the Closing, Purchaser and Seller will make a further adjustment for such rents,
taxes or charges which may have accrued or been incurred prior to the Date of
Closing, but not billed or paid at that date. All prorations shall be made on a
360 day calendar year basis, 30 days to the month. Seller shall deliver to
Purchaser at Closing all resident funds, if any, held in trust by Seller.
6.4 Taxes. General real estate taxes and special assessments relating to
the Property payable during the year in which Closing occurs shall be prorated
as of the Date of Closing. If closing shall occur before the actual taxes and
special assessments payable during such year are known, the apportionment of
taxes shall be upon the basis of taxes for the Property payable during the
immediately preceding year, provided that, if the taxes and special assessments
payable during the year in which closing occurs are thereafter determined to be
more or less than the taxes payable during the preceding year (after any appeal
of the assessed valuation thereof is concluded), Seller and Purchaser promptly
(but no later than March 31, 1997 except in the case of an ongoing tax protest)
shall adjust the proration of such taxes and special assessments and Seller or
Purchaser, as the case may be, shall pay to the other any amount required as a
result of such adjustment and this covenant shall not merge with the deed
delivered hereunder but shall survive the Closing.
6.5 In General. Any other costs or charges of closing this transaction not
specifically mentioned in this Agreement shall be paid and adjusted in
accordance with local custom in Monroe County, New York.
6.6 Purpose and Intent. Except as expressly provided herein, the purpose
and intent as to the provisions of prorations and apportionments set forth in
this Section 6 and elsewhere in this Agreement is that Seller shall bear all
expenses of ownership and operation of the Property and shall receive all income
therefrom accruing through midnight at the end of the day preceding the Closing
and Purchaser shall bear all such expenses and receive all such income accruing
thereafter.
7. Damage, Destruction or Condemnation.
-----------------------------------
<PAGE>
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7.1 Material Event. If, prior to Closing, fifteen percent (15%) or
more of the net rentable area of the building(s) or of the parking spaces on the
Property or all access to the Property are rendered completely untenantable, or
are destroyed or taken under power of eminent domain, Purchaser may elect to
terminate this Agreement by giving written notice of its election to Seller
within fourteen (14) days after receiving notice of such destruction or taking.
If Purchaser does not give such written notice within such fourteen (14) day
period, this transaction shall be consummated on the date and at the Purchase
Price provided for in Section 2, and Seller will assign to Purchaser all
required proofs of loss, assignments of claims and other similar items and the
physical damage proceeds of any insurance policy(ies) payable to Seller, or
Seller's portion of any condemnation award, in both cases, up to the amount of
the Purchase Price, and, if an insured casualty, pay to Purchaser the amount of
any deductible but not to exceed the amount of the loss.
7.2 Immaterial Event. If, prior to Closing, less than fifteen percent
(15%) of the net rentable area of the building(s) or of the parking spaces on
the Property are rendered completely untenantable or are destroyed, or are taken
under power of eminent domain, Purchaser shall close this transaction on the
date and at the Purchase Price agreed upon in Section 2, and Seller will assign
to Purchaser all required proofs of loss, assignments of claims and other
similar items and the physical damage proceeds of any insurance policies
payable to Seller, or Seller's opinion of any condemnation award, in both cases,
up to the amount of the Purchase Price and, if an insured casualty, pay to
Purchaser the amount of any deductible but not to exceed the amount of the loss.
7.3 Termination and Return of Deposit. If either party elects to
terminate this Agreement pursuant to this Section 7, and if Purchaser is not, on
the date of such election, in default under the Agreement, Seller shall promptly
direct the Title Company to return the Deposit to Purchaser.
8. Notices.
Any notice required or permitted to be given hereunder shall be
deemed to be given when hand delivered or one (1) business day after pickup by
Emery Air Freight, Airborne, Federal Express, or similar overnight express
service, for next business day delivery, in either case addressed to the parties
at their respective addresses referenced below:
If to Seller: c/o Allegis Realty Investors LLC
242 Trumbull Street
Hartford, Connecticut 06103-1205
Attention: Kevin M. Crean
Phone: (860) 275-2376
Fax: (860) 275-4225
With copy to: James A. McGraw, Esq.
Day, Berry & Howard
CityPlace
Hartford, Connecticut 06103-3499
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Phone: (860) 275-0180
Fax: (860) 275-0344
If to Purchaser: The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attention: Mark J. Schulte
Phone: (312) 917-1500
Fax: (312) 782-3867
With a copy to: The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attention: Robert J. Rudnik
Phone: (312) 917-4234
Fax: (312) 917-1684
With a copy to: Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attention: William J. Ralph, Esq.
Phone: (312) 558-5941
Fax: (312) 558-5700
or in each case to such other address as either party may from time to time
designate by giving notice in writing to the other party. Telephone and
facsimile numbers are for informational purposes only. Effective notice will be
deemed given only as provided above.
9. Closing and Escrow.
9.1 Escrow Instructions. Upon execution of this Agreement, the parties
shall deliver an executed counterpart of this Agreement to the Title Company to
serve as the instructions to the Title Company as the escrow holder for
consummation of the transaction contemplated herein. Seller and
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Purchaser agree to execute such additional and supplementary escrow instructions
as may be appropriate to enable the Title Company to comply with the terms of
this Agreement, provided, however that in the event of any conflict between the
provisions of this Agreement and any supplementary escrow instructions, the
terms of this Agreement shall prevail.
9.2 Seller's Deliveries. Seller shall deliver either at the Closing or
by making available at the Property, as appropriate, the following original
documents, each executed and, if required, acknowledged:
9.2.1 A special or limited warranty deed to the Property, in the form
attached hereto as Exhibit 9.2.1, subject to the matters set out in Section 3.4
and other matters subsequently approved by Purchaser or Purchaser's counsel.
9.2.2 A bill of sale in the form attached hereto as Exhibit 9.2.2
conveying the Personal Property.
9.2.3 (i) The Leases described in Section l.1.6 which are still in
effect as of Closing and any new leases entered into pursuant to Section 4.4;
(ii) a current listing of any tenant security deposits and prepaid rents held by
Seller with respect to the Property; and (iii) an assignment of such leases,
deposits, prepaid rents and other resident funds, if any, held in trust by
Seller by way of an assignment and assumption agreement in the form attached
hereto as Exhibit 9.2.3.
9.2.4 (i) Copies of all contracts relating to the Property which
Purchaser has elected to assume or which are not terminable by Seller on or
before the date of closing; and (ii) an assignment of such contracts to
Purchaser by way of an assignment and assumption agreement, in the form attached
hereto as Exhibit 9.2.4.
9.2.5 An assignment to Purchaser of Seller's right, title and
interest, if any, in the name The Gables at Brighton, in the form attached
hereto as Exhibit 9.2.5.
9.2.6 An assignment of all transferable warranties and guarantees then
in effect, if any, with respect to the improvements located on the Property or
any repairs or renovations to such improvements and Personal Property being
conveyed hereunder, which assignment is in the form attached hereto as Exhibit
9.2.6.
9.2.7 All books and records at the Property held by or for the account
of Seller, including without limitation, plans and specifications and lease
applications, as available.
9.2.8 An affidavit pursuant to the Foreign Investment in Real Property
Tax Act in the form attached hereto as Exhibit 9.2.8.
9.2.9 A letter in substantially the form attached hereto as Exhibit
9.2.9 advising residents of the Property of the change in ownership of the
Property and directing them to pay rent to Purchaser or as Purchaser may
direct.
<PAGE>
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9.2.10 Transfer tax statements as required by applicable law.
9.3 Purchaser's Deliveries.
At the closing, Purchaser shall (i) pay Seller the Purchase Price; and
(ii) execute and deliver to Seller the agreements referred to in Sections
9.2.3(iii) and 9.2.4(ii) and the ERISA certificate attached hereto as Exhibit
9.3.
9.4 Possession. Purchaser shall be entitled to possession of the
Property upon conclusion of the Closing subject to the rights of tenants under
the Leases.
9.5 Insurance. Seller shall terminate its policies of insurance as of
noon on the Date of Closing and Purchaser shall be responsible for obtaining its
own insurance thereafter.
9.6 Utility Service and Deposits. Seller shall be entitled to the
return of any deposit(s) posted by it with any utility company and Purchaser
shall notify each utility company serving the Property to terminate Seller's
account, effective at 11:59 p.m. on the Date of Closing.
9.7 Notice Letters. Subsequent to Closing, Seller shall provide to
Purchaser copies of form letters to contractors and utility companies serving
the Property, advising them of the sale of the Property to Purchaser and
directing to Purchaser all bills for the services provided to the Property on
and after the Date of Closing.
9.8 Post-Closing Collections. Purchaser shall use its best efforts
during the six (6) month period immediately following Closing to collect and
promptly remit to Seller rents or other amounts due Seller for the period prior
to Closing. Purchaser shall apply such rents or other amounts received, first
for the account of Purchaser for amounts due to Purchaser for the period
following the Closing; second, to Seller for any and all amounts due to Seller
for periods prior to Closing; and the balance to be retained by Purchaser.
9.9 Conditions to Seller's Obligations to Close. Seller's obligations
to close under this Agreement are subject to, and to delivery by Purchaser at
Closing of written certification of, the truth and accuracy in all material
respects at Closing of Purchaser's representations and warranties set forth in
Section 5.2 of this Agreement and the performance by Purchaser of its covenants,
agreements and obligations hereunder, including, without limitation, the payment
of the Purchase Price at Closing as provided herein.
9.10 Conditions to Purchaser's Obligations to Close. Purchaser's
obligations to close under this Agreement are subject to: (i) the performance by
Seller of its covenants, agreements and obligations hereunder, including
delivery of Seller's closing documents at Closing as provided herein; (ii) the
truth and accuracy in all material respects at Closing of Seller's
representations and warranties as provided in Section 5.1 of this Agreement and
to delivery by Seller at Closing of written certification thereof (subject to
the limitations on survival and liability contained in Section 5.1); (iii)
issuance to
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Purchaser (subject to payment of the premium and other charges therefor, which
Seller and Purchaser agree to pay as provided in Sections 6.1 and 6.2 of this
Agreement) by the Title Company of an ALTA Owner's Policy of Title Insurance
including an extended coverage endorsement over the general or standard
exceptions which are part of the printed policy form, affirmative assurance as
to access, a "Fairway" endorsement (if applicable) and such other available
endorsements as counsel for Purchaser shall reasonably deem appropriate and
which are available in New York; (iv) there shall not have occurred any
uninsured casualty to the Property which has not been repaired by Seller; (v)
receipt by Purchaser of UCC, tax lien and judgment searches with respect to
Seller which disclose no liens against the Property other than those which will
be released by the holder thereof at Closing.
10. Default; Failure of Condition.
-----------------------------
10.1 PURCHASER DEFAULT. IF PURCHASER SHALL DEFAULT UNDER THIS
AGREEMENT AND THE DEFAULT CONTINUES BEYOND THE EXPIRATION OF THE CURE PERIOD, IF
ANY, PROVIDED IN SECTION 11.6 HEREOF THE DEPOSIT SHALL BE RETAINED BY SELLER AS
LIQUIDATED DAMAGES, AND AS SELLER'S SOLE AND EXCLUSIVE REMEDY FOR SUCH DEFAULT,
AND BOTH PARTIES SHALL BE RELIEVED OF AND RELEASED FROM ANY FURTHER LIABILITY
HEREUNDER EXCEPT FOR PURCHASER'S INDEMNITY OBLIGATIONS SET FORTH IN SECTION
3.1.2 HEREOF. SELLER AND PURCHASER AGREE THAT THE DEPOSIT IS A FAIR AND
REASONABLE AMOUNT TO BE RETAINED BY SELLER AS AGREED AND LIQUIDATED DAMAGES IN
LIGHT OF SELLER'S REMOVAL OF THE PROPERTY FROM THE MARKET AND THE COSTS INCURRED
BY SELLER AND SHALL NOT CONSTITUTE A PENALTY OR A FORFEITURE.
10.2 SELLER DEFAULT. IF SELLER SHALL REFUSE OR FAIL TO CONVEY THE
PROPERTY AS HEREIN PROVIDED, FOR ANY REASON OTHER THAN (I) A DEFAULT BY
PURCHASER AND THE EXPIRATION OF THE CURE PERIOD, IF ANY, PROVIDED, UNDER SECTION
11.6 HEREOF, (II) THE EXISTENCE OF A PENDING DEFAULT (AS DEFINED IN AND
CONTEMPLATED BY SECTION 11.6), OR (III) ANY OTHER PROVISION OF THIS AGREEMENT
WHICH PERMITS SELLER TO TERMINATE THIS AGREEMENT OR OTHERWISE RELIEVES SELLER OF
THE OBLIGATION TO CONVEY THE PROPERTY, PURCHASER SHALL ELECT AS ITS SOLE REMEDY
HEREUNDER EITHER (Y) TO ENFORCE THE SELLER'S OBLIGATIONS TO CONVEY THE PROPERTY,
PROVIDED THAT NO SUCH ACTION IN SPECIFIC PERFORMANCE SHALL SEEK TO REQUIRE THE
SELLER TO DO ANY OF THE FOLLOWING: (A) CHANGE THE CONDITION OF THE PROPERTY OR
RESTORE THE SAME AFTER ANY FIRE OR OTHER CASUALTY; (B) EXPEND MONEY OR POST A
BOND TO REMOVE A TITLE ENCUMBRANCE (OTHER THAN A MONETARY LIEN CREATED BY THE
VOLUNTARY ACTION OF SELLER) OR DEFECT OR CORRECT ANY MATTER SHOWN ON A SURVEY OF
THE PROPERTY; OR (C) SECURE ANY PERMIT, APPROVAL, OR CONSENT WITH RESPECT TO THE
PROPERTY OR SELLER'S CONVEYANCE OF THE PROPERTY; OR (Z) IF PURCHASER REASONABLY
DETERMINES
<PAGE>
-18-
THAT SUCH SPECIFIC PERFORMANCE IS NOT ADEQUATE, PURCHASER MAY TERMINATE THIS
AGREEMENT, RECOVER THE DEPOSIT AND, IN ADDITION, RECOVER FROM SELLER A MAXIMUM
OF TWENTY THOUSAND DOLLARS ($20,000.00) TO REIMBURSE PURCHASER FOR PURCHASER'S
REASONABLE OUT-OF-POCKET EXPENSES INCURRED AFTER THE DATE OF THIS AGREEMENT
DIRECTLY RELATED TO THIS AGREEMENT, PROVIDED, HOWEVER, THAT PURCHASER SHALL GIVE
SELLER AN ITEMIZED LIST OF SUCH EXPENSES WITHIN 60 DAYS AFTER DEFAULT ON THE
PART OF THE SELLER INCLUDING DETAILED INFORMATION AND COPIES OF THIRD-PARTY
INSPECTIONS AND REPORTS.
INITIALS: PURCHASER /s/ MJS SELLER -------------
10.3 Failure of Condition. If prior to Closing Seller discloses to
Purchaser or Purchaser discovers that (i) title to the Property or matters shown
on the Survey or any update thereof are subject to defects, limitations or
encumbrances other than Permitted Encumbrances, or (ii) any representation or
warranty of Seller contained in this Agreement is or, as of the Date of Closing,
will be untrue, or (iii) Seller has failed to terminate, effective as of or
prior to the Date of Closing, the management agreement between Seller and
Seller's management agent for the Property, then Purchaser shall promptly give
Seller written notice of its objection thereto. In such event, Seller may elect
to postpone the Closing for thirty (30) days and attempt to cure such objection,
provided that Purchaser may not object to the state of title of the Property or
matters shown on the Survey or any update thereof on the basis of matters set
out in Section 3.4 above which remain unchanged. The parties acknowledge and
agree that Seller shall have no obligation to cure any objection. If Purchaser
fails to waive the objection within ten (10) days after notice from Seller that
Seller will not cure the objection, this Agreement will terminate automatically
and Seller shall promptly direct the Title Company to return the Deposit to
Purchaser, provided that Purchaser shall not be in default hereunder, and
neither party shall have any liability to the other except for Purchaser's
Indemnity Obligations set forth in Section 3.1.2 hereof. For the purposes of
this Agreement, any title defect, limitation or encumbrance other than a
Permitted Encumbrance shall be deemed cured if Chicago Title Insurance Company
or another title company reasonably acceptable to Purchaser and authorized to do
business in New York will agree to issue an ALTA owner's title insurance policy
to Purchaser (and future owners of the Property) for the Purchase Price, and to
Purchaser's lender (and future lenders), which policies takes no exception for
such defect, limitation or encumbrance and is issued for no additional premium
or for an additional premium if Seller agrees to pay such additional premium
upon Closing.
10.4 Licensing Contingency. Notwithstanding any other provisions of
this Agreement, Purchaser's obligation to purchase the Property and close the
transaction contemplated hereby is conditional upon Purchaser (or its designee)
obtaining (at its sole cost and expense) from all applicable governmental
authorities having jurisdiction over the Property and the operation thereof as a
congregate care living facility as it is being operated by Seller as of the date
of this Agreement, all licenses and permits, if any, necessary to permit
Purchaser (or its designee) to continue to operate the Property as a congregate
care living facility following the Closing in substantially the same manner as
it is being operated as of the date hereof (collectively, the "Regulatory
Permits"). After the Interim Date,
<PAGE>
-18-
THAT SUCH SPECIFIC PERFORMANCE IS NOT ADEQUATE, PURCHASER MAY TERMINATE THIS
AGREEMENT, RECOVER THE DEPOSIT AND, IN ADDITION, RECOVER FROM SELLER A MAXIMUM
OF TWENTY THOUSAND DOLLARS ($20,000.00) TO REIMBURSE PURCHASER FOR PURCHASER'S
REASONABLE OUT-OF-POCKET EXPENSES INCURRED AFTER THE DATE OF THIS AGREEMENT
DIRECTLY RELATED TO THIS AGREEMENT, PROVIDED, HOWEVER, THAT PURCHASER SHALL GIVE
SELLER AN ITEMIZED LIST OF SUCH EXPENSES WITHIN 60 DAYS AFTER DEFAULT ON THE
PART OF THE SELLER INCLUDING DETAILED INFORMATION AND COPIES OF THIRD-PARTY
INSPECTIONS AND REPORTS.
INITIALS: PURCHASER ------------- SELLER /s/ DJI
10.3 Failure of Condition. If prior to Closing Seller discloses to
Purchaser or Purchaser discovers that (i) title to the Property or matters shown
on the Survey or any update thereof are subject to defects, limitations or
encumbrances other than Permitted Encumbrances, or (ii) any representation or
warranty of Seller contained in this Agreement is or, as of the Date of Closing,
will be untrue, or (iii) Seller has failed to terminate, effective as of or
prior to the Date of Closing, the management agreement between Seller and
Seller's management agent for the Property, then Purchaser shall promptly give
Seller written notice of its objection thereto. In such event, Seller may elect
to postpone the Closing for thirty (30) days and attempt to cure such objection,
provided that Purchaser may not object to the state of title of the Property or
matters shown on the Survey or any update thereof on the basis of matters set
out in Section 3.4 above which remain unchanged. The parties acknowledge and
agree that Seller shall have no obligation to cure any objection. If Purchaser
fails to waive the objection within ten (10) days after notice from Seller that
Seller will not cure the objection, this Agreement will terminate automatically
and Seller shall promptly direct the Title Company to return the Deposit to
Purchaser, provided that Purchaser shall not be in default hereunder, and
neither party shall have any liability to the other except for Purchaser's
Indemnity Obligations set forth in Section 3.1.2 hereof. For the purposes of
this Agreement, any title defect, limitation or encumbrance other than a
Permitted Encumbrance shall be deemed cured if Chicago Title Insurance Company
or another title company reasonably acceptable to Purchaser and authorized to do
business in New York will agree to issue an ALTA owner's title insurance policy
to Purchaser (and future owners of the Property) for the Purchase Price, and to
Purchaser's lender (and future lenders), which policies takes no exception for
such defect, limitation or encumbrance and is issued for no additional premium
or for an additional premium if Seller agrees to pay such additional premium
upon Closing.
10.4 Licensing Contingency. Notwithstanding any other provisions of
this Agreement, Purchaser's obligation to purchase the Property and close the
transaction contemplated hereby is conditional upon Purchaser (or its designee)
obtaining (at its sole cost and expense) from all applicable governmental
authorities having jurisdiction over the Property and the operation thereof as a
congregate care living facility as it is being operated by Seller as of the date
of this Agreement, all licenses and permits, if any, necessary to permit
Purchaser (or its designee) to continue to operate the Property as a congregate
care living facility following the Closing in substantially the same manner as
it is being operated as of the date hereof (collectively, the "Regulatory
Permits"). After the Interim Date,
<PAGE>
-19-
Purchaser agrees to make prompt application for and diligently pursue the
obtaining of all such Regulatory Permits, if any. Purchaser shall provide Seller
with copies of all applications filed or submissions made in connection with the
obtaining of such Regulatory Permits and shall keep Seller fully informed as to
the status of its efforts to obtain the same. If Purchaser fails, despite
diligent efforts, to obtain the Regulatory Permits on or before the Date of
Closing, Purchaser shall be entitled to (i) provided Purchaser is diligently
pursuing efforts to obtain the Regulatory Permits, extend the Date of Closing by
thirty (30) days by giving written notice to Seller of its election to extend on
or before the Date of Closing set forth herein, in which case such extended date
shall be deemed to be the Date of Closing (except that Purchaser shall have no
right to further extend such extended Date of Closing, or (ii) terminate this
Agreement on and as of the Date of Closing by giving written notice of
termination to Seller, on or before the Date of Closing, whereupon, in the case
of an election pursuant to this clause (ii), Seller shall direct the Title
Company promptly to return the Deposit to Purchaser and neither party shall have
any further liability hereunder except for Purchaser's Indemnity Obligations set
forth in Section 3.1.2 hereof.
11. Miscellaneous.
--------------
11.1 Entire Agreement. This Agreement, together with the Exhibits
attached hereto, all of which are incorporated by reference, is the entire
agreement between the parties with respect to the subject matter hereof, and no
alteration, modification or interpretation hereof shall be binding unless in
writing and signed by both parties.
11.2 Severability. If any provision of this Agreement or application to
any party or circumstances shall be determined by any court of competent
jurisdiction to be invalid and unenforceable to any extent, the remainder of
this Agreement or the application of such provision to such person or
circumstances, other than those as to which it is so determined invalid or
unenforceable, shall not be affected thereby, and each provision hereof shall be
valid and shall be enforced to the fullest extent permitted by law.
11.3 Applicable Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of New York.
11.4 Assignability. Neither this Agreement nor any interest hereunder
shall be assigned or transferred by Seller without Purchaser's written consent,
which consent shall not be unreasonably withheld or delayed. Purchaser may not
assign this Agreement without first obtaining Seller's written consent. Any
assignment in contravention of this provision shall be void. No assignment shall
release the Purchaser herein named from any obligation or liability under this
Agreement. Any permitted assignee shall be deemed to have made any and all
representations and warranties made by Purchaser hereunder, as if the assignee
were the original signatory hereto.
If Purchaser requests Seller's written consent to any assignment,
Purchaser shall (1) notify Seller in writing of the proposed assignment; (2)
provide Seller with the name and address of the
<PAGE>
-20-
proposed assignee; (3) provide Seller with financial information including
financial statements of the proposed assignee; and (4) provide Seller with a
copy of the proposed assignment.
Notwithstanding the foregoing, this Agreement may be assigned by Purchaser
prior to the Closing without the consent of Seller if (1) such assignment is to
any entity which is a subsidiary or affiliate of Purchaser, or that controls, is
controlled by or is under common control with Purchaser, or any entity, or
affiliate of such entity, providing all or substantially all of the financing
for the Property; (2) Seller is given written notice thereof and is provided
with a copy of such assignment and a schedule of all evidence of ownership; and
(3) the assignee assumes all of Purchaser's obligations hereunder. No such
assignment shall operate to discharge or release the Purchaser named herein from
the obligations and liabilities of Purchaser hereunder, in whole or in part.
11.5 Successors Bound. This Agreement shall be binding upon and inure to
the benefit of Purchaser and Seller and their successors and permitted assigns.
11.6 Breach. Should either party be in breach of or default under or
otherwise fail to comply with any of the terms of this Agreement, except as
otherwise provided in this Agreement, the complying party shall have the option
to cancel this Agreement upon ten (10) days written notice to the other party of
the alleged breach and failure by such other party to cure such breach within
such ten (10) day period. The non-defaulting party shall promptly notify the
defaulting party in writing of any alleged default upon obtaining knowledge
thereof. The Date of Closing shall be extended to the extent necessary to afford
the defaulting party the full ten-day period within which to cure such default;
provided, however, that the failure or refusal by a party to perform on the
scheduled Date of Closing (except in respect of a Pending Default by the other
party) shall be deemed to be an immediate default without the necessity of
notice; and provided further, that if the Date of Closing shall have been once
extended as a result of default by a party, such party shall be not be entitled
to any further notice or cure rights with respect to that or any other default.
For purposes of this Section 11.6, a "Pending Default" shall a default for
which (i) written notice was given by the non-defaulting party, and (ii) the
cure period extends beyond the scheduled date of Closing.
11.7 No Public Disclosure. Neither party shall make any public disclosure
of the terms of this transaction without the prior written consent of the other
party, except that Purchaser may discuss the transaction in confidence with
proposed joint venturers or prospective mortgagees.
11.8 Captions. The captions in this Agreement are inserted only as a
matter of convenience and for reference and in no way define, limit or describe
the scope of this Agreement or the scope or content of any of it provisions.
11.9 Attorney's Fees. In the event of any litigation arising out of
this Agreement, the prevailing party shall be entitled to reasonable attorney's
fees and costs.
11.10 No Partnership. Nothing contained in this Agreement shall be
construed to create a partnership or joint venture between the parties or their
successors in interest.
<PAGE>
-21-
11.11 Time of Essence. Time is of the essence in this Agreement.
11.12 Counterparts. This Agreement may be executed and delivered in any
number of counterparts, each of which so executed and delivered shall be deemed
to be an original and all of which shall constitute one and the same instrument.
11.13 Recordation. Purchaser and Seller agree not to record this
Agreement or any memorandum hereof.
11.14 Proper Execution. The submission by Seller to Purchaser of this
Agreement in unsigned form shall be deemed to be a submission solely for
Purchaser's consideration and not for acceptance and execution. Such submission
shall have no binding force and effect, shall not constitute an option, and
shall not confer any rights upon Purchaser or impose any obligations upon Seller
irrespective of any reliance thereon, change of position or partial performance.
The submission by a party of this Agreement for execution by the other party and
the actual execution and delivery thereof by a party shall similarly have no
binding force and effect on such party unless and until the other party shall
have executed this Agreement and a counterpart thereof shall have been delivered
to the first party and the Initial Deposit shall have been received by the Title
Company.
11.15 Tax Protest. If as a result of any tax protest or otherwise there
is issued any refund or there occurs any reduction of any real property or other
tax or assessment relating to the Property and allocable to the period for
which, under the terms of this Agreement, Seller is responsible, Seller shall be
entitled to receive or retain a prorated portion of such refund or the benefit
of such reduction for such allocable period, less equitable prorated costs of
collection.
11.16 Time to Execute and Deliver. This Agreement shall be void if
one fully executed copy is not received by Seller, along with confirmation that
the Initial Deposit has been received by the Title Company, on or before 5:00
p.m. E.D.T. on August 28, 1996.
11.17 Limitation of Liability. Aetna Life Insurance Company is entering
into this Agreement in its capacity as general partner, and on behalf, of Seller
solely on behalf of Aetna Life Insurance Company's Separate Account 143 (also
known as Apartment Development Fund I). Separate Account 143 is a separate
account as defined in Section 3(17) of ERISA. Only the assets of such separate
account shall be bound for obligations of Separate Account 143 and no resort
shall be had to any other assets of Aetna Life Insurance Company for obligations
of Seller or its constituent general partners, or otherwise. Aetna Life
Insurance Company, by its execution hereof in the name and as a general partner
and on behalf of Seller, hereby covenants with Purchaser that it shall cause
Separate Account 143 to maintain currently available funds on hand of at least
$100,000.00 during the period beginning on the Date of Closing and ending one
(1) year thereafter.
<PAGE>
-22-
IN WITNESS WHEREOF, Purchaser and Seller have executed this Agreement on
the date set forth below, effective as of the date set forth above.
SELLER: GABLES AT BRIGHTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By: /s/ David J. Ingram
--------------------------------
Printed name: David J. Ingram
----------------------
Its: Vice President
-------------------------------
and By: 2001 Associates, Limited Partnership, a
general partner
By: Clinton Avenue, Inc., a general partner
By:
--------------------------------
Printed name:
----------------------
Its:
-------------------------------
PURCHASER: THE PRIME GROUP, INC.
By:
-------------------------------
Printed name:
---------------------
Its:
------------------------------
<PAGE>
-22-
IN WITNESS WHEREOF, Purchaser and Seller have executed this Agreement on
the date set forth below, effective as of the date set forth above.
SELLER: GABLES AT BRIGHTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By:
-------------------------------
Printed name:
---------------------
Its:
------------------------------
and By: 2001 Associates, Limited Partnership, a
general partner
By: Clinton Avenue, Inc., a general partner
By: /s/ Raymond J. Dunn
-------------------------------
Printed name: Raymond J. Dunn
---------------------
Its: Treasurer
------------------------------
PURCHASER: THE PRIME GROUP, INC.
By:
-------------------------------
Printed name:
---------------------
Its:
------------------------------
<PAGE>
-22-
IN WITNESS WHEREOF, Purchaser and Seller have executed this Agreement on
the date set forth below, effective as of the date set forth above.
SELLER: GABLES AT BRIGHTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By:
------------------------------------
Printed name:
--------------------------
Its:
-----------------------------------
and By: 2001 Associates, Limited Partnership, a
general partner
By: Clinton Avenue, Inc., a general partner
By:
-------------------------------
Printed name:
---------------------
Its:
------------------------------
PURCHASER: THE PRIME GROUP, INC.
By: /s/ Mark J. Schulte
------------------------------------
Printed name: Mark J. Schulte
--------------------------
Its: Executive Vice Pres.
-----------------------------------
<PAGE>
-23-
An original, fully executed copy of this Agreement, together with the
Initial Deposit, has been received by the Title Company this 16 day of
September, 1996, and by execution hereof the Title Company hereby covenants and
agrees to be bound by the terms of this Agreement.
CHICAGO TITLE INSURANCE COMPANY
By: /s/ Ellen Schwab
--------------------------
Printed name: Ellen Schwab
----------------
Its: Escrow Officer
-------------------------
<PAGE>
Exhibit 10.22
REAL ESTATE PURCHASE AGREEMENT
------------------------------
ARTICLE I
---------
PURCHASE AND SALE OF APARTMENT COMPLEX
--------------------------------------
Section 1.1 Agreement. This agreement ("Agreement") is made effective as
of September 16, 1996, (the "Effective Date") by and between Edina Park Plaza
Associates Limited Partnership, an Illinois limited partnership (hereinafter
referred to as "SELLER"), and The Prime Group, Inc., an Illinois corporation, or
its assignees or successors in interest (hereinafter referred to as "BUYER").
Section 1.2 Sale and Purchase. SELLER hereby agrees to sell to BUYER, and
BUYER hereby agrees to purchase from SELLER, the project commonly known as Edina
Park Plaza, FHA Project No. 092-35442, (the "Project") located in Edina,
Minnesota on the real estate legally described on Exhibit "A" attached hereto
(the "Real Estate"), for a purchase price ("Purchase Price") of Twenty Three
Million Nine Hundred Eighty Thousand and no/100 Dollars ($23,980,000.00), all
subject to the terms and conditions set forth in this Agreement. The Purchase
Price shall include (i) any and all improvements on the Real Estate
("Improvements"), (ii) any and all easements, rights, privileges and
appurtenances belonging or in any wise appertaining to the Real Estate, (iii)
all fixtures attached to or related to any Improvements, (iv) all of SELLER's
interest in and to any and all personal property, tangible or intangible
(including, but not limited to trade names and contract rights; provided,
however, that SELLER is not selling the trade name "ActiveLife" to Purchaser as
part of this transaction), on or related to the Real Estate or any Improvements,
or used in connection with the ownership and operation of the Real Estate or any
Improvements, as of the date of this Agreement, and (v) all of SELLER's rights,
title and interests in, to and under any and all leases, agreements or contracts
pursuant to which any portion of the Improvements is leased or occupied (the
items in (i) through (v) are collectively referred to herein as the "Property").
The Purchase Price does not include any reserve for replacements account, tax
and insurance accounts, mortgage insurance premium account or any other account
or reserve required in connection with the Mortgages (as hereinafter defined),
or any operating cash or cash reserves held by SELLER.
1
<PAGE>
Section 1.2(a) The Purchase Price. The Purchase Price shall be paid as
follows:
(i) Assumption of the existing Mortgage Note dated October 1, 1985 in
the principal amount of $14,628,700, the Supplemental Mortgage Note dated July
1, 1988 in the principal amount of $42,800.00, and the Operating Loss Loan
Mortgage Note dated December 1, 1989 in the principal amount of $1,400,000.00
(the "Notes") which Notes are secured by mortgages of even date therewith (the
"Mortgages"). As of August 15, 1996 the Notes had an aggregate balance
outstanding of approximately Fifteen Million One Hundred Sixty Thousand One
Hundred Fifty Four and no/100 ($15,160,154.00).
(ii) Payment of the balance of Purchase Price, plus or minus
prorations, at closing by certified or cashier's check or wire transfer of
immediately available funds.
Section 1.2(b) Earnest Money. PURCHASER shall pay to SELLER within five
(5) days of the signing of this Agreement $25,000 to be held as earnest money
("Earnest Money") and to be applied to the Purchase Price upon closing of this
transaction or as otherwise required by this Agreement.
Section 1.3 Sale Subject to HUD Approval. The sale of the Property is
expressly conditioned upon Preliminary Approval by the U.S. Department of
Housing and Urban Development ("HUD") of the transaction as set forth in the
Application for Transfer of Physical Assets, and supporting documents submitted
to HUD (the "TPA Application"). No transfer of any interest in the Property
under this Sale Agreement shall be effective prior to such HUD approval. BUYER
will not take possession of the Property nor assume benefit of project ownership
prior to such approval by HUD. BUYER, its executors, administrators or assigns
shall have no right upon any breach by SELLER hereunder to seek damages,
directly or indirectly, from the real property which is the subject of this
transaction, or from any assets, rents, issues or profits of said real property,
and BUYER shall have no right to effect a lien upon the real property or the
assets, rents, issues or profits thereof. BUYER shall submit to HUD, in a form
acceptable to SELLER's counsel, within forty-five (45) days of the date of this
Agreement a TPA Application. Failure to do so shall give SELLER the right to
immediately terminate the Agreement upon written notice to BUYER, and SELLER
shall retain the Earnest Money. SELLER and BUYER agree to cooperate and
communicate with each other in connection with the filing of any revisions to
the TPA Application. If HUD does not approve the TPA Application, this Agreement
may be rendered null and void at the option of the BUYER or SELLER and all
obligations of the parties pursuant to this Agreement shall terminate, and
SELLER shall return the Earnest Money to BUYER. If HUD has not granted written
conditional approval of the TPA Application on or before January 31, 1997, BUYER
or SELLER may terminate this Agreement and neither party shall have any further
obligations hereunder, and the SELLER shall return the Earnest Money to BUYER.
Section 1.4 Sale Subject to Mortgagee Approval. The sale of the Property
is expressly conditioned upon the approval of First Trust National Association
and, if necessary, any other party involved in the issuance and sale of the
bonds issued by the City
2
<PAGE>
of Edina, Minnesota as the $17,415,000.00 Housing Development Refunding Revenue
Bonds (FHA Insured Mortgage Loan - Edina Park Plaza Project) Series 1989-A &
1989-B (collectively the "Mortgagee"). Simultaneously with the submission of the
TPA Application to HUD, BUYER shall submit to Mortgagee the TPA Application and
any other documentation and fees required by Mortgagee to process and approve
the sale of the Property to BUYER. SELLER and BUYER shall cooperate and
communicate with each other in the filing of any required documentation with the
Mortgagee. If the Mortgagee does not approve of (i) the sale of the Property to
BUYER, (ii) the assumption of the Mortgages by BUYER and (iii) the release of
SELLER from any obligations under the Mortgages, this Agreement may be rendered
null and void at the option of either BUYER or SELLER, and all obligations of
the parties pursuant to this Agreement shall terminate, and SELLER shall return
the Earnest Money to BUYER. If Mortgagee has not approved the sale, the
assumption and the release before January 31, 1997, BUYER or SELLER may
terminate this Agreement, and neither party shall have any further obligations
hereunder, and SELLER shall return the Earnest Money to BUYER.
Section 1.5 Sale Subject to BUYER's Initial Public Offering. The sale of
the Property is expressly conditioned upon BUYER's closing of an Initial Public
Offering ("IPO") before December 31, 1996. BUYER will use a good faith effort to
market and sell the IPO, and BUYER will furnish SELLER with copies of all
filings made with the Securities Exchange Commission relative to the IPO within
two (2) business days of the filing date. If BUYER is unable to close the IPO on
terms satisfactory to BUYER before December 31, 1996 and BUYER is diligently
pursuing the closing of the IPO, SELLER agrees that BUYER may extend this IPO
closing condition until January 31, 1997. If BUYER does not close the IPO or
otherwise extend the IPO closing condition to January 31, 1997 by December 31,
1996, this Agreement may be rendered null and void at the option of either BUYER
or SELLER, and all obligations of the parties pursuant to this Agreement shall
terminate, and SELLER shall return the Earnest Money to BUYER. If BUYER has
extended the IPO closing condition and is still unable to close the IPO on terms
satisfactory to BUYER before January 31, 1997, this Agreement may be rendered
null and void at the option of either BUYER or SELLER, and all obligations of
the parties pursuant to this Agreement shall terminate, and SELLER shall return
the Earnest Money to BUYER.
Section 1.6 Sale Subject to BUYER's Feasibility Review. Upon execution of
this Agreement, the BUYER shall have a period of thirty (30) days (the
"Feasibility Period") to review SELLER's Deliveries (as hereinafter defined) and
to conduct any and all inspections, tests or soil studies on the Property
(including, but not limited to, environmental studies and analyses) deemed
appropriate or desirable by BUYER, and to otherwise determine the feasibility
(economic, physical or otherwise) of the purchase and operation of the Property.
Upon SELLER's execution of this Agreement, SELLER shall deliver, or cause to be
delivered, to Purchaser (i) a copy of the most recent survey of the Real Estate
in SELLER's possession and, as soon as practicable thereafter, an update of said
survey conforming to the
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1992 ALTA/ACSM survey standards for an Urban Survey (the "Survey"), (ii) a
commitment for an ALTA owner's title insurance policy with respect to the Real
Estate (the "Title Commitment") issued by Title Services, Inc., as agent for
First American Title Insurance Company, (the "Title Company") together with
copies of all documents of record listed as exceptions to title on the Title
Commitment, (iii) copies of any and all studies, tests and analyses (including,
but not limited to, environmental and soils tests and analyses) conducted by,
for or on behalf of SELLER or otherwise in SELLER's possession on or with
respect to the Property, and (iv) copies of all other agreements or documents
relating to the Property or ownership or operation thereof, specifically
excluding any income tax returns of SELLER or any partners of SELLER, as
identified on Exhibit B attached hereto (the deliveries required by (i) through
(iv) above are collectively the "SELLER's Deliveries"). In the event any of
SELLER's Deliveries are not received by BUYER prior to or upon execution of this
Agreement, BUYER shall have thirty (30) days from receiving such item to
complete BUYER's review of such item, but the Feasibility Period for all other
items commences upon execution of this Agreement. At any time during the
Feasibility Period, BUYER, in BUYER's sole and absolute discretion for any
reason whatsoever, may terminate this Agreement upon giving written notice to
SELLER. In the event BUYER terminates this Agreement pursuant to this Section,
all rights, duties and obligations of BUYER and SELLER hereunder shall
immediately terminate, and SELLER shall return the Earnest Money to BUYER.
Section 1.7 Sale Subject to SELLER's Limited Partners' Approval. The sale
of the Property is expressly conditioned upon SELLER's obtaining any approvals
from SELLER's limited partners as may be required by SELLER's agreement of
limited partnership. SELLER shall seek to obtain such approvals within fifty-one
(51) days of the signing of this Agreement. If SELLER does not obtain such
approvals within such period of time, this Agreement shall automatically
terminate, and SELLER shall return the Earnest Money to BUYER.
ARTICLE II
ESCROW AND CLOSING
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Section 2.1 Closing. "Closing", "Close of Escrow" and "Close" means the
simultaneous transfer of Property by SELLER to BUYER by the recordation of a
quit claim deed, subject to the exceptions to title listed in the Title
Commitment which are acceptable to BUYER, conveying title to the Real Estate to
BUYER ("Deed"), by the delivery of all other documents called for herein and by
the disbursement of all required funds to SELLER.
Section 2.2 Escrow. At the election of either Party, this transaction may
be closed through an escrow with the Title Company in accordance with the
general provisions of the usual form of Deed and money escrow agreement then in
use by Title Company with
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such special provisions inserted as may be required to conform with this
Agreement. Upon the creation of such escrow, anything herein to the contrary
notwithstanding, payment of the Purchase Price and delivery of the Deed shall be
made through the escrow and this Agreement and the Earnest Money shall be
deposited in escrow. The cost of the escrow shall be divided equally between
SELLER and BUYER.
Section 2.3 Party and Parties. A "Party" shall be either SELLER or BUYER.
SELLER and BUYER may sometimes collectively be referred to as the "Parties".
Section 2.4 Closing Date. The Closing shall be on or before January 31,
1997 provided the terms and conditions in this Agreement have been met. If BUYER
extends the IPO closing condition under Section 1.5, the Closing shall occur on
or before February 28, 1997 provided the terms and conditions in this Agreement
have been met.
Section 2.5 SELLER's Closing Deliveries. BUYER's obligation to purchase
the Property and to otherwise consummate the transactions contemplated pursuant
to this Agreement is subject to the delivery by SELLER or Title Insurer, as
applicable, either prior to or at the Closing (except that any document required
pursuant to this Section 2.5 to be dated as of the Closing Date shall be
delivered on the Closing Date), of all of the following:
(a) Termination of Property Management Agreement. Confirmation that
the existing management and leasing agreement covering the Property will be
terminated effective as of the Closing Date. SELLER shall indemnify and hold
BUYER harmless with respect to any claims or expenses arising from such
management agreement or the termination thereof including, without limitation,
all vacation pay, tax payments, termination expenses, and benefits provided for
employees per agreement with employees.
(b) Deeds and Bill of Sale. The Deed and a Bill of Sale.
(c) Title Policy. A Title Policy in the amount of the Purchase
Price and designating BUYER as the proposed insured.
(d) Assignments.
(i) An assignment ("General Assignment") dated as of the Closing
Date executed by SELLER assigning to BUYER all of SELLER's right,
title and interest in and to (A) the Leases for all residential units
of the Property (the "Leases"), (B) all Service Contracts accepted by
BUYER, (C) all contract rights, guaranties, licenses, permits,
warranties, and all other related interests and rights ("Intangible
Personal Property"), (D) the security deposits of the tenants under
the Leases, and (E) SELLER's interest in and to all funds held in the
Property's tax and insurance escrows and the reserve
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for replacements escrow unless HUD otherwise approves that SELLER
retains these funds; and
(ii) An Assignment, Modification and Release of the Notes and
Mortgages consented to by HUD and the Mortgagee ("Mortgage
Assignment") and any other documents required by HUD or Mortgagee
(collectively the "Mortgagee Documents").
(e) FIRPTA Affidavit. An affidavit required by Section 1445 of the
Internal Revenue Code from SELLER in a form reasonably satisfactory to BUYER
showing that such SELLER is not a "foreign person" within the meaning of such
section.
(f) SELLER's Certificates. A certificate or affidavit dated as of the
Closing Date signed by a duly authorized officer of SELLER stating that:
(i) Except as otherwise expressly stated therein, to the
best of SELLER's knowledge, neither SELLER nor its agents have
received any notice of any violation of any law, ordinance or
regulation relating to the use and occupancy of the Property; and
(ii) All of the representations and warranties of SELLER
contained in this Agreement are true and correct as of the Closing
Date in all material respects, except as otherwise expressly stated
therein.
(g) Original Records. To the extent in SELLER's possession or
available with the manager of the Project, all executed originals of each of the
Leases and Service Contracts that will remain in effect following the Closing
and all of the other Original Records with respect to the Property not
previously delivered to BUYER.
(h) Manager's Lien Waiver. If required by Title Insurer a waiver of
lien executed by the management agent for the Property.
(i) Miscellaneous Closing Documents. ALTA statements, title clearance
documents, real estate transfer tax declarations, closing statements and all
other closing documents normally and customarily delivered by sellers of
property of the same nature and type as the Property.
(j) Keys. Keys to all locks located in the Property which SELLER
controls.
(k) Updated Rent Roll. An updated version dated as of the Closing
Date of the Rent Roll covering the Property or a certificate dated as of the
Closing Date
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updating the Rent Roll previously delivered, in either case certified by a duly
authorized partner or agent of SELLER to be true, correct and complete in all
material respects as of the Closing Date.
(l) Mortgagee's Statement. A statement from the Mortgagee as to the
outstanding principal balance of the Notes and the amounts being held by
Mortgagee in any reserves in connection with the Mortgages.
(m) Other Documents and Instruments. Such other documents and
instruments as may be reasonably required by this Agreement, BUYER, its counsel,
HUD, the Title Insurer or Mortgagee and otherwise reasonably necessary to
consummate the transactions contemplated pursuant to this Agreement.
(n) Notice Letters to Tenants. Notices dated as of the Closing Date
to each of the tenants under the Leases informing such tenants of the sale of
the Property and directing the payment of all future rent to such address or
entity as BUYER shall designate.
All of the documents required to be delivered pursuant to this Section 2.5 shall
be in the form either required pursuant to this Agreement or in form and
substance reasonably satisfactory to BUYER and shall be provided in no event
later than the Closing Date. Notwithstanding the foregoing SELLER acknowledges
that the proposed Deed, the proposed Bill of Sale and Assignment will be
included in the Application for Transfer of Physical Assets.
Section 2.6 BUYER's Closing Deliveries. SELLER's obligations to sell the
Property and otherwise consummate the transaction contemplated pursuant to this
Agreement are subject to the delivery by BUYER at the Closing of each of the
following:
(a) Purchase Price. Payment of the balance of Purchase Price via
cashier's or certified check or wire transfer of immediately available funds.
(b) Assignments. An original executed counterpart of each of the
General Assignment and the Mortgage Assignment.
(c) Miscellaneous Closing Documents. ALTA statements, executed
counterparts of real estate transfer tax declarations, closing statements, and
all other closing documents normally and customarily delivered by buyers of
property of the same nature and type as the Property.
(d) Other Documents and Instruments. Such other documents as may be
reasonably required by this Agreement, SELLER, its counsel, HUD, the Title
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Insurer or Mortgagee and otherwise reasonably necessary to consummate the
transactions contemplated pursuant to this Agreement.
All of the documents required to be delivered pursuant to this Section 2.6 shall
be in form and substance reasonably satisfactory to SELLER and shall be provided
in no event later than the Closing Date.
Section 2.7 Additional Covenants.
--------------------
(a) Termination of Service Contracts and Equipment Leases. Within
sixty (60) days of receipt of the service contracts, BUYER shall give the SELLER
notice as to which of the Service Contracts and Equipment Leases listed on
Exhibit C and relating to or affecting the Property are unacceptable to BUYER,
and SELLER shall provide at Closing all required notices of termination in order
for such agreements to be terminated pursuant to the terms thereof as of the
Closing Date, provided such Service Contracts or Equipment Leases by their terms
may be terminated. If such Service Contracts or Equipment Leases are terminable
only by payment of a termination fee and such Service Contracts or Equipment
Leases are with a party or parties related to SELLER, SELLER shall bear the
expense of any termination fee. If the Service Contracts or Equipment Leases are
with third parties that are unrelated to SELLER, BUYER shall pay any termination
costs.
(b) Interim Notices. SELLER shall notify BUYER promptly upon receipt
of any notices of the nature described in Sections 4.1(g), 4.1(h), 4.1(m) and
4.1 (p) received by SELLER between the date of this Agreement and the closing
and shall notify BUYER if to SELLER's knowledge there is any change of
circumstances or facts or of the receipt of any notices or other information
that, in any case, has the effect of materially altering or modifying any of the
matters set forth in any representations and warranties made by SELLER or which
would otherwise have the effect of preventing or hindering SELLER from
performing any of its material obligations pursuant to this Agreement.
(c) Correspondence. Both SELLER and BUYER shall give the other party
copies of any correspondence from HUD regarding the TPA Application processing
and copies of any submissions to HUD in response to any correspondence from HUD.
Section 2.8 Prorations and Adjustments.
--------------------------
(a) Generally. SELLER shall be responsible for and pay all accrued
expenses with respect to the Property accruing up to the Closing Date and shall
be entitled to receive and retain all revenue from the Property accruing up to
the Closing Date. Unless items of expense are prorated or assumed by BUYER,
SELLER shall remain responsible for invoices for such items that relate to
periods prior to Closing.
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(b) Adjustments. On the Closing Date, the following adjustments and
apportionments as of 11:59 p.m. on the day before Closing shall be made in cash:
(i) Rents for the month in which the Closing Date occurs
(the "Closing Month"). Items of rent that at Closing are unpaid or past due
("Delinquent Rent") shall not be prorated. BUYER shall bill all tenants and
certificate issuer(s) for Delinquent Rent and shall use its good faith
reasonable efforts to collect all Delinquent Rent. If, as and when the BUYER
collects payment from a tenant or certificate issuer on account of Delinquent
Rent, BUYER shall pay such funds to SELLER within ten (10) days of BUYER's
receipt thereof.
(ii) If Closing occurs in 1996, general real estate taxes
for 1996 will be prorated based upon 100% of the 1996 tax bill. If Closing
occurs in 1997 and the 1997 tax amount has not yet been determined, general real
estate taxes for 1997 shall be prorated based on 105% of the amount of the 1996
real estate tax bill.
(iii) Charges under service contracts affecting the
Property on the Closing Date and utility charges and deposits relating to the
Property. Utility charges shall be prorated based on the amount of the most
recent bills and shall be reprorated upon receipt of the actual bills. This
agreement to reprorate the utility charges shall survive the Closing.
(iv) Water and sewer charges on the basis of the period
for which assessed.
(v) Income from users of vending machines and tenant
services, if any.
(vi) Wages of employees, if any.
(vii) Insurance premiums on any policy of casualty,
liability or other insurance relating to the Property (other than title
insurance) which is assigned to BUYER.
(viii) Accrued and unpaid interest under the Mortgage.
(c) Security Deposits. SELLER shall give BUYER a cash credit or
assign all of its right, title and interest in and to the security deposits and
interest thereon of the tenants of the Leases.
(d) Escrowed Amounts. At the Closing, SELLER shall receive a cash
credit in an amount equal to the sum of all amounts held in escrow, if any, by
the Mortgagee for casualty insurance premiums, mortgage insurance premiums, real
estate taxes, and Reserve for Replacements (if, and to the extent, such escrows
are not disbursed directly to SELLER) or any other matter pursuant to the terms
of the Mortgages. SELLER shall
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retain all operating cash or cash reserves on hand at Closing unless HUD or the
Mortgagee require otherwise in which case SELLER shall also receive a cash
credit for all operating cash or cash reserves on hand at Closing.
Section 2.9 Damages to Improvements.
-----------------------
(a) If, prior to Closing, any portion of the Property is damaged or
destroyed to a material (as hereinafter defined) extent by fire or other
casualty, SELLER shall give BUYER prompt written notice thereof, and BUYER may,
at BUYER's option, terminate this Agreement by delivery of written notice of
such termination to SELLER within fourteen (14) days after receipt of such
notice from SELLER of such damage or destruction. Upon receipt of such notice of
termination, each party shall be relieved of further obligations hereunder. If
BUYER elects not to so terminate this Agreement, then, at Closing, SELLER shall
assign to BUYER all right to settle the portion of the loss as it relates to
reconstruction of the Premises and to receive all proceeds of the insurance
covering the improvements so damaged or destroyed and BUYER shall receive a
credit against the Purchase Price in an amount equal to the amount of the
deductible under SELLER's insurance coverage.
(b) If, prior to closing, any portion of the Property is damaged or
destroyed, but such damage or destruction is not material, SELLER shall give
BUYER prompt written notice thereof and shall use its best efforts to restore,
prior to Closing, the Property to its previous condition. If SELLER is unable to
complete said restoration prior to the Closing, BUYER shall be entitled to elect
by written notice to SELLER either (i) to receive a credit at Closing for the
cost of restoration to be incurred by BUYER or (ii) to accept an assignment from
SELLER to BUYER of all of SELLER's rights with respect to the settlement of all
insurance proceeds receivable in respect of such damage or destruction and to
receive a proration credit at closing equal to all deductibles therefrom (but
not in excess of the amount of the cost of repair). Until such settlement of
loss there shall be retained in escrow out of the proceeds at Closing such sum
as the parties shall agree upon as sufficient to pay the estimated cost of fully
repairing and rehabilitating such damaged or destroyed Property and to pay all
indirect and incidental costs and expenses. Upon ascertainment of the actual
costs of repairs and rehabilitation and receipt of the proceeds under the
insurance policies, an appropriate refund shall be made to SELLER of any excess
sum in said escrow which was not required to complete the work. In the event
BUYER elects the option set forth in clause (i) of this subparagraph, SELLER
shall be entitled to retain all insurance proceeds with respect to such damage
or destruction.
(c) For purposes of this Section 2.9, the term "material" shall mean
damage or destruction of any portion of the Property for which the aggregate
estimated cost of repair, restoration and rehabilitation (including all indirect
and incidental costs and expenses) is in excess of Two Hundred Fifty Thousand
and No/100 Dollars ($250,000.00) as determined by an architect or general
contractor acceptable to both parties.
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Section 2.10 Condemnation. The Uniform Vendors and Purchasers Risk Act
shall govern any proceeding relating to the proposed taking of any portion of
the Property by exercise of the powers of condemnation or eminent domain by any
governmental authority.
Section 2.11 Closing Costs. SELLER shall pay for the owner's Title
Policy, the Survey, and any state and county transfer taxes. BUYER shall pay for
any local transfer taxes or inspection fees, BUYER's preparation of the TPA
Application, any HUD fees for the TPA Application, and any Mortgagee fees at
Escrow Closing or at the time the cost is incurred, whichever is required by
HUD, Mortgagee or the party to whom the debt is due.
Section 2.12 Termination Costs. In the event this Agreement is terminated
by either party for failure of a condition precedent set forth in this
Agreement, the Parties shall share equally all costs and charges for title,
survey, TPA Application and Mortgagee transfer fees incurred in connection with
this transaction prior to such termination. SELLER shall not pay or reimburse
any other cost that has been incurred by BUYER.
Section 2.13 Possession. Right to possession of the Property shall
transfer to BUYER on the Closing Date.
ARTICLE III
REMEDIES
Section 3.1 BUYER's Default. If, prior to the BUYER's completing the IPO,
the Closing does not occur due to the failure, inability or refusal of BUYER to
purchase the Property for any reason other than SELLER's breach or default or
the failure to satisfy a condition to Closing, then SELLER shall be entitled to
retain the Earnest Money as SELLER's sole and exclusive remedy hereunder. If the
Closing does not occur due to the failure, inability or refusal of BUYER to
purchase the Property after BUYER has completed the IPO (other than due to
SELLER's breach or default or failure to satisfy a condition to Closing) and
BUYER has included the Property in its IPO disclosures, then, in addition to
retaining the Earnest Money, SELLER shall be entitled to any other remedies
available at law or in equity.
Section 3.2 SELLER's Default. In the event SELLER has made a good faith
effort to satisfy the conditions set forth in this Agreement, but SELLER is
unable to satisfy such conditions, BUYER's sole and exclusive remedy hereunder
shall be the return of the Earnest Money to BUYER. If (i) HUD and Mortgagee have
given their approval of the sale of the Property to BUYER, (ii) SELLER has
obtained its limited partners' approval of the sale of the Property to BUYER and
(iii) BUYER has timely closed the IPO
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or has waived the IPO closing condition and the Closing does not occur due to
the failure or refusal of SELLER to sell the Property to BUYER, then BUYER shall
have a right of specific performance against SELLER.
ARTICLE IV
WARRANTIES
Section 4.1 Representations and Warranties of SELLER. SELLER makes the
following representations and warranties to BUYER the truth and accuracy of
which shall be deemed a portion of the consideration for BUYER's purchase of the
Property:
(a) Subject to the approval of the limited partners of SELLER as set
forth in Section 1.7, SELLER has the authority to execute this
Agreement and to perform all of the obligations to be performed
by SELLER hereunder, and the persons executing this Agreement for
SELLER have full power and authority to sign for SELLER and to
bind SELLER to this Agreement;
(b) Any document required under this Agreement to be executed by
SELLER will be duly executed and, where such document is to be or
may be recorded, duly acknowledged;
(c) Except as otherwise represented herein, SELLER is selling the
Property, including land and all its improvements, in an "as is"
condition. SELLER agrees to maintain the Property in its current
physical condition prior to Closing and SELLER grants to BUYER
the right to periodic inspections to ensure that the Property
does not deteriorate significantly prior to Closing;
(d) All of the information contained in the rent roll and tenant
income profiles attached hereto as Exhibit D ("Rent Roll")
reflects that information available to SELLER with respect to the
Leases as of the date hereof;
(e) To the best of SELLER's actual knowledge, and except for the
approvals required from HUD, Mortgagee and SELLER's limited
partners, neither the execution and delivery of this Agreement
nor the consummation of the transaction contemplated herein will
constitute a material violation in any respect of the terms of
any other agreements relating to the ownership and operation of
the Property;
(f) SELLER has not received written notice of any default under any
of the Leases, Service Contracts or any other agreements to be
assigned by SELLER to BUYER at Closing, and there exists, to the
best of SELLER's knowledge,
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no offset or defense against the payment of any rent due under
any of the Leases required to be assigned by SELLER at Closing;
(g) SELLER has not received written notice of any legal actions or
judgments or any assessments or other proceedings or
investigations now pending or, to the best of SELLER's knowledge,
threatened against or relating to the Property or the title and
legal right of SELLER to sell and convey or cause to be conveyed
the Real Estate, the Personal Property or any of the other
interests, rights or items comprising the Property; SELLER has no
knowledge, based solely upon inquiry of the property manager, of
any existing grounds for any such action, judgment, assessment,
proceeding, or investigation; and neither SELLER nor, to the best
of SELLER's knowledge, SELLER's agents have received any written
notice from any governmental authority (any of which is sometimes
hereinafter referred to as a "Governmental Authority") relating
to any violation of any fire, zoning, property, environmental,
health or other statute, code, regulation, ordinance or other
governmental rule with respect to the Property that has not
previously been corrected;
(h) Environmental Conditions. To the best of SELLER's actual
knowledge, the Property has not been used for the purpose of, nor
has there been any surface or subsurface contamination due to the
manufacture, generation, handling, storage, disposal or treatment
of any hazardous, toxic or dangerous substance, waste or
material, (specifically including for purposes of this Agreement
any petroleum or crude oil or fraction thereof, friable asbestos
or asbestos-containing material, polychlorinated byphenyls or
urea formaldehyde foam insulation), defined as such in, regulated
by or for the purpose of, or in violation of, any federal, state
or local environmental laws, including, but not limited to, the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901,
et seq.), the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the super fund
amendments and Reauthorization Act (42 U.S.C. Section 9601, et.
seq.), the Toxic Substances Control Act (15 U.S.C. Section 2601,
et seq.), and the Clean Air Act (42 U.S.C. Section 4701, et
seq.), as any of the same may be amended from time to time, and
any comparable, similar or successor provisions of federal, state
or local law and any regulations, orders, rules, procedures,
guidelines and the like promulgated in connection therewith
(collectively, the "Environmental Laws"); and to the best of
SELLER's knowledge, neither SELLER nor its agents have received
any written notice of any asserted present or past failure by
SELLER or by any tenant under any Lease or by any other prior
tenant or owner to comply with any Environmental Law or any rule
or regulation adopted pursuant thereto in connection with the
Property. To the best of SELLER's knowledge, the Property does
not contain any above ground or underground storage tanks.
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(i) SELLER is not a foreign individual, foreign corporation, foreign
partnership, or foreign estate as defined in Internal Revenue
Code and Income Tax Regulations;
(j) Condemnation. SELLER has not received any written notice of any
assessments or condemnation actions being contemplated;
(k) Outstanding Contracts. As of the Closing, there will be no
outstanding contracts made by SELLER relating to the Property
which have not been fully paid or terminated, except for those
contracts which extend beyond the date of Closing or are
specifically assumed by BUYER. SELLER shall cause to be
discharged all other encumbrances, liens, bonds, and mechanics'
or materialmen's liens arising from any labor and material
furnished prior to Closing;
(l) SELLER is not a debtor in any presently pending or threatened
bankruptcy proceedings;
(m) Neither SELLER nor any of its agents have received any written
notice of (i) any increase in the assessed valuation of the
Property other than as shown on the most recent ascertainable
real estate tax bills (or the most recent notices of proposed
assessments) for the Property, or (ii) any special assessments
for the Property that are now or will become payable and that
have not been included in the Title Commitment or will not be
included in the Title Policy to be delivered to BUYER at the
Closing. There are no amounts due and payable, or which will
become due and payable, to any attorney or other party engaged by
such SELLER with respect to the protest of the assessed valuation
of the Property or the real estate taxes attributable thereto for
the most recent reassessment period covering the Property;
(n) SELLER shall pay all real estate commissions, finder's fees and
similar commissions or fees which may be due and owing upon
Closing or in connection with the transactions contemplated
herein, if any.
(o) Exhibit C attached hereto lists all of the Service Contracts and
Equipment Leases ("Service Contracts") relating to or affecting
the Property;
(p) Neither SELLER nor its agents have received written notice from
any insurance carrier regarding any defects or inadequacies with
respect to all or any portion of the Property which, if not
corrected, would result in a termination of insurance coverage or
an increase in the cost thereof;
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(q) All copies of the Leases and Service Contracts and Equipment
Leases relating to or affecting the Property delivered or to be
delivered to BUYER are or will be complete in all material
respects as of the date when delivered, and all of the other
documents and materials delivered to BUYER and relating to or
affecting the Property are or will be complete in all material
respects as of the date when delivered;
(r) The Leases disclosed on the Rent Roll and the Leases to be
disclosed on any updated rent roll required to be delivered
pursuant to this Agreement will be the only leases, options or
commitments for space in the Property; SELLER has not entered
into or consented to any option, right of first refusal, right of
first offer or any other similar agreement, or caused any of the
same to be entered into, for the sale of all or any portion of
the Property;
(s) Neither SELLER nor its agents have received notice of any default
under the terms and provisions of the Notes or Mortgages or any
of the other documents, evidencing or securing SELLER's
obligations under the Notes and Mortgages; and no proceeding has
been constituted to foreclose any of the Mortgages; and
(u) SELLER has received no written notice of any non-insured existing
actions, suits, proceedings, judgments, orders, decrees,
defaults, delinquencies or deficiencies pending or outstanding,
or threatened, against the Property.
Section 4.2 Limitation of Warranties.
(a) BUYER's Inspection. BUYER acknowledges that it shall inspect or
has thoroughly inspected the Property and all factors relevant to
its use, including without limitation, the physical condition of
the Property, the interior and exterior, the structure, condition
of soils, all utilities and all physical and functional aspects
of the Property, all operating records, leases, documents, and
other material affecting the income and operation of the
Property, and all matters relating to title, together with all
municipal and other legal requirements such as taxes,
assessments, zoning, use permits, and building codes;
(b) Purchase "As Is". BUYER acknowledges that it is acquiring the
Property in its "as is" condition, and solely in reliance on
BUYER's own inspection and examination. BUYER further
acknowledges that, except as otherwise stated in Section 4.1,
neither SELLER nor any agents, representatives or employees of
SELLER have made any representations or warranties, direct or
implied, verbal or written, with respect to the condition of the
Property, or its fitness for any particular purpose; and
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(c) Environmental Conditions. BUYER further acknowledges that, except
as disclosed herein, neither SELLER nor any agent or
representative of SELLER has made any inspection, investigation,
inquiry or other disclosure regarding environmental conditions or
hazardous materials on, under or about the Property. BUYER shall
rely solely on BUYER's inspection, investigation, and inquiry for
knowledge of these matters. BUYER, its successors and assigns,
hereby waive, release and agree not to make any claim or bring
any cost recovery action or claim for contribution or other
action or claim against SELLER or its affiliates, directors,
officers, employees, agents, attorneys, or assigns (collectively,
"SELLER and its Affiliates") based on (a) any Environmental Laws,
(b) any discharge, disposal, release, or escape of any chemical,
or any material whatsoever, on, at, to, or from the Property; or
(c) any environmental conditions whatsoever on, under, or in the
vicinity of the Property. The foregoing waiver and release shall
not apply to any claim or cost recovery action Purchaser may make
or bring which arises out of any action of SELLER during SELLER's
ownership of the Property.
(d) General Disclaimer. BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS
OTHERWISE SET FORTH IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES
NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS,
WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY
KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESSED OR IMPLIED, ORAL
OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR
WITH RESPECT TO (A) THE NATURE, QUALITY OR CONDITION OF THE
PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND
GEOLOGY, (B) THE INCOME TO BE DERIVED FROM THE PROPERTY, (C) THE
SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES
WHICH PURCHASER MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY
THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR
REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (E)
THE HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF THE PROPERTY, OR (F) ANY OTHER MATTER WITH RESPECT TO
THE PROPERTY, AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS
REGARDING TERMITES OR WASTES, OR HAZARDOUS SUBSTANCE, AS DEFINED
BY ANY ENVIRONMENTAL LAW.
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Section 4.3 Discovery of New Information. Although SELLER has no duty or
obligation to conduct any inspection of the Property, if, before the Close of
Escrow, SELLER discovers any information or facts that would materially change
the foregoing warranties, covenants and representations of SELLER to BUYER's
detriment, SELLER shall inform BUYER of this new information. In such event,
SELLER shall have twenty (20) business days to cure such material change. In the
event of such cure by SELLER, this Agreement shall remain in full force and
effect. If SELLER is unwilling or incapable of curing such material change in
said time frame, BUYER shall have the right to terminate this Agreement unless
BUYER waives any of its rights that may arise due to the new information
discovered by the SELLER and disclosed to the BUYER. BUYER shall have ten (10)
business days from the date of a notice from SELLER that SELLER will not cure
such material change or from the date of discovery or disclosure of any
information creating a material change in SELLER's warranties, covenants and
representations to terminate the Agreement, in writing, or said material change
shall be deemed waived by BUYER.
Section 4.4 SELLER to Cure.
a. If any of SELLER's warranties, covenants or representations are
breached, SELLER, upon notice from BUYER, shall immediately take
steps reasonably required to cure the breach.
b. If such breach is not cured by SELLER within a reasonable time,
BUYER shall have the right to terminate this Agreement.
Section 4.5 BUYER's Representations and Warranties.
(a) BUYER covenants, represents and warrants that BUYER has the
ability and has been duly authorized to enter into this Agreement
and that this Agreement constitutes a legal, valid and binding
obligation of BUYER, and that BUYER is not in default under any
action or proceeding or agreement, nor is there any litigation
pending or, to BUYER's knowledge, threatened which would prevent
BUYER from performing its obligations hereunder.
(b) BUYER represents and warrants that BUYER has not employed the
services of a real estate broker or salesperson in connection
with this transaction.
Section 4.6 Accuracy of Representations and Warranties. BUYER and SELLER
covenant, agree, represent and warrant, in connection with their respective
representations and warranties contained in Sections 4.1 and 4.5, and elsewhere
in this Agreement, that each such representation and warranty:
(a) Is material and being relied upon by the other party;
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(b) Is true in all respects as of the date hereof; and
(c) Shall be true in all respects on the Closing Date except as
otherwise disclosed in writing to the other party.
Section 4.7 Bankruptcy. BUYER and SELLER agree that in the event that
either BUYER or SELLER files for voluntary or is subjected to involuntary
Bankruptcy, that such filing shall be deemed an event of default by BUYER or
SELLER, as applicable, and will entitle the other party to all of the remedies
provided under this Agreement.
ARTICLE V
RISK OF LOSS AND MANAGEMENT
Section 5.1 Risk of Loss. Any risk of loss to the Property or any
personal property located thereon shall be borne by SELLER until title has been
conveyed to BUYER.
Section 5.2 Maintenance of Property. Between the date of this Agreement
and the Closing Date, SELLER shall manage, care for, operate and maintain the
Property in at least the same manner in which it has been managed, maintained,
cared for and operated in the past and consistent with all applicable HUD and
Mortgagee maintenance and management practices; provided, however, that without
BUYER's express written consent, which consent shall not be unreasonably
withheld or delayed, SELLER shall not (except to the extent otherwise permitted
or required under this Agreement):
(a) Except for emergency repairs or improvements mandated by HUD or
Mortgagee, make, or enter into any contract to make, any repairs, alterations or
improvements to any portion of the Property, which would exceed $25,000.00 in
any instance or $100,000.00 in the aggregate, unless the same is or will be
completed and fully paid for on or before the Closing;
(b) Cancel, terminate or surrender any of the Leases or consent to or
accept any cancellation, termination or surrender of any of the Leases, except
in accordance with the terms of such Leases or as a result of any uncured
default by the tenant under any Lease;
(c) Enter into, amend or extend any easement, agreement or other
obligation affecting the Property (including without limitation any Service
Contracts and Equipment Leases), that is or would be binding on any successor,
unless the same is entered into in the ordinary course of operating and
maintaining the Property and is cancelable by BUYER without the payment of any
fee, penalty or expense on not more than thirty (30) days' notice. SELLER will
provide BUYER with copies of any new Service Contracts and Equipment Leases.
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ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1 Further Assurances. Each Party shall execute such further
documents, papers and instruments and take such further action as is necessary,
appropriate or helpful as the other Party hereto shall reasonably request in
order to carry out the purposes, intent and spirit of this Agreement.
Section 6.2 Governing Law and Venue. This Agreement shall be governed in
all respects by the substantive and procedural law of the State of Illinois.
Section 6.3 Complete Agreement. This Agreement and all Exhibits attached
hereto constitute the entire agreement and all understandings of the parties.
All prior writings, representations, warranties, opinions, undertakings,
understandings and negotiations are merged herein and are extinguished.
Section 6.4 Modification. This Agreement may be modified or amended only
by a written document signed by SELLER and BUYER.
Section 6.5 Assignment. BUYER shall have the right to assign this
Agreement and any of BUYER's right, title or interest hereunder to an entity
approved by HUD and SELLER. SELLER hereby consents to BUYER's assignment of this
Agreement to the entity BUYER creates in connection with BUYER's IPO.
Section 6.6 Binding Effect. This Agreement shall inure to the benefit of
and be binding on the Parties hereto and their respective assignees and other
successors in interest.
Section 6.7 Attorneys' Fees Notwithstanding any other provision of any
agreement between BUYER and SELLER, in any suit, action, proceeding or in
connection with any of the terms, covenants, provisions, warranties,
representations or agreements in this Agreement, the prevailing party in such
suit, action, proceeding or arbitration shall be awarded, in addition to
equitable relief, or damages, or both or other relief, all costs as provided by
law, all out of pocket costs of each and every kind and type including, but not
limited to, expert witness fees and investigation costs and expenses, as well as
all reasonable attorneys' fees incurred before any trial, proceeding or
arbitration, at all trials, proceedings or arbitrations and on all appeals.
Included within the scope of this Section, but not by way of limitation, it is
agreed that this Section shall apply to any and all suits, actions, proceedings
and arbitrations in which an issue is whether any term, covenant, provision,
representation, warranty or agreement of this Agreement, is valid or
enforceable. This Section shall therefore be severable from all other terms,
covenants, provisions and agreements of this Agreement.
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Section 6.8 No Partnership Created. The relationship of SELLER and BUYER
hereunder is that of SELLER and BUYER and none of the provisions of this
Agreement are intended to or do create a partnership or joint venture or
relationship other than SELLER and BUYER.
Section 6.9 Heading and Captions. All headings, captions, table of
contents, indices, and references to Article or section numbers in brackets, if
any, are for convenience only and are not part of this Agreement and shall not
be utilized to interpret this Agreement.
Section 6.10 Gender. Words of any gender used in this Agreement shall be
held and construed to include all other genders, and words of singular number
shall be held to include the plural and vice versa, unless the context requires
otherwise.
Section 6.11 Legal Advice. This Agreement is a legally binding contract.
The Parties acknowledge that neither party, or representative of either party,
has given the other party any legal, tax, investment, securities or other advice
regarding this Agreement or any of the transactions associated with it. The
Parties hereby acknowledge that they have relied solely on the advice of their
own legal counsel.
Section 6.12 Severability. Each provision of this Agreement shall be
viewed as separate and divisible, and in the event any provision shall be held
to be invalid, all remaining provisions shall continue to remain in full force
and effect.
Section 6.13 Waiver. Notwithstanding any agreement between BUYER and
SELLER, the waiver by either party of a breach of any provision of this
Agreement shall not be deemed a continuing waiver or a waiver of any subsequent
breach whether of the same or another provision thereof.
Section 6.14 Joint Preparation. The Parties acknowledge that each Party
hereto has cooperated in the drafting and preparation of this Agreement. In any
construction to be made of this Agreement, no presumption shall arise against
either Party by virtue of its participation in the drafting hereof. Moreover,
the normal rule of construction that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of this Agreement
or any amendments or Exhibits hereto.
Section 6.15 Notices. Unless specifically provided otherwise herein, all
notices given must be in writing and shall be deemed effectively given upon (i)
personal delivery or receipt, (ii) if mailed, upon the first to occur of receipt
or the expiration of seventy-two (72) hours after deposit in certified or
registered United States mail, postage prepaid, return receipt requested, sent
to a Party at its address as set forth herein, (iii) if sent by overnight
courier, on the first business day after being placed with such courier for
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delivery to a Party at its address as set forth herein, or (iv) if by facsimile,
on the date of transmission to the Party at the facsimile number set forth
herein, provided such date is a business day and such transmission occurs prior
to 4:00 p.m. on such day and confirmation of the completion of such facsimile
transmission and a copy of the notice are sent by regular mail on the date of
the transmission. An address or facsimile number herein may be changed by
written notice to the other Party.
Section 6.17 Address for Notice.
The address of SELLER for notice is:
Edina Park Plaza
Associates Limited Partnership
222 North LaSalle Street
Suite 1414
Chicago, Illinois 60601
Attention: Daniel N. Epstein
Facsimile: 312-726-0091
with a copy to:
James T. Buchholz, Esq.
Attorney at Law
222 North LaSalle Street, Suite 1414
Chicago, Illinois 60601
Facsimile: 312-726-0091
The address of BUYER for notice is:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: Mark J. Schulte and Robert J. Rudnik
Facsimile: 312-782-5867
with a copy to:
William J. Ralph
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Facsimile: 312-558-5700
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Section 6.18 Counterpart Copies. This Agreement may be signed in
counterpart or duplicate copies, and any signed counterpart or duplicate copy
shall be equivalent to a signed original for all purposes.
Section 6.19 1031 Exchange. SELLER reserves the right to effect a 1031
exchange, and BUYER agrees to cooperate with SELLER in affecting such exchange
provided that BUYER shall incur no expense and that close of escrow or any other
time periods for performance specified in the Purchase Agreement shall not be
delayed by reason of such exchange.
Section 6.20 SELLER's Liability. No partner, agent or employee of SELLER
shall have any personal liability under this Agreement.
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IN WITNESS WHEREOF, the parties have signed this Agreement effective as of
the date first set forth above.
SELLER: BUYER:
- ------ -----
EDINA PARK PLAZA ASSOCIATES THE PRIME GROUP, INC.
LIMITED PARTNERSHIP, AN ILLINOIS
LIMITED PARTNERSHIP
By: Partners for Senior Communities
Inc., a general partner
By: /s/ DANIEL N. EPSTEIN By: /s/ MARK J. SCHULTE
--------------------- -----------------------
Name: DANIEL N. EPSTEIN Name: MARK J. SCHULTE
------------------- ---------------------
Title: VICE PRESIDENT Title: EXEC. VICE PRESIDENT
------------------ --------------------
By: /s/ HENRY HYATT
------------------------------
Henry Hyatt, a general partner
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The following exhibits to the Real Estate Purchase Agreement dated September 16,
1996 by and between Edina Park Plaza Associates Limited Partnership and The
Prime Group Inc. have been omitted:
Exhibit A - Legal Description;
Exhibit B - Due Diligence Checklist;
Exhibit C - Service Contracts and Equipment Leases; and
Exhibit D - Rent Roll.
The Company hereby agrees to furnish supplementally a copy of any omitted
exhibit to the Securities and Exchange Commission upon request.
<PAGE>
Exhibit 10.23
REAL ESTATE PURCHASE AGREEMENT
------------------------------
ARTICLE I
---------
PURCHASE AND SALE OF APARTMENT COMPLEX
--------------------------------------
Section 1.1 Agreement. This agreement ("Agreement") is made effective as of
September 16, 1996, (the "Effective Date") by and between East Mesa Senior
Living Limited Partnership, an Arizona limited partnership (hereinafter referred
to as "SELLER"), and The Prime Group, Inc., an Illinois corporation, or its
assignees or successors in interest (hereinafter referred to as "BUYER").
Section 1.2 Sale and Purchase. SELLER hereby agrees to sell to BUYER, and
BUYER hereby agrees to purchase from SELLER, the project commonly known as The
Springs of East Mesa, (the "Project") located in East Mesa, Arizona on the real
estate legally described on Exhibit "A" attached hereto (the "Real Estate"), for
a purchase price ("Purchase Price") of Fourteen Million Five Hundred Fifty
Thousand and no/100 Dollars ($14,550,000.00), all subject to the terms and
conditions set forth in this Agreement. The Purchase Price shall include (i) any
and all improvements on the Real Estate ("Improvements"), (ii) any and all
easements, rights, privileges and appurtenances belonging or in any wise
appertaining to the Real Estate, (iii) all fixtures attached to or related to
any Improvements, (iv) all of SELLER's interest in and to any and all personal
property, tangible or intangible (including, but not limited to trade names and
contract rights; provided, however, that SELLER is not selling the trade name
"ActiveLife" to Purchaser as part of this transaction), on or related to the
Real Estate or any Improvements, or used in connection with the ownership and
operation of the Real Estate or any Improvements, as of the date of this
Agreement, and (v) all of SELLER's rights, title and interests in, to and under
any and all leases, agreements or contracts pursuant to which any portion of the
Improvements is leased or occupied (the items in (i) through (v) are
collectively referred to herein as the "Property"). The Purchase Price does not
include any reserve for replacements account, tax and insurance accounts, or any
other account or reserve required in connection with the Mortgage (as
hereinafter defined), or any operating cash or cash reserves held by SELLER.
Section 1.2(a) The Purchase Price. The Purchase Price shall be paid as
follows:
(i) Assumption of the existing Note dated February 8, 1994 in the
principal amount of $5,500,000.00 (the "Note") which Note is secured by a
Multifamily Deed of Trust,
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Assignment of Rents and Security Agreement of even date therewith (the
"Mortgage"). As of August 15, 1996 the Note had an aggregate balance outstanding
of approximately Five Million Three Hundred Seventy Thousand Eight Hundred Sixty
Four and no/100 ($5,370,864.00).
(ii) Payment of the balance of Purchase Price, plus or minus
prorations, at closing by certified or cashier's check or wire transfer of
immediately available funds.
Section 1.2(b) Earnest Money. PURCHASER shall pay to SELLER within five
(5) days of the signing of this Agreement $25,000 to be held as earnest money
("Earnest Money") and to be applied to the Purchase Price upon closing of this
transaction or as otherwise required by this Agreement.
Section 1.3 Sale Subject to Mortgagee Approval. The sale of the Property
is expressly conditioned upon the approval of Federal National Mortgage
Association ("Fannie Mae" or "Mortgagee"). BUYER shall submit to Mortgagee
within forty-five (45) days of the date of this Agreement an application and
any other documentation and fees required by Mortgagee to process and approve
the sale of the Property to BUYER (the "Fannie Mae Application"). SELLER and
BUYER shall cooperate and communicate with each other in the filing of any
required documentation with the Mortgagee. If the Mortgagee does not approve
of (i) the sale of the Property to BUYER, (ii) the assumption of the Mortgages
by BUYER and (iii) the release of SELLER from any obligations under the
Mortgages, this Agreement may be rendered null and void at the option of
either BUYER or SELLER, and all obligations of the parties pursuant to this
Agreement shall terminate, and SELLER shall return the Earnest Money to BUYER.
If Mortgagee has not approved the sale, the assumption and the release before
January 31, 1997, BUYER or SELLER may terminate this Agreement, and neither
party shall have any further obligations hereunder, and SELLER shall return
the Earnest Money to BUYER.
Section 1.4 Sale Subject to BUYER's Initial Public Offering. The sale of
the Property is expressly conditioned upon BUYER's closing of an Initial
Public Offering ("IPO") before December 31, 1996. BUYER will use a good faith
effort to market and sell the IPO, and BUYER will furnish SELLER with copies
of all filings made with the Securities Exchange Commission relative to the
IPO within two (2) business days of the filing date. If BUYER is unable to
close the IPO on terms satisfactory to BUYER before December 31, 1996 and
BUYER is diligently pursuing the closing of the IPO, SELLER agrees that BUYER
may extend this IPO closing condition until January 31, 1997. If BUYER does
not close the IPO or otherwise extend the IPO closing condition to January 31,
1997 by December 31, 1996, this Agreement may be rendered null and void at the
option of either BUYER or SELLER, and all obligations of the parties pursuant
to this Agreement shall terminate, and SELLER shall return the Earnest Money
to BUYER. If BUYER has extended the IPO closing condition and is still unable
to close the IPO on terms satisfactory to BUYER before January 31, 1997, this
Agreement may be rendered null and void at the option of either BUYER or
SELLER, and all obligations of the parties pursuant to this Agreement shall
terminate, and SELLER shall return the Earnest Money to BUYER.
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Section 1.5 Sale Subject to BUYER's Feasibility Review. Upon execution of
this Agreement, the BUYER shall have a period of thirty (30) days (the
"Feasibility Period") to review SELLER's Deliveries (as hereinafter defined) and
to conduct any and all inspections, tests or soil studies on the Property
(including, but not limited to, environmental studies and analyses) deemed
appropriate or desirable by BUYER, and to otherwise determine the feasibility
(economic, physical or otherwise) of the purchase and operation of the Property.
Upon SELLER's execution of this Agreement, SELLER shall deliver, or cause to be
delivered, to Purchaser (i) a copy of the most recent survey of the Real Estate
in SELLER's possession and, as soon as practicable thereafter, an update of said
survey conforming to the 1992 ALTA/ACSM survey standards for an Urban Survey
(the "Survey"), (ii) a commitment for an ALTA owner's title insurance policy
with respect to the Real Estate (the "Title Commitment") issued by Title
Services, Inc., as agent for First American Title Insurance Company, (the "Title
Company") together with copies of all documents of record listed as exceptions
to title on the Title Commitment, (iii) copies of any and all studies, tests and
analyses (including, but not limited to, environmental and soils tests and
analyses) conducted by, for or on behalf of SELLER or otherwise in SELLER's
possession on or with respect to the Property, and (iv) copies of all other
agreements or documents relating to the Property or ownership or operation
thereof, specifically excluding any income tax returns of SELLER or any partners
of SELLER, as identified on Exhibit B attached hereto (the deliveries required
by (i) through (iv) above are collectively the "SELLER's Deliveries"). In the
event any of SELLER's Deliveries are not received by BUYER prior to or upon
execution of this Agreement, BUYER shall have thirty (30) days from receiving
such item to complete BUYER's review of such item, but the Feasibility Period
for all other items commences upon execution of this Agreement. At any time
during the Feasibility Period, BUYER, in BUYER's sole and absolute discretion
for any reason whatsoever, may terminate this Agreement upon giving written
notice to SELLER. In the event BUYER terminates this Agreement pursuant to this
Section, all rights, duties and obligations of BUYER and SELLER hereunder shall
immediately terminate, and SELLER shall return the Earnest Money to BUYER.
Section 1.6 Sale Subject to SELLER's Limited Partners' Approval. The sale
of the Property is expressly conditioned upon SELLER's obtaining any approvals
from SELLER's limited partners as may be required by SELLER's agreement of
limited partnership. SELLER shall seek to obtain such approvals within fifty-one
(51) days of the signing of this Agreement. If SELLER does not obtain such
approvals within such period of time, this Agreement shall automatically
terminate, and SELLER shall return the Earnest Money to BUYER.
Section 1.7 Sale Subject to BUYER's Obtaining a Health Care License. The
sale of the Property is expressly conditioned upon BUYER's obtaining a Health
Care Institution License from the Arizona Department of Health Services ("ADHS")
either by an assignment of the existing license issued to SELLER or by obtaining
a new license. BUYER shall contact ADHS within forty-five (45) days of the date
of this Agreement to initiate the license or assignment processing. SELLER and
BUYER shall cooperate and
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communicate with each other in the filing of any required documentation with
ADHS. If ADHS does not approve on or before January 31, 1997 either (i) a new
license for BUYER or (ii) an assignment of the existing license to BUYER, then
BUYER or SELLER may terminate this Agreement, and neither party shall have any
further obligations hereunder, and SELLER shall return the Earnest Money to
BUYER.
ARTICLE II
ESCROW AND CLOSING
------------------
Section 2.1 Closing. "Closing", "Close of Escrow" and "Close" means the
simultaneous transfer of Property by SELLER to BUYER by the recordation of a
quit claim deed, subject to the exceptions to title listed in the Title
Commitment which are acceptable to BUYER, conveying title to the Real Estate to
BUYER ("Deed"), by the delivery of all other documents called for herein and by
the disbursement of all required funds to SELLER.
Section 2.2 Escrow. At the election of either Party, this transaction may
be closed through an escrow with the Title Company in accordance with the
general provisions of the usual form of Deed and money escrow agreement then in
use by Title Company with such special provisions inserted as may be required to
conform with this Agreement. Upon the creation of such escrow, anything herein
to the contrary notwithstanding, payment of the Purchase Price and delivery of
the Deed shall be made through the escrow and this Agreement and the Earnest
Money shall be deposited in escrow. The cost of the escrow shall be divided
equally between SELLER and BUYER.
Section 2.3 Party and Parties. A "Party" shall be either SELLER or BUYER.
SELLER and BUYER may sometimes collectively be referred to as the "Parties".
Section 2.4 Closing Date. The Closing shall be on or before January 31,
1997 provided the terms and conditions in this Agreement have been met. If BUYER
extends the IPO closing condition under Section 1.4, the Closing shall occur on
or before February 28, 1997 provided the terms and conditions in this Agreement
have been met.
Section 2.5 SELLER's Closing Deliveries. BUYER's obligation to purchase
the Property and to otherwise consummate the transactions contemplated pursuant
to this Agreement is subject to the delivery by SELLER or Title Insurer, as
applicable, either prior to or at the Closing (except that any document required
pursuant to this Section 2.5 to be dated as of the Closing Date shall be
delivered on the Closing Date), of all of the following:
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(a) Termination of Property Management Agreement. Confirmation that
the existing management and leasing agreement covering the Property will be
terminated effective as of the Closing Date. SELLER shall indemnify and hold
BUYER harmless with respect to any claims or expenses arising from such
management agreement or the termination thereof including, without limitation,
all vacation pay, tax payments, termination expenses, and benefits provided for
employees per agreement with employees.
(b) Deeds and Bill of Sale. The Deed and a Bill of Sale.
(c) Title Policy. A Title Policy in the amount of the Purchase
Price and designating BUYER as the proposed insured.
(d) Assignments.
(i) An assignment ("General Assignment") dated as of the Closing
Date executed by SELLER assigning to BUYER all of SELLER's right,
title and interest in and to (A) the Leases for all residential units
of the Property (the "Leases"), (B) all Service Contracts accepted by
BUYER, (C) all contract rights, guaranties, licenses, permits,
warranties, and all other related interests and rights ("Intangible
Personal Property"), (D) the security deposits of the tenants under
the Leases, and (E) SELLER's interest in and to all funds held in the
Property's tax and insurance escrows and the reserve for replacements
escrow unless Mortgagee otherwise approves that SELLER retains these
funds; and
(ii) An Assignment, Modification and Release of the Note and
Mortgage consented to by Mortgagee ("Mortgage Assignment") and any
other documents required by Mortgagee (collectively the "Mortgagee
Documents").
(e) FIRPTA Affidavit. An affidavit required by Section 1445 of the
Internal Revenue Code from SELLER in a form reasonably satisfactory to BUYER
showing that such SELLER is not a "foreign person" within the meaning of such
section.
(f) SELLER's Certificates. A certificate or affidavit dated as of
the Closing Date signed by a duly authorized officer of SELLER stating that:
i) Except as otherwise expressly stated therein, to the best of
SELLER's knowledge, neither SELLER nor its agents have received any
notice of any violation of any law, ordinance or regulation relating
to the use and occupancy of the Property; and
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ii) All of the representations and warranties of SELLER contained
in this Agreement are true and correct as of the Closing Date in all
material respects, except as otherwise expressly stated therein.
(g) Original Records. To the extent in SELLER's possession or
available with the manager of the Project, all executed originals of each
of the Leases and Service Contracts that will remain in effect following
the Closing and all of the other Original Records with respect to the
Property not previously delivered to BUYER.
(h) Manager's Lien Waiver. If required by Title Insurer a waiver of
lien executed by the management agent for the Property.
(i) Miscellaneous Closing Documents. ALTA statements, title clearance
documents, real estate transfer tax declarations, closing statements and
all other closing documents normally and customarily delivered by sellers
of property of the same nature and type as the Property.
(j) Keys. Keys to all locks located in the Property which SELLER
controls.
(k) Updated Rent Roll. An updated version dated as of the Closing Date
of the Rent Roll covering the Property or a certificate dated as of the
Closing Date updating the Rent Roll previously delivered, in either case
certified by a duly authorized partner or agent of SELLER to be true,
correct and complete in all material respects as of the Closing Date.
(l) Mortgagee's Statement. A statement from the Mortgagee as to
the outstanding principal balance of the Note and the amounts being held by
Mortgagee in any reserves in connection with the Mortgage.
(m) Other Documents and Instruments. Such other documents and
instruments as may be reasonably required by this Agreement, BUYER, its
counsel, the Title Insurer or Mortgagee and otherwise reasonably necessary
to consummate the transactions contemplated pursuant to this Agreement.
(n) Notice Letters to Tenants. Notices dated as of the Closing Date to
each of the tenants under the Leases informing such tenants of the sale of
the Property and directing the payment of all future rent to such address
or entity as BUYER shall designate.
All of the documents required to be delivered pursuant to this Section 2.5
shall be in the form either required pursuant to this Agreement or in form and
substance reasonably satisfactory to BUYER and shall be provided in no event
later than the Closing Date.
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Section 2.6. BUYER's Closing Deliveries. SELLER's obligations to sell
the Property and otherwise consummate the transaction contemplated pursuant to
this Agreement are subject to the delivery by BUYER at the Closing of each of
the following:
(a) Purchase Price. Payment of the balance of Purchase Price via
cashier's or certified check or wire transfer of immediately available
funds.
(b) Assignments. An original executed counterpart of each of the
General Assignment and the Mortgage Assignment.
(c) Miscellaneous Closing Documents. ALTA statements, executed
counterparts of real estate transfer tax declarations, closing statements,
and all other closing documents normally and customarily delivered by
buyers of property of the same nature and type as the Property.
(d) Other Documents and Instruments. Such other documents as may be
reasonably required by this Agreement, SELLER, its counsel, the Title
Insurer or Mortgagee and otherwise reasonably necessary to consummate the
transactions contemplated pursuant to this Agreement.
All of the documents required to be delivered pursuant to this Section 2.6
shall be in form and substance reasonably satisfactory to SELLER and shall be
provided in no event later than the Closing Date.
Section 2.7 Additional Covenants.
(a) Termination of Service Contracts and Equipment Leases. Within
sixty (60) days of receipt of the service contracts, BUYER shall give the
SELLER notice as to which of the Service Contracts and Equipment Leases
listed on Exhibit C and relating to or affecting the Property are
unacceptable to BUYER, and SELLER shall provide at Closing all required
notices of termination in order for such agreements to be terminated
pursuant to the terms thereof as of the Closing Date, provided such Service
Contracts or Equipment Leases by their terms may be terminated. If such
Service Contracts or Equipment Leases are terminable only by payment of a
termination fee and such Service Contracts or Equipment Leases are with a
party or parties related to SELLER, SELLER shall bear the expense of any
termination fee. If the Service Contracts or Equipment Leases are with
third parties that are unrelated to SELLER, BUYER shall pay any termination
costs.
(b) Interim Notices. SELLER shall notify BUYER promptly upon receipt
of any notices of the nature described in Sections 4.1(g), 4.1(h), 4.1(m)
and 4.1 (p) received by SELLER between the date of this Agreement and the
closing and shall notify
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BUYER if to SELLER's knowledge there is any change of circumstances or
facts or of the receipt of any notices or other information that, in any
case, has the effect of materially altering or modifying any of the matters
set forth in any representations and warranties made by SELLER or which
would otherwise have the effect of preventing or hindering SELLER from
performing any of its material obligations pursuant to this Agreement.
(c) Correspondence. Both SELLER and BUYER shall give the other party
copies of any correspondence from Mortgagee regarding the processing of the
Fannie Mae Application and copies of any submissions to Mortgagee in
response to any correspondence from Mortgagee.
Section 2.8 Prorations and Adjustments.
(a) Generally. SELLER shall be responsible for and pay all accrued
expenses with respect to the Property accruing up to the Closing Date and
shall be entitled to receive and retain all revenue from the Property
accruing up to the Closing Date. Unless items of expense are prorated or
assumed by BUYER, SELLER shall remain responsible for invoices for such
items that relate to periods prior to Closing.
(b) Adjustments. On the Closing Date, the following adjustments and
apportionments as of 11:59 p.m. on the day before Closing shall be made in
cash:
i) Rents for the month in which the Closing Date occurs (the
"Closing Month"). Items of rent that at Closing are unpaid or past due
("Delinquent Rent") shall not be prorated. BUYER shall bill all
tenants and certificate issuer(s) for Delinquent Rent and shall use
its good faith reasonable efforts to collect all Delinquent Rent. If,
as and when the BUYER collects payment from a tenant or certificate
issuer on account of Delinquent Rent, BUYER shall pay such funds to
SELLER within ten (10) days of BUYER's receipt thereof.
ii) If Closing occurs in 1996, general real estate taxes for 1996
will be prorated based on the actual 1996 taxes. If Closing occurs in
1997 and the 1997 taxes are not yet determined as of Closing, general
real estate taxes for 1997 shall be prorated based on 105% of the
amount of the 1996 real estate tax bill.
iii) Charges under service contracts affecting the Property on
the Closing Date and utility charges and deposits relating to the
Property. Utility charges shall be prorated based on the amount of the
most recent bills and shall be reprorated upon receipt of the actual
bills. This agreement to reprorate the utility charges shall survive
the Closing.
iv) Water and sewer charges on the basis of the period for which
assessed.
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v) Income from users of vending machines and tenant services, if
any.
vi) Wages of employees, if any.
vii) Insurance premiums on any policy of casualty, liability or
other insurance relating to the Property (other than title insurance)
which is assigned to BUYER.
viii) Accrued and unpaid interest under the Mortgage.
(c) Security Deposits. SELLER shall give BUYER a cash credit or assign
all of its right, title and interest in and to the security deposits and
interest thereon of the tenants of the Leases.
(d) Escrowed Amounts. At the Closing, SELLER shall receive a cash
credit in an amount equal to the sum of all amounts held in escrow, if any,
by the Mortgagee for casualty insurance premiums, mortgage insurance
premiums, real estate taxes, and Reserve for Replacements (if, and to the
extent, such escrows are not disbursed directly to SELLER) or any other
matter pursuant to the terms of the Mortgages. SELLER shall retain all
operating cash or cash reserves on hand at Closing unless the Mortgagee
requires otherwise in which case SELLER shall also receive a cash credit
for all operating cash or cash reserves on hand at Closing.
Section 2.9 Damages to Improvements.
(a) If, prior to Closing, any portion of the Property is damaged or
destroyed to a material (as hereinafter defined) extent by fire or other
casualty, SELLER shall give BUYER prompt written notice thereof, and BUYER
may, at BUYER's option, terminate this Agreement by delivery of written
notice of such termination to SELLER within fourteen (14) days after
receipt of such notice from SELLER of such damage or destruction. Upon
receipt of such notice of termination, each party shall be relieved of
further obligations hereunder. If BUYER elects not to so terminate this
Agreement, then, at Closing, SELLER shall assign to BUYER all right to
settle the portion of the loss as it relates to reconstruction of the
Premises and to receive all proceeds of the insurance covering the
improvements so damaged or destroyed and BUYER shall receive a credit
against the Purchase Price in an amount equal to the amount of the
deductible under SELLER's insurance coverage.
(b) If, prior to closing, any portion of the Property is damaged or
destroyed, but such damage or destruction is not material, SELLER shall
give BUYER prompt written notice thereof and shall use its best efforts to
restore, prior to Closing, the
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Property to its previous condition. If SELLER is unable to complete said
restoration prior to the Closing, BUYER shall be entitled to elect by
written notice to SELLER either (i) to receive a credit at Closing for the
cost of restoration to be incurred by BUYER or (ii) to accept an assignment
from SELLER to BUYER of all of SELLER's rights with respect to the
settlement of all insurance proceeds receivable in respect of such damage
or destruction and to receive a proration credit at closing equal to all
deductibles therefrom (but not in excess of the amount of the cost of
repair). Until such settlement of loss there shall be retained in escrow
out of the proceeds at Closing such sum as the parties shall agree upon as
sufficient to pay the estimated cost of fully repairing and rehabilitating
such damaged or destroyed Property and to pay all indirect and incidental
costs and expenses. Upon ascertainment of the actual costs of repairs and
rehabilitation and receipt of the proceeds under the insurance policies, an
appropriate refund shall be made to SELLER of any excess sum in said escrow
which was not required to complete the work. In the event BUYER elects the
option set forth in clause (i) of this subparagraph, SELLER shall be
entitled to retain all insurance proceeds with respect to such damage or
destruction.
(c) For purposes of this Section 2.9, the term "material" shall mean
damage or destruction of any portion of the Property for which the
aggregate estimated cost of repair, restoration and rehabilitation
(including all indirect and incidental costs and expenses) is in excess of
Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) as determined
by an architect or general contractor acceptable to both parties.
Section 2.10 Condemnation. The Uniform Vendors and Purchasers Risk Act
shall govern any proceeding relating to the proposed taking of any portion of
the Property by exercise of the powers of condemnation or eminent domain by
any governmental authority.
Section 2.11 Closing Costs. SELLER shall pay for the owner's Title
Policy, the Survey, and any state and county transfer taxes. BUYER shall pay for
any local transfer taxes or inspection fees, BUYER's preparation of the Fannie
Mae Application, any fees for the Fannie Mae Application, and any Fannie Mae
transfer fees at Escrow Closing or at the time the cost is incurred, whichever
is required by Fannie Mae or the party to whom the debt is due.
Section 2.12 Termination Costs. In the event this Agreement is terminated
by either party for failure of a condition precedent set forth in this
Agreement, the Parties shall share equally all costs and charges for title,
survey, the Fannie Mae Application incurred in connection with this transaction
prior to such termination. SELLER shall not pay or reimburse any other cost that
has been incurred by BUYER.
Section 2.13 Possession. Right to possession of the Property shall
transfer to BUYER on the Closing Date.
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ARTICLE III
REMEDIES
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Section 3.1 BUYER's Default. If, prior to the BUYER's completing the IPO,
the Closing does not occur due to the failure, inability or refusal of BUYER to
purchase the Property for any reason other than SELLER's breach or default or
the failure to satisfy a condition to Closing, then SELLER shall be entitled to
retain the Earnest Money as SELLER's sole and exclusive remedy hereunder. If the
Closing does not occur due to the failure, inability or refusal of BUYER to
purchase the Property after BUYER has completed the IPO (other than due to
SELLER's breach or default or failure to satisfy a condition to Closing) and
BUYER has included the Property in its IPO disclosures, then, in addition to
retaining the Earnest Money, SELLER shall be entitled to any other remedies
available at law or in equity.
Section 3.2 SELLER's Default. In the event SELLER has made a good faith
effort to satisfy the conditions set forth in this Agreement, but SELLER is
unable to satisfy such conditions, BUYER's sole and exclusive remedy hereunder
shall be the return of the Earnest Money to BUYER. If (i) Fannie Mae has given
its approval of the sale of the Property to BUYER, (ii) SELLER has obtained its
limited partners' approval of the sale of the Property to BUYER and (iii) BUYER
has timely closed the IPO or has waived the IPO closing condition and the
Closing does not occur due to the failure or refusal of SELLER to sell the
Property to BUYER, then BUYER shall have a right of specific performance against
SELLER.
ARTICLE IV
WARRANTIES
----------
Section 4.1 Representations and Warranties of SELLER. SELLER makes the
following representations and warranties to BUYER the truth and accuracy of
which shall be deemed a portion of the consideration for BUYER's purchase of the
Property:
(a) Subject to the approval of the limited partners of SELLER as set
forth in Section 1.7, SELLER has the authority to execute this
Agreement and to perform all of the obligations to be performed by
SELLER hereunder, and the persons executing this Agreement for SELLER
have full power and authority to sign for SELLER and to bind SELLER to
this Agreement;
(b) Any document required under this Agreement to be executed by SELLER
will be duly executed and, where such document is to be or may be
recorded, duly acknowledged;
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(c) Except as otherwise represented herein, SELLER is selling the
Property, including land and all its improvements, in an "as is"
condition. SELLER agrees to maintain the Property in its current
physical condition prior to Closing and SELLER grants to BUYER the
right to periodic inspections to ensure that the Property does not
deteriorate significantly prior to Closing;
(d) All of the information contained in the rent roll and tenant income
profiles attached hereto as Exhibit D ("Rent Roll") reflects that
information available to SELLER with respect to the Leases as of the
date hereof;
(e) To the best of SELLER's actual knowledge, and except for the approvals
required from Mortgagee and SELLER's limited partners, neither the
execution and delivery of this Agreement nor the consummation of the
transaction contemplated herein will constitute a material violation in
any respect of the terms of any other agreements relating to the
ownership and operation of the Property;
(f) SELLER has not received written notice of any default under any of the
Leases, Service Contracts or any other agreements to be assigned by
SELLER to BUYER at Closing, and there exists, to the best of SELLER's
knowledge, no offset or defense against the payment of any rent due
under any of the Leases required to be assigned by SELLER at Closing;
(g) SELLER has not received written notice of any legal actions or
judgments or any assessments or other proceedings or investigations now
pending or, to the best of SELLER's knowledge, threatened against or
relating to the Property or the title and legal right of SELLER to sell
and convey or cause to be conveyed the Real Estate, the Personal
Property or any of the other interests, rights or items comprising the
Property; SELLER has no knowledge, based solely upon inquiry of the
property manager, of any existing grounds for any such action,
judgment, assessment, proceeding, or investigation; and neither SELLER
nor, to the best of SELLER's knowledge, SELLER's agents have received
any written notice from any governmental authority (any of which is
sometimes hereinafter referred to as a "Governmental Authority")
relating to any violation of any fire, zoning, property, environmental,
health or other statute, code, regulation, ordinance or other
governmental rule with respect to the Property that has not previously
been corrected;
(h) Environmental Conditions. To the best of SELLER's actual knowledge,
the Property has not been used for the purpose of, nor has there been
any surface or subsurface contamination due to the manufacture,
generation, handling, storage, disposal or treatment of any hazardous,
toxic or dangerous substance,
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waste or material, (specifically including for purposes of this
Agreement any petroleum or crude oil or fraction thereof, friable
asbestos or asbestos-containing material, polychlorinated byphenyls or
urea formaldehyde foam insulation), defined as such in, regulated by or
for the purpose of, or in violation of, any federal, state or local
environmental laws, including, but not limited to, the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the super fund amendments and Reauthorization Act
(42 U.S.C. Section 9601, et. seq.), the Toxic Substances Control Act
(15 U.S.C. Section 2601, et seq.), and the Clean Air Act (42 U.S.C.
Section 4701, et seq.), as any of the same may be amended from time to
time, and any comparable, similar or successor provisions of federal,
state or local law and any regulations, orders, rules, procedures,
guidelines and the like promulgated in connection therewith
(collectively, the "Environmental Laws"); and to the best of SELLER's
knowledge, neither SELLER nor its agents have received any written
notice of any asserted present or past failure by SELLER or by any
tenant under any Lease or by any other prior tenant or owner to comply
with any Environmental Law or any rule or regulation adopted pursuant
thereto in connection with the Property. To the best of SELLER's
knowledge, the Property does not contain any above ground or
underground storage tanks.
(i) SELLER is not a foreign individual, foreign corporation, foreign
partnership, or foreign estate as defined in Internal Revenue Code and
Income Tax Regulations;
(j) Condemnation. SELLER has not received any written notice of any
assessments or condemnation actions being contemplated;
(k) Outstanding Contracts. As of the Closing, there will be no outstanding
contracts made by SELLER relating to the Property which have not been
fully paid or terminated, except for those contracts which extend
beyond the date of Closing or are specifically assumed by BUYER. SELLER
shall cause to be discharged all other encumbrances, liens, bonds, and
mechanics' or materialmen's liens arising from any labor and material
furnished prior to Closing;
(l) SELLER is not a debtor in any presently pending or threatened
bankruptcy proceedings;
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(m) Neither SELLER nor any of its agents have received any written notice
of (i) any increase in the assessed valuation of the Property other
than as shown on the most recent ascertainable real estate tax bills
(or the most recent notices of proposed assessments) for the Property,
or (ii) any special assessments for the Property that are now or will
become payable and that have not been included in the Title Commitment
or will not be included in the Title Policy to be delivered to BUYER at
the Closing. There are no amounts due and payable, or which will become
due and payable, to any attorney or other party engaged by such SELLER
with respect to the protest of the assessed valuation of the Property
or the real estate taxes attributable thereto for the most recent
reassessment period covering the Property;
(n) SELLER shall pay all real estate commissions, finder's fees and similar
commissions or fees which may be due and owing upon Closing or in
connection with the transactions contemplated herein, if any.
(o) Exhibit C attached hereto lists all of the Service Contracts and
Equipment Leases ("Service Contracts") relating to or affecting the
Property;
(p) Neither SELLER nor its agents have received written notice from any
insurance carrier regarding any defects or inadequacies with respect to
all or any portion of the Property which, if not corrected, would
result in a termination of insurance coverage or an increase in the
cost thereof;
(q) All copies of the Leases and Service Contracts and Equipment Leases
relating to or affecting the Property delivered or to be delivered to
BUYER are or will be complete in all material respects as of the date
when delivered, and all of the other documents and materials delivered
to BUYER and relating to or affecting the Property are or will be
complete in all material respects as of the date when delivered;
(r) The Leases disclosed on the Rent Roll and the Leases to be disclosed on
any updated rent roll required to be delivered pursuant to this
Agreement will be the only leases, options or commitments for space in
the Property; SELLER has not entered into or consented to any option,
right of first refusal, right of first offer or any other similar
agreement, or caused any of the same to be entered into, for the sale
of all or any portion of the Property;
(s) Neither SELLER nor its agents have received notice of any default under
the terms and provisions of the Note or Mortgage or any of the other
documents, evidencing or securing SELLER's obligations under the Note
and Mortgage; and no proceeding has been constituted to foreclose any
of the Mortgage; and
(u) SELLER has received no written notice of any non-insured existing
actions, suits, proceedings, judgments, orders, decrees, defaults,
delinquencies or
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deficiencies pending or outstanding, or threatened, against the
Property.
Section 4.2 Limitation of Warranties.
------------------------
(a) BUYER's Inspection. BUYER acknowledges that it shall inspect or has
thoroughly inspected the Property and all factors relevant to its use,
including without limitation, the physical condition of the Property,
the interior and exterior, the structure, condition of soils, all
utilities and all physical and functional aspects of the Property, all
operating records, leases, documents, and other material affecting the
income and operation of the Property, and all matters relating to
title, together with all municipal and other legal requirements such as
taxes, assessments, zoning, use permits, and building codes;
(b) Purchase "As Is". BUYER acknowledges that it is acquiring the Property
in its "as is" condition, and solely in reliance on BUYER's own
inspection and examination. BUYER further acknowledges that, except as
otherwise stated in Section 4.1, neither SELLER nor any agents,
representatives or employees of SELLER have made any representations or
warranties, direct or implied, verbal or written, with respect to the
condition of the Property, or its fitness for any particular purpose;
and
(c) Environmental Conditions. BUYER further acknowledges that, except as
disclosed herein, neither SELLER nor any agent or representative of
SELLER has made any inspection, investigation, inquiry or other
disclosure regarding environmental conditions or hazardous materials
on, under or about the Property. BUYER shall rely solely on BUYER's
inspection, investigation, and inquiry for knowledge of these matters.
BUYER, its successors and assigns, hereby waive, release and agree not
to make any claim or bring any cost recovery action or claim for
contribution or other action or claim against SELLER or its affiliates,
directors, officers, employees, agents, attorneys, or assigns
(collectively, "SELLER and its Affiliates") based on (a) any
Environmental Laws, (b) any discharge, disposal, release, or escape of
any chemical, or any material whatsoever, on, at, to, or from the
Property; or (c) any environmental conditions whatsoever on, under, or
in the vicinity of the Property. The foregoing waiver and release shall
not apply to any claim or cost recovery action Purchaser may make or
bring which arises out of any action of SELLER during SELLER's
ownership of the Property.
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(d) General Disclaimer. BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS
OTHERWISE SET FORTH IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT
MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES,
PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER
WHATSOEVER, WHETHER EXPRESSED OR IMPLIED, ORAL OR WRITTEN, PAST,
PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE
NATURE, QUALITY OR CONDITION OF THE PROPERTY, INCLUDING, WITHOUT
LIMITATION, THE WATER, SOIL AND GEOLOGY, (B) THE INCOME TO BE DERIVED
FROM THE PROPERTY, (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL
ACTIVITIES AND USES WHICH PURCHASER MAY CONDUCT THEREON, (D) THE
COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES,
ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR
BODY, (E) THE HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE OF THE PROPERTY, OR (F) ANY OTHER MATTER WITH RESPECT TO THE
PROPERTY, AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS REGARDING
TERMITES OR WASTES, OR HAZARDOUS SUBSTANCE, AS DEFINED BY ANY
ENVIRONMENTAL LAW.
Section 4.3 Discovery of New Information. Although SELLER has no duty or
obligation to conduct any inspection of the Property, if, before the Close of
Escrow, SELLER discovers any information or facts that would materially change
the foregoing warranties, covenants and representations of SELLER to BUYER's
detriment, SELLER shall inform BUYER of this new information. In such event,
SELLER shall have twenty (20) business days to cure such material change. In
the event of such cure by SELLER, this Agreement shall remain in full force
and effect. If SELLER is unwilling or incapable of curing such material change
in said time frame, BUYER shall have the right to terminate this Agreement
unless BUYER waives any of its rights that may arise due to the new
information discovered by the SELLER and disclosed to the BUYER. BUYER shall
have ten (10) business days from the date of a notice from SELLER that SELLER
will not cure such material change or from the date of discovery or disclosure
of any information creating a material change in SELLER's warranties,
covenants and representations to terminate the Agreement, in writing, or said
material change shall be deemed waived by BUYER.
Section 4.4 SELLER to Cure.
--------------
a. If any of SELLER's warranties, covenants or representations are
breached, SELLER, upon notice from BUYER, shall immediately take steps
reasonably required to cure the breach.
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b. If such breach is not cured by SELLER within a reasonable time,
BUYER shall have the right to terminate this Agreement.
Section 4.5 BUYER's Representations and Warranties.
--------------------------------------
(a) BUYER covenants, represents and warrants that BUYER has the ability and
has been duly authorized to enter into this Agreement and that this
Agreement constitutes a legal, valid and binding obligation of BUYER,
and that BUYER is not in default under any action or proceeding or
agreement, nor is there any litigation pending or, to BUYER's
knowledge, threatened which would prevent BUYER from performing its
obligations hereunder.
(b) BUYER represents and warrants that BUYER has not employed the services
of a real estate broker or salesperson in connection with this
transaction.
Section 4.6 Accuracy of Representations and Warranties. BUYER and SELLER
covenant, agree, represent and warrant, in connection with their respective
representations and warranties contained in Sections 4.1 and 4.5, and
elsewhere in this Agreement, that each such representation and warranty:
(a) Is material and being relied upon by the other party;
(b) Is true in all respects as of the date hereof; and
(c) Shall be true in all respects on the Closing Date except as
otherwise disclosed in writing to the other party.
Section 4.7 Bankruptcy. BUYER and SELLER agree that in the event that
either BUYER or SELLER files for voluntary or is subjected to involuntary
Bankruptcy, that such filing shall be deemed an event of default by BUYER or
SELLER, as applicable, and will entitle the other party to all of the remedies
provided under this Agreement.
ARTICLE V
RISK OF LOSS AND MANAGEMENT
---------------------------
Section 5.1 Risk of Loss. Any risk of loss to the Property or any
personal property located thereon shall be borne by SELLER until title has
been conveyed to BUYER.
Section 5.2 Maintenance of Property. Between the date of this Agreement
and the Closing Date, SELLER shall manage, care for, operate and maintain the
Property in at least the same manner in which it has been managed, maintained,
cared for and operated in the past and consistent with all applicable
Mortgagee maintenance and management practices; provided, however, that
without BUYER's express written consent,
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which consent shall not be unreasonably withheld or delayed, SELLER shall not
(except to the extent otherwise permitted or required under this Agreement):
(a) Except for emergency repairs or improvements mandated by
Mortgagee, make, or enter into any contract to make, any repairs, alterations
or improvements to any portion of the Property, which would exceed $25,000.00
in any instance or $100,000.00 in the aggregate, unless the same is or will be
completed and fully paid for on or before the Closing;
(b) Cancel, terminate or surrender any of the Leases or consent to or
accept any cancellation, termination or surrender of any of the Leases, except
in accordance with the terms of such Leases or as a result of any uncured
default by the tenant under any Lease;
(c) Enter into, amend or extend any easement, agreement or other
obligation affecting the Property (including without limitation any Service
Contracts and Equipment Leases), that is or would be binding on any successor,
unless the same is entered into in the ordinary course of operating and
maintaining the Property and is cancelable by BUYER without the payment of any
fee, penalty or expense on not more than thirty (30) days' notice. SELLER will
provide BUYER with copies of any new Service Contracts and Equipment Leases.
ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1 Further Assurances. Each Party shall execute such further
documents, papers and instruments and take such further action as is
necessary, appropriate or helpful as the other Party hereto shall reasonably
request in order to carry out the purposes, intent and spirit of this
Agreement.
Section 6.2 Governing Law and Venue. This Agreement shall be governed in
all respects by the substantive and procedural law of the State of Illinois.
Section 6.3 Complete Agreement. This Agreement and all Exhibits attached
hereto constitute the entire agreement and all understandings of the parties.
All prior writings, representations, warranties, opinions, undertakings,
understandings and negotiations are merged herein and are extinguished.
Section 6.4 Modification. This Agreement may be modified or amended only
by a written document signed by SELLER and BUYER.
Section 6.5 Assignment. BUYER shall have the right to assign this
Agreement and any of BUYER's right, title or interest hereunder to an entity
approved by
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Mortgagee and SELLER. SELLER hereby consents to BUYER's assignment of this
Agreement to the entity BUYER creates in connection with BUYER's IPO.
Section 6.6 Binding Effect. This Agreement shall inure to the benefit of
and be binding on the Parties hereto and their respective assignees and other
successors in interest.
Section 6.7 Attorneys' Fees Notwithstanding any other provision of any
agreement between BUYER and SELLER, in any suit, action, proceeding or in
connection with any of the terms, covenants, provisions, warranties,
representations or agreements in this Agreement, the prevailing party in such
suit, action, proceeding or arbitration shall be awarded, in addition to
equitable relief, or damages, or both or other relief, all costs as provided
by law, all out of pocket costs of each and every kind and type including, but
not limited to, expert witness fees and investigation costs and expenses, as
well as all reasonable attorneys' fees incurred before any trial, proceeding
or arbitration, at all trials, proceedings or arbitrations and on all appeals.
Included within the scope of this Section, but not by way of limitation, it is
agreed that this Section shall apply to any and all suits, actions,
proceedings and arbitrations in which an issue is whether any term, covenant,
provision, representation, warranty or agreement of this Agreement, is valid
or enforceable. This Section shall therefore be severable from all other
terms, covenants, provisions and agreements of this Agreement.
Section 6.8 No Partnership Created. The relationship of SELLER and BUYER
hereunder is that of SELLER and BUYER and none of the provisions of this
Agreement are intended to or do create a partnership or joint venture or
relationship other than SELLER and BUYER.
Section 6.9 Heading and Captions. All headings, captions, table of
contents, indices, and references to Article or section numbers in brackets,
if any, are for convenience only and are not part of this Agreement and shall
not be utilized to interpret this Agreement.
Section 6.10 Gender. Words of any gender used in this Agreement shall be
held and construed to include all other genders, and words of singular number
shall be held to include the plural and vice versa, unless the context
requires otherwise.
Section 6.11 Legal Advice. This Agreement is a legally binding contract.
The Parties acknowledge that neither party, or representative of either party,
has given the other party any legal, tax, investment, securities or other
advice regarding this Agreement or any of the transactions associated with it.
The Parties hereby acknowledge that they have relied solely on the advice of
their own legal counsel.
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Section 6.12 Severability. Each provision of this Agreement shall be
viewed as separate and divisible, and in the event any provision shall be held
to be invalid, all remaining provisions shall continue to remain in full force
and effect.
Section 6.13 Waiver. Notwithstanding any agreement between BUYER and
SELLER, the waiver by either party of a breach of any provision of this
Agreement shall not be deemed a continuing waiver or a waiver of any subsequent
breach whether of the same or another provision thereof.
Section 6.14 Joint Preparation. The Parties acknowledge that each Party
hereto has cooperated in the drafting and preparation of this Agreement. In any
construction to be made of this Agreement, no presumption shall arise against
either Party by virtue of its participation in the drafting hereof. Moreover,
the normal rule of construction that any ambiguities are to be resolved against
the drafting party shall not be employed in the interpretation of this Agreement
or any amendments or Exhibits hereto.
Section 6.15 Notices. Unless specifically provided otherwise herein, all
notices given must be in writing and shall be deemed effectively given upon (i)
personal delivery or receipt, (ii) if mailed, upon the first to occur of receipt
or the expiration of seventy-two (72) hours after deposit in certified or
registered United States mail, postage prepaid, return receipt requested, sent
to a Party at its address as set forth herein, (iii) if sent by overnight
courier, on the first business day after being placed with such courier for
delivery to a Party at its address as set forth herein, or (iv) if by facsimile,
on the date of transmission to the Party at the facsimile number set forth
herein, provided such date is a business day and such transmission occurs prior
to 4:00 p.m. on such day and confirmation of the completion of such facsimile
transmission and a copy of the notice are sent by regular mail on the date of
the transmission. An address or facsimile number herein may be changed by
written notice to the other Party.
Section 6.17 Address for Notice.
The address of SELLER for notice is:
East Mesa Senior
Living Limited Partnership
222 North LaSalle Street
Suite 1414
Chicago, Illinois 60601
Attention: Daniel N. Epstein
Facsimile: 312-726-0091
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with a copy to:
James T. Buchholz, Esq.
Attorney at Law
222 North LaSalle Street, Suite 1414
Chicago, Illinois 60601
Facsimile: 312-726-0091
The address of BUYER for notice is:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: Mark J. Schulte and Robert J. Rudnik
Facsimile: 312-782-5867
with a copy to:
William J. Ralph
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Facsimile: 312-558-5700
Section 6.18 Counterpart Copies. This Agreement may be signed in
counterpart or duplicate copies, and any signed counterpart or duplicate copy
shall be equivalent to a signed original for all purposes.
Section 6.19 1031 Exchange. SELLER reserves the right to effect a 1031
exchange, and BUYER agrees to cooperate with SELLER in affecting such exchange
provided that BUYER shall incur no expense and that close of escrow or any other
time periods for performance specified in the Purchase Agreement shall not be
delayed by reason of such exchange.
Section 6.20 SELLER's Liability. No partner, agent or employee of SELLER
shall have any personal liability under this Agreement.
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IN WITNESS WHEREOF, the parties have signed this Agreement effective as of
the date first set forth above.
SELLER: BUYER:
- ------ -----
EAST MESA SENIOR LIVING THE PRIME GROUP, INC.
LIMITED PARTNERSHIP, AN ARIZONA
LIMITED PARTNERSHIP
By: Springs of East Mesa Retirement Village,
Inc., an Arizona corporation, its general
partner
By: /s/ Henry Hyatt By: /s/ Mark J. Schulte
---------------------------- ----------------------------
Name: Henry Hyatt Name: Mark J. Schulte
-------------------------- --------------------------
Title: President Title: Exec. Vice President
------------------------- -------------------------
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The following exhibits to the Real Estate Purchase Agreement dated September 16,
1996 by and between East Mesa Senior Living Limited Partnership and The Prime
Group, Inc. have been omitted:
Exhibit A - Legal Description;
Exhibit B - Due Diligence Checklist;
Exhibit C - Service Contracts and Equipment Leases; and
Exhibit D - Rent Roll.
The Company hereby agrees to furnish supplementally a copy of any omitted
exhibit to the Securities and Exchange Commission upon request.
<PAGE>
Exhibit 10.24
REAL ESTATE PURCHASE AGREEMENT
------------------------------
ARTICLE I
---------
PURCHASE AND SALE OF APARTMENT COMPLEX
--------------------------------------
Section 1.1 Agreement. This agreement ("Agreement") is made
effective as of September 16th, 1996, (the "Effective Date") by and between
Hawthorn Lakes Associates, an Illinois limited partnership (hereinafter
referred to as "SELLER"), and The Prime Group, Inc., an Illinois corporation,
or its assignees or successors in interest (hereinafter referred to as
"BUYER").
Section 1.2 Sale and Purchase. SELLER hereby agrees to sell to BUYER,
and BUYER hereby agrees to purchase from SELLER, the project commonly known as
Hawthorn Lakes of Lake County, FHA Project No. 071-35513, (the "Project")
located in Vernon Hills, Illinois on the real estate legally described on
Exhibit "A" attached hereto (the "Real Estate"), for a purchase price
("Purchase Price") of Twenty Nine Million Eight Hundred Thousand and no/100
Dollars ($29,800,000.00), all subject to the terms and conditions set forth in
this Agreement. The Purchase Price shall include (i) any and all improvements
on the Real Estate ("Improvements"), (ii) any and all easements, rights,
privileges and appurtenances belonging or in any wise appertaining to the Real
Estate, (iii) all fixtures attached to or related to any Improvements, (iv)
all of SELLER's interest in and to any and all personal property, tangible or
intangible (including, but not limited to trade names and contract rights;
provided, however, that SELLER is not selling the trade name "ActiveLife" to
Purchaser as part of this transaction), on or related to the Real Estate or
any Improvements, or used in connection with the ownership and operation of
the Real Estate or any Improvements, as of the date of this Agreement, and (v)
all of SELLER's rights, title and interests in, to and under any and all
leases, agreements or contracts pursuant to which any portion of the
Improvements is leased or occupied (the items in (i) through (v) are
collectively referred to herein as the "Property"). The Purchase Price does
not include any reserve for replacements account, tax and insurance accounts,
mortgage insurance premium account or any other account or reserve required in
connection with the Mortgages (as hereinafter defined), or any operating cash
or cash reserves held by SELLER.
Section 1.2(a) The Purchase Price. The Purchase Price shall be paid as
follows:
(i) Assumption of the existing Mortgage Notes dated December 1, 1985
in the principal amount of $13,261,200.00, the Supplemental Mortgage Note
dated December 1, 1987 in the principal amount of $260,800.00, and the Second
Supplemental Mortgage Note dated January 1, 1991 in the principal amount of
$300,000.00 (the "Notes") which Notes are secured by mortgages of even date
therewith (the "Mortgages"). As of August 15, 1996 the Notes had an aggregate
balance outstanding of approximately Thirteen Million
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Three Hundred Fifty Three Thousand Sixty and no/100 ($13,353,060.00).
(ii) Payment of the balance of Purchase Price, plus or minus
prorations, at closing by certified or cashier's check or wire transfer of
immediately available funds.
Section 1.2(b) Earnest Money. PURCHASER shall pay to SELLER within five
(5) days of the signing of this Agreement $25,000 to be held as earnest money
("Earnest Money") and to be applied to the Purchase Price upon closing of this
transaction or as otherwise required by this Agreement.
Section 1.3 Sale Subject to HUD Approval. The sale of the Property is
expressly conditioned upon Preliminary Approval by the U.S. Department of
Housing and Urban Development ("HUD") of the transaction as set forth in the
Application for Transfer of Physical Assets, and supporting documents
submitted to HUD (the "TPA Application"). No transfer of any interest in the
Property under this Sale Agreement shall be effective prior to such HUD
approval. BUYER will not take possession of the Property nor assume benefit
of project ownership prior to such approval by HUD. BUYER, its executors,
administrators or assigns shall have no right upon any breach by SELLER
hereunder to seek damages, directly or indirectly, from the real property
which is the subject of this transaction, or from any assets, rents, issues or
profits of said real property, and BUYER shall have no right to effect a lien
upon the real property or the assets, rents, issues or profits thereof. BUYER
shall submit to HUD, in a form acceptable to SELLER's counsel, within forty-
five (45) days of the date of this Agreement a TPA Application. Failure to
do so shall give SELLER the right to immediately terminate the Agreement upon
written notice to BUYER, and SELLER shall retain the Earnest Money. SELLER
and BUYER agree to cooperate and communicate with each other in connection
with the filing of any revisions to the TPA Application. If HUD does not
approve the TPA Application, this Agreement may be rendered null and void at
the option of the BUYER or SELLER and all obligations of the parties pursuant
to this Agreement shall terminate, and SELLER shall return the Earnest Money
to BUYER. If HUD has not granted written conditional approval of the TPA
Application on or before January 31, 1997, BUYER or SELLER may terminate this
Agreement and neither party shall have any further obligations hereunder, and
the SELLER shall return the Earnest Money to BUYER.
Section 1.4 Sale Subject to Mortgagee Approval. The sale of the
Property is expressly conditioned upon the approval of Greystone Servicing
Corporation Inc. and, if necessary, any other party involved in the issuance
and sale of the bonds issued by the Village of Vernon Hills, Illinois as the
$15,210,000.00 Multifamily Housing Revenue Refunding Bonds (Hawthorn Lakes
Project) Series 1991 (collectively the "Mortgagee"). Simultaneously with the
submission of the TPA Application to HUD, BUYER shall submit to Mortgagee the
TPA Application and any other documentation and fees required by Mortgagee to
process and approve the sale of the Property to BUYER. SELLER and BUYER shall
cooperate and communicate with each other in the filing of any required
documentation with the Mortgagee. If the Mortgagee does not approve of (i)
the sale of
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the Property to BUYER, (ii) the assumption of the Mortgages by BUYER and (iii)
the release of SELLER from any obligations under the Mortgages, this Agreement
may be rendered null and void at the option of either BUYER or SELLER, and all
obligations of the parties pursuant to this Agreement shall terminate, and
SELLER shall return the Earnest Money to BUYER. If Mortgagee has not approved
the sale, the assumption and the release before January 31, 1997, BUYER or
SELLER may terminate this Agreement, and neither party shall have any further
obligations hereunder, and SELLER shall return the Earnest Money to BUYER.
Section 1.5 Sale Subject to BUYER's Initial Public Offering. The sale
of the Property is expressly conditioned upon BUYER's closing of an Initial
Public Offering ("IPO") before December 31, 1996. BUYER will use a good faith
effort to market and sell the IPO, and BUYER will furnish SELLER with copies
of all filings made with the Securities Exchange Commission relative to the
IPO within two (2) business days of the filing date. If BUYER is unable to
close the IPO on terms satisfactory to BUYER before December 31, 1996 and
BUYER is diligently pursuing the closing of the IPO, SELLER agrees that BUYER
may extend this IPO closing condition until January 31, 1997. If BUYER does
not close the IPO or otherwise extend the IPO closing condition to January 31,
1997 by December 31, 1996, this Agreement may be rendered null and void at the
option of either BUYER or SELLER, and all obligations of the parties pursuant
to this Agreement shall terminate, and SELLER shall return the Earnest Money
to BUYER. If BUYER has extended the IPO closing condition and is still unable
to close the IPO on terms satisfactory to BUYER before January 31, 1997, this
Agreement may be rendered null and void at the option of either BUYER or
SELLER, and all obligations of the parties pursuant to this Agreement shall
terminate, and SELLER shall return the Earnest Money to BUYER.
Section 1.6 Sale Subject to BUYER's Feasibility Review. Upon execution
of this Agreement, the BUYER shall have a period of thirty (30) days (the
"Feasibility Period") to review SELLER's Deliveries (as hereinafter defined)
and to conduct any and all inspections, tests or soil studies on the Property
(including, but not limited to, environmental studies and analyses) deemed
appropriate or desirable by BUYER, and to otherwise determine the feasibility
(economic, physical or otherwise) of the purchase and operation of the
Property. Upon SELLER's execution of this Agreement, SELLER shall deliver, or
cause to be delivered, to Purchaser (i) a copy of the most recent survey of
the Real Estate in SELLER's possession and, as soon as practicable thereafter,
an update of said survey conforming to the 1992 ALTA/ACSM survey standards for
an Urban Survey (the "Survey"), (ii) a commitment for an ALTA owner's title
insurance policy with respect to the Real Estate (the "Title Commitment")
issued by Title Services, Inc., as agent for First American Title Insurance
Company, (the "Title Company") together with copies of all documents of
record listed as exceptions to title on the Title Commitment, (iii) copies of
any and all studies, tests and analyses (including, but not limited to,
environmental and soils tests and analyses) conducted by, for or on behalf of
SELLER or otherwise in SELLER's possession on or with respect to the Property,
and (iv) copies of all other agreements or documents relating to the Property
or ownership or operation thereof, specifically excluding any income tax
returns of SELLER or any partners of SELLER, as identified on Exhibit B
attached hereto (the
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deliveries required by (i) through (iv) above are collectively the "SELLER's
Deliveries"). In the event any of SELLER's Deliveries are not received by
BUYER prior to or upon execution of this Agreement, BUYER shall have thirty
(30) days from receiving such item to complete BUYER's review of such item,
but the Feasibility Period for all other items commences upon execution of
this Agreement. At any time during the Feasibility Period, BUYER, in BUYER's
sole and absolute discretion for any reason whatsoever, may terminate this
Agreement upon giving written notice to SELLER. In the event BUYER terminates
this Agreement pursuant to this Section, all rights, duties and obligations of
BUYER and SELLER hereunder shall immediately terminate, and SELLER shall
return the Earnest Money to BUYER.
Section 1.7 Sale Subject to SELLER's Limited Partners' Approval. The
sale of the Property is expressly conditioned upon SELLER's obtaining any
approvals from SELLER's limited partners as may be required by SELLER's
agreement of limited partnership. SELLER shall seek to obtain such approvals
within fifty-one (51) days of the signing of this Agreement. If SELLER does
not obtain such approvals within such period of time, this Agreement shall
automatically terminate, and SELLER shall return the Earnest Money to BUYER.
ARTICLE II
ESCROW AND CLOSING
------------------
Section 2.1 Closing. "Closing", "Close of Escrow" and "Close" means
the simultaneous transfer of Property by SELLER to BUYER by the recordation of
a trustee's deed, subject to the exceptions to title listed in the Title
Commitment which are acceptable to BUYER, conveying title to the Real Estate
to BUYER ("Deed"), by the delivery of all other documents called for herein
and by the disbursement of all required funds to SELLER.
Section 2.2 Escrow. At the election of either Party, this transaction
may be closed through an escrow with the Title Company in accordance with the
general provisions of the usual form of Deed and money escrow agreement then
in use by Title Company with such special provisions inserted as may be
required to conform with this Agreement. Upon the creation of such escrow,
anything herein to the contrary notwithstanding, payment of the Purchase Price
and delivery of the Deed shall be made through the escrow and this Agreement
and the Earnest Money shall be deposited in escrow. The cost of the escrow
shall be divided equally between SELLER and BUYER.
Section 2.3 Party and Parties. A "Party" shall be either SELLER or
BUYER. SELLER and BUYER may sometimes collectively be referred to as the
"Parties".
4
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Section 2.4 Closing Date. The Closing shall be on or before
January 31, 1997 provided the terms and conditions in this Agreement have been
met. If BUYER extends the IPO closing condition under Section 1.5, the
Closing shall occur on or before February 28, 1997 provided the terms and
conditions in this Agreement have been met.
Section 2.5 SELLER's Closing Deliveries. BUYER's obligation to
purchase the Property and to otherwise consummate the transactions
contemplated pursuant to this Agreement is subject to the delivery by SELLER
or Title Insurer, as applicable, either prior to or at the Closing (except
that any document required pursuant to this Section 2.5 to be dated as of the
Closing Date shall be delivered on the Closing Date), of all of the following:
(a) Termination of Property Management Agreement. Confirmation that
the existing management and leasing agreement covering the Property will be
terminated effective as of the Closing Date. SELLER shall indemnify and hold
BUYER harmless with respect to any claims or expenses arising from such
management agreement or the termination thereof including, without limitation,
all vacation pay, tax payments, termination expenses, and benefits provided
for employees per agreement with employees.
(b) Deeds and Bill of Sale. The Deed and a Bill of Sale.
(c) Title Policy. A Title Policy in the amount of the Purchase
Price and designating BUYER as the proposed insured.
(d) Assignments.
(i) An assignment ("General Assignment") dated as of the
Closing Date executed by SELLER assigning to BUYER all of SELLER's
right, title and interest in and to (A) the Leases for all residential
units of the Property (the "Leases"), (B) all Service Contracts accepted
by BUYER, (C) all contract rights, guaranties, licenses, permits,
warranties, and all other related interests and rights ("Intangible
Personal Property"), (D) the security deposits of the tenants under the
Leases, and (E) SELLER's interest in and to all funds held in the
Property's tax and insurance escrows and the reserve for replacements
escrow unless HUD otherwise approves that SELLER retains these funds;
and
(ii) An Assignment, Modification and Release of the Notes and
Mortgages consented to by HUD and the Mortgagee ("Mortgage Assignment")
and any other documents required by HUD or Mortgagee (collectively the
"Mortgagee Documents").
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(e) FIRPTA Affidavit. An affidavit required by Section 1445 of the
Internal Revenue Code from SELLER in a form reasonably satisfactory to BUYER
showing that such SELLER is not a "foreign person" within the meaning of such
section.
(f) SELLER's Certificates. A certificate or affidavit dated as of
the Closing Date signed by a duly authorized officer of SELLER stating that:
i) Except as otherwise expressly stated therein, to the best of
SELLER's knowledge, neither SELLER nor its agents have received any
notice of any violation of any law, ordinance or regulation relating to
the use and occupancy of the Property; and
ii) All of the representations and warranties of SELLER
contained in this Agreement are true and correct as of the Closing Date
in all material respects, except as otherwise expressly stated therein.
(g) Original Records. To the extent in SELLER's possession or
available with the manager of the Project, all executed originals of each of
the Leases and Service Contracts that will remain in effect following the
Closing and all of the other Original Records with respect to the Property not
previously delivered to BUYER.
(h) Manager's Lien Waiver. If required by Title Insurer a waiver of
lien executed by the management agent for the Property.
(i) Miscellaneous Closing Documents. ALTA statements, title
clearance documents, real estate transfer tax declarations, closing statements
and all other closing documents normally and customarily delivered by sellers
of property of the same nature and type as the Property.
(j) Keys. Keys to all locks located in the Property which SELLER
controls.
(k) Updated Rent Roll. An updated version dated as of the Closing
Date of the Rent Roll covering the Property or a certificate dated as of the
Closing Date updating the Rent Roll previously delivered, in either case
certified by a duly authorized partner or agent of SELLER to be true, correct
and complete in all material respects as of the Closing Date.
(l) Mortgagee's Statement. A statement from the Mortgagee as to
the outstanding principal balance of the Notes and the amounts being held by
Mortgagee in any reserves in connection with the Mortgages.
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(m) Other Documents and Instruments. Such other documents and
instruments as may be reasonably required by this Agreement, BUYER, its
counsel, HUD, the Title Insurer or Mortgagee and otherwise reasonably
necessary to consummate the transactions contemplated pursuant to this
Agreement.
(n) Notice Letters to Tenants. Notices dated as of the Closing Date
to each of the tenants under the Leases informing such tenants of the sale of
the Property and directing the payment of all future rent to such address or
entity as BUYER shall designate.
All of the documents required to be delivered pursuant to this Section 2.5
shall be in the form either required pursuant to this Agreement or in form and
substance reasonably satisfactory to BUYER and shall be provided in no event
later than the Closing Date. Notwithstanding the foregoing SELLER acknowledges
that the proposed Deed, the proposed Bill of Sale and Assignment will be
included in the Application for Transfer of Physical Assets.
Section 2.6 BUYER's Closing Deliveries. SELLER's obligations to sell
the Property and otherwise consummate the transaction contemplated pursuant to
this Agreement are subject to the delivery by BUYER at the Closing of each of
the following:
(a) Purchase Price. Payment of the balance of Purchase Price via
Via cashier's or certified check or wire transfer of immediately available
funds.
(b) Assignments. An original executed counterpart of each of the
General Assignment and the Mortgage Assignment.
(c) Miscellaneous Closing Documents. ALTA statements, executed
counterparts of real estate transfer tax declarations, closing statements, and
all other closing documents normally and customarily delivered by buyers of
property of the same nature and type as the Property.
(d) Other Documents and Instruments. Such other documents as may be
reasonably required by this Agreement, SELLER, its counsel, HUD, the Title
Insurer or Mortgagee and otherwise reasonably necessary to consummate the
transactions contemplated pursuant to this Agreement.
All of the documents required to be delivered pursuant to this Section 2.6
shall be in form and substance reasonably satisfactory to SELLER and shall be
provided in no event later than the Closing Date.
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Section 2.7 Additional Covenants.
(a) Termination of Service Contracts and Equipment Leases. Within
sixty (60) days of receipt of the service contracts, BUYER shall give the
SELLER notice as to which of the Service Contracts and Equipment Leases listed
on Exhibit C and relating to or affecting the Property are unacceptable to
BUYER, and SELLER shall provide at Closing all required notices of termination
in order for such agreements to be terminated pursuant to the terms thereof as
of the Closing Date, provided such Service Contracts or Equipment Leases by
their terms may be terminated. If such Service Contracts or Equipment Leases
are terminable only by payment of a termination fee and such Service Contracts
or Equipment Leases are with a party or parties related to SELLER, SELLER
shall bear the expense of any termination fee. If the Service Contracts or
Equipment Leases are with third parties that are unrelated to SELLER, BUYER
shall pay any termination costs.
(b) Interim Notices. SELLER shall notify BUYER promptly upon
receipt of any notices of the nature described in Sections 4.1(g), 4.1(h),
4.1(m) and 4.1 (p) received by SELLER between the date of this Agreement and
the closing and shall notify BUYER if to SELLER's knowledge there is any
change of circumstances or facts or of the receipt of any notices or other
information that, in any case, has the effect of materially altering or
modifying any of the matters set forth in any representations and warranties
made by SELLER or which would otherwise have the effect of preventing or
hindering SELLER from performing any of its material obligations pursuant to
this Agreement.
(c) Correspondence. Both SELLER and BUYER shall give the other
party copies of any correspondence from HUD regarding the TPA Application
processing and copies of any submissions to HUD in response to any
correspondence from HUD.
Section 2.8 Prorations and Adjustments.
(a) Generally. SELLER shall be responsible for and pay all accrued
expenses with respect to the Property accruing up to the Closing Date and
shall be entitled to receive and retain all revenue from the Property accruing
up to the Closing Date. Unless items of expense are prorated or assumed by
BUYER, SELLER shall remain responsible for invoices for such items that relate
to periods prior to Closing.
(b) Adjustments. On the Closing Date, the following adjustments and
apportionments as of 11:59 p.m. on the day before Closing shall be made in
cash:
i) Rents for the month in which the Closing Date occurs (the
"Closing Month"). Items of rent that at Closing are unpaid or past due
("Delinquent Rent") shall not be prorated. BUYER shall bill all tenants
and certificate issuer(s) for Delinquent Rent and shall use its good
faith reasonable efforts to collect all Delinquent Rent. If, as and when
the BUYER collects payment from a tenant or certificate
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issuer on account of Delinquent Rent, BUYER shall pay such funds to
SELLER within ten (10) days of BUYER's receipt thereof.
ii) General real estate taxes for the years not yet due and
payable shall be prorated based on 105% of the amount of the most
recent ascertainable real estate tax bill.
iii) Charges under service contracts affecting the Property on
the Closing Date and utility charges and deposits relating to the
Property. Utility charges shall be prorated based on the amount of the
most recent bills and shall be reprorated upon receipt of the actual
bills. This agreement to reprorate the utility charges shall survive the
Closing.
iv) Water and sewer charges on the basis of the period for
which assessed.
v) Income from users of vending machines and tenant services,
if any.
vi) Wages of employees, if any.
vii) Insurance premiums on any policy of casualty, liability
or other insurance relating to the Property (other than title insurance)
which is assigned to BUYER.
viii) Accrued and unpaid interest under the Mortgage.
(c) Security Deposits. SELLER shall give BUYER a cash credit or
assign all of its right, title and interest in and to the security deposits
and interest thereon of the tenants of the Leases.
(d) Escrowed Amounts. At the Closing, SELLER shall receive a cash
credit in an amount equal to the sum of all amounts held in escrow, if any, by
the Mortgagee for casualty insurance premiums, mortgage insurance premiums,
real estate taxes, and Reserve for Replacements (if, and to the extent, such
escrows are not disbursed directly to SELLER) or any other matter pursuant to
the terms of the Mortgages. SELLER shall retain all operating cash or cash
reserves on hand at Closing unless HUD or the Mortgagee require otherwise in
which case SELLER shall also receive a cash credit for all operating cash or
cash reserves on hand at Closing.
Section 2.9 Damages to Improvements.
(a) If, prior to Closing, any portion of the Property is damaged or
destroyed to a material (as hereinafter defined) extent by fire or other
casualty, SELLER shall give BUYER prompt written notice thereof, and BUYER
may, at BUYER's option,
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terminate this Agreement by delivery of written notice of such termination to
SELLER within fourteen (14) days after receipt of such notice from SELLER of
such damage or destruction. Upon receipt of such notice of termination, each
party shall be relieved of further obligations hereunder. If BUYER elects not
to so terminate this Agreement, then, at Closing, SELLER shall assign to BUYER
all right to settle the portion of the loss as it relates to reconstruction of
the Premises and to receive all proceeds of the insurance covering the
improvements so damaged or destroyed and BUYER shall receive a credit against
the Purchase Price in an amount equal to the amount of the deductible under
SELLER's insurance coverage.
(b) If, prior to closing, any portion of the Property is damaged or
destroyed, but such damage or destruction is not material, SELLER shall give
BUYER prompt written notice thereof and shall use its best efforts to restore,
prior to Closing, the Property to its previous condition. If SELLER is unable
to complete said restoration prior to the Closing, BUYER shall be entitled to
elect by written notice to SELLER either (i) to receive a credit at Closing
for the cost of restoration to be incurred by BUYER or (ii) to accept an
assignment from SELLER to BUYER of all of SELLER's rights with respect to the
settlement of all insurance proceeds receivable in respect of such damage or
destruction and to receive a proration credit at closing equal to all
deductibles therefrom (but not in excess of the amount of the cost of repair).
Until such settlement of loss there shall be retained in escrow out of the
proceeds at Closing such sum as the parties shall agree upon as sufficient to
pay the estimated cost of fully repairing and rehabilitating such damaged or
destroyed Property and to pay all indirect and incidental costs and expenses.
Upon ascertainment of the actual costs of repairs and rehabilitation and
receipt of the proceeds under the insurance policies, an appropriate refund
shall be made to SELLER of any excess sum in said escrow which was not
required to complete the work. In the event BUYER elects the option set forth
in clause (i) of this subparagraph, SELLER shall be entitled to retain all
insurance proceeds with respect to such damage or destruction.
(c) For purposes of this Section 2.9, the term "material" shall mean
damage or destruction of any portion of the Property for which the aggregate
estimated cost of repair, restoration and rehabilitation (including all
indirect and incidental costs and expenses) is in excess of Two Hundred Fifty
Thousand and No/100 Dollars ($250,000.00) as determined by an architect or
general contractor acceptable to both parties.
Section 2.10 Condemnation. The Uniform Vendors and Purchasers Risk
Act shall govern any proceeding relating to the proposed taking of any portion
of the Property by exercise of the powers of condemnation or eminent domain by
any governmental authority.
Section 2.11 Closing Costs. SELLER shall pay for the owner's Title
Policy, the Survey, and any state and county transfer taxes. BUYER shall pay
for any local transfer taxes or inspection fees, BUYER's preparation of the
TPA Application, any HUD fees for the TPA Application, and any Mortgagee fees
at Escrow Closing or at the time the cost is incurred, whichever is required
by HUD, Mortgagee or the party to whom the debt
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is due.
Section 2.12 Termination Costs. In the event this Agreement is
terminated by either party for failure of a condition precedent set forth in
this Agreement, the Parties shall share equally all costs and charges for
title, survey, TPA Application and Mortgagee transfer fees incurred in
connection with this transaction prior to such termination. SELLER shall not
pay or reimburse any other cost that has been incurred by BUYER.
Section 2.13 Possession. Right to possession of the Property shall
transfer to BUYER on the Closing Date.
ARTICLE III
REMEDIES
--------
Section 3.1 BUYER's Default. If, prior to the BUYER's completing the
IPO, the Closing does not occur due to the failure, inability or refusal of
BUYER to purchase the Property for any reason other than SELLER's breach or
default or the failure to satisfy a condition to Closing, then SELLER shall be
entitled to retain the Earnest Money as SELLER's sole and exclusive remedy
hereunder. If the Closing does not occur due to the failure, inability or
refusal of BUYER to purchase the Property after BUYER has completed the IPO
(other than due to SELLER's breach or default or failure to satisfy a
condition to Closing) and BUYER has included the Property in its IPO
disclosures, then, in addition to retaining the Earnest Money, SELLER shall be
entitled to any other remedies available at law or in equity.
Section 3.2 SELLER's Default. In the event SELLER has made a good
faith effort to satisfy the conditions set forth in this Agreement, but SELLER
is unable to satisfy such conditions, BUYER's sole and exclusive remedy
hereunder shall be the return of the Earnest Money to BUYER. If (i) HUD and
Mortgagee have given their approval of the sale of the Property to BUYER, (ii)
SELLER has obtained its limited partners' approval of the sale of the Property
to BUYER and (iii) BUYER has timely closed the IPO or has waived the IPO
closing condition and the Closing does not occur due to the failure or refusal
of SELLER to sell the Property to BUYER, then BUYER shall have a right of
specific performance against SELLER.
ARTICLE IV
WARRANTIES
----------
Section 4.1 Representations and Warranties of SELLER. SELLER makes the
following representations and warranties to BUYER the truth and accuracy of
which shall be deemed a portion of the consideration for BUYER's purchase of
the Property:
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(a) Subject to the approval of the limited partners of SELLER as set forth
in Section 1.7, SELLER has the authority to execute this Agreement and to
perform all of the obligations to be performed by SELLER hereunder, and
the persons executing this Agreement for SELLER have full power and
authority to sign for SELLER and to bind SELLER to this Agreement;
(b) Any document required under this Agreement to be executed by SELLER will
be duly executed and, where such document is to be or may be recorded,
duly acknowledged;
(c) Except as otherwise represented herein, SELLER is selling the Property,
including land and all its improvements, in an "as is" condition. SELLER
agrees to maintain the Property in its current physical condition prior to
Closing and SELLER grants to BUYER the right to periodic inspections to
ensure that the Property does not deteriorate significantly prior to
Closing;
(d) All of the information contained in the rent roll and tenant income
profiles attached hereto as Exhibit D ("Rent Roll") reflects that
information available to SELLER with respect to the Leases as of the date
hereof;
(e) To the best of SELLER's actual knowledge, and except for the approvals
required from HUD, Mortgagee and SELLER's limited partners, neither the
execution and delivery of this Agreement nor the consummation of the
transaction contemplated herein will constitute a material violation in
any respect of the terms of any other agreements relating to the ownership
and operation of the Property;
(f) SELLER has not received written notice of any default under any of the
Leases, Service Contracts or any other agreements to be assigned by SELLER
to BUYER at Closing, and there exists, to the best of SELLER's knowledge,
no offset or defense against the payment of any rent due under any of the
Leases required to be assigned by SELLER at Closing;
(g) SELLER has not received written notice of any legal actions or judgments
or any assessments or other proceedings or investigations now pending or,
to the best of SELLER's knowledge, threatened against or relating to the
Property or the title and legal right of SELLER to sell and convey or
cause to be conveyed the Real Estate, the Personal Property or any of the
other interests, rights or items comprising the Property; SELLER has no
knowledge, based solely upon inquiry of the property manager, of any
existing grounds for any such action, judgment, assessment, proceeding, or
investigation; and neither SELLER nor, to the best of SELLER's knowledge,
SELLER's agents have received any written notice from any governmental
authority (any of which is sometimes hereinafter referred to as a
"Governmental Authority") relating to any violation of any fire, zoning,
property, environmental, health or other
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<PAGE>
statute, code, regulation, ordinance or other governmental rule with
respect to the Property that has not previously been corrected;
(h) Environmental Conditions. To the best of SELLER's actual knowledge, the
Property has not been used for the purpose of, nor has there been any
surface or subsurface contamination due to the manufacture, generation,
handling, storage, disposal or treatment of any hazardous, toxic or
dangerous substance, waste or material, (specifically including for
purposes of this Agreement any petroleum or crude oil or fraction thereof,
friable asbestos or asbestos-containing material, polychlorinated
byphenyls or urea formaldehyde foam insulation), defined as such in,
regulated by or for the purpose of, or in violation of, any federal, state
or local environmental laws, including, but not limited to, the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.), the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the super fund amendments and Reauthorization Act (42
U.S.C. Section 9601, et. seq.), the Toxic Substances Control Act (15
U.S.C. Section 2601, et seq.), and the Clean Air Act (42 U.S.C. Section
4701, et seq.), as any of the same may be amended from time to time, and
any comparable, similar or successor provisions of federal, state or local
law and any regulations, orders, rules, procedures, guidelines and the
like promulgated in connection therewith (collectively, the "Environmental
Laws"); and to the best of SELLER's knowledge, neither SELLER nor its
agents have received any written notice of any asserted present or past
failure by SELLER or by any tenant under any Lease or by any other prior
tenant or owner to comply with any Environmental Law or any rule or
regulation adopted pursuant thereto in connection with the Property. To
the best of SELLER's knowledge, except for a gasoline storage tank used in
connection with the Project's emergency generator, the Property does not
contain any above ground or underground storage tanks.
(i) SELLER is not a foreign individual, foreign corporation, foreign
partnership, or foreign estate as defined in Internal Revenue Code and
Income Tax Regulations;
(j) Condemnation. SELLER has not received any written notice of any
assessments or condemnation actions being contemplated;
(k) Outstanding Contracts. As of the Closing, there will be no outstanding
contracts made by SELLER relating to the Property which have not been
fully paid or terminated, except for those contracts which extend beyond
the date of Closing or are specifically assumed by BUYER. SELLER shall
cause to be discharged all other encumbrances, liens, bonds, and
mechanics' or materialmen's liens arising from any labor and material
furnished prior to
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<PAGE>
Closing;
(l) SELLER is not a debtor in any presently pending or threatened bankruptcy
proceedings; (m) Neither SELLER nor any of its agents have received any
written notice of (i) any increase in the assessed valuation of the
Property other than as shown on the most recent ascertainable real estate
tax bills (or the most recent notices of proposed assessments) for the
Property, or (ii) any special assessments for the Property that are now or
will become payable and that have not been included in the Title
Commitment or will not be included in the Title Policy to be delivered to
BUYER at the Closing. There are no amounts due and payable, or which will
become due and payable, to any attorney or other party engaged by such
SELLER with respect to the protest of the assessed valuation of the
Property or the real estate taxes attributable thereto for the most recent
reassessment period covering the Property;
(n) SELLER shall pay all real estate commissions, finder's fees and similar
commissions or fees which may be due and owing upon Closing or in
connection with the transactions contemplated herein, if any.
(o) Exhibit C attached hereto lists all of the Service Contracts and Equipment
Leases ("Service Contracts") relating to or affecting the Property;
(p) Neither SELLER nor its agents have received written notice from any
insurance carrier regarding any defects or inadequacies with respect to
all or any portion of the Property which, if not corrected, would result
in a termination of insurance coverage or an increase in the cost thereof;
(q) All copies of the Leases and Service Contracts and Equipment Leases
relating to or affecting the Property delivered or to be delivered to
BUYER are or will be complete in all material respects as of the date when
delivered, and all of the other documents and materials delivered to BUYER
and relating to or affecting the Property are or will be complete in all
material respects as of the date when delivered;
(r) The Leases disclosed on the Rent Roll and the Leases to be disclosed on
any updated rent roll required to be delivered pursuant to this Agreement
will be the only leases, options or commitments for space in the Property;
SELLER has not entered into or consented to any option, right of first
refusal, right of first offer or any other similar agreement, or caused
any of the same to be entered into, for the sale of all or any portion of
the Property;
(s) Neither SELLER nor its agents have received notice of any default under
the terms and provisions of the Notes or Mortgages or any of the other
14
<PAGE>
documents, evidencing or securing SELLER's obligations under the Notes and
Mortgages; and no proceeding has been constituted to foreclose any of the
Mortgages; and
(u) SELLER has received no written notice of any non-insured existing actions,
suits, proceedings, judgments, orders, decrees, defaults, delinquencies or
deficiencies pending or outstanding, or threatened, against the Property.
Section 4.2 Limitation of Warranties.
(a) BUYER's Inspection. BUYER acknowledges that it shall inspect or has
thoroughly inspected the Property and all factors relevant to its use,
including without limitation, the physical condition of the Property, the
interior and exterior, the structure, condition of soils, all utilities
and all physical and functional aspects of the Property, all operating
records, leases, documents, and other material affecting the income and
operation of the Property, and all matters relating to title, together
with all municipal and other legal requirements such as taxes,
assessments, zoning, use permits, and building codes;
(b) Purchase "As Is". BUYER acknowledges that it is acquiring the Property
in its "as is" condition, and solely in reliance on BUYER's own inspection
and examination. BUYER further acknowledges that, except as otherwise
stated in Section 4.1, neither SELLER nor any agents, representatives or
employees of SELLER have made any representations or warranties, direct or
implied, verbal or written, with respect to the condition of the Property,
or its fitness for any particular purpose; and
(c) Environmental Conditions. BUYER further acknowledges that, except as
disclosed herein, neither SELLER nor any agent or representative of SELLER
has made any inspection, investigation, inquiry or other disclosure
regarding environmental conditions or hazardous materials on, under or
about the Property. BUYER shall rely solely on BUYER's inspection,
investigation, and inquiry for knowledge of these matters. BUYER, its
successors and assigns, hereby waive, release and agree not to make any
claim or bring any cost recovery action or claim for contribution or other
action or claim against SELLER or its affiliates, directors, officers,
employees, agents, attorneys, or assigns (collectively, "SELLER and its
Affiliates") based on (a) any Environmental Laws, (b) any discharge,
disposal, release, or escape of any chemical, or any material whatsoever,
on, at, to, or from the Property; or (c) any environmental conditions
whatsoever on, under, or in the vicinity of the Property. The foregoing
waiver and release shall not apply to any claim or cost recovery action
Purchaser may make or bring which arises out of any action of SELLER
during SELLER's ownership of the Property.
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(d) General Disclaimer. BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS
OTHERWISE SET FORTH IN THIS AGREEMENT, SELLER HAS NOT MADE, DOES NOT MAKE
AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES,
COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER,
WHETHER EXPRESSED OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE,
OF, AS TO, CONCERNING OR WITH RESPECT TO (A) THE NATURE, QUALITY OR
CONDITION OF THE PROPERTY, INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL
AND GEOLOGY, (B) THE INCOME TO BE DERIVED FROM THE PROPERTY, (C) THE
SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH
PURCHASER MAY CONDUCT THEREON, (D) THE COMPLIANCE OF OR BY THE PROPERTY OR
ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY
APPLICABLE GOVERNMENTAL AUTHORITY OR BODY, (E) THE HABITABILITY,
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY, OR
(F) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY, AND SPECIFICALLY
DISCLAIMS ANY REPRESENTATIONS REGARDING TERMITES OR WASTES, OR HAZARDOUS
SUBSTANCE, AS DEFINED BY ANY ENVIRONMENTAL LAW.
Section 4.3 Discovery of New Information. Although SELLER has no
duty or obligation to conduct any inspection of the Property, if, before the
Close of Escrow, SELLER discovers any information or facts that would
materially change the foregoing warranties, covenants and representations of
SELLER to BUYER's detriment, SELLER shall inform BUYER of this new
information. In such event, SELLER shall have twenty (20) business days to
cure such material change. In the event of such cure by SELLER, this
Agreement shall remain in full force and effect. If SELLER is unwilling or
incapable of curing such material change in said time frame, BUYER shall have
the right to terminate this Agreement unless BUYER waives any of its rights
that may arise due to the new information discovered by the SELLER and
disclosed to the BUYER. BUYER shall have ten (10) business days from the date
of a notice from SELLER that SELLER will not cure such material change or from
the date of discovery or disclosure of any information creating a material
change in SELLER's warranties, covenants and representations to terminate the
Agreement, in writing, or said material change shall be deemed waived by
BUYER.
Section 4.4 SELLER to Cure.
a. If any of SELLER's warranties, covenants or representations are
breached, SELLER, upon notice from BUYER, shall immediately take
steps reasonably
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<PAGE>
required to cure the breach.
b. If such breach is not cured by SELLER within a reasonable time,
BUYER shall have the right to terminate this Agreement.
Section 4.5 BUYER's Representations and Warranties.
(a) BUYER covenants, represents and warrants that BUYER has the
ability and has been duly authorized to enter into this Agreement
and that this Agreement constitutes a legal, valid and binding
obligation of BUYER, and that BUYER is not in default under any
action or proceeding or agreement, nor is there any litigation
pending or, to BUYER's knowledge, threatened which would prevent
BUYER from performing its obligations hereunder.
(b) BUYER represents and warrants that BUYER has not employed the
services of a real estate broker or salesperson in connection with
this transaction.
Section 4.6 Accuracy of Representations and Warranties. BUYER and
SELLER covenant, agree, represent and warrant, in connection with their
respective representations and warranties contained in Sections 4.1 and 4.5,
and elsewhere in this Agreement, that each such representation and warranty:
(a) Is material and being relied upon by the other party;
(b) Is true in all respects as of the date hereof; and
(c) Shall be true in all respects on the Closing Date except as
otherwise disclosed in writing to the other party.
Section 4.7 Bankruptcy. BUYER and SELLER agree that in the event
that either BUYER or SELLER files for voluntary or is subjected to involuntary
Bankruptcy, that such filing shall be deemed an event of default by BUYER or
SELLER, as applicable, and will entitle the other party to all of the
remedies provided under this Agreement.
ARTICLE V
RISK OF LOSS AND MANAGEMENT
---------------------------
Section 5.1 Risk of Loss. Any risk of loss to the Property or any
personal property located thereon shall be borne by SELLER until title has
been conveyed to BUYER.
Section 5.2 Maintenance of Property. Between the date of this
Agreement and the Closing Date, SELLER shall manage, care for, operate and
maintain the Property
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in at least the same manner in which it has been managed, maintained, cared
for and operated in the past and consistent with all applicable HUD and
Mortgagee maintenance and management practices; provided, however, that
without BUYER's express written consent, which consent shall not be
unreasonably withheld or delayed, SELLER shall not (except to the extent
otherwise permitted or required under this Agreement):
(a) Except for emergency repairs or improvements mandated by HUD or
Mortgagee, make, or enter into any contract to make, any repairs, alterations
or improvements to any portion of the Property, which would exceed $25,000.00
in any instance or $100,000.00 in the aggregate, unless the same is or will be
completed and fully paid for on or before the Closing;
(b) Cancel, terminate or surrender any of the Leases or consent to or
accept any cancellation, termination or surrender of any of the Leases, except
in accordance with the terms of such Leases or as a result of any uncured
default by the tenant under any Lease;
(c) Enter into, amend or extend any easement, agreement or other
obligation affecting the Property (including without limitation any Service
Contracts and Equipment Leases), that is or would be binding on any successor,
unless the same is entered into in the ordinary course of operating and
maintaining the Property and is cancelable by BUYER without the payment of any
fee, penalty or expense on not more than thirty (30) days' notice. SELLER
will provide BUYER with copies of any new Service Contracts and Equipment
Leases.
18
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ARTICLE VI
MISCELLANEOUS
-------------
Section 6.1 Further Assurances. Each Party shall execute such further
documents, papers and instruments and take such further action as is
necessary, appropriate or helpful as the other Party hereto shall reasonably
request in order to carry out the purposes, intent and spirit of this
Agreement.
Section 6.2 Governing Law and Venue. This Agreement shall be governed
in all respects by the substantive and procedural law of the State of
Illinois.
Section 6.3 Complete Agreement. This Agreement and all Exhibits
attached hereto constitute the entire agreement and all understandings of the
parties. All prior writings, representations, warranties, opinions,
undertakings, understandings and negotiations are merged herein and are
extinguished.
Section 6.4 Modification. This Agreement may be modified or amended
only by a written document signed by SELLER and BUYER.
Section 6.5 Assignment. BUYER shall have the right to assign this
Agreement and any of BUYER's right, title or interest hereunder to an entity
approved by HUD and SELLER. SELLER hereby consents to BUYER's assignment of
this Agreement to the entity BUYER creates in connection with BUYER's IPO.
Section 6.6 Binding Effect. This Agreement shall inure to the benefit
of and be binding on the Parties hereto and their respective assignees and
other successors in interest.
Section 6.7 Attorneys' Fees Notwithstanding any other provision of any
agreement between BUYER and SELLER, in any suit, action, proceeding or in
connection with any of the terms, covenants, provisions, warranties,
representations or agreements in this Agreement, the prevailing party in such
suit, action, proceeding or arbitration shall be awarded, in addition to
equitable relief, or damages, or both or other relief, all costs as provided
by law, all out of pocket costs of each and every kind and type including, but
not limited to, expert witness fees and investigation costs and expenses, as
well as all reasonable attorneys' fees incurred before any trial, proceeding
or arbitration, at all trials, proceedings or arbitrations and on all appeals.
Included within the scope of this Section, but not by way of limitation, it is
agreed that this Section shall apply to any and all suits, actions,
proceedings and arbitrations in which an issue is whether any term, covenant,
provision, representation, warranty or agreement of this Agreement, is valid
or enforceable. This Section shall therefore be severable from all other
terms, covenants, provisions and agreements of this Agreement.
19
<PAGE>
Section 6.8 No Partnership Created. The relationship of SELLER and
BUYER hereunder is that of SELLER and BUYER and none of the provisions of this
Agreement are intended to or do create a partnership or joint venture or
relationship other than SELLER and BUYER.
Section 6.9 Heading and Captions. All headings, captions, table of
contents, indices, and references to Article or section numbers in brackets,
if any, are for convenience only and are not part of this Agreement and shall
not be utilized to interpret this Agreement.
Section 6.10 Gender. Words of any gender used in this Agreement shall
be held and construed to include all other genders, and words of singular
number shall be held to include the plural and vice versa, unless the context
requires otherwise.
Section 6.11 Legal Advice. This Agreement is a legally binding
contract. The Parties acknowledge that neither party, or representative of
either party, has given the other party any legal, tax, investment, securities
or other advice regarding this Agreement or any of the transactions associated
with it. The Parties hereby acknowledge that they have relied solely on the
advice of their own legal counsel.
Section 6.12 Severability. Each provision of this Agreement shall be
viewed as separate and divisible, and in the event any provision shall be held
to be invalid, all remaining provisions shall continue to remain in full force
and effect.
Section 6.13 Waiver. Notwithstanding any agreement between BUYER and
SELLER, the waiver by either party of a breach of any provision of this
Agreement shall not be deemed a continuing waiver or a waiver of any
subsequent breach whether of the same or another provision thereof.
Section 6.14 Joint Preparation. The Parties acknowledge that each
Party hereto has cooperated in the drafting and preparation of this Agreement.
In any construction to be made of this Agreement, no presumption shall arise
against either Party by virtue of its participation in the drafting hereof.
Moreover, the normal rule of construction that any ambiguities are to be
resolved against the drafting party shall not be employed in the
interpretation of this Agreement or any amendments or Exhibits hereto.
Section 6.15 Notices. Unless specifically provided otherwise herein, all
notices given must be in writing and shall be deemed effectively given upon
(i) personal delivery or receipt, (ii) if mailed, upon the first to occur of
receipt or the expiration of seventy-two (72) hours after deposit in certified
or registered United States mail, postage prepaid, return receipt requested,
sent to a Party at its address as set forth herein, (iii) if sent by overnight
courier, on the first business day after being placed with such courier for
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delivery to a Party at its address as set forth herein, or (iv) if by
facsimile, on the date of transmission to the Party at the facsimile number
set forth herein, provided such date is a business day and such transmission
occurs prior to 4:00 p.m. on such day and confirmation of the completion of
such facsimile transmission and a copy of the notice are sent by regular mail
on the date of the transmission. An address or facsimile number herein may be
changed by written notice to the other Party.
Section 6.17 Address for Notice.
The address of SELLER for notice is: Hawthorn Lakes Associates
222 North LaSalle Street
Suite 1414
Chicago, Illinois 60601
Attention: Daniel N. Epstein
Facsimile: 312-726-0091
with a copy to:
James T. Buchholz, Esq.
Attorney at Law
222 North LaSalle Street, Suite 1414
Chicago, Illinois 60601
Facsimile: 312-726-0091
The address of BUYER for notice is: The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: Mark J. Schulte and Robert
J. Rudnik
Facsimile: 312-782-5867
with a copy to:
William J. Ralph
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Facsimile: 312-558-5700
Section 6.18 Counterpart Copies. This Agreement may be signed in
counterpart or duplicate copies, and any signed counterpart or duplicate copy
shall be equivalent to a signed original for all purposes.
Section 6.19 1031 Exchange. SELLER reserves the right to effect a
1031 exchange, and BUYER agrees to cooperate with SELLER in affecting such
exchange
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<PAGE>
provided that BUYER shall incur no expense and that close of escrow or any
other time periods for performance specified in the Purchase Agreement shall
not be delayed by reason of such exchange.
Section 6.20 SELLER's Liability. No partner, agent or employee of
SELLER shall have any personal liability under this Agreement.
22
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement effective as
of the date first set forth above.
SELLER: BUYER:
------ -----
HAWTHORN LAKES ASSOCIATES, THE PRIME GROUP, INC.
AN ILLINOIS LIMITED PARTNERSHIP
By: Partners for Senior Communities
Inc., a general partner
/s/ Henry Hyatt /s/ Mark J. Schulte
By:____________________________ By:_________________________________
HENRY HYATT MARK J. SCHULTE
Name:__________________________ Name:_______________________________
VICE-PRESIDENT EXEC. VICE PRESIDENT
Title:_________________________ Title:______________________________
/s/ Daniel N. Epstein
By:______________________________________
Daniel N. Epstein, a general partner
23
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The following exhibits to the Real Estate Purchase Agreement dated September 16,
1996 by and between Hawthorn Lakes Associates and The Prime Group, Inc. have
been omitted:
Exhibit A - Legal Description;
Exhibit B - Due Diligence Checklist;
Exhibit C - Service Contracts and Equipment Leases; and
Exhibit D - Rent Roll.
The Company hereby agrees to furnish supplementally a copy of any omitted
exhibit to the Securities and Exchange Commission upon request.
<PAGE>
[LOGO OF PRIME GROUP, INC.] Exhibit 10.25
The Prime Group, Inc.
September 17, 1996
KILICO Realty Corporation and
Kemper Investors Life Insurance Company
c/o ZKS Real Estate Partners LLC
225 W. Washington Street
Suite 1450
Chicago, Illinois 60606
Attention: Robert J. Korslin
RE: SENIOR HOUSING PORTFOLIO
------------------------
Dear Bob:
This letter (this "Agreement") sets forth the terms upon which The Prime
Group, Inc. ("PGI"), or one or more of its affiliates or assigns (PGI, together
with certain of its affiliates or assigns, depending on the context, is or are
referred to herein as "Prime"), will purchase, and KILICO Realty Corporation, an
Illinois corporation ("Realty"), and Kemper Investors Life Insurance Company, an
Illinois insurance corporation ("KILICO"; Realty and KILICO are sometime
referred to together herein as "Kemper"), will sell, the Kemper Senior Housing
Interests (defined below). Upon acceptance of this Agreement by Kemper, this
Agreement will constitute the binding agreement of Kemper and Prime to proceed
with the transactions described herein upon the terms and subject to the
conditions set forth herein:
1. Agreement to Sell and Purchase.
------------------------------
Upon and subject to the terms and conditions set forth in this Agreement,
on the Closing Date (defined below), Kemper shall sell, transfer, convey, assign
and deliver to Prime, and Prime shall purchase, acquire and accept from Kemper,
all of the rights, title and interests (including debt and equity interests, if
any) owned or held by Kemper (the "Kemper Senior Housing Interests") in and to
The Ponds of Pembroke Limited Partnership ("Ponds L.P.") and River Oaks Partners
("ROP") and in and to the property owned by Ponds L.P. (the "Devonshire") and
the property owned by ROP (the "Heritage"). The Kemper Senior Housing Interests
are more fully described on Exhibit A attached hereto. Kemper and Prime agree
77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601, TEL (312) 917-1500,
FAX (312) 782-5867
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Mr. Robert J. Korslin
September 17, 1996
Page 2
that the Kemper Senior Housing Interests shall include any and all rights and
interests, if any, which Kemper may have in and to any and all cash, deposits,
and other funds in any bank accounts maintained by Ponds L.P. or ROP and any and
all securities held in the name of Ponds L.P. or ROP at the Closing Date. Kemper
and Prime agree that, between the date of this Agreement and the Closing Date,
unless otherwise specified in this Agreement, neither Ponds L.P. nor ROP shall
make any distributions to the partners in Ponds L.P. or ROP or otherwise use any
of the funds of Ponds L.P. or ROP for any purposes other than the payment of
authorized operating expenses and other authorized expenses of Ponds L.P. or
ROP, as applicable. Authorized operating expenses and other authorized expenses
shall mean expenses set forth or identified in a budget approved by the general
partners of Ponds L.P. or ROP, as applicable, and expenses otherwise approved by
the general partners of Ponds L.P. or ROP, as applicable.
2. Purchase Price. The aggregate consideration for all of the Kemper
Senior Housing Interests shall be the sum of (a) $4,476,000.00 plus $2,000.00
per day from and after October 1, 1996 until the Closing Date (the "Purchase
Price"), and (b) subject to the provisions set forth below, the release and
termination (the "Release") of all of Kemper's current or future standby credit
enhancement obligations with respect to the tax-exempt bonds issued in
connection with the Devonshire and the Heritage ( referred to herein as
"Kemper's Existing Standby Credit Enhancement"). At Prime's election, which must
be exercised, if at all, by the delivery to Kemper of written notice of such
exercise on or before November 1, 1996, Kemper shall continue to provide standby
credit enhancement on the following terms and conditions:
(i) The Purchase Price described in subparagraph (a) of this
paragraph 2 shall be increased by $500,000.00, which increased amount shall
be payable at the Closing;
(ii) At the Closing, Prime shall deliver, or cause to be delivered to
Kemper, as security for the performance by Ponds L.P. and ROP of their
respective obligations under the Standby Bond Purchase Agreements (defined
below), either (A) cash in the amount of $10,000,000.00 or (B) either (1)
marketable short-term obligations with a rating of A-1 by Standard & Poor's
Company ("S&P") or P-1 by Moody's Investors Services, Inc. ("Moody's") or
(2) marketable preferred stock with a rating of A or higher by S&P or A2 by
Moody's, and having a value of not less than $10,000,000.00, provided that
any and
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Mr. Robert J. Korslin
September 17, 1996
Page 3
all interest or earnings which accrue on the cash or securities so
delivered to Kemper in accordance with this clause (ii) shall accrue to the
benefit of Prime or its designee;
(iii) After the Closing, Kemper shall continue to provide standby
credit enhancement in accordance with the terms, conditions and provisions
of (A) that certain Standby Bond Purchase and Indemnity Agreement
[Devonshire (a/k/a The Ponds of Pembroke and f/k/a Ashley of Lisle)],
entered into as of December 1, 1994, to be effective as of March 22, 1994,
between Ponds L.P. and KILICO, with respect to the $27,000,000 bond issue;
(B) that certain Standby Bond Purchase and Indemnity Agreement [Devonshire
(a/k/a The Ponds of Pembroke and f/k/a Ashley of Lisle)], entered into as
of December 1, 1994, to be effective as of March 22, 1994, between Ponds
L.P. and KILICO, with respect to the $6,000,000 bond issue; and (C) that
certain Standby Bond Purchase and Indemnity Agreement [The Heritage/River
Oaks], entered into as of December 1, 1994, to be effective as of March 22,
1994, between ROP and KILICO (the agreements described in clauses (A), (B)
and (C) above are referred to herein collectively as the "Standby Bond
Purchase Agreements"); and
(iv) (A) On the first day of each month commencing on January 1, 1997
and continuing until the earlier of June 30, 1997 or the day on which
Kemper is released from its obligations under the Standby Bond Purchase
Agreements and Kemper's Existing Standby Credit Enhancement, Prime shall
pay, or cause to be paid to, Kemper the sum of $100,000.00 per month in
advance, and (B) on the first day of each month commencing July 1, 1997 and
continuing until the day on which Kemper is released from its obligations
under the Standby Bond Purchase Agreements and Kemper's Existing Standby
Credit Enhancement, Prime shall pay, or cause to be paid to, Kemper the sum
of $300,000.00 per month in advance. The fees payable in accordance with
this clause (iv) are the total fees payable to Kemper for providing standby
credit enhancement from and after January 1, 1997 and are in lieu of any
and all fees otherwise payable to Kemper for providing standby credit
enhancement with respect to the Devonshire and the Heritage, including any
and all fees payable under the Standby Bond Purchase Agreements.
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Mr. Robert J. Korslin
September 17, 1996
Page 4
3. Earnest Money.
-------------
(a) The parties hereto hereby agree that, within five (5) business
days following the execution of this Agreement, cash in the aggregate
amount of $3,627,000.00 currently in the accounts of Ponds L.P. and ROP
(based on Net Cash Flow through June 30, 1996) will be deposited with
Kemper as earnest money ("Earnest Money") to secure the performance by
Prime of its obligations under this Agreement.
(b) Within five (5) business days following the execution and
delivery of this Agreement, the Net Cash Flow (as defined below) generated
by Ponds L.P. and ROP during July, 1996 and August, 1996, will be deposited
with Kemper as additional Earnest Money, and, thereafter, on the first
business day of each succeeding month until Closing, the Net Cash Flow
generated by Ponds L.P. and ROP during the preceding month will be
deposited with Kemper as additional Earnest Money.
(c) "Net Cash Flow" is defined as the cash remaining each month after
the payment of all operating expenses, management and administration fees,
debt service and related credit enhancement fees, capital expenses and any
other property expenses. For purposes of calculating Net Cash Flow,
insurance and real estate tax expense will be accrued on a monthly basis.
The determination of cash included in Net Cash Flow shall be consistent
with the definition of "Available Cash Flow" under the applicable
partnership agreement of Ponds L.P. or ROP. The determination of costs and
expenses to be deducted in determining Net Cash Flow shall include only
those costs and expenses included in an approved budget or otherwise
authorized under the applicable partnership agreement of Ponds L.P. or ROP.
Notwithstanding anything in this paragraph 3 to the contrary, in no event
shall the aggregate cash balance in the depository account and the
operating account of Ponds L.P. be less than $200,000.00 at the time of any
deposit contemplated by subparagraph 3(b) hereof nor shall the aggregate
cash balance in the depository account and the operating account of ROP be
less than $200,000.00 at the time of any deposit contemplated by
subparagraph 3(b) hereof.
(d) At the Closing, the Earnest Money shall be returned to Prime or,
at Prime's direction, credited against the Purchase Price. No interest
shall accrue on the Earnest
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Mr. Robert J. Korslin
September 17, 1996
Page 5
Money, and Kemper shall have the right to commingle the Earnest Money with
other funds or investments.
4. Closing; Closing Date. The sale and purchase of the Kemper Senior
Housing Interests (the "Closing") shall occur on a date (the "Closing Date")
designated by Prime and reasonably acceptable to Kemper upon not less than five
(5) Business Days (defined below) written notice to Kemper; provided, however,
the Closing Date shall not be later than December 30, 1996.
5. Closing Deliveries.
(a) Unless Prime has elected to have Kemper extend standby credit
enhancement in accordance with paragraph 2 hereof, at the Closing, Prime
shall deliver to Kemper the Release, in a form reasonably acceptable to
Kemper, or other evidence, reasonably satisfactory to Kemper, indicating
that Kemper has been released from its obligations under the Standby Bond
Purchase Agreements and Kemper's Existing Standby Credit Enhancement.
(b) At the Closing, Kemper shall deliver, or cause to be delivered,
all instruments, certificates and other documents, reasonably acceptable to
Prime, pursuant to which the Kemper Senior Housing Interests are
transferred, conveyed, assigned and delivered to Prime and, unless Prime
has elected to have Kemper extend standby credit enhancement in accordance
with paragraph 2 hereof, pursuant to which Kemper releases any and all
security interests held by Kemper in or with respect to Ponds L.P., ROP,
the Devonshire or the Heritage.
(c) At the Closing, unless Prime has elected to have Kemper extend
standby credit enhancement in accordance with paragraph 2 hereof, Kemper
will release any and all security interests in units in Prime Retail, L.P.
securing any obligations to Kemper of Prime, Ponds L.P., ROP or any of
their affiliates relating to Ponds L.P., ROP, the Devonshire or the
Heritage.
(d) At the Closing, Prime shall cause an amount equal to the Purchase
Price (or, if Prime directs that the Earnest Money is to be credited
against the Purchase Price, the difference between the Purchase Price and
the balance of the Earnest Money previously delivered to Kemper) to be paid
to Kemper by wire transfer in immediately available funds. In
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 6
the event that the amount of the Earnest Money previously delivered to
Kemper exceeds the Purchase Price, at the Closing, Kemper shall pay to
Prime an amount equal to the difference between the amount of Earnest Money
previously delivered to Kemper and the Purchase Price. The parties agree
that there shall be no proration adjustments at the Closing related to the
Senior Housing Interests and that there will be no other adjustments to the
Purchase Price except as otherwise expressly provided for in paragraph 2
hereof. Prime will not be entitled to any fee or commission by reason of
this Agreement or the transactions contemplated hereunder which would
result in a reduction in the amount payable to Kemper hereunder.
(e) At the Closing Kemper and Prime shall each execute and deliver to
the other an Assignment and Assumption of Partnership Interests in the form
of Exhibit B attached hereto, pursuant to which the Kemper Senior Housing
Interests are transferred, assigned and delivered to Prime and certain
obligations related thereto are assumed by Prime.
(f) At the Closing, Kemper shall execute and deliver to Prime a
Release and Covenant Not to Sue in the form of Exhibit C attached hereto,
and Prime shall execute and deliver to Kemper a Release and Covenant Not to
Sue in the form of Exhibit D attached hereto.
(g) At the Closing, Kemper and Prime shall execute and deliver any and
all other instruments, certificates and other documents reasonably
requested by the other party to cause, effect, accomplish or evidence the
transactions contemplated by this Agreement.
6. Representations and Warranties of Kemper. In order to induce Prime to
enter into this Agreement, Kemper hereby represents and warrants to Prime that
on the date of this Agreement and on the Closing Date:
(a) Each of Realty and KILICO is a corporation duly formed and validly
existing and is in good standing under the laws of the State of Illinois
and is duly qualified to do business and is in good standing under the laws
of each state in which the failure to qualify to do business would have a
material adverse affect on such entity's ability to perform its obligations
under this Agreement.
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 7
(b) The execution and delivery of this Agreement by Realty and KILICO
and the performance by Realty and KILICO of their respective obligations
under this Agreement have been duly and validly authorized by all necessary
corporate action of Realty and KILICO. This Agreement has been duly
executed and delivered by a duly authorized officer or agent of Realty and
KILICO and constitutes the legal, valid and binding obligations of Realty
and KILICO, enforceable against each such entity in accordance with the
terms hereof.
(c) No consent, waiver, approval or authorization of, or notice to,
any governmental unit or any other person is required to be made, obtained
or given by Realty or KILICO, in connection with the execution and delivery
of this Agreement by Realty and KILICO, or in connection with the
performance by Realty and KILICO of their respective obligations under this
Agreement, except to the extent any such consents, waivers, approvals and
authorizations have been obtained prior to the date of this Agreement, or
any such notices have been given prior to the date of this Agreement, as
applicable.
(d) None of the execution or delivery of this Agreement by Realty and
KILICO, or the performance by Realty and KILICO of their respective
obligations under this Agreement does or will, with or without the giving
of notice, lapse of time, or both, violate, conflict with or constitute a
default under any term or condition of (i) any organizational document
(including articles of incorporation, charters and by-laws) of Realty or
KILICO or any material agreement to which Realty or KILICO is a party or by
which Realty or KILICO is bound or which is applicable to any of the
properties or assets of Realty or KILICO, or (ii) any term or provision of
any presently existing judgment, decree, order, statute, injunction, rule
or regulation of any governmental unit applicable to Realty or KILICO or
any of the assets or properties of Realty or KILICO; provided, however, no
representation or warranty is made with respect to any possible violation,
conflict or default under any document or instrument made by Ponds L.P. or
ROP or under any document or instrument of which Ponds L.P. or ROP is aware
affecting the assets or properties of Ponds L.P. or ROP.
(e) None of Realty, KILICO or any subsidiary or affiliate of Realty
or KILICO has relied upon or engaged any real estate broker or other finder
in connection with, or to
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 8
assist Realty or KILICO or any subsidiary or affiliate of Realty or KILICO
in entering into or consummating, the transactions contemplated by this
Agreement. Realty and KILICO shall indemnify, defend and hold harmless
Prime from and against any and all losses, damages, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
suffered or incurred by Prime in connection with any claims asserted by any
real estate broker or finder based on any agreement or alleged agreement
with Realty or KILICO or any subsidiary or affiliate of Realty or KILICO in
connection with this Agreement or any of the transactions contemplated by
this Agreement.
(f) Realty is the sole owner and holder of the Kemper Senior Housing
Interests owned by it as shown on Exhibit A hereto and has good title
thereto free and clear of any liens, claims, pledges, encumbrances or
security interests of any person or party which will not be terminated or
released on or before the Closing Date, and has full power and authority to
sell, assign, transfer and deliver such Kemper Senior Housing Interests in
accordance with the terms of this Agreement.
(g) KILICO is the sole owner and holder of the Kemper Senior Housing
Interests owned by it as shown on Exhibit A hereto and has good title
thereto free and clear of any liens, claims, pledges, encumbrances or
security interests of any person or party which will not be terminated or
released on or before the Closing Date, and has full power and authority to
sell, assign, transfer and deliver such Kemper Senior Housing Interests in
accordance with the terms of this Agreement.
(h) The Kemper Senior Housing Interests, as described on Exhibit A
attached hereto, are all of the rights, title and interests (including debt
and equity interests) owned or held by Realty, KILICO, Kemper Corporation
or any subsidiary or affiliate of Realty, KILICO or Kemper Corporation in
and to Ponds L.P., ROP, the Devonshire or the Heritage (other than any
interests which Realty, KILICO, Kemper Corporation or any subsidiary or
affiliate of Realty, KILICO or Kemper Corporation may have under or by
reason of Kemper's standby credit enhancement obligations with respect to
the tax-exempt bonds issued in connection with the Devonshire and the
Heritage, which interests shall be terminated as of the Closing, except as
otherwise provided herein).
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 9
7. Representations and Warranties of Prime. In order to induce Kemper to
enter into this Agreement, Prime hereby represents and warrants to Kemper that,
on the date of this Agreement and on the Applicable Closing Date:
(a) PGI is a corporation duly formed and validly existing and is in
good standing under the laws of the State of Illinois and is duly qualified
to do business and is in good standing under the laws of each state in
which the failure to qualify to do business would have a material adverse
affect on the ability of PGI to perform its obligations under this
Agreement.
(b) The execution and delivery of this Agreement by PGI and the
performance by PGI of its obligations under this Agreement have been duly
and validly authorized by all necessary corporate action of PGI. This
Agreement has been duly executed and delivered by a duly authorized officer
or agent of PGI and constitutes the legal, valid and binding obligations of
PGI, enforceable against PGI in accordance with the terms hereof.
(c) No consent, waiver, approval or authorization of, or notice to,
any governmental unit or any other person is required to be made, obtained
or given by PGI in connection with the execution and delivery by PGI of
this Agreement, or in connection with the performance by PGI of its
obligations under this Agreement, except to the extent any such consents,
waivers, approvals and authorizations have been obtained prior to the date
of this Agreement, or any such notices have been given prior to the date of
this Agreement, as applicable.
(d) None of the execution or delivery of the this Agreement by PGI or
the performance by PGI of its obligations under this Agreement does or
will, with or without the giving of notice, lapse of time, or both,
violate, conflict with or constitute a default under any term or condition
of (i) any organizational document (including, articles of incorporation
and by-laws) of PGI or any material agreement to which PGI is a party or by
which PGI is bound or which is applicable to any of the properties or
assets of PGI, or (ii) any term or provision of any presently existing
judgment, decree, order, statute, injunction, rule or regulation of any
governmental unit applicable to PGI or any of the assets or properties of
PGI.
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 10
(e) Neither PGI nor any subsidiary or affiliate of PGI has relied upon
or engaged any real estate broker or other finder in connection with, or to
assist PGI in entering into or consummating, the transactions contemplated
by this Agreement. PGI shall indemnify, defend and hold harmless Kemper
from and against any and all losses, damages, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses)
suffered or incurred by Kemper in connection with any claims asserted by
any real estate broker or finder based on any agreement or alleged
agreement with PGI or any subsidiary or affiliate of PGI in connection with
this Agreement or any of the transactions contemplated by this Agreement.
The representations and warranties set forth in the first sentence of this
subparagraph 7(e) shall not apply to any agreements or arrangements that
PGI or any subsidiary or affiliate of PGI may have for or related to any
financing or replacement credit enhancement obtained by Prime in connection
with the transactions contemplated by this Agreement, and PGI shall be
responsible for the payment of any and all fees with respect thereto and
shall indemnify Kemper with respect thereto as provided in the second
sentence of this paragraph 7(e).
(f) PGI has no knowledge and has received no written notice: (a) that
any property owned by Ponds L.P. or ROP or the use or operation thereof
violates any laws, rules, or regulations of any federal, state, city or
county governmental body or subdivision thereof; (b) of any pending or
threatened claim, actions, suits or proceedings against or affecting Ponds
L.P., ROP or their respective properties or the use or operation thereof
except as disclosed on Exhibit E attached hereto; or (c) of any other
material liabilities or obligations concerning Ponds L.P., ROP or their
respective properties or the business or operations thereof that are not
reflected in the most recent available financial statements of Ponds L.P.
and ROP, respectively, a copy of which is attached as Exhibit F.
(g) All disclosures of this Agreement, any provisions of this
Agreement or any of the parties to this Agreement in any registration
statement, prospectus, offering memorandum or similar document files by or
on behalf of Prime with the Securities and Exchange Commission (the "SEC")
or pursuant to any state securities law or disseminated by or on behalf of
Prime to underwriters or other potential investors are and
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 11
will be true and accurate in all material respects and will not omit to
state a material fact necessary to make the statements therein not
misleading. PGI hereby covenants and agrees to deliver, or cause to be
delivered, to Kemper a copy of all registration statements, prospectuses,
offering memorandums or similar documents filed by or on behalf of Prime
with the SEC in which this Agreement or any provisions of this Agreement
are disclosed or otherwise described, together with all material drafts
thereof prior to each such filing.
8. Acknowledgements of PGI. PGI has inspected and familiarized itself
with the respective properties and assets of Ponds L.P. and ROP, and is fully
aware of all of the conditions thereof and restrictions applicable thereto; and
Prime will accept such properties and assets on the Closing Date in their "as
is" condition. PGI further acknowledges and agrees that no representations,
warranties or agreements, expressed or implied, of any kind whatsoever have been
made by Kemper concerning the state of title or condition of any property or
asset of Ponds L.P. or ROP, the ability of Ponds L.P. or ROP to obtain all
permits, licenses and approvals required for their business and operations, or
the financial condition, results of operations or prospects of the respective
businesses and operations of Ponds L.P. and ROP. Except as otherwise provided
herein, Prime expressly assumes all risks attendant to the ownership of the
Senior Housing Interests.
9. Remedies.
(a) In the event Prime fails to purchase the Kemper Senior Housing
Interests in accordance with the terms and conditions of this Agreement for
any reason other than a default by Kemper, or in the event of any other
material default by PGI in any of its obligations under this Agreement, or
in the event PGI is in material breach of any of its representations and
warranties contained in this Agreement and such material default or
material breach is not cured within ten (10) Business Days after written
notice to PGI specifying such default or breach, Kemper shall have the
right, upon notice to PGI, to terminate this Agreement as Kemper's sole and
exclusive remedy and retain the Earnest Money as its sole property, as
liquidated damages. The parties acknowledge that, in such event, the
retention of the Earnest Money by Kemper is not a penalty but is intended
to constitute compensation to Kemper for its damages. Further, in the event
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 12
of such termination, neither Kemper nor Prime shall have any further
obligations to the other under this Agreement.
(b) In the event of a material default by Kemper in any of its
obligations under this Agreement or in the event Kemper is in material
breach of any of its representations and warranties contained in this
Agreement, and such material default or material breach is not cured within
ten (10) Business Days after written notice to Kemper specifying such
default or breach, Prime may terminate this Agreement, in which event
Kemper shall immediately deliver the Earnest Money to Prime, and may pursue
any and all other rights and remedies available to Prime at law or in
equity, including, but not limited to the right to seek specific
performance.
10. No Amendment or Waiver. Except as otherwise provided herein, this
Agreement shall not constitute, and shall not be interpreted to be, a
modification or amendment to, or waiver or release of, any of the terms of any
document, instrument or agreement now in effect between Kemper and Prime. Kemper
and Prime shall continue to perform in compliance with all terms and conditions
of such agreements as presently in force unless and until the same shall be
modified and amended by definitive documents. Except as otherwise provided
herein, this Agreement shall not (a) limit Kemper or Prime in initiating,
continuing or otherwise proceeding to exercise any right or remedy either of
them may have under any of such existing agreements, instruments or other
documents or (b) relieve Prime or Kemper of any obligation under any loan,
partnership or other documents and agreements between Prime and Kemper. Without
limitation of the foregoing, the obligation to obtain Kemper's and Prime's
approval of all "Major Decisions" under the applicable partnership agreements of
Ponds L.P. and ROP shall remain in force. Notwithstanding the foregoing, unless
and until this Agreement has terminated, Kemper shall not transfer to any third
party any of the Kemper Senior Housing Interests or portion thereof, nor shall
Kemper grant to any third party any option or right to acquire any of the Kemper
Senior Housing Interests or any portion thereof, nor shall Kemper solicit any
offers for the sale or other disposition of any of the Kemper Senior Housing
Interests or any portion thereof. Concurrently, with the execution of this
Agreement, PGI, as managing general partner of Ponds L.P. and as managing
partner of ROP, shall execute and deliver the letter attached hereto as Exhibit
G, and Realty and KILICO shall execute and deliver to PGI a copy of such letter
confirming their agreement to the terms of such letter.
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 13
11. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Illinois.
12. Notices. All notices and other communications permitted or required
hereunder between the parties shall be (a) in writing and shall be deemed to be
given and received (i) when delivered in person, (ii) one (1) Business Day after
sent by private courier guaranteeing next-day delivery, delivery charges
prepaid, (iii) three (3) Business Days after sent by United States registered or
certified mail, postage prepaid, return receipt requested ("Certified Mail") or
(iv) if sent by facsimile transmission, upon receipt by the sender of written
confirmation from the addressee's facsimile machine that the transmission has
been received, provided a "hard copy" of the notice or other communication is
sent by Certified Mail within one (1) Business Day after transmission, or (v) on
the date either party refuses delivery in person, by Certified Mail or by
private courier service, and, (b) in any case, addressed to the respective
parties at the following addresses:
If to Kemper, to:
c/o ZKS Real Estate Partners
225 W. Washington
Suite 1450
Chicago, Illinois 60606
Attention: Robert J. Korslin
Facsimile: (312) 236-1548/1549
with a copy to:
Kemper Real Estate Management Company
3697 Mt. Diablo Boulevard
Lafayette, California 94549
Attention: Mr. Frederick L. Stephens
Facsimile: (510) 283-7638
and to:
D'Ancona & Pflaum
30 North LaSalle Street
Suite 2900
Chicago, Illinois 60602
Attention: Laurance P. Nathan, Esq.
Facsimile: (312) 580-0923
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 14
If to Prime, to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: Michael W. Reschke
Facsimile: (312) 917-1511
with a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: Robert J. Rudnik
Facsimile: (312) 917-1684
with a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attention: Mark J. Schulte
Facsimile: (312) 917-0460
or to each such party at such other addresses as such party may designate in a
written notice to the other party.
13. Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors and
assigns. It is expressly agreed that Prime shall have the right to assign its
rights and interests, or any portion of such rights and interests, in and to
this Agreement to any party, provided that the assignee shall be subject to the
terms and conditions of this Agreement.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
15. Entire Understanding. This Agreement sets forth the entire
understanding between the parties with respect to the
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 15
subject matter hereof, and the parties hereby represent that as of the date of
this Agreement there are no oral covenants, promises, agreements, conditions or
understandings between them relating to the transactions contemplated by this
Agreement except as stated in this Agreement. This Agreement may not be altered,
amended, changed or modified, except by a subsequent or contemporaneous
agreement reduced to writing and signed by all of the parties hereto. Time is of
the essence of this Agreement.
16. Expenses and Legal Fees. Each party hereto shall be responsible for
the payment of any and all fees and other charges due any attorney, attorneys,
law firm or law firms, and any consultants, engineers and accountants retained
by such party in connection with the negotiation, delivery and performance by or
on behalf of such party of this Agreement or the transactions contemplated
hereby.
17. Waiver and Severability. No covenant, term or condition of this
Agreement shall be deemed to have been waived by either party, unless such
waiver is in writing signed by the party charged with such waiver. If any term,
covenant or condition of this Agreement or the application thereof to any
person, entity or circumstance shall, to any extent, be invalid or
unenforceable, the remainder of this Agreement or the application of such term,
covenant or condition to persons, entities or circumstances other than those as
to which it is held invalid or unenforceable shall not be affected thereby, and
each term, covenant or condition of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.
18. Further Assurances. Kemper and Prime each agree, that upon the
reasonable request of the other, that they will each execute, acknowledge and
deliver such further documents and instruments and perform such further acts as
may be reasonably necessary, desirable or proper to carry out the transactions
contemplated by this Agreement.
19. Business Day. The term "Business Day" shall mean any calendar day
other than Saturday, Sunday and any day on which banks in Chicago, Illinois are
authorized to close.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 16
If the foregoing corresponds to Kemper's understanding of the terms of the
agreement between Kemper and Prime with respect to the matters addressed herein,
please so signify by having a duly authorized officer of Kemper execute the
enclosed copy of this letter and returning the executed copy of this letter to
the undersigned.
Very truly yours,
THE PRIME GROUP, INC.
By: /s/ Michael W. Reschke
--------------------------------
Name: Michael W. Reschke
------------------------------
Title: President
-----------------------------
ACCEPTED AND AGREED TO:
KILICO Realty Corporation
By: /s/ Robert J. Korslin
---------------------------
Name: Robert J. Korslin
-------------------------
Title: Authorized Signatory
------------------------
Date: September 17, 1996
-------------------------
Kemper Investors Life Insurance Company
By: /s/ Robert J. Korslin
---------------------------
Name: Robert J. Korslin
-------------------------
Title: Authorized Signatory
------------------------
Date: September 17, 1996
-------------------------
By: /s/ Beth Schlift
---------------------------
Name: Beth Schlift
-------------------------
Title: Authorized Signatory
------------------------
Date: September 17, 1996
-------------------------
<PAGE>
Mr. Robert J. Korslin
September 17, 1996
Page 17
JOINDER
-------
The undersigned, The Ponds of Pembroke Limited Partnership, an Illinois
limited partnership, and River Oaks Partners, an Illinois partnership, hereby
consent to the provisions of the foregoing letter agreement (including, but not
limited to, the provisions of paragraph 2 of the foregoing letter agreement),
and each of the undersigned reaffirms the terms and provisions of the Standby
Bond Purchase Agreements (as defined in the forgoing letter agreement) to which
it is a party. Each of the undersigned agrees that, upon the reasonable request
of any party to the foregoing letter agreement, it will execute, acknowledge and
deliver any and all documents and instruments and will perform such acts as may
be reasonably necessary, desirable or proper to carry out the transactions
contemplated by the foregoing letter agreement.
THE PONDS OF PEMBROKE LIMITED PARTNERSHIP
By: The Prime Group, Inc.
Managing General Partner
By: /s/ Richard S. Curto
-----------------------------
Its: Executive Vice President
------------------------
Date: September 17, 1996
---------------------------
RIVER OAKS PARTNERS
By: The Prime Group, Inc.
Managing General Partner
By: /s/ Richard S. Curto
-----------------------------
Its: Executive Vice President
------------------------
Date: September 17, 1996
---------------------------
<PAGE>
EXHIBIT A
THE KEMPER SENIOR HOUSING INTERESTS
-----------------------------------
1. 50% general partnership interest in River Oaks Partners held by KILICO
Realty Corporation.
2. 50% general partnership interest in The Ponds of Pembroke Limited
Partnership held by KILICO Realty Corporation.
3. 25% limited partnership interest in The Ponds of Pembroke Limited
Partnership held by Kemper Investors Life Insurance Company.
Exhibit A - 1
<PAGE>
EXHIBIT B
ASSIGNMENT AND ASSUMPTION OF PARTNERSHIP INTEREST
-------------------------------------------------
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged, ____________________________, a _____________ corporation
("Assignor"), does hereby sell, assign, transfer and convey to
______________________________, a ________________ corporation ("Assignee"), the
partnership interest held by Assignor consisting of a _____________ percent
(____%) percentage interest as a __________ partner of
_________________________________________________, an Illinois __________
partnership (the "Interest"), standing in the name of Assignor on the books and
records of _______________________________________, an Illinois
_________________ partnership (the "Partnership"), together with any and all
right, title and interest in any property, both real and personal, to which the
Interest relates, and any other rights, privileges and benefits appertaining
thereto including, without limitation, all of Assignor's right, title and
interest in and to the profits, losses, assets and distributions to which
Assignor is or may be entitled as a holder of the Interest.
This Assignment is made subject to all of the terms and conditions of
the partnership agreement of the Partnership, as amended (the "Agreement"), and
Assignee, by execution of this Assignment, agrees to hereafter abide by and to
be bound by all of the terms and provisions of the Agreement as now in effect or
hereafter amended, in the place and stead of Assignor. Assignee hereby (1)
accepts the assignment and transfer of the Interest and expressly assumes any
and all duties, obligations and liabilities with respect to or in connection
with the Interest (a) occurring or arising from and after the date of this
Assignment, and (b) relating to obligations or liabilities of the Partnership
with respect to deposits or fees paid by tenants for security, entrance
requirements or otherwise, whether arising prior to or after the date of this
Assignment, and (2) agrees to indemnify and hold harmless Assignor and
Assignor's officers, directors, stockholders, employees and agents, and its and
their respective heirs, legal representatives, successors and assigns from and
against any liability, demand, claim or action arising from or relating to any
and all duties, obligations and liabilities so assumed.
Assignor hereby represents that it has full power and authority to
make this Assignment, that it has good and valid title to the Interest free and
clear of all liens, security interests and encumbrances and that the Interest
has not otherwise been conveyed, sold, transferred, assigned, pledged or
encumbered. Except as expressly set forth herein, this Assignment is made
without representation or warranty.
Exhibit B - 1
<PAGE>
IN WITNESS WHEREOF, Assignor and Assignee have executed this
Assignment, effective as of the ____ day of ______________, 1996.
ASSIGNOR:
__________________________________________________
___________, a _______________________ corporation
By:________________________________
Its:_______________________________
ASSIGNEE:
__________________________________________________
_____________, a ___________________________
corporation
By:_________________________________
Its: _______________________________
Exhibit B - 2
<PAGE>
EXHIBIT C
---------
RELEASE AND COVENANT NOT TO SUE
-------------------------------
THIS RELEASE AND COVENANT NOT TO SUE (this "Release") is made as of
the _____ day of _____________, 1996, by the undersigned entities, Kilico Realty
Corporation, an Illinois corporation ("Realty") and Kemper Investors Life
Insurance Company, an Illinois insurance corporation ("Kilico"), each for itself
and on behalf of each of its and their respective successors and assigns
(collectively, the "Releasors"), in favor of The Prime Group, Inc., an Illinois
corporation ("Prime"), and all of its direct or indirect subsidiaries and
affiliates (including, without limitation, Prime Group Limited Partnership, an
Illinois limited partnership, and the "Entities" defined below), and each of its
and their respective officers, directors, shareholders, partners, employees and
agents, in such capacities, and each of the respective successors and assigns of
the foregoing (collectively, the "Released Parties").
RECITALS:
--------
A. Realty, Kilico and Prime entered into a letter agreement dated
September ____, 1996 (the "Letter Agreement") providing for the sale and
purchase of the interests owned by Realty and Kilico in the senior housing
projects known as the Devonshire and the Heritage (collectively, the "Projects")
that are owned and operated by The Ponds of Pembroke Limited Partnership, an
Illinois limited partnership, and River Oaks Partners, an Illinois general
partnership, respectively (collectively, the "Entities").
B. The undersigned have agreed to execute and deliver this Release
upon the consummation of the transactions contemplated under the Letter
Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration given to the Releasors, the receipt and sufficiency
of which are hereby acknowledged, the Releasors hereby agree as follows:
I. Subject to the terms of Section 2, below, each of the Releasors
hereby releases and forever discharges each and every one of the Released
Parties from, and covenants and agrees not to sue and not to assert, file or
commence in any court, arbitration proceeding or other tribunal, any suit,
action, litigation, complaint, counterclaim, cross claim or other pleading
setting forth any cause of action or claim against any of the Released Parties
for, any of the following (individually, a "Released Claim," and collectively,
the "Released Claims"):
any claim, demand, debt, sum of money, account, judgment, liability,
obligation, loss, damage,
Exhibit C - 1
<PAGE>
suit, action or cause of action of any kind or nature whatsoever,
known or unknown, fixed or contingent, at law or in equity which any
of the Releasors now has, claims to have, has had or may have had, as
of the date hereof, or may hereafter have or claim to have under any
obligations or agreements existing prior to or as of the date hereof,
against any one or more of the Released Parties, in its or their
capacities as a purchaser, owner, joint venturer, partner,
shareholder, director, option holder or other interest holder, with
respect to, or in any way arising from or in connection with the
Projects or the Entities, or any of them.
II. Notwithstanding the express release and covenant not to sue set
forth in paragraph 1, above, the Released Claims shall not include, and this
Release shall not be construed as a release of any Released Party from any
obligations or liabilities such Released Party may have (a) under the Letter
Agreement, or any documents or agreements entered into by any such Released
Party pursuant to the Letter Agreement to the extent such obligations are to be
performed after the date hereof, (b) under any loan agreement, partnership,
joint venture or similar agreement, commitment or other agreement or document
which does not pertain to the Projects or the Entities, or (c) under any
environmental or other indemnity or agreement, which obligation or liability by
its terms survives release of any applicable security documents in favor of any
Releasor.
III. Each of the Releasors severally represents and warrants to
the Released Parties that it has not encumbered or sold, transferred, assigned
or otherwise conveyed to any other person or entity (other than another
Releasor), in whole or in part, any Released Claims.
IV. Each of the Releasors hereby covenants and agrees not to assist
any third party in bringing any claim, cause of action or proceeding of any
nature against any of the Released Parties with respect to any of the Released
Claims.
V. This Release shall be governed by and construed in accordance
with the internal laws of the State of Illinois.
VI. This Release may be executed in multiple counterparts, all
of which taken together shall constitute one and same instrument.
VII. This Release pertains only to the Released Claims. No
obligation, liability or undertaking of any kind or nature whatsoever of any
Released Party in favor of any of the Releasors other than the Released Claims
shall be deemed released,
Exhibit C - 2
<PAGE>
terminated, canceled or in any other way modified or amended by this Release.
VIII. The undersigned Releasors hereby severally represent and
warrant that no subsidiaries or affiliates of the undersigned have any claim,
demand or cause of action of any kind or nature whatsoever against any one or
more of the Released Parties with respect to or in any way arising from or in
connection with the Projects or the Entities.
IX. The Releasors hereby acknowledge and confirm that any prior
release given in connection with any of the Projects or Entities remains in full
force and effect in accordance with its terms, and in no event shall any such
prior release be deemed to be superseded, diminished or otherwise affected by
the execution of this Release.
X. The undersigned Releasors jointly and severally represent and
warrant that each Releasor has the power and authority to execute and deliver
this Release and the execution and delivery of this Release has been duly and
validly authorized by such Releasor.
[Signature Page to Follow]
Exhibit C - 3
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Release to be
duly executed and delivered by their respective duly authorized officers as of
the day and year first above written.
KEMPER INVESTORS LIFE INSURANCE COMPANY
By:
Its:
KILICO REALTY CORPORATION
By:
Its:
Exhibit C - 4
<PAGE>
EXHIBIT D
---------
RELEASE AND COVENANT NOT TO SUE
-------------------------------
THIS RELEASE AND COVENANT NOT TO SUE (this "Release") is made as of
the _____ day of _____________, 1996, by The Prime Group, Inc., an Illinois
corporation ("Prime"), for itself and on behalf of each of its successors and
assigns in favor of Kilico Realty Corporation, an Illinois corporation
("Realty") and Kemper Investors Life Insurance Company, an Illinois insurance
corporation ("Kilico"), and all of the direct or indirect subsidiaries and
affiliates of Realty and Kilico, and each of its and their respective officers,
directors, shareholders, partners, employees and agents, in such capacities, and
each of the respective successors and assigns of the foregoing (collectively,
the "Released Parties").
RECITALS:
--------
A. Realty, Kilico and Prime entered into a letter agreement dated
September ____, 1996 (the "Letter Agreement") providing for the sale and
purchase of the interests owned by Realty and Kilico in the senior housing
projects known as the Devonshire and the Heritage (collectively, the "Projects")
that are owned and operated by The Ponds of Pembroke Limited Partnership, an
Illinois limited partnership, and River Oaks Partners, an Illinois general
partnership, respectively (collectively, the "Entities").
B. Prime has agreed to execute and deliver this Release upon the
consummation of the transactions contemplated under the Letter Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration given to Prime, the receipt and sufficiency of which
are hereby acknowledged, Prime hereby agrees as follows:
I. Subject to the terms of Section 2, below, Prime hereby releases
and forever discharges each and every one of the Released Parties from, and
covenants and agrees not to sue and not to assert, file or commence in any
court, arbitration proceeding or other tribunal, any suit, action, litigation,
complaint, counterclaim, cross claim or other pleading setting forth any cause
of action or claim against any of the Released Parties for, any of the following
(individually, a "Released Claim," and collectively, the "Released Claims"):
any claim, demand, debt, sum of money, account, judgment, liability,
obligation, loss, damage, suit, action or cause of action of any kind
or nature whatsoever, known or unknown, fixed or contingent, at law or
in equity which Prime now
Exhibit D - 1
<PAGE>
has, claims to have, has had or may have had, as of the date hereof,
or may hereafter have or claim to have under any obligations or
agreements existing prior to or as of the date hereof, against any one
or more of the Released Parties, in its or their capacities as a
lender, credit enhancer, purchaser, owner, joint venturer, partner,
shareholder, director, option holder or other interest holder, with
respect to, or in any way arising from or in connection with the
Projects or the Entities, or any of them, including without limitation
(i) any lender liability or recharacterization claim or any claim
against a Released Party alleging that such Released Party has taken
actions in the nature of a partner of the borrower or otherwise
outside of its capacity as a lender, or (ii) any claim asserting, or
arising in connection with, any funding obligations or commitments or
any environmental indemnity/liability sharing agreements.
II. Notwithstanding the express release and covenant not to sue set
forth in paragraph 1, above, the Released Claims shall not include, and this
Release shall not be construed as a release of any Released Party from any
obligations or liabilities such Released Party may have (a) under the Letter
Agreement, or any documents or agreements entered into by any such Released
Party pursuant to the Letter Agreement to the extent such obligations are to be
performed after the date hereof, or (b) under any loan agreement, partnership,
joint venture or similar agreement, commitment or other agreement or document
which does not pertain to the Projects or the Entities.
III. Prime represents and warrants to the Released Parties that
it has not encumbered or sold, transferred, assigned or otherwise conveyed to
any other person or entity, in whole or in part, any Released Claims.
IV. Prime hereby covenants and agrees not to assist any third party
in bringing any claim, cause of action or proceeding of any nature against any
of the Released Parties with respect to any of the Released Claims.
V. This Release shall be governed by and construed in accordance
with the internal laws of the State of Illinois.
VI. This Release may be executed in multiple counterparts, all of
which taken together shall constitute one and same instrument.
VII. This Release pertains only to the Released Claims. No
obligation, liability or undertaking of any kind or nature whatsoever of any
Released Party in favor of Prime other
Exhibit D - 2
<PAGE>
than the Released Claims shall be deemed released, terminated, canceled or in
any other way modified or amended by this Release.
VIII. Prime hereby represents and warrants that no subsidiaries or
affiliates of Prime have any claim, demand or cause of action of any kind or
nature whatsoever against any one or more of the Released Parties with respect
to or in any way arising from or in connection with the Projects or the
Entities.
IX. Prime hereby acknowledges and confirms that any prior release
given in connection with any of the Projects or Entities remains in full force
and effect in accordance with its terms, and in no event shall any such prior
release be deemed to be superseded, diminished or otherwise affected by the
execution of this Release.
X. Prime represents and warrants that it has the power and
authority to execute and deliver this Release and the execution and delivery of
this Release has been duly and validly authorized by Prime.
IN WITNESS WHEREOF, the undersigned have caused this Release to be
duly executed and delivered by its respective duly authorized officers as of the
day and year first above written.
THE PRIME GROUP, INC., an Illinois corporation
By:
--------------------------------
Its:
-------------------------------
Exhibit D - 3
<PAGE>
EXHIBIT E
SCHEDULE OF LITIGATION
----------------------
THE PONDS OF PEMBROKE LIMITED PARTNERSHIP
- -----------------------------------------
1. Gay E. Dall v. The Prime Group, Inc., individually and d/b/a
Devonshire Retirement Home, Case No. 94M1306842, filed on September 19,
1994, in the Circuit Court of Cook County, Illinois, Municipal Department,
First District. The plaintiff in this action alleges that, during the Labor
Day weekend in 1993, while visiting her grandmother who was a resident at
the project owned by The Ponds of Pembroke Limited Partnership (the
"Partnership"), the plaintiff ate food which made her ill with
gastroenteritis. The plaintiff alleges that her illness was caused by the
negligence of the defendants and seeks to recover damages on account
thereof. The defense of this action was handled by attorneys retained by
the Partnership's insurance carrier. On October 17, 1995, this action was
dismissed on a Motion for Summary Judgment. The plaintiff has filed a
notice of intent to appeal the ruling on the Motion for Summary Judgment,
although, to the Partnership's knowledge, an appeal has not yet been filed.
The Prime Group, Inc. believes that, if this action is reinstated, the
Partnership will have meritorious defenses.
2. Mary Masek, a disabled person, by Marilyn Kerchenfaut and Janis
Smith, her guardians, v. The Ponds of Pembroke Limited Partnership, Case
No. 95L 01411, filed on August 8, 1995 in the Circuit Court of the 18th
Judicial Circuit of DuPage County, Illinois. The plaintiffs in this case
allege that, on August 17, 1993, Mary Masek, a resident at the project
owned by the Partnership, tripped on another resident's walker, fell and
sustained injuries for which the plaintiffs seek damages. The plaintiffs
allege that the defendant was negligent in allowing the walker to be placed
in an area which might cause another person to trip over the walker. This
action is in the discovery stage, and trial of this case is not expected to
occur before February, 1997. The defense of this action is being handled by
the Partnership's insurance carrier. The Prime Group, Inc. believes that
the Partnership has meritorious defenses to this action and that any and
all damages awarded to the plaintiffs in this action will be fully covered
by the Partnership's insurance carrier.
Exhibit E - 1
<PAGE>
RIVER OAKS PARTNERS
- -------------------
None.
Exhibit E - 2
<PAGE>
EXHIBIT F
---------
THE DEVONSHIRE
BALANCE SHEET
JULY 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS:
CASH-OPERATING $5,825.92
CASH-DEPOSITORY 1,480,354.36
CASH-PETTY 2,000.00
CASH-REAL ESTATE TAX ACCT 233,656,82
CASH-CAP RESERVE & REPLACEMENT 317,177.62
PREPAID POSTAGE 1,236.13
A/R-GEN: THE HERITAGE (336.21)
A/R-GEN: THE ISLAND 20,704.28
A/R-GEN: THE HALLMARK 4,412.36
ACCOUNTS RECEIVABLE-GENERAL 26,966.47
ACCOUNTS RECEIVABLE-TENANT 4,363.00
DUE FROM H.R. KUPPIN INS 66,650.00
LAND 2,240,250.00
BUILDINGS 26,449,945.53
FURNITURE & EQUIPMENT 1,469,650.66
FINANCING FEES 1,452,565.38
ACCUM. DEPR.-BUILDING (5,179,036.68)
ACCUM. DEPR.-FURN.& EQUIP (1,028,541.86)
ACCUM AMORT-FINANCE FEE (608,194.21)
DEFERRED EXPENSE 636,995.48
ACCUM. AMORT. DEFERRED EXP. (636,995.48)
INVENTORY 14,397.36
PREPAID INSURANCE 32,284.75
PREPAID CONTRACTS 4,805.52
PROPERTY UNDER DEV. 75,340.84
-------------
TOTAL ASSETS 27,087,478.04
=============
LIABILITIES & EQUITY
ACCOUNTS PAYABLE (70,485.73)
ENTRANCE DEPOSITS (807,280.00)
PERSONALLY YOURS PREPAYMENT (300.00)
ACCRUED INTEREST PAYABLE (97,053.28)
ACCRUED REAL ESTATE TAXES (431,576.61)
ACCRUED GOLD CARE BENEF'S (67,225.00)
ACCRUED LIABILITIES-OTHER (12,768.07)
DUE TO THE HALLMARK (3,865.14)
DUE TO KEMPER (423,604.87)
BONDS PAYABLE (33,000,000.00)
--------------
TOTAL LIABILITIES (34,914,158.70)
PARTNERS' CAPITAL
CAPITAL-GENERAL PARTNER 5,767,013.13
NET (INCOME) LOSS 53,914.77
CAPITAL-LIMITED PARTNER 1,951,838.00
NET (INCOME) LOSS 53.914.76
--------------
TOTAL PARTNERS' CAPITAL 7,826,680.66
--------------
TOTAL LIAB.& EQUITY (26,087,478.04)
==============
</TABLE>
Exhibit F - 1
<PAGE>
THE HERITAGE
BALANCE SHEET
JULY 31, 1996
ASSETS:
CASH-OPERATING $30,995
CASH-PARTNERSHIP 923
CASH-TITLE COMPANY 412
CASH-TRUST 570,764
CASH-DEPOSITORY 2,287,382
CASH-PETTY 1,500
CASH-SECURITY DEPOSITS 130,453
CASH-REAL ESTATE ESCROW 108,941
LIFE CARE ESCROW 414,932
ACCOUNTS RECEIVABLE-GENERAL 7,284
ACCOUNTS RECEIVABLE-TENANT 8,665
ACC. REC. - THE ISLAND 1,742
PROPERTY UNDER DEVELOPMENT
PURCHASE PRICE 1,426,125
ARCHITECTURAL FEE 1,287,617
CIVIL ENGINEERING 261,856
CONST. INSPECTION 22,950
LOAN COMMITMENT FEE 1,432,129
BOND INTEREST EXP. 65,748
BUILDERS RISK 21,702
LEGAL/GENERAL 237,016
DEVELOPER FEES 1,202,706
UNDERWRITING MANUALS 438,434
PROTECT CONTINGENCY 23,674
GEN. REQ. CONTRACTOR 19,552,555
SUBSURFACE EXPLORE. 145,782
DRYWALL 183,469
MISC. SPECIALTIES 53,543
KITCHEN APPLIANCES 36,544
BLINDS/SHADES 309,439
PLUMBING-SUB CONT. 5,940
ELECTRICAL SUB. 824
MEDIA/PRINT 218,643
BROCHURE 96,309
MODEL FEE 57,736
PUBLIC RELATION FEES 808,832
LAND 1,444,544
BUILDINGS 983,270
FURNITURE & EQUIPMENT 158,288
CAPITAL IMPROVEMENTS 10,000
FINANCING FEES 604,401
ACCUM. DEPR.-BUILDING (1,972,699)
ACCUM. DEPR.-FURN.& EQUIP (441,224)
ACCUMULATED AMORTIZATION (132,180)
DEFERRED EXPENSE 1,181,624
ACCUM. AMORT. DEFERRED EXP. (1,181,624)
INVENTORY 13,238
PREPAID INSURANCE 24,365
PRE-PAID PAPER PURCHASE 322
BOND FUNDS 903,129
CONTRA DEVELOPMENT COST (2,305,647)
TOTAL 27,179,380
----------
TOTAL ASSETS 30,743,372
==========
Exhibit F - 2
<PAGE>
THE HERITAGE
BALANCE SHEET
JULY 31, 1996
LIABILITIES & EQUITY
ACCOUNTS PAYABLE (60,166)
ENTRANCE DEPOSITS (595,602)
ACCRUED INTEREST PAYABLE (95,781)
ACCRUED REAL ESTATE TAXES (211,227)
ACCRUED LIABILITIES-OTHER (20,507)
DUE TO THE DEVONSHIRE (2,284)
DUE TO THE HALLMARK (5,861)
ACCRUED VACATION PAY (22,876)
D/T KEMPER (17,559)
D/T SWISS BANK 28,872
D/T RMKT/TRUST FEE (5,228)
BONDS PAYABLE (32,000,000)
-----------
TOTAL LIABILITIES (33,008,220)
-----------
PARTNERS' CAPITAL 1,136,896
CAPITAL-GENERAL PARTNER (4,472)
NET(INCOME)LOSS 1,136,896
CAPITAL-LIMITED PARTNER (4,472)
NET(INCOME)LOSS -----------
TOTAL PARTNERS' CAPITAL 2,264,848
-----------
TOTAL LIAB. & EQUITY (30,743,372)
===========
Exhibit F -3
<PAGE>
EXHIBIT G
---------
September 17, 1996
KILICO Realty Corporation and
Kemper Investors Life Insurance Company
c/o ZKS Real Estate Partners, LLC
225 W. Washington
Suite 1450
Chicago, Illinois 60606
RE: THE DEVONSHIRE AND THE HERITAGE
Gentlemen:
Reference is made to that certain Letter Agreement dated June 12, 1995
among The Ponds of Pembroke Limited Partnership ("Ponds L.P."), River Oaks
Partners ("ROP"; Ponds L.P. and ROP are herein referred to individually as a
"Project Partnership" and collectively as the "Project Partnerships"), Kilico
Realty Corporation and Kemper Investors Life Insurance Company (the "Sale Right
Letter Agreement"), pursuant to which each Project Partnership grants to Kilico
Realty Corporation the rights, among other rights, to market, negotiate a
contract for sale, and sell the "Projects" (defined therein) owned by the
Project Partnerships.
Contemporaneously herewith, you and The Prime Group, Inc. ("Prime") are
entering into an agreement of even date (the "Sale Agreement") pursuant to which
you agree to sell, and Prime agrees to purchase, the Kemper Senior Housing
Interests (as defined in the Sale Agreement) on the terms and conditions set
forth therein. As an inducement to you to enter into the Sale Agreement, the
undersigned agree as follows:
1. The Sale Right Letter Agreement constitutes the valid and binding
obligation of the undersigned, enforceable against the undersigned in accordance
with its terms. As of the date hereof, the undersigned have no defenses to the
performance of any of the rights granted to you under the Sale Right Letter
Agreement or any claim against you which might become a defense against the
enforceability of the obligations of the undersigned under the Sale Right Letter
Agreement. The undersigned hereby agree that the "Effective Time" under the Sale
Right Letter Agreement is December 29, 1995 notwithstanding any assertions to
the contrary relating to that certain Prime Portfolio Letter Agreement dated
June 12, 1995, as amended and restated.
Exhibit G - 1
<PAGE>
2. During the pendency of the Sale Agreement, the rights granted to you
under the Sale Right Letter Agreement will be suspended and may not be enforced.
However, upon termination of the Sale Agreement for any reason whatsoever
(excepting only the consummation of the transactions thereunder), the rights
granted to you under the Sale Right Letter Agreement will be automatically
reinstated and the Sale Right Letter Agreement shall be fully enforceable
against the undersigned. The Sale Right Letter Agreement will automatically
terminate upon the consummation of the transactions contemplated by the Sale
Agreement.
3. To effectuate the provisions hereof, the undersigned are each
executing and delivering herewith an irrevocable power of attorney (undated) in
favor of Kilico Realty Corporation authorizing it to exercise, in the name of
and on behalf of the undersigned, the rights granted under the Sale Right Letter
Agreement. Kilico Realty Corporation shall hold and not exercise such power of
attorney unless and until the reinstatement of the Sale Right Letter Agreement
as provided in Paragraph 2 above, after which time it may date the power of
attorney and take any and all actions authorized thereunder.
To confirm your agreement to suspend the operation of the Sale Right Letter
Agreement as provided in Paragraph 2 above, to acknowledge the termination of
the Sale Right Letter Agreement upon the consummation of the transactions
contemplated by the Sale Agreement and hold the power of attorney as provided in
Paragraph 3 above, please sign the enclosed copy of this letter and return it to
the undersigned.
Sincerely,
THE PONDS OF PEMBROKE LIMITED PARTNERSHIP
By: The Prime Group, Inc.,
Managing General Partner
By:
----------------------
Its:
----------------------
RIVER OAKS PARTNERS
By: The Prime Group, Inc.,
Managing Partner
By:
----------------------
Its:
----------------------
Exhibit G - 2
<PAGE>
CONFIRMED:
KILICO REALTY CORPORATION
By:
---------------------
Its:
--------------------
Date:
-------------------
KEMPER INVESTORS LIFE INSURANCE COMPANY
By:
--------------------
Its:
-------------------
Date:
------------------
By:
--------------------
Its:
--------------------
Date:
-------------------
Exhibit G - 3
<PAGE>
CONSENT:
The Prime Group, Inc., individually and as Managing General Partner of The
Ponds of Pembroke Limited Partnership and River Oaks Partners, hereby consents
to and agrees to be bound by the provisions of the foregoing letter.
THE PRIME GROUP, INC.
By: _____________________________
Its:_____________________________
Date: ___________________________
Exhibit G - 4
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated September 10, 1996 with respect to the balance
sheet of Brookdale Living Communities, Inc., July 30, 1996 with respect to the
combined financial statements of Original Facilities, September 5, 1996 with
respect to the combined financial statements of Activelife Facilities, and
September 3, 1996 with respect to the financial statements of Gables at
Brighton Associates, in this Registration Statement (Form S-1) and related
Prospectus of Brookdale Living Communities, Inc. for the registration of
7,187,500 shares of its common stock.
ERNST & YOUNG LLP
Chicago, Illinois
September 18, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> SEP-04-1996
<PERIOD-END> SEP-04-1996
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 350,000<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 351,000
<CURRENT-LIABILITIES> 350,000<F2>
<BONDS> 0
<COMMON> 1
0
0
<OTHER-SE> 999<F3>
<TOTAL-LIABILITY-AND-EQUITY> 351,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1> Amount consists of $350,000 in deferred costs related to offering.
<F2> Amount consists of $350,000 due to an affiliate of Brookdale Living
Communities, Inc.
<F3> Amount represents additional paid-in capital on common stock
</FN>
</TABLE>
