<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the Quarterly Period ended June 30, 1997.
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the Transition Period from _______ to ______.
Commission File Number 0-22253
-----------
BROOKDALE LIVING COMMUNITIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-4103821
- ------------------------------- ----------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
77 W. Wacker Drive
Chicago, IL 60601
- ------------------------------- ----------------------------------------
(Address of principal executive (Zip Code)
offices)
(312) 456-0239
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address, or former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of July 31, 1997, 7,175,000 shares of the Registrant's Common Stock,
$0.01 par value per share, were outstanding.
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
FORM 10-Q
INDEX
-----
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Financial Statements. 3
Consolidated balance sheet of Brookdale Living Communities, Inc. as of June 30, 1997 and
combined balance sheet of Predecessor Properties (predecessor to Brookdale Living
Communities, Inc.) as of December 31, 1996 (Unaudited) 4
Consolidated statement of operations of Brookdale Living Communities, Inc. for the period
from May 7, 1997 through June 30, 1997, combined statements of operations of Predecessor
Properties (predecessor to Brookdale Living Communities, Inc.) for the period from April 1,
1997 through May 6, 1997 and for the three month period ended June 30, 1996 and combined
statements of operations of Brookdale Living Communities, Inc. and Predecessor Properties
from April 1, 1997 to June 30, 1997 (Unaudited) 5
Consolidated statement of operations of Brookdale Living Communities, Inc. for the period
from May 7, 1997 through June 30, 1997, combined statements of operations of Predecessor
Properties (predecessor to Brookdale Living Communities, Inc.) for the period from January 1,
1997 through May 6, 1997 and the six month period ended June 30, 1996 and combined statements
of operations of Brookdale Living Communities, Inc. and Predecessor Properties from January 1,
1997 to June 30, 1997 (Unaudited) 6
Consolidated statement of cash flows of Brookdale Living Communities, Inc. for the period from
May 7, 1997 through June 30, 1997 and combined statements of cash flows of Predecessor
Properties (predecessor to Brookdale Living Communities, Inc.) for the period from January 1,
1997 through May 6, 1997 and for the six month period ended June 30, 1996 (Unaudited) 7
Notes to consolidated and combined financial statements of Brookdale Living Communities, Inc. 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 17
PART II: OTHER INFORMATION 21
Item 1. Legal Proceedings. 21
Item 2. Changes in Securities. 21
Item 3. Defaults Upon Senior Securities. 21
Item 4. Submission of Matters to a Vote of Security Holders. 21
Item 5. Other Information. 21
Item 6. Exhibits and Reports on Form 8-K. 21
Signatures 25
</TABLE>
2
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The information furnished in the accompanying consolidated and combined
balance sheets, statements of operations, and statements of cash flows reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the aforementioned financial statements for the interim period.
Brookdale Living Communities, Inc. (the "Company") was incorporated on
September 4, 1996 and commenced operations upon the completion of its initial
public offering on May 7, 1997. The combined financial statements of Predecessor
Properties (the "Predecessor" to the Company) are presented for comparative
purposes due to common ownership and management. The combined financial
statements of Predecessor Properties combine the balance sheet data and results
of operations of the entities which comprised the Predecessor Properties from
December 27, 1996 through May 6, 1997 and the three partnerships which comprised
the Predecessor Properties prior to December 27, 1996.
The aforementioned financial statements should be read in conjunction with
the notes to the financial statements and Management's Discussion and Analysis
of Financial Condition and Results of Operations.
3
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED BALANCE SHEET OF THE COMPANY AND COMBINED
BALANCE SHEET OF THE PREDECESSOR
(UNAUDITED)
<TABLE>
<CAPTION>
Brookdale Living
Communities, Inc. Predecessor Properties
June 30, 1997 December 31, 1996
------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,840,337 $ 4,230,343
Cash-restricted 3,646,344 1,088,797
Accounts receivable 484,476 164,485
Prepaid rent - 1,251,019
Due from affiliates - 101,327
------------- ------------
Total current assets 15,971,157 6,835,971
Real estate, at cost:
Land 10,369,050 3,684,794
Buildings and improvements 109,671,340 52,418,455
Furniture and equipment 5,763,384 2,280,147
------------- ------------
125,803,774 58,383,396
Accumulated depreciation (10,209,009) (9,158,919)
------------- ------------
115,594,765 49,224,477
Letter of credit deposit 11,313,302 -
Deferred costs, net 2,755,617 1,713,677
Other 4,683,292 162,885
------------- ------------
Total assets $ 150,318,133 $57,937,010
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY AND PARTNERS' (DEFICIT)
Current liabilities:
Mortgage notes payable, current $ 274,260 $ -
Deferred gain on sale of property 805,835 805,835
Prepaid sublease rent-affiliate - 490,834
Prepaid tenant rent 33,807 124,889
Accrued interest payable 393,953 182,153
Accrued real estate taxes 1,496,821 1,030,502
Accounts payable and accrued expenses 2,836,559 443,091
Tenant security deposits 3,506,746 2,613,833
Due to affiliates - 811,321
Deferred lease liability 642,245 -
Distribution payable 225,868 -
Other 416,253 383,036
------------- ------------
Total current liabilities 10,632,347 6,885,494
Mortgage notes payable, long term 28,026,831 -
Note payable 3,000,000 -
Bonds payable 65,000,000 65,000,000
Deferred gain on sale of property, long term 17,325,463 17,728,380
------------- ------------
Total liabilities 123,984,641 89,613,874
Minority Interest - (6,249,661)
Stockholders' equity and partners' (deficit):
Common Stock, $.01 par value, 75,000,000 shares authorized,
7,175,000 shares issued and outstanding at June 30, 1997 71,750 -
Additional paid-in-capital 26,343,461 -
Accumulated deficit (81,719) -
Partners' (deficit) - (25,427,203)
------------- ------------
Total stockholders' equity and partners' (deficit) 26,333,492 (25,427,203)
------------- ------------
Total liabilities and stockholders' equity and partners' (deficit) $ 150,318,133 $57,937,010
============= ============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
4
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY AND COMBINED
STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(UNAUDITED)
<TABLE>
<CAPTION>
Brookdale Living Predecessor Brookdale Living Predecessor
Communities, Inc. Properties Communities, Inc. Properties
from from and from
May 7, 1997 April 1, 1997 Predecessor Properties April 1, 1996
to to from April 1, 1997 to
June 30, 1997 May 6, 1997 to June 30, 1997 June 30, 1996
----------------- ------------- ---------------------- -------------
<S> <C> <C> <C> <C>
REVENUE
Resident fees $6,540,366 $3,008,805 $9,549,171 $5,605,698
Management fees 31,576 0 31,576 0
---------- ---------- ---------- ----------
Total revenue 6,571,942 3,008,805 9,580,747 5,605,698
---------- ---------- ---------- ----------
EXPENSES
Facility operating 3,488,271 1,635,035 5,123,306 2,804,491
General and administrative 477,881 - 477,881 -
Leasing 1,543,636 865,766 2,409,402 -
Depreciation and amortization 556,307 184,875 741,182 792,148
Interest, net 588,739 277,255 865,994 1,148,198
Financing fees 134,274 21,698 155,972 266,635
Property management fee-affiliate - 58,457 58,457 231,415
---------- ---------- ---------- ----------
Total expenses 6,789,108 3,043,086 9,832,194 5,242,887
---------- ---------- ---------- ----------
Income (loss) before deferred tax benefit (217,166) (34,281) (251,447) 362,811
---------- ---------- ---------- ----------
Deferred tax benefit 135,447 34,152 169,599 -
---------- ---------- ---------- ----------
Net income (loss) $ (81,719) $ (129) $ (81,848) $ 362,811
========== ========== ========== ==========
Net loss per share of weighted average
common stock outstanding $ (0.01) - (a) $ (0.02) -
========== ========== ============== ==========
Weighted average common shares
outstanding 6,843,636 - (a) 4,927,473 -
========== ========== ============== ==========
</TABLE>
(a) Pro forma weighted average shares and per share amounts
See accompanying notes to consolidated and combined financial statements.
5
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY AND COMBINED
STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(UNAUDITED)
<TABLE>
<CAPTION>
Brookdale Living Predecessor Brookdale Living Predecessor
Communities, Inc. Properties Communities, Inc. Properties
from from and from
May 7, 1997 January 1, 1997 Predecessor Properties January 1, 1996
to to from January 1, 1997 to
June 30, 1997 May 6, 1997 to June 30, 1997 June 30, 1996
------------- ------------ ---------------- -------------
<S> <C> <C> <C> <C>
REVENUE
Resident fees $6,540,366 $10,471,987 $17,012,353 $11,186,541
Management fees 31,576 0 31,576 0
---------- ----------- ----------- -----------
Total revenue 6,571,942 10,471,987 17,043,929 11,186,541
---------- ----------- ----------- -----------
EXPENSES
Facility operating 3,488,271 5,726,558 9,214,829 5,859,250
General and administrative 477,881 - 477,881 -
Leasing 1,543,636 3,041,883 4,585,519 -
Depreciation and amortization 556,307 639,739 1,196,046 1,582,284
Interest, net 588,739 762,680 1,351,419 2,303,443
Financing fees 134,274 217,953 352,227 481,163
Property management fee-affiliate - 229,627 229,627 461,084
---------- ----------- ----------- -----------
Total expenses 6,789,108 10,618,440 17,407,548 10,687,224
---------- ----------- ----------- -----------
Income (loss) before deferred
tax benefit (217,166) (146,453) (363,619) 499,317
========== =========== =========== ===========
Deferred tax benefit 135,447 78,775 214,222 -
----------- ----------- ----------- -----------
Net income (loss) $ (81,719) $ (67,678) $ (149,397) $ 499,317
=========== =========== =========== ===========
Net loss per share of
weighted average common
stock outstanding $ (0.01) - (a) $ (0.04) -
=========== ========== =============== ===========
Weighted average common
stock outstanding 6,843,636 - (a) 3,471,823 -
=========== =========== =============== ===========
</TABLE>
(a) Pro forma weighted average shares and per share amounts
See accompanying notes to consolidated and combined financial statements.
6
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND COMBINED
STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
(UNAUDITED)
<TABLE>
<CAPTION>
Brookdale Living Predecessor Predecessor
Communities, Inc. Properties Properties
from from from
May 7, 1997 January 1, 1997 January 1, 1996
to to to
June 30, 1997 May 6, 1997 June 30, 1996
-------------- ------------- --------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (81,719) $ (67,678) $ 499,317
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 556,307 639,739 1,582,284
Deferred gain on sale of property (121,308) (281,609) -
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable (258,822) (61,169) 66,215
Decrease in prepaid rent 395,834 855,185 -
(Increase)/decrease in other assets (669,832) (298,777) 53,817
Decrease in prepaid sublease rent-affiliate - (490,834) -
Increase/(decrease)in prepaid tenant rent (1,348,962) 1,257,880 -
Increase in accrued interest payable 100,596 111,204 157,577
Increase in accrued real estate taxes 412,242 54,077 85,238
Increase/(decrease) in accounts payable and accrued expenses 1,787,384 606,084 (39,100)
Increase in tenant security deposits 857,170 35,743 36,056
Increase/(decrease) in other liabilities 375,912 (342,695) (77,290)
------- -------- -------
Net cash provided by operating activities 2,004,802 2,017,150 2,364,114
INVESTING ACTIVITIES
Acquisitions of facilities and additions to real estate (29,538,615) (149,069) (106,825)
Increase/(decrease) in due from affiliate - 101,327 (41,979)
------------ ------- -------
Net cash used in investing activities (29,538,615) (47,742) (148,804)
FINANCING ACTIVITIES
Principal repayment on mortgage notes payable (43,628) - (136,300)
(Increase)/decrease in cash-restricted (1,377,123) (1,180,424) 379,743
Increase in letter of credit deposit (11,313,302) - -
Increase/(decrease) in due to affiliate 32,820 (99,749) 176,383
Increase in deferred lease liability 210,353 431,892 -
Increase in deferred costs (1,147,903) (39,993) -
Net proceeds from equity offering 50,872,403 - -
Contributions from partners - - 25,585
Distributions to partners (1,929,012) (1,241,935) (1,412,787)
----------- ----------- -----------
Net cash provided by/(used in) financing activities 35,304,608 (2,130,209) (967,376)
----------- ----------- -----------
Net increase/(decrease) in cash 7,770,795 (160,801) 1,247,934
Cash and cash equivalents at beginning of period 4,069,542 4,230,343 4,201,277
----------- ----------- -----------
Cash and cash equivalents at end of period $ 11,840,337 $ 4,069,542 $ 5,449,211
============ =========== ===========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
7
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND COMBINED
STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
(UNAUDITED)
Supplemental disclosure of noncash investing and financing activities:
Related to May 7, 1997 acquisitions, the following assets, liabilities and
capital were acquired by The Company:
<TABLE>
<S> <C>
Real estate, net $53,780,000
Restricted cash 996,563
Deferred costs, net 2,155
Other assets 74,165
-----------
Total assets $54,852,883
===========
Mortgage notes payable $28,344,719
Note payable 3,000,000
Accrued real estate taxes 435,391
Accounts payable and other liabilities 482,283
----------
Total liabilities 32,262,393
----------
Capital 22,590,490
-----------
Total liabilities and capital $54,852,883
===========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
8
<PAGE>
1. ORGANIZATION
Brookdale Living Communities, Inc. (the "Company") was incorporated in
Delaware on September 4, 1996. The Company was formed in order to consolidate
and expand the senior and assisted living property ownership interests and
operations of The Prime Group, Inc. and certain of its affiliates (collectively,
"PGI"). In connection with an initial public offering (the "Offering"), more
fully described in the Registration Statement and the Prospectus, in the form it
became effective on May 1, 1997, the Company sold 4,500,000 shares of its
common stock to the public and PGI contributed its senior and assisted living
property ownership interests and operations in exchange for 2,000,000 shares
of common stock of the Company. PGI purchased 2,500,000 of the 4,500,000
shares of common stock. Net of underwriting discounts, the Company received
approximately $48.1 million in net proceeds from the Offering.
Upon consummation of the Offering, the Company had 6,500,000 shares of common
stock outstanding. Of these shares, the 4,500,000 shares sold in the Offering
are freely tradable without restriction or limitation, except for any shares
(including the 2,500,000 shares purchased by PGI) purchased by "affiliates" of
the Company. The remaining 2,000,000 shares are "restricted securities" and are
held by PGI and management of the Company. The Company used the proceeds from
the Offering primarily to pay the cash portion of the purchase price for the
Acquired Facilities (as defined below), to acquire the third party interests in
two properties in which PGI also had interests, to pay certain amounts to or on
behalf of PGI and various parties in connection with the Formation (as defined
in the Prospectus), to finance a portion of future acquisitions and developments
and for working capital and other general corporate purposes.
Upon consummation of the Offering, PGI contributed its interests in the
Predecessor Properties (described below) to the Company. In addition, the
Company acquired a third party's interest in The Devonshire and The Heritage
Facilities. The Company acquired the Edina Park Plaza and the Hawthorn Lakes
Facilities from an unaffiliated third party, and the Company entered into an
agreement to lease the Park Place Facilities ("Park Place") from an unaffiliated
third party (collectively, the "Acquired Facilities").
In connection with the Offering, the Company granted the Underwriters an
option to purchase up to 675,000 additional shares of common stock for the
purpose of covering over-allotments. The underwriters elected the over-
allotment option and, on June 3, 1997, the Company sold 675,000 shares in
connection with the over-allotment option and received approximately $7.2
million in net proceeds.
The combined financial statements of the properties owned by the Senior
Housing Division of The Prime Group, Inc. at December 31, 1996 and for the
period from January 1, 1997 through May 6, 1997 consist of five properties,
including three leased properties (collectively, the "Predecessor Properties" as
defined in the table below). As the Springs of East Mesa and The Gables at
Brighton were not included in the Predecessor Properties until December 27,
1996, the periods prior to December 27, 1996 represent interests in the three
partnerships that owned, operated and managed The Devonshire, The Heritage and
The Hallmark (the "Original Facilities"). The interests in the Predecessor
Properties and the Acquired Facilities represent the interests of the Company at
June 30, 1997. The following tables set forth the Predecessor Properties and the
Acquired Facilities (collectively, the "Properties").
Senior Housing Division of The Prime Group, Inc. (the "Predecessor Properties"):
The Hallmark (2),(3)
The Heritage (3)
The Devonshire (3)
Springs of East Mesa (1), (2), (4)
The Gables at Brighton (1), (2)
Acquired Facilities:
Hawthorn Lakes (1), (4)
Edina Park Plaza (1), (4)
Park Place (1), (2)
(1) Collectively referred to as the "New Facilities".
(2) Collectively referred to as the "Leased Facilities".
(3) Collectively referred to as the "Original Facilities".
(4) Collectively referred to as the "Activelife Facilities".
9
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments consisting only of
recurring accruals considered necessary for a fair presentation have been
included. Operating results for such interim periods are not necessarily
indicative of the results that may be expected for a full fiscal year. For
further information regarding significant accounting policies please refer to
the financial statements and footnotes thereto included in the Brookdale Living
Communities, Inc. Prospectus dated May 1, 1997. Significant intercompany
accounts and transactions have been eliminated in consolidation.
RESIDENT FEE REVENUE
Resident fee revenue is recorded when services are rendered and consists of
fees for basic housing, support services and fees associated with additional
services such as personalized health and assisted living care.
CASH EQUIVALENTS
All highly liquid investments, with a maturity of three months or less when
purchased, are considered to be cash equivalents.
REAL ESTATE
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 Company 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. There was no impairment to the
Properties at December 31, 1996 or June 30, 1997.
Expenditures for ordinary maintenance and repairs are expensed to operations
as incurred. Significant renovations and improvements which improve and/or
extend the useful lives of the assets are capitalized and depreciated over their
estimated useful lives.
Depreciation is calculated using the straight-line method over the estimated
useful lives of assets, which are as follows:
Buildings and improvements..................45 years
Furniture and fixtures......................5 years
10
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED COSTS
Deferred financing costs are amortized using the straight-line method over the
term of the mortgage notes and bonds and related letters of credit. Deferred
leasing costs are amortized using the straight-line method over the term of the
related leases.
INCOME TAXES
The Company's net basis of real estate assets as reported in the financial
statements at June 30, 1997 and December 31, 1996 exceeds the basis used for
federal income tax purposes by approximately $8.9 million and $2.2 million,
respectively, due to differences in the initial carryover basis of certain real
estate assets and the use of accelerated depreciation methods for federal income
tax purposes.
USE OF ESTIMATES
The preparation of the consolidated and combined financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the consolidated
and combined financial statements and accompanying notes. Actual results could
differ from those estimates.
3. CASH-RESTRICTED
The Heritage and The Hallmark have life care escrow deposits required under
Section 7(b) of the Illinois Life Care Facility Act. The amount on deposit at
June 30, 1997 and December 31, 1996 was $2,671,650 and $1,088,797, respectively.
In accordance with the bonds payable described in Note 4, The Heritage and The
Devonshire have Cash Collateral Pledge Agreements which require quarterly
deposit payments in addition to the original deposit made on May 1, 1997. The
aggregate amount on deposit at June 30, 1997 was $11,313,302.
In accordance with the mortgage notes payable described in Note 4, the Company
is required to maintain escrow deposits for real estate taxes, repairs and other
operating activities. The aggregate amount on deposit at June 30, 1997 was
$974,694.
11
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
4. LONG TERM DEBT
<TABLE>
<CAPTION>
MORTGAGE NOTES PAYABLE June 30,1997 December 31,1996
------------ ----------------
<S> <C> <C>
Fixed rate mortgage notes payable issued by local municipalities (A) $28,301,091 $ -
=========== ===========
NOTE PAYABLE (B) $ 3,000,000 $ -
=========== ===========
BONDS PAYABLE
Variable rate tax-exempt bonds issued by state and local governmental
authorities (C) $65,000,000 $65,000,000
=========== ===========
</TABLE>
(A) The mortgage notes bear interest at 8% ($15,021,618 at June 30, 1997) and
8.525% ($13,279,473 at June 30, 1997), with monthly principal and interest
payments through maturity in 2027 and are collateralized by certain of the
company's real estate assets.
(B) The principal amount on the note is due on April 1, 1999. The note requires
interest to be paid on overdue payments at 12%. The principal balance and
any accrued interest may be prepaid without penalty.
(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,
respectively.
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 on the
Bonds for The Heritage and The Devonshire ranged from 2.30% to 4.40% during
1996 and 3.00% to 4.70% during the six months ended June 30, 1997. The
rates on the Bonds for The Heritage and The Devonshire at December 31, 1996
were 4.10% (3.47% average for the year ended) and 4.03% (3.40% average for
the year ended), respectively, and at June 30, 1997 were 4.30% (3.72%
average for the six months ended) and 4.18% (3.69% average for the six
months ended), respectively. The interest rate on the Bonds may be
converted to a fixed rate at the request of the Company.
The Bonds are collateralized by irrevocable letters of credit issued by two
banks in the aggregate amount of $66,714,932 (the "Letters of Credit") that
expire May 18, 2000. The Letters of Credit are collateralized by a first
mortgage lien on the property and a cash collateral pledge agreement for
which an initial cash collateral deposit of $11,000,000 was made on May 7,
1997. Additionally, the Company makes scheduled quarterly deposit payments.
Letters of Credit fees equal to 1.3% of the stated amount of the Letters of
Credit, less the initial cash collateral deposit, and 0.25% of the initial
cash collateral deposit, are payable semi-annually in advance.
12
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED)(CONTINUED)
5. RELATED PARTY TRANSACTIONS
Historically, the properties have incurred property management fees in lieu
of general and administrative expenses. However, upon the completion of the
Offering, the Company will no longer incur property management fees and the
general and administrative expenses will be incurred.
6. LEASES
Prior to the consummation of the Offering, BLC Property, Inc. ("BLC")
entered a lease agreement (the "Lease Agreement") with Health and Retirement
Properties Trust ("HRPT"), to lease The Hallmark, The Springs of East Mesa and
The Gables at Brighton (the "initial HRPT Leased Facilities"). The Lease
Agreement has an initial term of 23 years with options to extend the term for
two consecutive 25-year terms and required monthly payments ranging from
$692,709 to $802,084. The Lease Agreement also requires additional rent
beginning in 1999 related to increases in revenue, as more fully described in
the Lease Agreement, generated by the Leased Facilities. Future minimum annual
rent expense to be recorded over the term of the Lease Agreement is $8,704,465
(gross expense of $9,510,300 less amortization of deferred gain on sale of
property of $805,835). Included in prepaid rent and other at December 31, 1996
is $692,709 of prepaid rent related to these leases. Included in deferred lease
liabilities at June 30, 1997 and December 31, 1996 is $612,204 and $13,309,
respectively, for the effect of straight-lining of rental payments, and $9,430
for the effect of straight-lining sublease rental payments in 1996.
Upon the completion of the Offering, PGI contributed to the Company its
interest in BLC. The Company and HRPT amended the Lease Agreement ("Amended
Lease Agreement") to include the Park Place Facilities. The terms of the Amended
Lease Agreement are the same as for the Lease Agreement with an increase in
monthly payments ranging from $113,605 to $131,542 related to the Park Place
Facilities. Future minimum annual rent expense to be recorded over the term of
the lease agreement is $130,235 related to the Park Place Facilities. Included
in deferred lease liabilities at June 30, 1997 is $30,041 for the effect of
straight-lining of rental payments related to the Park Place Facilities.
7. SUBSEQUENT EVENTS
The Company has entered into a purchase agreement to acquire The Gables at
Farmington property for $22.4 million in 1997. The closing of the purchase of
this property is subject to customary closing contingencies. The Gables at
Farmington is a 173-unit senior and assisted living community located in
Farmington, Connecticut.
The Company has also entered into a purchase agreement to acquire The
Classic at West Palm Beach property for approximately $28 million in 1997. The
closing of the purchase of this property is subject to customary closing
contingencies. The Classic at West Palm Beach is a 296-unit senior and assisted
living community located in West Palm Beach, Florida.
8. PRO FORMA INFORMATION
The following pro forma condensed consolidated and combined statements of
operations of the Company for the six months ended June 30, 1997 and June 30,
1996 are presented as if, at January 1, 1997 and January 1, 1996, the Company
had sold 4,500,000 shares of its common stock (including PGI's purchase of
2,500,000 shares) at a sale price of $11.50 per share, issued 2,000,000 shares
of its common stock to PGI and management and sold 675,000 shares of its common
stock in accordance with an over-allotment option, purchased or leased the
Original Facilities, the Activelife Facilities, the Gables at Brighton Facility,
and the Park Place Facilities. The pro forma condensed consolidated and combined
statements of operations of the Company should be read in conjunction with the
historical financial statements included herein and in the Company's Prospectus
dated May 1, 1997.
These pro forma condensed consolidated and combined statements of
operations are not necessarily indicative of what the actual results of
operations of the Company would have been assuming the Offering had been
consummated at the beginning of each period presented, nor do they purport to
represent the results of operations of the Company for future periods.
13
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited)(Continued)
8. Pro Forma Information (continued)
Pro Forma Condensed Consolidated and Combined Statement of Operations - Six
Month Period Ended June 30, 1997 (amounts in thousands, except for per
share amounts)
<TABLE>
<CAPTION>
Brookdale Living
Communities, Inc. and
Predecessor Properties
January 1, 1997 to Pro Forma Pro Forma
June 30, 1997 Adjustments(a) As Adjusted
------------- --------------- -----------
<S> <C> <C> <C>
REVENUE
Residents fees $17,012 $ 4,448 $ 21,460
Management services income 32 76 108
------- ------- --------
Total revenue 17,044 4,524 21,568
EXPENSES
Facility operating (9,445) (2,459) (11,904)
Leasing (4,586) (546) (5,132)
General and administrative (478) (999) (1,477)
Depreciation and amortization (1,196) (763) (1,959)
------- ------- --------
Income (loss) from operations 1,339 (243) 1,096
Interest and financing fees expense, net (1,703) (946) (2,649)
------- ------- --------
Loss before
income taxes (364) (1,189) (1,553)
Pro forma benefit
for income taxes 214 568 782
------ ------- --------
Pro forma net loss $(150) $(621) $(771)
======= ======= ========
Pro forma net loss
per share $(0.04) $(0.11)
======= ========
Pro forma common shares
outstanding 3,472 7,175
======= ========
</TABLE>
(a) The adjustments reflect the effects of the operations of Hawthorn Lakes,
Edina Park Plaza and Park Place for the period January 1, 1997 through May
6, 1997, as if they had been acquired by the Company as of January 1, 1997.
Also reflected are the effects of the Company operating as a public company
for the period January 1, 1997 through May 6, 1997, as if the Company began
operations as of January 1, 1997. Interest income on cash balances has not
been reflected in these adjustments.
14
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (Unaudited) (Continued)
8. Pro Forma Information (continued)
Pro Forma Condensed Consolidated and Combined Statement of Operations - Six
Month Period Ended June 30, 1996 (amounts in thousands, except for per
share amounts)
<TABLE>
<CAPTION>
Original Pro Forma Pro Forma
Facilities Adjustments (a) As Adjusted
----------- ----------- -----------
<S> <C> <C> <C>
Revenue
Residents fees $11,186 $ 8,485 $ 19,671
Management services income -- 99 99
------- ------- --------
Total revenue 11,186 8,584 19,770
Expenses
Facility operating (6,320) (4,600) (10,920)
Leasing -- (5,133) (5,133)
General and administrative -- (1,477) (1,477)
Depreciation and
amortization (1,582) (278) (1,860)
------- ------- --------
Income (loss) from
operations 3,284 (2,904) 380
Interest and financing
fees expense, net (2,785) 237 (2,548)
------- ------- --------
Income (loss) before
income taxes 499 (2,667) (2,168)
Pro forma (provision)
benefit for income taxes (200) 1,228 1,028
------- ------- --------
Pro forma net income (loss) $ 299 $(1,439) $ (1,140)
======= ======= ========
Pro forma net income
(loss) per share $0.15 $(0.16)
======= ========
Pro forma common shares
outstanding 2,000 7,175
======= ========
</TABLE>
(a) The adjustments reflect the effects of the operations of the New Facilities
for the period January 1, 1996 through June 30, 1996, as if they had been
acquired by the Company as of January 1, 1996. Also reflected are the
effects of the Company operating as a public company for the period January
1, 1996 through June 30, 1996, as if the Company began operations as of
January 1, 1996. Interest income on cash balances has not been reflected in
these adjustments.
15
<PAGE>
BROOKDALE COMMUNITIES, INC
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
9. INCOME TAXES
The Company will file a consolidated corporate tax return. Deferred income taxes
reflect the net effects of permanent and temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes.
Income tax expense differs from the amounts computed by applying the U.S.
Federal income tax rate of 40% to pretax income as a result of the following:
<TABLE>
<CAPTION>
Brookdale Living Predecessor Predecessor
Communities, Inc. Properties from Properties from
from May 7, 1997 January 1, 1997 April 1, 1997
to June 30, 1997 to May 6, 1997 to May 6, 1997
----------------- --------------- ---------------
<S> <C> <C> <C>
Computed "expected" income tax benefit $ 86,866 $58,581 $13,712
Increase in income tax benefit resulting from net
income of non-taxable entities included in the - 20,194 20,440
Predecessor Properties.
Increase in income tax benefit resulting from effect of
non-taxable amortization of deferred gain on sale
of property 48,581 - -
-------- ------- -------
Income tax benefit per financial statements $135,447 $78,775 $34,152
======== ======= =======
</TABLE>
Included in the Predecessor Properties are three non-taxable partnerships which
had operations for all periods prior to May 7, 1997, and a C Corporation which
began operations on December 27, 1996.
Included in other assets of the Company as of June 30, 1997 is a deferred tax
asset of approximately $3,766,000, which includes $3,552,000 related to the
difference in the basis of real estate assets for financial reporting and income
tax purposes and $214,000 related to a net operating loss carryforward. The
deferred tax asset will be recognized through depreciation expense for tax
purposes in excess of depreciation expense for financial reporting over the
depreciable lives of the real estate and through the generation of taxable
income. A valuation allowance pertaining to these real estate assets is not
required as the Company expects to generate future taxable income to realize the
deferred tax asset.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion is based primarily on the statements of operations
for combined "Brookdale Living Communities, Inc. and Predecessor Properties"
from January 1, 1997 and April 1, 1997 to June 30, 1997 and the statements of
operations of Predecessor Properties from January 1, 1996 and April 1, 1996 to
June 30, 1996 and also the balance sheet of Brookdale Living Communities, Inc.
(the "Company") as of June 30, 1997 and the balance sheet of the Predecessor
Properties as of December 31, 1996. The financial statements of the Predecessor
Properties combine the balance sheet data and results of operations of five
property partnerships which were contributed by PGI to the Company
simultaneously with the consummation of its initial public offering (the
"Offering") and are now consolidated in the Company's financial statements.
Historical results and any apparent percentage relationships with respect
thereto are not necessarily indicative of future operations.
The financial statements of the Predecessor Properties combine the balance
sheet data and results of operations of five property partnerships which were
contributed by PGI to the Company simultaneously with the consummation of its
initial public offering (the "Offering") and are now consolidated in the
Company's financial statements. Historical results and percentage relationships
with respect thereto are not necessarily indicative of future operations.
CAUTIONARY STATEMENTS
This quarterly report on Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this report, the words "believes," "expects," "anticipates," "estimates"
and similar words and expressions are generally intended to identify forward-
looking statements. Statements that describe the Company's future strategic
plans, goals or objectives are also forward-looking statements. Readers of this
report are cautioned that any forward-looking statements, including those
regarding the intent, belief, or current expectations of the Company or
management, are not guarantees of future performance, results or events and
involve risks and uncertainties, and that actual results and events may differ
materially from those in the forward-looking statements as a result of various
factors including, but not limited to (i) general economic conditions in the
markets in which the Company operates, (ii) competitive pressures within the
industry and/or the markets in which the Company operates (iii) the effect of
future legislation or regulatory changes on the Company's operations and (iv)
other factors described from time to time in the Company's filings with the
Securities and Exchange Commission. The forward-looking statements included in
this report are made only as of the date hereof. The Company undertakes no
obligation to update such forward-looking statements to reflect subsequent
events or circumstances.
OVERVIEW
The Company operates ten senior and assisted living facilities containing a
total of 2,168 units. Four of such facilities are owned by the Company, four
facilities are leased by the Company from a third party under a long-term net
lease and two facilities (one of which is owned by PGI) are managed by the
Company 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. 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 the Company's residents as well as
their families who are burdened with care option decisions for their elderly
relatives.
The Company currently plans to acquire or lease approximately three to five
facilities per year containing an aggregate of approximately 800 to 1,000 units,
and to commence development of at least two new facilities per year containing
approximately 200 units each in urban and suburban areas of major metropolitan
markets. The Company anticipates that it will use a combination of net proceeds
from the Offering, additional debt financing, lease transactions, equity
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. To the extent
available, the Company may use long-term, tax-exempt bonds to finance the
acquisition of existing facilities and the development of new facilities. There
can be no assurance that future financing or lease transactions will be
available as needed or on terms acceptable to the Company. A lack of funds would
require the Company to delay all or some of its acquisition plans and
development projects.
The Company will derive its revenues from resident fees and management
fees. Resident fees typically are paid monthly by residents, their families or
other responsible parties. The Company will also derive management fees from the
two facilities that it manages. Resident fees and management fees are
recognized as revenues when services are provided.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996
The following discussion is based on the comparison of the statement of
operations for combined "Brookdale Living Communities, Inc. and Predecessor
Properties" from January 1, 1997 to June 30, 1997 to the statement of operations
of Predecessor Properties from January 1, 1996 to June 30, 1996. The results of
the Predecessor Properties for the respective 1996 period are not necessarily
indicative of the results that would have been attained had the Predecessor
Properties been a part of the Company for such period.
For the six months ended June 30, 1997, net income decreased approximately
$649,000, or 129.9%, to a loss of approximately $149,000 when compared to the
same period in 1996. This decrease was primarily due to an increase in total
expenses partially offset by an increase in total revenue of the Company. The
factors noted above are discussed in the following paragraphs in greater detail.
Total revenue increased by $5.9 million, or 52.4%, to $17.0 million for the
six months ended June 30, 1997 when compared with the same period in 1996. Of
this increase, approximately $812,000 relates to increased rental rates at the
Original Facilities. The remainder of the increase, or approximately $5.0
million, relates to revenue of the New Facilities.
17
<PAGE>
Total expenses increased $6.7 million, or 62.9%, to $17.4 million for the
six months ended June 30, 1997 when compared with the same period in 1996.
Facility operating expenses increased $3.4 million, or 57.3%, to $9.2 million
primarily due to the inclusion of the New Facilities. The Company incurred
general and administrative expenses of approximately $478,000 from the
commencement of operations on May 7, 1997 through June 30, 1997 attributable to
the inclusion of corporate overhead. Lease expense increased $4.6 million due to
the inclusion of the Leased Facilities. Depreciation and amortization decreased
approximately $386,000, or 24.4%, to $1.2 million primarily due to the sale and
lease-back of The Hallmark Facility on December 27, 1996. Prior to this date,
the Company owned and, accordingly, recorded depreciation relating to the
facility. The decrease in depreciation and amortization due to the sale and
lease-back of The Hallmark Facility was slightly offset by an increase in
depreciation associated with the purchase of the Acquired Facilities on May 7,
1997. Interest and financing fees decreased approximately $1.1 million, or
38.8%, to $1.7 million primarily due to the sale and lease-back of The Hallmark
Facility. As a result of the sale and lease-back of such facility on December
27, 1996, it was no longer encumbered by the debt. This decrease was
slightly offset by the assumption of debt of certain of the Acquired Facilities
in connection with the purchase of these properties. Property management fee-
affiliate decreased approximately $231,000, or 50.2%, to approximately $230,000
due to the elimination of all management fees charged to the Company once the
Company commenced operations on May 7, 1997.
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 TO THREE MONTHS ENDED JUNE 30,
1996
The following discussion is based on the comparison of the statement of
operations for combined "Brookdale Living Communities, Inc. and Predecessor
Properties" from April 1, 1997 to June 30, 1997 to the statement of operations
of Predecessor Properties from April 1, 1996 to June 30, 1996. The results of
the Predecessor Properties for the respective 1996 period are not necessarily
indicative of the results that would have been attained had the Predecessor
Properties been a part of the Company for such period.
For the quarter ending June 30, 1997, net income decreased approximately
$445,000, or 122.6%, to a net loss of approximately $82,000 when compared to the
same period in 1996. This decrease was primarily due to an increase in total
expenses partially offset by an increase in total revenue of the Company. The
factors noted above are discussed in the following paragraphs in greater detail.
Total revenues increased by $4.0 million, or 70.9%, to $9.6 million for the
quarter ended June 30, 1997 when compared to the same period in 1996. Of this
increase, approximately $510,000 relates to increased rental rates at the
Original Facilities. The remainder of the increase, $3.5 million, relates to
revenues of the New Facilities.
Total expenses increased $4.6 million, or 87.5%, to $9.8 million for the
quarter ended June 30, 1997 when compared with the same period in 1996. Facility
operating expenses increased $2.3 million, or 82.7%, to $5.1 million primarily
due to the inclusion of the New Facilities and a slight increase in expenses at
the Original Facilities. The Company incurred general and administrative
expenses of approximately $478,000 from the commencement of operations on May 7,
1997 through June 30, 1997 attributable to the inclusion of corporate overhead.
Lease expense increased $2.4 million, due to the inclusion of the Leased
Facilities. Depreciation and amortization decreased $51,000, or 6.4%, primarily
due to the sale and lease-back of The Hallmark Facility on December 27, 1996.
Prior to this date, the Company owned and, accordingly, recorded depreciation
relating to the facility. The decrease in depreciation and amortization due to
the sale and lease-back of The Hallmark Facility was slightly offset by an
increase in depreciation associated with the purchase of the Acquired Facilities
on May 7, 1997. Interest and financing fees decreased approximately $393,000, or
27.8%, to $1.0 million, primarily due to the sale and lease-back of The Hallmark
Facility. As a result of the sale and lease-back of the property on December 27,
1996, it was no longer encumbered by the debt. This decrease in outstanding debt
was slightly offset by the assumption of debt of certain of the Acquired
Facilities in connection with the purchase of these facilities. Property
management fee-affiliate decreased approximately $173,000, or 74.7%, to
approximately $58,000 due to the elimination of all management fees charged to
the Company once the Company commenced operations on May 7, 1997.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES:
On May 7, 1997, the Company completed the Offering of 4,500,000 shares of
Common Stock, $.01 par value per share, at $11.50 per share. The proceeds from
such Offering, net of related underwriting and offering costs, totaled
approximately $43.8 million.
Simultaneously with the completion of the Offering, the Company used
approximately $21.1 million of the net proceeds from the Offering to fund the
acquisition of two facilities. Approximately $6.8 million of such net proceeds
was used to reimburse PGI for earnest monies previously paid by PGI in
connection with a Leased Facility, the acquisition of a third party's interests
in two facilities in which PGI also had interests and the proposed acquisitions
of development sites. In addition, approximately $1.6 million of such net
proceeds was used to fund an escrow deposit relating to one of the Company's
facilities, $11.0 million of such net proceeds was used to fund an interest
bearing cash collateral deposit related to credit enhancement on $65.0 million
of tax-exempt bonds relating to two of the Company's facilities and
approximately $1.2 million of such net proceeds was used to pay fees and
transaction costs related to credit enhancement.
The underwriters of the Offering exercised their over-allotment option and
on June 3, 1997, the Company sold an additional 675,000 shares of the Company's
Common Stock at $11.50 per share, less underwriting discounts and commissions.
The option was granted to cover over-allotments arising in connection with the
Offering. The Company received net proceeds from the over-allotment option of
approximately $7.2 million from the sale of these additional shares. These
funds, along with the remaining net proceeds from the Offering have been or will
be used to finance a portion of future acquisitions and developments of senior
and assisted living facilities and for working capital and general corporate
purposes. Pending such uses, the Company intends to invest available cash in
short-term, interest bearing securities or certificates of deposit.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 TO SIX MONTHS ENDED JUNE 30, 1996
Cash and cash equivalents increased $6.4 million to $11.8 million at June
30, 1997 compared with the same period in 1996 primarily due to cash remaining
after application of the Offering proceeds. The increases in net cash provided
by operating and financing activities were partially offset by an increase in
net cash used in investing activities.
Net cash provided by operating activities increased $1.7 million to $4.0
million for the six months ended June 30, 1997 compared with the same period in
1996. The primary reasons for the net increase in cash provided by operating
activities were improved operating results of the Original Facilities and the
inclusion of the New Facilities.
Net cash used in investing activities increased $29.4 million to $29.6
million for the six months ended June 30, 1997 compared with the same period in
1996. The increase was primarily attributable to cash used in the acquisition
of the Hawthorn Lakes and Edina Park Plaza Facilities and cash used to
acquire a third party's interest in the Heritage and Devonshire Facilities.
Net cash provided by financing activities increased $34.1 million to $33.2
million for the six months ended June 30, 1997 compared with the same period in
1996. The increase was primarily due to proceeds received from the public
offering and over-allotment option. These increases were partially offset by an
initial deposit required in accordance with the cash collateral pledge agreement
related to The Heritage and Devonshire Facilities.
19
<PAGE>
IMPACT OF INFLATION
Resident fees from senior and assisted living facilities owned or leased by
the Company and management fees from facilities operated by the Company are its
primary sources of revenue. These revenues are affected by monthly management
fee rates and facility occupancy rates. The rates charged for senior and
assisted living services are highly dependent upon local market conditions and
the competitive environment in which the facilities operate. Substantially all
of the Company's resident agreements have terms of approximately one year and
allow, at the time of renewal, for adjustments in the monthly fees payable
thereunder, thereby enabling 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. In addition, employee compensation expense is a
principal cost element of facility operations and is also dependent upon local
market conditions. There can be no assurance that resident fees will increase or
that costs will not increase due to inflation or other causes. In addition,
approximately $65.0 million in principal amount of the Company's indebtedness
bears interest at floating rates and future indebtedness may bear floating rate
interest. Inflation, and its impact on floating interest rates, could materially
affect the amount of interest payments due on such indebtedness.
20
<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
No material developments with respect to legal proceedings
occurred during the period covered by this quarterly report.
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Exhibit
Number: Description
------- -----------
10.1 Formation Agreement dated as of May 7, 1997 by and among the
Company, PGI and Mark J. Schulte
10.2 Space Sharing Agreement dated as of May 7, 1997 by and
between the Company and PGI
10.3 Registration Rights Agreement dated as of May 7, 1997 by and
between the Company and PGI
10.4 Voting Agreement dated as of May 7, 1997 by and between the
Company and PGI
10.5 Non-Compete Agreement dated as of May 7, 1997 by and among
the Company, PGI and Michael W. Reschke
10.6 Employment Agreement dated as of May 7, 1997 by and between
the Company and Michael W. Reschke
10.7 Employment Agreement dated as of May 7, 1997 by and between
the Company and Mark J. Schulte
10.8 Employment Agreement dated as of May 7, 1997 by and between
the Company and Darryl W. Copeland, Jr.
10.9 Employment Agreement dated as of May 7, 1997 by and between
the Company and Matthew F. Whitlock
10.10 Employment Agreement dated as of May 7, 1997 by and between
the Company and Mark J. Iuppenlatz
10.11 Management Agreement dated as of May 7, 1997 by and between
Brookdale Living Communities of Texas, Inc. and The Island
on Lake Travis, Ltd.
10.12 Submanagement Agreement dated as of July 1, 1997 by and
between Brookdale Living Communities of Minnesota II, Inc.
and Kenwood Associates Limited Partnership
10.13 Form of Indemnification Agreement, as filed with the
Securities and Exchange Commission on March 17, 1997 as
Exhibit 10.15 to Amendment No. 4 to the Company's
Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by
reference
21
<PAGE>
10.14 Amended and Restated Partnership Agreement of River Oaks
Partners dated as of May 7, 1997 by and between Brookdale
Holdings, Inc. and the Company
10.15 Amended and Restated Agreement of Limited Partnership of The
Ponds of Pembroke Limited Partnership dated as of May 7,
1997 by and between Brookdale Holdings, Inc. and the Company
10.16 Real Estate Purchase Agreement dated as of September 16,
1996 by and between PGI and Gables at Brighton Associates,
as filed with the Securities and Exchange Commission on
September 18, 1996 as Exhibit 10.21 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.17 Real Estate Purchase Agreement dated as of September 16,
1996 by and between PGI and Edina Park Plaza Associates
Limited Partnership, as filed with the Securities and
Exchange Commission on September 18, 1996 as Exhibit 10.22
to the Company's Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by
reference
10.18 Real Estate Purchase Agreement dated as of September 16,
1996 by and between PGI and East Mesa Senior Living Limited
Partnership, as filed with the Securities and Exchange
Commission on September 18, 1996 as Exhibit 10.23 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-12259) and incorporated herein by reference
10.19 Real Estate Purchase Agreement dated as of September 16,
1996 by and between PGI and Hawthorn Lakes Associates, as
filed with the Securities and Exchange Commission on
September 18, 1996 as Exhibit 10.24 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.20 Letter Agreement dated September 17, 1996 by and among PGI,
KILICO Realty Corporation and Kemper Investors Life
Insurance Company, as filed with the Securities and Exchange
Commission on September 18, 1996 as Exhibit 10.25 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-12259) and incorporated herein by reference
10.21 First Amendment dated December 20, 1996 to Letter Agreement
dated September 17, 1996 by and among PGI, KILICO Realty
Corporation and Kemper Investors Life Insurance Company, as
filed with the Securities and Exchange Commission on March
4, 1997 as Exhibit 10.24 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.22 Second Amendment dated April 3, 1997 to Letter Agreement
dated September 17, 1996 by and among PGI, KILICO Realty
Corporation and Kemper Investors Life Insurance Company, as
filed with the Securities and Exchange Commission on April
8, 1997 as Exhibit 10.35 to Amendment No. 6 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.23 Third Amendment dated April 9, 1997 to Letter Agreement
dated September 17, 1996 by and among PGI, KILICO Realty
Corporation and Kemper Investors Life Insurance Company, as
filed with the Securities and Exchange Commission on April
16, 1997 as Exhibit 10.36 to Amendment No. 6 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-12259) and incorporated herein by reference
10.24 Purchase and Sale Agreement dated as of February 20, 1997 by
and between the Company and Park Place General Partnership,
as filed with the Securities and Exchange Commission on
March 4, 1997 as Exhibit 10.25 to Amendment No. 3 to the
Company's Registration Statement on Form S-1 (Registration
No. 333-12259) and incorporated herein by reference
10.25 Purchase and Sale Agreement dated as of February 20, 1997 by
and between the Company and Park Place II, L.L.C., as filed
with the Securities and Exchange Commission on March 4, 1997
as Exhibit 10.26 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
22
<PAGE>
10.26 Master Lease Agreement dated as of December 27, 1996 by and
between Health and Retirement Properties Trust, as landlord,
and BLC Property, Inc., as tenant, as filed with the
Securities and Exchange Commission on March 4, 1997 as
Exhibit 10.27 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.27 Sublease Agreement dated as of December 27, 1996 by and
between BLC Property, Inc., as sublandlord, and Brookdale
Living Communities of Arizona, Inc., as subtenant, as filed
with the Securities and Exchange Commission on March 4, 1997
as Exhibit 10.28 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.28 Sublease Agreement dated as of December 27, 1996 by and
between BLC Property, Inc., as sublandlord, and Brookdale
Living Communities of Illinois, Inc., as subtenant, as filed
with the Securities and Exchange Commission on March 4, 1997
as Exhibit 10.29 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.29 Sublease Agreement dated as of December 27, 1996 by and
between BLC Property, Inc., as sublandlord, and Brookdale
Living Communities of New York, Inc., as subtenant, as filed
with the Securities and Exchange Commission on March 4, 1997
as Exhibit 10.31 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.30 Real Estate Purchase Agreement dated as of February 24, 1997
by and between PGI and Firstar DuPage Bank Trust No. 3612
dated December 4, 1989, Firstar DuPage Bank Trust No. 3625
dated February 22, 1990, West Suburban Bank Trust No. 1975
dated December 13, 1978 and the direct and indirect
beneficiaries thereof, as filed with the Securities and
Exchange Commission on March 4, 1997 as Exhibit 10.32 to
Amendment No. 3 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12259) and incorporated
herein by reference
10.31 Real Estate Purchase Agreement dated as of February 14, 1997
by and between PGI and AC Properties, L.L.C., as filed with
the Securities and Exchange Commission on March 4, 1997 as
Exhibit 10.33 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.32 Contract for Sale dated February 21, 1997 by and between PGI
and VG Office Partnership '95, Ltd., as filed with the
Securities and Exchange Commission on March 4, 1997 as
Exhibit 10.34 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-
12259) and incorporated herein by reference
10.33 First Amendment dated as of February 21, 1997 to Contract
for Sale dated February 21, 1997 by and between PGI and VG
Office Partnership '95, Ltd., as filed with the Securities
and Exchange Commission on March 4, 1997 as Exhibit 10.35 to
Amendment No. 3 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12259) and incorporated
herein by reference
10.34 Purchase and Sale Agreement dated as of June 11, 1997 by and
between Gables at Farmington Associates and the Company
10.35 First Amendment to Purchase and Sale Agreement dated as of
July 3, 1997 by and between Gables at Farmington Associates
and the Company
23
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10.36 Second Amendment to Purchase and Sale Agreement dated as of
July 16, 1997 by and between Gables at Farmington Associates
and the Company
10.37 Third Amendment to Purchase and Sale Agreement dated as of
July 23, 1997 by and between Gables at Farmington Associates
and the Company
10.38 Fourth Amendment to Purchase and Sale Agreement dated as of
July 30, 1997 by and between Gables at Farmington Associates
and the Company
10.39 Fifth Amendment to Purchase and Sale Agreement dated as of
August 5, 1997 by and between Gables at Farmington
Associates and the Company
10.40 Sixth Amendment to Purchase and Sale Agreement dated as of
August 8, 1997 by and between Gables at Farmington
Associates and the Company
10.41 First Amendment to Master Lease Agreement and Incidental
Documents dated as of May 7, 1997 by and among Health and
Retirement Properties Trust, BLC Property, Inc., Brookdale
Living Communities of Washington, Inc., Brookdale Living
Communities of Arizona, Inc., Brookdale Living Communities
of Illinois, Inc., Brookdale Living Communities of New York,
Inc., the Company, The Prime Group, Inc., Prime
International, Inc., PGLP, Inc., Prime Group Limited
Partnership and Prime Group II
10.42 Stock Option and Deposit Agreement dated as of May 7, 1997
by and between Darryl W. Copeland, Jr., and The Prime Group,
Inc.
10.43 Stock Purchase Agreement and Agreement Concerning Option
Shares dated as of May 7, 1997 by and among The Prime Group,
Inc., Prime Group VI, L.P. and Darryl W. Copeland, Jr.
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
The Registrant filed no reports on Form 8-K during the quarter ended June 30,
1997.
24
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKDALE LIVING COMMUNITIES, INC.
__________________________________
(Registrant)
Date: August 14, 1997 /s/ Mark J. Schulte
------------------------- --------------------------------
Mark J. Schulte
President and
Chief Executive Officer
Date: August 14, 1997 /s/ Craig G. Walczyk
------------------------- --------------------------------
Craig G. Walczyk
Vice President -
Chief Financial Officer
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<PAGE>
Exhibit 10.1
FORMATION AGREEMENT
THIS FORMATION AGREEMENT (this "Agreement") is made and entered into as of
the 7th day of May, 1997 by and among (i) BROOKDALE LIVING COMMUNITIES, INC., a
Delaware corporation (the "Corporation"), (ii) BROOKDALE HOLDINGS, INC., a
Delaware corporation ("Holdings"), (iii) MARK J. SCHULTE ("Schulte"), (iv) THE
PRIME GROUP, INC., an Illinois corporation ("PGI"), and (v) PRIME GROUP LIMITED
PARTNERSHIP, an Illinois limited partnership ("PGLP").
RECITALS:
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A. The Corporation is a recently organized corporation formed for the
purpose of, among other things, acquiring substantially all of the senior and
assisted living business and operations of the senior housing division of PGI
and its affiliates, including all ownership interests of PGI and PGLP in BLC
Property, Inc., a Delaware corporation ("Property"), River Oaks Partners, an
Illinois general partnership ("River Oaks") and The Ponds of Pembroke Limited
Partnership, an Illinois limited partnership ("Pembroke") (Property, River Oaks
and Pembroke being hereinafter referred to collectively as the "Contributed
Entities" and River Oaks and Pembroke being hereinafter referred to together as
the "Partnerships"), together with all other interests of PGI and PGLP in and to
each of the businesses and facilities operated and owned by the Contributed
Entities (all of such ownership interests in the Contributed Entities and all of
such other assets being together referred to herein as the "Contributed
Projects").
B. Holdings is a wholly owned subsidiary of the Corporation.
C. Schulte, PGI and PGLP (collectively, the "Transferors") desire to
convey all of their respective right, title and interest in and to the
Contributed Projects and the operations relating thereto to the Corporation in
connection with an initial public offering (the "Offering") of shares of the
Corporation's common stock, par value $0.01 per share (the "Common Stock").
D. Schulte desires to convey certain of his respective right, title and
interest in and to The Island on Lake Travis facility in Lago Vista, Texas ("The
Island Facility") to the Corporation in connection with the Offering of Common
Stock.
E. The Corporation has agreed with PGI to terminate the right, title and
interest in and to The Island Facility, conveyed to it by Schulte, and has
agreed to cause Schulte, as a condition of his employment by the Corporation, to
pay or reimburse PGI or its affiliate for three percent (3.0%) of any negative
cash flow incurred or realized by PGI or any affiliate of PGI by or from the
operation of The Island Facility.
F. PGI has entered into an agreement (the "Kemper Agreement") with KILICO
Realty Corporation and Kemper Investors Life Insurance Company (collectively,
the "Kemper Transferors") pursuant to which the Kemper Transferors have agreed
to convey certain interests in River Oaks and Pembroke to PGI or its designee or
assignee.
<PAGE>
G. PGI previously assigned to PGLP, and PGLP has agreed to convey and
assign to the Corporation, the rights to receive certain partnership interests
as hereinafter described from the Kemper Transferors, and the Corporation has
agreed to assume the obligation to pay the purchase price therefor as set forth
in the Kemper Agreement.
H. PGI has entered into certain real estate purchase agreements with (i)
Hawthorn Lakes Associates dated as of September 16, 1996, (ii) Edina Park Plaza
Associates Limited Partnership dated as of September 16, 1996 and (iii) Park
Place General Partnership and Park Place II, L.L.C. dated as of February 20,
1997 (collectively, such purchase agreements are referred to herein as the
"Facility Acquisition Agreements" and the parties thereto other than PGI are
referred to herein as the "Facility Transferors") for the purchase of certain
senior and assisted living facilities owned by the Facility Transferors.
I. PGI has agreed to convey and assign to the Corporation or its designee
all of PGI's rights under the Facility Acquisition Agreements and the
Corporation has agreed to assume PGI's obligations under the Facility
Acquisition Agreements.
J. PGI has entered into certain real estate purchase agreement with (i)
certain trusts and the direct and indirect beneficiaries thereof with respect to
a development site located in Glen Ellyn, Illinois dated as of February 24,
1997, (ii) AC Properties, L.L.C. dated as of February 14, 1997 and (iii) VG
Office Partnership '95, Ltd. dated February 21, 1997, as amended (collectively,
such purchase agreements are referred to herein as the "Development Site
Acquisition Agreements" and the parties thereto other than PGI are referred to
herein as the "Development Site Transferors") for the purchase of certain
parcels of real estate owned by the Development Site Transferors.
K. PGI has agreed to convey and assign to the Corporation or its designee
all of PGI's rights under the Development Site Acquisition Agreements and the
Corporation has agreed to assume PGI's obligations under the Development Site
Acquisition Agreements.
L. The parties desire to enter into this Agreement to set forth their
understanding with respect to the manner in which the Corporation (or its
designee) will acquire interests in the Contributed Projects, the operations
relating thereto and the rights of PGI and PGLP in the Kemper Agreement, the
Facility Acquisition Agreements and the Development Site Acquisition Agreements
in exchange for shares of Common Stock, cash and the assumption of certain
liabilities.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto hereby agree as follows:
1. TRANSFER OF CONTRIBUTED PROJECTS AND CERTAIN OTHER ASSETS. As part of a
single plan, on the Closing Date (as hereinafter defined) the Transferors
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will convey (x) the Contributed Projects together with (y) the rights of PGI in
the Kemper Agreement, the Facility Acquisition Agreements and the Development
Site Acquisition Agreements, to the Corporation or its designee in connection
with the Corporation's initial public offering, in consideration for the
issuance by the Corporation of its Common Stock to the Transferors as provided
in Section 3, the assumption by the Corporation and Holdings of the liabilities
associated with the Contributed Projects referred to in Section 4 and the cash
payments referred to in Section 4, all in a transaction designed to meet the
requirements of section 351(a) of the Code.
(a) PGI shall transfer to Holdings a 1% general partnership interest
in River Oaks and a 1% general partnership interest in Pembroke.
(b) PGI shall transfer to the Corporation the following:
(i) A 49% general partnership interest in River Oaks.
(ii) A 24% general partnership interest in Pembroke.
(iii) All of its rights and interests in the Facility
Acquisition Agreements and the Development Site Acquisition Agreements.
(iv) All of its interests in all other assets and properties
of the senior housing division of PGI and its affiliates, as more fully
described in Exhibit A hereto.
(c) (i) PGLP shall transfer to the Corporation all of its
rights under the Kemper Agreement, including its rights to purchase the
following partnership interests from the Kemper Transferors pursuant to the
Kemper Agreement:
and (1) A 50% general partnership interest in River Oaks;
(2) A 25% limited partnership interest and a 50%
general partnership interest in Pembroke; or
(ii) If PGLP's rights under the Kemper Agreement are not
transferred to the Corporation pursuant to Section l(c)(i) above, all of its
right, title and interest in:
(1) A 50% general partnership interest in River Oaks
acquired pursuant to the Kemper Agreement; and
(2) A 25% limited partnership interest and a 50%
general partnership interest in Pembroke acquired pursuant to the Kemper
Agreement.
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(d) Schulte shall transfer to the Corporation all of his right, title
and interest in and to the Contributed Entities, the Contributed Projects and
the senior and assisted living business and operations of the senior housing
division of PGI and its affiliates held by Schulte pursuant to that certain
Employment and Equity Participation Agreement (the "Employment and Equity
Participation Agreement"), between Schulte and PGI (which agreement supersedes
that certain Compensation Agreement dated September 13, 1995 between Schulte and
PGI).
(e) In conjunction with the transfers described in clauses (a), (b),
(c) and (d) of this Section 1,
(i) Schulte shall transfer to the Corporation all of his
right, title and interest to The Island Facility pursuant to the Employment and
Equity Participation Agreement; and
(ii) The Corporation hereby terminates and waives any and
all right, title and interest to The Island Facility received pursuant to clause
(i) of this Section 1(e), and all agreements and arrangements representing such
interest shall have no further force or effect.
2. CERTAIN DISTRIBUTIONS. On or prior to the Closing Date, the Transferors
shall have the right to receive distributions from the Partnerships, net of all
advances to PGI by the Partnerships, provided, that at the time of the Closing
(as defined below), the Partnerships shall have unrestricted cash in the
aggregate amount of not less than $800,000 after giving effect to such
distributions. Within forty-five (45) days following the Closing Date, the
Corporation shall deliver to the Transferors an accounting prepared by its
independent accountants showing the actual computation of unrestricted cash of
the Corporation as of the Closing Date following the distribution described in
the first sentence of this Section 2, and, within ten days of receipt of such
accounting, either (a) the Transferors shall pay to the Corporation a sum equal
to the amount, if any, by which $800,000 exceeds the amount of unrestricted cash
shown on such accounting or (b) the Corporation shall pay, or cause one or more
of River Oaks or Pembroke to pay, to the Transferors an aggregate sum equal to
the amount, if any, by which the amount of unrestricted cash shown on such
accounting exceeds $800,000. In addition to any distributions made to PGI
pursuant to the first sentence of this Section 2, the Earnest Money (as defined
in the Kemper Agreement) under the Kemper Agreement shall be returned to PGLP
(or, if the Earnest Money is credited against the purchase price payable to the
Kemper Transferors, the Corporation shall reimburse PGLP for such purchase
money) and PGI shall be entitled to reimbursement from the Corporation of all
sums delivered by PGI to the Facility Transferors under Facility Acquisition
Agreements and the Development Site Acquisition Agreements as a deposit,
prepayment or earnest money, all of which is set forth on Schedule 1 hereto.
3. ISSUANCE OF COMMON STOCK. In consideration of the transfer of the
assets provided for in Section 1, on the Closing Date, the Corporation shall
issue an aggregate of 1,703,043 shares of its Common Stock to PGI and PGLP
(100,000 shares of which PGI has agreed to grant to Darryl W. Copeland, Jr. an
option to purchase pursuant to the terms, and
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subject to the conditions, of that certain Stock Option and Deposit Agreement
dated as of the date hereof by and between Darryl W. Copeland, Jr. and PGI), and
296,957 shares of its Common Stock to Schulte. All such shares of Common Stock
shall be fully paid and nonassessable.
4. ASSUMPTION OF LIABILITIES; CERTAIN PAYMENTS.
(a) As partial consideration for the transfer of the assets by the
Transferors to the Corporation as provided for in Section 1, on the Closing Date
the Corporation and Holdings will enter into an Assignment and Assumption
Agreement substantially in the form of Exhibit A pursuant to which the
Corporation shall assume all of the outstanding liabilities of each Transferor
with respect to the assets being transferred (including the assets and
operations of River Oaks and Pembroke and the operations of the senior housing
division of PGI) and pursuant to which Holdings will assume certain liabilities
relating to the Partnerships, whether or not reflected on the books and records
of the Transferors or the entity whose ownership is being transferred, and
whether known or unknown, accrued or unaccrued, absolute, contingent or
otherwise.
(b) In addition, on the Closing Date, the Corporation will make cash
payments as described in Schedule 1 to this Agreement which payments shall be in
complete satisfaction of the recipients' obligations hereunder in respect of the
Transferors' right, title and interest in the Contributed Projects and each of
the Partnerships, including reimbursement to PGI of all costs and expenses
incurred by PGI in connection with the Offering and the transactions
contemplated thereby.
5. CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall occur on the day (the "Closing Date")
immediately following the day that all of the conditions precedent of the
Transferors and the Corporation under this Agreement have been met or waived by
the party entitled to the benefit thereof, but in any event no later than the
date of closing of the Offering.
6. REPRESENTATIONS AND WARRANTIES.
(a) Each of PGI and PGLP hereby represents and warrants to the
Corporation and Holdings as follows:
(i) It is a corporation or limited partnership duly organized and
validly existing under the laws of its jurisdiction of organization.
(ii) It has the full corporate or partnership power and authority
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
(iii) This Agreement constitutes its valid and legally binding
obligation, enforceable against it in accordance with its terms.
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(iv) It owns the partnership interests and other assets to be
transferred by it to the Corporation pursuant to the terms of this Agreement
free and clear of all liens and encumbrances, other than restrictions contained
in the partnership agreement with respect to a particular Partnership.
(v) Each of the Partnerships is duly organized and validly
existing.
(vi) The Contributed Projects have been operated in the ordinary
course since December 31, 1996.
(b) Schulte hereby represents and warrants to the Corporation and
Holdings as follows:
(i) This Agreement constitutes his valid and legally binding
obligation, enforceable against him in accordance with its terms.
(ii) He owns the interests to be transferred by him to the
Corporation pursuant to the terms of this Agreement free and clear of all liens
and encumbrances.
(c) Except as specifically warranted in Sections 6(a) and 6(b), the
Transferors make no representations and warranties to the Corporation or
Holdings whatsoever regarding the Contributed Projects, the assets or properties
to be acquired under the Facility Acquisition Agreements and the Development
Site Acquisition Agreements, or the assets of the Contributed Entities,
including, but not limited to, the warranty of merchantability or fitness for a
particular use, which is specifically disclaimed. The Corporation acknowledges
that all of the assets to be conveyed by the Transferors to the Corporation (and
all of the assets of the Contributed Entities) will be conveyed "as is, where
is." Transferors make no representation or warranty with respect to any asset
which is the subject of any of the Facility Acquisition Agreements or the
Development Site Acquisition Agreements.
(d) Each of the Corporation and Holdings hereby represents, warrants
and covenants with and to the Transferors as follows:
(i) It is a corporation duly organized and validly existing under
the laws of the State of Delaware.
(ii) It has the full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
(iii) This Agreement constitutes its valid and legally binding
obligation, enforceable against it in accordance with its terms.
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(e) The Corporation hereby represents, warrants and covenants with and
to the Transferors as follows:
(i) The Common Stock to be issued by the Corporation to the
Transferors pursuant to the terms of this Agreement will be duly authorized,
fully paid and nonassessable.
(ii) The Corporation will not take any action which would cause
the transfers provided for in Section 1 not to qualify for tax-free treatment
under section 351 of the Code.
(iii) On the Closing Date, the Corporation will hire all of the
employees of the Transferors associated with the Contributed Projects and will
assume all liabilities and obligations to or with respect to such employees,
including any accrued but unpaid benefits, bonuses and vacation pay.
(f) All of the representations and warranties provided for in this
Section 6 shall survive the Closing Date and the delivery of the closing
documents on the Closing Date.
7. CONDITIONS PRECEDENT.
(a) The obligation of the Transferors to consummate the transactions
contemplated hereby is subject to the satisfaction of the following conditions
(any of which may be waived by the Transferors in writing):
(i) All the terms, covenants and conditions of this Agreement to
be complied with and performed by the Corporation and Holdings on or before the
Closing Date shall have been fully complied with and performed in all respects.
(ii) All the representations and warranties made by the
Corporation and Holdings herein shall be true and correct in all material
respects on and as of the Closing Date.
(iii) All consents required for the valid and effective transfer
of the assets to be transferred in accordance with Section 1 shall have been
obtained and the consent to the assumption by the Corporation of the debts to
be assumed by the Corporation and Holdings pursuant to Section 4 shall have been
obtained, except for any approvals and consents described in Schedule 2 to this
Agreement.
(iv) There shall be no pending or threatened litigation against
any of the parties hereto concerning or relating to the transactions
contemplated hereby.
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(v) The approval of all administrative agencies, if any, whose
approval of the transactions contemplated hereby is necessary or desirable shall
have been obtained.
(vi) Each of the transactions contemplated by the Kemper
Agreement shall close at or prior to the time of Closing of the transactions
contemplated hereby.
(vii) PGI and the Corporation shall have entered into a Space
Sharing Agreement substantially in the form of Exhibit B attached hereto and
made a part hereof.
(viii) The Corporation, PGI and PGLP shall have entered into a
Registration Rights Agreement substantially in the form of Exhibit C attached
hereto and made a part hereof.
(ix) The Corporation, PGLP, Michael W. Reschke and PGI shall have
entered into a Non-Compete Agreement substantially in the form of Exhibit D
attached hereto and made a part hereof.
(x) PGI, PGLP, Prime Group VI, L.P., an Illinois limited
partnership, and the Corporation shall have entered into a Voting Agreement
substantially in the form of Exhibit E attached hereto and made a part hereof.
(xi) The Corporation and The Island on Lake Travis, Ltd., an
affiliate of PGI, shall have entered into a Management Agreement substantially
in the form of Exhibit F attached hereto and made a part hereof.
(xii) PGI and Schulte shall have entered into an Indemnity
Agreement substantially in the form of Exhibit G attached hereto and made a part
hereof.
(b) The obligations of the Corporation and Holdings to consummate the
transactions contemplated hereby are subject to the satisfaction of the
following conditions (any of which may be waived by the Corporation and Holdings
in writing):
(i) All the terms covenants and conditions of this Agreement to
be complied with and performed by the Transferors on or before the Closing Date
shall have been fully complied with and performed in all respects.
(ii) All the representations and warranties made by the
Transferors herein shall be true and correct in all material respects on and as
of the Closing Date.
(iii) All required consents necessary for the valid and effective
transfer of the assets to be transferred to the Corporation in accordance with
the provisions of
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Section 1 shall have been obtained, except for any approvals and consents
described in Schedule 2 to this Agreement.
(iv) The Corporation shall have obtained title insurance (or
endorsed commitment) insuring that all real property owned by the Contributed
Entities, are vested in the respective entities free and clear of all mortgages,
liens and encumbrances except those reasonably acceptable to the Corporation.
(v) The conditions referred to in Sections 7(a)(iv) through
7(a)(xii) shall have been complied with or otherwise satisfied .
8. INDEMNIFICATION
(a) Each Transferor hereby agrees to indemnify the Corporation and
Holdings for, and to hold the Corporation and Holdings harmless from, the
following:
(i) Any and all liabilities, damages, losses, costs or
deficiencies resulting from any misrepresentation, breach of any warranty or
nonfulfillment of any agreement or covenant on the part of that Transferor,
whether contained in this Agreement or in any document furnished in connection
with the transactions contemplated hereby; and
(ii) Any and all actions, suits, proceedings, demands,
assessments, judgments, costs and expenses incident to the foregoing, including
reasonable attorney's fees.
(b) Each of the Corporation and Holdings hereby agrees to indemnify
each Transferor for, and to hold each Transferor harmless from, the following:
(i) Any and all indebtedness, lease, contract or other
liabilities and obligations assumed by the Corporation and Holdings in
accordance with the terms hereof;
(ii) Any and all liabilities, losses, costs, damages or
deficiencies resulting from any misrepresentations, breach of any warranty or
nonfulfillment of any agreement or covenant on the part of the Corporation or
Holdings, whether contained in this Agreement or in any document furnished in
connection with the transactions contemplated hereby;
(iii) Any and all liabilities, damages, losses, costs or
deficiencies resulting from any act or circumstance relating to any of the
assets transferred (including the assets and operations of the Contributed
Entities and operations of PGI's senior housing division) whenever occurring;
(iv) Any loss, claim, damage, or liability, including any loss,
claim, damage, or liability under the Securities Act of 1933, as amended, or any
applicable state
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securities laws, arising out of, or attributable to the Offering, except for
losses, claims, damages or liabilities arising from the inaccuracy of
information supplied in writing by PGI for inclusion in the prospectus relating
to the Offering; and
(v) Any and all actions, suits, proceedings, demands, assessments,
judgments, costs and expenses incident to any of the foregoing, including
reasonable attorneys' fees.
(c) Any party seeking indemnification ("Indemnitee") pursuant to this
Section 8 shall promptly (within 20 days of service to the Indemnitee if a third
party has commenced actual litigation against the Indemnitee) give written
notice to the party from which indemnification is sought ("Indemnitor") after
the Indemnitee has knowledge of any claim against the Indemnitor as to which
recovery may be sought against the Indemnitee pursuant to this Section 8, or of
the commencement of any legal proceedings against the Indemnitee as to such
claim after the Indemnitee has knowledge of such proceedings, whichever shall
first occur, and shall permit the Indemnitor to assume the defense of any such
claim or any litigation resulting from such claim. Such notice shall specify in
reasonable detail the facts known to the Indemnitee giving rise to such
indemnification rights and, if possible, an estimate of the amount of liability
which could result therefrom. The right of the Indemnitee to indemnification
hereunder shall be deemed agreed to unless, within ten days after the receipt of
such notice, the Indemnitee is notified in writing by the Indemnitor that it
disputes the right to indemnification as set forth in such notice. Failure by
the Indemnitor to notify the Indemnitee of the Indemnitor's election to defend
such action within ten days after notice thereof shall have been given to the
Indemnitor, or failure to deliver notification to the Indemnitee by the
Indemnitor that the Indemnitee's right to indemnification is being disputed,
shall be deemed an acknowledgment by Indemnitor that Indemnitee is entitled to
indemnification hereunder and shall be deemed to be an election by Indemnitor to
defend such action. The Indemnitor shall not, in the defense of such claim or
any litigation resulting therefrom, consent to entry of any judgment (except
with the consent of the Indemnitee) or enter into any settlement (except with
the consent of the Indemnitee) which does not include as an unconditional term
thereof the giving by the claimant or the plaintiff to the Indemnitee of a full,
absolute and unconditional release from all liability in respect of such claim
or litigation.
(d) If the Indemnitor shall not assume the defense of any such claim
or litigation resulting therefrom, the Indemnitee may defend against such claim
or litigation in such manner as it may deem appropriate. The Indemnitee may
settle such claim or litigation on such terms as it may deem appropriate and the
Indemnitor shall promptly reimburse the Indemnitee for the amount of such
settlement, and all expenses, legal or otherwise, incurred by the Indemnitee in
connection with the defense against, or settlement of, such claim or litigation.
If no settlement of such claim or litigation is made, the Indemnitor shall
promptly reimburse the Indemnitee for the amount of any judgment rendered with
respect to such claim or in such litigation and of all expenses, legal or
otherwise, incurred by the Indemnitee in the defense against such claim or
litigation. Notwithstanding the foregoing, if the Indemnitor has disputed the
Indemnitee's right to indemnification in accordance with the provisions of
Section 8(c), the
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Indemnitor shall not be obligated to pay the Indemnitee the amount provided for
in this Section 8(d) until such dispute has been resolved and it has been
determined that the Indemnitor is required to make such indemnification payment.
(e) The right of any party to seek indemnification hereunder shall
expire as to any claim not made on or prior to the first anniversary of the
Closing whether or not the basis for any such claim was known on such date.
9. MISCELLANEOUS.
(a) Each of the parties hereto hereby covenants and agrees that
subsequent to the Closing Date they will, at any time, and from time to time,
upon the request and at the expense of the Corporation, do, acknowledge and
deliver, or cause to be done, executed, acknowledged and delivered, all such
further acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may reasonably be required to fully effectuate the transactions
contemplated by this Agreement. Each of the Transferors and Schulte hereby
constitutes and appoints the Corporation as its true and lawful attorney-in-
fact, with full power of substitution, to collect for the account of the
Corporation or Holdings, as applicable, any receivables and other items conveyed
to the Corporation or Holdings, as applicable, pursuant to the provisions of
Section 1, to endorse in the name of the Transferor, the Corporation or
Holdings, or any of them, any check received on account of any receivable, claim
or other item, to institute and prosecute in the name of a Transferor or
otherwise, any and all proceedings which the Corporation or Holdings may deem
proper in order to collect, assert or enforce any claim, right or title of any
kind in and to any of such transferred assets.
(b) All notices, requests, demands or other communications required or
permitted under this Agreement shall be in writing and be personally delivered
against a written receipt, delivered to a reputable messenger service (such as
FedEx, DHL Courier, United Parcel Service, etc.) for overnight delivery,
transmitted by confirmed telephonic facsimile (fax) or transmitted by mail,
registered, express or certified, return receipt requested, postage prepaid,
addressed as follows:
If to the Corporation or Holdings:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
Fax: (312) 917-0460
-11-
<PAGE>
With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
Fax: (312) 558-5700
If to Schulte:
Mark J. Schulte
301 Homewood Lane
Barrington, Illinois 60010
If to PGI or PGLP:
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Michael W. Reschke
Fax: (312) 917-1511
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
Fax: (312) 917-1684
All notices, demands and requests shall be effective upon being properly
personally delivered, upon being delivered to a reputable messenger service,
upon transmission of a confirmed fax, or upon being deposited in the United
States mail in the manner provided in this Section 9. However, the time period
in which a response to any such notice, demand or request must be given shall
commence to run from the date of personal delivery, the date of delivery by a
reputable messenger service, the date on the confirmation of a fax, or the date
on the return receipt, as applicable. If any party refuses delivery, the notice,
demand or request shall be deemed received (i) one business day after personal
delivery of the notice, demand or request was attempted or the notice, demand or
request was delivered to a reputable messenger service or was transmitted by fax
or (ii) three business days after the notice, demand or request was deposited in
the United States mail.
-12-
<PAGE>
(c) This Agreement may be modified or amended from time to time only
by a written instrument executed by all of the parties hereto.
(d) Captions contained in this Agreement are inserted only as a matter
of convenience and reference, and in no way define, limit, extend or describe
the scope of this Agreement, or the intent of any provision hereof. All
references to Sections herein shall refer to Sections of this Agreement unless
the context clearly requires otherwise.
(e) This Agreement shall be binding upon, and inure to the benefit of,
the parties hereto and their respective successors and assigns.
(f) This Agreement shall be governed by, and construed in accordance
with, the internal laws of the State of Illinois without regard to its conflicts
of laws rules.
(g) This Agreement represents the entire agreement of the parties
hereto with respect to the subject matter hereof.
(h) This Agreement may be executed in counterparts which, taken
together, shall constitute one and the same instrument.
[signature page follows]
-13-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
CORPORATION AND HOLDINGS:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
----------------------------------------
Mark J. Schulte,
President and Chief Executive Officer
BROOKDALE HOLDINGS, INC.
By: /s/ Mark J. Schulte
----------------------------------------
Mark J. Schulte,
President
TRANSFERORS:
Mark J. Schulte
--------------------------------------------
MARK J. SCHULTE
THE PRIME GROUP, INC.
By: /s/ Michael W. Reschke
----------------------------------------
Name: Michael W. Reschke
--------------------------------------
Title: President
-------------------------------------
PRIME GROUP LIMITED PARTNERSHIP
By: /s/ Michael W. Reschke
----------------------------------------
Michael W. Reschke,
Managing General Partner
-14-
<PAGE>
SCHEDULE 1
TO
FORMATION AGREEMENT
CERTAIN PAYMENTS
<TABLE>
<CAPTION>
Amounts Payable to PGI or PGLP pursuant to Section 2:
---------
<S> <C>
Purchase Price for the interests in River Oaks
and Pembroke described in Section 1(c): $6,150,000
------------
EARNEST MONEY DEPOSITS:
Facility Acquisitions
---------------------
Edina Park Plaza 25,000
Hawthorn Lakes 25,000
Park Place 510,000
Development Site Acquisitions
-----------------------------
Austin 50,000
Southfield 10,000
Glen Ellyn 10,000
Amounts Payable to PGI pursuant to Section 4(b):
------------
CREDIT ENHANCEMENT
COMMITMENT FEE:
LaSalle/Bank One 477,990
OFFERING COSTS AND EXPENSES:
Costs and Expenses through 5/6/97 1,152,715
---------
TOTAL $8,410,705
==========
</TABLE>
<PAGE>
SCHEDULE 2
TO
FORMATION AGREEMENT
POST-CLOSING CONSENTS
None.
<PAGE>
EXHIBIT A
TO
FORMATION AGREEMENT
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
FOR TRANSFER OF CONTRIBUTED ASSETS
----------------------------------
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are
hereby acknowledged, MARK J. SCHULTE, THE PRIME GROUP, INC., an Illinois
corporation, and PRIME GROUP LIMITED PARTNERSHIP, an Illinois limited
partnership (collectively, "Assignors") do hereby assign, transfer and convey to
BROOKDALE LIVING COMMUNITIES, INC., a Delaware corporation (the "Corporation"),
and BROOKDALE HOLDINGS, INC., a Delaware corporation ("Holdings" and, together
with the Corporation, "Assignees"), the assets (collectively, the "Contributed
Assets") described on Schedule A attached hereto and made a part hereof,
together with any and all right, title and interest in any property, both real
and personal, to which the Contributed Assets relate and any other rights,
privileges and benefits appertaining thereto; provided, that the only portion of
the Contributed Assets that is hereby assigned, transferred and conveyed to
Holdings shall be a one percent (1%) general partnership interest in River Oaks
(as defined in the Formation Agreement) and a one percent (1%) general
partnership interest in Pembroke (as defined in the Formation Agreement).
Assignees hereby (i) accept the assignment and transfer of the
Contributed Assets and expressly assume (but in the case of Holdings, only with
respect to the Contributed Assets consisting of the interests in the
Partnerships (as hereinafter defined) assigned, transferred and conveyed to
Holdings by Assignors) any and all duties, obligations and liabilities, whether
arising prior to or after the date hereof, with respect to the Contributed
Assets and the properties and assets owned by the Partnerships as further
described on Schedule A (collectively the "Assumed Obligations") and (ii) agree
to indemnify and hold harmless Assignors, and Assignors' respective partners,
directors, officers, employees and agents, and its and their respective heirs,
legal representatives, successors and assigns, from and against any liability,
demand, claim or action in relation to any and all duties, obligations and
liabilities so assumed (it being understood by the parties hereto that Holdings'
assumption of duties, obligations and liabilities is limited as set forth in
clause (i) of this sentence).
Assignors hereby certify that they have full power to make this
Assignment, that this Assignment is being made in compliance with applicable law
and agreements and that the Contributed Assets have not otherwise been conveyed,
sold, transferred, encumbered, pledged, hypothecated or assigned. Except as
expressly set forth herein, and except for warranties made by Assignors in that
certain Formation Agreement dated as of the date hereof (the "Formation
Agreement"), among Assignors and Assignees, this Assignment is made without
representation or warranty. All capitalized terms used in this Assignment and
any Exhibit or Schedule hereto without definition have the meanings assigned to
them in the Formation Agreement.
[signature page follows]
-1-
<PAGE>
IN WITNESS WHEREOF, Assignors and Assignees have executed this
Assignment as of the 7th day of May, 1997.
ASSIGNORS:
----------------------------------------------
MARK J. SCHULTE
THE PRIME GROUP, INC., an Illinois corporation
By: ----------------------------------------
Name: ----------------------------------------
Its: ----------------------------------------
PRIME GROUP LIMITED PARTNERSHIP, an
Illinois limited partnership
By: ----------------------------------------
Michael W. Reschke,
Managing General Partner
ASSIGNEES:
BROOKDALE LIVING COMMUNITIES, INC., a
Delaware corporation
By: -----------------------------------
Mark J. Schulte,
President and Chief Executive
Officer
BROOKDALE HOLDINGS, INC., a Delaware
corporation
By: -----------------------------------
Mark J. Schulte,
President
-2-
<PAGE>
SCHEDULE A
TO ASSIGNMENT AND ASSUMPTION AGREEMENT
I. ASSUMED OBLIGATIONS
-------------------
A. Kemper Agreement
----------------
The obligation to pay the purchase price under the Kemper Agreement
(but only if Assignors hereby transfer their rights under the Kemper
Agreement to the Corporation pursuant to Section l(c)(i) of the
Formation Agreement).
B. Facility Acquisition Agreements and Development Site Acquisition
Agreements
----------------------------------------------------------------
All obligations of Assignors under the Facility Acquisition Agreements
and the Development Site Acquisition Agreements.
C. Current Liabilities
-------------------
[to be supplied by PGI]
II. CONTRIBUTED ASSETS
------------------
All business assets of the Assignors which are used in connection with (i)
the ownership, operation and management of the Contributed Projects owned,
operated or managed prior to the date hereof and (ii) the senior and
assisted living business of PGI's senior housing division (the "Assigned
Business"), including, without limitation, the following:
A. Partnership Interests
---------------------
The interests in each of the Partnerships as specified in Section 1 of
the Formation Agreement.
B. Stock
-----
All of the outstanding capital stock of BLC Property, Inc., a Delaware
corporation.
C. Kemper Agreement
----------------
All of the rights of PGLP under the Kemper Agreement, including the
rights to purchase certain interests in River Oaks and Pembroke under
the Kemper Agreement, as specified in Section 1 of the Formation
Agreement.
A-1
<PAGE>
D. Facility Acquisition Agreements and the Development Site Acquisition
Agreements
All of the rights of PGI under the Facility Acquisition Agreements and the
Development Site Acquisition Agreements, including the rights of PGI to
purchase certain assets under the Facility Acquisition Agreements and the
Development Site Acquisition Agreements.
E. Machinery and Equipment
All machinery, equipment, office equipment, computers, supplies, tools and
other personal property, if any, owned or leased by Assignors and used or
held exclusively for use in connection with the Assigned Business
including, without limitation, all such items which are located at the
Assignors' offices at 77 West Wacker Drive, Suite 3900, Chicago, Illinois,
60601, and the items listed on Schedule 1 attached hereto;
F. Furniture and Fixtures
The furniture and fixtures, if any, owned by Assignors and used or held for
use exclusively in connection with the Assigned Business including, without
limitation, all such items which are located at the Assignors' offices at
77 West Wacker Drive, Suite 3900, Chicago, Illinois, 60601, and the items
listed on Schedule 1 attached hereto;
G. Contract Rights
All of Assignors' right, title and interest, if any, in and to all
contracts, agreements, commitments and leases, whether oral or written,
exclusively related to the Assigned Business, including without limitation,
office facilities, machinery, equipment, furniture and fixtures, and all
licenses (to the extent each is assignable) including, without limitation,
any items listed on Schedule 1 attached hereto;
H. Business Records
All business records necessary for the operation of the Assigned Business,
wherever located, including, without limitation, all rent rolls, customer
lists, sales records, customer files, account histories, sales literature,
promotion materials, personnel records, operating papers, contracts,
proprietary software, computer programs, software products, data bases and
data processing media and research and development records, unless any of
the foregoing shall be prohibited by the terms of applicable vender
licenses;
A-2
<PAGE>
I. Trade Names and Intangibles
Those patents, service marks, copyrights, trademarks and trade names, and
applications therefor, if any, listed on Schedule 2 attached hereto, and
the goodwill associated therewith relating to the Assigned Business;
J. Prepaids
All of Assignors' prepaid expenses and deposits (if any);
K. Permits
To the extent transferable or assignable to Assignees by operation of law
or with the consent or approval of, or notice to, or filing with, the
appropriate governmental agency or entity, all approvals, authorizations,
consents, licenses and other permits, if any, of or from governmental
agencies or entities required for the operation of the Assigned Business
and held for use by Assignors exclusively in connection with the Assigned
Business;
L. Receivables
All of Assignors' accounts receivable and notes receivable (if any)
exclusively relating to the Assigned Business;
M. Other Assets
Except as specifically excluded on Schedule 3 attached hereto, all of
Assignors' other assets, properties, rights and claims, if any, which are
exclusively used or held for use or sale in connection with, or appertain
to, the Assigned Business, of every kind and description, wherever located,
tangible or intangible, vested or unvested, contingent or otherwise,
whether or not specifically enumerated or identified herein and whether or
not carried or reflected on the books of Assignors including, without
limitation, all such items which are located at the Assignors' offices at
77 West Wacker Drive, Suite 3900, Chicago, Illinois 60601.
N. Excluded Assets
Notwithstanding any provision of this Assignment and Assumption Agreement
for Transfer of Contributed Assets to the contrary, the Contributed Assets
and Obligations shall not include and Assignors shall not assign, but shall
retain, the assets listed on Schedule 3 attached hereto; if any.
A-3
<PAGE>
SCHEDULE 1
TO ASSIGNMENT AND ASSUMPTION AGREEMENT
FIXED ASSET SCHEDULE
--------------------
[Attached]
<PAGE>
SCHEDULE 1
----------
FIXED ASSET SCHEDULE
Furniture Inventory
Currently in use by Senior Housing Division
Tisch
- -----
1 left return wooden desk
1 2-drawer metal file cabinet, 42" wide
1 gray cloth desk chair
Iuppenlatz
- ----------
1 Kimball Senator Executive Desk w/open credenza
1 6-shelf wooden bookcase
1 red leather tufted desk chair
2 guest chairs, burgandy/gray cloth
Abell
- -----
1 Kimball Senator table desk w/middle drawer
2 2-drawer wooden file cabinets
1 3-drawer metal file cabinet, 36" wide
1 4-shelf wooden bookcase
1 gray cloth desk chair
1 guest chair, brown cloth
Copeland
- --------
1 Kimball Senator Executive Desk w/open credenza
2 6-shelf wooden bookcases
1 dotted burgandy cloth desk chair
2 matching guest chairs
Whitlock
- --------
1 Kimball Senator Executive Desk w/open credenza
1 burgandy cloth swivel desk chair
1 5-drawer metal file cabinet, 36" wide
2 guest chairs, blue & burgandy w/wood
Kosteroski
- ----------
1 Kimball Senator Executive Desk w/right return
1 5-drawer metal file cabinet, 30" wide
1 3-drawer metal file cabinet, 36" wide
1 gray cloth desk chair
<PAGE>
Maller
- ------
1 gray formica pedestal desk w/matching 2-drawer 15" file cabinet
2 3-drawer metal file cabinets, 30" and 36" wide
1 5-drawer metal file cabinet, 36" wide
1 3-drawer metal file cabinet w/top enclosed storage shelf, 42"
1 black cloth desk chair
Suenkens
- --------
1 Kimball Affinity left return desk
1 gray cloth desk chair
1 5-drawer metal file cabinet, 36"
Werner
- ------
1 wooden left return desk w/gold trim
1 gray desk chair
1 credenza
1 5-drawer metal file cabinet, 36"
2 guest chairs, chrome w/burgandy cloth
Wolf
- ----
1 Kimball Senator Executive Right Unit desk
1 black cloth desk chair
1 guest chair, brown cloth
1 3-shelf wooden bookcase
1 5-drawer metal file cabinet, 36"
1 2-drawer metal file cabinet, 30"
1 guest chair w/arms, blue & burgandy print
Eckblad
- -------
1 Kimball Senator table desk w/middle drawer
1 2 drawer wooden file cabinet
1 grey cloth desk chair
<PAGE>
Arendt
- ------
1 wooden desk w/right return
1 6-shelf wooden bookcase
1 3-shelf wooden bookcase
1 5-drawer metal file cabinet, 36"
1 black cloth desk chair
1 guest chair, beige cloth
Shontz
- ------
1 Kimball Senator right return desk
2 2-drawer wooden file cabinets
1 black leather desk chair
2 guest chairs, wood w/burgandy, pink cloth
Schulte
- -------
1 Kimball Senator left return desk
1 Kimball Senator enclosed double bookshelf unit
1 Kimball Senator open credenza w/shelf unit
1 Kimball Senator round pedestal table w/glass top
1 red leather tufted desk chair
3 red leather barrel guest chairs
Beck
- ----
1 wooden desk
1 5-drawer metal file cabinet, 36"
1 black leather desk chair
2 guest chairs, wood w/gray, yellow cloth
1 wooden side table
Getty
- -----
1 Kimball Affinity left return desk
1 National credenza w/attached shelf unit
1 5-drawer metal file cabinet, 36"
1 gray cloth desk chair
Page 3 of 4
<PAGE>
Walczyk
- -------
1 Kimball Affinity left return desk w/credenza
1 6-shelf wooden bookcase
1 2-drawer metal file cabinet, 36"
1 black cloth desk chair
2 guest chairs, brown/gray cloth
Gibbons
- -------
1 built-in station
2 2-drawer metal file cabinets, 30"
1 black cloth desk chair
Hoover
- ------
1 built-in station
1 2-drawer metal file cabinet, 30"
1 gray cloth desk chair
O'Connell
- ---------
1 left return white laminate desk
1 grey cloth desk chair
1 3-shelf metal bookcase
File space in common areas:
3 4-drawer, 36"
4 5-drawer, 36"
Page 4 of 4
<PAGE>
Senior Housing System Capabilities
- ----------------------------------
Location: Corporate Office
Individual Preparing Report: Scott D. Leaderbrand
Title: Manager of Computer Operations
(The Prime Group, Inc.)
Telephone Number: (312) 917-4276
Date Prepared: 5/6/97 10:03 AM
1:\Data\Sh_Eq2.Wb2
<TABLE>
<CAPTION>
NIC Computer/Machine Printer Current $ Value
------------------ ------------------------------------------------------ -------- ----------------------
Drive Drive Com-
Name Description Processor RAM C: D: NIC puter Printer
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 Gibbons, Eileen HP ISA GW P5-75 586/75 16 540MB 4XCD-ROM HP LJ III 50 1,000 650
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
2 Iuppenlatz, Mark EP210 AST Ascentia J30 586/100 16 800MB n/a n/a 75 2,000 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
3 Kosteroski, Bev HP ISA GW P5-100 586/100 16 852MB 4XCD-ROM HP LJ4 50 1,500 1,100
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
4 Hoover, Gretchen HP ISA GW P5-133 586/133 16 2.1GB 8XCD-ROM n/a 50 1,700 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
6 Abell, Amy 3Com Etherlink III GW Solo 2100 586/133 24 1.3GB 6-12XCD-ROM n/a 130 3,970 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
7 Werner, Anne 3c59 Etherlink PCI GW P5-133 586/133 16 2.1GB 8XCD-ROM HP LJ4 100 1,700 1,100
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
8 Wolf, Sheryl 3c59 Etherlink PCI GW P5-133 586/133 16 1.6GB 8XCD-ROM HP LJ4 100 1,700 1,100
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
8 Arendt, Dan 3c59 Etherlink PCI GW P5-133 586/133 16 1.6GB 8XCD-ROM HP LJ4 100 1,700 1,100
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
9 Walczyk, Craig HP ISA CPQ Lte 386/25 4 120MB n/a n/a 50 350 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
10 Schulte, Mark HP ISA CPQ Lte/Lite 25c 486/25 8 120MB n/a n/a 50 650 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
11 Copeland, Darryl n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
12 Scoltock, Mary n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
13 Shontz, Margaret n/a NEC Versa 4000C 586/100 24 800MB 6XCD-ROM HP LJ III n/a 3,500 650
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
14 Whitlock, Matthew Compaq ISA CPQ 486/50 12 540MB n/a HP LJ II 75 2,000 500
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
15 - Shared - EP210 AST Ascentia J30 586/100 16 800MB n/a n/a 75 2,000 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
16 Haidu, Jouska EP210 AST Ascentia J30 586/100 16 800MB n/a n/a 75 2,000 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
17 Hantch, Laura n/a GTW Solo-133 586/133 24 1.3GB 8XCD-ROM n/a n/a 4,100 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
18 Eckblad, Brian n/a Not Branded 586/100 16 1.6GB n/a n/a 50 1,000 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
19 Suenkens, Bill n/a Not Branded 586/100 16 1.6GB n/a n/a 50 1,000 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
20 O'Connell, Rebecca HP ISA GW P5-166 586/166 32 2.5GB 12XCD-ROM n/a 50 2,100 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
21 Maller, Ann HP ISA GW P5-100 586/100 16 852MB 4XCD-ROM n/a 50 1,500 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
22 Server #1 HP EISA CPQ -SystemPro 386/33 32 3GB n/a n/a 100 1,750 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
23 Server #3 HP EISA CPQ -SystemPro LT 386/33 12 650MB n/a n/a 100 500 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
24 ADP DB Manager HP ISA CPQ Deskpro 386/25 8 120MB n/a n/a 50 250 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
25 Gibbons, Eileen n/a Epson Stylus Pro n/a n/a n/a n/a EP-Pro n/a n/a 350
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
26 Gibbons, Eileen n/a Panafax UF-733 n/a n/a n/a n/a n/a n/a 1,900 n/a
- ------------------------------------------ ------------------------------------------------------ --------- ---------------------
The operating system for all the desktops is MS-DOS v6.22 and WFW v3.11. 1,430 39,870 6,550
The operating system for Server #1 is Novell v3.11 (100 User). 39,870
The operating system for Server #3 is Novell v3.11 (20 User). 1,430
--------
Total $ Value 47,850
========
</TABLE>
<PAGE>
SCHEDULE 2
TO ASSIGNMENT AND ASSUMPTION AGREEMENT
TRADE NAMES AND INTANGIBLES
---------------------------
"Personally Yours"
<PAGE>
SCHEDULE 3
TO ASSIGNMENT AND ASSUMPTION AGREEMENT
EXCLUDED ASSETS
---------------
Any assets held by any of the Assignors that are not exclusively used by the
Senior and Assisted Living Division of The Prime Group, Inc. and certain of its
affiliates.
<PAGE>
EXHIBIT B
TO
FORMATION AGREEMENT
FORM OF SPACE SHARING AGREEMENT
<PAGE>
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
May 7, 1997
Mr. Mark J. Schulte
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Re: Space Sharing Agreement
Dear Mark:
This letter agreement shall set forth the terms upon which the undersigned
("PGI") agrees to provide to Brookdale Living Communities, Inc. ("Brookdale")
the use of certain space and facilities located within PGI's leased premises
("Premises") on the 39th floor of the building known as 77 West Wacker Drive
following the completion of the initial public offering of stock in Brookdale
(the "Offering").
The space and facilities which Brookdale will be permitted to use are
those portions of the Premises and facilities therein which are being used on
the date hereof by persons who are, or after the Offering will become, officers
or employees of Brookdale. If Brookdale uses more space and facilities than
contemplated by the immediately preceding sentence, the rent payable by
Brookdale pursuant to this agreement shall be adjusted appropriately. Such use
shall conform with the nature and extent of the existing use of the space and
facilities which are the subject hereof.
The term of this agreement shall commence on the date of the Offering and
shall end on the last day of the fourth (4th) full calendar month thereafter;
provided, however, that Brookdale shall have the right to extend the term of
this agreement in increments of two (2) months or more for a total of up to
twelve (12) additional months so long as (i) Brookdale has given PGI written
notice of any such extension not later than the last day of the month preceding
the date on which the term (as previously extended, if applicable) would
otherwise expire and (ii) Brookdale is not in default of any obligation under
this agreement as of the date of any such notice or the commencement of the
applicable extension.
Brookdale shall pay as monthly rent for the space and facilities described
herein an amount equal to the sum of (i) Eight Thousand Eight Hundred and no/100
Dollars ($8,800.00) plus (ii) a
<PAGE>
Mr. Mark J. Schulte
May 7, 1997
Page 2
fair and equitable percentage of the taxes and operating expenses for the
Premises. Such rent shall be paid monthly, in advance, on the first day of the
term and on the first day of each calendar month thereafter, except that if the
first day of the term shall be a day other than the first day of a calendar
month, rent for such month shall be prorated based on the number of days in such
month.
In addition, Brookdale shall be responsible for the incremental cost to PGI
of any utilities and services used by Brookdale during the term of this
agreement, as reasonably determined by PGI, including, without limitation, the
cost of copying and facsimile equipment. All amounts owing to PGI under this
paragraph shall be paid by Brookdale within ten (10) days after receipt of an
invoice therefor.
Brookdale acknowledges that it has received and reviewed a copy of the
lease dated March 14, 1992, as amended on April 15, 1992, with respect to the
Premises and agrees that Brookdale's use of the space and facilities described
herein shall be subject to the terms and provisions of such lease and that
Brookdale shall comply with all of the terms and provisions of such lease to the
extent such terms and provisions relate to or affect Brookdale's use of the
space and facilities described herein.
Sincerely,
THE PRIME GROUP, INC.
By:
Name:
Title:
ACCEPTED AND AGREED TO BY:
BROOKDALE LIVING COMMUNITIES, INC.
By:
Name:
Title:
Dated:
<PAGE>
LANDLORD'S CONSENT
------------------
The undersigned, being the landlord of the building known as 77 West Wacker
Drive, Chicago, Illinois, does hereby consent to the foregoing letter agreement
between The Prime Group, Inc. and Brookdale Living Communities, Inc.
77 WEST WACKER LIMITED PARTNERSHIP
By: The Prime Group, Inc., managing
general partner
By:
Name:
Title:
Dated: May 7, 1997
<PAGE>
EXHIBIT C
TO
FORMATION AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 7,
1997, is made and entered into by and among BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation (the "Corporation"), THE PRIME GROUP, INC., an Illinois
corporation ("Prime"), PRIME GROUP LIMITED PARTNERSHIP, an Illinois limited
partnership ("PGLP") and PRIME GROUP VI, L.P., an Illinois limited partnership
("PG-VI, L.P."). Prime, PGLP and PG-VI, L.P. are sometimes referred to herein
individually as a "Holder" and collectively as the "Holders."
RECITALS
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WHEREAS, the Corporation has filed a Registration Statement on Form
S-1 with the Securities and Exchange Commission (the "Commission") in connection
with the IPO (as hereinafter defined);
WHEREAS, pursuant to the terms of that certain Formation Agreement
dated as of the date hereof, the Corporation has issued an aggregate of
1,703,043 shares (the "Formation Shares") of its Common Stock (as hereinafter
defined) to the Holders;
WHEREAS, PG-VI, L.P. has purchased 2,500,000 of the 4,500,000 shares
of Common Stock issued and sold in the Offering (such 2,500,000 shares, together
with the Formation Shares, are referred to herein as the "Common Shares"); and
WHEREAS, the Corporation and the Holders deem it desirable to enter
into this Agreement in connection with the Holders' acquisition of the Common
Shares.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the recitals and the mutual promises
and covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions.
-----------
(a) Previously Defined Terms. Each capitalized term defined in the
first paragraph and Recitals hereof shall have the meaning set forth above
whenever used herein, unless otherwise expressly provided or unless the context
clearly requires otherwise.
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(b) Additional Definitions. In addition to the terms defined in the
first paragraph and Recitals hereof, whenever used herein, the following terms
shall have the meanings set forth below unless otherwise expressly provided or
unless the context clearly requires otherwise:
"Affiliate" means, with respect to any Holder, any other Person that
(i) directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Holder including, without
limitation, any subsidiary of such Holder or (ii) holds an equity interest (such
as a stock interest or a partnership interest) in such Holder or in a Person
described in clause (i) hereof. With respect to any other specified person
herein, "Affiliate" shall mean any other person that, directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or under
common control with, such specified person.
"Common Stock" means the Common Stock, par value $0.01 per share, of
the Corporation.
"Demand Registrations" has the meaning given to such term in Section
2(a)(iii).
"IPO" means the Corporation's initial underwritten public offering of
shares of Common Stock consummated pursuant to a registration statement declared
effective under the Securities Act.
"Long-Form Demand Registration" has the meaning given to such term in
Section 2(a)(iii).
"Long-Form Registration" has the meaning given to such term in Section
2(a)(i).
"Person" means a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Piggyback Registration" has the meaning given to such term in Section
3(a).
"Registrable Shares" means (i) the Common Shares; (ii) any shares of
Common Stock issued as, or where issued directly or indirectly upon the
conversion or exercise of or with respect to other securities issued as, a
dividend or other distribution with respect to or in exchange or in replacement
of the Common Shares; and (iii) any shares of Common Stock then issuable
directly or indirectly upon the conversion or exercise of or with respect to
other securities which were issued as a dividend or other distribution with
respect to or in exchange or in replacement of the Common Shares; provided,
however, that Registrable Shares shall
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not include any shares of Common Stock the sale of which has been registered
under the Securities Act pursuant to this Agreement or sold to the public
pursuant to Rule 144 promulgated by the Commission under the Securities Act
(except any sale, distribution or other disposition by any Holder to any other
Holder or an Affiliate of such Holder or an Affiliate of such other Holder). For
purposes of this Agreement, a Person will be deemed to be a Holder of
Registrable Shares whenever such Person holds a security exercisable for or
convertible into such Registrable Shares, whether or not such exercise or
conversion has actually been effected.
"Registration Expenses" has the meaning given to such term in Section
6(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Short-Form Demand Registration" has the meaning given to such term in
Section 2(a)(iii).
"Short-Form Registration" has the meaning in Section 2(a)(ii).
2. Demand Registrations.
(a) Requests for Registration. (i) Subject to the terms and
conditions of this Agreement, one or more Holders of outstanding Registrable
Shares at any time may request registration under the Securities Act of all or
part of its or their Registrable Shares on Form S-1 or any similar long-form
registration statement (a "Long-Form Registration") by delivering a written
request to the Corporation to that effect; provided, however, that, in the case
of any such Long-Form Registration, the Holders requesting the Long Form
Registration must be requesting registration of not less than five percent (5%)
of the total Registrable Shares then outstanding; provided, further, that if a
Short-Form Registration (as hereinafter defined) is available for the requested
registration, then at the election of the Corporation such registration shall be
effected on a Short-Form Registration.
(ii) Subject to the terms and conditions of this Agreement, one or
more Holders of any of the then outstanding Registrable Shares at any time may
request registration under the Securities Act of all or part of its or their
Registrable Shares on Form S-2 or S-3 or any similar short-form registration
statement (a "Short-Form Registration"), if available, by delivering a written
request to the Corporation to that effect.
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<PAGE>
(iii) If the Holders initiating a registration pursuant to Section
2(a) intend to distribute the Registrable Shares by means of any underwriting,
they shall so advise the Corporation in their written notice. Within ten (10)
days after receipt of any such written request, the Corporation will give
written notice of such request to all holders of all registrable securities of
the Corporation (including all other Holders of Registrable Shares), if any, and
will include, subject to the terms of Section 2(d), in any such registration
that constitutes a Demand Registration (as hereinafter defined) all registrable
securities with respect to which the Corporation has received written requests
for inclusion therein within fifteen (15) days after the Corporation's notice
has been given. Any Long-Form Registration and Short-Form Registration
requested pursuant to this Section 2(a), other than a registration in which the
Corporation sells any of its securities in a primary offering, are referred to
herein, respectively, as a "Long-Form Demand Registration" and a "Short-Form
Demand Registration". All Long-Form Demand Registrations and Short-Form Demand
Registrations shall collectively be referred to herein as "Demand
Registrations". The Corporation may elect to include its securities in a primary
offering in any registration requested pursuant to this Section 2(a), and such
registrations requested pursuant to this Section 2(a) in which the Corporation
sells any of its securities in a primary offering shall not be deemed to be
Demand Registrations and shall instead be considered Piggyback Registrations and
will be governed by Section 3.
(b) Long-Form Demand Registrations. The Holders of Registrable Shares
may request (i) up to three (3) Long-Form Demand Registrations pursuant to
Section 2(a)(i) during the first five (5) years following the date of the IPO
and (ii) until the Holders own in the aggregate less than ten percent (10%) of
the outstanding Common Stock, up to one (1) Long-Form Demand Registration each
year after the fifth anniversary of the date of the IPO, and the Corporation
will pay all Registration Expenses of the Corporation and the Holders of
Registrable Shares incurred in connection with each such registration; provided,
that in each case the number of Long-Form Demand Registrations otherwise
permitted by this Section 2(b) during a given period shall be reduced by the
number of Short-Form Demand Registrations effected during the corresponding
period pursuant to Section 2(c), if any. A registration will not count as a
Long-Form Demand Registration under this Section 2(b) until it has become
effective; provided that in any event the Corporation will pay the Registration
Expenses of the Corporation and the Holders of Registrable Shares incurred in
connection with any such registration initiated as a Long-Form Demand
Registration. Notwithstanding the immediately preceding sentence, a registration
which does not become effective after the Corporation has filed a registration
statement with respect thereto solely by reason of the refusal to proceed of the
Holders of Registrable Shares shall be deemed to have been effected by such
Holders and shall count as a Long-Form Demand Registration under this Section
2(b), unless the
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Holders of Registrable Shares making such demand shall have elected to pay the
Registration Expenses of the Corporation and of the Holders of Registrable
Shares incurred in connection therewith.
(c) Short-Form Demand Registrations. The Holders of Registrable Shares
may request (i) up to three (3) Short-Form Demand Registrations pursuant to
Section 2(a)(ii) during the first five (5) years following the date of the IPO
and (ii) until the Holders own in the aggregate less than ten percent (10%) of
the outstanding Common Stock, up to one (1) Short-Form Demand Registration each
year after the fifth anniversary of the date of the IPO, and the Corporation
will pay all Registration Expenses of the Corporation and the Holders of
Registrable Shares incurred in connection with each such registration; provided,
that in each case the number of Short-Form Demand Registrations otherwise
permitted by this Section 2(c) during a given period shall be reduced by the
number of Long-Form Demand Registrations effected during the corresponding
period pursuant to Section 2(b), if any. A registration will not count as a
Short-Form Demand Registration under this Section 2(c) until it has become
effective; provided that in any event the Corporation will pay the Registration
Expenses of the Corporation and the Holders of Registrable Shares incurred in
connection with any such registration initiated as a Short-Form Demand
Registration. Notwithstanding the immediately preceding sentence, a registration
which does not become effective after the Corporation has filed a registration
statement with respect thereto solely by reason of the refusal to proceed of the
Holders of Registrable Shares shall be deemed to have been effected by such
Holders and shall count as a Short-Form Demand Registration for which the
Corporation paid Registration Expenses under this Section 2(c), unless the
Holders of Registrable Shares making such demand shall have elected to pay the
Registration Expenses of the Corporation and of the Holders of Registrable
Shares incurred in connection therewith.
(d) Priority on Demand Registrations. If a Demand Registration is an
underwritten public offering and the managing underwriter(s) advise the
Corporation that in their opinion the number of Registrable Shares and other
securities (if any) requested to be included exceeds the number of Registrable
Shares and other securities which can be sold in such offering without having a
material adverse effect on the offering, the Corporation will include in such
registration (A) first, the number of Registrable Shares requested to be
included therein, which in the opinion of such underwriter(s) can be sold
without having a material adverse effect on the offering, allocated pro rata
among the Holders of such Registrable Shares on the basis of the number of
Registrable Shares owned by such Holders which such Holders have elected to
include in such registration, and (B) second, such other securities requested to
be included in such registration, if any, which in the opinion of such
underwriter(s) can be sold (after taking into account the Registrable Shares to
be sold pursuant to
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<PAGE>
clause (A) above) without having a material adverse effect on the offering.
(e) Restrictions on Registrations. (i) The Corporation may postpone
for a reasonable period, not to exceed sixty (60) days, the filing or the
effectiveness of a registration statement for a Demand Registration if the
Corporation has been advised by legal counsel that such filing would require
disclosure of a material non-public fact or non-public information that the
Corporation determines reasonably and in good faith would have a material
adverse effect on the negotiation or completion of any significant transaction
that is being contemplated by the Corporation or any of its subsidiaries at the
time such right to delay is exercised. In addition, the Corporation shall not be
required to effect any registration in accordance with the terms of this
Agreement (other than on Form S-3 or any successor form relating to "shelf"
offerings) within one hundred twenty (120) days after the effective date of any
other registration statement of the Corporation for the IPO or a primary
offering (or combined primary and secondary offering) of its securities (other
than a registration statement on Form S-8, or any successor form).
(ii) No Holder of Registrable Shares may make a request for a Demand
Registration until after the effective date of the IPO; provided, that in any
event no Registrable Shares may be sold by either Holder prior to the expiration
of the applicable lock-up agreements described in the prospectus relating to the
IPO.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever (i) the Corporation intends to sell
its securities in a primary offering pursuant to a registration statement filed
with the Commission or whenever the securities of the Corporation then issued
and outstanding are to be registered under the Securities Act (in either case,
other than pursuant to a registration statement on Form S-8 or Form S-4, or any
successor forms) and (ii) the registration form to be used may also be used for
the registration of Registrable Shares (a "Piggyback Registration"), the
Corporation will give prompt written notice (in any event within ten (10)
business days after its receipt of notice of any exercise of demand registration
rights by holders of the Corporation's securities other than the Registrable
Shares) to all holders of registrable securities (including all Holders of
Registrable Shares) of its intention to effect such a registration and will
include in such registration, subject to the terms of paragraphs (b) and (c) of
this Section 3, all registrable securities with respect to which the Corporation
has received written requests for inclusion therein within thirty (30) days
after the Corporation's notice has been given. The Corporation shall have the
right to postpone or withdraw any Piggyback Registration without obligation or
liability to any holder of
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<PAGE>
registrable securities (including any Holder of Registrable Shares).
(b) Priority on Primary Registrations. If a Piggyback Registration is
an underwritten primary registration on behalf of the Corporation, and the
managing underwriter(s) advise the Corporation that in their opinion the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering without having a material adverse effect on
the offering, the Corporation will include in such registration (A) first, the
securities the Corporation proposes to sell, (B) second, the Registrable Shares
requested to be included therein which in the opinion of such underwriter(s)
(after taking into account the securities to be sold pursuant to clause (A)
above) can be sold without having a material adverse effect on the offering,
allocated pro rata among the Holders of such Registrable Shares on the basis of
the number of Registrable Shares owned by such Holders which such Holders have
elected to include in such registration, and (C) third, other securities
requested to be included in such registration, if any, which in the opinion of
such underwriter(s) can be sold (after taking into account the securities to be
sold pursuant to clauses (A) and (B) above) without having a material adverse
effect on the offering.
(c) Priority on Secondary Registrations. (i) If a Piggyback
Registration is not an underwritten primary registration on behalf of the
Corporation and is an underwritten secondary registration on behalf of existing
holders of the Corporation's securities, and the managing underwriter(s) advise
the Corporation that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without having a material adverse effect on the offering, the
Corporation will include in such registration (A) first, the securities
requested to be included therein by the holders requesting such registration
which in the opinion of such underwriter(s) can be sold without having a
material adverse effect on the offering, (B) second, the Registrable Shares
requested to be included therein which in the opinion of such underwriter(s) can
be sold (after taking into account the securities to be sold pursuant to clause
(A) above) without having a material adverse effect on the offering, allocated
pro rata among the Holders of Registrable Shares on the basis of the number of
Registrable Shares owned by such Holders which such Holders have elected to
include in such registration, and (C) third, other securities requested to be
included in such registration, if any, which in the opinion of such
underwriter(s) can be sold (after taking into account the securities to be sold
pursuant to clauses (A) and (B) above) without having a material adverse effect
on the offering.
(d) Other Registrations. If the Corporation has previously filed a
registration statement with respect to an underwritten registration of
Registrable Shares pursuant to Section
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2 or a registration statement which is not an underwritten primary registration
on behalf of the Corporation and which is an underwritten secondary registration
on behalf of holders of the Corporation's securities pursuant to this Section 3,
and if such previous registration has not been withdrawn or abandoned, the
Corporation will not be required to file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8, or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of one
hundred eighty (180) days has elapsed from the effective date of such previous
registration, unless the lead underwriter managing such previous registered
public offering otherwise agrees.
4. Holdback Agreements.
(a) Each of the Holders of Registrable Shares agrees not to effect any
public sale or distribution of equity securities of the Corporation, including
any public sale pursuant to Rule 144 under the Securities Act, or any securities
convertible into or exchangeable or exercisable for such securities, during the
period (i) commencing on the effective date of the IPO and ending one hundred
eighty (180) days after the effective date of the IPO, unless the underwriter(s)
managing the IPO otherwise agree or (ii) commencing seven (7) days prior to and
ending one hundred twenty (120) days after the effective date of any
underwritten Demand Registration or underwritten Piggyback Registration in which
such Holder sells Registrable Shares (except as part of such underwritten
registration), unless the lead underwriter managing such previous registered
public offering otherwise agrees.
(b) The Corporation agrees to use its best efforts to cause each
holder of at least 1% (on a fully-diluted basis) of its equity securities, or
any securities convertible into or exchangeable or exercisable for such
securities, purchased from the Corporation at any time after the date of this
Agreement (other than in a registered public offering), if any, to agree not to
effect any public sale or distribution of any such securities during the period
commencing seven days (7) prior to and ending one hundred eighty (180) days
after the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration (except as part of such underwritten
registration, if otherwise permitted), unless the lead underwriter managing the
previous offering otherwise agrees.
5. Registration Procedures. Whenever the Holders of Registrable Shares
have requested that any Registrable Shares be registered pursuant to the terms
of this Agreement, the Corporation will use its best efforts to effect the
registration of such Registrable Shares under the Securities Act in accordance
with the
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intended method of disposition thereof, and pursuant thereto the Corporation
will as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to exceed twelve
(12) months;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed twelve (12) months, and otherwise as may be necessary
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof as set forth in such registration statement;
(c) furnish to each seller of such Registrable Shares and the
underwriters of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such seller or underwriters may reasonably request
in order to facilitate the disposition of the Registrable Shares owned by such
seller or the sale of such securities by such underwriters;
(d) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Shares owned by such seller
(provided that the Corporation will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) use its best efforts to cause all such Registrable Shares to be
listed on each securities exchange in which similar securities issued by the
Corporation are then listed;
(f) provide a transfer agent and registrar for all such Registrable
Shares not later than the closing date of the sale of such shares;
(g) enter into such customary agreements (including underwriting
agreements in customary form and substance) and take
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all such other reasonable and customary actions as the Holders of at least a
majority of the Registrable Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Shares;
(h) make available for reasonable inspection during business hours by
the seller of such Registrable Shares, any managing underwriter participating in
any disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter, to the
extent permitted by law, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(i) notify each seller of such Registrable Shares, promptly after it
shall receive notice thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(j) notify each seller of such Registrable Shares of any request by
the Commission for the amendment or supplement of such registration statement or
prospectus or for additional information;
(k) prepare and file with the Commission, promptly upon the request of
any seller of such Registrable Shares, any amendments or supplements to such
registration statement or prospectus which is required under the Securities Act
or the rules and regulations thereunder in connection with the distribution of
Registrable Shares by such seller;
(l) prepare and promptly file with the Commission and promptly notify
each seller of such Registrable Shares of the filing of such amendment or
supplement to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event shall have occurred, or facts became known, in either case as the result
of which any such prospectus of any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;
(m) advise each seller of such Registrable Shares, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use all
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reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order shall be issued;
(n) at least twenty-four (24) hours prior to the filing of any
registration statement or prospectus or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to each seller of
such Registrable Shares and refrain from filing any such registration statement,
prospectus, amendment or supplement to which counsel selected by the Holders of
at least a majority of the Registrable Shares being registered shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, unless, in the case of an amendment or
supplement, in the opinion of counsel for the Corporation the filing of such
amendment or supplement is reasonably necessary to protect the Corporation from
any liabilities under any applicable federal or state law and such filing will
not violate applicable laws; and
(o) at the request of any seller of such Registrable Shares in
connection with an underwritten offering, furnish on the date or dates provided
for in the underwriting agreement, a signed counterpart, addressed to such
seller, of: (i) an opinion of counsel, and (ii) a letter or letters from the
independent certified public accountants of the Corporation, in each case
covering such matters as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings and such other matters as any such seller may reasonably request.
6. Registration Expenses.
(a) In all circumstances in which the Corporation is obligated to pay
Registration Expenses pursuant to this Agreement, all expenses of the
Corporation incident to the Corporation's performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, the expenses and fees for listing the
securities to be registered on each securities exchange or other market on which
any shares of Common Stock are then listed, expenses in connection with the
preparation of the registration statement (preliminary or final) or any other
offering document, fees and expenses incurred in the preparation of any
underwriting agreement, expenses incurred to secure any required review by the
National Association of Securities Dealers, Inc., and fees and disbursements of
counsel for the Corporation and its experts and independent certified public
accountants, underwriters (excluding discounts and commissions attributable to
the Registrable Shares included in such registration) and other Persons retained
by the Corporation (all such expenses collectively being herein called
"Registration Expenses"), will be borne by the
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Corporation. In addition, the Corporation will pay its internal expenses
incident to the Corporation's performance of or compliance with this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review and the expense of any liability insurance obtained by
the Corporation.
(b) In all circumstances in which the Corporation is obligated to pay
Registration Expenses of Holders of Registrable Shares pursuant to this
Agreement, the Corporation will reimburse the Holders of Registrable Shares
covered by such registration for the reasonable costs and expenses incurred by
such Holders in connection with such registration, including, without
limitation, the reasonable fees and disbursements of one counsel chosen by the
Holders of a majority of the Registrable Shares requested to be registered in
such registration, but excluding discounts and commissions attributable to the
Registrable Shares included in such registration.
7. Indemnification.
(a) The Corporation agrees to indemnify, to the fullest extent
permitted by law, each seller of Registrable Shares, its directors, officers and
employees and each Person who controls such seller (within the meaning of the
Securities Act or the Securities Exchange Act) against all losses, claims,
damages, liabilities and expenses (including, without limitation, reasonable
attorneys' fees except as limited by Section 7(c)) resulting from any untrue or
alleged untrue statement of a material fact contained in any registration
statement, any final prospectus contained therein or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements thereto not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Corporation by such seller expressly for
use therein or by such seller's failure to deliver a copy of the registration
statement or final prospectus or any amendments or supplements thereto after the
Corporation has furnished such seller with a sufficient number of copies of the
same. The reimbursements required by this Section 7(a) will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
(b) In connection with any registration statement in which a seller of
Registrable Shares is participating, each such seller will furnish to the
Corporation in writing such information as the Corporation reasonably requests
for use in connection with any such registration statement or prospectus and, to
the fullest extent permitted by law, will indemnify the Corporation, its
directors, officers and employees, each underwriter (if any) and each Person who
controls the Corporation or such underwriter
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(within the meaning of the Securities Act or the Securities Exchange Act)
against all losses, claims, damages, liabilities and expenses (including,
without limitation, reasonable attorneys' fees except as limited by Section
7(c)) resulting from any untrue statement of a material fact contained in the
registration statement, final prospectus contained therein or any amendment
thereof or supplement thereto or any omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or omission is contained in any
information or affidavit so furnished in writing by such seller expressly for
use therein; provided that the obligation to indemnify will be several, not
joint and several, among such sellers of Registrable Shares, and the liability
of each such seller of Registrable Shares will be in proportion to, and provided
further that such liability will be limited to, the net amount received by such
seller from the sale of Registrable Shares pursuant to such registration
statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without the indemnifying party's consent (which consent
will not be unreasonably withheld). The indemnified party will not settle any
claim or liability without first providing the indemnifying party with a
reasonable opportunity to assume the defense. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities or expenses referred to herein, then
the indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
-13-
<PAGE>
expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand, and the indemnified party on the other,
in connection with the statement or omission which resulted in such losses,
claims, damages, liabilities or expenses as well as any other relevant equitable
considerations, including the failure to give the notice required hereunder. The
relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Corporation and the Holders agree that it would not
be just and equitable if contributions pursuant to this Section 7(e) were
determined by pro rata allocation or by any other method of allocation which did
not take account of the equitable considerations referred to herein. The amount
paid or payable to an indemnified party as a result of the losses, claims,
damages, liabilities or expenses referred to above shall be deemed to include
any legal or other expenses reasonably incurred in connection with investigating
or defending the same. Notwithstanding the foregoing, in no event shall the
amount contributed by any Holder exceed the aggregate net offering proceeds
received by any such Holder from the sale of its Registrable Shares. No person
guilty of fraudulent misrepresentations (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
8. Current Public Information. At all times after the Corporation has
filed a registration statement with the Commission pursuant to the requirements
of either the Securities Act or the Securities Exchange Act, the Corporation
will use its best efforts to file in a timely manner all reports and other
documents required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations promulgated by the Commission
thereunder and will use its best efforts to take such further action as any
Holder or Holders of Registrable Shares may reasonably request, all to the
extent required to enable such holders to sell Registrable Shares pursuant to
(i) Rule 144 under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter promulgated by the Commission
or (ii) a registration statement on Form S-2 or S-3 or any similar registration
form hereafter adopted by the Commission. Upon request, the Corporation shall
deliver to any Holder of Registrable Shares a written statement as to whether it
has complied with such requirements.
9. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the
-14-
<PAGE>
Person or Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements. Subject to the immediately succeeding sentence, the
Holders of a majority of the Registrable Shares requested to be registered will
have the right to select the managing underwriter(s) to administer any Demand
Registration which managing underwriter(s) shall be reasonably acceptable to the
Corporation. Notwithstanding the foregoing, the Corporation will have the right
to select the managing underwriter(s) to administer any offering which is
covered by a Piggyback Registration; provided, however, that in any such case
the managing underwriters shall be nationally or regionally recognized
underwriter(s).
10. Implementation and Protection of Registration Rights. The Corporation
will at all times in good faith assist in carrying out all of the provisions of
this Agreement and in the taking of all such action as may be reasonably
necessary or appropriate in order to protect the registration rights pursuant to
this Agreement of the Holders of Registrable Shares.
11. Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
12. Amendments and Waivers. Except as otherwise expressly provided herein,
the provisions of this Agreement may be amended or waived at any time only by
the written agreement of the Corporation and the Holders of all of the then
outstanding Registrable Shares. Any waiver, permit, consent or approval of any
kind or character on the part of any such Holders of any provision or condition
of this Agreement must be made in writing and shall be effective only to the
extent specifically set forth in writing.
13. Successors and Assigns. Except as otherwise expressly provided herein,
the provisions of this Agreement shall be binding upon and inure to the benefit
of the respective successors, assigns, heirs, executors and administrators of
the parties hereto, whether so expressed or not. In addition and whether or not
any express assignment has been made, the provisions of this Agreement which are
for the benefit of Holders of Registrable Shares are also for the benefit of,
and enforceable by, any subsequent holder of Registrable Shares who consent in
writing to be bound by this Agreement, and such Person shall be considered a
"Holder" hereunder.
14. Other Registration Rights. Except for the registration rights granted
hereunder, the Corporation will not grant to any Persons the right to request
the Corporation to register any equity
-15-
<PAGE>
securities of the Corporation, or any securities convertible or exchangeable
into or exercisable for such securities, without the written consent of the
Holders of a majority of the then outstanding Registrable Shares, and except for
registrations pursuant to registration rights granted to the Holders of
Registrable Shares hereunder or granted to other Persons pursuant to this
Section 14 or primary registrations of securities by the Corporation or
registrations of securities being resold by affiliates in a Rule 145 transaction
pursuant to registration rights granted to such affiliates that are subordinate
to the registration rights of the Registrable hereunder, the Corporation shall
not register any equity securities of the Corporation, or any securities
convertible or exchangeable into or exercisable for such securities, without the
written consent of the Holders of a majority of the then outstanding Registrable
Shares. The Corporation will not include in any Demand Registration any
securities which are not Registrable Shares without the written consent of the
Holders of a majority of the then outstanding Registrable Shares requesting such
registration. Notwithstanding the foregoing, the Corporation may grant and
register securities pursuant to (a) subordinate piggyback registration rights
not inconsistent with the registration rights granted hereunder to other Persons
and (b) demand registration rights which are subordinate to the rights of the
Holders with respect to Demand Registrations hereunder.
15. Final Agreement. This Agreement constitutes the final agreement of the
parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
16. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
17. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
18. Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service guaranteeing next business day delivery,
to the following addresses, or such other addresses as shall be given by notice
delivered hereunder, in each case with applicable postage or delivery charges
prepaid, and shall be deemed to have been given upon delivery, if delivered
personally, three business days after
-16-
<PAGE>
mailing, if mailed, or one business day after delivery to the courier, if
delivery by overnight courier service:
If to the Holders, to:
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Michael W. Reschke
With a copy (which shall not constitute notice) to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
If to the Corporation, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
With a copy (which shall not constitute notice) to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
19. Governing Law. All questions concerning the construction, validity and
interpretation of, and the performance of the obligations imposed by, this
Agreement shall be governed by and construed in accordance with the laws of the
State of [Delaware] (excluding the choice of law provisions thereof).
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument.
21. Termination of Rights. The registration rights provided by this
Agreement shall terminate on the earlier of (a) first date after the date of the
IPO on which the aggregate number of Registrable Shares then owned by the
Holders constitutes less than ten percent (10%) of the outstanding Common Stock,
and (b) with regard to each Holder of Registrable Shares, at such time as such
Holder shall have an unlimited right to sell all of its Registrable
-17-
<PAGE>
Shares in the public market without restriction on volume or otherwise.
[signature page follows]
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be executed and delivered in their names and on their behalf as of
the date first set forth above.
THE CORPORATION:
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By:
------------------------------------------
Name:
----------------------------------------
Its:
-----------------------------------------
THE HOLDERS:
THE PRIME GROUP, INC.,
an Illinois corporation
By:
------------------------------------------
Name:
----------------------------------------
Its:
-----------------------------------------
PRIME GROUP LIMITED PARTNERSHIP,
an Illinois limited partnership
By:
------------------------------------------
Michael W. Reschke
Managing General Partner
PRIME GROUP VI, L.P.
By: PGLP, Inc.,
its Managing General Partner
By:
------------------------------------
Name:
----------------------------------
Its:
-----------------------------------
S-1
<PAGE>
EXHIBIT D
TO
FORMATION AGREEMENT
FORM OF NON-COMPETE AGREEMENT
<PAGE>
NON-COMPETE AGREEMENT
---------------------
This NON-COMPETE AGREEMENT (this "Agreement"), dated as of May 7,
1997, is made and entered into by and among BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation (the "Company"), THE PRIME GROUP, INC., an Illinois
corporation ("TPG"), PRIME GROUP LIMITED PARTNERSHIP, an Illinois limited
partnership (together with TPG, the "TPG Group"), and MICHAEL W. RESCHKE, an
individual ("Reschke").
RECITALS
--------
WHEREAS, the Company, through its subsidiaries and affiliates, is
engaged primarily in the business of the management, operation, acquisition and
development of senior and assisted living facilities and the provision of senior
and assisted living services at such facilities;
WHEREAS, on the date hereof the Company is entering into a series of
related transactions (the "Formation") pursuant to which it will acquire, among
other things, substantially all of the operations of the senior housing division
of TPG and the ownership interests of the TPG Group and its affiliates in a
portfolio of two senior and assisted living facilities located in Illinois;
WHEREAS, Reschke and the TPG Group, directly or through one or more
affiliates, will continue to engage in certain real estate-related activities
after the Formation, including, without limitation, the continued ownership of
the senior and assisted living facility known as The Island on Lake Travis
located in Lago Vista, Texas (the "Island"); and
WHEREAS, as a condition to the consummation of the transactions
described above, and in an effort to eliminate potential conflicts of interest
that may arise in the future as a result of the continuing activities of Reschke
and the TPG Group, the parties hereto desire, subject to certain conditions and
exceptions set forth herein, to enter into certain agreements restricting the
activities of Reschke and the TPG Group for a period expiring on the earlier of
(i) four (4) years from the effective date of the Company's initial public
offering of its Common Stock, $0.01 par value per share (the "IPO"), or (ii) one
(1) year from the date of a merger or sale of all or substantially all of the
stock or assets of the Company.
<PAGE>
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the recitals and the mutual
promises and covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Definitions.
-----------
(a) Previously Defined Terms. Each capitalized term defined in the
first paragraph and Recitals hereof shall have the meaning set forth above
whenever used herein, unless otherwise expressly provided or unless the context
clearly requires otherwise.
(b) Additional Definitions. In addition to the terms defined in the
first paragraph and Recitals hereof, whenever used herein, the following terms
shall have the meanings set forth below unless otherwise expressly provided or
unless the context clearly requires otherwise:
"Affiliate" means (i) any entity in which Reschke and the TPG Group
(either individually or collectively) own or control, directly or indirectly,
fifty percent (50%) or more of the outstanding equity interests, (ii) any entity
with respect to which Reschke and the TPG Group (either individually or
collectively) have the right or power, directly or indirectly, to cause such
entity to (x) develop or acquire an interest in any facilities of the type
included within the Primary Business of the Company or (y) manage or operate any
such facilities, in either case without the consent or approval of a third party
equity owner, and (iii) any entity with respect to which Reschke and the TPG
Group (either individually or collectively) have the right or power, directly or
indirectly, to withhold consent or approval of (x) the development of, or an
acquisition by such entity of an interest in, any facilities of the type
included within the Primary Business of the Company or (y) the engagement by
such entity in the management or operation of any such facilities, in either
case where such consent or approval is required as a condition to consummation
of such acquisition or the engagement in such activity.
"Primary Business of the Company" means the ownership, management,
operation, acquisition and development of senior and assisted living and semi-
acute care facilities.
2. Prohibitions.
------------
(a) Subject to subsections 2(b) and 2(c) below, from and after the
date hereof and during the term of this Agreement, neither Reschke, the TPG
Group nor any Affiliate will develop any facility or acquire any facility or any
direct or indirect interest
-2-
<PAGE>
therein, or manage or operate any such facility, that is of the type included
within the Primary Business of the Company; provided, that the foregoing shall
not prohibit any of Reschke, the TPG Group or any Affiliate from providing any
mortgage financing, from acting as lessor in any sale-leaseback transaction or
from providing any other subordinated debt with respect to any facilities of the
type included within the Primary Business of the Company. It is expressly
acknowledged and agreed that, subject to subsections 2(b) and 2(c) below, the
prohibitions set forth in this subsection 2(a) shall apply only to any interest
in, or the development, management or operation of, any facility of the type
included within the Primary Business of the Company located anywhere within the
continental United States of America.
(b) Excluded from the restrictions set forth in subsection 2(a) are
the following properties and interests: (i) any interest in the Company; (ii)
the Island and any interest therein; (iii) any activity which a majority of the
independent members of the board of directors of the Company determines not to
be competitive with any facility which the Company owns or plans to acquire or
develop; (iv) less than 5% of any class of securities listed on a national
securities exchange or traded over-the-counter on the National Association of
Securities Dealers Automated Quotation System Market; and (v) subject to the
proviso at the end of this clause (v), any facilities acquired after the date of
this Agreement that are similar to those acquired, developed, managed or owned
by the Company, but only to the extent such facilities are acquired in
connection with the acquisition of a group of properties; provided, that in the
event of any such acquisition permitted by this clause (v), the Company shall
have the right and opportunity to purchase such similar facilities from Reschke,
the TPG Group or any Affiliate, as applicable, at a price equal to the fair
market value (as determined (i) by an independent appraiser acceptable to both
Reschke, TPG or such Affiliate, on the one hand, and the Company, on the other
hand or (ii) by any other means mutually acceptable to Reschke, TPG or such
Affiliate, on the one hand, and the Company, on the other hand) of such similar
facilities.
3. Term. This Agreement shall be in effect from and after the date
hereof and shall continue in effect for a period expiring on the earlier of (i)
four (4) years from the closing date of the IPO or (ii) one (1) year from the
date of a merger of the Company or the sale of all or substantially all of the
stock or assets of the Company.
4. Reasonable Limit. The parties hereto have attempted to set forth
certain restrictions only to the extent necessary to protect the interests of
the Company. Each of Reschke and the TPG Group expressly acknowledges that the
restrictive covenant contained in subsection 2(a) above along with the
exceptions thereto contained in subsections 2(b) and 2(c) above, constitutes
-3-
<PAGE>
a reasonable restriction. If, however, the scope or enforceability of the
restrictive covenant contained in this Agreement is disputed at any time, a
court or other trier of fact may modify and enforce the covenant to the extent
that it believes is reasonable under the circumstances existing at the time.
5. Breach of Agreement.
-------------------
(a) A party aggrieved shall notify the other party in writing of any
conflicts, disputes or claims of breach arising under this Agreement. Within ten
(10) business days after such notice is sent, the parties shall meet, shall
develop, as fully as possible, the facts relating to the conflict, dispute or
alleged breach, and shall attempt to resolve the same, it being understood and
agreed that any such resolution shall be subject to the consent and approval of
a majority of the Company's independent directors. If resolution of the dispute
is not made to the satisfaction of the aggrieved party within thirty (30) days
after the notice is sent, the aggrieved party may pursue its legal and equitable
remedies.
(b) In the event of breach of this Agreement, each of Reschke and the
TPG Group acknowledges that the remedy at law would be inadequate and that, in
addition to monetary damages, the Company shall be entitled, after compliance
with the dispute mechanism described in subsection 5(a) above, to seek an
injunctive order restraining such breach.
6. Transferability. The parties hereto agree that this Agreement shall
inure to the benefit of the Company, and its successors and assigns and shall be
transferable and assignable by the Company in connection with the sale or other
transfer of an equity interest in the Company of greater than 50% to an entity
that is not an Affiliate. Upon any such transfer or assignment, and subject to
Section 3, this Agreement shall remain in full force and effect between Reschke
and the TPG Group, on one hand, and such transferees, assignees or successors in
interest, on the other hand. This Agreement shall be binding upon the successors
and assigns of all or substantially all of the business of the TPG Group.
7. Waiver. The waiver by any party to this Agreement of a breach by
any party or any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach by any other party. No waiver of any
provision of this Agreement shall be effective, unless in writing and signed by
the party waiving its rights, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given,
provided further that no waiver by the Company shall be effective unless
accompanied by a certificate of an executive officer of the Company certifying
that a majority of the independent directors of the Company have consented to
and approved such waiver.
-4-
<PAGE>
8. Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service guaranteeing next business day delivery,
to the following addresses, or such other addresses as shall be given by notice
delivered hereunder, in each case with applicable postage or delivery charges
prepaid, and shall be deemed to have been given upon delivery, if delivered
personally, three business days after mailing, if mailed, or one business day
after delivery to the courier, if delivery by overnight courier service:
If to the Company, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
If to the TPG Group or any member thereof, to:
c/o The Prime Group, Inc.
77 West Wacker Drive
39th Floor
Chicago, Illinois 60601
Attn: Michael W. Reschke
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
If to Michael W. Reschke, to:
c/o The Prime Group, Inc.
77 West Wacker Drive
39th Floor
Chicago, Illinois 60601
Attn: Michael W. Reschke
-5-
<PAGE>
9. Final Agreement. This Agreement constitutes the final agreement
of the parties concerning the matters referred to herein, and supersedes all
prior agreements and understandings.
10. Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
11. Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
and shall not be utilized in interpreting this Agreement.
12. Governing Law. All questions concerning the construction,
validity and interpretation of, and the performance of the obligations imposed
by, this Agreement shall be governed by and construed in accordance with the
laws of the State of Illinois (excluding the choice of law provisions thereof).
[signature page follows]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Non-Compete
Agreement to be duly executed and delivered on their behalf as of the date first
above written.
THE COMPANY:
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By:________________________________
Name:______________________________
Its:_______________________________
RESCHKE AND THE TPG GROUP:
___________________________________
Michael W. Reschke
THE PRIME GROUP, INC.,
an Illinois corporation
By:________________________________
Name:______________________________
Its:_______________________________
PRIME GROUP LIMITED PARTNERSHIP,
an Illinois limited partnership
By:________________________________
Michael W. Reschke,
Managing General Partner
-7-
<PAGE>
EXHIBIT E
TO
FORMATION AGREEMENT
FORM OF VOTING AGREEMENT
<PAGE>
VOTING AGREEMENT
----------------
This VOTING AGREEMENT (this "Agreement"), dated as of May 7, 1997, is made
and entered into by and among BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation (the "Company"), THE PRIME GROUP, INC., an Illinois corporation
("Prime"), PRIME GROUP LIMITED PARTNERSHIP, an Illinois limited partnership
("PGLP"), and PRIME GROUP VI, L.P., an Illinois limited partnership ("PG-VI,
L.P.") (together with Prime and PGLP, the "TPG Group").
RECITALS
--------
WHEREAS, the Company has filed with the Securities and Exchange Commission
a Form S-1 Registration Statement in connection with the Company's proposed
initial public offering (the "Offering") of its Common Stock, $0.01 par value
per share (the "Common Stock");
WHEREAS, PG-VI, L.P. has purchased 2,500,000 of the 4,500,000 shares of
Common Stock issued and sold in the Offering, representing approximately 38.5%
of the outstanding Common Stock after giving effect to the Offering;
WHEREAS, pursuant to the terms of that certain Formation Agreement dated as
of May 7, 1997, the Company has issued an aggregate of 1,703,043 shares of its
Common Stock to Prime and PGLP, representing approximately 26.2% of the
outstanding Common Stock after giving effect to the Offering; and
WHEREAS, in connection with the Offering, the Company and the TPG Group
have agreed to enter into this Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the recitals and the mutual promises
and covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Agreement to Vote Shares of Common Stock. The TPG Group agrees that,
from and after the completion of the Offering and until this Agreement
terminates pursuant to Section 2 hereof, it will vote all of the TPG Group's
shares of Common Stock at any meeting at which directors of the Company are
elected in favor of that number of independent directors who are not affiliates
of the TPG Group or employees of the TPG Group (any such directors, "Independent
Directors") so that, if such directors were elected,
<PAGE>
there would be at least four (4) Independent Directors who are members of the
Board of Directors of the Company. The parties hereto acknowledge and agree that
the agreement contained in the immediately preceding sentence is not, and shall
not be construed as, a guarantee by the TPG Group, or any member thereof, that
any of the Independent Directors for which the TPG Group votes in favor of will
be elected as a member of the Board of Directors of the Company or that there
will be at least four (4) Independent Directors who are members of the Board of
Directors of the Company.
2. Term. This Agreement will automatically terminate upon the earlier of
(i) three (3) years from the closing date of the Offering or (ii) the date the
TPG Group owns less than ten percent (10%) of the then outstanding Common Stock.
3. Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service guaranteeing next business day delivery,
to the following addresses, or such other addresses as shall be given by notice
delivered hereunder, in each case with applicable postage or delivery charges
prepaid, and shall be deemed to have been given upon delivery, if delivered
personally, three business days after mailing, if mailed, or one business day
after delivery to the courier, if delivery by overnight courier service:
If to the Company, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
If to the TPG Group or any member thereof, to:
c/o The Prime Group, Inc.
77 West Wacker Drive
39th Floor
Chicago, Illinois 60601
Attn: Michael W. Reschke
-2-
<PAGE>
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
4. Final Agreement. This Agreement constitutes the final agreement of the
parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
5. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
6. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
7. Governing Law. All questions concerning the construction, validity and
interpretation of, and the performance of the obligations imposed by, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware (excluding the choice of law provisions thereof).
8. Amendments. The provisions of this Agreement may be amended or waived
at any time only by the written agreement of the parties hereto.
9. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto, whether so expressed or not, including, without
limitation, any person or entity to whom any member of the TPG Group assigns any
of the Common Stock held by it.
[signature page follows]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to
be duly executed and delivered on their behalf as of the date first above
written.
THE COMPANY:
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
THE TPG GROUP:
THE PRIME GROUP, INC.,
an Illinois corporation
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
PRIME GROUP LIMITED PARTNERSHIP,
an Illinois limited partnership
By:
-------------------------------
Michael W. Reschke,
Managing General Partner
PRIME GROUP VI, L.P.
By: PGLP, Inc.,
its Managing General Partner
By:
---------------------------
Name:
-------------------------
Title:
------------------------
S-1
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EXHIBIT F
TO
FORMATION AGREEMENT
FORM OF MANAGEMENT AGREEMENT
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MANAGEMENT AGREEMENT
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This MANAGEMENT AGREEMENT (this "Agreement"), dated as of May 7, 1997, is
made and entered into by and between THE ISLAND ON LAKE TRAVIS, LTD., a Texas
limited partnership ("Owner"), and BROOKDALE LIVING COMMUNITIES OF TEXAS, INC.,
a Delaware corporation ("Manager").
RECITALS
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WHEREAS, Owner owns the senior and assisted living facility identified on
Schedule A hereto (the "Facility");
WHEREAS, Manager is experienced and qualified in the business of owning and
operating senior and assisted living facilities such as the Facility, and Owner
desires to engage Manager to operate the Facility; and
WHEREAS, Manager is willing to operate the Facility on the terms and
subject to the conditions set forth in this Agreement.
AGREEMENTS
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NOW, THEREFORE, in consideration of the recitals and the mutual promises
and covenants herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Responsibilities of Manager.
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(a) Owner hereby engages Manager to operate the Facility, and Manager
hereby accepts such engagement and, subject to the conditions set forth in this
Agreement, agrees to operate the Facility, at Owner's expense, so as to provide
all services required by applicable law and regulations and by the terms set
forth in this Agreement. During the term of this Agreement, Manager shall have
full authority to operate and manage the Facility as a senior and assisted
living facility in accordance with applicable law and regulations and the terms
and conditions hereof, and shall have full and complete control and reign over,
and use of, the entire Facility, including its common areas. Without limiting
the generality of the foregoing, Manager shall have full authority and
responsibility as follows:
(i) Operational Policies and Forms. Subject to the applicable
Annual Budget (as defined in Section 1(a)(xii)), Manager shall establish and
implement such operational policies and procedures, and develop such new
policies and procedures, as Manager may deem necessary to cause or to ensure the
establishment
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and maintenance of operational standards appropriate for the nature of the
Facility.
(ii) Charges. Manager shall establish the schedules of charges for
residents of the Facility, including appropriate charges for any and all special
services rendered for residents at the Facility.
(iii) Information. Manager shall develop any informational material,
mass media releases, and other related publicity materials, that it deems
necessary for the operation of the Facility.
(iv) Regulatory Compliance. Manager shall use its reasonable best
efforts to maintain all licenses, permits, qualifications and approvals from any
applicable governmental or regulatory authority required for the operation of
the Facility, to operate the Facility in compliance with all applicable laws and
regulations, and to comply with such laws and regulations in performing
Manager's obligations under this Agreement. In addition, Manager shall supervise
and coordinate the preparation and filing of (and, where required to do so under
applicable law or regulations, file) all reports or other information required
by all state or other governmental agencies having jurisdiction over the
Facility (including, but not limited to, the Capital Health Facilities
Development Corporation of Travis County, Texas (the "Issuer")) and shall
deliver copies of all such reports and information to Owner simultaneously with
such filings. Manager shall cooperate with governmental inspection and
enforcement activities.
(v) Equipment and Improvements. Subject to the applicable Annual
Budget, Manager shall, on behalf of Owner, acquire or effect the acquisition of
equipment and improvements which are needed to maintain or upgrade the quality
of the Facility or its services, to replace obsolete or run-down equipment, or
to correct any other deficiencies which may be identified by Manager during the
term of this Agreement, and shall make, or engage third part1es to make, all
such repairs, replacements and maintenance and shall cause to be acquired all
necessary equipment, including replacement equipment.
(vi) Accounting. Manager shall supervise and coordinate accounting
support to, and prepare and maintain records for, the Facility, including the
following:
A. a monthly balance sheet and statement of operations for the
Facility, to be submitted to Owner within thirty (30) days after the end of each
calendar month;
B. resident billing records;
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C. accounts receivable and collection records;
D. accounts payable records;
E. all payroll functions, including preparation of payroll checks,
establishment of depository accounts for withholding taxes, payment of such
taxes (at Owner's sole expense), filing of payroll reports and the issuance of
W-2 forms to all employees;
F. a complete general ledger for the purposes of recording and summarizing
all transactions for the Facility; and
G. the preparation and filing of all necessary reports as required by any
and all governmental authorities having jurisdiction over the Facility or the
operation thereof (including, but not limited to, the Issuer) and the
simultaneous provision of copies thereof to Owner. Manager shall file, on its
own behalf or on behalf of Owner, all such reports as are required to be filed
by Manager or Owner.
All accounting procedures and systems utilized in providing said support shall
be in accordance with the operating capital and cash programs developed by
Manager and approved by Owner, which programs shall conform to generally
accepted accounting principles and shall not materially distort income or loss.
Subject to the applicable Annual Budget, nothing herein shall preclude Manager
from engaging a third party to assist it in the performance of the accounting
duties provided for herein.
(vii) Reports. Manager shall supervise and coordinate the preparation of
any reasonable operational information which may from time to time be
specifically requested by Owner, including any information and reports needed to
assist Owner in completing its tax returns and in complying with any reporting
obligations imposed by any mortgagees or lessors of the Facility. In addition,
(i) within thirty (30) days after the end of each calendar month, Manager shall
supervise and coordinate the preparation and the delivery to Owner of an
unaudited balance sheet of the Facility, dated as of the last day of such month,
and unaudited statements of income and expenses and cash flow for such month
relating to the operation of the Facility and (ii) within ninety (90) days after
the end of the fiscal year of the Facility, Manager shall supervise and
coordinate the preparation and the delivery to Owner of audited financial
statements, including a balance sheet of the Facility dated as of the last day
of said fiscal year and statements of income and expense and changes in
financial position and an unaudited statement of cash flow for the fiscal year
then ended relating to the operation of the Facility. In addition, Manager shall
supervise and coordinate the preparation and the delivery to Owner of monthly
occupancy reports and related information with respect to the Facility. All
originals of the
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books, forms and records generated by Manager in connection with the operation
of the Facility shall be Manager's property; provided, that Manager shall
provide Owner with copies of any of such books, forms and records reasonably
requested by Owner.
(viii) Bank Accounts. Manager shall establish an account or accounts and
shall deposit therein all money received by Manager on Owner's behalf from the
operation of the Facility. Withdrawals and payments from this account shall be
made only on checks signed by one or more person or persons designated by
Manager. Manager shall give Owner written notice as to the identity of such
authorized signatories on such account. Subject to paragraph (2) of Section
1(a)(xii), all expenses incurred in the operation of the Facility in accordance
with the terms of the Annual Budgets, including, but not limited to, Facility
mortgage or lease payments, payroll and employee benefits and payment of Fees,
shall be paid by check drawn on this account. Monthly payments shall be made out
of this account first to pay any debt service or rent due with respect to the
Facility, next to pay the operating expenses of the Facility in such order of
priority as Manager deems appropriate to the operation of the Facility (other
than the Fees), and, thereafter, to pay the Fees. Any Fees which are not paid
when due as a result of an insufficiency of revenues from the Facility to cover
the same shall accrue and shall be due and payable promptly by Owner.
(ix) Personnel. Manager shall have full power and authority to recruit,
hire, train, promote, direct, discipline and fire all Facility personnel,
including the Executive Director of the Facility; establish salary levels,
personnel policies and employee benefits; and establish employee performance
standards, all as Manager determines to be necessary or desirable during the
term of this Agreement to ensure the efficient and satisfactory operation of all
departments within, and all services offered by, the Facility. All of the
foregoing obligations shall be undertaken in accordance with the Annual Budgets
and applicable law and regulations. All of the Facility personnel shall be the
employees of Manager, unless otherwise agreed by Owner and Manager, and all
salary, bonuses, fringe benefits, payroll taxes and related expenses payable to
or in respect of the Facility's on-site personnel holding the position of
Executive Director of the Facility and positions subordinate thereto shall be
expenses of the Facility. Manager agrees to employ as of the date of this
Agreement all individuals who are working at the Facility as of the date of this
Agreement and assume all liabilities and obligations to or with respect to such
individuals and indemnify, defend and hold harmless Owner and its affiliates
against any and all claims made by such individuals in respect of their
respective employment at the Facility.
(x) Supplies and Equipment. Manager shall purchase, on behalf of Owner,
supplies and non-capital equipment
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needed to operate the Facility within the budgetary limits set forth in the
Annual Budqets.
(xi) Legal Proceedings. Manager shall, through legal counsel
designated by Manager and reasonably satisfactory to Owner, direct all legal
matters and proceedings that are within the scope of Manager's authority
pursuant to this Agreement, including without limitation, instituting any
necessary legal actions or proceedings to collect obligations owing to the
Facility, canceling or terminating any contract or agreement relating to the
Facility for breach thereof or default thereunder, and otherwise enforce the
obligations of the residents, sponsors, licensees, customers and any other users
of the Facility. Without limiting the generality of the foregoing, Manager is
authorized (without the prior written consent of Owner) to settle, in the name
and on behalf of Owner and on such terms and conditions as Manager may deem to
be in the best interests of the Facility, any and all claims or demands arising
out of, or in connection with, the operation of the Facility, whether or not
legal action has been instituted, provided that such settlement does not exceed
the amount for each such individual claim or demand as set forth in the most
recently approved Annual Budget. All such amounts paid in respect of any such
settlements shall be expenses of the Facility. Manager will give notice promptly
to Owner of all demands and claims and all settlements and legal actions, but
the failure to give such notice shall not affect the preceding provisions of
this paragraph.
(xii) Annual Budgets.
(A) Preparation and Submission. Owner and Manager acknowledge
that they have agreed upon the budget for the Facility through December 31,
1997. At least ninety (90) days prior to January 1, 1998 and each subsequent
calendar year that commences during the term of this Agreement, Manager shall
submit to Owner a proposed annual budget for the Facility projecting the
revenues available and funds required during such fiscal year in order to
operate the Facility and to make capital improvements necessary or desirable in
order to keep the Facility's physical plant in good condition and repair. The
proposed annual budget shall be based upon data and information then available
to Manager and shall include, without limitation, estimated salaries and fringe
benefits for all personnel groups, projected staffing patterns for the Facility,
estimates of required capital expenditures and purchases of equipment, supplies,
inventory, food and similar items, and an estimate of the level of rates and
charges to residents of the Facility sufficient to generate revenue necessary to
operate the Facility and make the capital improvements projected in such budget.
The proposed annual budget shall be an estimate of revenues and costs, and Owner
and Manager acknowledge that (1) projected revenue may not be actually received
and (2) projected costs may be exceeded by actual expenses and capital
expenditures incurred in connection with the operation and maintenance of the
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Facility. By submitting such a projected budget, Manager will not be deemed to
be providing a guarantee or warranty as to the projected revenue, expenses or
capital expenditures of the Facility.
(B) Adoption. The Facility budget for the period ending December
31, l997 referred to in the immediately preceding paragraph and each annual
budget as finally established in accordance with this subparagraph (B)
(including as it may thereafter be revised from time to time during a calendar
year pursuant to the written agreement of Owner and Manager), as the same may be
modified by Owner and Manager, shall constitute an "Annual Budget" for all
purposes under this Agreement. Owner shall, within fifteen (15) days following
receipt from Manager of a proposed annual budget proposal, notify Manager of
either (1) Owner's approval of such proposed annual budget or (2) those items of
which Owner approves and those items of which Owner disapproves. In the event
that Owner does not either approve or disapprove of, in total or in part, such
proposed annual budget in writing within such 15-day period, then such proposed
annual budget shall be deemed approved by Owner and shall be the Annual Budget
for such calendar year. If Owner disapproves of the proposed annual budget
either in total or in part within such 15-day period, then Owner and Manager
shall have thirty (30) days from the date of Owner's disapproval notice to
formulate a mutually agreeable Annual Budget. If the parties are unable to reach
an agreement within said thirty (30) day period, then the Annual Budget for the
immediately preceding calendar year, including any such prior Annual Budget
determined in accordance with this sentence, increased by the greater of 5% and
the percentage increase in the Consumer Price Index -- Urban Wage Earners (or,
if such index is no longer published, such other index as is determined by
Manager in good faith to be comparable) during the 12-month period ended on
November 3Oth of such preceding year, shall constitute the Annual Budget pending
the final adoption of an Annual Budget; provided, however, that the budgeted
items for the categories of heat, light, power, insurance and real estate taxes
shall be deemed increased as required to reflect actual expenses for the
succeeding calendar year).
(C) Efforts to Operate within Annual Budget. Manager agrees to
use its reasonable best efforts to operate the Facility in accordance with the
Annual Budgets. Subject to the foregoing limitation, Owner shall be responsible
on a periodic basis, as and when needed, for all expenses and capital
expenditures incurred in connection with the operation and maintenance of the
Facility, including, without limitation, Fees and cost overruns which exceed the
projections in the then current Annual Budget; provided, however, that (except
as provided in the next sentence) Owner shall not be responsible for cost
overruns which exceed the relevant amount provided for in such Annual Budget by
more than 10%, if the incurrence of such overruns was subject to
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or within the reasonable control of Manager. Notwithstanding anything in this
Agreement, if Manager determines in good faith that the incurrence of any
expenditure is required in order to comply with applicable law or regulations,
then, with Owner's prior approval, which shall not be unreasonably withheld,
Manager shall be entitled to make such expenditures, and all such expenditures
shall be deemed, for all purposes of this Agreement, to be in accordance with
the then current Annual Budget.
(xiii) Collection of Accounts. Manager shall issue bills and
collect accounts and monies owed for goods and services furnished by the
Facility, including, but not limited to, enforcing the rights of Owner and the
Facility as creditor under any contract or in connection with the rendering of
any services. Any actions taken by Manager to collect said accounts receivable
shall be in accordance with the applicable laws, rules and regulations
governing the collection of accounts receivable and in accordance with the
applicable Annual Budget.
(xiv) Contracts. Subject to Owner's prior approval, Manager shall
negotiate, enter into, secure, cancel and/or terminate such agreements and
contracts which Manager may deem necessary or advisable for the operation of the
Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services. Where
lawful and provided Owner has approved, said agreements and contracts will be
entered into in the name of and on behalf of Owner.
(b) Exclusive Representative. It is understood and agreed that
Manager shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Any communications from Owner
to such persons or entities or authorities shall be directed through Manager
unless Owner determines that direct communications between Owner and one or more
such persons or entities is appropriate. Owner currently maintains and will
continue to maintain contact relationships with certain of the above-mentioned
persons and entities.
2. Insurance. Manager shall arrange for and maintain all necessary and
proper hazard insurance covering the Facility, including the furniture,
fixtures and equipment situated thereon, all necessary and proper malpractice
and public liability insurance for Manager's and Owner's protection and for
the protection of Manager's and Owner's directors, officers, partners, agents
and the Facility's personnel. Manager shall also arrange for and maintain
all employee health and worker's compensation insurance for the Facility's
personnel. Any insurance provided pursuant to this paragraph shall comply with
the requirements of any applicable
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Facility mortgage or lease and, with the exception of the insurance maintained
by Manager for its own protection, shall be an expense of the Facility.
3. Proprietary Interest. The systems, methods, procedures and controls
employed by Manager and any written materials or brochures developed by Manager
to document the same are to remain the property of Manager provided, Manager
shall provide Owner with a copy or copies of such materials and brochures.
4. Term of Agreement; Effect of Termination. Unless this Agreement is
sooner terminated as hereinafter provided in Section 5 or in this Section 4 or
as otherwise agreed in writing, the initial term of this Agreement shall
commence on the date hereof and shall end on April 30, 1999, with successive
automatic renewal periods of one (1) year each thereafter, unless either party
notifies the other in writing, within sixty (60) days prior to the expiration of
the then current term, of such party's intention not to exercise the then
upcoming automatic renewal period. This Agreement may be terminated (i) by Owner
(a) upon sixty (60) days' prior written notice to Manager given at any time
after the last day of the 24th month of the term of this Agreement or (b) at any
time after the date hereof for Cause (as hereinafter defined), or (ii) by
Manager upon sixty (60) days' prior written notice to Owner given at any time
after the date hereof; provided, however, that in the event of a termination by
Manager pursuant to clause (ii) above, Manager shall cooperate with and assist
Owner in engaging a qualified replacement manager for the Facility. Upon any
termination of this Agreement pursuant to the immediately preceding sentence,
the parties hereto shall have no further obligations or liabilities other than
the right of Manager to receive Fees through the date of termination and
Manager's obligation to cooperate with Owner to facilitate a smooth transition
to a qualified replacement manager for the Facility, except that, upon the
expiration or earlier termination of this Agreement for any reason, the parties
shall cooperate (at Owner's expense) to minimize the impact of the change on the
residents of the Facility, and during any such period for which Manager provides
services or assists in the operation of the Facility in connection therewith it
shall be entitled to receive an appropriate fee therefor.
For purposes of this Agreement, "Cause" shall mean (i) fraud,
misappropriation or embezzlement by Manager involving Owner's property or other
wrongful acts by Manager that materially impair the goodwill or business of
Owner or the Facility or that cause material damage to Owner's property,
goodwill or business or (ii) continued failure by Manager to substantially
perform its duties and obligations owing to Owner under this Agreement, after a
written demand for performance by Manager is delivered to Manager by Owner that
specifically identifies the manner in which Owner believes Manager has not
substantially performed its duties and
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after Manager has been given at least thirty (30) days in which to cure such
performance deficiencies.
5. Events of Default and Remedies.
(a) Defaults. Each of the following shall constitute an Event of
Default hereunder:
(i) if Owner shall fail to pay or allow payment of any installment of
the Fees due to Manager in accordance with Section 8 hereof for a period of
thirty (30) days after written notice of such default from Manager;
(ii) if either Owner, on the one hand, or Manager, on the other, fails
to perform in any material respect any term, provision, or covenant of this
Agreement (other than as set forth in Section 5(a) (i)) and (A) such failure
continues for thirty (30) days after written notice from the other party
specifying such failure to perform (unless such failure cannot reasonably be
cured within such 30-day period, in which event, the defaulting party shall have
an additional period, not to exceed an additional thirty (30) days, in which to
cure the default) or (B) the defaulting party fails to endeavor vigorously,
diligently and continuously to cure such default as promptly as is practicable;
or
(iii) if either Owner, on the one hand, or Manager, on the other, is
dissolved or liquidated, applies for or consents to the appointment of a
receiver, trustee or liquidator of all or a substantial part of its assets,
files a voluntary petition in bankruptcy or is the subject of an involuntary
bankruptcy filing, makes a general assignment for the benefit of creditors, or
files a petition or an answer seeking reorganization or arrangement with
creditors or to take advantage of any insolvency law, or if an order, judgment
or decree shall be entered by any court of competent jurisdiction, on the
application of a creditor, adjudicating Owner or Manager bankrupt or insolvent
or approving a petition seeking reorganization of Owner or Manager or appointing
a receiver, trustee or liquidator for such party of all or a substantial part of
its assets, and such order, judgment or decree shall continue unstayed and in
effect for any period of sixty (60) consecutive days.
(b) Remedies. At any time after the occurrence and during the
continuance of an Event of Default, the party who has not committed or suffered
the Event of Default may, at its option, terminate this Agreement by giving
written notice to the other party and, except as provided in this Agreement,
shall be entitled to exercise all rights and remedies available under applicable
law; provided, however, that Owner may cause the effective date of any
termination by Manager to be deferred for up to ninety (90) days to afford Owner
the opportunity to engage a replacement manager of the
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Facility and to facilitate a smooth transition to such replacement manager.
6. Facility Operations.
(a) No Guarantee of Profitability. Manager does not guarantee that
operation of the Facility will be profitable, but Manager shall use its best
efforts to operate the Facility in as cost effective and profitable a manner as
reasonably possible consistent with maintaining operations in accordance with
the senior and assisted living industry's then prevailing standards in the
geographic area in which the Facility is located.
(b) Standard of Performance; Acting within Budget. In performing its
obligations under this Agreement, Manager shall use its reasonable best efforts
and act in good faith and with professionalism in accordance with the Annual
Budgets and the prevailing standards of the senior and assisted living industry
in the geographic area in which the Facility is located.
(c) Force Majeure. The parties will not be deemed to be in violation
of this Agreement if they are prevented from performing any of their respective
obligations hereunder for any reason beyond their control, including, without
limitation, strikes, shortages, war, acts of God, or any applicable statute,
regulation or rule of federal, state or local government or agency thereof
having jurisdiction over the Facility or the operations thereof.
7. Withdrawal of Funds by Manager. Owner and Manager acknowledge and
agree that the efficient operation of the Facility requires that Manager have
ready access to the funds required therefor. Accordingly, unless otherwise
agreed by Owner and Manager, Owner agrees not to withdraw any funds from the
Facility's bank account(s) reasonably believed by Manager to be required for the
proper operation of the Facility or maintenance of appropriate reserves with
respect thereto as set forth in the most recently approved Annual Budget.
8. Fees. During the term of this Agreement, Manager shall be entitled to
receive management fees (the "Fees") equal to five percent (5%) of the gross
revenues of the Facility during each month or portion thereof occurring during
such term. Fees shall be paid on a monthly basis simultaneously with the
delivery by Manager to Owner of the monthly statements provided for in Section
1(a)(vii).
9. Assignment. This Agreement shall not be assigned (including by
operation of law, whether by merger or consolidation (excluding a merger
effected solely for the purpose of changing Owner's jurisdiction of
incorporation that does not affect the stock ownership of Owner in any material
respect) or otherwise) by
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Owner, on the one hand, or by Manager, on the other, without the prior written
consent of the other party; provided, however, that to the extent permitted by
applicable law and regulations, and subject to the receipt of all required
licenses, permits, approvals and authorizations of applicable governmental
agencies, this Agreement may be assigned by Manager to one or more corporations
or other legal entities all the shares (and, in the case of legal entities
other than corporations, all the equity ownership and voting control) of which
are owned by Manager or by Brookdale Living Communities, Inc. (the owner of
all of the outstanding stock of Manager).
10. Notices. Any notices required or permitted to be sent hereunder
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other addresses as shall be given by notice delivered hereunder, and
shall be deemed to have been given upon delivery, if delivered personally, three
(3) business days after mailing, if mailed, or one business day after delivery
to the courier, if delivery by overnight courier service:
If to Owner, to:
The Island on Lake Travis, Ltd.
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Michael W. Reschke
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
If to Manager, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
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With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
11. Relationship of the Parties. The relationship of Manager to Owner in
connection with this Agreement shall be that of an independent contractor, and
all acts performed by Manager during the term hereof shall be deemed to be
performed in Manager's capacity as an independent contractor. Nothing contained
in this Agreement is intended to or shall be construed to give rise to or create
a partnership or joint venture or lease between Owner, its successors and
assigns, on the one hand, and Manager, its successors and assigns, on the other
hand.
12. Entire Agreement. This Agreement and any documents executed in
connection herewith contain the entire agreement among the parties and shall
be binding upon their respective successors and assigns, and shall be construed
in accordance with the laws of the State of Texas. This Agreement may not be
modified or amended except by written instrument signed by the parties hereto.
13. Contract Modifications for Certain Legal Events. In the event any
state or federal laws or regulations, whether now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel of both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, Owner and Manager agree to cooperate in
restructuring their relationship and this Agreement to eliminate such violation
or to reduce the risk thereof to the extent such restructuring can be
accomplished upon commercially reasonable terms; provided, that any such
restructuring shall, to the maximum extent possible, preserve the underlying
economic and financial arrangements between Owner and Manager. The parties
agree that such amendment may require either or both parties to obtain
appropriate regulatory licenses and approvals.
14. Captions. The captions used herein are for convenience of reference
only and shall not be construed in any manner to limit or modify any of the
terms hereof.
15. Severability. In the event one or more of the provisions contained in
this Agreement is deemed to be invalid, illegal or unenforceable in any respect
under applicable law, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be impaired thereby.
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16. Remedies Cumulative; No Waiver. No right or remedy herein conferred
upon or reserved to any of the parties hereto is intended to be exclusive of any
other right or remedy, and each and every right and remedy shall be cumulative
and in addition to any other right or remedy given hereunder, or now or
hereafter legally existing upon the occurrence of an Event of Default hereunder.
The failure of any party hereto to insist at any time upon the strict observance
or performance of any of the provisions of this Agreement or to exercise any
right or remedy as provided in this Agreement shall not impair any such right or
remedy or be construed as a waiver or relinquishment thereof with respect to
subsequent defaults. Every right and remedy given by this Agreement to the
respective parties hereto may be exercised from time to time and as often as may
be deemed expedient by such parties. To the extent either party hereto incurs
legal fees and expenses in connection with such party's enforcement of any of
its rights hereunder as a result of a breach of this Agreement by the other
party hereto (the "Breaching Party"), then, to the extent it is determined,
either by the admission of the Breaching Party or by a court having competent
jurisdiction over such dispute, that the Breaching Party had committed the
alleged breach of this Agreement, then the Breaching Party shall pay all such
reasonable attorneys' fees and expenses incurred by the other party in
connection with such enforcement.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have caused this Management
Agreement to be executed and delivered in their names and on their behalf as of
the date first set forth above.
OWNER:
THE ISLAND ON LAKE TRAVIS, LTD., a
Texas limited partnership
By: The Lake Travis Island, Ltd.,
a Texas limited partnership,
its General Partner
By: The Prime Group, Inc., an
Illinois corporation, its
General Partner
By:
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Name:
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Title:
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MANAGER:
BROOKDALE LIVING COMMUNITIES OF
TEXAS, INC., a Delaware corporation
By:
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Name:
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Title:
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SCHEDULE A
DESCRIPTION OF FACILITY
The real property and improvements commonly known as The Island and Lake Travis
located at 3404 American Drive, Lago Vista, Texas.
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EXHIBIT G
TO
FORMATION AGREEMENT
FORM OF INDEMNITY AGREEMENT
<PAGE>
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT (this "Agreement"), dated as of May 7, 1997,
is made and entered into by and between Brookdale Living Communities, Inc., a
Delaware corporation (the "Company"), and Michael W. Reschke ("Indemnitee"), an
individual who is a director and/or officer of the Company.
RECITALS
WHEREAS, Section 6 of the Amended and Restated By-laws of the Company (the
"By-laws"), in part, provides that the Company, subject to the limitations set
forth therein, shall indemnify and hold harmless each person who was or is a
party or is threatened to be made a party to or is involved in any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative, or investigative and whether by or in the right of the Company
or otherwise, by reason of the fact that he or she is or was an officer or
director of the Company or is or was serving at the request of the Company as an
officer, director, employee, partner (limited or general) or agent of another
corporation or of a partnership, joint venture, limited liability company,
trust, or other enterprise; and
WHEREAS, in recognition of Indemnitee's need for protection against
personal liability in order to enhance Indemnitee's continued service to the
Company and Indemnitee's reliance on the provisions of Section 6 of the By-laws
requiring indemnification under certain circumstances, and in part to provide
Indemnitee with specific contractual assurance that indemnification protection
will be available and to implement such By-law provisions, the Company wishes to
provide in this Agreement for the indemnification of, and the advancement of
expenses to, Indemnitee to the fullest extent permitted by law.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and the mutual promises
and covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Right to Indemnification. The Company shall, to the fullest extent
permitted by applicable law in effect from time to time, but subject to the
limitations set forth in this Agreement, indemnify and hold harmless Indemnitee
in the event that Indemnitee was or is a party to or is involved or becomes
involved in any manner (including, without limitation, as a party, intervenor or
a witness) or is threatened to be made so involved in any threatened, pending or
completed investigation, claim, action, suit or proceeding, whether civil,
criminal, administrative or investigative (including without limitation, any
action, suit or proceeding by or in the right of the Company to procure a
judgment in its favor) (a "Proceeding"), by reason of the fact that
<PAGE>
Indemnitee, or a person of whom Indemnitee is the legal representative, is or
was a director and/or officer of the Company, or is or was serving at the
request of the Company as an officer, director, employee, partner (limited or
general) or agent of another corporation or of a partnership, joint venture,
limited liability company, trust or other enterprise (including, without
limitation, service with respect to an employee benefit plan), against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
taxes, penalties and amounts paid or to be paid in settlement) reasonably
incurred by Indemnitee in connection with such Proceeding. Such indemnification
shall be a contract right and shall include the right to receive payment in
advance of any expenses incurred by Indemnitee in connection with such
Proceeding, consistent with the provisions of applicable law in effect from time
to time.
2. Indemnification; Not Exclusive Right. The right of indemnification
provided in this Agreement shall not be exclusive of and shall be in addition
to, and not in lieu of, any other rights to which Indemnitee may otherwise be
entitled under applicable law, the By-laws, or otherwise. Nothing in this
Agreement shall diminish or otherwise restrict Indemnitee's right to
indemnification under applicable law, the By-laws or otherwise. The provisions
of this Agreement shall inure to the benefit of the heirs, executors,
administrators and other legal representatives of Indemnitee and shall be
applicable to Proceedings commenced or continuing after the adoption of this
Agreement, whether arising from acts or omissions occurring before or after its
execution and delivery.
3. Advancement of Expenses; Procedures; Presumptions and Effect of Certain
Proceedings; Remedies. In furtherance, but not in limitation of the foregoing
provisions, the following procedures, presumptions and remedies shall apply with
respect to the advancement of expenses and the right to indemnification under
this Agreement:
(a) Advancement of Expenses. All reasonable expenses incurred by or on
behalf of Indemnitee in the defense of or other involvement in or otherwise in
connection with any Proceeding shall be advanced to Indemnitee by the Company
within twenty (20) days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the expenses incurred by
Indemnitee and, if required by law in effect at the time of such advance, shall
include or be accompanied by an undertaking by or on behalf of Indemnitee to
repay the amounts advanced if it should ultimately be determined that Indemnitee
is not entitled to be indemnified against such expenses pursuant to this
Agreement.
-2-
<PAGE>
(b) Procedure for Determination of Entitlement to Indemnification.
(i) To obtain indemnification under this Agreement, Indemnitee shall
submit to the Secretary of the Company a written request, including such
documentation and information as is reasonably available to Indemnitee and
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification (the "Supporting Documentation"). The determination
of Indemnitee's entitlement to indemnification shall be made not later than
sixty (60) days after receipt by the Company of the written request for
indemnification together with the Supporting Documentation. The Secretary of the
Company shall, promptly upon receipt of such a request for indemnification,
advise the Board of Directors of the Company (the "Board of Directors") in
writing that Indemnitee has requested indemnification pursuant to this
Agreement.
(ii) Indemnitee's entitlement to indemnification under this Agreement
shall be determined in one of the following ways: (A) by a majority vote of the
Disinterested Directors (as hereinafter defined), even though less than a quorum
of the Board of Directors; (B) by a written opinion of Independent Counsel (as
hereinafter defined) if (1) a Change of Control (as hereinafter defined) shall
have occurred and Indemnitee so requests or (2) there are no Disinterested
Directors, or a majority of Disinterested Directors, even though less than a
quorum, so directs; (C) by the stockholders of the Company (but only if a
majority of the Disinterested Directors, even though less than a quorum,
presents the issue of entitlement to indemnification to the stockholders for
their determination); or (D) as provided in Section 3(c).
(iii) In the event the determination of entitlement to indemnification
is to be made by Independent Counsel pursuant to Section 3(b)(ii), a majority of
the Disinterested Directors, or in the absence of any Disinterested Directors, a
majority of the Board of Directors, shall select the Independent Counsel, but
only an Independent Counsel to which Indemnitee does not reasonably object;
provided, however, that if a Change of Control shall have occurred, Indemnitee
shall select such Independent Counsel, but only an Independent Counsel to which
the Board of Directors does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings. Except as otherwise
expressly provided in this Agreement, Indemnitee shall be presumed to be
entitled to indemnification under this Agreement upon submission of a request
for indemnification together with the Supporting Documentation in accordance
with Section 3(b)(i), and thereafter the Company shall have the burden of proof
to overcome that presumption in reaching a contrary determination. In any
event, if the person or persons
-3-
<PAGE>
empowered under Section 3(b) to determine entitlement to indemnification shall
not have been appointed or shall not have made a determination within sixty (60)
days after receipt by the Company of the request therefor together with the
Supporting Documentation, Indemnitee shall be deemed to be entitled to
indemnification and shall be entitled to such indemnification unless (A)
Indemnitee misrepresented or failed to disclose a material fact in making the
request for indemnification or in the Supporting Documentation or (B) such
indemnification is prohibited by law. The termination of any Proceeding
described in Section 1, or of any claim, issue or matter herein, by judgment,
order, settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, adversely affect the right of Indemnitee to
indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which Indemnitee reasonably believed to be in or not
opposed to the best interests of the Company or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his or her
conduct was unlawful.
(d) Remedies of Indemnitee.
(i) In the event that a determination is made pursuant to Section
3(b) that Indemnitee is not entitled to indemnification under this Agreement,
Indemnitee shall be entitled to seek an adjudication of his or her entitlement
to such indemnification either at Indemnitee's sole option, in (x) an
appropriate court of the State of Delaware or any other court of competent
jurisdiction or (y) an arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association; it being
understood that any such judicial proceeding or arbitration shall be de novo and
Indemnitee shall not be prejudiced by reason of such adverse determination; and
in any such judicial proceeding or arbitration the Company shall have the burden
of proving that Indemnitee is not entitled to indemnification under this
Agreement.
(ii) If a determination shall have been made or deemed to have been
made, pursuant to Section 3(b) or (c), that Indemnitee is entitled to
indemnification, the Company shall be obligated to pay the amounts constituting
such indemnification within ten (10) business days after such determination has
been made or deemed to have been made and shall be conclusively bound by such
determination unless (A) Indemnitee misrepresented or failed to disclose a
material fact in making the request for indemnification or in the Supporting
Documentation or (B) such indemnification is prohibited by law. In the event
that advancement of expenses is not timely made pursuant to Section 3(a) or
payment of indemnification is not made within ten (10) business days after a
determination of entitlement to indemnification has been made or deemed to have
been made pursuant to Section 3(b) or (c), Indemnitee shall be entitled to seek
judicial enforcement of
-4-
<PAGE>
the Company's obligation to pay to Indemnitee such advancement of expenses or
indemnification. Notwithstanding the foregoing, the Company may bring an
action, in an appropriate court in the State of Delaware or any other court of
competent jurisdiction, contesting the right of Indemnitee to receive
indemnification hereunder due to the occurrence of an event described in
subclause (A) or (B) of this clause (ii) (a "Disqualifying Event"); provided,
however, that in any such action the Company shall have the burden of proving
the occurrence of such Disqualifying Event.
(iii) The Company shall be precluded from asserting in any judicial
proceeding or arbitration commenced pursuant to this Section 3(d) that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
(iv) In the event that Indemnitee, pursuant to this Section 3(d), seeks a
judicial adjudication of or an award in arbitration to enforce his or her rights
under, or to recover damages for breach of, this Agreement, Indemnitee shall be
entitled to recover from the Company, and shall be indemnified by the Company
against, any expenses actually and reasonably incurred by Indemnitee if
Indemnitee prevails in such judicial adjudication or arbitration. If it shall
be determined in such judicial adjudication or arbitration that Indemnitee is
entitled to receive part but not all of the indemnification or advancement of
expenses sought, all such expenses incurred by Indemnitee in connection with
such judicial adjudication or arbitration shall be paid.
(e) Definitions. For the purposes of this Section 3:
(i) "Change in Control" means a change in control of the Company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of
1934, as amended (the "Act"), whether or not the Company is then subject to such
reporting requirement; provided, that without limitation, such a change in
control shall be deemed to have occurred if (A) any "Person" (as such term is
used in Sections 13(d) and 14(d) of the Act) (other than The Prime Group, Inc.,
an Illinois corporation) becomes after the date hereof the "beneficial owner"
(as defined in Rule 13d-3 under the Act), directly or indirectly, of securities
of the Company representing more than fifty percent (50%) of the combined voting
power of the Company's then outstanding securities without the prior approval of
at least two-thirds of the members of the Board of Directors in office
immediately prior to such acquisition; (B) the Company is a party to a merger,
consolidation, sale of assets or other reorganization, or a proxy contest, as a
consequence of which members of the Board of Directors in office immediately
prior to such transaction or event constitute less than a majority of the Board
of Directors thereafter or (C) during any
-5-
<PAGE>
period of two (2) consecutive years, individuals who at the beginning of such
period constituted the Board of Directors (including for this purpose any new
director whose election or nomination for election by the Company's stockholders
was approved by a vote of at least a majority of the directors then still in
office who were directors at the beginning of such period) cease for any reason
to constitute at least a majority of the Board of Directors.
(ii) "Disinterested Director" means a director of the Company who is
not or was not a party to the Proceeding in respect of which indemnification is
sought by Indemnitee.
(iii) "Independent Counsel" means a law firm or a member of a law firm
that neither presently is, nor in the past five (5) years has been, retained to
represent (A) the Company or Indemnitee in any matter material to either such
party or (B) any other party to the Proceeding giving rise to a claim for
indemnification under this Agreement. Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing under the law of the State of
Delaware, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
4. Notification and Defense of Claim. Promptly after receipt of notice of
the commencement of any action, suit or proceeding, Indemnitee will, if a claim
for indemnification in respect thereof is to be made against the Company under
this Agreement, notify the Company of the commencement thereof, but the omission
so to notify the Company will not relieve the Company from any liability that
the Company may have to Indemnitee under this Agreement unless the Company is
materially prejudiced thereby. With respect to any such action, suit or
proceeding as to which Indemnitee notifies the Company of the commencement
thereof:
(a) the Company will be entitled to participate therein at its own
expense; and
(b) except as otherwise provided below, the Company jointly with any other
indemnifying party similarly notified will be entitled to assume the defense
thereof, with counsel reasonably satisfactory to Indemnitee. After notice from
the Company to Indemnitee of the Company's election so to assume the defense
thereof, the Company will not be liable to Indemnitee under this Agreement for
any legal or other expenses subsequently incurred by Indemnitee in connection
with the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Indemnitee shall have the right to employ Indemnitee's
own counsel in such action, suit or proceeding, but the fees and disbursements
of such counsel incurred after notice from the Company of the
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<PAGE>
Company's assumption of the defense thereof shall be at the expense of
Indemnitee unless (i) the employment by counsel by Indemnitee has been
authorized by the Company, (ii) Indemnitee shall have reasonably concluded that
there may be a conflict of interest between the Company and Indemnitee in the
conduct of the defense of such action, (iii) such action, suit or proceeding
seeks penalties or other relief against Indemnitee with respect to which the
Company could not provide monetary indemnification to Indemnitee (such as
injunctive relief or incarceration) or (iv) the Company shall not in fact have
employed counsel to assume the defense of such action, in each of which cases
the fees and disbursements of counsel shall be at the expense of the Company.
The Company shall not be entitled to assume the defense of an any action, suit
or proceeding brought by or on behalf of the Company, or as to which Indemnitee
shall have reached the conclusion specified in clause (ii) above, or which
involves penalties or other relief against Indemnitee of the type referred to in
clause (iii) above. It is acknowledged that a director or former director shall
be entitled under circumstances specified in the By-laws to expenses of separate
legal counsel, up to the amount specified therein.
(c) The Company shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim effected
without the Company's written consent. The Company shall not settle any action
or claim in any manner that would impose any penalty or limitation on Indemnitee
without Indemnitee's written consent. Neither the Company nor Indemnitee will
unreasonably withhold consent to any proposed settlement.
5. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever: (a)
the validity, legality and enforceability of the remaining provisions of this
Agreement (including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such provision held
to be invalid, legal or unenforceable, that are not themselves invalid, illegal
or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable.
6. Company's Right to Indemnification. Nothing in this Agreement shall
diminish, limit or otherwise restrict or modify in any way the Company's right
to indemnification or contribution from an Indemnitee or an Indemnitee's
obligation to indemnify or hold harmless the Company under any agreement,
instrument, commitment or understanding now or hereafter in effect.
-7-
<PAGE>
7. Cancellation. The Company may cancel the provisions of this Agreement
prospectively only upon thirty (30) days' prior written notice to Indemnitee, in
order to afford Indemnitee an opportunity to resign as an officer and/or
director of the Company rather than continue to serve absent indemnification
provided under this Agreement; it being understood that "prospectively only"
shall mean that the Agreement shall remain in full force and effect for all acts
or omissions that occur, and all Proceedings which are based on acts or
omissions which have or allegedly have occurred, through the effective date of
any such cancellation.
8. Amendments and Waiver. No amendment, modification or discharge or this
Agreement, and no waiver hereunder, shall be valid or binding unless set forth
in writing and duly executed by both of the parties hereto. Neither the waiver
by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure of any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder shall thereafter be construed as a
waiver of any subsequent breach or default of a similar nature, or as a waiver
of any of such provisions, rights or privileges hereunder. No delay or failure
on the part of any party in exercising any right, power or privilege under this
Agreement or under any other instrument given in connection with or pursuant to
this Agreement shall impair any such right, power or privilege or be construed
as a waiver of any default or any acquiescence therein. No single or partial
exercise of any such right, power or privilege shall preclude the further
exercise of such right, power or privilege, or the exercise of any other right,
power or privilege.
9. Subrogation. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
and delivery of such documents necessary to enable the Company effectively to
bring suit to enforce such rights.
10. No Duplication of Payment. The Company shall not be liable under this
Agreement to make any payment in connection with any claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, By-law provision or otherwise) of the amounts
otherwise indemnifiable hereunder.
11. Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service guaranteeing next business day delivery,
to the following addresses, or such other addresses as shall be given by notice
delivered hereunder, in each case with applicable postage or
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<PAGE>
delivery charges prepaid, and shall be deemed to have been given upon delivery,
if delivered personally, three business days after mailing, if mailed, or one
business day after delivery to the courier, if delivery by overnight courier
service:
If to the Company, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
If to Indemnitee, to:
Michael W. Reschke
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
12. Governing Law; Headings. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such state without giving
effect to the principles of conflicts of laws. The section and other headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning of interpretation of this Agreement.
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification
Agreement to be duly executed and delivered on their behalf as of the date first
written above.
THE COMPANY:
BROOKDALE LIVING COMMUNITIES,
INC., a Delaware corporation
By:
--------------------------
Name:
------------------------
Title:
-----------------------
INDEMNITEE:
By:
--------------------------
Name:
------------------------
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<PAGE>
Exhibit 10.2
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
May 7, 1997
Mr. Mark J. Schulte
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Re: Space Sharing Agreement
-----------------------
Dear Mark:
This letter agreement shall set forth the terms upon which the
undersigned ("PGI") agrees to provide to Brookdale Living Communities, Inc.
("Brookdale") the use of certain space and facilities located within PGI's
leased premises ("Premises") on the 39th floor of the building known as 77 West
Wacker Drive following the completion of the initial public offering of stock in
Brookdale (the "Offering").
The space and facilities which Brookdale will be permitted to use are
those portions of the Premises and facilities therein which are being used on
the date hereof by persons who are, or after the Offering will become, officers
or employees of Brookdale. If Brookdale uses more space and facilities than
contemplated by the immediately preceding sentence, the rent payable by
Brookdale pursuant to this agreement shall be adjusted appropriately. Such use
shall conform with the nature and extent of the existing use of the space and
facilities which are the subject hereof.
The term of this agreement shall commence on the date of the Offering
and shall end on the last day of the fourth (4th) full calendar month
thereafter; provided, however, that Brookdale shall have the right to extend the
term of this agreement in increments of two (2) months or more for a total of up
to twelve (12) additional months so long as (i) Brookdale has given PGI written
notice of any such extension not later than the last day of the month preceding
the date on which the term (as previously extended, if applicable) would
otherwise expire and (ii) Brookdale is not in default of any obligation under
this agreement as of the date of any such notice or the commencement of the
applicable extension.
Brookdale shall pay as monthly rent for the space and facilities
described herein an amount equal to the sum of (i) Eight Thousand Eight Hundred
and no/100 Dollars ($8,800.00) plus (ii) a
<PAGE>
Mr. Mark J. Schulte
May 7, 1997
Page 2
fair and equitable percentage of the taxes and operating expenses for the
Premises. Such rent shall be paid monthly, in advance, on the first day of the
term and on the first day of each calendar month thereafter, except that if the
first day of the term shall be a day other than the first day of a calendar
month, rent for such month shall be prorated based on the number of days in such
month.
In addition, Brookdale shall be responsible for the incremental cost
to PGI of any utilities and services used by Brookdale during the term of this
agreement, as reasonably determined by PGI, including, without limitation, the
cost of copying and facsimile equipment. All amounts owing to PGI under this
paragraph shall be paid by Brookdale within ten (10) days after receipt of an
invoice therefor.
Brookdale acknowledges that it has received and reviewed a copy of the
lease dated March 14, 1992, as amended on April 15, 1992, with respect to the
Premises and agrees that Brookdale's use of the space and facilities described
herein shall be subject to the terms and provisions of such lease and that
Brookdale shall comply with all of the terms and provisions of such lease to the
extent such terms and provisions relate to or affect Brookdale's use of the
space and facilities described herein.
Sincerely,
THE PRIME GROUP, INC.
By: /s/ Richard S. Curto
---------------------------
Name: Richard S. Curto
---------------------------
Title: Executive Vice President
-------------------------
ACCEPTED AND AGREED TO BY:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
-------------------------
Name: Mark J. Schulte
-------------------------
Title: President
-------------------------
Dated: May 7, 1997
<PAGE>
LANDLORD'S CONSENT
------------------
The undersigned, being the landlord of the building known as 77 West
Wacker Drive, Chicago, Illinois, does hereby consent to the foregoing letter
agreement between The Prime Group, Inc. and Brookdale Living Communities, Inc.
77 WEST WACKER LIMITED PARTNERSHIP
By: The Prime Group, Inc., managing
general partner
By: /s/ Richard S. Curto
----------------------------
Name: Richard S. Curto
--------------------------
Title: Executive Vice President
-------------------------
Dated: May 7, 1997
<PAGE>
Exhibit 10.3
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of May 7,
1997, is made and entered into by and among BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation (the "Corporation"), THE PRIME GROUP, INC., an Illinois
corporation ("Prime"), PRIME GROUP LIMITED PARTNERSHIP, an Illinois limited
partnership ("PGLP") and PRIME GROUP VI, L.P., an Illinois limited partnership
("PG-VI, L.P."). Prime, PGLP and PG-VI, L.P. are sometimes referred to herein
individually as a "Holder" and collectively as the "Holders."
RECITALS
WHEREAS, the Corporation has filed a Registration Statement on
Form S-1 with the Securities and Exchange Commission (the "Commission") in
connection with the IPO (as hereinafter defined);
WHEREAS, pursuant to the terms of that certain Formation Agreement
dated as of the date hereof, the Corporation has issued an aggregate of
1,703,043 shares (the "Formation Shares") of its Common Stock (as hereinafter
defined) to the Holders;
WHEREAS, PG-VI, L.P. has purchased 2,500,000 of the 4,500,000 shares
of Common Stock issued and sold in the Offering (such 2,500,000 shares, together
with the Formation Shares, are referred to herein as the "Common Shares"); and
WHEREAS, the Corporation and the Holders deem it desirable to enter
into this Agreement in connection with the Holders' acquisition of the Common
Shares.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and the mutual promises
and covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Definitions.
(a) Previously Defined Terms. Each capitalized term defined in the
first paragraph and Recitals hereof shall have the meaning set forth above
whenever used herein, unless otherwise expressly provided or unless the context
clearly requires otherwise.
<PAGE>
(b) Additional Definitions. In addition to the terms defined in the
first paragraph and Recitals hereof, whenever used herein, the following terms
shall have the meanings set forth below unless otherwise expressly provided or
unless the context clearly requires otherwise:
"Affiliate" means, with respect to any Holder, any other Person that
(i) directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Holder including, without
limitation, any subsidiary of such Holder or (ii) holds an equity interest (such
as a stock interest or a partnership interest) in such Holder or in a Person
described in clause (i) hereof. With respect to any other specified person
herein, "Affiliate" shall mean any other person that, directly or indirectly,
through one or more intermediaries, controls, or is controlled by, or under
common control with, such specified person.
"Common Stock" means the Common Stock, par value $0.01 per share of
the Corporation.
"Demand Registrations" has the meaning given to such term in Section
2(a)(iii).
"IPO" means the Corporation's initial underwritten public offering
of shares of Common Stock consummated pursuant to a registration statement
declared effective under the Securities Act.
"Long-Form Demand Registration" has the meaning given to such term in
Section 2(a)(iii).
"Long-Form Registration" has the meaning given to such term in
Section 2(a)(i).
"Person" means a natural person, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Piggyback Registration" has the meaning given to such term in
Section 3(a).
"Registrable Shares" means (i) the Common Shares; (ii) any shares of
Common Stock issued as, or where issued directly or indirectly upon the
conversion or exercise of or with respect to other securities issued as, a
dividend or other distribution with respect to or in exchange or in replacement
of the Common Shares; and (iii) any shares of Common Stock then issuable
directly or indirectly upon the conversion or exercise of or with respect to
other securities which were issued as a dividend or other distribution with
respect to or in exchange or in replacement of the Common Shares; provided,
however, that Registrable Shares shall
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<PAGE>
not include any shares of Common Stock the sale of which has been registered
under the Securities Act pursuant to this Agreement or sold to the public
pursuant to Rule 144 promulgated by the Commission under the Securities Act
(except any sale, distribution or other disposition by any Holder to any other
Holder or an Affiliate of such Holder or an Affiliate of such other Holder). For
purposes of this Agreement, a Person will be deemed to be a Holder of
Registrable Shares whenever such Person holds a security exercisable for or
convertible into such Registrable Shares, whether or not such exercise or
conversion has actually been effected.
"Registration Expenses" has the meaning given to such term in
Section 6(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"Short-Form Demand Registration" has the meaning given to such term in
Section 2(a)(iii).
"Short-Form Registration" has the meaning in Section 2(a)(ii).
2. Demand Registrations.
(a) Requests for Registration. (i) Subject to the terms and
conditions of this Agreement, one or more Holders of outstanding Registrable
Shares at any time may request registration under the Securities Act of all or
part of its or their Registrable Shares on Form S-1 or any similar long-form
registration statement (a "Long-Form Registration") by delivering a written
request to the Corporation to that effect; provided, however, that, in the case
of any such Long-Form Registration, the Holders requesting the Long Form
Registration must be requesting registration of not less than five percent (5%)
of the total Registrable Shares then outstanding; provided, further, that if a
Short-Form Registration (as hereinafter defined) is available for the
requested registration, then at the election of the Corporation such
registration shall be effected on a Short-Form Registration.
(ii) Subject to the terms and conditions of this Agreement, one or
more Holders of any of the then outstanding Registrable Shares at any time may
request registration under the Securities Act of all or part of its or their
Registrable Shares on Form S-2 or S-3 or any similar short-form registration
statement (a "Short-Form Registration"), if available, by delivering a written
request to the Corporation to that effect.
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(iii) If the Holders initiating a registration pursuant to Section
2(a) intend to distribute the Registrable Shares by means of any underwriting,
they shall so advise the Corporation in their written notice. Within ten (10)
days after receipt of any such written request, the Corporation will give
written notice of such request to all holders of all registrable securities of
the Corporation (including all other Holders of Registrable Shares), if any,
and will include, subject to the terms of Section 2(d), in any such
registration that constitutes a Demand Registration (as hereinafter defined)
all registrable securities with respect to which the Corporation has received
written requests for inclusion therein within fifteen (15) days after the
Corporation's notice has been given. Any Long-Form Registration and Short-Form
Registration requested pursuant to this Section 2(a), other than a registration
in which the Corporation sells any of its securities in a primary offering, are
referred to herein, respectively, as a "Long-Form Demand Registration" and a
"Short-Form Demand Registration". All Long-Form Demand Registrations and Short-
Form Demand Registrations shall collectively be referred to herein as "Demand
Registrations". The Corporation may elect to include its securities in a
primary offering in any registration requested pursuant to this Section 2(a),
and such registrations requested pursuant to this Section 2(a) in which the
Corporation sells any of its securities in a primary offering shall not be
deemed to be Demand Registrations and shall instead be considered Piggyback
Registrations and will be governed by Section 3.
(b) Long-Form Demand Registrations. The Holders of Registrable Shares
may request (i) up to three (3) Long-Form Demand Registrations pursuant to
Section 2(a)(i) during the first five (5) years following the date of the IPO
and (ii) until the Holders own in the aggregate less than ten percent (10%) of
the outstanding Common Stock, up to one (1) Long-Form Demand Registration each
year after the fifth anniversary of the date of the IPO, and the Corporation
will pay all Registration Expenses of the Corporation and the Holders of
Registrable Shares incurred in connection with each such registration; provided,
that in each case the number of Long-Form Demand Registrations otherwise
permitted by this Section 2(b) during a given period shall be reduced by the
number of Short-Form Demand Registrations effected during the corresponding
period pursuant to Section 2(c), if any. A registration will not count as a
Long-Form Demand Registration under this Section 2(b) until it has become
effective; provided that in any event the Corporation will pay the Registration
Expenses of the Corporation and the Holders of Registrable Shares incurred in
connection with any such registration initiated as a Long-Form Demand
Registration. Notwithstanding the immediately preceding sentence, a registration
which does not become effective after the Corporation has filed a registration
statement with respect thereto solely by reason of the refusal to proceed of the
Holders of Registrable Shares shall be deemed to have been effected by such
Holders and shall count as a Long-Form Demand Registration under this Section
2(b), unless the
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Holders of Registrable Shares making such demand shall have elected to pay the
Registration Expenses of the Corporation and of the Holders of Registrable
Shares incurred in connection therewith.
(c) Short-Form Demand Registrations. The Holders of Registrable
Shares may request (i) up to three (3) Short-Form Demand Registrations pursuant
to Section 2(a)(ii) during the first five (5) years following the date of the
IPO and (ii) until the Holders own in the aggregate less than ten percent (10%)
of the outstanding Common Stock, up to one (1) Short-Form Demand Registration
each year after the fifth anniversary of the date of the IPO, and the
Corporation will pay all Registration Expenses of the Corporation and the
Holders of Registrable Shares incurred in connection with each such
registration; provided, that in each case the number of Short-Form Demand
Registrations otherwise permitted by this Section 2(c) during a given period
shall be reduced by the number of Long-Form Demand Registrations effected during
the corresponding period pursuant to Section 2(b), if any. A registration will
not count as a Short-Form Demand Registration under this Section 2(c) until it
has become effective; provided that in any event the Corporation will pay the
Registration Expenses of the Corporation and the Holders of Registrable Shares
incurred in connection with any such registration initiated as a Short-Form
Demand Registration. Notwithstanding the immediately preceding sentence, a
registration which does not become effective after the Corporation has filed a
registration statement with respect thereto solely by reason of the refusal to
proceed of the Holders of Registrable Shares shall be deemed to have been
effected by such Holders and shall count as a Short-Form Demand Registration for
which the Corporation paid Registration Expenses under this Section 2(c), unless
the Holders of Registrable Shares making such demand shall have elected to pay
the Registration Expenses of the Corporation and of the Holders of Registrable
Shares incurred in connection therewith.
(d) Priority on Demand Registrations. If a Demand Registration is an
underwritten public offering and the managing underwriter(s) advise the
Corporation that in their opinion the number of Registrable Shares and other
securities (if any) requested to be included exceeds the number of Registrable
Shares and other securities which can be sold in such offering without having a
material adverse effect on the offering, the Corporation will include in such
registration (A) first, the number of Registrable Shares requested to be
included therein, which in the opinion of such underwriter(s) can be sold
without having a material adverse effect on the offering, allocated pro rata
among the Holders of such Registrable Shares on the basis of the number of
Registrable Shares owned by such Holders which such Holders have elected to
include in such registration, and (B) second, such other securities requested to
be included in such registration, if any, which in the opinion of such
underwriter(s) can be sold (after taking into account the Registrable Shares to
be sold pursuant to
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clause (A) above) without having a material adverse effect on the offering.
(e) Restrictions on Registrations. (i) The Corporation may postpone
for a reasonable period, not to exceed sixty (60) days, the filing or the
effectiveness of a registration statement for a Demand Registration if the
Corporation has been advised by legal counsel that such filing would require
disclosure of a material non-public fact or non-public information that the
Corporation determines reasonably and in good faith would have a material
adverse effect on the negotiation or completion of any significant transaction
that is being contemplated by the Corporation or any of its subsidiaries at the
time such right to delay is exercised. In addition, the Corporation shall not be
required to effect any registration in accordance with the terms of this
Agreement (other than on Form S-3 or any successor form relating to "shelf"
offerings) within one hundred twenty (120) days after the effective date of
any other registration statement of the Corporation for the IPO or a primary
offering (or combined primary and secondary offering) of its securities
(other than a registration statement on Form S-8, or any successor form).
(ii) No Holder of Registrable Shares may make a request for a Demand
Registration until after the effective date of the IPO; provided, that in any
event no Registrable Shares may be sold by either Holder prior to the expiration
of the applicable lock-up agreements described in the prospectus relating to the
IPO.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever (i) the Corporation intends to sell
its securities in a primary offering pursuant to a registration statement filed
with the Commission or whenever the securities of the Corporation then issued
and outstanding are to be registered under the Securities Act (in either case,
other than pursuant to a registration statement on Form S-8 or Form S-4, or any
successor forms) and (ii) the registration form to be used may also be used for
the registration of Registrable Shares (a "Piggyback Registration"), the
Corporation will give prompt written notice (in any event within ten (10)
business days after its receipt of notice of any exercise of demand registration
rights by holders of the Corporation's securities other than the Registrable
Shares) to all holders of registrable securities (including all Holders of
Registrable Shares) of its intention to effect such a registration and will
include in such registration, subject to the terms of paragraphs (b) and (c) of
this Section 3, all registrable securities with respect to which the Corporation
has received written requests for inclusion therein within thirty (30) days
after the Corporation's notice has been given. The Corporation shall have the
right to postpone or withdraw any Piggyback Registration without obligation or
liability to any holder of
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registrable securities (including any Holder of Registrable Shares).
(b). Priority on Primary Registrations. If a Piggyback Registration
is an underwritten primary registration on behalf of the Corporation, and the
managing underwriter(s) advise the Corporation that in their opinion the number
of securities requested to be included in such registration exceeds the number
which can be sold in such offering without having a material adverse effect on
the offering, the Corporation will include in such registration (A) first, the
securities the Corporation proposes to sell, (B) second, the Registrable Shares
requested to be included therein which in the opinion of such underwriter(s)
(after taking into account the securities to be sold pursuant to clause (A)
above) can be sold without having a material adverse effect on the offering,
allocated pro rata among the Holders of such Registrable Shares on the basis of
the number of Registrable Shares owned by such Holders which such Holders have
elected to include in such registration, and (C) third, other securities
requested to be included in such registration, if any, which in the opinion of
such underwriter(s) can be sold (after taking into account the securities to be
sold pursuant to clauses (A) and (B) above) without having a material adverse
effect on the offering.
(c) Priority on Secondary Registrations. (i) If a Piggyback
Registration is not an underwritten primary registration on behalf of the
Corporation and is an underwritten secondary registration on behalf of existing
holders of the Corporation's securities, and the managing underwriter(s) advise
the Corporation that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without having a material adverse effect on the offering, the
Corporation will include in such registration (A) first, the securities
requested to be included therein by the holders requesting such registration
which in the opinion of such underwriter(s) can be sold without having a
material adverse effect on the offering, (B) second, the Registrable Shares
requested to be included therein which in the opinion of such underwriter(s) can
be sold (after taking into account the securities to be sold pursuant to clause
(A) above) without having a material adverse effect on the offering, allocated
pro rata among the Holders of Registrable Shares on the basis of the number of
Registrable Shares owned by such Holders which such Holders have elected to
include in such registration, and (C) third, other securities requested to be
included in such registration, if any, which in the opinion of such
underwriter(s) can be sold (after taking into account the securities to be sold
pursuant to clauses (A) and (B) above) without having a material adverse effect
on the offering.
(d) Other Registrations. If the Corporation has previously filed a
registration statement with respect to an underwritten registration of
Registrable Shares pursuant to Section
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2 or a registration statement which is not an underwritten primary registration
on behalf of the Corporation and which is an underwritten secondary registration
on behalf of holders of the Corporation's securities pursuant to this Section 3,
and if such previous registration has not been withdrawn or abandoned, the
Corporation will not be required to file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8, or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of one
hundred eighty (180) days has elapsed from the effective date of such previous
registration, unless the lead underwriter managing such previous registered
public offering otherwise agrees.
4. Holdback Agreements.
(a) Each of the Holders of Registrable Shares agrees not to effect any
public sale or distribution of equity securities of the Corporation, including
any public sale pursuant to Rule 144 under the Securities Act, or any
securities convertible into or exchangeable or exercisable for such securities,
during the period (i) commencing on the effective date of the IPO and ending one
hundred eighty (180) days after the effective date of the IPO, unless the
underwriter(s) managing the IPO otherwise agree or (ii) commencing seven (7)
days prior to and ending one hundred twenty (120) days after the effective date
of any underwritten Demand Registration or underwritten Piggyback Registration
in which such Holder sells Registrable Shares (except as part of such
underwritten registration), unless the lead underwriter managing such previous
registered public offering otherwise agrees.
(b) The Corporation agrees to use its best efforts to cause each
holder of at least 1t (on a fully-diluted basis) of its equity securities, or
any securities convertible into or exchangeable or exercisable for such
securities, purchased from the Corporation at any time after the date of this
Agreement (other than in a registered public offering), if any, to agree not to
effect any public sale or distribution of any such securities during the period
commencing seven days (7) prior to and ending one hundred eighty (180) days
after the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration (except as part of such underwritten
registration, if otherwise permitted), unless the lead underwriter managing the
previous offering otherwise agrees.
5. Registration Procedures. Whenever the Holders of Registrable Shares
have requested that any Registrable Shares be registered pursuant to the terms
of this Agreement, the Corporation will use its best efforts to effect the
registration of such Registrable Shares under the Securities Act in accordance
with the
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intended method of disposition thereof, and pursuant thereof the Corporation
will as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Shares and use its best efforts to cause such
registration statement to become and remain effective for such period as may
be reasonably necessary to effect the sale of such securities, not to exceed
twelve (12) months;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
such period as may be reasonably necessary to effect the sale of such
securities, not to exceed twelve (12) months, and otherwise as may be necessary
to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during such
period in accordance with the intended methods of disposition by the sellers
thereof as set forth in such registration statement;
(c) furnish to each seller of such Registrable Shares and the
underwriters of the securities being registered such number of copies of such
registration statement, each amendment and supplement thereto, the prospectus
included in such registration statement (including each preliminary prospectus)
and such other documents as such seller or underwriters may reasonably request
in order to facilitate the disposition of the Registrable Shares owned by such
seller or the sale of such securities by such underwriters;
(d) use its best efforts to register or qualify such Registrable
Shares under such other securities or blue sky laws of such jurisdictions as any
seller reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Shares owned by such seller
(provided that the Corporation will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this subparagraph, (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction);
(e) use its best efforts to cause all such Registrable Shares to be
listed on each securities exchange in which similar securities issued by the
Corporation are then listed;
(f) provide a transfer agent and registrar for all such Registrable
Shares not later than the closing date of the sale of such shares;
(g) enter into such customary agreements (including underwriting
agreements in customary form and substance) and take
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all such other reasonable and customary actions as the Holders of at least a
majority of the Registrable Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Shares;
(h) make available for reasonable inspection during business hours by
the seller of such Registrable Shares, any managing underwriter participating in
any disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by any such seller or underwriter, to the
extent permitted by law, all financial and other records, pertinent corporate
documents and properties of the Corporation, and cause the Corporation's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(i) notify each seller of such Registrable Shares, promptly after it
shall receive notice thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed;
(j) notify each seller of such Registrable Shares of any request by
the Commission for the amendment or supplement of such registration statement or
prospectus or for additional information;
(k) prepare and file with the Commission, promptly upon the request of
any seller of such Registrable Shares, any amendments or supplements to such
registration statement or prospectus which is required under the Securities Act
or the rules and regulations thereunder in connection with the distribution of
Registrable Shares by such seller;
(l) prepare and promptly file with the Commission and promptly notify
each seller of such Registrable Shares of the filing of such amendment or
supplement to such registration statement or prospectus as may be necessary to
correct any statements or omissions if, at the time when a prospectus relating
to such securities is required to be delivered under the Securities Act, any
event shall have occurred, or facts became known, in either case as the result
of which any such prospectus of any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
in which they were made, not misleading;
(m) advise each seller of such Registrable Shares, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for such purpose
and promptly use all
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reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order shall be issued;
(n) at least twenty-four (24) hours prior to the filing of any
registration statement or prospectus or any amendment or supplement to such
registration statement or prospectus, furnish a copy thereof to each seller of
such Registrable Shares and refrain from filing any such registration statement,
prospectus, amendment or supplement to which counsel selected by the Holders
of at least a majority of the Registrable Shares being registered shall have
reasonably objected on the grounds that such amendment or supplement does not
comply in all material respects with the requirements of the Securities Act or
the rules and regulations thereunder, unless, in the case of an amendment or
supplement, in the opinion of counsel for the Corporation the filing of such
amendment or supplement is reasonably necessary to protect the Corporation from
any liabilities under any applicable federal or state law and such filing will
not violate applicable laws; and
(o) at the request of any seller of such Registrable Shares in
connection with an underwritten offering, furnish on the date or dates provided
for in the underwriting agreement, a signed counterpart, addressed to such
seller, of: (i) an opinion of counsel, and (ii) a letter or letters from the
independent certified public accountants of the Corporation, in each case
covering such matters as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings and such other matters as any such seller may reasonably request.
6. Registration Expenses.
(a) In all circumstances in which the Corporation is obligated to pay
Registration Expenses pursuant to this Agreement, all expenses of the
Corporation incident to the Corporation's performance of or compliance with this
Agreement, including, without limitation, all registration and filing fees, fees
and expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, the expenses and fees for listing the
securities to be registered on each securities exchange or other market on which
any shares of Common Stock are then listed, expenses in connection with the
preparation of the registration statement (preliminary or final) or any other
offering document, fees and expenses incurred in the preparation of any
underwriting agreement, expenses incurred to secure any required review by the
National Association of Securities Dealers, Inc., and fees and disbursements of
counsel for the Corporation and its experts and independent certified public
accountants, underwriters (excluding discounts and commissions attributable to
the Registrable Shares included in such registration) and other Persons retained
by the Corporation (all such expenses collectively being herein called
"Registration Expenses"), will be borne by the
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Corporation. In addition, the Corporation will pay its internal expenses
incident to the Corporation's performance of or compliance with this Agreement
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review and the expense of any liability insurance obtained by
the Corporation.
(b) In all circumstances in which the Corporation is obligated to pay
Registration Expenses of Holders of Registrable Shares pursuant to this
Agreement, the Corporation will reimburse the Holders of Registrable Shares
covered by such registration for the reasonable costs and expenses incurred by
such Holders in connection with such registration, including, without
limitation, the reasonable fees and disbursements of one counsel chosen by the
Holders of a majority of the Registrable Shares requested to be registered in
such registration, but excluding discounts and commissions attributable to the
Registrable Shares included in such registration.
7. Indemnification.
(a) The Corporation agrees to indemnify, to the fullest extent
permitted by law, each seller of Registrable Shares, its directors, officers
and employees and each Person who controls such seller (within the meaning of
the Securities Act or the Securities Exchange Act) against all losses, claims,
damages, liabilities and expenses (including, without limitation, reasonable
attorneys' fees except as limited by Section 7(c)) resulting from any untrue or
alleged untrue statement of a material fact contained in any registration
statement, any final prospectus contained therein or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements thereto not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Corporation by such seller expressly for
use therein or by such seller's failure to deliver a copy of the registration
statement or final prospectus or any amendments or supplements thereto after the
Corporation has furnished such seller with a sufficient number of copies of the
same. The reimbursements required by this Section 7(a) will be made by periodic
payments during the course of the investigation or defense, as and when bills
are received or expenses incurred.
(b) In connection with any registration statement in which a seller of
Registrable Shares is participating, each such seller will furnish to the
Corporation in writing such information as the Corporation reasonably requests
for use in connection with any such registration statement or prospectus and, to
the fullest extent permitted by law, will indemnify the Corporation, its
directors, officers and employees, each underwriter (if any) and each Person who
controls the Corporation or such underwriter
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(within the meaning of the Securities Act or the Securities Exchange Act)
against all losses, claims, damages, liabilities and expenses (including,
without limitation, reasonable attorneys' fees except as limited by Section
7(c)) resulting from any untrue statement of a material fact contained in the
registration statement, final prospectus contained therein or any amendment
thereof or supplement thereto or any omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or omission is contained in any
information or affidavit so furnished in writing by such seller expressly for
use therein; provided that the obligation to indemnify will be several, not
joint and several, among such sellers of Registrable Shares, and the liability
of each such seller of Registrable Shares will be in proportion to, and provided
further that such liability will be limited to, the net amount received by such
seller from the sale of Registrable Shares pursuant to such registration
statement.
(c) Any Person entitled to indemnification hereunder will (i) give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not be subject to any liability for any settlement made
by the indemnified party without the indemnifying party's consent (which consent
will not be unreasonably withheld). The indemnified party will not settle any
claim or liability without first providing the indemnifying party with a
reasonable opportunity to assume the defense. An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) The indemnification provided for under this Agreement will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
(e) If the indemnification provided for in this Section 7 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities or expenses referred to herein, then
the indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities or
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expenses in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand, and the indemnified party on the
other, in connection with the statement or omission which resulted in such
losses, claims, damages, liabilities or expenses as well as any other relevant
equitable considerations, including the failure to give the notice required
hereunder. The relative fault of the indemnifying party and the indemnified
party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact relates to information
supplied by the indemnifying party or the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Corporation and the Holders agree that
it would not be just and equitable if contributions pursuant to this
Section 7(e) were determined by pro rata allocation or by any other method of
allocation which did not take account of the equitable considerations referred
to herein. The amount paid or payable to an indemnified party as a result of the
losses, claims, damages, liabilities or expenses referred to above shall be
deemed to include any legal or other expenses reasonably incurred in connection
with investigating or defending the same. Notwithstanding the foregoing, in no
event shall the amount contributed by any Holder exceed the aggregate net
offering proceeds received by any such Holder from the sale of its Registrable
Shares. No person guilty of fraudulent misrepresentations (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
8. Current Public Information. At all times after the Corporation has
filed a registration statement with the Commission pursuant to the requirements
of either the Securities Act or the Securities Exchange Act, the Corporation
will use its best efforts to file in a timely manner all reports and other
documents required to be filed by it under the Securities Act and the Securities
Exchange Act and the rules and regulations promulgated by the Commission
thereunder and will use its best efforts to take such further action as any
Holder or Holders of Registrable Shares may reasonably request, all to the
extent required to enable such holders to sell Registrable Shares pursuant to
(i) Rule 144 under the Securities Act (as such rule may be amended from time to
time) or any similar rule or regulation hereafter promulgated by the Commission
or (ii) a registration statement on Form S-2 or S-3 or any similar registration
form hereafter adopted by the Commission. Upon request, the Corporation shall
deliver to any Holder of Registrable Shares a written statement as to whether it
has complied with such requirements.
9. Participation in Underwritten Registrations. No Person may participate
in any registration hereunder which is underwritten unless such Person (a)
agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the
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Person or Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements. Subject to the immediately succeeding sentence, the
Holders of a major1ty of the Registrable Shares requested to be registered will
have the right to select the managing underwriter(s) to administer any Demand
Registration which managing underwriter(s) shall be reasonably acceptable to the
Corporation. Notwithstanding the foregoing, the Corporation will have the right
to select the managing underwriter(s) to administer any offering which is
covered by a Piggyback Registration; provided, however, that in any such case
the managing underwriters shall be nationally or regionally recognized
underwriter(s).
10. Implementation and Protection of Registration Rights. The Corporation
will at all times in good faith assist in carrying out all of the provisions of
this Agreement and in the taking of all such action as may be reasonably
necessary or appropriate in order to protect the registration rights pursuant to
this Agreement of the Holders of Registrable Shares.
11. Remedies. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and to
exercise all other rights warranted by law.
12. Amendments and Waivers. Except as otherwise expressly provided herein,
the provisions of this Agreement may be amended or waived at any time only by
the written agreement of the Corporation and the Holders of all of the then
outstanding Registrable Shares. Any waiver, permit, consent or approval of any
kind or character on the part of any such Holders of any provision or condition
of this Agreement must be made in writing and shall be effective only to the
extent specifically set forth in writing.
13. Successors and Assigns. Except as otherwise expressly provided herein,
the provisions of this Agreement shall be binding upon and inure to the benefit
of the respective successors, assigns, heirs, executors and administrators of
the parties hereto, whether so expressed or not. In addition and whether or not
any express assignment has been made, the provisions of this Agreement which are
for the benefit of Holders of Registrable Shares are also for the benefit of,
and enforceable by, any subsequent holder of Registrable Shares who consent in
writing to be bound by this Agreement, and such Person shall be considered a
"Holder" hereunder.
14. Other Registration Rights. Except for the registration rights granted
hereunder, the Corporation will not grant to any Persons the right to request
the Corporation to register any equity
-15-
<PAGE>
securities of the Corporation, or any securities convertible or exchangeable
into or exercisable for such securities, without the written consent of the
Holders of a majority of the then outstanding Registrable Shares, and except for
registrations pursuant to registration rights granted to the Holders of
Registrable Shares hereunder or granted to other Persons pursuant to this
Section 14 or primary registrations of securities by the Corporation or
registrations of securities being resold by affiliates in a Rule 145 transaction
pursuant to registration rights granted to such affiliates that are subordinate
to the registration rights of the Registrable hereunder, the Corporation shall
not register any equity securities of the Corporation, or any securities
convertible or exchangeable into or exercisable for such securities, without
the written consent of the Holders of a majority of the then outstanding
Registrable Shares. The Corporation will not include in any Demand Registration
any securities which are not Registrable Shares without the written consent of
the Holders of a majority of the then outstanding Registrable Shares requesting
such registration. Notwithstanding the foregoing, the Corporation may grant and
register securities pursuant to (a) subordinate piggyback registration rights
not inconsistent with the registration rights granted hereunder to other Persons
and (b) demand registration rights which are subordinate to the rights of the
Holders with respect to Demand Registrations hereunder.
15. Final Agreement. This Agreement constitutes the final agreement of the
parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
16. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
17. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
18. Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service guaranteeing next business day delivery,
to the following addresses, or such other addresses as shall be given by notice
delivered hereunder, in each case with applicable postage or delivery charges
prepaid, and shall be deemed to have been given upon delivery, if delivered
personally, three business days after
-16-
<PAGE>
mailing, if mailed, or one business day after delivery to the courier, if
delivery by overnight courier service:
If to the Holders, to:
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Michael W. Reschke
With a copy (which shall not constitute notice) to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
If to the Corporation, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
With a copy (which shall not constitute notice) to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
19. Governing Law. All questions concerning the construction, validity and
interpretation of, and the performance of the obligations imposed by, this
Agreement shall be governed by and construed in accordance with the laws of the
State of [Delaware] (excluding the choice of law provisions thereof).
20. Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts toqether shall constitute one instrument.
21. Termination of Rights. The registration rights provided by this
Agreement shall terminate on the earlier of (a) first date after the date of the
IPO on which the aggregate number of Registrable Shares then owned by the
Holders constitutes less than ten percent (10%) of the outstanding Common Stock,
and (b) with regard to each Holder of Registrable Shares, at such time as such
Holder shall have an unlimited right to sell all of its Registrable
-17-
<PAGE>
Shares in the public market without restriction on volume or otherwise.
[signature page follows]
-18-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be executed and delivered in their names and on their behalf as of
the date first set forth above.
THE CORPORATION:
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By: /s/ Mark J. Schulte
-----------------------------
Name: Mark J. Schulte
-----------------------------
Its: President
-----------------------------
THE HOLDERS:
THE PRIME GROUP, INC.,
an Illinois corporation
By: /s/ Richard S. Curto
-----------------------------
Name: Richard S. Curto
-----------------------------
Its: Executive Vice President
-----------------------------
PRIME GROUP LIMITED PARTNERSHIP,
an Illinois limited partnership
By: /s/ Michael W. Reschke
----------------------------
Name: Michael W. Reschke
----------------------------
Its: Managing General Partner
PRIME GROUP VI, L.P.
By: PGLP, Inc.,
its Managing General Partner
By: /s/ Richard S. Curto
-----------------------
Name: Richard S. Curto
-----------------------
Its: Vice President
-----------------------
S-1
<PAGE>
Exhibit 10.4
VOTING AGREEMENT
This VOTING AGREEMENT (this "Agreement"), dated as of May 7, 1997, is made
and entered into by and among BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation (the "Company"), THE PRIME GROUP, INC., an Illinois corporation
("Prime"), PRIME GROUP LIMITED PARTNERSHIP, an Illinois limited partnership
("PGLP"), and PRIME GROUP VI, L.P., an Illinois limited partnership ("PG-VI,
L.P.") (together with Prime and PGLP, the "TPG Group").
RECITALS
WHEREAS, the Company has filed with the Securities and Exchange Commission
a Form S-1 Registration Statement in connection with the Company's proposed
initial public offering (the "Offering") of its Common Stock, $0.01 par value
per share (the "Common Stock");
WHEREAS, PG-VI, L.P. has purchased 2,500,000 of the 4,500,000 shares of
Common Stock issued and sold in the Offering, representing approximately 38.5%
of the outstanding Common Stock after giving effect to the Offering;
WHEREAS, pursuant to the terms of that certain Formation Agreement dated as
of May 7, 1997, the Company has issued an aggregate of 1,703,043 shares of its
Common Stock to Prime and PGLP, representing approximately 26.2% of the
outstanding Common Stock after giving effect to the Offering; and
WHEREAS, in connection with the Offering, the Company and the TPG Group
have agreed to enter into this Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the recitals and the mutual promises
and covenants herein contained and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Agreement to Vote Shares of Common Stock. The TPG Group agrees that,
from and after the completion of the Offering and until this Agreement
terminates pursuant to Section 2 hereof, it will vote all of the TPG Group's
shares of Common Stock at any meeting at which directors of the Company are
elected in favor of that number of independent directors who are not affiliates
of the TPG Group or employees of the TPG Group (any such directors,
"Independent Directors") so that, if such directors were elected,
<PAGE>
there would be at least four (4) Independent Directors who are members of the
Board of Directors of the Company. The parties hereto acknowledge and agree that
the agreement contained in the immediately preceding sentence is not, and shall
not be construed as, a guarantee by the TPG Group, or any member thereof, that
any of the Independent Directors for which the TPG Group votes in favor of will
be elected as a member of the Board of Directors of the Company or that there
will be at least four (4) Independent Directors who are members of the Board of
Directors of the Company.
2. Term. This Agreement will automatically terminate upon the earlier of
(i) three (3) years from the closing date of the Offering or (ii) the date
the TPG Group owns less than ten percent (10%) of the then outstanding Common
Stock.
3. Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service guaranteeing next business day delivery,
to the following addresses, or such other addresses as shall be given by notice
delivered hereunder, in each case with applicable postage or delivery charges
prepaid, and shall be deemed to have been given upon delivery, if delivered
personally, three business days after mailing, if mailed, or one business day
after delivery to the courier, if delivery by overnight courier service:
If to the Company, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
If to the TPG Group or any member thereof, to:
c/o The Prime Group, Inc.
77 West Wacker Drive
39th Floor
Chicago, Illinois 60601
Attn: Michael W. Reschke
-2-
<PAGE>
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
4. Final Agreement. This Agreement constitutes the final agreement of
the parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
5. Severability. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
6. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
7. Governing Law. All questions concerning the construction, validity
and interpretation of, and the performance of the obligations imposed by, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware (excluding the choice of law provisions thereof).
8. Amendments. The provisions of this Agreement may be amended or
waived at any time only by the written agreement of the parties hereto.
9. Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors and assigns
of the parties hereto, whether so expressed or not, including, without
limitation, any person or entity to whom any member of the TPG Group assigns any
of the Common Stock held by it.
[signature page follows]
-3-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Voting Agreement to
be duly executed and delivered on their behalf as of the date first above
written.
THE COMPANY:
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By: /s/ Mark J. Schulte
------------------------------------
Name: Mark J. Schulte
---------------------------------
Title: President
--------------------------------
THE TPG GROUP:
THE PRIME GROUP, INC.,
an Illinois corporation
By: /s/ Michael W. Reschke
------------------------------------
Name: Michael W. Reschke
---------------------------------
Title: President
--------------------------------
PRIME GROUP LIMITED PARTNERSHIP,
an Illinois limited partnership
By: /s/ Michael W. Reschke
------------------------------------
Michael W. Reschke,
Managing General Partner
PRIME GROUP VI, L.P.
By: PGLP, Inc.,
its Managing General Partner
By: /s/ Richard S. Curto
------------------------------
Name: Richard S. Curto
----------------------------
Title: Vice President
----------------------------
S-1
<PAGE>
Exhibit 10.5
NON-COMPETE AGREEMENT
---------------------
This NON-COMPETE AGREEMENT (this "Agreement"), dated as of May 7, 1997, is
made and entered into by and among BROOKDALE LIVING COMMUNITIES, INC., a
Delaware corporation (the "Company"), THE PRIME GROUP, INC., an Illinois
corporation ("TPG"), PRIME GROUP LIMITED PARTNERSHIP, an Illinois limited
partnership (together with TPG, the "TPG Group"), and MICHAEL W. RESCHKE, an
individual ("Reschke").
WHEREAS, the Company, through its subsidiaries and affiliates, is engaged
primarily in the business of the management, operation, acquisition and
development of senior and assisted living facilities and the provision of senior
and assisted living services at such facilities;
WHEREAS, on the date hereof the Company is entering into a series of
related transactions (the "Formation") pursuant to which it will acquire, among
other things, substantially all of the operations of the senior housing division
of TPG and the ownership interests of the TPG Group and its affiliates in a
portfolio of two senior and assisted living facilities located in Illinois;
WHEREAS, Reschke and the TPG Group, directly or through one or more
affiliates, will continue to engage in certain real estate-related activities
after the Formation, including, without limitation, the continued ownership of
the senior and assisted living facility known as The Island on Lake Travis
located in Lago Vista, Texas (the "Island"); and
WHEREAS, as a condition to the consummation of the transactions described
above, and in an effort to eliminate potential conflicts of interest that may
arise in the future as a result of the continuing activities of Reschke and the
TPG Group, the parties hereto desire, subject to certain conditions and
exceptions set forth herein, to enter into certain agreements restricting the
activities of Reschke and the TPG Group for a period expiring on the earlier of
(i) four (4) years from the effective date of the Company's initial public
offering of its Common Stock, $0.01 par value per share (the "IPO"), or (ii) one
(1) year from the date of a merger or sale of all or substantially all of the
stock or assets of the Company.
<PAGE>
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the recitals and the mutual
promises and covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Definitions.
(a) Previously Defined Terms. Each capitalized term defined in the
first paragraph and Recitals hereof shall have the meaning set forth above
whenever used herein, unless otherwise expressly provided or unless the context
clearly requires otherwise.
(b) Additional Definitions. In addition to the terms defined in the
first paragraph and Recitals hereof, whenever used herein, the following terms
shall have the meanings set forth below unless otherwise expressly provided or
unless the context clearly requires otherwise:
"Affiliate" means (i) any entity in which Reschke and the TPG Group
(either individually or collectively) own or control, directly or indirectly,
fifty percent (50%) or more of the outstanding equity interests, (ii) any
entity with respect to which Reschke and the TPG Group (either individually or
collectively) have the right or power, directly or indirectly, to cause such
entity to (x) develop or acquire an interest in any facilities of the type
included within the Primary Business of the Company or (y) manage or operate any
such facilities, in either case without the consent or approval of a third party
equity owner, and (iii) any entity with respect to which Reschke and the TPG
Group (either individually or collectively) have the right or power, directly or
indirectly, to withhold consent or approval of (x) the development of, or an
acquisition by such entity of an interest in, any facilities of the type
included within the Primary Business of the Company or (y) the engagement by
such entity in the management or operation of any such facilities, in either
case where such consent or approval is required as a condition to consummation
of such acquisition or the engagement in such activity.
"Primary Business of the Company" means the ownership, management,
operation, acquisition and development of senior and asslsted living and semi-
acute care facilities.
2. Prohibitions.
(a) Subject to subsections 2 (b) and 2 (c) below, from and after the
date hereof and during the term of this Agreement, neither Reschke, the TPG
Group nor any Affiliate will develop any facility or acquire any facility or any
direct or indirect interest
-2-
<PAGE>
therein, or manage or operate any such facility, that is of the type included
within the Primary Business of the Company; provided, that the foregoing shall
not prohibit any of Reschke, the TPG Group or any Affiliate from providing any
mortgage financing, from acting as lessor in any sale-leaseback transaction or
from providing any other subordinated debt with respect to any facilities of the
type included within the Primary Business of the Company. It is expressly
acknowledged and agreed that, subject to subsections 2 (b) and 2(c) below, the
prohibitions set forth in this subsection 2(a) shall apply only to any interest
in, or the development, management or operation of, any facility of the type
included within the Primary Business of the Company located anywhere within the
continental United States of America.
(b) Excluded from the restrictions set forth in subsection 2(a) are
the following properties and interests: (i) any interest in the Company; (ii)
the Island and any interest therein; (iii) any activity which a majority of the
independent members of the board of directors of the Company determines not to
be competitive with any facility which the Company owns or plans to acquire or
develop; (iv) less than 5% of any class of securities listed on a national
securities exchange or traded over-the-counter on the National Association of
Securities Dealers Automated Quotation System Market; and (v) subject to the
proviso at the end of this clause (v), any facilities acquired after the date of
this Agreement that are similar to those acquired, developed, managed or owned
by the Company, but only to the extent such facilities are acquired in
connection with the acquisition of a group of properties; provided, that in the
event of any such acquisition permitted by this clause (v), the Company shall
have the right and opportunity to purchase such similar facilities from Reschke,
the TPG Group or any Affiliate, as applicable, at a price equal to the fair
market value (as determined (i) by an independent appraiser acceptable to both
Reschke, TPG or such Affiliate, on the one hand, and the Company, on the other
hand or (ii) by any other means mutually acceptable to Reschke, TPG or such
Affiliate, on the one hand, and the Company, on the other hand) of such similar
facilities.
3. Term. This Agreement shall be in effect from and after the date hereof
and shall continue in effect for a period expiring on the earlier of (i)
four (4) years from the closing date of the IPO or (ii) one (1) year from
the date of a merger of the Company or the sale of all or substantially all
of the stock or assets of the Company.
4. Reasonable Limit. The parties hereto have attempted to set forth certain
restrictions only to the extent necessary to protect the interests of the
Company. Each of Reschke and the TPG Group expressly acknowledges that the
restrictive covenant contained in subsection 2(a) above along with the
exceptions thereto contained in subsections 2(b) and 2(c) above, constitutes
-3-
<PAGE>
a reasonable restriction. If, however, the scope or enforceability of the
restrictive covenant contained in this Agreement is disputed at any time, a
court or other trier of fact may modify and enforce the covenant to the extent
that it believes is reasonable under the circumstances existing at the time.
5. Breach of Agreement.
(a) A party aggrieved shall notify the other party in writing of any
conflicts, disputes or claims of breach arising under this Agreement. Within ten
(10) business days after such notice is sent, the parties shall meet, shall
develop, as fully as possible, the facts relating to the conflict, dispute or
alleged breach, and shall attempt to resolve the same, it being understood and
agreed that any such resolution shall be subject to the consent and approval of
a majority of the Company's independent directors. If resolution of the dispute
is not made to the satisfaction of the aggrieved party within thirty (30) days
after the notice is sent, the aggrieved party may pursue its legal and
equitable remedies.
(b) In the event of breach of this Agreement, each of Reschke and the
TPG Group acknowledges that the remedy at law would be inadequate and that, in
addition to monetary damages, the Company shall be entitled, after compliance
with the dispute mechanism described in subsection 5(a) above, to seek an
injunctive order restraining such breach.
6. Transferability. The parties hereto agree that this Agreement shall
inure to the benefit of the Company, and its successors and assigns and shall be
transferable and assignable by the Company in connection with the sale or other
transfer of an equity interest in the Company of greater than 50% to an entity
that is not an Affiliate. Upon any such transfer or assignment, and subject to
Section 3, this Agreement shall remain in full force and effect between Reschke
and the TPG Group, on one hand, and such transferees, assignees or successors
in interest, on the other hand. This Agreement shall be binding upon the
successors and assigns of all or substantially all of the business of the TPG
Group.
7. Waiver. The waiver by any party to this Agreement of a breach by any
party or any provision of this Agreement shall not operate or be construed as a
waiver of any subsequent breach by any other party. No waiver of any provision
of this Agreement shall be effective, unless in writing and signed by the party
waiving its rights, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given, provided
further that no waiver by the Company shall be effective unless accompanied by a
certificate of an executive officer of the Company certifying that a majority
of the independent directors of the Company have consented to and approved such
waiver.
-4-
<PAGE>
8. Notices. Any notices required or permitted to be sent hereunder shall be
delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service guaranteeing next business day delivery,
to the following addresses, or such other addresses as shall be given by notice
delivered hereunder, in each case with applicable postage or delivery charges
prepaid, and shall be deemed to have been given upon delivery, if delivered
personally, three business days after mailing, if mailed, or one business day
after delivery to the courier, if delivery by overnight courier service:
If to the Company, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
If to the TPG Group or any member thereof, to:
c/o The Prime Group, Inc.
77 West Wacker Drive
39th F1oor
Chicago, Illinois 6060l
Attn: Michael W. Reschke
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
If to Michael W. Reschke, to:
c/o The Prime Group, Inc.
77 West Wacker Drive
39th F1oor
Chicago, Illinois 60601
Attn: Michael W. Reschke
-5-
<PAGE>
9. Final Agreement. This Agreement constitutes the final agreement of the
parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
10. Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
11. Descriptive Headings. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
12. Governing Law. All questions concerning the construction, validity and
interpretation of, and the performance of the obligations imposed by, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Illinois (excluding the choice of law provisions thereof).
[signature page follows]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Non-Compete
Agreement to be duly executed and delivered on their behalf as of the date first
above written.
THE COMPANY:
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By: /s/ Mark J. Schulte
-------------------------------
Name: Mark J. Schulte
-----------------------------
Its: President
------------------------------
RESCHKE AND THE TPG GROUP:
/s/ Michael W. Reschke
-----------------------------------
Michael W. Reschke
THE PRIME GROUP, INC.,
an Illinois corporation
By: /s/ Richard S. Curto
-------------------------------
Name: Richard S. Curto
-----------------------------
Its: Executive Vice President
------------------------------
PRIME GROUP LIMITED PARTNERSHIP,
an Illinois limited partnership
By: /s/ Michael W. Reschke
-------------------------------
Michael W. Reschke
Managing General Partner
-7-
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
7th day of May, 1997 by and between Brookdale Living Communities, Inc., a
Delaware corporation ("Employer"), and Michael W. Reschke, an individual
domiciled in the State of Illinois ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of senior and assisted
living facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
management and operation of Employer.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Chairman of the Board of Employer on the terms
and conditions provided in this Agreement. Executive shall conduct, operate,
manage and promote the business and business concept of Employer, and exercise
such other powers and authority as are provided by the By-laws of Employer ("By-
laws"). The Board of Directors of Employer (the "Board") may from time to time
further define and clarify Executive's duties and services hereunder or under
the By-laws as Chairman of the Board. Executive agrees to devote sufficient
time, attention, energy and skill to perform his duties as Chairman of the Board
of Employer. Executive shall have no obligation to devote full-time to his
duties, it being expressly understood that Executive has other professional and
managerial duties and responsibilities to companies other than Employer.
Further, during the Employment Term, Employer agrees to recommend Executive to
be elected as a member of the Board.
<PAGE>
2. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date Employer's Registration Statement on Form S-1, as amended
(No. 333-12259; the "Registration Statement") is declared effective (the
"Effective Date") and expire on March 31, 2000 (the "Scheduled Termination
Date"), provided, however, this Agreement shall automatically extend for one-
year terms following the Initial Term (each a "Renewal Term", together with the
Initial Term, the "Employment Term"), unless either party shall give the other
party prior to thirty (30) days before the end of the Initial Term or any
Renewal Term, as applicable, written notice of its intention to terminate this
Agreement.
3. Compensation and Related Matters. (a) Base Salary. As compensation for
performing the services required by this Agreement during the Employment Term
Employer shall pay to Executive an annual salary of no less than One Hundred
Thousand Dollars ($100,000) ("Base Compensation"), payable in accordance with
the general policies and procedures for payment of salaries to its executive
personnel maintained, from time to time, by Employer (but no less frequently
than monthly), subject to withholding for applicable federal, state, and local
taxes. Increases in Base Compensation, if any, shall be determined by the
Compensation Committee of the Board (the "Committee") based on periodic reviews
of Executive's performance conducted on at least an annual basis.
(b) Bonus. In addition to Base Compensation, Executive shall have the
right to receive, and Employer agrees to distribute to Executive, a performance
bonus distribution for each calendar year during the Employment Term, commencing
on the date hereof through the end of the 1997 calendar year (the "Initial Bonus
Period") and for each calendar year thereafter, in such amounts as determined by
the three point formula delineated hereinbelow (collectively, a yearly
"Performance Bonus Distribution"); provided, however, that the aggregate
Performance Bonus Distribution for the Initial Bonus Period or for any calendar
year thereafter distributable in accordance with the provisions of this Section
3(b) shall in no event exceed 100% of the Base Compensation for the Initial
Bonus Period or such subsequent calendar year, respectively. The amount of the
Performance Bonus Distribution for the Initial Bonus Period or for each calendar
year thereafter distributable to Executive hereunder shall be determined by the
Committee based upon the achievement of Employer's annual business plan approved
by the Board for the Initial Bonus Period or such subsequent calendar year, as
applicable, as reflected in the audited financial statements of Employer
prepared in accordance with generally accepted accounting principles and
auditing standards and practices, consistently applied ("GAAP"). Prior to
issuance of the final audited financial statements for the Initial Bonus Period
or for each calendar year thereafter, as applicable, Executive shall have the
right to review and approve or challenge any calculation or determination of the
amount of the Performance Bonus Distribution distributable for the Initial Bonus
Period or for such subsequent calendar year, as applicable. Any amount of
Performance Bonus Distribution required to be distributed to Executive for the
Initial Bonus Period or for any calendar year thereafter during the Employment
Term shall be distributed by Employer to Executive during the pay period of
Employer following finalization of the audit for the Initial Bonus Period or for
such calendar year, as applicable, and final review and approval of the bonus
calculation by the Committee, and, in all events, on or before April 15 of the
year immediately following the end
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of the Initial Bonus Period or the subsequent calendar year for which such
Performance Bonus Distribution is attributable.
The three point formula to determine a Performance Bonus Distribution
for the Initial Bonus Period or for any calendar year thereafter during the
Employment Term shall be as follows:
(i) After-Tax GAAP Earnings Per Share Plus Depreciation and
Amortization. Executive's Performance Bonus Distribution in an amount of up to
sixty percent (60%) of Executive's Base Compensation for the Initial Bonus
Period or for any given subsequent calendar year shall be based on Employer's
after-tax GAAP earnings per share on a fully-diluted basis plus depreciation and
amortization ("Actual EPS") for the Initial Bonus Period or the applicable
subsequent calendar year in relation to the earnings per share plus depreciation
and amortization set forth in Employer's Board approved annual business plan for
the Initial Bonus Period or for such subsequent calendar year ("Plan EPS") as
follows:
A. If Actual EPS is less than 90% of Plan EPS, Executive shall
not be entitled to any Performance Bonus Distribution under this Section
3(b)(i).
B. If Actual EPS is 120% or more of Plan EPS, Executive shall
be entitled to a Performance Bonus Distribution under this Section 3(b)(i) equal
to 60% of Executive's Base Compensation for the Initial Bonus Period or for such
subsequent calendar year.
C. If Actual EPS is equal to or greater than 90% of Plan EPS
but than less 120% of Plan EPS, then a pro rata adjustment shall be made to the
Performance Bonus Distribution to which Executive is entitled under this Section
3(b)(i) for the Initial Bonus Period or for such subsequent calendar year.
(ii) Average Common Stock Price.
--------------------------
Executive's Performance Bonus Distribution in an amount of up to
twenty percent (20%) of Executive's Base Compensation for the Initial Bonus
Period or for such subsequent calendar year, as applicable, shall be based on
the percentage increase (the "% Increase in Employer's Stock Price"), if any, in
the per share price of Employer's common stock from December 31 of the calendar
year immediately preceding the calendar year for which the Performance Bonus
Distribution is being calculated (or, for purposes of the Initial Bonus Period,
the increase in the per share price of Employer's common stock from the initial
public offering per share price) to December 31 of the calendar year for which
the Performance Bonus Distribution is being calculated compared to the average
percentage increase, if any, over the same period of the Standard & Poor's 500
Stock Index determined by reference to the Standard & Poor's 500 Stock Index as
set forth in the Wall Street Journal on the applicable dates (the "% Increase in
S&P 500 Stock Index") as follows:
(A) For purposes of this Section 3(b)(ii), (1) the term "Lower
Bound" shall mean the greater of 5% (3.75% for the Initial Bonus Period) or 75%
of the % Increase in the S&P
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500 Stock Index, and (2) the term "Upper Bound" shall mean the greater of 15%
(11.25% for the Initial Bonus Period) or 125% of the % Increase in the S&P 500
Stock Index.
(B) If the % Increase in Employer's Stock Price is equal to or
less than the Lower Bound, Executive shall not be entitled to any Performance
Bonus Distribution under this Section 3(b)(ii) for the Initial Bonus Period or
for such subsequent calendar year.
(C) If the % Increase in Employer's Stock Price is equal to or
greater than the Upper Bound, Executive shall be entitled to a Performance Bonus
Distribution under this Section 3(b)(ii) equal to 20% of Executive's Base
Compensation for the Initial Bonus Period or for such subsequent calendar year.
(D) If, for the Initial Bonus Period or for such subsequent
calendar years, the % Increase in Employer's Stock Price is greater than the
Lower Bound but less than the Upper Bound, Executive shall be entitled to a
Performance Bonus Distribution under this Section 3(b)(ii) in an amount
calculated in accordance with the following formula:
Performance Bonus Distribution under Section
3(b)(ii) = (20% of Executive's Base Compensation
for the period) x (1 - (Upper Bound -% Increase
in Employer's Stock Price) / (Upper Bound -
Lower Bound))
(iii) Discretionary. Executive's Performance Bonus Distribution
in an amount of up to twenty percent (20%) of Executive's Base Compensation for
the Initial Bonus Period or for any given subsequent calendar year shall be
determined at the sole discretion of the Board or the Committee based upon
achievement of such corporate or individual performance goals and objectives as
may be established or determined by the Board or the Committee from time to
time.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
his eligible dependents shall have the right to participate in any retirement,
pension, insurance, health, dental, life insurance or other benefit plan or
program that has been or is hereafter adopted by Employer (or in which Employer
participates), as such plans and programs may be amended or modified from time
to time by Employer, according to the terms of such plan or program with all the
benefits, rights and privileges as are enjoyed by any other senior executive
officer of Employer. If the participation of Executive would adversely affect
the qualification of a plan intended to be qualified under Section 401(a) of the
Internal Revenue Code as the same may be amended from time to time (the "Code"),
Employer shall have the right to exclude Executive from that plan in return for
his participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and
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procedures, as such policies and procedures may be amended or modified from time
to time by Employer, for all reasonable and necessary expenses incurred by
Executive in the performance of his duties hereunder.
4. Stock Options. Employer has established a stock incentive plan (the
"Stock Incentive Plan") that will become effective prior to the completion of
the initial public offering of shares of common stock of Employer (the "Common
Stock") contemplated by the Registration Statement. The Stock Incentive Plan
initially provides, among other things, for the issuance from time to time to
certain officers, directors and other employees of Employer of up to 830,000
stock options ("Options"). On the Effective Date, Employer shall grant to
Executive 100,000 Options that will have such terms and conditions as are set
forth in the Stock Incentive Plan and the Stock Option Agreement to be entered
into between Employer and Executive.
5. Termination and Termination Benefits. (a) Termination by Employer. (i)
Without Cause. Employer may terminate this Agreement and Executive's employment
at any time for any reason or for no reason at all upon thirty (30) days' prior
written notice to Executive following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(i),
Executive shall (A) be paid his Base Compensation and a pro rata portion of any
bonus otherwise payable to him for or with respect to the calendar year in which
such termination occurs (but, to the extent not previously paid, Executive shall
be entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such termination occurs) in accordance with Sections 3(a) and 3(b),
respectively (provided that, if such termination occurs prior to February 28, no
bonus shall be payable for or with respect to the calendar year in which such
termination occurs), up to the effective date of such termination, (B) be
entitled to the benefits set forth in Sections 3(c) and 3(d) hereof up to the
effective date of such termination and (C) receive the Termination Compensation
specified in Section 5(e) hereof. (For purposes of this Agreement, the
"effective date of termination" shall mean the last day on which the Executive
is employed with Employer, which may be later than the date of the delivery of
any applicable notice of termination.)
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform his duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid his Base Compensation in accordance with Section
3(a) hereof up to the effective date of such termination, (B) forfeit his
entitlement to any bonus otherwise payable to him in accordance with Section
3(b) hereof for or with respect to the calendar year in which the termination
occurs (but, to the extent not previously paid, Executive shall be entitled to
any bonuses payable to Executive in accordance with Section 3(b) hereof for or
with respect to any calendar years prior to the calendar year in which such
termination occurs) and (C) be entitled to the benefits set forth in Sections
3(c) and 3(d) hereof up to the effective date of such termination. For purposes
of this Section 5(a)(ii), "cause" shall mean (A) a finding by the Board that
Executive has materially harmed Employer, its business, assets or employees
through an act of dishonesty, material conflict of interest, gross misconduct or
willful malfeasance, (B) Executive's conviction of
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(or pleading nolo contendere to) a felony, (C) Executive's failure to perform
(which shall not include inability to perform due to disability) in any material
respects his material duties under this Agreement after written notice
specifying the failure and a reasonable opportunity to cure (it being understood
that if Executive's failure to perform is not of a type requiring a single
action to fully cure, then Executive may commence the cure promptly after such
written notice and thereafter diligently prosecute such cure to completion), (D)
the breach by Executive of any of his material obligations hereunder (other than
those covered by clause (C) above) and the failure of Executive to cure such
breach within thirty (30) days after receipt by Executive of a written notice of
Employer specifying in reasonable detail the nature of the breach, or (E)
Executive's sanction (including restrictions, prohibitions and limitations
agreed to under a consent decree or agreed order) under, or conviction for
violation of, any federal or state securities law, rule or regulation (provided
that in the case of a sanction, such sanction materially impedes or impairs the
ability of Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any six (6)
consecutive months to perform the duties required by this Agreement, Employer
may terminate this Agreement upon thirty (30) days' written notice to Executive.
In such event, Executive shall (A) be paid his Base Compensation in accordance
with Section 3(a) hereof up to the effective date of such termination, (B) be
paid a pro rata portion through the first day of the six (6) month period of any
bonus otherwise payable to him for or with respect to the calendar year in which
such disability occurs (but, to the extent not previously paid, Executive shall
be entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such termination occurs) in accordance with Section 3(b) hereof (provided
that, if such disability occurs prior to February 28, no bonus shall be payable
for or with respect to the calendar year in which such disability occurs), and
(C) be entitled to the benefits set forth in Sections 3(c) hereof (or the after-
tax cash equivalent) up to the effective date of such termination, and be
entitled to the benefits set for in Section 3(d) hereof up to the date of such
disability. This Section 5(a)(iii) shall not limit the entitlement of Executive,
his estate or beneficiaries to any disability or other benefits available to
Executive under any disability insurance or other benefits plan or policy which
is maintained by Employer for Executive's benefit. For purposes of this
Agreement, the "date of disability" shall mean the first day of the consecutive
period during which Executive fails to perform the duties required by this
Agreement due to illness, physical or mental disability or other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of Employer and a resulting "diminution
event", each as defined below, but in no event later than two years after the
change of control event. Executive shall continue to perform, at the election of
Employer, his duties under this Agreement for an additional thirty (30) days
following notice of termination. In such event, Executive shall (A) be paid his
Base Compensation and a pro rata portion of any bonus otherwise payable to him
for or with respect to the calendar year in which such termination occurs (but,
to the extent not previously paid, Executive shall be entitled to any bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any
6
<PAGE>
calendar years prior to the calendar year in which such termination occurs) in
accordance with Sections 3(a) and 3(b) hereof, respectively (provided that, if
such termination occurs prior to February 28, no bonus shall be payable for or
with respect to the calendar year in which such termination occurs), up to the
effective date of such termination, (B) be entitled to the benefits set forth in
Sections 3(c) and 3(d) hereof up to the effective date of such termination and
(C) receive the Termination Compensation specified in Section 5(e) hereof. For
purposes of this Agreement, in the event Employer defaults in its obligation
under Section 9 hereof and, as a consequence thereof, Executive's employment
with Employer (or Employer's successor or assign) terminates, such termination
shall be deemed to be a termination under this Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest, Executive, his siblings, his and their spouses and issue,
and any trusts for the benefit of any of the foregoing (the "Executive Group")
and excluding a trustee or fiduciary holding securities under an employee
benefit plan of Employer), becomes the beneficial owner of shares of common
stock of Employer having at least fifty percent (50%) of the total number of
votes that may be cast for the election of directors of Employer; (2) the merger
or other business combination of Employer, sale of all or substantially all of
Employer's assets or combination of the foregoing transactions (a
"Transaction"), other than a Transaction immediately following which the
shareholders of Employer immediately prior to the Transaction continue to have a
majority of the voting power in the resulting entity (excluding for this purpose
any shareholder, other than The Prime Group, Inc., its affiliates and the
Executive Group, owning directly or indirectly more than ten percent (10%) of
the shares of the other company involved in the Transaction); or (3) within any
twenty-four (24) month period beginning on or after the date hereof, the persons
who were directors of Employer immediately before the beginning of such period
(the "Incumbent Directors") shall cease to constitute at least a majority of the
Board or a majority of the board of directors of any successor to Employer,
provided that, any director who was not a director as of the date hereof shall
be deemed to be an Incumbent Director if such director was elected to the Board
by, or on the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually or by
prior operation of this provision, unless such election, recommendation or
approval was the result of an actual or threatened election contest of the type
contemplated by Regulation 14a-11 promulgated under the Exchange Act or any
successor provision; and (B) a "diminution event" shall mean any material
diminution in (1) the duties and responsibilities of Executive, including a
removal of the Executive as Chairman of the Board or (2) the compensation
package for Executive.
(ii) Without Good Reason. Executive may terminate this Agreement
and his employment at any time for any reason or for no reason at all upon sixty
(60) days' written notice to Employer, during which period Executive shall
continue to perform his duties under this Agreement if Employer so elects. In
connection with the termination of Executive's employment pursuant to this
Section 5(b)(ii), Executive shall (A) be paid his Base Compensation in
accordance
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<PAGE>
with Section 3(a) hereof up to the effective date of such termination, (B)
forfeit his entitlement to any bonus otherwise payable to him in accordance with
Section 3(b) hereof for or with respect to the calendar year in which the such
termination occurs (but, to the extent not previously paid, Executive shall be
entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such termination occurs) and (C) be entitled to the benefits set forth in
Sections 3(c) and 3(d) hereof up to the effective date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid his Base Compensation and a pro rata portion of any
bonus otherwise payable to him for or with respect to the calendar year in which
such death occurs (but, to the extent not previously paid, Executive shall be
entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such death occurs) in accordance with Sections 3(a) and 3(b) hereof,
respectively (provided that, if such death occurs prior to February 28, no bonus
shall be payable for or with respect to the calendar year in which such death
occurs), up to the date of such death and (B) be entitled to the benefits set
forth in Sections 3(c) (or the after-tax cash equivalent) and 3(d) hereof up to
the date of such death. This Section 5(c) shall not limit the entitlement of
Executive, his estate or beneficiaries under any insurance or other benefits
plan or policy which is maintained by Employer for Executive's benefit.
(d) Removal as Director. Notwithstanding any other provision of this
Agreement, if Executive shall be removed from office as a director of Employer
at any time during the Employment Term, then Executive may notify Employer in
writing of his election to terminate this Agreement with good reason upon
written notice to Employer and such notice shall be effective immediately upon
receipt by Employer. In such event, Executive shall (A) be paid his Base
Compensation in accordance with Section 3(a) hereof up to the effective date of
such termination and a pro rata portion of any bonus otherwise payable to him
for or with respect to the calendar year in which such termination occurs (but,
to the extent not previously paid, Executive shall be entitled to any bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs) in accordance with Section 3(b) hereof, provided that, if such
termination occurs prior to February 28, no bonus shall be payable for or with
respect to the calendar year in which such termination occurs, (B) be entitled
to the benefits set forth in Sections 3(c) and 3(d) hereof up to the effective
date of such termination and (C) receive the Termination Compensation specified
in Section 5(e) hereof.
(e) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i), 5(b)(i) or 5(d) hereof, Employer shall
pay to Executive, within thirty (30) days of termination, an amount in one lump
sum ("Termination Compensation") equal to (i) in the case of a termination
pursuant to Section 5(a)(i) or 5(d) hereof, the greater of (A) Executive's
annual Base Compensation as of the effective date of such termination, or (B)
50% of the product of (1) Executive's annual Base Compensation as of the
effective date of such termination times (2) a fraction, the numerator of which
is the number of days between such date of termination and expiration of the
Employment Term and the denominator of which is 365 or (ii) in the case of a
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<PAGE>
termination pursuant to Section 5(b)(i) hereof, two times (A) the average annual
Base Compensation paid or payable to Executive for or with respect to the two
full calendar years immediately preceding the calendar year in which the date of
termination occurs, plus (B) the average annual Performance Bonus Distribution
paid or payable to Executive for or with respect to the two full calendar years
immediately preceding the calendar year in which the date of termination occurs.
For purposes of calculating Employee's Termination Compensation pursuant to
clause (ii) above, if the termination takes place prior to December 31, 1999,
the Termination Compensation for any applicable calendar year in which the
termination takes place shall be determined as follows:
(1) if the termination takes place on or prior to December 31,
1997, the full Termination Compensation described in clause (e)(ii) above shall
be deemed to be 350% of Executive's Base Compensation for the Initial Bonus
Period;
(2) if the termination takes place after December 31, 1997 but
on or prior to December 31, 1998, the Performance Bonus Distribution component
of the Termination Compensation calculation described in clause (e)(ii) above
shall be deemed to be two times the average of (A) the amount of the Performance
Bonus Distribution paid to Executive or to which Executive is entitled for the
Initial Bonus Period pursuant to Section 3(b) hereof and (B) the greater of (1)
75% of Executive's Base Compensation for the 1998 calendar year or (2) 133% the
Performance Bonus Distribution paid to Executive or to which Executive is
entitled for the Initial Bonus Period pursuant to Section 3(b) hereof; or
(3) if the termination takes place after December 31, 1998 but
on or prior to December 31, 1999, the Performance Bonus Distribution component
of the Termination Compensation calculation described in clause (e)(ii) above
shall be deemed to be two times the average of (A) 133% of the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the Initial
Bonus Period pursuant to Section 3(b) hereof and (B) the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the 1998
calendar year pursuant to Section 3(b) hereof.
6. Prior Agreements. This Agreement supersedes and is in lieu of any and
all other employment arrangements between Executive and Employer or any
subsidiary of Employer and any and all such employment agreements and
arrangements are hereby terminated and deemed of no further force or effect.
7. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
8. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree
9
<PAGE>
to perform this Agreement in the same manner and to the same extent that
Employer would be required to perform it if no such succession or assignment had
taken place. Any failure of Employer to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
9. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
confirmed facsimile, courier or certified mail, postage and delivery charges
prepaid, to the following addresses:
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(a) if to Executive, to:
Michael W. Reschke
The Prime Group, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Facsimile: (312) 917-1511
With a copy to:
--------------
Michael W. Reschke
20774 North Meadow Lane
Barrington, IL 60610
Facsimile: (847) 381-5260
(b) if to Employer, to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
Facsimile: (312) 917-0460
With a copy to:
--------------
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
Facsimile: (312) 917-0460
and to:
------
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Facsimile: (312) 558-5700
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Any notice, claim, demand, request or other communication given as provided in
this Section 9, if delivered personally, shall be effective upon delivery; if
given by facsimile, shall be effective one (1) business day after transmission
has been confirmed (which confirmation may be machine generated); and if given
by courier, shall be effective one (1) business day after deposit with the
courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 9.
10. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
11. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
12. Severability. Employer and Executive each expressly agree and contract
that it is not the intention of either party to violate any public policy,
statutory or common law, and that if any covenant, sentence, paragraph, clause
or combination of the same of this Agreement (a "Contractual Provision") is in
violation of the law of any state where applicable, such Contractual Provision
shall be void in the jurisdictions where it is unlawful, and the remainder of
such Contractual Provision, if any, and the remainder of this Agreement shall
remain binding on the parties such that such Contractual Provision shall be
binding only to the extent that such Contractual Provision is lawful or may be
lawfully performed under then existing applicable laws. In the event that any
part of any Contractual Provision of this Agreement is determined by a court of
competent jurisdiction to be overly broad thereby making the Contractual
Provision unenforceable, the parties hereto agree, and it is their desire, that
such court shall substitute a judicially enforceable limitation in its place,
and that the Contractual Provision, as so modified, shall be binding upon the
parties as if originally set forth herein.
13. Representation of Executive. Executive represents and warrants that he
is not personally subject to any agreement, order or decree which restricts his
acceptance of this Agreement and the performance of his duties with Employer
hereunder.
14. Indemnification. Executive shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from any of his acts or
omissions that constitute bad faith, willful or intentional conduct that cause
harm to Employer's business or reputation. Executive also shall indemnify
Employer for any and all consequential damages, costs and expenses resulting
from his acts of omission constituting reckless disregard of his duties to
Employer following notice thereof by Employer after it becomes aware of such
conduct and Executive's failure to so cure within thirty (30) days.
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15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
-----------------------------------
Title: President
--------------------------------
/s/ Michael W. Reschke
---------------------------------------
Michael W. Reschke
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Exhibit 10.7
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
7th day of May, 1997 by and between Brookdale Living Communities, Inc., a
Delaware corporation ("Employer"), and Mark J. Schulte, an individual domiciled
in the State of Illinois ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of senior and assisted
living facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
management and operation of Employer.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the President and Chief Executive Officer of
Employer on the terms and conditions provided in this Agreement. Executive
shall conduct, operate, manage and promote the business and business concept of
Employer, and exercise such other powers and authority as are provided by the
By-laws of Employer ("By-laws"). The Board of Directors of Employer (the
"Board") or the Chairman of the Board may from time to time further define and
clarify Executive's duties and services hereunder or under the By-laws as
President and Chief Executive Officer (provided that in the event Executive
receives inconsistent direction from the Board and the Chairman of the Board,
Executive shall follow the direction of the Board). Executive agrees to devote
his best efforts and substantially all of his business time, attention, energy
and skill to perform his duties as President and Chief Executive Officer of
Employer. Further, during the Employment Term, Employer agrees to recommend
Executive to be elected as a member of the Board.
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2. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date Employer's Registration Statement on Form S-1, as amended
(No. 333-12259; the "Registration Statement") is declared effective (the
"Effective Date") and expire on March 31, 2000 (the "Scheduled Termination
Date"), provided, however, this Agreement shall automatically extend for one
year terms following the Initial Term (each a "Renewal Term", together with the
Initial Term, the "Employment Term"), unless either party shall give the other
party prior to thirty (30) days before the end of the Initial Term or any
Renewal Term, as applicable, written notice of its intention to terminate this
Agreement.
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than Two
Hundred Seventy-Five Thousand Dollars ($275,000) ("Base Compensation"), payable
in accordance with the general policies and procedures for payment of salaries
to its executive personnel maintained, from time to time, by Employer (but no
less frequently than monthly), subject to withholding for applicable federal,
state, and local taxes. Increases in Base Compensation, if any, shall be
determined by the Compensation Committee of the Board (the "Committee") based on
periodic reviews of Executive's performance conducted on at least an annual
basis.
(b) Bonus. In addition to Base Compensation, Executive shall have
the right to receive, and Employer agrees to distribute to Executive, a
performance bonus distribution for each calendar year during the Employment
Term, commencing on the date hereof through the end of the 1997 calendar year
(the "Initial Bonus Period") and for each calendar year thereafter, in such
amounts as determined by the three point formula delineated hereinbelow
(collectively, a yearly "Performance Bonus Distribution"); provided, however,
that the aggregate Performance Bonus Distribution for the Initial Bonus Period
or for any calendar year thereafter distributable in accordance with the
provisions of this Section 3(b) shall in no event exceed 100% of the Base
Compensation for the Initial Bonus Period or such subsequent calendar year,
respectively. The amount of the Performance Bonus Distribution for the Initial
Bonus Period or for each calendar year thereafter distributable to Executive
hereunder shall be determined by the Committee based upon the achievement of
Employer's annual business plan approved by the Board for the Initial Bonus
Period or such subsequent calendar year, as applicable, as reflected in the
audited financial statements of Employer prepared in accordance with generally
accepted accounting principles and auditing standards and practices,
consistently applied ("GAAP"). Prior to issuance of the final audited financial
statements for the Initial Bonus Period or for each calendar year thereafter, as
applicable, Executive shall have the right to review and approve or challenge
any calculation or determination of the amount of the Performance Bonus
Distribution distributable for the Initial Bonus Period or for such subsequent
calendar year, as applicable. Any amount of Performance Bonus Distribution
required to be distributed to Executive for the Initial Bonus Period or for any
calendar year thereafter during the Employment Term shall be distributed by
Employer to Executive during the pay period of Employer following finalization
of the audit for the Initial Bonus Period or for such calendar year, as
applicable, and final review and approval of the bonus calculation by the
Committee, and, in all events, on or before April 15 of the year immediately
following the end of the Initial Bonus Period or the subsequent calendar year
for which such Performance Bonus Distribution is attributable.
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The three point formula to determine a Performance Bonus Distribution
for the Initial Bonus Period or for any calendar year thereafter during the
Employment Term shall be as follows:
(i) After-Tax GAAP Earnings Per Share Plus Depreciation and
Amortization. Executive's Performance Bonus Distribution in an amount of up to
sixty percent (60%) of Executive's Base Compensation for the Initial Bonus
Period or for any given subsequent calendar year shall be based on Employer's
after-tax GAAP earnings per share on a fully-diluted basis plus depreciation and
amortization ("Actual EPS") for the Initial Bonus Period or the applicable
subsequent calendar year in relation to the estimate of earnings per share by
the financial analysts consensus First Call (or, if no such estimate is made,
then such other analyst's estimate as determined by Employer's Board) plus
depreciation and amortization for the Initial Bonus Period or for such
subsequent calendar year ("Plan EPS") as follows:
(A) If Actual EPS is less than 90% of Plan EPS, Executive shall
not be entitled to any Performance Bonus Distribution under this Section
3(b)(i).
(B) If Actual EPS is 120% or more of Plan EPS, Executive shall
be entitled to a Performance Bonus Distribution under this Section 3(b)(i) equal
to 60% of Executive's Base Compensation for the Initial Bonus Period or for such
subsequent calendar year.
(C) If Actual EPS is equal to or greater than 90% of Plan EPS
but than less 120% of Plan EPS, then a pro rata adjustment shall be made to the
Performance Bonus Distribution to which Executive is entitled under this Section
3(b)(i) for the Initial Bonus Period or for such subsequent calendar year.
(ii) Average Common Stock Price.
Executive's Performance Bonus Distribution in an amount of up to
twenty percent (20%) of Executive's Base Compensation for the Initial Bonus
Period or for such subsequent calendar year, as applicable, shall be based on
the percentage increase (the "% Increase in Employer's Stock Price"), if any, in
the per share price of Employer's common stock from December 31 of the calendar
year immediately preceding the calendar year for which the Performance Bonus
Distribution is being calculated (or, for purposes of the Initial Bonus Period,
the increase in the per share price of Employer's common stock from the initial
public offering per share price) to December 31 of the calendar year for which
the Performance Bonus Distribution is being calculated compared to the average
percentage increase, if any, over the same period of the Standard & Poor's 500
Stock Index determined by reference to the Standard & Poor's 500 Stock Index as
set forth in the Wall Street Journal on the applicable dates (the "% Increase in
S&P 500 Stock Index") as follows:
(A) For purposes of this Section 3(b)(ii), (1) the term "Lower
Bound" shall mean the greater of 5% (3.75% for the Initial Bonus Period) or 75%
of the % Increase in the S&P 500 Stock Index, and (2) the term "Upper Bound"
shall mean the greater of 15% (11.25% for the Initial Bonus Period) or 125% of
the % Increase in the S&P 500 Stock Index.
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(B) If the % Increase in Employer's Stock Price is equal to or
less than the Lower Bound, Executive shall not be entitled to any Performance
Bonus Distribution under this Section 3(b)(ii) for the Initial Bonus Period or
for such subsequent calendar year.
(C) If the % Increase in Employer's Stock Price is equal to or
greater than the Upper Bound, Executive shall be entitled to a Performance Bonus
Distribution under this Section 3(b)(ii) equal to 20% of Executive's Base
Compensation for the Initial Bonus Period or for such subsequent calendar year.
(D) If, for the Initial Bonus Period or for such subsequent
calendar years, the % Increase in Employer's Stock Price is greater than the
Lower Bound but less than the Upper Bound, Executive shall be entitled to a
Performance Bonus Distribution under this Section 3(b)(ii) in an amount
calculated in accordance with the following formula:
Performance Bonus Distribution under Section 3(b)(ii) = (20% of
Executive's Base Compensation for the period) x (1 - (Upper Bound -%
Increase in Employer's Stock Price) / (Upper Bound - Lower Bound))
(iii) Discretionary. Executive's Performance Bonus Distribution
in an amount of up to twenty percent (20%) of Executive's Base Compensation for
the Initial Bonus Period or for any given subsequent calendar year shall be
determined at the sole discretion of the Board or the Committee based upon
achievement of such corporate or individual performance goals and objectives as
may be established or determined by the Board or the Committee from time to
time.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
his eligible dependents shall have the right to participate in any retirement,
pension, insurance, health, dental, life insurance or other benefit plan or
program that has been or is hereafter adopted by Employer (or in which Employer
participates), as such plans and programs may be amended or modified from time
to time by Employer, according to the terms of such plan or program with all the
benefits, rights and privileges as are enjoyed by any other senior executive
officer of Employer. If the participation of Executive would adversely affect
the qualification of a plan intended to be qualified under Section 401(a) of the
Internal Revenue Code as the same may be amended from time to time (the "Code"),
Employer shall have the right to exclude Executive from that plan in return for
his participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies as and procedures
may be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of his duties
hereunder.
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(e) Vacations. During the Employment Term, Executive shall be
entitled to vacation in accordance with Employer's practices, as such practices
may be amended or modified from time to time by Employer, provided that
Executive shall be entitled to at least three (3) weeks paid vacation in each
full calendar year. Executive may accrue unused vacation time if not used in
any calendar year or years, however, the maximum cumulative amount of vacation
time that Executive may accrue and carry over to the next year is two (2) weeks.
Executive shall be entitled to a payment for any vacation time which has accrued
but has not been used as of the date of the termination of Executive's
employment with Employer, unless Executive's employment is terminated pursuant
to Section 5(a)(ii) hereof.
4. Stock Options. Employer has established a stock incentive plan (the
"Stock Incentive Plan") that will become effective prior to the completion of
the initial public offering of shares of common stock of Employer (the "Common
Stock") contemplated by the Registration Statement. The Stock Incentive Plan
initially provides, among other things, for the issuance from time to time to
certain officers, directors and other employees of Employer of up to 830,000
stock options ("Options"). On the Effective Date, Employer shall grant to
Executive 175,000 Options that will have such terms and conditions as are set
forth in the Stock Incentive Plan and the Stock Option Agreement to be entered
into between Employer and Executive.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid his Base Compensation and a pro
rata portion of any bonus otherwise payable to him for or with respect to the
calendar year in which such termination occurs (but, to the extent not
previously paid, Executive shall be entitled to any bonuses payable to Executive
in accordance with Section 3(b) hereof for or with respect to any calendar years
prior to the calendar year in which such termination occurs) in accordance with
Sections 3(a) and 3(b) hereof, respectively (provided that, if such termination
occurs prior to February 28, no bonus shall be payable for or with respect to
the calendar year in which such termination occurs), up to the effective date of
such termination, (B) be entitled to the benefits set forth in Sections 3(c),
3(d) and 3(e) hereof up to the effective date of such termination and (C)
receive the Termination Compensation specified in Section 5(d) hereof. (For
purposes of this Agreement, the "effective date of termination" shall mean the
last day on which Executive is employed with Employer which may be later than
the date of the delivery of any applicable notice of termination).
(ii) With Cause. Employer may terminate this Agreement with
cause immediately upon written notice to Executive. Employer may elect to
require Executive to continue to perform his duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid his Base Compensation in accordance with Section
3(a) hereof up to the effective date of such termination, (B) forfeit his
entitlement to any bonus otherwise payable to him in accordance with Section
3(b) hereof for or with respect to the calendar year in which such termination
occurs (but, to the extent not previously paid, Executive shall be entitled to
any bonuses payable to Executive in accordance with Section 3(b) hereof for or
with respect to any
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calendar years prior to the calendar year in which such termination occurs) and
(C) be entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof
up to the effective date of such termination. For purposes of this Section
5(a)(ii), "cause" shall mean (A) a finding by the Board that Executive has
materially harmed Employer, its business, assets or employees through an act of
dishonesty, material conflict of interest, gross misconduct or willful
malfeasance, (B) Executive's conviction of (or pleading nolo contendere to) a
felony, (C) Executive's failure to perform (which shall not include inability to
perform due to disability) in any material respects his material duties under
this Agreement after written notice specifying the failure and a reasonable
opportunity to cure (it being understood that if Executive's failure to perform
is not of a type requiring a single action to fully cure, then Executive may
commence the cure promptly after such written notice and thereafter diligently
prosecute such cure to completion), (D) the breach by Executive of any of his
material obligations hereunder (other than those covered by clause (C) above)
and the failure of Executive to cure such breach within thirty (30) days after
receipt by Executive of a written notice of Employer specifying in reasonable
detail the nature of the breach, or (E) Executive's sanction (including
restrictions, prohibitions and limitations agreed to under a consent decree or
agreed order) under, or conviction for violation of, any federal or state
securities law, rule or regulation (provided that in the case of a sanction,
such sanction materially impedes or impairs the ability of Executive to perform
Executive's duties and exercise Executive's responsibilities hereunder in a
satisfactory manner).
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any six (6)
consecutive months to perform the duties required by this Agreement, Employer
may, upon thirty (30) days' written notice to Executive, terminate this
Agreement. In any such event, Executive shall (A) be paid his Base Compensation
in accordance with Section 3(a) hereof up to the effective date of such
termination, (B) be paid a pro rata portion through the first day of the six (6)
month period of any bonus otherwise payable to him for or with respect to the
calendar year in which the disability occurs (but, to the extent not previously
paid, Executive shall be entitled to any bonuses payable to Executive in
accordance with Section 3(b) hereof for or with respect to any calendar years
prior to the calendar year in which such termination occurs) in accordance with
Section 3(b) hereof (provided that, if such disability occurs prior to February
28, no bonus shall be payable for or with respect to the calendar year in which
such disability occurs), (C) be entitled to the benefits set forth in Sections
3(c) hereof (or the after-tax cash equivalent) up to the effective date of such
termination, and be entitled to the benefits set forth in Sections 3(d) and 3(e)
hereof up to the date of such disability, and (D) be entitled to the Termination
Compensation specified in Section 5(d) hereof. This Section 5(a)(iii) shall not
limit the entitlement of Executive, his estate or beneficiaries to any
disability or other benefits available to Executive under any disability
insurance or other benefits plan or policy which is maintained by Employer for
Executive's benefit. For purposes of this Agreement, the "date of disability"
shall mean the first day of the consecutive period during which Executive fails
to perform the duties required by this Agreement due to illness, physical or
mental disability or other incapacity.
(b) Termination by Executive. (i) After Change of Control.
Executive may terminate this Agreement upon thirty (30) days' written notice to
Employer following any "change of control" of Employer and a resulting
"diminution event", each as defined below, but in no event
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later than two years after the change of control event. Executive shall
continue to perform, at the election of Employer, his duties under this
Agreement for an additional thirty (30) days following notice of termination.
In such event, Executive shall (A) be paid his Base Compensation and a pro rata
portion of any bonus otherwise payable to him for or with respect to the
calendar year in which such termination occurs (but, to the extent not
previously paid, Executive shall be entitled to any bonuses payable to Executive
in accordance with Section 3(b) hereof for or with respect to any calendar years
prior to the calendar year in which such termination occurs) in accordance with
Sections 3(a) and 3(b) hereof, respectively (provided that, if such termination
occurs prior to February 28, no bonus shall be payable for or with respect to
the calendar year in which such termination occurs), up to the effective date of
such termination, (B) be entitled to the benefits set forth in Sections 3(c),
3(d) and 3(e) hereof up to the effective date of such termination and (C)
receive the Termination Compensation specified in Section 5(d) hereof. For
purposes of this Agreement, in the event Employer defaults in its obligation
under Section 9 hereof and, as a consequence thereof, Executive's employment
with Employer (or Employer's successor or assign) terminates, such termination
shall be deemed to be a termination under this Section 5(b)(i).
For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest and excluding a trustee or other fiduciary holding
securities under an employee benefit plan of Employer), becomes the beneficial
owner of shares of common stock of Employer having at least fifty percent (50%)
of the total number of votes that may be cast for the election of directors of
Employer; (2) the merger or other business combination of Employer, sale of all
or substantially all of Employer's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction immediately following
which the shareholders of Employer immediately prior to the Transaction continue
to have a majority of the voting power in the resulting entity (excluding for
this purpose any shareholder, other than The Prime Group, Inc. and its
affiliates, owning directly or indirectly more than ten percent (10%) of the
shares of the other company involved in the Transaction); or (3) within any
twenty-four (24) month period beginning on or after the date hereof, the persons
who were directors of Employer immediately before the beginning of such period
(the "Incumbent Directors") shall cease to constitute at least a majority of the
Board or a majority of the board of directors of any successor to Employer,
provided that, any director who was not a director as of the date hereof shall
be deemed to be an Incumbent Director if such director was elected to the Board
by, or on the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually or by
prior operation of this provision, unless such election, recommendation or
approval was the result of an actual or threatened election contest of the type
contemplated by Regulation 14a-11 promulgated under the Exchange Act or any
successor provision; and (B) a "diminution event" shall mean any material
diminution in (1) the duties and responsibilities of Executive (other than a
mere title change, unless the new title is not Chief Executive Officer, Chief
Operating Officer, Chairman or President) or (2) the compensation package for
Executive.
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(ii) Without Good Reason. Executive may terminate this Agreement
and his employment at any time for any reason or for no reason at all upon
thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform his duties under this Agreement if Employer so elects.
In connection with the termination of Executive's employment pursuant to this
Section 5(b)(ii), Executive shall (A) be paid his Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, (B) forfeit his entitlement to any bonus otherwise payable to him
in accordance with Section 3(b) hereof for or with respect to the calendar year
in which such termination occurs (but, to the extent not previously paid,
Executive shall be entitled to any bonuses payable to Executive in accordance
with Section 3(b) hereof for or with respect to any calendar years prior to the
calendar year in which such termination occurs) and (C) be entitled to the
benefits set forth in Sections 3(c), 3(d) and 3(e) hereof up to the effective
date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid his Base Compensation and a pro rata portion of any
bonus otherwise payable to him for or with respect to the calendar year in which
such death occurs (but, to the extent not previously paid, Executive shall be
entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such death occurs) in accordance with Sections 3(a) and 3(b) hereof,
respectively (provided that, if such death occurs prior to February 28, no
bonus shall be payable for or with respect to the calendar year in which such
death occurs), up to the date of such death, and (B) be entitled to the benefits
set forth in Sections 3(c) (or the after-tax cash equivalent), 3(d) and 3(e)
hereof up to the date of such death. This Section 5(c) shall not limit the
entitlement of Executive, his estate or beneficiaries under any insurance or
other benefits plan or policy which is maintained by Employer for Executive's
benefit.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i), 5(a)(iii) or 5(b)(i) hereof, Employer
shall pay to Executive, within thirty (30) days of termination, an amount in one
lump sum ("Termination Compensation") equal to (i) in the case of a termination
pursuant to Section 5(a)(i) or 5(a)(iii) hereof, Executive's annual Base
Compensation as of the effective date of such termination, or (ii) in the case
of a termination pursuant to Section 5(b)(i) hereof, two times (A) the average
annual Base Compensation paid or payable to Executive for or with respect to the
two full calendar years immediately preceding the calendar year in which the
date of termination occurs, plus (B) the average annual Performance Bonus
Distribution paid or payable to Executive for or with respect to the two full
calendar years immediately preceding the calendar year in which the date of
termination occurs. For purposes of calculating Employee's Termination
Compensation pursuant to clause (ii) above, if the termination takes place prior
to December 31, 1999, the Termination Compensation for any applicable calendar
year in which the termination takes place shall be determined as follows:
(1) if the termination takes place on or prior to December 31,
1997, the full Termination Compensation described in clause (d)(ii) above shall
be deemed to be 350% of Executive's Base Compensation for the Initial Bonus
Period;
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(2) if the termination takes place after December 31, 1997 but
on or prior to December 31, 1998, the Performance Bonus Distribution component
of the Termination Compensation calculation described in clause (d)(ii) above
shall be deemed to be two times the average of (A) the amount of the Performance
Bonus Distribution paid to Executive or to which Executive is entitled for the
Initial Bonus Period pursuant to Section 3(b) hereof and (B) the greater of (1)
75% of Executive's Base Compensation for the 1998 calendar year or (2) 133% the
Performance Bonus Distribution paid to Executive or to which Executive is
entitled for the Initial Bonus Period pursuant to Section 3(b) hereof; or
(3) if the termination takes place after December 31, 1998 but
on or prior to December 31, 1999, the Performance Bonus Distribution component
of the Termination Compensation calculation described in clause (d)(ii) above
shall be deemed to be two times the average of (A) 133% of the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the Initial
Bonus Period pursuant to Section 3(b) hereof and (B) the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the 1998
calendar year pursuant to Section 3(b) hereof.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that he is not
personally subject to any agreement, order or decree which restricts his
acceptance of this Agreement and the performance of his duties with Employer
hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and for a
period of two years thereafter in the event of the termination of this Agreement
pursuant to the provision of Section 5(b) (ii) hereof or one year thereafter in
the event of the termination of this Agreement pursuant to the provisions of
Sections 5(a)(i), 5(a)(ii), 5(a)(iii) or 5(b)(i) hereof, Executive shall not,
directly or indirectly, in any capacity whatsoever, either on his own behalf or
on behalf of any other person or entity with whom he may be employed or
associated, own any interest in, participate or engage in the day-to-day
supervision, management, development, marketing or operation of any senior,
assisted living or semi-acute care facilities or such other business as Employer
may be engaged in as of the date of the applicable Section 5 termination event
(the "Business") which is competitive with any of Employer's facilities. For
purposes hereof, a facility will be deemed competitive with one of Employer's
facilities if such facility is located within five (5) miles of a facility
owned, operated or managed by Employer or within five (5) miles of a facility
which Employer is developing or with respect to which Employer has signed a
letter of intent or term sheet or binding contract for the acquisition,
development or management thereof dated on or prior to the date of such
termination. Furthermore, for a period of two years after any applicable Section
5 termination event, Executive shall not, directly or indirectly, solicit,
attempt to hire or hire any employee of Employer. Notwithstanding the foregoing,
nothing herein shall prohibit Executive from owning 5% or less of any securities
of a competitor engaged in the same Business if such securities are listed on a
nationally recognized securities exchange or traded over-the-counter on the
National Association of Securities Dealers Automated Quotation System or
otherwise. In the event of termination of this
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Agreement pursuant to the provisions of Sections 5(a)(i), 5(a)(iii) or 5(b)(i)
however, the covenant not to compete set forth in the first sentence of this
Section 6(b) shall only be effective, at the election of Employer, if Employer
makes a quarterly payment in advance, commencing on the effective date of such
termination, to Executive equal to $50,000. Such payments are in addition to
any Termination Compensation payable pursuant to Section 5(d) hereof. If this
Agreement is terminated pursuant to the provisions of Sections 5(a)(ii) or
5(b)(ii) hereof, then Executive shall not be entitled to receive any such
payments.
(c) Non-Disclosure. During the Employment Term and for a period of
two years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means
any information which derives independent economic value, actual or potential,
with respect to Employer from not being generally known to, and not being
readily ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use and is the subject of efforts to maintain its
secrecy that are reasonable under the circumstances, including, but not limited
to, trade secrets, customer lists, sales records and other proprietary
commercial information. Said term, however, shall not include general "know-
how" information acquired by Executive during the course of his service which
could have been obtained by him from public sources without the expenditure of
significant time, effort and expense which does not relate to Employer.
(d) Return of Documents. Upon termination of his services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and other
tangible property of Employer within Executive's possession or under his
control. Further, Executive acknowledges that Executive holds all of the issued
and outstanding shares of common stock of 2960 Beverage Corporation as nominee
for the sole benefit of Employer. Upon termination of Executive's services with
Employer, Executive shall assign such shares of common stock as directed by
Employer.
(e) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(f) Acknowledgment. Executive acknowledges that he will be directly
and materially involved as a senior executive in all important policy and
operational decisions of Employer. Executive further acknowledges that the
scope of the foregoing restrictions has been specifically bargained between
Employer and Executive, each being fully informed of all relevant facts.
Accordingly, Executive acknowledges that the foregoing restrictions of Section 6
are fair and reasonable, are minimally necessary to protect Employer, its other
stockholders and the public from the unfair competition of Executive who, as a
result of his performance of services on behalf of Employer, will have had
unlimited access to the most confidential and important information of
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Employer, its business and future plans. Executive furthermore acknowledges
that no unreasonable harm or injury will be suffered by him from enforcement of
the covenants contained herein and that he will be able to earn a reasonable
livelihood following termination of his services notwithstanding enforcement of
the covenants contained herein.
7. Prior Agreements. This Agreement supersedes and is in lieu of any and
all other employment arrangements between Executive and Employer or its
predecessor or any subsidiary and any and all such employment agreements and
arrangements are hereby terminated and deemed of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that Employer would be
required to perform it if no such succession or assignment had taken place. Any
failure of Employer to obtain such agreement prior to the effectiveness of any
such succession or assignment shall be a material breach of this Agreement.
This Agreement shall inure to the benefit of and be enforceable by Executive's
personal and legal representatives, executors, administrators, successors,
heirs, distributees, devisees and legatees. If Executive should die while any
amounts are still payable to Executive hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to Executive's devisee, legatee or other designee or, if there be no
such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
confirmed facsimile, courier or by certified mail, postage or delivery charges
prepaid, to the following addresses:
(a) if to Executive, to:
Mark J. Schulte
301 Homewood Lane
Barrington, Illinois 60010
Facsimile:________________
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(b) if to Employer, to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chairman of the Board
Facsimile: (312) 917-0460
With a copy to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
Facsimile: (312) 917-0460
and to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Facsimile:(312)558-5700
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; if
given by facsimile, shall be effective one (1) business day after transmission
has been confirmed (which confirmation may be machine generated); and if given
by courier, shall be effective one (1) business day after deposit with the
courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall
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be void in the jurisdictions where it is unlawful, and the remainder of such
Contractual Provision, if any, and the remainder of this Agreement shall remain
binding on the parties such that such Contractual Provision shall be binding
only to the extent that such Contractual Provision is lawful or may be lawfully
performed under then applicable laws. In the event that any part of any
Contractual Provision of this Agreement is determined by a court of competent
jurisdiction to be overly broad thereby making the Contractual Provision
unenforceable, the parties hereto agree, and it is their desire, that such court
shall substitute a judicially enforceable limitation in its place, and that the
Contractual Provision, as so modified, shall be binding upon the parties as if
originally set forth herein.
14. Indemnification. Executive shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from any of his acts or
omissions that constitute bad faith, willful or intentional conduct that cause
harm to Employer's business or reputation. Executive also shall indemnify
Employer for any and all consequential damages, costs and expenses resulting
from his acts of omission constituting reckless disregard of his duties to
Employer following notice thereof by Employer after it becomes aware of such
conduct and Executive's failure to so cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Darryl W. Copeland, Jr.
____________________________________
Title: Executive Vice President
__________________________________
/s/ Mark J. Schulte
_______________________________________
Mark J. Schulte
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Exhibit 10.8
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
7th day of May, 1997 by and between Brookdale Living Communities, Inc., a
Delaware corporation ("Employer"), and Darryl W. Copeland, Jr., an individual
domiciled in the State of New Jersey ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of senior and assisted
living facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
management and operation of Employer.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Executive Vice President of Employer on the
terms and conditions provided in this Agreement. Executive shall conduct,
operate, manage and promote the business and business concept of Employer, and
exercise such other powers and authority as are provided by the By-laws of
Employer ("By-laws"). The Board of Directors of Employer (the "Board") or the
Chief Executive Officer may from time to time further define and clarify
Executive's duties and services hereunder or under the By-laws as Executive Vice
President (provided that in the event Executive receives inconsistent direction
from the Board and the Chief Executive Officer, Executive shall follow the
direction of the Board). Executive agrees to devote his best efforts and
substantially all of his business time, attention, energy and skill to perform
his duties as Executive Vice President of Employer. Further, during the
Employment Term, Employer agrees to recommend Executive to be elected as a
member of the Board. Executive shall not be required to relocate to Chicago,
Illinois, but agrees to travel to Chicago periodically as may be reasonably
necessary in the performance of Executive's duties hereunder.
<PAGE>
2. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date Employer's Registration Statement on Form S-1, as amended
(No. 333-12259; the "Registration Statement") is declared effective (the
"Effective Date") and expire on March 31, 2001 (the "Scheduled Termination
Date"), provided, however, this Agreement shall automatically extend for one
year terms following the Initial Term (each a "Renewal Term", together with the
Initial Term, the "Employment Term"), unless either party shall give the other
party prior to thirty (30) days before the end of the Initial Term or any
Renewal Term, as applicable, written notice of its intention to terminate this
Agreement.
3. Compensation and Related Matters. (a) Base Salary and Signing Bonus. As
compensation for performing the services required by this Agreement during the
Employment Term, Employer shall pay to Executive an annual salary of no less
than Two Hundred Fifty Thousand Dollars ($250,000) ("Base Compensation"),
payable in accordance with the general policies and procedures for payment of
salaries to its executive personnel maintained, from time to time, by Employer
(but no less frequently than monthly), subject to withholding for applicable
federal, state, and local taxes. Increases in Base Compensation, if any, shall
be determined by the Compensation Committee of the Board (the "Committee") based
on periodic reviews of Executive's performance conducted on at least an annual
basis. In addition, upon execution of this Agreement, Employer shall pay to
Employee a signing bonus of $150,000.
(b) Bonus. In addition to Base Compensation, Executive shall have the
right to receive, and Employer agrees to distribute to Executive, a performance
bonus distribution for each calendar year during the Employment Term, commencing
on the date hereof through the end of the 1997 calendar year (the "Initial Bonus
Period") and for each calendar year thereafter, in such amounts as determined by
the three point formula delineated hereinbelow (collectively, a yearly
"Performance Bonus Distribution"); provided, however, that the aggregate
Performance Bonus Distribution for the Initial Bonus Period or for any calendar
year thereafter distributable in accordance with the provisions of this Section
3(b) shall in no event exceed 100% of the Base Compensation for the Initial
Bonus Period or such subsequent calendar year, respectively. The amount of the
Performance Bonus Distribution for the Initial Bonus Period or for each calendar
year thereafter distributable to Executive hereunder shall be determined by the
Committee based upon the achievement of Employer's annual business plan approved
by the Board for the Initial Bonus Period or such subsequent calendar year, as
applicable, as reflected in the audited financial statements of Employer
prepared in accordance with generally accepted accounting principles and
auditing standards and practices, consistently applied ("GAAP"). Prior to
issuance of the final audited financial statements for the Initial Bonus Period
or for each calendar year thereafter, as applicable, Executive shall have the
right to review and approve or challenge any calculation or determination of the
amount of the Performance Bonus Distribution distributable for the Initial Bonus
Period or for such subsequent calendar year, as applicable. Any amount of
Performance Bonus Distribution required to be distributed to Executive for the
Initial Bonus Period or for any calendar year thereafter during the Employment
Term shall be distributed by Employer to Executive during the pay period of
Employer following finalization of the audit for the Initial Bonus Period or for
such calendar year, as applicable, and final review and approval of the bonus
calculation by the Committee, and, in all events, on or before April 15 of the
year immediately following the end
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of the Initial Bonus Period or the subsequent calendar year for which such
Performance Bonus Distribution is attributable.
The three point formula to determine a Performance Bonus Distribution
for the Initial Bonus Period or for any calendar year thereafter during the
Employment Term shall be as follows:
(i) After-Tax GAAP Earnings Per Share Plus Depreciation and
Amortization. Executive's Performance Bonus Distribution in an amount of up to
sixty percent (60%) of Executive's Base Compensation for the Initial Bonus
Period or for any given subsequent calendar year shall be based on Employer's
after-tax GAAP earnings per share on a fully-diluted basis plus depreciation and
amortization ("Actual EPS") for the Initial Bonus Period or the applicable
subsequent calendar year in relation to the earnings per share plus depreciation
and amortization set forth in Employer's Board approved annual business plan for
the Initial Bonus Period or for such subsequent calendar year ("Plan EPS") as
follows:
(A) If Actual EPS is less than 90% of Plan EPS, Executive shall
not be entitled to any Performance Bonus Distribution under this Section
3(b)(i).
(B) If Actual EPS is 120% or more of Plan EPS, Executive shall be
entitled to a Performance Bonus Distribution under this Section 3(b)(i) equal to
60% of Executive's Base Compensation for the Initial Bonus Period or for such
subsequent calendar year.
(C) If Actual EPS is equal to or greater than 90% of Plan EPS but
than less 120% of Plan EPS, then a pro rata adjustment shall be made to the
Performance Bonus Distribution to which Executive is entitled under this Section
3(b)(i) for the Initial Bonus Period or for such subsequent calendar year.
(ii) Average Common Stock Price.
Executive's Performance Bonus Distribution in an amount of up to
twenty percent (20%) of Executive's Base Compensation for the Initial Bonus
Period or for such subsequent calendar year, as applicable, shall be based on
the percentage increase (the "% Increase in Employer's Stock Price"), if any, in
the per share price of Employer's common stock from December 31 of the calendar
year immediately preceding the calendar year for which the Performance Bonus
Distribution is being calculated (or, for purposes of the Initial Bonus Period,
the increase in the per share price of Employer's common stock from the initial
public offering per share price) to December 31 of the calendar year for which
the Performance Bonus Distribution is being calculated compared to the average
percentage increase, if any, over the same period of the Standard & Poor's 500
Stock Index determined by reference to the Standard & Poor's 500 Stock Index as
set forth in the Wall Street Journal on the applicable dates (the "% Increase in
S&P 500 Stock Index") as follows:
(A) For purposes of this Section 3(b)(ii), (1) the term "Lower
Bound" shall mean the greater of 5% (3.75% for the Initial Bonus Period) or 75%
of the % Increase in the S&P
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500 Stock Index, and (2) the term "Upper Bound" shall mean the greater of 15%
(11.25% for the Initial Bonus Period) or 125% of the % Increase in the S&P 500
Stock Index.
(B) If the % Increase in Employer's Stock Price is equal to or
less than the Lower Bound, Executive shall not be entitled to any Performance
Bonus Distribution under this Section 3(b)(ii) for the Initial Bonus Period or
for such subsequent calendar year.
(C) If the % Increase in Employer's Stock Price is equal to or
greater than the Upper Bound, Executive shall be entitled to a Performance Bonus
Distribution under this Section 3(b)(ii) equal to 20% of Executive's Base
Compensation for the Initial Bonus Period or for such subsequent calendar year.
(D) If, for the Initial Bonus Period or for such subsequent
calendar years, the % Increase in Employer's Stock Price is greater than the
Lower Bound but less than the Upper Bound, Executive shall be entitled to a
Performance Bonus Distribution under this Section 3(b)(ii) in an amount
calculated in accordance with the following formula:
Performance Bonus Distribution under Section 3(b)(ii) = (20% of
Executive's Base Compensation for the period) x (1 - (Upper Bound -
% Increase in Employer's Stock Price) / (Upper Bound - Lower Bound))
(iii) Discretionary. Executive's Performance Bonus Distribution
in an amount of up to twenty percent (20%) of Executive's Base Compensation for
the Initial Bonus Period or for any given subsequent calendar year shall be
determined at the sole discretion of the Board or the Committee based upon
achievement of such corporate or individual performance goals and objectives as
may be established or determined by the Board or the Committee from time to
time.
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
his eligible dependents shall have the right to participate in any retirement,
pension, insurance, health, dental, life insurance or other benefit plan or
program that has been or is hereafter adopted by Employer (or in which Employer
participates), as such plans and programs may be amended or modified from time
to time by Employer, according to the terms of such plan or program with all the
benefits, rights and privileges as are enjoyed by any other senior executive
officer of Employer. If the participation of Executive would adversely affect
the qualification of a plan intended to be qualified under Section 401(a) of the
Internal Revenue Code as the same may be amended from time to time (the "Code"),
Employer shall have the right to exclude Executive from that plan in return for
his participation in (i) a nonqualified deferred compensation plan or (ii) an
arrangement providing substantially comparable benefits under a plan that is
either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and
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procedures, as such policies as and procedures may be amended or modified from
time to time by Employer, for all reasonable and necessary expenses incurred by
Executive in the performance of his duties hereunder. Without limiting the
generality of the forgoing, Employer shall reimburse Employee in accordance with
Employer's customary policies and procedures for costs of travel, lodging and
meals in connection with Employee's travel between Chicago and New York. In
addition, to the extent that Employee, with the mutual agreement of Employer,
elects to relocate to the Chicago area , Employer shall reimburse Employee for
all reasonable moving expenses incurred by Employee.
(e) Vacations. During the Employment Term, Executive shall be entitled
to vacation in accordance with Employer's practices, as such practices may be
amended or modified from time to time by Employer, provided that Executive shall
be entitled to at least three (3) weeks paid vacation in each full calendar
year. Executive may accrue unused vacation time if not used in any calendar year
or years, however, the maximum cumulative amount of vacation time that Executive
may accrue and carry over to the next year is two (2) weeks. Executive shall be
entitled to a payment for any vacation time which has accrued but has not been
used as of the date of the termination of Executive's employment with Employer,
unless Executive's employment is terminated pursuant to Section 5(a)(ii) hereof.
4. Stock Option and Stock Incentive Plan. (a) The parties hereto
acknowledge that, in connection with the execution of this Agreement, The Prime
Group, Inc. ("PGI"), a stockholder of Employer, shall grant, or cause one or
more affiliates of PGI to grant, to Executive an option to purchase 100,000
shares of common stock of Employer held by PGI or such affiliate of PGI (the
"Grant Shares"), for a purchase price of $.01 per share. The certificates
representing the Grant Shares shall be held by Winston & Strawn pursuant to the
terms of a Stock Option and Deposit Agreement in the form attached hereto as
Exhibit A ("Deposit Agreement") until such time as the options for the Grant
Shares become fully vested and are exercised by Executive as provided in the
Deposit Agreement or the earlier termination of the Deposit Agreement.
(b) Employer has established a stock incentive plan (the "Stock
Incentive Plan") that will become effective prior to the completion of the
initial public offering of shares of common stock of Employer (the "Common
Stock") contemplated by the Registration Statement. The Stock Incentive Plan
initially provides, among other things, for the issuance from time to time to
certain officers, directors and other employees of Employer of up to 830,000
stock options ("Options"). On the Effective Date, Employer shall grant to
Executive 250,000 Options that will have such terms and conditions as are set
forth in the Stock Incentive Plan and the Stock Option Agreement to be entered
into between Employer and Executive.
5. Termination and Termination Benefits. (a) Termination by Employer. (i)
Without Cause. Employer may terminate this Agreement and Executive's employment
at any time for any reason or for no reason at all upon thirty (30) days' prior
written notice to Executive following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(i),
Executive shall (A) be paid his Base Compensation and a pro rata portion of any
bonus otherwise payable to him for or with respect to the calendar year in which
such termination
5
<PAGE>
occurs (but, to the extent not previously paid, Executive shall be entitled to
any bonuses payable to Executive in accordance with Section 3(b) hereof for or
with respect to any calendar years prior to the calendar year in which such
termination occurs) in accordance with Sections 3(a) and 3(b) hereof,
respectively (provided that, if such termination occurs prior to February 28, no
bonus shall be payable for or with respect to the calendar year in which such
termination occurs), up to the effective date of such termination, (B) be
entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof up to
the effective date of such termination and (C) receive the Termination
Compensation specified in Section 5(d) hereof. (For purposes of this Agreement,
the "effective date of termination" shall mean the last day on which the
Executive is employed by Employer, which may be later than the date of the
delivery of any applicable notice of termination).
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform his duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid his Base Compensation in accordance with Section
3(a) hereof up to the effective date of such termination, (B) forfeit his
entitlement to any bonus otherwise payable to him in accordance with Section
3(b) hereof for or with respect to the calendar year in which such termination
occurs (but, to the extent not previously paid, Executive shall be entitled to
any bonuses payable to Executive in accordance with Section 3(b) hereof for or
with respect to any calendar years prior to the calendar year in which such
termination occurs) and (C) be entitled to the benefits set forth in Sections
3(c), 3(d) and 3(e) hereof up to the effective date of such termination. For
purposes of this Section 5(a)(ii), "cause" shall mean (A) a finding by the Board
that Executive has materially harmed Employer, its business, assets or employees
through an act of dishonesty, material conflict of interest, gross misconduct or
willful malfeasance, (B) Executive's conviction of (or pleading nolo contendere
to) a felony, (C) Executive's failure to perform (which shall not include
inability to perform due to disability) in any material respects his material
duties under this Agreement after written notice specifying the failure and a
reasonable opportunity to cure (it being understood that if Executive's failure
to perform is not of a type requiring a single action to fully cure, then
Executive may commence the cure promptly after such written notice and
thereafter diligently prosecute such cure to completion), (D) the breach by
Executive of any of his material obligations hereunder (other than those covered
by clause (C) above) and the failure of Executive to cure such breach within
thirty (30) days after receipt by Executive of a written notice of Employer
specifying in reasonable detail the nature of the breach, or (E) Executive's
sanction (including restrictions, prohibitions and limitations agreed to under a
consent decree or agreed order) under, or conviction for violation of, any
federal or state securities law, rule or regulation (provided that in the case
of a sanction, such sanction materially impedes or impairs the ability of
Executive to perform Executive's duties and exercise Executive's
responsibilities hereunder in a satisfactory manner).
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four (4)
consecutive months to perform the duties required by this Agreement, Employer
may, upon thirty (30) days' written notice to Executive, either terminate this
Agreement or suspend Executive's right to any Base Compensation or Performance
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<PAGE>
Bonus Distributions without terminating this Agreement. In any such event,
Executive shall (A) be paid his Base Compensation in accordance with Section
3(a) hereof up to the effective date of such termination, (B) be paid a pro rata
portion through the first day of the four (4) month period of any bonus
otherwise payable to him for or with respect to the calendar year in which the
disability occurs (but, to the extent not previously paid, Executive shall be
entitled to any bonuses payable to Executive in accordance with Section 3(b)
hereof for or with respect to any calendar years prior to the calendar year in
which such termination occurs) in accordance with Section 3(b) hereof (provided
that, if such disability occurs prior to February 28, no bonus shall be payable
for or with respect to the calendar year in which such disability occurs) and
(C) be entitled to the benefits set forth in Sections 3(c) hereof (or the after-
tax cash equivalent) up to the effective date of such termination, and be
entitled to the benefits set forth in Sections 3(d) and 3(e) hereof up to the
date of such disability. In the event Employer terminates the Agreement,
Executive shall receive the Termination Compensation specified in Section 5(d)
hereof. In the event Employer elects to suspend Executive's right to Base
Compensation and Performance Bonus Distributions, at such time as Executive is
able to resume the duties required under this Agreement, Executive shall be
entitled to receive Base Compensation and Performance Bonus Distributions from
the date Executive commences the performance of such duties following the
disability in accordance with the terms and provisions of this Agreement. This
Section 5(a)(iii) shall not limit the entitlement of Executive, his estate or
beneficiaries to any disability or other benefits available to Executive under
any disability insurance or other benefits plan or policy which is maintained by
Employer for Executive's benefit. For purposes of this Agreement, the "date of
disability" shall mean the first day of the consecutive period during which
Executive fails to perform the duties required by this Agreement due to illness,
physical or mental disability or other incapacity.
(b) Termination by Executive. (i) After Change of Control. Executive
may terminate this Agreement upon thirty (30) days' written notice to Employer
following any "change of control" of Employer and a resulting "diminution
event", each as defined below, but in no event later than two years after the
change of control event. Executive shall continue to perform, at the election of
Employer, his duties under this Agreement for an additional thirty (30) days
following notice of termination. In such event, Executive shall (A) be paid his
Base Compensation and a pro rata portion of any bonus otherwise payable to him
for or with respect to the calendar year in which such termination occurs (but,
to the extent not previously paid, Executive shall be entitled to any bonuses
payable to Executive in accordance with Section 3(b) hereof for or with respect
to any calendar years prior to the calendar year in which such termination
occurs) in accordance with Sections 3(a) and 3(b) hereof, respectively (provided
that, if such termination occurs prior to February 28, no bonus shall be payable
for or with respect to the calendar year in which such termination occurs), up
to the effective date of such termination, (B) be entitled to the benefits set
forth in Sections 3(c), 3(d) and 3(e) hereof up to the effective date of such
termination and (C) receive the Termination Compensation specified in Section
5(d) hereof. For purposes of this Agreement, in the event Employer defaults in
its obligation under Section 9 hereof and, as a consequence thereof, Executive's
employment with Employer (or Employer's successor or assign) terminates, such
termination shall be deemed to be a termination under this Section 5(b)(i).
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For purposes of this Section 5(b)(i), (A) a "change of control" of Employer
shall be deemed to have occurred if: (1) any person (as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act (but excluding The Prime Group, Inc. or any of its affiliates or
any group in which The Prime Group, Inc. or any of its affiliates has a
significant interest and excluding a trustee or other fiduciary holding
securities under an employee benefit plan of Employer), becomes the beneficial
owner of shares of common stock of Employer having at least fifty percent (50%)
of the total number of votes that may be cast for the election of directors of
Employer; (2) the merger or other business combination of Employer, sale of all
or substantially all of Employer's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction immediately following
which the shareholders of Employer immediately prior to the Transaction continue
to have a majority of the voting power in the resulting entity (excluding for
this purpose any shareholder, other than The Prime Group, Inc. and its
affiliates, owning directly or indirectly more than ten percent (10%) of the
shares of the other company involved in the Transaction); or (3) within any
twenty-four (24) month period beginning on or after the date hereof, the persons
who were directors of Employer immediately before the beginning of such period
(the "Incumbent Directors") shall cease to constitute at least a majority of the
Board or a majority of the board of directors of any successor to Employer,
provided that, any director who was not a director as of the date hereof shall
be deemed to be an Incumbent Director if such director was elected to the Board
by, or on the recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors either actually or by
prior operation of this provision, unless such election, recommendation or
approval was the result of an actual or threatened election contest of the type
contemplated by Regulation 14a-11 promulgated under the Exchange Act or any
successor provision; and (B) a "diminution event" shall mean any material
diminution in (1) the duties and responsibilities of Executive (other than a
mere title change, unless the new title is not Chief Executive Officer, Chief
Operating Officer, Chairman or President) or (2) the compensation package for
Executive.
(ii) Without Good Reason. Executive may terminate this Agreement
and his employment at any time for any reason or for no reason at all upon
thirty (30) days' written notice to Employer, during which period Executive
shall continue to perform his duties under this Agreement if Employer so elects.
In connection with the termination of Executive's employment pursuant to this
Section 5(b)(ii), Executive shall (A) be paid his Base Compensation in
accordance with Section 3(a) hereof up to the effective date of such
termination, (B) forfeit his entitlement to any bonus otherwise payable to him
in accordance with Section 3(b) hereof for or with respect to the calendar year
in which such termination occurs (but, to the extent not previously paid,
Executive shall be entitled to any bonuses payable to Executive in accordance
with Section 3(b) hereof for or with respect to any calendar years prior to the
calendar year in which such termination occurs) and (C) be entitled to the
benefits set forth in Sections 3(c), 3(d) and 3(e) hereof up to the effective
date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid his Base Compensation and a pro rata portion of any
bonus otherwise payable to him for or
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with respect to the calendar year in which such death occurs (but, to the extent
not previously paid, Executive shall be entitled to any bonuses payable to
Executive in accordance with Section 3(b) hereof for or with respect to any
calendar years prior to the calendar year in which such death occurs) in
accordance with Sections 3(a) and 3(b) hereof, respectively (provided that, if
such death occurs prior to February 28, no bonus shall be payable for or with
respect to the calendar year in which such death occurs), up to the date of such
death, and (B) be entitled to the benefits set forth in Sections 3(c) (or the
after-tax cash equivalent), 3(d) and 3(e) hereof up to the date of such death.
This Section 5(c) shall not limit the entitlement of Executive, his estate or
beneficiaries under any insurance or other benefits plan or policy which is
maintained by Employer for Executive's benefit.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i), 5(a)(iii) or 5(b)(i) hereof, Employer
shall pay to Executive, within thirty (30) days of termination, an amount in one
lump sum ("Termination Compensation") equal to (i) in the case of a termination
pursuant to Section 5(a)(i) or 5(a)(iii) hereof, Executive's annual Base
Compensation as of the effective date of such termination, or (ii) in the case
of a termination pursuant to Section 5(b)(i) hereof, two times (A) the average
annual Base Compensation paid or payable to Executive for or with respect to the
two full calendar years immediately preceding the calendar year in which the
date of termination occurs, plus (B) the average annual Performance Bonus
Distribution paid or payable to Executive for or with respect to the two full
calendar years immediately preceding the calendar year in which the date of
termination occurs. For purposes of calculating Employee's Termination
Compensation pursuant to clause (ii) above, if the termination takes place prior
to December 31, 1999, the Termination Compensation for any applicable calendar
year in which the termination takes place shall be determined as follows:
(1) if the termination takes place on or prior to December 31,
1997, the full Termination Compensation described in clause (d)(ii) above shall
be deemed to be 350% of Executive's Base Compensation for the Initial Bonus
Period;
(2) if the termination takes place after December 31, 1997 but on
or prior to December 31, 1998, the Performance Bonus Distribution component of
the Termination Compensation calculation described in clause (d)(ii) above shall
be deemed to be two times the average of (A) the amount of the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the Initial
Bonus Period pursuant to Section 3(b) hereof and (B) the greater of (1) 75% of
Executive's Base Compensation for the 1998 calendar year or (2) 133% the
Performance Bonus Distribution paid to Executive or to which Executive is
entitled for the Initial Bonus Period pursuant to Section 3(b) hereof; or
(3) if the termination takes place after December 31, 1998 but on
or prior to December 31, 1999, the Performance Bonus Distribution component of
the Termination Compensation calculation described in clause (d)(ii) above shall
be deemed to be two times the average of (A) 133% of the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the Initial
Bonus Period pursuant to Section 3(b) hereof and (B) the Performance Bonus
Distribution paid to Executive or to which Executive is entitled for the 1998
calendar year pursuant to Section 3(b) hereof.
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6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that he is not
personally subject to any agreement, order or decree which restricts his
acceptance of this Agreement and the performance of his duties with Employer
hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and for a
period of two years thereafter in the event of the termination of this Agreement
pursuant to the provision of Section 5(b) (ii) hereof or one year thereafter in
the event of the termination of this Agreement pursuant to the provisions of
Sections 5(a)(ii), 5(a)(iii) or 5(b)(i) hereof, Executive shall not, directly or
indirectly, in any capacity whatsoever, either on his own behalf or on behalf of
any other person or entity with whom he may be employed or associated, own any
interest in, participate or engage in the day-to-day supervision, management,
development, marketing or operation of any senior, assisted living or semi-acute
care facilities or such other business as Employer may be engaged in as of the
date of the applicable Section 5 termination event (the "Business") which is
competitive with any of Employer's facilities. For purposes hereof, a facility
will be deemed competitive with one of Employer's facilities if such facility is
located within five (5) miles of a facility owned, operated or managed by
Employer or within five (5) miles of a facility which Employer is developing or
with respect to which Employer has signed a letter of intent or term sheet or
binding contract for the acquisition, development or management thereof dated on
or prior to the date of termination. Furthermore, for a period of two years
after any applicable Section 5 termination event, Executive shall not, directly
or indirectly, solicit, attempt to hire or hire any employee of Employer.
Notwithstanding the foregoing, nothing herein shall prohibit Executive from
owning 5% or less of any securities of a competitor engaged in the same Business
if such securities are listed on a nationally recognized securities exchange or
traded over-the-counter on the National Association of Securities Dealers
Automated Quotation System or otherwise.
(c) Non-Disclosure. During the Employment Term and for a period of two
years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
information which derives independent economic value, actual or potential, with
respect to Employer from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and is the subject of efforts to maintain its secrecy
that are reasonable under the circumstances, including, but not limited to,
trade secrets, customer lists, sales records and other proprietary commercial
information. Said term, however, shall not include general "know-how"
information acquired by Executive during the course of his service which could
have been obtained by him from public sources without the expenditure of
significant time, effort and expense which does not relate to Employer.
(d) Return of Documents. Upon termination of his services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales
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materials, tapes, keys, credit cards and other tangible property of Employer
within Executive's possession or under his control.
(e) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(f) Acknowledgment. Executive acknowledges that he will be directly
and materially involved as a senior executive in all important policy and
operational decisions of Employer. Executive further acknowledges that the scope
of the foregoing restrictions has been specifically bargained between Employer
and Executive, each being fully informed of all relevant facts. Accordingly,
Executive acknowledges that the foregoing restrictions of Section 6 are fair and
reasonable, are minimally necessary to protect Employer, its other stockholders
and the public from the unfair competition of Executive who, as a result of his
performance of services on behalf of Employer, will have had unlimited access to
the most confidential and important information of Employer, its business and
future plans. Executive furthermore acknowledges that no unreasonable harm or
injury will be suffered by him from enforcement of the covenants contained
herein and that he will be able to earn a reasonable livelihood following
termination of his services notwithstanding enforcement of the covenants
contained herein.
7. Prior Agreements. This Agreement supersedes and is in lieu of any and
all other employment arrangements between Executive and Employer or its
predecessor or any subsidiary and any and all such employment agreements and
arrangements are hereby terminated and deemed of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by him shall be void. Employer may assign all or any of its rights
hereunder provided that substantially all of the assets of Employer are also
transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance satisfactory to Executive in Executive's
sole discretion, expressly, absolutely and unconditionally to assume and agree
to perform this Agreement in the same manner and to the same extent that
Employer would be required to perform it if no such succession or assignment had
taken place. Any failure of Employer to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be
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paid in accordance with the terms of this Agreement to Executive's devisee,
legatee or other designee or, if there be no such designee, to Executive's
estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered, sent by
confirmed facsimile, courier or by certified mail, postage or delivery charges
prepaid, to the following addresses:
(a) if to Executive, to:
Darryl W. Copeland, Jr.
54 Petty Road
Cranbury, New Jersey 08512
Facsimile: (609) 655-3521
(b) if to Employer, to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
Facsimile: (312) 917-0460
With a copy to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
Facsimile: (312) 917-0460
and to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
Facsimile: (312)558-5700
Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; if
given by facsimile, shall be effective one (1) business day after transmission
has been confirmed (which confirmation may be machine generated); and if given
by courier, shall be effective one (1) business day after deposit with the
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courier if next day delivery is guaranteed; and if given by certified mail,
shall be effective three (3) business days after deposit in the mail. Either
party may change the address at which it is to be given notice by giving written
notice to the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and contract
that it is not the intention of either party to violate any public policy,
statutory or common law, and that if any covenant, sentence, paragraph, clause
or combination of the same of this Agreement (a "Contractual Provision") is in
violation of the law of any state where applicable, such Contractual Provision
shall be void in the jurisdictions where it is unlawful, and the remainder of
such Contractual Provision, if any, and the remainder of this Agreement shall
remain binding on the parties such that such Contractual Provision shall be
binding only to the extent that such Contractual Provision is lawful or may be
lawfully performed under then applicable laws. In the event that any part of any
Contractual Provision of this Agreement is determined by a court of competent
jurisdiction to be overly broad thereby making the Contractual Provision
unenforceable, the parties hereto agree, and it is their desire, that such court
shall substitute a judicially enforceable limitation in its place, and that the
Contractual Provision, as so modified, shall be binding upon the parties as if
originally set forth herein.
14. Indemnification. Executive shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from any of his acts or
omissions that constitute bad faith, willful or intentional conduct that cause
harm to Employer's business or reputation. Executive also shall indemnify
Employer for any and all consequential damages, costs and expenses resulting
from his acts of omission constituting reckless disregard of his duties to
Employer following notice thereof by Employer after it becomes aware of such
conduct and Executive's failure to so cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
------------------------------
Title: President
---------------------------
/s/ Darryl W. Copeland, Jr.
----------------------------------
Darryl W. Copeland, Jr.
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Exhibit 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
7th day of May, 1997 by and between Brookdale Living Communities, Inc., a
Delaware corporation ("Employer"), and Matthew F. Whitlock, an individual
domiciled in the State of Illinois ("Executive").
W I T N E S S E T H
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of senior and assisted
living facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
management and operation of Employer.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Vice President - Acquisitions of Employer on the
terms and conditions provided in this Agreement. Executive shall conduct,
operate, manage and promote the business and business concept of Employer, and
exercise such other powers and authority as are provided by the By-laws of
Employer ("By-laws"). The Board of Directors of Employer (the "Board") or the
Chief Executive Officer may from time to time further define and clarify
Executive's duties and services hereunder or under the By-laws as Vice President
- - Acquisitions. Executive agrees to devote Executive's best efforts and
substantially all of Executive's business time, attention, energy and skill to
perform Executive's duties as Vice President - Acquisitions of Employer.
<PAGE>
2. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date Employer's Registration Statement on Form S-1, as amended
(No. 333-12259; the "Registration Statement") is declared effective (the
"Effective Date") and expire on December 31, 1999 (the "Scheduled Termination
Date"), provided, however, this Agreement shall automatically extend for one
year terms following the Initial Term (each a "Renewal Term", together with the
Initial Term, the "Employment Term"), unless either party shall give the other
party prior to thirty (30) days before the end of the Initial Term or any
Renewal Term, as applicable, written notice of its intention to terminate this
Agreement.
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than Ninety-
Five Thousand Dollars ($95,000) ("Base Compensation"), payable in accordance
with the general policies and procedures for payment of salaries to its
executive personnel maintained, from time to time, by Employer (but no less
frequently than monthly), subject to withholding for applicable federal, state,
and local taxes. Increases in Base Compensation, if any, shall be determined by
the Compensation Committee of the Board (the "Committee") based on periodic
reviews of Executive's performance conducted on at least an annual basis.
(b) Bonus. (i) In addition to Base Compensation, Executive shall have
the right to receive, and Employer agrees to distribute to Executive,
performance bonus distributions (a "Performance Bonus Distribution") in an
amount equal to 18/100 of 1% of the total purchase price of each property
acquired by Employer, provided that Executive had primary responsibility or was
the procuring cause for such acquisition, which Performance Distribution shall
be payable within thirty (30) days following the completion of the acquisition.
The foregoing bonus program shall not apply with respect to portfolio
acquisitions or acquisitions of (or mergers with) another company or
substantially all of the assets of another company. With respect to such
transactions, a separate bonus arrangement will be structured by Employer on a
case-by-case basis, based on, among other factors, the degree of Executive's
involvement in such acquisition and the size thereof. Executive acknowledges
that Executive is entitled to Performance Bonus Distributions only with respect
to acquisitions of properties for which Executive has primary responsibilities
or is the procuring cause and will not be entitled to a Performance Bonus
Distribution with respect to any other properties acquired by Employer;
provided, however, it is Employer's expectation that, if and to the extent
Employer is interested in pursuing an acquisition with respect to which
Executive is not the procuring cause, Employer will consider having Executive
involved in such acquisition provided Employer determines that, based on
Executive's then current duties and responsibilities on the other acquisitions
on which Executive is then involved, Executive can devote the time and effort on
such acquisition that may be necessary and appropriate.
(ii) In addition to Base Compensation and the Performance Bonus
Distribution, Executive will be eligible for additional performance-based bonus
distributions (the "Additional Bonus") based on the achievement by Executive of
certain tangible objectives. The maximum Additional Bonus to which Executive is
eligible under this Section 3(b)(ii) each year shall be an amount equal to
fifteen percent (15%) of Executive's Base Compensation for the year to which the
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Additional Bonus relates. The objectives on which the Additional Bonus is based
and the other terms of the Additional Bonus program shall be established upon
the mutual agreement of Executive and Employer.
(iii) Upon and in connection with the initial public offering of stock
of Employer, Employer shall pay Executive in cash a one-time special bonus of
Twelve Thousand Five Hundred Dollars ($12,500).
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in any
retirement, pension, insurance, health, dental or other benefit plan or program
that has been or is hereafter adopted by Employer (or in which Employer
participates), as such plans and programs may be amended or modified from time
to time by Employer, according to the terms of such plan or program with all the
benefits, rights and privileges as are enjoyed by any other senior executive
officer of Employer. If the participation of Executive would adversely affect
the qualification of a plan intended to be qualified under Section 401(a) of the
Internal Revenue Code as the same may be amended from time to time (the "Code"),
Employer shall have the right to exclude Executive from that plan in return for
Executive's participation in (i) a nonqualified deferred compensation plan which
provides substantially comparable benefits or (ii) an arrangement providing
substantially comparable benefits under a plan that is either a qualified or
nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies as and procedures
may be amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder.
(e) Vacations. During the Employment Term, Executive shall be entitled
to two (2) weeks paid vacation in accordance with Employer's practices, as such
practices may be amended or modified from time to time by Employer.
4. Stock Options. Employer has established a stock incentive plan (the
"Stock Incentive Plan") that will become effective prior to the completion of
the initial public offering of shares of common stock of Employer (the "Common
Stock") contemplated by the Registration Statement. The Stock Incentive Plan
initially provides, among other things, for the issuance from time to time to
certain officers, directors and other employees of Employer of up to 830,000
stock options ("Options"). On the Effective Date, Employer shall grant to
Executive 25,000 Options that will have such terms and conditions as are set
forth in the Stock Incentive Plan and the Stock Option Agreement to be entered
into between Employer and Executive.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice
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of termination. In connection with the termination of Executive's employment
pursuant to this Section 5(a)(i), Executive shall (A) be paid Executive's Base
Compensation in accordance with Section 3(a) hereof, and be entitled to the
benefits set forth in Sections 3(c), 3(d) and 3(e) hereof, up to the effective
date of such termination, (B) be paid any Performance Bonus Distribution to
which Executive becomes entitled under Section 3(b)(i) hereof as a result of the
closing of a property acquisition occurring prior to or within forty-five days
after the date of such termination, (C) be paid any unpaid Additional Bonus
which Executive earned as of the date of such termination under Section 3(b)(ii)
hereof, and (D) receive the Termination Compensation specified in Section 5(d)
hereof. For purposes of the Agreement, in the event Employer defaults in its
obligation under Section 9 hereof and, as a consequence thereof, Executive's
employment with Employer (or Employer's successor or assign) is terminated, such
termination shall be deemed to be a termination under this Section 5(a)(i).
(ii) With Cause. Employer may terminate this Agreement with cause
immediately upon written notice to Executive. Employer may elect to require
Executive to continue to perform Executive's duties under this Agreement for an
additional thirty (30) days following notice of termination. In connection with
the termination of Executive's employment pursuant to this Section 5(a)(ii),
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof, and be entitled to the benefits set forth in Sections 3(c),
3(d) and 3(e) hereof, up to the effective date of such termination, (B) be paid
any Performance Bonus Distribution to which Executive becomes entitled under
Section 3(b)(i) hereof as a result of the closing of a property acquisition
occurring prior to or within forty-five days after the date of such termination,
and (C) be paid any unpaid Additional Bonus which Executive earned as of the
date of such termination under Section 3(b)(i) hereof. For purposes of this
Section 5(a)(ii), "cause" shall mean (A) a finding by the Chief Executive
Officer of Employer or the Board that Executive has materially harmed Employer,
its business, assets or employees through an act of dishonesty, material
conflict of interest, gross misconduct or willful malfeasance, (B) Executive's
conviction of (or pleading nolo contendere to) a felony, (C) Executive's failure
to perform (which shall not include inability to perform due to disability) in
any material respects Executive's material duties under this Agreement, (D) the
breach by Executive of any of Executive's material obligations hereunder (other
than those covered by clause (C) above) and the failure of Executive to cure
such breach within ten (10) days after receipt by Executive of a written notice
of Employer specifying in reasonable detail the nature of the breach (provided,
however, if, based on the nature of the breach, such breach cannot reasonably
and with diligence be cured within such ten (10) day period, Executive shall
have an additional period, not to exceed thirty (30) days, to cure such breach
if (1) Executive has commenced curing such breach within the initial ten (10)
day period and continuously and diligently pursues such cure and (2) in the
reasonable judgment of Employer, the granting to Executive of an additional
period to cure such breach will not have an adverse effect on the business or
operations of Employer or on any of Employer's facilities or acquisition
opportunities), (E) Executive's sanction (including restrictions, prohibitions
and limitations agreed to under a consent decree or agreed order) under, or
conviction for violation of, any federal or state securities law, rule or
regulation (provided that in the case of a sanction, such sanction materially
impedes or impairs the ability of Executive to perform Executive's duties and
exercise Executive's responsibilities hereunder in a satisfactory manner), or
(F) Executive's willful breach of any material policies or procedures of
Employer.
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(iii) Disability. If due to illness, physical or mental disability, or
other incapacity, Executive shall fail during any four (4) consecutive months to
perform the duties required by this Agreement, Employer may terminate this
Agreement upon thirty (30) days' written notice to Executive. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof, and be entitled to the benefits set forth in Section 3(c)
hereof (or the after-tax cash equivalent), up to the effective date of such
termination and be entitled to the benefits set forth in Sections 3(d) and 3(e)
hereof up to the date of such disability, (B) be paid any Performance Bonus
Distribution to which Executive becomes entitled under Section 3(b)(i) hereof as
a result of the closing of a property acquisition occurring prior to or within
forty-five days after the date of such disability and (C) be paid any unpaid
Additional Bonus which Executive earned as of the date of such termination under
Section 3(b)(ii) hereof. This Section 5(a)(iii) shall not limit the entitlement
of Executive, Executive's estate or beneficiaries to any disability or other
benefits available to Executive under any disability insurance or other benefits
plan or policy which is maintained by Employer for Executive's benefit. For
purposes of this Agreement, the "date of disability" shall mean the first day of
the consecutive period during which Executive fails to perform the duties
required by this Agreement due to illness, physical or mental disability or
other incapacity.
(b) Termination by Executive Without Good Reason. Executive may
terminate this Agreement and Executive's employment at any time for any reason
or for no reason at all upon thirty (30) days' written notice to Employer,
during which period Executive shall continue to perform Executive's duties under
this Agreement if Employer so elects. In connection with the termination of
Executive's employment pursuant to this Section 5(b), Executive shall (A) be
paid Executive's Base Compensation in accordance with Section 3(a) hereof, and
be entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof, up
to the effective date of such termination, (B) be paid any Performance Bonus
Distribution to which Executive becomes entitled under Section 3(b)(i) hereof as
a result of the closing of a property acquisition occurring prior to or within
forty-five days after the date of such termination and (C) be paid any unpaid
Additional Bonus which Executive earned as of the date of such termination under
Section 3(b)(ii) hereof.
(c) Death. Notwithstanding any other provision of this Agreement, this
Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof, and be entitled to the benefits set forth in Sections 3(c)
(or the after-tax cash equivalent), 3(d) and 3(e) hereof, up to the date of such
death, (B) be paid any Performance Bonus Distribution to which Executive becomes
entitled under Section 3(b)(i) hereof as a result of the closing of a property
acquisition occurring prior to or within forty-five days after the date of such
death and (C) be paid any unpaid Additional Bonus which Executive earned as of
the date of such termination under Section 3(b)(ii) hereof. This Section 5(c)
shall not limit the entitlement of Executive, Executive's estate or
beneficiaries under any insurance or other benefits plan or policy which is
maintained by Employer for Executive's benefit.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i) hereof, Employer shall pay to Executive,
within thirty (30) days of
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termination, an amount in one lump sum ("Termination Compensation") equal to 50%
of Executive's annual Base Compensation as of the effective date of such
termination; provided, however, that the foregoing shall not affect Employer's
obligation to pay Executive any Performance Bonus Distributions to which
Executive may become entitled after the date of such termination pursuant to the
applicable provisions of this Section 5.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that he is not
personally subject to any agreement, order or decree which restricts Executive's
acceptance of this Agreement and the performance of Executive's duties with
Employer hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and for a
period of one year thereafter in the event of the termination of this Agreement
pursuant to the provisions of Section 5(a)(ii) or 5(b) hereof, Executive shall
not, directly or indirectly, in any capacity whatsoever, either on Executive's
own behalf or on behalf of any other person or entity with whom he may be
employed or associated, (i) own any interest in, participate or engage in the
day-to-day supervision, management, acquisition, development, marketing or
operation of any senior or assisted living facilities (the "Business") either
located within seven (7) miles from any facility in which Employer has a direct
or indirect interest as of the date of the termination of this Agreement or
within seven (7) miles from any facility or development site and with respect to
which, on or prior to the date of such termination, Employer has entered a
letter of intent or contract to acquire, or (ii) pursue any senior or assisted
living facility or any development site therefor (A) which Employer is pursuing
as of the date of the termination of this Agreement and with respect to which,
prior to the date of such termination, Employer has entered a letter of intent
or contract to acquire or (B) of which Executive became aware prior to the date
of termination of this Agreement but which Executive did not present to Employer
(unless, after the Employment Term, such facility or site is presented to
Employer and Employer elects not to pursue such facility or site). Furthermore,
for a period of two years after any applicable Section 5 termination event,
Executive shall not, directly or indirectly, solicit, attempt to hire or hire
any employee of Employer. Notwithstanding the foregoing, nothing herein shall
prohibit Executive from owning 5% or less of any securities of a competitor
engaged in the same Business if such securities are listed on a nationally
recognized securities exchange or traded over-the-counter on the National
Association of Securities Dealers Automated Quotation System or otherwise.
(c) Non-Disclosure. During the Employment Term and for a period of two
years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
information which derives independent economic value, actual or potential, with
respect to Employer from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and is the subject of
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efforts to maintain its secrecy that are reasonable under the circumstances,
including, but not limited to, trade secrets, customer lists, sales records and
other proprietary commercial information. Said term, however, shall not include
general "know-how" information acquired by Executive during the course of
Executive's service which could have been obtained by Executive from public
sources without the expenditure of significant time, effort and expense which
does not relate to Employer.
(d) Return of Documents. Upon termination of Executive's services with
Employer, Executive shall return all originals and copies of books, records,
documents, customer lists, sales materials, tapes, keys, credit cards and other
tangible property of Employer within Executive's possession or under Executive's
control.
(e) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(f) Acknowledgment. Executive acknowledges that he may be directly and
materially involved as a senior executive in certain important policy and
operational decisions of Employer. Executive further acknowledges that the scope
of the foregoing restrictions has been specifically bargained between Employer
and Executive, each being fully informed of all relevant facts. Accordingly,
Executive acknowledges that the foregoing restrictions of Section 6 are fair and
reasonable, are minimally necessary to protect Employer, its other stockholders
and the public from the unfair competition of Executive who, as a result of
Executive's performance of services on behalf of Employer, will have had
unlimited access to the most confidential and important information of Employer,
its business and future plans. Executive furthermore acknowledges that no
unreasonable harm or injury will be suffered by Executive from enforcement of
the covenants contained herein and that he will be able to earn a reasonable
livelihood following termination of Executive's services notwithstanding
enforcement of the covenants contained herein.
7. Prior Agreements. This Agreement supersedes and is in lieu of any and
all other employment arrangements between Executive and Employer or its
predecessor or any subsidiary and any and all such employment agreements and
arrangements are hereby terminated and deemed of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by Executive shall be void. Employer may assign all or any of its
rights hereunder provided that substantially all of the assets of Employer are
also transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree
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to perform this Agreement in the same manner and to the same extent that
Employer would be required to perform it if no such succession or assignment had
taken place. Any failure of Employer to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered or sent
by courier or certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Matthew F. Whitlock
825 W. Webster
3rd Floor
Chicago, IL 60614
(b) if to Employer, to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
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Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by mail, shall be
effective three (3) business days after deposit in the mail. Either party may
change the address at which it is to be given notice by giving written notice to
the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any Contractual Provision of this Agreement is determined by a
court of competent jurisdiction to be overly broad thereby making the
Contractual Provision unenforceable, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and that the Contractual Provision, as so modified, shall be binding
upon the parties as if originally set forth herein.
14. Indemnification. Executive shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from any of Executive's acts
or omissions that constitute a material conflict of interest or willful or
intentional misconduct that cause material harm to Employer's business or
reputation. Executive also shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from Executive's acts of
omission constituting reckless disregard of Executive's duties to Employer
following notice thereof by Employer after it becomes aware of such conduct and
Executive's failure to so cure within thirty (30) days.
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
---------------------------------
Title: President
---------------------------------
/s/ Matthew F. Whitlock
---------------------------------------
Matthew F. Whitlock
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Exhibit 10.10
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
7th day of May, 1997 by and between Brookdale Living Communities, Inc., a
Delaware corporation ("Employer"), and Mark J. Iuppenlatz, an individual
domiciled in the State of Illinois ("Executive").
W I T N E S S E T H
-------------------
A. Employer is engaged primarily in the ownership, management, leasing,
marketing, acquisition, development and construction of senior and assisted
living facilities throughout the United States.
B. Employer believes that it would benefit from the application of
Executive's particular and unique skill, experience, and background to the
management and operation of Employer.
C. Executive wishes to commit himself to serve Employer in the position
set forth herein on the terms herein provided.
D. The parties wish by this Agreement to set forth the terms and
conditions of the employment relationship between Employer and Executive.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, Employer and
Executive hereby agree as follows:
1. Employment and Duties. During the Employment Term (as defined in
Section 2 hereof), Employer agrees to employ Executive, and Executive agrees to
be employed by Employer, as the Vice President - Development of Employer on the
terms and conditions provided in this Agreement. Executive shall conduct,
operate, manage and promote the business and business concept of Employer, and
exercise such other powers and authority as are provided by the By-laws of
Employer ("By-laws"). The Board of Directors of Employer (the "Board") or the
Chief Executive Officer may from time to time further define and clarify
Executive's duties and services hereunder or under the By-laws as Vice President
- - Development. Executive agrees to devote Executive's best efforts and
substantially all of Executive's business time, attention, energy and skill to
perform Executive's duties as Vice President - Development of Employer.
2. Term. The initial term of this Agreement (the "Initial Term") shall
commence on the date Employer's Registration Statement on Form S-1, as amended
(No. 333-12259; the "Registration Statement") is declared effective (the
"Effective Date") and expire on December 31, 1999 (the "Scheduled Termination
Date"), provided, however, this Agreement shall automatically extend for one
year terms following the Initial Term (each a "Renewal Term", together with the
Initial Term, the "Employment Term"), unless either party shall give the other
party prior to thirty (30) days
<PAGE>
before the end of the Initial Term or any Renewal Term, as applicable, written
notice of its intention to terminate this Agreement.
3. Compensation and Related Matters. (a) Base Salary. As compensation
for performing the services required by this Agreement during the Employment
Term, Employer shall pay to Executive an annual salary of no less than One
Hundred Thirty-Five Thousand Dollars ($135,000) ("Base Compensation"), payable
in accordance with the general policies and procedures for payment of salaries
to its executive personnel maintained, from time to time, by Employer (but no
less frequently than monthly), subject to withholding for applicable federal,
state, and local taxes. Increases in Base Compensation, if any, shall be
determined by the Compensation Committee of the Board (the "Committee") based on
periodic reviews of Executive's performance conducted on at least an annual
basis.
(b) Bonus. (i) In addition to Base Compensation, Executive shall
have the right to receive, and Employer agrees to distribute to Executive,
performance bonus distributions (a "Performance Bonus Distribution") with
respect to each facility developed by Employer or one of its affiliates with
respect to which Executive had primary responsibility, structured as follows:
(A) A Performance Bonus Distribution in the amount of $7,500
will be paid to Executive within thirty (30) days following the day on which a
development site is put under contract and all required zoning approvals and/or
municipal approvals (other than building permits) for the proposed development
have been received;
(B) A Performance Bonus Distribution in the amount of $7,500
will be paid to Executive within thirty (30) days following the day on which all
required permits to commence the construction of the facility planned to be
constructed on the development site have been received and the construction of
such facility has commenced;
(C) In the event the acquisition of the development site or the
development or construction of the facility is financed, in whole or in part,
with the proceeds of tax-exempt bonds, a Performance Bonus Distribution in the
amount of $10,000 will be paid to Executive within thirty (30) days following
the day on which tax-exempt bonds are issued and Employer (or an affiliate of
Employer) has received a draw from the proceeds generated from the sale of such
bonds (whether such bonds are issued prior to or after the acquisition of the
site or prior to, during or after the commencement of construction of the
facility);
(D) In the event the acquisition of the development site or the
development or construction of the facility is financed, in whole or in part, by
the proceeds of tax increment financing ("TIF") bonds or other material
municipal assistance (including TIF financing structured on a "pay as you go"
basis), a Performance Bonus Distribution in an amount equal to the lower of (A)
$10,000 or (B) three percent (3%) of the present value of the economic benefit
to Employer of such TIF financing or municipal assistance will be paid to
Executive within thirty (30) days following the day on which the TIF bonds are
issued or the other municipal assistance approved and
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Employer (or an affiliate of Employer) has received a draw from the proceeds of
the TIF bonds or has received all or a significant portion of the municipal
assistance; and
(E) A Performance Bonus Distribution in the amount of $10,000
will be paid to Executive within thirty (30) days following the day on which a
Certificate of Occupancy is received for or with respect to the entire facility.
Executive acknowledges that Executive is entitled to Performance Bonus
Distributions only with respect to development sites and the development of
facilities for which Executive has primary responsibilities and will not be
entitled to a Performance Bonus Distribution with respect to any other
development projects undertaken by Employer.
(ii) Upon and in connection with the initial public offering of stock
of Employer, Employer shall pay Executive in cash a one-time special bonus of
Twelve Thousand Five Hundred Dollars ($12,500).
(c) Benefits. During the Employment Term and subject to the
limitations and alternative rights set forth in this Section 3(c), Executive and
Executive's eligible dependents shall have the right to participate in any
retirement, pension, insurance, health, dental or other benefit plan or program
that has been or is hereafter adopted by Employer (or in which Employer
participates), as such plans and programs may be amended or modified from time
to time by Employer, according to the terms of such plan or program with all the
benefits, rights and privileges as are enjoyed by any other senior executive
officer of Employer. If the participation of Executive would adversely affect
the qualification of a plan intended to be qualified under Section 401(a) of the
Internal Revenue Code as the same may be amended from time to time (the "Code"),
Employer shall have the right to exclude Executive from that plan in return for
Executive's participation in (i) a nonqualified deferred compensation plan or
(ii) an arrangement providing substantially comparable benefits under a plan
that is either a qualified or nonqualified under the Code at Employer's option.
(d) Expenses. Executive shall be reimbursed, subject to Employer's
receipt of invoices or similar records as Employer may reasonably request in
accordance with its policies and procedures, as such policies and procedures
apply to senior executives of Employer, as such policies and procedures may be
amended or modified from time to time by Employer, for all reasonable and
necessary expenses incurred by Executive in the performance of Executive's
duties hereunder.
(e) Vacations. During the Employment Term, Executive shall be
entitled to two (2) weeks paid vacation in accordance with Employer's practices,
as such practices may be amended or modified from time to time by Employer.
4. Stock Options. Employer has established a stock incentive plan (the
"Stock Incentive Plan") that will become effective prior to the completion of
the initial public offering of shares of common stock of Employer (the "Common
Stock") contemplated by the Registration Statement. The Stock Incentive Plan
initially provides, among other things, for the issuance from time to time to
certain officers, directors and other employees of Employer of up to 830,000
stock options
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<PAGE>
("Options"). On the Effective Date, Employer shall grant to Executive 25,000
Options that will have such terms and conditions as are set forth in the Stock
Incentive Plan and the Stock Option Agreement to be entered into between
Employer and Executive.
5. Termination and Termination Benefits. (a) Termination by Employer.
(i) Without Cause. Employer may terminate this Agreement and Executive's
employment at any time for any reason or for no reason at all upon thirty (30)
days' prior written notice to Executive following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(i), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof, and be entitled to the benefits set forth
in Sections 3(c), 3(d) and 3(e) hereof, up to the effective date of such
termination, (B) be paid any Performance Bonus Distribution to which Executive
becomes entitled as a result of the occurrence of any of the events specified in
Section 3(b)(i)(A) through (E) hereof prior to or within forty-five (45) days
after the date of such termination and (C) receive the Termination Compensation
specified in Section 5(d) hereof. For purposes of this Agreement, in the event
Employer defaults in its obligation under Section 9 hereof and, as a consequence
thereof, Executive's employment with Employer (or Employer's successor or
assign) is terminated, such termination shall be deemed to be a termination
under this Section 5(a)(i).
(ii) With Cause. Employer may terminate this Agreement with
cause immediately upon written notice to Executive. Employer may elect to
require Executive to continue to perform Executive's duties under this Agreement
for an additional thirty (30) days following notice of termination. In
connection with the termination of Executive's employment pursuant to this
Section 5(a)(ii), Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof, and be entitled to the benefits set forth
in Sections 3(c), 3(d) and 3(e) hereof, up to the effective date of such
termination, and (B) be paid any Performance Bonus Distribution to which
Executive becomes entitled as a result of the occurrence of any of the events
specified in Section 3(b)(i)(A) through (E) hereof prior to the date of such
termination. For purposes of this Section 5(a)(ii), "cause" shall mean (A) a
finding by the Chief Executive Officer of Employer or the Board that Executive
has materially harmed Employer, its business, assets or employees through an act
of dishonesty, material conflict of interest, gross misconduct or willful
malfeasance, (B) Executive's conviction of (or pleading nolo contendere to) a
felony, (C) Executive's failure to perform (which shall not include inability to
perform due to disability) in any material respects Executive's material duties
under this Agreement, (D) the breach by Executive of any of Executive's material
obligations hereunder (other than those covered by clause (C) above) and the
failure of Executive to cure such breach within ten (10) days after receipt by
Executive of a written notice of Employer specifying in reasonable detail the
nature of the breach (provided, however, if, based on the nature of the breach,
such breach cannot reasonably and with diligence be cured within such ten (10)
day period, Executive shall have an additional period, not to exceed thirty (30)
days, to cure such breach if (1) Executive has commenced curing such breach
within the initial ten (10) day period and continuously and diligently pursues
such cure and (2) in the reasonable judgment of Employer, the granting to
Executive of an additional period to cure such breach will not have an adverse
effect on the business or operations of Employer or any of Employer's facilities
or developments), (E) Executive's sanction (including restrictions, prohibitions
and limitations agreed to under a consent decree or agreed order) under, or
conviction for violation of, any federal or state
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<PAGE>
securities law, rule or regulation (provided that in the case of a sanction,
such sanction materially impedes or impairs the ability of Executive to perform
Executive's duties and exercise Executive's responsibilities hereunder in a
satisfactory manner), or (F) Executive's willful breach of any material written
policies or procedures of Employer.
(iii) Disability. If due to illness, physical or mental
disability, or other incapacity, Executive shall fail during any four (4)
consecutive months to perform the duties required by this Agreement, Employer
may terminate this Agreement upon thirty (30) days' written notice to Executive.
In such event, Executive shall (A) be paid Executive's Base Compensation in
accordance with Section 3(a) hereof, and be entitled to the benefits set forth
in Section 3(c) hereof (or the after-tax cash equivalent), up to the effective
date of such termination and be entitled to the benefits set forth in Sections
3(d) and 3(e) hereof up to the date of such disability, and (B) be paid any
Performance Bonus Distribution to which Executive becomes entitled as a result
of the occurrence of any of the events specified in Section 3(b)(i) (A) through
(E) hereof prior to the date of such disability. This Section 5(a)(iii) shall
not limit the entitlement of Executive, Executive's estate or beneficiaries to
any disability or other benefits available to Executive under any disability
insurance or other benefits plan or policy which is maintained by Employer for
Executive's benefit. For purposes of this Agreement, the "date of disability"
shall mean the first day of the consecutive period during which Executive fails
to perform the duties required by this Agreement due to illness, physical or
mental disability or other incapacity.
(b) Termination by Executive Without Good Reason. Executive may
terminate this Agreement and Executive's employment at any time for any reason
or for no reason at all upon thirty (30) days' written notice to Employer,
during which period Executive shall continue to perform Executive's duties under
this Agreement if Employer so elects. In connection with the termination of
Executive's employment pursuant to this Section 5(b), Executive shall (A) be
paid Executive's Base Compensation in accordance with Section 3(a) hereof, and
be entitled to the benefits set forth in Sections 3(c), 3(d) and 3(e) hereof, up
to the effective date of such termination, and (B) be paid any Performance Bonus
Distribution to which Executive becomes entitled as a result of the occurrence
of any of the events specified in Section 3(b)(i)(A) through (E) hereof prior to
the date of such termination.
(c) Death. Notwithstanding any other provision of this Agreement,
this Agreement shall terminate on the date of Executive's death. In such event,
Executive shall (A) be paid Executive's Base Compensation in accordance with
Section 3(a) hereof, and be entitled to the benefits set forth in Sections 3(c)
(or the after-tax cash equivalent), 3(d) and 3(e) hereof, up to the date of such
death, and (B) be paid any Performance Bonus Distribution to which Executive
becomes entitled as a result of the occurrence of any of the events specified in
Section 3(b)(i) through (v) hereof prior to the date of such death. This Section
5(c) shall not limit the entitlement of Executive, Executive's estate or
beneficiaries under any insurance or other benefits plan or policy which is
maintained by Employer for Executive's benefit.
(d) Termination Compensation. In the event of a termination of this
Agreement pursuant to Section 5(a)(i) hereof, Employer shall pay to Executive,
within thirty (30) days of
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<PAGE>
termination, an amount in one lump sum ("Termination Compensation") equal to 50%
of Executive's annual Base Compensation as of the effective date of such
termination.
6. Covenants of Executive.
(a) No Conflicts. Executive represents and warrants that he is not
personally subject to any agreement, order or decree which restricts Executive's
acceptance of this Agreement and the performance of Executive's duties with
Employer hereunder.
(b) Non-Competition. In return for the performance of the management
duties described in Section 1 hereof, during the Employment Term and for a
period of one year thereafter in the event of the termination of this Agreement
pursuant to the provisions of Sections 5(a)(ii) or 5(b) hereof, Executive shall
not, directly or indirectly, in any capacity whatsoever, either on Executive's
own behalf or on behalf of any other person or entity with whom he may be
employed or associated, (i) own any interest in, participate or engage in the
day-to-day supervision, management, development, marketing or operation of any
senior, assisted living or semi-acute care facilities (the "Business") either
located within seven (7) miles from any facility in which Employer has a direct
or indirect interest as of the date of the termination of this Agreement or
within seven (7) miles from any facility or development site which Employer is
pursuing as of the date of the termination of this Agreement, or (ii) pursue any
senior, assisted living or semi-acute facility or any development site therefor
(a) which Employer is pursuing as of the date of the termination of this
Agreement, (b) with respect to which Employer has otherwise expressed an
interest in pursuing prior to the date of the termination of this Agreement, or
(c) of which Executive became aware prior to the date of termination of this
Agreement but which Executive did not present to Employer (unless, after the
Employment Term, such facility or site is presented to Employer and Employer
elects not to pursue such facility or site). The provisions of the immediately
preceding sentence shall not apply in the event (1) a Change of Control (as
defined in the Stock Incentive Plan) has occurred and (2) as a result of the
Change of Control, Executive's duties and responsibilities have significantly
changed or are significantly diminished and (3) Executive terminates this
Agreement pursuant to the provisions of Section 5(b) hereof. Furthermore, for a
period of two years after any applicable Section 5 termination event, Executive
shall not, directly or indirectly, solicit, attempt to hire or hire any employee
of Employer. Notwithstanding the foregoing, nothing herein shall prohibit
Executive from owning 5% or less of any securities of a competitor engaged in
the same Business if such securities are listed on a nationally recognized
securities exchange or traded over-the-counter on the National Association of
Securities Dealers Automated Quotation System or otherwise.
(c) Non-Disclosure. During the Employment Term and for a period of
two years after the expiration or termination of this Agreement for any reason,
Executive shall not disclose or use, except in the pursuit of the Business for
or on behalf of Employer, any Trade Secret (as hereinafter defined) of Employer,
whether such Trade Secret is in Executive's memory or embodied in writing or
other physical form. For purposes of this Section 6(c), "Trade Secret" means any
information which derives independent economic value, actual or potential, with
respect to Employer from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic value
from its disclosure or use and is the subject of
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efforts to maintain its secrecy that are reasonable under the circumstances,
including, but not limited to, trade secrets, customer lists, sales records and
other proprietary commercial information. Said term, however, shall not include
general "know-how" information acquired by Executive during the course of
Executive's service which could have been obtained by Executive from public
sources without the expenditure of significant time, effort and expense which
does not relate to Employer.
(d) Return of Documents. Upon termination of Executive's services
with Employer, Executive shall return all originals and copies of books,
records, documents, customer lists, sales materials, tapes, keys, credit cards
and other tangible property of Employer within Executive's possession or under
Executive's control.
(e) Equitable Relief. In the event of any breach by Executive of any
of the covenants contained in this Section 6, it is specifically understood and
agreed that Employer shall be entitled, in addition to any other remedy which it
may have, to equitable relief by way of injunction, an accounting or otherwise
and to notify any employer or prospective employer of Executive as to the terms
and conditions hereof.
(f) Acknowledgment. Executive acknowledges that he may be directly
and materially involved as a senior executive in certain important policy and
operational decisions of Employer. Executive further acknowledges that the scope
of the foregoing restrictions has been specifically bargained between Employer
and Executive, each being fully informed of all relevant facts. Accordingly,
Executive acknowledges that the foregoing restrictions of Section 6 are fair and
reasonable, are minimally necessary to protect Employer, its other stockholders
and the public from the unfair competition of Executive who, as a result of
Executive's performance of services on behalf of Employer, will have had
unlimited access to the most confidential and important information of Employer,
its business and future plans. Executive furthermore acknowledges that no
unreasonable harm or injury will be suffered by Executive from enforcement of
the covenants contained herein and that he will be able to earn a reasonable
livelihood following termination of Executive's services notwithstanding
enforcement of the covenants contained herein.
7. Prior Agreements. This Agreement supersedes and is in lieu of any and
all other employment arrangements between Executive and Employer or its
predecessor or any subsidiary and any and all such employment agreements and
arrangements are hereby terminated and deemed of no further force or effect.
8. Assignment. Neither this Agreement nor any rights or duties of
Executive hereunder shall be assignable by Executive and any such purported
assignment by Executive shall be void. Employer may assign all or any of its
rights hereunder provided that substantially all of the assets of Employer are
also transferred to the same party.
9. Successor to Employer. Employer will require any successor or assign
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all the business and/or assets of Employer, as the case may
be, by agreement in form and substance reasonably satisfactory to Executive,
expressly, absolutely and unconditionally to assume and agree
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to perform this Agreement in the same manner and to the same extent that
Employer would be required to perform it if no such succession or assignment had
taken place. Any failure of Employer to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. This Agreement shall inure to the benefit of and be enforceable
by Executive's personal and legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If Executive should die
while any amounts are still payable to Executive hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to Executive's devisee, legatee or other designee or, if there be
no such designee, to Executive's estate.
10. Notices. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and if personally delivered or sent
by courier or certified mail, postage or delivery charges prepaid, to the
following addresses:
(a) if to Executive, to:
Mark J. Iuppenlatz
485 Clavey Lane
Highland Park, IL 60035
(b) if to Employer, to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: Chief Executive Officer
With a copy to:
Brookdale Living Communities, Inc.
Suite 3900
77 West Wacker Drive
Chicago, IL 60601
Attn: General Counsel
and to:
Winston & Strawn
35 West Wacker Drive
Chicago, IL 60601
Attn: Wayne D. Boberg
8
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Any notice, claim, demand, request or other communication given as provided in
this Section 10, if delivered personally, shall be effective upon delivery; and
if given by courier, shall be effective one (1) business day after deposit with
the courier if next day delivery is guaranteed; and if given by mail, shall be
effective three (3) business days after deposit in the mail. Either party may
change the address at which it is to be given notice by giving written notice to
the other party as provided in this Section 10.
11. Amendment. This Agreement may not be changed, modified or amended
except in writing signed by both parties hereto.
12. Waiver of Breach. The waiver by either party of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach by either party.
13. Severability. Employer and Executive each expressly agree and
contract that it is not the intention of either party to violate any public
policy, statutory or common law, and that if any covenant, sentence, paragraph,
clause or combination of the same of this Agreement (a "Contractual Provision")
is in violation of the law of any state where applicable, such Contractual
Provision shall be void in the jurisdictions where it is unlawful, and the
remainder of such Contractual Provision, if any, and the remainder of this
Agreement shall remain binding on the parties such that such Contractual
Provision shall be binding only to the extent that such Contractual Provision is
lawful or may be lawfully performed under then applicable laws. In the event
that any part of any Contractual Provision of this Agreement is determined by a
court of competent jurisdiction to be overly broad thereby making the
Contractual Provision unenforceable, the parties hereto agree, and it is their
desire, that such court shall substitute a judicially enforceable limitation in
its place, and that the Contractual Provision, as so modified, shall be binding
upon the parties as if originally set forth herein.
[14. Indemnification. Executive shall indemnify Employer for any and all
consequential damages, costs and expenses resulting from any of Executive's acts
or omissions that constitute bad faith, willful or intentional conduct intended
to cause harm to Employer's business or reputation and that cause material harm
to Employer's business or reputation. Executive also shall indemnify Employer
for any and all consequential damages, costs and expenses resulting from
Executive's acts of omission constituting reckless disregard of Executive's
duties to Employer following notice thereof by Employer after it becomes aware
of such conduct and Executive's failure to so cure within thirty (30) days.]
15. Governing Law. This Agreement shall be governed by, and construed,
interpreted and enforced in accordance with the laws of the State of Illinois,
exclusive of the conflict of laws provisions of the State of Illinois.
[signature page follows]
9
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
EMPLOYER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
---------------------------------
Title: President
---------------------------------
/s/ Mark J. Iuppenlatz
---------------------------------------
Mark J. Iuppenlatz
10
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EXHIBIT 10.11
MANAGEMENT AGREEMENT
--------------------
This MANAGEMENT AGREEMENT (this "Agreement"), dated as of May 7, 1997, is
made and entered into by and between THE ISLAND ON LAKE TRAVIS, LTD., a Texas
limited partnership ("Owner"), and BROOKDALE LIVING COMMUNITIES OF TEXAS, INC.,
a Delaware corporation ("Manager").
RECITALS
--------
WHEREAS, Owner owns the senior and assisted living facility identified on
Schedule A hereto (the "Facility");
WHEREAS, Manager is experienced and qualified in the business of owning and
operating senior and assisted living facilities such as the Facility, and Owner
desires to engage Manager to operate the Facility; and
WHEREAS, Manager is willing to operate the Facility on the terms and
subject to the conditions set forth in this Agreement.
AGREEMENTS
----------
NOW, THEREFORE, in consideration of the recitals and the mutual promises
and covenants herein contained and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. Responsibilities of Manager.
(a) Owner hereby engages Manager to operate the Facility, and Manager
hereby accepts such engagement and, subject to the conditions set forth in this
Agreement, agrees to operate the Facility, at Owner's expense, so as to provide
all services required by applicable law and regulations and by the terms set
forth in this Agreement. During the term of this Agreement, Manager shall have
full authority to operate and manage the Facility as a senior and assisted
living facility in accordance with applicable law and regulations and the terms
and conditions hereof, and shall have full and complete control and reign over,
and use of, the entire Facility, including its common areas. Without limiting
the generality of the foregoing, Manager shall have full authority and
responsibility as follows:
(i) Operational Policies and Forms. Subject to the applicable
Annual Budget (as defined in Section 1(a)(xii)), Manager shall establish and
implement such operational policies and procedures, and develop such new
policies and procedures, as Manager may deem necessary to cause or to ensure the
establishment
<PAGE>
and maintenance of operational standards appropriate for the nature of the
Facility.
(ii) Charges. Manager shall establish the schedules of charges for
residents of the Facility, including appropriate charges for any and all special
services rendered for residents at the Facility.
(iii) Information. Manager shall develop any informational
material, mass media releases, and other related publicity materials, that it
deems necessary for the operation of the Facility.
(iv) Regulatory Compliance. Manager shall use its reasonable best
efforts to maintain all licenses, permits, qualifications and approvals from any
applicable governmental or regulatory authority required for the operation of
the Facility, to operate the Facility in compliance with all applicable laws and
regulations, and to comply with such laws and regulations in performing
Manager's obligations under this Agreement. In addition, Manager shall supervise
and coordinate the preparation and filing of (and, where required to do so under
applicable law or regulations, file) all reports or other information required
by all state or other governmental agencies having jurisdiction over the
Facility (including, but not limited to, the Capital Health Facilities
Development Corporation of Travis County, Texas (the "Issuer")) and shall
deliver copies of all such reports and information to Owner simultaneously with
such filings. Manager shall cooperate with governmental inspection and
enforcement activities.
(v) Equipment and Improvements. Subject to the applicable Annual
Budget, Manager shall, on behalf of Owner, acquire or effect the acquisition of
equipment and improvements which are needed to maintain or upgrade the quality
of the Facility or its services, to replace obsolete or run-down equipment, or
to correct any other deficiencies which may be identified by Manager during the
term of this Agreement, and shall make, or engage third parties to make, all
such repairs, replacements and maintenance and shall cause to be acquired all
necessary equipment, including replacement equipment.
(vi) Accounting. Manager shall supervise and coordinate accounting
support to, and prepare and maintain records for, the Facility, including the
following:
A. a monthly balance sheet and statement of operations for the
Facility, to be submitted to Owner within thirty (30) days after the end of each
calendar month;
B. resident billing records;
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C. accounts receivable and collection records;
D. accounts payable records;
E. all payroll functions, including preparation of payroll
checks, establishment of depository accounts for with-holding taxes, payment of
such taxes (at Owner's sole expense), filing of payroll reports and the issuance
of W-2 forms to all employees;
F. a complete general ledger for the purposes of recording and
summarizing all transactions for the Facility; and
G. the preparation and filing of all necessary reports as
required by any and all governmental authorities having jurisdiction over the
Facility or the operation thereof (including, but not limited to, the Issuer)
and the simultaneous provision of copies thereof to Owner. Manager shall file,
on its own behalf or on behalf of Owner, all such reports as are required to be
filed by Manager or Owner.
All accounting procedures and systems utilized in providing said support shall
be in accordance with the operating capital and cash programs developed by
Manager and approved by Owner, which programs shall conform to generally
accepted accounting principles and shall not materially distort income or loss.
Subject to the applicable Annual Budget, nothing herein shall preclude Manager
from engaging a third party to assist it in the performance of the accounting
duties provided for herein.
(vii) Reports. Manager shall supervise and coordinate the
preparation of any reasonable operational information which may from time to
time be specifically requested by Owner, including any information and reports
needed to assist Owner in completing its tax returns and in complying with any
reporting obligations imposed by any mortgagees or lessors of the Facility. In
addition, (i) within thirty (30) days after the end of each calendar month,
Manager shall supervise and coordinate the preparation and the delivery to Owner
of an unaudited balance sheet of the Facility, dated as of the last day of such
month, and unaudited statements of income and expenses and cash flow for such
month relating to the operation of the Facility and (ii) within ninety (90) days
after the end of the fiscal year of the Facility, Manager shall supervise and
coordinate the preparation and the delivery to Owner of audited financial
statements, including a balance sheet of the Facility dated as of the last day
of said fiscal year and statements of income and expense and changes in
financial position and an unaudited statement of cash flow for the fiscal year
then ended relating to the operation of the Facility. In addition, Manager shall
supervise and coordinate the preparation and the delivery to Owner of monthly
occupancy reports and related information with respect to the Facility. All
originals of the
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books, forms and records generated by Manager in connection with the operation
of the Facility shall be Manager's property; provided, that Manager shall
provide Owner with copies of any of such books, forms and records reasonably
requested by Owner.
(viii) Bank Accounts. Manager shall establish an account or
accounts and shall deposit therein all money received by Manager on Owner's
behalf from the operation of the Facility. Withdrawals and payments from this
account shall be made only on checks signed by one or more person or persons
designated by Manager. Manager shall give Owner written notice as to the
identity of such authorized signatories on such account. Subject to paragraph
(2) of Section 1(a)(xii), all expenses incurred in the operation of the Facility
in accordance with the terms of the Annual Budgets, including, but not limited
to, Facility mortgage or lease payments, payroll and employee benefits and
payment of Fees, shall be paid by check drawn on this account. Monthly payments
shall be made out of this account first to pay any debt service or rent due with
respect to the Facility, next to pay the operating expenses of the Facility in
such order of priority as Manager deems appropriate to the operation of the
Facility (other than the Fees), and, thereafter, to pay the Fees. Any Fees which
are not paid when due as a result of an insufficiency of revenues from the
Facility to cover the same shall accrue and shall be due and payable promptly by
Owner.
(ix) Personnel. Manager shall have full power and authority to
recruit, hire, train, promote, direct, discipline and fire all Facility
personnel, including the Executive Director of the Facility; establish salary
levels, personnel policies and employee benefits; and establish employee
performance standards, all as Manager determines to be necessary or desirable
during the term of this Agreement to ensure the efficient and satisfactory
operation of all departments within, and all services offered by, the Facility.
All of the foregoing obligations shall be undertaken in accordance with the
Annual Budgets and applicable law and regulations. All of the Facility personnel
shall be the employees of Manager, unless otherwise agreed by Owner and Manager,
and all salary, bonuses, fringe benefits, payroll taxes and related expenses
payable to or in respect of the Facility's on-site personnel holding the
position of Executive Director of the Facility and positions subordinate thereto
shall be expenses of the Facility. Manager agrees to employ as of the date of
this Agreement all individuals who are working at the Facility as of the date of
this Agreement and assume all liabilities and obligations to or with respect to
such individuals and indemnify, defend and hold harmless Owner and its
affiliates against any and all claims made by such individuals in respect of
their respective employment at the Facility.
(x) Supplies and Equipment. Manager shall purchase, on behalf of
Owner, supplies and non-capital equipment
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needed to operate the Facility within the budgetary limits set forth in the
Annual Budgets.
(xi) Legal Proceedings. Manager shall, through legal counsel
designated by Manager and reasonably satisfactory to Owner, direct all legal
matters and proceedings that are within the scope of Manager's authority
pursuant to this Agreement, including without limitation, instituting any
necessary legal actions or proceedings to collect obligations owing to the
Facility, canceling or terminating any contract or agreement relating to the
Facility for breach thereof or default thereunder, and otherwise enforce the
obligations of the residents, sponsors, licensees, customers and any other users
of the Facility. Without limiting the generality of the foregoing, Manager is
authorized (without the prior written consent of Owner) to settle, in the name
and on behalf of Owner and on such terms and conditions as Manager may deem to
be in the best interests of the Facility, any and all claims or demands arising
out of, or in connection with, the operation of the Facility, whether or not
legal action has been instituted, provided that such settlement does not exceed
the amount for each such individual claim or demand as set forth in the most
recently approved Annual Budget. All such amounts paid in respect of any such
settlements shall be expenses of the Facility. Manager will give notice promptly
to Owner of all demands and claims and all settlements and legal actions, but
the failure to give such notice shall not affect the preceding provisions of
this paragraph.
(xii) Annual Budgets.
(A) Preparation and Submission. Owner and Manager acknowledge that
they have agreed upon the budget for the Facility through December 31, 1997. At
least ninety (90) days prior to January 1, 1998 and each subsequent calendar
year that commences during the term of this Agreement, Manager shall submit to
Owner a proposed annual budget for the Facility projecting the revenues
available and funds required during such fiscal year in order to operate the
Facility and to make capital improvements necessary or desirable in order to
keep the Facility's physical plant in good condition and repair. The proposed
annual budget shall be based upon data and information then available to Manager
and shall include, without limitation, estimated salaries and fringe benefits
for all personnel groups, projected staffing patterns for the Facility,
estimates of required capital expenditures and purchases of equipment, supplies,
inventory, food and similar items, and an estimate of the level of rates and
charges to residents of the Facility sufficient to generate revenue necessary to
operate the Facility and make the capital improvements projected in such budget.
The proposed annual budget shall be an estimate of revenues and costs, and Owner
and Manager acknowledge that (1) projected revenue may not be actually received
and (2) projected costs may be exceeded by actual expenses and capital
expenditures incurred in connection with the operation and maintenance of the
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Facility. By submitting such a projected budget, Manager will not be deemed to
be providing a guarantee or warranty as to the projected revenue, expenses or
capital expenditures of the Facility.
(B) Adoption. The Facility budget for the period ending December
31, 1997 referred to in the immediately preceding paragraph and each annual
budget as finally established in accordance with this subparagraph (B)
(including as it may thereafter be revised from time to time during a calendar
year pursuant to the written agreement of Owner and Manager), as the same may be
modified by Owner and Manager, shall constitute an "Annual Budget" for all
purposes under this Agreement. Owner shall, within fifteen (15) days following
receipt from Manager of a proposed annual budget proposal, notify Manager of
either (1) Owner's approval of such proposed annual budget or (2) those items of
which Owner approves and those items of which Owner disapproves. In the event
that Owner does not either approve or disapprove of, in total or in part, such
proposed annual budget in writing within such 15-day period, then such proposed
annual budget shall be deemed approved by Owner and shall be the Annual Budget
for such calendar year. If Owner disapproves of the proposed annual budget
either in total or in part within such 15-day period, then Owner and Manager
shall have thirty (30) days from the date of Owner's disapproval notice to
formulate a mutually agreeable Annual Budget. If the parties are unable to reach
an agreement within said thirty (30) day period, then the Annual Budget for the
immediately preceding calendar year, including any such prior Annual Budget
determined in accordance with this sentence, increased by the greater of 5% and
the percentage increase in the Consumer Price Index -- Urban Wage Earners (or,
if such index is no longer published, such other index as is determined by
Manager in good faith to be comparable) during the 12-month period ended on
November 30th of such preceding year, shall constitute the Annual Budget pending
the final adoption of an Annual Budget; provided, however, that the budgeted
items for the categories of heat, light, power, insurance and real estate taxes
shall be deemed increased as required to reflect actual expenses for the
succeeding calendar year).
(C) Efforts to Operate within Annual Budget. Manager agrees to use
its reasonable best efforts to operate the Facility in accordance with the
Annual Budgets. Subject to the foregoing limitation, Owner shall be responsible
on a periodic basis, as and when needed, for all expenses and capital
expenditures incurred in connection with the operation and maintenance of the
Facility, including, without limitation, Fees and cost overruns which exceed the
projections in the then current Annual Budget; provided, however, that (except
as provided in the next sentence) Owner shall not be responsible for cost
overruns which exceed the relevant amount provided for in such Annual Budget by
more than 10%, if the incurrence of such overruns was subject to
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or within the reasonable control of Manager. Notwithstanding anything in this
Agreement, if Manager determines in good faith that the incurrence of any
expenditure is required in order to comply with applicable law or regulations,
then, with Owner's prior approval, which shall not be unreasonably withheld,
Manager shall be entitled to make such expenditures, and all such expenditures
shall be deemed, for all purposes of this Agreement, to be in accordance with
the then current Annual Budget.
(xiii) Collection of Accounts. Manager shall issue bills and
collect accounts and monies owed for goods and services furnished by the
Facility, including, but not limited to, enforcing the rights of Owner and the
Facility as creditor under any contract or in connection with the rendering of
any services. Any actions taken by Manager to collect said accounts receivable
shall be in accordance with the applicable laws, rules and regulations governing
the collection of accounts receivable and in accordance with the applicable
Annual Budget.
(xiv) Contracts. Subject to Owner's prior approval, Manager shall
negotiate, enter into, secure, cancel and/or terminate such agreements and
contracts which Manager may deem necessary or advisable for the operation of the
Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services. Where
lawful and provided Owner has approved, said agreements and contracts will be
entered into in the name of and on behalf of Owner.
(b) Exclusive Representative. It is understood and agreed that
Manager shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Any communications from Owner
to such persons or entities or authorities shall be directed through Manager
unless Owner determines that direct communications between Owner and one or more
such persons or entities is appropriate. Owner currently maintains and will
continue to maintain contact relationships with certain of the above-mentioned
persons and entities.
2. Insurance. Manager shall arrange for and maintain all necessary and
proper hazard insurance covering the Facility, including the furniture, fixtures
and equipment situated thereon, all necessary and proper malpractice and public
liability insurance for Manager's and Owner's protection and for the protection
of Manager's and Owner's directors, officers, partners, agents and the
Facility's personnel. Manager shall also arrange for and maintain all employee
health and worker's compensation insurance for the Facility's personnel. Any
insurance provided pursuant to this paragraph shall comply with the requirements
of any applicable
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Facility mortgage or lease and, with the exception of the insurance maintained
by Manager for its own protection, shall be an expense of the Facility.
3. Proprietary Interest. The systems, methods, procedures and controls
employed by Manager and any written materials or brochures developed by Manager
to document the same are to remain the property of Manager provided, Manager
shall provide Owner with a copy or copies of such materials and brochures.
4. Term of Agreement; Effect of Termination. Unless this Agreement is
sooner terminated as hereinafter provided in Section 5 or in this Section 4 or
as otherwise agreed in writing, the initial term of this Agreement shall
commence on the date hereof and shall end on April 30, 1999, with successive
automatic renewal periods of one (1) year each thereafter, unless either party
notifies the other in writing, within sixty (60) days prior to the expiration of
the then current term, of such party's intention not to exercise the then
upcoming automatic renewal period. This Agreement may be terminated (i) by Owner
(a) upon sixty (60) days' prior written notice to Manager given at any time
after the last day of the 24th month of the term of this Agreement or (b) at any
time after the date hereof for Cause (as hereinafter defined), or (ii) by
Manager upon sixty (60) days' prior written notice to Owner given at any time
after the date hereof; provided, however, that in the event of a termination by
Manager pursuant to clause (ii) above, Manager shall cooperate with and assist
Owner in engaging a qualified replacement manager for the Facility. Upon any
termination of this Agreement pursuant to the immediately preceding sentence,
the parties hereto shall have no further obligations or liabilities other than
the right of Manager to receive Fees through the date of termination and
Manager's obligation to cooperate with Owner to facilitate a smooth transition
to a qualified replacement manager for the Facility, except that, upon the
expiration or earlier termination of this Agreement for any reason, the parties
shall cooperate (at Owner's expense) to minimize the impact of the change on the
residents of the Facility, and during any such period for which Manager provides
services or assists in the operation of the Facility in connection therewith it
shall be entitled to receive an appropriate fee therefor.
For purposes of this Agreement, "Cause" shall mean (i) fraud,
misappropriation or embezzlement by Manager involving Owner's property or other
wrongful acts by Manager that materially impair the goodwill or business of
Owner or the Facility or that cause material damage to Owner's property,
goodwill or business or (ii) continued failure by Manager to substantially
perform its duties and obligations owing to Owner under this Agreement, after a
written demand for performance by Manager is delivered to Manager by Owner that
specifically identifies the manner in which Owner believes Manager has not
substantially performed its duties and
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after Manager has been given at least thirty (30) days in which to cure such
performance deficiencies.
5. Events of Default and Remedies.
(a) Defaults. Each of the following shall constitute an Event of
Default hereunder:
(i) if Owner shall fail to pay or allow payment of any installment
of the Fees due to Manager in accordance with Section 8 hereof for a period of
thirty (30) days after written notice of such default from Manager;
(ii) if either Owner, on the one hand, or Manager, on the other,
fails to perform in any material respect any term, provision, or covenant of
this Agreement (other than as set forth in Section 5(a)(i)) and (A) such failure
continues for thirty (30) days after written notice from the other party
specifying such failure to perform (unless such failure cannot reasonably be
cured within such 30-day period, in which event, the defaulting party shall have
an additional period, not to exceed an additional thirty (30) days, in which to
cure the default) or (B) the defaulting party fails to endeavor vigorously,
diligently and continuously to cure such default as promptly as is practicable;
or
(iii) if either Owner, on the one hand, or Manager, on the other, is
dissolved or liquidated, applies for or consents to the appointment of a
receiver, trustee or liquidator of all or a substantial part of its assets,
files a voluntary petition in bankruptcy or is the subject of an involuntary
bankruptcy filing, makes a general assignment for the benefit of creditors, or
files a petition or an answer seeking reorganization or arrangement with
creditors or to take advantage of any insolvency law, or if an order, judgment
or decree shall be entered by any court of competent jurisdiction, on the
application of a creditor, adjudicating Owner or Manager bankrupt or insolvent
or approving a petition seeking reorganization of Owner or Manager or appointing
a receiver, trustee or liquidator for such party of all or a substantial part of
its assets, and such order, judgment or decree shall continue unstayed and in
effect for any period of sixty (60) consecutive days.
(b) Remedies. At any time after the occurrence and during the
continuance of an Event of Default, the party who has not committed or suffered
the Event of Default may, at its option, terminate this Agreement by giving
written notice to the other party and, except as provided in this Agreement,
shall be entitled to exercise all rights and remedies available under applicable
law; provided, however, that Owner may cause the effective date of any
termination by Manager to be deferred for up to ninety (90) days to afford Owner
the opportunity to engage a replacement manager of the
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Facility and to facilitate a smooth transition to such replacement manager.
6. Facility Operations.
(a) No Guarantee of Profitability. Manager does not guarantee that
operation of the Facility will be profitable, but Manager shall use its best
efforts to operate the Facility in as cost effective and profitable a manner as
reasonably possible consistent with maintaining operations in accordance with
the senior and assisted living industry's then prevailing standards in the
geographic area in which the Facility is located.
(b) Standard of Performance; Acting within Budget. In performing its
obligations under this Agreement, Manager shall use its reasonable best efforts
and act in good faith and with professionalism in accordance with the Annual
Budgets and the prevailing standards of the senior and assisted living industry
in the geographic area in which the Facility is located.
(c) Force Majeure. The parties will not be deemed to be in violation
of this Agreement if they are prevented from performing any of their respective
obligations hereunder for any reason beyond their control, including, without
limitation, strikes, shortages, war, acts of God, or any applicable statute,
regulation or rule of federal, state or local government or agency thereof
having jurisdiction over the Facility or the operations thereof.
7. Withdrawal of Funds by Manager. Owner and Manager acknowledge and
agree that the efficient operation of the Facility requires that Manager have
ready access to the funds required therefor. Accordingly, unless otherwise
agreed by Owner and Manager, Owner agrees not to withdraw any funds from the
Facility's bank account(s) reasonably believed by Manager to be required for the
proper operation of the Facility or maintenance of appropriate reserves with
respect thereto as set forth in the most recently approved Annual Budget.
8. Fees. During the term of this Agreement, Manager shall be entitled to
receive management fees (the "Fees") equal to five percent (5%) of the gross
revenues of the Facility during each month or portion thereof occurring during
such term. Fees shall be paid on a monthly basis simultaneously with the
delivery by Manager to Owner of the monthly statements provided for in Section
1(a)(vii).
9. Assignment. This Agreement shall not be assigned (including by
operation of law, whether by merger or consolidation (excluding a merger
effected solely for the purpose of changing Owner's jurisdiction of
incorporation that does not affect the stock ownership of Owner in any material
respect) or otherwise) by
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Owner, on the one hand, or by Manager, on the other, without the prior written
consent of the other party; provided, however, that to the extent permitted by
applicable law and regulations, and subject to the receipt of all required
licenses, permits, approvals and authorizations of applicable governmental
agencies, this Agreement may be assigned by Manager to one or more corporations
or other legal entities all the shares (and, in the case of legal entities other
than corporations, all the equity ownership and voting control) of which are
owned by Manager or by Brookdale Living Communities, Inc. (the owner of all of
the outstanding stock of Manager).
10. Notices. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service to the following addresses, or such other
addresses as shall be given by notice delivered hereunder, and shall be deemed
to have been given upon delivery, if delivered personally, three (3) business
days after mailing, if mailed, or one business day after delivery to the
courier, if delivery by overnight courier service:
If to Owner, to:
The Island on Lake Travis, Ltd.
c/o The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Michael W. Reschke
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
If to Manager, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, Illinois 60601
Attn: President
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With a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attn: Wayne D. Boberg
11. Relationship of the Parties. The relationship of Manager to Owner in
connection with this Agreement shall be that of an independent contractor, and
all acts performed by Manager during the term hereof shall be deemed to be
performed in Manager's capacity as an independent contractor. Nothing contained
in this Agreement is intended to or shall be construed to give rise to or create
a partnership or joint venture or lease between Owner, its successors and
assigns, on the one hand, and Manager, its successors and assigns, on the other
hand.
12. Entire Agreement. This Agreement and any documents executed in
connection herewith contain the entire agreement among the parties and shall be
binding upon their respective successors and assigns, and shall be construed in
accordance with the laws of the State of Texas. This Agreement may not be
modified or amended except by written instrument signed by the parties hereto.
13. Contract Modifications for Certain Legal Events. In the event any
state or federal laws or regulations, whether now existing or enacted or
promulgated after the effective date of this Agreement, are interpreted by
judicial decision, a regulatory agency or legal counsel of both parties in such
a manner as to indicate that the structure of this Agreement may be in violation
of such laws or regulations, Owner and Manager agree to cooperate in
restructuring their relationship and this Agreement to eliminate such violation
or to reduce the risk thereof to the extent such restructuring can be
accomplished upon commercially reasonable terms; provided, that any such
restructuring shall, to the maximum extent possible, preserve the underlying
economic and financial arrangements between Owner and Manager. The parties agree
that such amendment may require either or both parties to obtain appropriate
regulatory licenses and approvals.
14. Captions. The captions used herein are for convenience of reference
only and shall not be construed in any manner to limit or modify any of the
terms hereof.
15. Severability. In the event one or more of the provisions contained in
this Agreement is deemed to be invalid, illegal or unenforceable in any respect
under applicable law, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be impaired thereby.
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16. Remedies Cumulative; No Waiver. No right or remedy herein conferred
upon or reserved to any of the parties hereto is intended to be exclusive of any
other right or remedy, and each and every right and remedy shall be cumulative
and in addition to any other right or remedy given hereunder, or now or
hereafter legally existing upon the occurrence of an Event of Default hereunder.
The failure of any party hereto to insist at any time upon the strict observance
or performance of any of the provisions of this Agreement or to exercise any
right or remedy as provided in this Agreement shall not impair any such right or
remedy or be construed as a waiver or relinquishment thereof with respect to
subsequent defaults. Every right and remedy given by this Agreement to the
respective parties hereto may be exercised from time to time and as often as may
be deemed expedient by such parties. To the extent either party hereto incurs
legal fees and expenses in connection with such party's enforcement of any of
its rights hereunder as a result of a breach of this Agreement by the other
party hereto (the "Breaching Party"), then, to the extent it is determined,
either by the admission of the Breaching Party or by a court having competent
jurisdiction over such dispute, that the Breaching Party had committed the
alleged breach of this Agreement, then the Breaching Party shall pay all such
reasonable attorneys' fees and expenses incurred by the other party in
connection with such enforcement.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement.
[signature page follows]
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Management
Agreement to be executed and delivered in their names and on their behalf as of
the date first set forth above.
OWNER:
THE ISLAND ON LAKE TRAVIS, LTD., a
Texas limited partnership
By: The Lake Travis Island, Ltd.,
a Texas limited partnership, its General
Partner
By: The Prime Group, Inc., an Illinois
corporation, its General Partner
By: /s/ Richard S. Curto
----------------------------------
Name: Richard S. Curto
--------------------------------
Title: Executive Vice President
-------------------------------
MANAGER:
BROOKDALE LIVING COMMUNITIES OF TEXAS, INC., a
Delaware corporation
By: /s/ Mark J. Schulte
----------------------------------------
Name: Mark J. Schulte
--------------------------------------
Title: President
-------------------------------------
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<PAGE>
SCHEDULE A
DESCRIPTION OF FACILITY
The real property and improvements commonly known as The Island and Lake Travis
located at 3404 American Drive, Lago Vista, Texas.
-15-
<PAGE>
Exhibit 10.12
SUBMANAGEMENT AGREEMENT
-----------------------
This Submanagement Agreement (the "Subagreement") is made as of the 1st day
of July, 1997 by and between KENWOOD CONGREGATE ASSOCIATES LIMITED PARTNERSHIP,
an Illinois limited partnership (the "Owner"), ACTIVE LIFE MANAGEMENT
CORPORATION, an Illinois corporation (the "Agent") and BROOKDALE LIVING
COMMUNITIES OF MINNESOTA-II, INC., a Delaware corporation (the "Manager").
A. The Owner is the owner of certain real estate located at 825 Summit
Avenue, Minneapolis, Minnesota, known as The Kenwood, a 156 unit elderly
apartment building (the "Building"). (The Real Estate and the Building are
collectively referred to herein as the "Property").
B. Owner retained Agent to manage the Property pursuant to a management
agreement dated January 1, 1995 (the "Agreement").
C. The Agent desires to subcontract with Manager for Manager to perform
services on behalf of the Agent as required by the Agreement in connection with
the operation of the Property.
D. Manager desires to be retained as the manager of the Property as
hereinafter set forth.
NOW, THEREFORE, OWNER, AGENT AND MANAGER hereby agree as follows:
1. Hiring. The Agent hereby hires the Manager to exclusively rent and
manage and operate the Property, and Manager hereby accepts such
responsibility subject to the terms and conditions of this
Subagreement.
2. Duties of Manager. As Manager of the Property, Manager shall have the
following duties and responsibilities:
(a) Duties.
(i) Hiring. The Manager shall hire, promote, discharge and
supervise the work of the executive staff (i.e., managers
and department heads) of the Property and supervise
through said executive staff the hiring, promotion,
discharge and work of all other employees performing
services in or about the Property. All such personnel
shall be employees of the Manager. All wages,
compensation, fringe benefits, payroll taxes and related
expenses payable to, or in respect of, the Property's
personnel
<PAGE>
shall be expenses of the Property. In the hiring of the
executive staff and other employees of the Property, the
Manager will use or cause said executive staff to use
reasonable care to select qualified, competent and
trustworthy employees. The Manager will negotiate with
any labor union lawfully entitled to represent such
employees. Manager agrees that any employees at the
Property who were employees at the Property prior to the
date of this Agreement and who Manager retains on staff
after the turnover of the Property to Manager shall keep
their original dates of hire at the Property for the
purpose of determining seniority and vacation benefits
under Manager's employment benefits program.
(ii) Licenses and Permits. Manager, in the name and at the
expense of the Owner, shall cause to be applied for, and
use its best efforts to obtain and maintain, all licenses
and permits required of the Owner, the Agent or the
Manager in connection with the management and operation of
the Property. The Owner and Agent agrees to execute and
deliver any and all applications and other documents and
to otherwise cooperate to the fullest extent with the
Manager in applying for and obtaining and maintaining such
licenses and permits.
(iii) Insurance. Subject to availability, the Manager will, on
behalf of the Owner and Agent and at the expense of the
Owner, cause to be placed and kept in force at all times
during the term of this Subagreement, all insurance of the
type and in the amounts required to be maintained by any
mortgagee or Owner and naming as insured specific parties
all as set forth in writing by the Owner or Agent and,
subject to the prior written consent of the Owner, such
other insurance as is normally carried by properties
similar in size, type and location as the Property. All
such insurance shall be effected by policies issued by
companies approved in writing by the Owner. Policies of
insurance and certificates therefor, complying with the
standards as set forth in writing by the Owner or Agent,
shall be obtained by the Manager and delivered to such
parties as directed by the Owner or Agent. The Agent and
the Manager will be named as an additional party insured
on all liability policies, and on all other policies, in
which it is reasonable to name Agent and Manager given the
nature of the Agreement and this Subagreement.
(iv) Books, Records and Reports. During the term of the
Subagreement, the Manager shall cause to be prepared and
submitted to the Owner, the Agent and such other parties
as designated by the Owner or Agent, those books and
reports as set forth on Exhibit A attached hereto (the
foregoing books,
2
<PAGE>
records and reports, as well as those requested by the
Owner or Agent, as hereinafter provided, are collectively
referred to as the "Reporting Documents"). In addition
thereto, the Manager shall furnish, at the Owner's
expense, such additional Reporting Documents as required
from time to time by the Owner or Agent pursuant to a
written request to the Manager. All such Reporting
Documents shall be furnished within the time limits set
forth on Exhibit A or as set forth in writing by the Owner
or Agent and shall be compiled and prepared in accordance
with the directions of the Owner or Agent and general
accounting standards utilized in the residential housing
industry generally applicable to the Property. Nothing
contained herein shall require the Manager to prepare any
statements or reports that deal with the Owner or the
Agent as an individual entity, but shall be limited to
statements and reports relating to the Property and the
operation thereof. The parties acknowledge that all costs
included in preparation of the Reporting Documents
including, without limitation, expenses for personnel,
computers, equipment and supplies, shall be an expense of
the Owner; provided, however, that Manager agrees that
such costs will not exceed the current budgeted
administrative and employee expenses for the Property,
except for typical cost of living increases on an annual
basis. Any outside annual audit would be at the expense of
the Owner. Manager shall be permitted to charge the Owner
or the Property up to $5,000 in order to implement
Manager's operating and reporting system. Manager agrees
to charge the Project no more than $2,500 of the above
charge in 1997. Manager shall receive the balance of the
charge in 1998. Manager agrees that any costs in excess of
the $5,000 or which exceed the current budgeted
administrative and employee expenses for the Property
(subject to cost of living increases on an annual basis)
shall be borne by Manager or offset against Manager's fee.
(v) Legal Action. The Manager shall institute in its own name
or in the name of the Owner, but in any event at the
expense of the Owner, any and all legal action or
proceedings which the Manager deems advisable to collect
rents or other income from tenants or to oust or
dispossess tenants or other persons in possession of the
units therefrom, or to cancel or terminate any lease,
license or concession agreement for the licensee or
concessionaire.
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<PAGE>
(vi) Collection of Rents. The Manager shall collect all monthly
rents, charges, fees and assessments and security
deposits due from tenants; all rents and/or fees due from
users of the garage or parking spaces and from users or
lessees of other nondwelling facilities in the Property;
and all sums due from concessionaires in consequence of
the authorized operation of facilities in the Property.
All such sums so collected shall be deposited in Manager's
custodial account, as hereinafter provided, or as
otherwise may be provided by applicable law as in the case
of security deposits.
(vii) Banking and Disbursements. The Manager shall deposit in a
banking institution or institutions mutually approved by
the Owner, Agent and the Manager in accounts in the name
of the Owner, all monies furnished by the Owner or Agent
as working funds and all monies received by the Manager in
connection with the operations of the Property. The
Manager shall disburse and pay the same on behalf of and
in the name of the Owner or Agent in such amounts and at
such time as the same are required to be made in
connection with the operation of the Property in the
payment of expenses thereof and disbursements of monies to
the Owner or Agent.
(viii) Operating Supplies. The Manager shall purchase all
necessary food, beverages, operating supplies and other
materials and supplies in the name of, for the account of
and at the expense of, the Owner.
(ix) Concession Contracts. For the benefit of and subject to
the approval by the Owner, the Manager shall make
arrangements for the concessionaires, licensees, tenants
or other intended users of the facilities of the Property.
(x) Utilities and Services. The Manager shall enter into
contracts in the name and at the expense of the Owner for
the furnishing to the Property of electricity, gas, water,
steam, telephone, cleaning (including window cleaning),
exterminators, elevator and boiler maintenance, air-
conditioning maintenance, master television antennas'
installation and service, laundry service, dry cleaning
service, and any other utilities, services and concessions
as are provided in connection with the maintenance and
operation of property similar to the Property.
4
<PAGE>
(xi) Maintenance and Repair. Manager shall cause the
buildings, appurtenances and grounds of the Property to
be maintained at Owner's expense according to standards
acceptable to Owner or Agent, including, but not limited
to, interior and exterior cleaning, painting, and
decorating of the areas, and repair and maintenance of
plumbing, HVAC, electrical and other systems within the
areas, subject to any limitations imposed by Owner or
Agent in a written notice to Manager in addition to
those contained herein. For any one item of repair or
replacement, the expense incurred shall not exceed the
sum of ONE THOUSAND FIVE HUNDRED ($1,500.00) DOLLARS
unless specifically authorized by Owner or Agent or
specified in the Budget, provided, however, that
emergency repairs, involving manifest danger to life or
property, or immediately necessary for the preservation
and safety of the Property, or for the safety of the
tenants or occupants, or required to avoid the
suspension of any necessary service to the Property, may
be made by the Manager irrespective of the cost
limitation imposed by this paragraph. Notwithstanding
this authority as to emergency repairs, it is understood
and agreed that the Manager will, if at all possible,
confer immediately with Owner or Agent regarding such
expenditure.
(xii) Consultants. From time to time and as provided for in
the Budget (as hereinafter defined) and as approved by
the Owner or Agent, the Manager shall be authorized to
retain the services of consultants in connection with
the operation or management of the Property.
(xiii) Necessary Acts. At the expense of the Owner, the
Manager shall use its best efforts to perform all such
acts and things to be done in and about the Property,
which shall be necessary to comply with all applicable
statutes, ordinances, laws, rules, regulations, orders,
requirements and agreements of or with any federal,
state or municipal government and appropriate
departments, commissions, boards and officers having
jurisdiction over the use or manner of use of the
Property or the maintenance or operation thereof, as
well as with all orders and requirements of the local
board of fire underwriters or any other body which may
hereafter exercise similar functions, as well as with
the requirements of any lender and any health service
provider; provided, however, that such action shall not
be taken without the written approval of the Owner or
Agent unless it is provided for in the current Budget or
involves an
5
<PAGE>
emergency or the failure to promptly comply with any order
or violation shall result in the suspension of operations
of the Property or shall expose any party hereto to the
imminent danger of criminal liability, then in such event
the Manager shall cause the same to be done or complied
with at the expense of the Owner, provided further,
however, that notice to the Owner and Agent of such act
shall be given as soon as practicable.
(xiv) Emergency Repairs. At Owner's expense, the Manager shall
make any emergency repairs required to preserve the
immediate safety of person or property or necessary to
prevent the imminent cessation of the Property's
operations, provided that notice of the nature and extent
of the repairs shall be given to the Owner as soon as
practical given the circumstances of the emergency.
(xv) Annual Budgets.
(A) Preparation and Submission. Manager acknowledges that
Manager has received from Agent the budget for the
Property through December 31, 1997. At least forty
five (45) days prior to December 31, 1997 and prior
to December 31 for each subsequent calendar year that
commences during the term of this Subagreement.
Manager shall submit to Agent and Owner a proposed
annual budget for the Property projecting the
revenues available and funds required during such
fiscal year in order to operate the Property and to
make capital improvements necessary or desirable in
order to keep the Building's physical plant in good
condition and repair. The proposed annual budget
shall be based upon data and information then
available to Manager and shall include, without
limitation, estimated salaries and fringe benefits
for all personnel groups, projected staffing
expenditures and purchases of equipment, supplies,
inventory, food and similar items, and an estimate of
the level of rates and charges to residents of the
Property. The proposed annual budget shall be an
estimate of revenues and costs, and Owner, Agent and
Manager acknowledge that (1) projected revenue may
not actually be received and (2) projected costs may
be exceeded by actual expenses and capital
expenditures incurred in connection with the
operation and
6
<PAGE>
maintenance of the Property. By submitting such projected
budget, Manager will not be deemed to be providing a
guarantee or warranty as to the projected revenue, expenses
or capital expenditures of the Property.
(B) Adoption. The budget for the period ending December 31, 1997
and each annual budget as finally established in accordance
with this paragraph (B) (including as it may thereafter be
revised from time to time during a calendar year pursuant to
the written agreement of Owner, Agent and Manager), as the
same may be modified by Owner, Agent and Manager, shall
constitute the "Budget" for all purposes under this
Subagreement. Owner and Agent shall, within thirty days (30)
days following receipt of a proposed annual budget proposal,
notify Manager of either (1) Owner's and Agent's approval of
such proposed annual budget or (2) those items of which
Owner and Agent approve and those items of which Owner and
Agent disapprove. In the event that Owner or Agent does not
either approve or disapprove of, in total or in part, such
proposal annual budget in writing within such 30 day period,
then such proposed annual budget shall be deemed approved by
Owner and Agent and shall be the Budget for such calendar
year. If Owner or Agent disapproves of the proposed annual
budget either in total or in part within such 30 day period,
then Owner, Agent and Manager shall have thirty (30) days
from the date of the disapproval notice to formulate a
mutually agreeable Budget. If the parties are unable to
reach an agreement within said 30 day period, then the
Budget for the immediately preceding calendar year,
including any such prior Budget determined in accordance
with this sentence, shall constitute the Budget pending
final adoption of a Budget; provided, however, that the
budgeted items for the categories of heat, light, power,
insurance and real estate taxes shall be deemed increased or
decreased as required to reflect actual expenses for the
preceding calendar year.
(C) Efforts to Operate within Annual Budget. Manager agrees to
use its reasonable best efforts to operate the Property in
accordance with the Budget.
7
<PAGE>
Notwithstanding anything in this Agreement, if
Manager determines in good faith that the incurrence
of any expenditure is required in order to comply
with applicable law or regulations, then Manager
shall be entitled to make such expenditures up to
$5,000 in any calendar year, and all such
expenditures shall be deemed, for all purposes of
this Agreement, to be in accordance with the then
current Budget.
(xvi) Fidelity Bond. As soon as practicable after the date of
this Agreement, Manager shall furnish and maintain for the
duration of this Subagreement and any renewals or
extensions, plus 30 days after its expiration or
termination, a commercial blanket bond (the "Fidelity
Bond") in favor of Owner and Agent, jointly or severally,
in an amount not less than two (2) months gross potential
rents for the Property plus tenants' security deposits.
The Fidelity Bond shall be in a form and with a company
reasonably acceptable to Owner and Agent. The Fidelity
Bond shall cover Manager and all employees hired by
Manager in connection with this Subagreement. The Fidelity
Bond shall cover losses discovered by Owner or Agent for a
period of two (2) years after the occurrence of such
losses. The cost of the Fidelity Bond shall be an
operating expense of the Property.
(b) Proper Operation of the Property. Subject to the provisions of
this Subagreement, the Manager shall take all other action, at
Owner's expense, to operate the Property at all times in a first
class manner given the nature and condition of the Property as of
the date hereof.
(c) Qualifications on the Manager's Duties. All of the foregoing set
forth herein with respect to the Manager's duties and
responsibilities shall be subject to the reservation on the part
of the Owner and Agent to give Manager directions with respect to
all aspects of the operation of the Property; but such
reservation of authority shall not diminish Manager's
responsibility, except to the extent that the Manager has acted
pursuant to the directions issued by Owner or Agent; provided,
however, that the Manager shall have the exclusive right to
supervise the day to day operations of the Property. The Manager
will be available to consult with the Owner and Agent on matters
of general policy, planning and goals. If any duties and
responsibilities to be carried out by the Manager involve the
expenditure of money or the incurring of obligations or
settlement of a claim not in litigation the Manager shall not
incur the same unless the expense, obligation or cost
8
<PAGE>
is provided for in the then current Budget or otherwise allowed
(e.g. in an emergency or incurred in accordance with this
Subagreement). The Owner will not object to any expenditure made
by the Manager in good faith in accordance with the provisions
hereof. The Manager shall have no responsibility under this
Subagreement to take action involving the expenditure of money or
the incurring of obligations unless adequate funds therefor are
available out of the Property operations or otherwise are
provided by the Owner.
(d) Manager's General Undertaking.
(i) No Guarantee of Profitability. Manager does not guarantee
that operation of the Property will be profitable, but
Manager shall use its best efforts to operate the Property
in as cost effective and profitable a manner as reasonably
possible consistent with maintaining operations in
accordance with the senior and assisted living industry's
highest prevailing standards in the Minneapolis/St. Paul
metropolitan area.
(ii) Standard of Performance; Acting within Budget. In performing
its obligations under this Subagreement Manager shall use
its reasonable best efforts and act in good faith and with
professionalism in accordance with the Budget and the
highest prevailing standards of the senior and assisted
living industry in the Minneapolis/St. Paul metropolitan
area.
3. Term. The term of this Subagreement shall commence on July 1, 1997
(the "Commencement Date") and shall terminate, unless sooner
terminated as hereinafter provided or as otherwise agreed in writing,
on December 31, 2005.
(a) This Subagreement may be terminated (i) by Owner and Agent (A)
upon six months' prior written notice to Manager given at any
time after the last day of the 29th month of the term of this
Subagreement or (B) for Cause (as hereinafter defined), or (ii)
by Manager (A) upon six months' prior written notice to Owner and
Agent given at any time after the last day of the 29th month of
the term of this Subagreement or (B) upon the occurrence of a
Change in Control (as hereinafter defined) of Owner; provided,
however, that in the event of a termination by Manager pursuant
to clause (ii)(A) above, Manager shall cooperate with and assist
Owner and Agent during said six month period in engaging a
qualified replacement manager for the Property. Upon any
termination of this Subagreement pursuant to the immediately
preceding sentence, the parties hereto shall have no further
obligations or liabilities other than the right of Manager to
9
<PAGE>
receive fees through the date of termination, except that, upon
the expiration or earlier termination of this Subagreement for
any reason, the parties shall cooperate (at Owner's expense) to
minimize the impact of the change on the residents of the
Property, and during any such period for which Manager provides
services or assists in the operation of the Property in
connection therewith, it shall be entitled to receive the fees
provided herein.
For purposes of this Subagreement, "Cause" shall mean (i) fraud,
misappropriation or embezzlement by Manager involving Owner's or
Agent's property or other wrongful acts by Manager that
materially impair the goodwill or business of Owner or the
Property or that cause material damage to Owner's property,
goodwill or business or (ii) failure by Manager to substantially
perform its duties and obligations owing to Owner and Agent under
this Subagreement after a written demand for substantial
performance by Manager is delivered to Manager by Owner or Agent
that specifically identifies the manner in which Owner or Agent
believes Manager has not substantially performed its duties and
after Manager has been given at least 30 days in which to cure
such performance deficiencies; and a "Change in Control" of the
Owner shall be deemed to have occurred if (A) any unrelated
person or group shall acquire 50% or more of the Owner's
partnership interests and (B) both Partners for Senior
Communities, Inc. and Henry Hyatt are no longer general partners
of the Owner and (C) any substituted general partner of Owner is
not substantially owned (at least 50%) or otherwise controlled by
any one or more of the shareholders of Partners for Senior
Communities, Inc. as of the date of this Subagreement.
(b) Owner may terminate this Subagreement in the event of a taking by
governmental action or conveyance in lieu thereof of all or a
substantial portion of the Property which makes it uneconomical
in Owner's judgment to continue to operate the Property, and the
termination shall be effective as of the date of such taking or
conveyance in lieu thereof.
(c) Owner may terminate this Subagreement in the event of the total
or substantial damage or destruction of the Property from fire or
other casualty if Owner elects, within ninety (90) days of the
date of the casualty, not to rebuild, repair or restore the
Property; and the termination shall be effective as of the date
the Property ceased operation.
10
<PAGE>
4. Events of Default and Remedies.
(a) Defaults. Each of the following shall constitute an Event of Default
hereunder:
(i) if Owner or Agent shall fail to pay or allow payment of any
installment of the fees due to Manager in accordance with
Section 5 hereof for a period of seven (7) days after written
notice of such default from Manager;
(ii) if Owner or Agent, on the one hand, or Manager, on the other,
fails to perform in any material respect any term, provision,
or covenant of this Subagreement [other than as set forth in
Section 4(a)(i)]; and such failure continues for (30) days
after written notice from the other party specifiying such
failure to perform, unless such failure cannot reasonably be
cured within such 30 day period and the defaulting party
commences to cure within such 30 day period and diligently
pursues the completion of the cure as promptly as is
practicable; or
(iii) if either Owner or Agent, on the one hand, or Manager, on the
other, is dissolved or liquidated, applies for or consents to
the appointment of a receiver, trustee or liquidator of all or
a substantial part of its assets, files a voluntary petition in
bankruptcy or is the subject of an involuntary bankruptcy
filing, a petition or an answer seeking reorganization or
arrangement with creditors or to take advantage of any
insolvency law, or if an order, judgment or decree shall be
entered by any court of competent jurisdiction, on the
application of a creditor, adjudicating Owner, Agent or Manager
bankrupt or insolvent or approving a petition seeking
reorganization of Owner, Agent or Manager or appointing a
receiver, trustee or liquidator for such party of all or a
substantial part of its assets, and such order, judgment or
decree shall continue unstayed and in effect for any period of
sixty (60) consecutive days.
(b) Remedies. At any time after the occurrence and during the continuance
of an Event of Default, the party who has not committed the Event of
Default may, at its option, terminate this Subagreement by giving
written notice to the other party and, except as provided in this
Subagreement shall be entitled to exercise all rights and remedies
available under applicable law; provided, however, that Owner or Agent
may cause the effective date of any termination of Manager to be
deferred for up to thirty (30) days to afford Owner or Agent the
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<PAGE>
opportunity to engage a replacement operator of the Property
provided that Manager shall be compensated through the date of
termination. Without limiting the generality of the foregoing, if
Owner or Agent is the defaulting party, or if Owner or Agent
shall terminate the Subagreement other than as a result of an
Event of Default or pursuant to Section 3 of this Subagreement,
then Agent shall pay Manager, within thirty (30) days following
the date of such termination, the sum of (i) all unpaid fees
accrued through the date of such termination and all unpaid
amounts for which Manager is then entitled to receive
reimbursement under this Subagreement and (ii) as liquidated
damages and not as a penalty, the product of (A) an amount equal
to three percent (3%) of the average Gross Monthly Revenues (as
hereinafter defined) of the Property for the twelve months
immediately preceding the date of termination and (B) the lesser
of (1) six and (2) half of the number of months remaining in the
term of this Subagreement immediately prior to such termination.
In the event of any breach of this Subagreement by Manager,
including any breach resulting in an Event of Default, Owner's
and Agent's sole remedy shall be to terminate this Subagreement
in accordance with the terms hereof, and Owner and Agent shall
have no other liability to Manager hereunder.
5. Compensation. Except as provided for upon termination, as compensation
for its services to be rendered hereunder, the Agent shall pay to the
Manager the following sums:
(a) As regular compensation to commence on Commencement Date and
continuing thereafter, determined on a monthly basis, a sum equal
to three percent (3%) of the Gross Monthly Revenues of the
Property; provided, however, that Manager shall receive no
regular compensation under this Section 5(a) for the first ten
months of the term of this Subagreement. Such monthly fee shall
be payable out of the custodial account(s) to the extent of funds
available therein and otherwise by the Agent or Owner. Such
monthly fee shall be payable in arrears upon submission to the
Owner and Agent of the monthly reports as provided in Paragraph
2(a)(iv) above. "Gross Monthly Revenues" shall mean and include
all revenues and income of any kind derived directly or
indirectly from the Property actually collected by the Manager as
rents or other charges for use or occupancy of space or
facilities or services in the Property in a calendar month,
including food, furniture rental, parking, forfeited amounts
collected as security deposits, late charges, income from coin-
operated machines, and all other miscellaneous income collected
at the Property; excluding, however, any and all interest or
investment income, insurance
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<PAGE>
proceeds, tax refunds of Owner, eminent domain awards, and
dividends on insurance policies.
(b) As an incentive management fee, Agent shall pay Manager an amount
each year (or portion thereof) during the term hereof equal to
twenty percent (20%) of any increase in the Net Operating
Income (as hereinafter defined) of the Property for any calendar
year over the Net Operating Income for the previous calendar
year; provided, however, that no incentive fee will be due for
any calendar year if the Net Operating Income for the Project for
that calendar year does not exceed $600,000. If Manager manages
the Property for a portion of a calendar year, the incentive fee,
if any, will be prorated for the number of months Manager
actually managed the property during that calendar year. The
incentive fee will be due within fifteen (15) days of Owner's and
Agent's receipt of the completed audited financial statement for
the calendar year for which the incentive fee is being
calculated. For purposes of calculating the incentive fee, "Net
Operating Income" shall mean the Gross Monthly Revenues for the
calendar year less all expenses required to own and operate the
Property, including, without limitation, real estate taxes,
insurance, the greater of actual or budgeted capital improvements
(provided that if the budgeted capital improvements amount is
higher than the actual amount, the difference shall be subtracted
from the capital improvements amount in subsequent years in order
to avoid double counting a portion of the capital improvements
expense) and budgeted capital reserve deposits and excluding debt
service payments, depreciation and Owner's income taxes. In
calculating the incentive fee for calendar years 1997 and 1998,
the operating expenses shall include a management fee of 3% of
the Gross Monthly Revenues for those initial ten months of the
Term hereunder during which no fee is actually being paid to or
accrued on behalf of Manager.
6. Operating Expenses. In performing its duties hereunder during the
term of this Subagreement, the Manager shall act solely as agent for
the account of the Owner or Agent. The Manager shall in no event be
required to advance any of its own funds for the operation of the
Property nor to incur any liability in connection therewith unless the
Owner or Agent shall furnish the Manager with funds necessary for the
discharge thereof.
7. Group Purchases. It is acknowledged by the parties that the Manager
may be engaged in the management or operation of other properties
similar to the Property. In connection therewith, the Manager agrees
that if any items required for the Property or services to be
furnished to the Property are purchased by the Manager at a cost
savings on a group basis for other
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<PAGE>
properties managed or operated by the Manager, the Manager will, to
the extent practical, purchase such services or items for the Property
on a group basis. It is understood and agreed by the Manager that, in
and about managing the Property, any and all services, supplies,
equipment, goods or the like purchased on behalf of the Property shall
be purchased at the actual cost to the Manager from the supplier.
8. Assignability. Agent may assign this Subagreement to Owner at any
time. Except as herein provided, neither Owner nor Agent shall have
the right to assign this Subagreement to any person or entity without
the prior written consent of the Manager. Owner may assign the
Agreement and the Subagreement to a subsequent owner of the Property
without obtaining Manager's consent. The Manager shall not have the
right to assign this Subagreement without the prior written consent of
the Owner. Nothwithstanding a the foregoing, and only to the extent
permitted by applicable law and regulations and subject to Manager's
receipt of all required licenses permits. approvals and authorizations
of applicable governmental agencies, the Manager shall have the right
to assign this Subagreement to a wholly-owned subsidiary of the
Manager which subsidiary shall remain a wholly-owned subsidiary of the
Manager at all times hereunder. In the event of any such assignment to
a subsidiary, prior written notice thereof shall be given to the
Owner.
9 Limitation on Owner's and Agent's Liability Manager acknowledges that
Manager's sources of compensation hereunder are limited to (i)
revenues from the Property. (ii) advances voluntary made by Owner or
(iii) advances voluntarily made by Agent. Manager agrees that Agent
shall be under no obligation whatsoever to make any advances to
Manager to cover any operating shortfalls of whatever nature,
including Manager's compensation hereunder. Manager further agrees
that Owner liability hereunder shall be limited to the Owner's assets,
less third party liabilities, and that no partner of Owner shall be
personally responsible for any amounts ever due Manager under this
Subagreement.
10. Notices. All notices, demands, requests, consents, approvals and other
communications (herein collectively called "Notices") required or
permitted to be given hereunder or which are to be given with respect
to this Subagreement shall be in writing and shall be deemed
effectively given: (i) upon personal delivery or receipt, (ii) if
mailed, upon the first to occur of receipt or the expiration of
seventy-two (72) hours after deposit with the United States Postal
Service, certified or registered mail, postage prepaid and sent to a
party at its address as set forth below, (iii) if sent by overnight
courier, upon the first business day after being placed with such
courier for delivery to a party at its address as set forth below, or
(iv) if by facsimile,
14
<PAGE>
upon the date transmission to the party at the facsimile number set
forth below occurs, provided the transmission is completed by 4:00 PM
CST and a copy of the transmission confirmation and a copy of the
notice arc sent to the receiving party by regular mail on the date of
the transmission. Notices sent by facsimile after 4:00 PM CSI~ or on a
non-business day shall be deemed effectively given on the next
business day following the transmission. The addresses and facsimile
number for Notices are:
IF TO MANAGER: Brookdale Living Communities of
Minnesota-II, Inc.
c/o Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Facsimile No.: 312/917-0460
Attention: Mark J. Schulte
with a copy to: General Counsel of Manager at Manager's
address but at facsimile number 312/917-7284
IF TO AGENT: ActiveLife Management Corporation
222 N. LaSalle Street, Suite 1414
Chicago, IL 60601
Facsimile No.: 3l2/726-0091
Attention: Henry Hyatt
IF TO OWNER: Kenwood Congregate Associates Limited
Partnership
222 N. LaSalle Street
Suite 1414
Chicago, IL 60601
Facsimile No.: (312) 726-0091
Attention: Daniel N. Epstein
Either party may change its notice address or facsimile number at any time by
providing written notice thereof to the other party.
11. Governing Law. This Subagreement has been made and entered into in the
State of lllinois and shall be construed in accordance with the laws
of the State of Illinois.
12. Relationship of the Parties. The relationship of Manager to Owner and
to Agent in connection with this Subagreement shall be that of an
independent contractor, and all acts performed by Manager during the
term hereof shall
15
<PAGE>
be deemed to be performed in Manager's capacity as an independent
contractor. Nothing contained in this Subagreement is intended to or
shall be construed to give rise to or create a partnership or joint
venture or lease between Owner, Agent or their successors and assigns
on the one hand, and Manager, itS successors and assigns on the other
hand.
13. Entire Agreement. This Subagreement and any documents executed in
connection herewith contain the entire agreement among the parties and
shall be binding upon their respective successors and assigns. This
Subagreement may not be modified or amended except by written
instrument signed by the parties hereto.
14. Contract Modifications for Certain Legal Events. In the event any
state or federal laws or regulations, whether now existing or enacted
or promulgated after the effective date of this Subagreement are
interpreted by judicial decision, a regulatory agency or legal counsel
of the parties in such a manner as to indicate that the structure of
this Subagreement may be in violation of such lass or regulations
Owner, Agent and Manager agree to cooperate In restructuring their
relationship and this Subagreement to eliminate such violation or to
reduce the risk thereof; provided, that any such restructuring shall,
to the maximum extent possible, preserve the underlying economic and
financial arrangements between Owner, Agent and Manager. The parties
agree that such amendment may require one or more of the parties to
obtain appropriate regulatory licenses and approvals. Owner, Agent and
Manager agree that the foregoing is not a binding obligation to
consummate any transactions contemplated by, or discussed during
negotiations conducted under, this Section 13, it being understood any
such amendment or restructuring of this Subagreement shall be entered
into at the sole and absolute discretion of Owner and Manager.
15. Captions. The captions used herein are for convenience of reference
only and shall not be construed in any manner to limit or modify any
of the terms hereof.
16. Severability. In the event one or more of the provisions contained in
this Subagreement is deemed to be invalid, illegal or unenforceable in
any respect under applicable law, the validity, legality and
enforceability of the remaining provisions hereof shall not in any way
be impaired thereby.
17. Remedies Cumulative; No Waiver. No right or remedy herein conferred
upon or reserved to any of the parties hereto is intended to be
exclusive of any other right or remedy, and each and every right and
remedy shall be cumulative and in addition to any other right or
remedy given hereunder, or now or hereafter legally existing upon the
occurrence of an Event of Default
16
<PAGE>
hereunder. The failure of any party hereto to insist at any time
upon the strict observance or performance of any of the
provisions of this Subagreement or to exercise any right or
remedy as provided in this Subagreement shall not impair any such
right or remedy or be construed as a waiver or relinquishment
thereof with respect to subsequent defaults. Every right and
remedy given by this Subagreement to the respective parties
hereto may be exercised from time to time and as often as may be
deemed expedient by such parties.
18. Counterparts. This Subagreement may be executed in any number of
counterparts, each of which shall be an original, and each such
counterpart shall together constitute but one and the same
Agreement.
19. Option to Purchase. Owner hereby grants Manager an option to
purchase the Property for $23,400,000, subject to the terms and
conditions of a real estate sale contract mutually acceptable to
both Owner and Manager. Except as provided in the paragraph
below, this option shall terminate upon the earlier to occur of
(a) the termination of this Subagreement, (b) the assignment of
this Subagreement by Manager except as permitted under Section 8
hereof, unless Owner agrees in writing at the time of such
assignment that the assignee may assume this option for its
remaining term and (c) June 30, 2000 (the "Option Period").
Owner agrees to provide Manager with any proposed terms of sale
if Owner decides to sell the Property.
At any time during the Option Period, Owner may give Manager
notice of Owner's intent to sell the Property. Manager shall have
30 days from the date of Owner's notice to exercise Manager's
option to purchase the Property at the price set forth herein. If
Manager exercises the option, Manager and Owner shall proceed in
good faith to close the sale of the Property to Manager within
120 days from the date of Owner's notice. If the sale fails to
close within said period for reasons other than a default by
Owner, the Manager's option to purchase shall automatically
terminate on the 121st day following the date of Owner's notice,
unless the parties mutually agree otherwise in writing. If
Manager does not exercise its option to purchase within 30 days
of the date of Owner's notice, Owner shall have 120 days from the
date of Owner's notice to transfer the Property to another party.
If Owner fails to complete the transfer to another party within
such period, Manager's option to purchase shall be automatically
reinstated on the 121st day following the date of Owner's notice
to Manager, unless the parties mutually agree otherwise in
writing.
20. Agreement not to be Recorded. This Subagreement shall not be
recorded. Any violation of this provision shall render this
Subagreement void.
17
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Subagreement on the date first above written.
OWNER: MANAGER:
KENWOOD CONGREGATE ASSOCIATES BROOKDALE LIVING COMMUNITIES
LIMITED PARTNERSHIP OF MINNESOTA, INC.
an Illinois limited partnership a Delaware corporation
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: President
------------------------ ------------------------
AGENT:
ACTIVELIFE MANAGEMENT CORPORATION
an Illinois corporation
By: /s/ Daniel N. Epstein
-------------------------------
Name: Daniel N. Epstein
-----------------------------
Title: Vice President
----------------------------
18
<PAGE>
EXHIBIT A
MONTHLY REPORT COMPONENTS
Set forth below is a list of the components of the Monthly Reports to be
provided to Owner and Agent pursuant to Section 2(a)(iv):
1. Statement of income and expenses, with a comparison to budget, for
both the month and the year-to-date.
2. Reconciled bank statements for all Accounts.
3. Detailed listing of all cash disbursements in check number order.
4. General ledger listing cash receipts and disbursements in account
number order.
5. Statement of changes in financial condition.
6. Monthly trial balance.
7. Analysis of significant variances from budget.
8. Balance sheet.
The monthly reports with respect to each month shall be delivered to the
Owner by the twentieth (20th) day of the following month.
ANNUAL REPORT COMPONENT
With respect to each fiscal year ending during the term of this
Subagreement the Manager will have an annual financial report prepared by a
certified public accountant based upon such person's examination of the books
and records of the Owner and the Manager. Such report shall be delivered to the
Owner by the seventy-fifth (75th) day following the end of such fiscal year.
Owner shall pay the compensation for the certified public accountant.
RECORDS
The Manager shall establish and maintain a comprehensive system of records,
books and accounts in a manner reasonably satisfactory to Owner. All records
will be subject to examination by the Owner at reasonable hours by any
authorized representative of Owner.
19
<PAGE>
Exhibit 10.14
AMENDED AND RESTATED
PARTNERSHIP AGREEMENT
OF
RIVER OAKS PARTNERS,
AN ILLINOIS GENERAL PARTNERSHIP
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
ARTICLE I
<S> <C>
CERTAIN DEFINITIONS...................................................... 2
1.1 "Act"............................................................. 2
1.2 "Adjusted Capital Account Deficit"................................ 2
1.3 "Affiliate"....................................................... 2
1.4 "Agreement" or "Partnership Agreement"............................ 2
1.5 "Assignee"........................................................ 3
1.6 "Available Cash Flow"............................................. 3
1.7 "BHI"............................................................. 4
1.8 "BLC"............................................................. 4
1.9 "Capital Account"................................................. 4
1.10 "Capital Contributions"........................................... 5
1.11 "Code"............................................................ 5
1.12 "Depreciation".................................................... 5
1.13 "Gross Asset Value"............................................... 6
1.14 "Interest"........................................................ 7
1.15 "Managing Partner"................................................ 7
1.16 "Nonrecourse Deductions".......................................... 7
1.17 "Nonrecourse Liability"........................................... 7
1.18 "Partner Minimum Gain"............................................ 7
1.19 "Partner Nonrecourse Debt"........................................ 7
1.20 "Partner Nonrecourse Deductions".................................. 7
1.21 "Partners"........................................................ 8
1.22 "Partnership"..................................................... 8
1.23 "Partnership Minimum Gain"........................................ 8
1.24 "Percentage Interest"............................................. 8
1.25 "Person".......................................................... 8
1.26 "Profits" and "Losses,"........................................... 8
1.27 "Project"......................................................... 9
1.28 "Property"........................................................ 9
1.29 "Recapture Gain".................................................. 9
1.30 "Regulations"..................................................... 9
1.31 "Tax Matters Partner"............................................. 9
1.32 "Transfer"........................................................ 9
1.33 "Transferee"...................................................... 9
ARTICLE II
THE PARTNERSHIP..........................................................10
2.1 Organization......................................................10
2.2 Partnership Name..................................................10
2.3 Purpose...........................................................10
2.4 Principal Place of Business.......................................10
2.5 Term..............................................................10
2.6 Filings; Agent for Service of Process.............................10
2.7 Reservation of Other Business Opportunities.......................11
ARTICLE III
PARTNERS' CAPITAL CONTRIBUTIONS;
ADDITIONAL FINANCING AND CONTRIBUTIONS...................................11
3.1 Partners..........................................................11
</TABLE>
<PAGE>
<TABLE>
<S> <C>
3.2 Additional Financing...............................................11
3.3 Other Matters......................................................11
ARTICLE IV
ALLOCATIONS..............................................................12
4.1 Profits............................................................12
4.2 Losses.............................................................12
4.3 Special Allocations................................................12
4.4 Curative Allocations...............................................14
4.5 Other Allocation Rules.............................................16
4.6 Tax Allocations; Code Section 704(c)...............................16
ARTICLE V
DISTRIBUTIONS............................................................18
5.1 Distributions of Available Cash Flow...............................18
5.2 Withholding........................................................18
ARTICLE VI
MANAGEMENT OF PARTNERSHIP................................................19
6.1 Management of Partnership..........................................19
6.2 [Intentionally Omitted.]...........................................21
6.3 Compensation and Expense Reimbursement of Partners.................21
6.4 Limitation of Liability............................................21
6.5 Indemnification....................................................21
ARTICLE VII
BOOKS AND RECORDS........................................................22
7.1 Books and Records..................................................22
7.2 Bank Accounts......................................................22
7.3 Tax Returns........................................................22
7.4 Tax Decisions and Elections........................................22
7.5 Tax Examination....................................................23
ARTICLE VIII
TRANSFER OR ASSIGNMENT OF PARTNERSHIP INTERESTS..........................23
8.1 Restrictions on Transfer...........................................23
8.2 Admission of Transferees...........................................23
ARTICLE IX
DISSOLUTION AND WINDING UP...............................................24
9.1 Liquidating Events.................................................24
9.2 Winding Up.........................................................24
9.3 Liquidating Trust..................................................25
ARTICLE X
MISCELLANEOUS............................................................26
10.1 Notices............................................................26
10.2 Binding Effect.....................................................27
10.3 Creditors..........................................................27
10.4 Remedies Cumulative................................................27
10.5 Construction.......................................................27
</TABLE>
- ii -
<PAGE>
<TABLE>
<S> <C>
10.6 Headings.........................................................27
10.7 Severability.....................................................28
10.8 Incorporation by Reference.......................................28
10.9 Further Action...................................................28
10.10 Variation of Pronouns............................................28
10.11 Governing Law....................................................28
10.12 Waiver of Action for Partition...................................28
10.13 Counterpart Execution............................................28
</TABLE>
EXHIBIT A - PARTNERS' CAPITAL CONTRIBUTIONS
EXHIBIT B - PROJECT DESCRIPTION
- iii -
<PAGE>
AMENDED AND RESTATED
PARTNERSHIP AGREEMENT
OF
RIVER OAKS PARTNERS,
AN ILLINOIS GENERAL PARTNERSHIP
-------------------------------
This AMENDED AND RESTATED AGREEMENT OF GENERAL PARTNERSHIP (this
"Agreement") is entered into this 7th day of May, 1997, by and between Brookdale
Living Communities, Inc., a Delaware corporation ("BLC"), and Brookdale
Holdings, Inc., a Delaware corporation ("BHI"), as Partners, pursuant to the
provisions of the Illinois Uniform Partnership Act, as amended, on the following
terms and conditions:
WITNESSETH:
WHEREAS, The Prime Group, Inc., an Illinois corporation ("Prime"), and
KILICO Realty Corporation, an Illinois corporation ("KRC"), entered into that
certain Partnership Agreement of River Oaks Partners, dated as of December 27,
1989, as amended as of December 31, 1991, and as further amended as of March 22,
1994 and as of August 31, 1994 (as so amended, the "Original Agreement");
WHEREAS, pursuant to that certain letter agreement, dated September
17, 1996, by and among Prime, KRC and Kemper Investors Life Insurance Company,
an Illinois insurance corporation ("KILICO"), as amended (the "Kemper
Agreement"), KRC and KILICO (collectively, the "Kemper Transferors") have agreed
to convey certain interests in the Partnership to Prime or its designee or
assignee;
WHEREAS, pursuant to that certain Formation Agreement, dated as of the
date hereof (the "Formation Agreement"), by and among (i) BLC, (ii) BHI, (iii)
Mark J. Schulte, an individual, (iv) Prime, and (v) Prime Group Limited
Partnership, an Illinois limited partnership, as of the date hereof, the rights
to acquire the interests in the Partnership from the Kemper Transferors pursuant
to the Kemper Agreement are being assigned to BLC, and BLC has agreed to assume
the obligation to pay the purchase price under the Kemper Agreement;
WHEREAS, pursuant to the Formation Agreement, Prime is assigning, as
of the date hereof, a fifty percent (50%) Interest in the Partnership to BLC (or
to BHI as its designee);
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement in its entirety, and desire to reflect herein, among other things, (i)
the withdrawal of Prime and KRC as partners of the Partnership; (ii) the
admission of BLC and BHI as partners in the Partnership; and (iii) certain other
amendments to the Original Agreement so that the Original Agreement, as amended
and restated, reads, in its entirety, as follows:
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth in this Article I (such meanings to be equally applicable in
both the singular and plural forms of the term defined).
1.1 "Act" means the Illinois Uniform Partnership Act, as amended
from time to time (or any corresponding provisions of succeeding law).
1.2 "Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant Partnership taxable year, after giving effect to the
following adjustments:
(i) Credit to such Capital Account any amounts which such Partner is
obligated to restore pursuant to any provision of this Agreement or
pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or is deemed to be
obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-
1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
1.3 "Affiliate" means any (i) Person owning a majority interest in
any corporate Partner; (ii) Person owning an interest as a general partner of
any Partner or a majority interest as a limited partner of any Partner; (iii)
Person who is an officer, director, trustee, partner or stockholder of any
Partner or of any Person described in the preceding clause (ii); or (iv) Person
that is controlling, controlled by or under common control with a Partner or any
Person described in the preceding clauses (i), (ii) or (iii).
1.4 "Agreement" or "Partnership Agreement" means this Amended and
Restated Partnership Agreement, as amended from time to time. Words such as
"herein," "hereinafter," "hereof," and "hereunder" refer to this Agreement as a
whole, unless the context otherwise requires.
2
<PAGE>
1.5 "Assignee" means any Person who has acquired a beneficial
interest in the Interest of a Partner in the Partnership.
1.6 "Available Cash Flow" means, with respect to the applicable
period of measurement (i.e., any period beginning on the first day of the fiscal
year or other period commencing immediately after the last day of the
calculation of Available Cash Flow which was distributed, and ending on the last
day of the month, quarter or other applicable period immediately preceding the
date of calculation), the excess, if any, of the gross cash receipts of the
Partnership for such period from all sources whatsoever, including, without
limitation, the following:
(a) (i) all rents, revenues, income and proceeds derived by the
Partnership from its operations, including, without limitation,
distributions received by the Partnership from any entity in which the
Partnership has an interest; (ii) all proceeds and revenues received on
account of any sales of property of the Partnership or received by the
Partnership for payments of principal, interest, costs, fees, penalties or
otherwise on account of any loans made by the Partnership or financings or
refinancings of any property of the Partnership; (iii) the amount of any
insurance proceeds and condemnation awards received by the Partnership;
(iv) all Capital Contributions received by the Partnership from its
Partners; (v) all cash amounts previously reserved by the Partnership, if
the specific purposes for which such amounts were reserved are no longer
applicable; and (vi) the proceeds of liquidation of the Partnership's
property in accordance with this Agreement:
over the sum of:
(b) (i) all operating costs and expenses of the Partnership and
capital expenditures made during such period (without deduction, however,
for any capital expenditures, charges for depreciation or other expenses
not paid in cash or expenditures from reserves described in (vii) below);
(ii) all costs and expenses expended or payable during such period in
connection with the sale or other disposition, or financing or refinancing,
of property of the Partnership or the recovery of insurance or condemnation
proceeds; (iii) all fees provided for under this Agreement; (iv) all debt
service, including principal and interest, paid during such period on all
indebtedness of the Partnership; (v) all Capital Contributions, advances,
reimbursements or similar payments made to any Person (whether a
partnership, corporation or other entity) in which the Partnership has an
interest; (vi)
3
<PAGE>
all loans made by the Partnership; and (vii) any and all reserves
reasonably determined by the General Partner to be necessary or appropriate
for working capital, capital improvements, payments of periodic
expenditures, debt service or other purposes.
1.7 "BHI" means Brookdale Holdings, Inc., a Delaware corporation.
1.8 "BLC" means Brookdale Living Communities, Inc., a Delaware
corporation.
1.9 "Capital Account" means, with respect to any Partner, the
Capital Account maintained for such Partner in accordance with the following
provisions:
(i) To each Partner's Capital Account there shall be credited the
amount of cash and the Gross Asset Value of any Property contributed by
such Partner to the Partnership, such Partner's distributive share of
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Sections 4.3 or 4.4 hereof, and the amount of any
Partnership liabilities assumed by such Partner or which are secured by any
Property distributed to such Partner.
(ii) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Property distributed to
such Partner pursuant to any provision of this Agreement, such Partner's
distributive share of Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Sections 4.3 or 4.4 hereof
and the amount of any liabilities of such Partner assumed by the
Partnership or which are secured by Property contributed by such Partner to
the Partnership.
(iii) In determining the amount of any liability for purposes of the
foregoing subparagraphs (i) and (ii), there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the Managing
Partner shall determine that it is prudent to modify the manner in which the
Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are
4
<PAGE>
assumed by the Partnership, a Partner or Partners) are computed in order to
comply with such Regulations, the Managing Partner may make such modification,
provided that it is not likely to have a material adverse effect on the amounts
distributable to any Partner pursuant to Article IX hereof upon the dissolution
of the Partnership. The Managing Partner also shall (i) make any adjustments
that are necessary or appropriate to maintain equality between the Capital
Accounts of the Partners and the amount of Partnership capital reflected on the
Partnership's balance sheet, as computed for book purposes, in accordance with
Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Sections 1.704-1(b) or 1.704-2.
1.10 "Capital Contributions" means, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any property (other than
money), net of the amount of any debt to which such property is subject,
contributed to the Partnership with respect to the Interest in the Partnership
held by such Partner. The principal amount of a promissory note which is not
readily tradable on an established securities market and which is contributed to
the Partnership by the maker of the note shall not be included in the Capital
Account of any Person until the Partnership makes a taxable disposition of the
note or until (and to the extent) such Partner makes principal payments on the
note, all in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2).
1.11 "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law).
1.12 "Depreciation" means, for each Partnership taxable year or other
period, an amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that, if the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that, if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Managing Partner; and
provided, further, however, that to the extent the "remedial" method described
in Regulations
5
<PAGE>
Section 1.704-3 is elected pursuant to the terms of this Agreement, Depreciation
will be determined in a manner consistent therewith.
1.13 "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Partnership;
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as reasonably
determined by the Managing Partner, as of the following times: (a) the
acquisition of an additional Interest in the Partnership by any new or
existing Partner in exchange for more than a de minimis Capital
Contribution; (b) the distribution by the Partnership to a Partner of more
than a de minimis amount of Partnership assets, including money, as
consideration for an Interest in the Partnership; and (c) the liquidation
of the Partnership within the meaning of Regulations Section 1.704-
1(b)(2)(ii)(g); provided, however, that adjustments pursuant to clauses (a)
and (b) above shall be made only if the Managing Partner reasonably
determines that such adjustments are necessary or appropriate to reflect
the relative economic interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership asset distributed to
any Partner shall be the gross fair market value of such asset on the date
of distribution; and
(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or 743(b), but only to the extent
that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and the
definition of "Capital Account" hereof; provided, however, that Gross Asset
Values shall not be adjusted pursuant to this subparagraph (iv) to the
extent the Managing Partner determines that an adjustment pursuant to the
foregoing subparagraph (ii) of this definition hereof is necessary or
appropriate in connection with a transaction that would otherwise result in
an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
any of the foregoing subparagraphs (i), (ii)
6
<PAGE>
or (iv), such Gross Asset Value shall thereafter be adjusted by the Depreciation
taken into account with respect to such asset for purposes of computing Profits
and Losses.
1.14 "Interest" means a Partner's ownership interest in the
Partnership, including any and all benefits to which the holder of such an
Interest may be entitled as provided in this Agreement, together with all
obligations of such Partner to comply with the terms and provisions of this
Agreement.
1.15 "Managing Partner" means BHI and any successor Partner who shall
be so designated by the Partners pursuant to this Agreement to manage the
affairs of the Partnership and the Partnership Property.
1.16 "Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b). The amount of Nonrecourse Deductions for a
Partnership taxable year equals the excess, if any, of the net increase, if any,
in the amount of Partnership Minimum Gain during that Partnership taxable year
over the aggregate amount of any distributions during that Partnership taxable
year of proceeds of a Nonrecourse Liability that are allocable to an increase in
Partnership Minimum Gain, determined according to the provisions of Regulations
Section 1.704-2(c).
1.17 "Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.704-2(b)(3).
1.18 "Partner Minimum Gain" has the meaning set forth in the
definition of "partner nonrecourse debt minimum gain" in Regulations Section
1.704-2(i)(2) and will be computed as provided in Regulations Section 1.704-
2(i)(3).
1.19 "Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
1.20 "Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i). The amount of Partner Nonrecourse Deductions
with respect to a Partner Nonrecourse Debt for a Partnership taxable year equals
the excess, if any, of the net increase, if any, in the amount of Partnership
Minimum Gain attributable to such Partner Nonrecourse Debt during that
Partnership taxable year over the aggregate amount of any distributions during
that Partnership taxable year to the Partner that bears the economic risk of
loss for such Partner Nonrecourse Debt to the extent such distributions are from
the proceeds of such Partner Nonrecourse Debt and are allocable to an increase
in Partnership Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i).
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1.21 "Partners" means BLC and BHI and any person who is admitted as a
Partner, from time to time, pursuant to the terms of this Agreement. "Partner"
means any one of the Partners.
1.22 "Partnership" means the partnership formed pursuant to the
Original Agreement and continued pursuant to this Agreement and the partnership
continuing the business of this Partnership in the event of dissolution as
herein provided.
1.23 "Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2) and will be computed as provided in
Regulations Section 1.704-2(d).
1.24 "Percentage Interest" means the percentage set forth for the
Partners on Exhibit A hereto.
1.25 "Person" means any individual, general partnership, limited
partnership, corporation, trust or other association or entity.
1.26 "Profits" and "Losses," and reference to any item of income,
gain, loss or deduction thereof, means for each Partnership taxable year or
other period, an amount equal to the Partnership's taxable income or loss for
such year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses pursuant to this definition shall be
subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (ii) or (iv) of the definition of Gross
Asset Value hereof, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Profits or Losses;
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(iv) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property
disposed of notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing such taxable income or
loss, there shall be taken into account Depreciation for such Partnership
taxable year or other period, computed in accordance with the definition of
Depreciation herein; and
(vi) Notwithstanding any other provision of this definition of
"Profits" and "Losses," any items which are specially allocated pursuant to
Sections 4.3 or 4.4 hereof shall not be taken into account in computing
Profits or Losses.
1.27 "Project" means the senior and assisted living facility
described in Exhibit B attached hereto and all of the Partnership's interest
therein, including all real estate related thereto and buildings and
improvements thereon.
1.28 "Property" means all real and personal property acquired by the
Partnership and any improvements thereto, and shall include both tangible and
intangible property.
1.29 "Recapture Gain" has the meaning set forth in Section 4.6(e).
1.30 "Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
1.31 "Tax Matters Partner" shall mean BHI or any successor Managing
Partner.
1.32 "Transfer" means, as a noun, any voluntary or involuntary
transfer, sale, pledge, hypothecation or other disposition or encumbrance and,
as a verb, voluntarily or involuntarily to transfer, sell, pledge, hypothecate
or otherwise dispose of or encumber.
1.33 "Transferee" has the meaning set forth in Section 4.5(c).
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ARTICLE II
THE PARTNERSHIP
2.1 Organization. The Partners hereby agree to (i) continue the
Partnership as a general partnership pursuant to the provisions of the Act and
upon the terms and conditions set forth in this Agreement and (ii) amend and
restate herein the Partnership Agreement in its entirety.
2.2 Partnership Name. The name of the Partnership shall be "River
Oaks Partners" and all business of the Partnership shall be conducted in such
name or such other name as the Managing Partner shall determine. The
Partnership shall hold all of its property in the name of the Partnership and
not in the name of any Partner.
2.3 Purpose. The purpose and business of the Partnership shall be
to own real property, including, without limitation, the Project, to acquire,
lease, own, mortgage or otherwise encumber personal property, fixtures and real
property to accomplish the foregoing; to operate, manage, lease (or cause the
operation, management and leasing by independent contractors including a Partner
or its Affiliates) the Project and any other Property owned by the Partnership,
and otherwise deal in and with the business and assets of the Partnership; to do
any and all other acts which may be necessary or incidental to any of the
foregoing or the promotion or conduct of the business of the Partnership or any
of the Partnership Property, including, without limitation, being a partner in
another partnership or other partnerships; and to pursue or conduct any other
business or activity approved by the Partners.
2.4 Principal Place of Business. The principal place of business of
the Partnership shall be c/o Brookdale Living Communities, Inc., 77 West Wacker
Drive, Chicago, Illinois 60601 or such other location as may be designated from
time to time by the Managing Partner.
2.5 Term. The term of the Partnership commenced on the date of the
Original Agreement and shall continue until the winding up and liquidation of
the Partnership and its business is completed, as provided in Article IX hereof.
2.6 Filings; Agent for Service of Process.
(a) The Managing Partner is authorized to execute, file and/or
record with such proper authorities in each jurisdiction in which the
Partnership conducts business, such certificates or other
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documents as shall be necessary, appropriate or desirable, in the judgment of
the Managing Partner, to legally form the Partnership and conduct the business
of the Partnership.
(b) The agent for service of process in the State of Illinois shall be
Robert J. Rudnik, c/o The Prime Group, Inc., 77 West Wacker Drive, Suite 3900,
Chicago, Illinois 60601. The Managing Partner, in its sole and absolute
discretion, may change the registered agent and appoint successor registered
agents.
2.7 Reservation of Other Business Opportunities. No business
opportunities other than those actually exploited by the Partnership pursuant to
Section 2.3 shall be deemed the property of the Partnership, and any Partner or
its Affiliate may engage in or possess an interest in any other business
venture, independently or with others, of any nature or description; and neither
any other Partner nor the Partnership shall have any rights by virtue hereof in
and to such other business ventures or to the income or profits derived
therefrom. The provisions of this Section 2.7 shall be subject to, and not in
any way affect the enforceability of, any separate agreement by a Partner or any
Affiliate thereof restricting or prohibiting certain business activities of such
Partner or Affiliate.
ARTICLE III
PARTNERS' CAPITAL CONTRIBUTIONS;
ADDITIONAL FINANCING AND CONTRIBUTIONS
3.1 Partners. The name, address, initial Capital Contribution and
Percentage Interest of each of the Partners is set forth on Exhibit A hereto.
3.2 Additional Financing. The sums of money required to finance the
business and affairs of the Partnership shall be derived from the Capital
Contributions by the Partners to the Partnership, from funds generated from the
operation and the business of the Partnership and from any loans, financing or
other indebtedness which the Managing Partner may, in its discretion, approve
for the Partnership. No additional Capital Contributions shall be made to the
Partnership except as approved by the Partners.
3.3 Other Matters.
(a) Except as otherwise provided in this Agreement, no Partner shall
demand or receive a return of its Capital Contributions from the Partnership
without the consent of the other Partners. Under circumstances requiring a
return of any Capital
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Contributions, no Partner shall have the right to receive property other than
cash except as may be specifically provided herein.
(b) No Partner shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Partnership or otherwise in its capacity as a Partner,
except as otherwise provided in this Agreement or with the consent of the other
Partners.
ARTICLE IV
ALLOCATIONS
4.1 Profits. After giving effect to the special allocations set
forth in Sections 4.3 and 4.4 hereof, Profits for any Partnership taxable year
shall be allocated pro rata between the Partners in accordance with their
Percentage Interests.
4.2 Losses. After giving effect to the special allocations set
forth in Sections 4.3 and 4.4 hereof, Losses for any Partnership taxable year
shall be allocated to the Partners pro rata to the Partners in accordance with
their Percentage Interests.
4.3 Special Allocations. The following special allocations will be
made in following order and priority:
(a) If there is a net decrease in Partnership Minimum Gain during
any Partnership taxable year, each Partner will be specially allocated items of
Partnership income and gain for such year (and, if necessary, subsequent years)
in proportion to, and to the extent of, an amount equal to such Partner's share
of the net decrease in Partnership Minimum Gain determined in accordance with
Regulations Section 1.704-2(g)(2). The items to be allocated will be determined
in accordance with Regulations Section 1.704-2(f). This Section 4.3(a) is
intended to comply with such Sections of the Regulations and will be interpreted
consistently therewith.
(b) The allocations otherwise required pursuant to Section 4.3(a)
hereof will not apply to a Partner to the extent that: (i) such Partner's share
of the net decrease in Partnership Minimum Gain is caused by a guaranty,
refinancing or other change in the instrument evidencing a nonrecourse debt of
the Partnership which causes such debt to become a partially or wholly recourse
debt or a Partner Nonrecourse Debt, and such Partner bears the economic risk of
loss (within the meaning of Regulations Section 1.752-2) for such changed debt;
(ii) such Partner's share of the net decrease in Partnership Minimum Gain
results from the repayment
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of a nonrecourse liability of the Partnership, which repayment is made using
funds contributed by such Partner to the capital of the Partnership; (iii) the
Internal Revenue Service, pursuant to Regulations Section 1.704-2(f)(4), waives
the requirement of such allocation in response to a request for such waiver made
by the Managing Partner on behalf of the Partnership (which request the Managing
Partner may or may not make, in its discretion); or (iv) additional exceptions
to the requirement of such allocation are established by revenue rulings issued
by the Internal Revenue Service pursuant to Regulations Section 1.704-2(f)(5),
which exceptions apply to such Partner, as determined by the Managing Partner in
its discretion.
(c) Except as provided in Section 4.3(a) hereof, if there is a net
decrease in Partner Minimum Gain attributable to Partner Nonrecourse Debt during
any Partnership taxable year, determined in accordance with Regulations Section
1.704-2(i)(3), then, except as provided in Regulations Section 1.704-2(i)(4),
each Partner who has a share of the Partner Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Regulations Section
1.704-2(i)(5), will be allocated items of income and gain for such Partnership
taxable year (and, if necessary, subsequent Partnership taxable years) equal to
such Partner's share of the net decrease in Partner Minimum Gain. The items to
be allocated will be determined in accordance with Regulations Section 1.704-
2(j)(2). This Section 4.3(c) is intended to comply with Regulations Section
1.704-2(i) and will be applied and interpreted in accordance with such
Regulation.
(d) Any item of Partnership loss, deduction or expenditure under
Code Section 705(a)(2)(b) attributable to Partner Nonrecourse Debt will be
allocated in accordance with Regulations Section 1.704-2(i) to the Partner who
bears the economic risk of loss for such Partner Nonrecourse Debt.
(e) In the event any Partner unexpectedly receives any adjustments,
allocations or distributions described in Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6) resulting in an Adjusted Capital Account Deficit
for such Partner, items of income and gain will be specially allocated to such
Partner in any amount and manner sufficient to eliminate, to the extent required
by the Regulations, such Adjusted Capital Account Deficit as quickly as
possible. The items to be allocated will be determined in accordance with
Regulations Section 1.704-1(b)(2)(ii)(d)(6). This Section 4.3(e) is intended to
comply with Regulations Section 1.704-1(b)(2)(ii)(d) and will be applied and
interpreted in accordance with such Regulation.
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(f) No items of loss or deduction will be allocated to any Partner
to the extent that any such allocation would cause the Partner to have an, or
increase the amount of an existing, Adjusted Capital Account Deficit at the end
of any Partnership taxable year. All items of loss or deduction in excess of the
limitation set forth in this Section 4.3(f) will be allocated among such other
Partners which do not have Adjusted Capital Account Deficit balances, pro rata,
in proportion to their Percentage Interests, until no Partner may be allocated
any further items of loss or deduction without creating or increasing an
Adjusted Capital Account Deficit. Thereafter , any remaining items of loss or
deduction will be allocated to the Partners, pro rata, in proportion to their
relative aggregate Capital Contributions made prior to the last day of the
period to which the loss or deduction relates.
(g) In the event any Partner has an Adjusted Capital Account Deficit
at the end of any Partnership taxable year, each such Partner will be specially
allocated items of Partnership income and gain (consisting of a pro rata portion
of each item of Partnership income and gain) to eliminate such Adjusted Capital
Account Deficit as quickly as possible, provided that an allocation pursuant to
this Section 4.3(g) will be made to a Partner if and only to the extent that
such Partner would have an Adjusted Capital Account Deficit in excess of such
sum after all other allocations provided for in this Article IV have been
tentatively made.
(h) To the extent an adjustment to the adjusted tax basis of any
Property pursuant to Sections 734(b) or 743(b) of the Code is required, pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the Capital
Accounts will be treated as an item of gain (if the adjustment increases the
basis of the asset) or loss (if the adjustment decreases such basis) and such
gain or loss will be specially allocated among the Partners in a manner
consistent with the manner in which their Capital Accounts are required to be
adjusted pursuant to such Section of the Regulations.
4.4 Curative Allocations.
(a) The "Regulatory Allocations" consist of the "Basic Regulatory
Allocations," as defined in Section 4.4(b) hereof, the "Nonrecourse Regulatory
Allocations," as defined in Section 4.4(c) hereof, and the "Partner Nonrecourse
Regulatory Allocations," as defined in Section 4.4(d) hereof.
(b) The "Basic Regulatory Allocations" consist of allocations
pursuant to Sections 4.3(e), 4.3(f), 4.3(g) and 4.3(h)
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hereof. Notwithstanding any other provision of this Agreement, other than the
Regulatory Allocations, the Basic Regulatory Allocations shall be taken into
account in allocating items of income, gain, loss and deduction among the
Partners so that, to the extent possible, the net amount of such allocations of
the Basic Regulatory Allocations and such other items to each Partner shall be
equal to the net amount that would have been allocated to each such Partner as
if the Basic Regulatory Allocations had not occurred. For purposes of applying
the foregoing sentence, allocations pursuant to this Section 4.4(b) shall only
be made with respect to allocations pursuant to Section 4.3(h) hereof to the
extent the Managing Partner reasonably determines that such allocations will
otherwise be inconsistent with the economic agreement among the parties to this
Agreement.
(c) The "Nonrecourse Regulatory Allocations" consist of all
allocations pursuant to Sections 4.3(a) hereof. Notwithstanding any other
provision of this Agreement, other than the Regulatory Allocations, the
Nonrecourse Regulatory Allocations shall be taken into account in allocating
items of income, gain, loss and deduction among the Partners so that, to the
extent possible, the net amount of such allocations of the Nonrecourse
Regulatory Allocations and such other items to each Partner shall be equal to
the net amount that would have been allocated to each such Partner if the
Nonrecourse Regulatory Allocations had not occurred. For purposes of applying
the foregoing sentence, no allocations pursuant to this Section 4.4(c) shall be
made prior to the Partnership taxable year during which there is a net decrease
in Partnership Minimum Gain, and then only to the extent necessary to avoid any
potential economic distortions caused by such net decrease in Partnership
Minimum Gain.
(d) The "Partner Nonrecourse Regulatory Allocations" consist of all
allocations pursuant to Sections 4.3(c) and 4.3(d) hereof. Notwithstanding any
other provision of this Agreement, other than the Regulatory Allocations, the
Partner Nonrecourse Regulatory Allocations shall be taken into account in
allocating items of income, gain, loss and deduction among the Partners so that,
to the extent possible, the net amount of such allocations of the Partner
Nonrecourse Regulatory Allocations and such other items to each Partner shall be
equal to the net amount that would have been allocated to each such Partner if
the Partner Nonrecourse Regulatory Allocations had not occurred. For purposes
of applying the foregoing sentence (i) no allocations pursuant to this Section
4.4(d) shall be made with respect to allocations pursuant to Section 4.3(c)
relating to a particular Partner Nonrecourse Debt prior to the Partnership
taxable year during which there is a net decrease in Partner Minimum Gain
attributable to such Partner Nonrecourse Debt, and then only to the extent
necessary to avoid
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any potential economic distortions caused by such net decrease in Partner
Minimum Gain, and (ii) allocations pursuant to this Section 4.4(d) shall be
deferred with respect to allocations pursuant to Section reasonably determines
that such allocations are likely to be offset by subsequent allocations pursuant
to Section 4.3(c) hereof.
(e) The Managing Partner shall have reasonable discretion, with
respect to each Partnership taxable year, to (i) apply the provisions of
Sections 4.4(b), 4.4(c) and 4.4(d) hereof in whatever order is likely to
minimize the economic distortions that might otherwise result from the
Regulatory Allocations and (ii) divide all allocations pursuant to Sections
4.4(b), 4.4(c) and 4.4(d) hereof among the Partners in a manner that is likely
to minimize such economic distortions.
4.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses or any other
items allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly or other basis, as determined by the Managing
Partner using any permissible method under Code Section 706 and the Regulations
thereunder.
(b) For purposes of Regulations Section 1.752-3(a)(3), the Partners
agree that Nonrecourse Liabilities of the Partnership in excess of the sum of
(i) the amount of Partnership Minimum Gain and (ii) the total amount of built-in
gain (as defined in Regulations Section 1.752-3(a)(2)) shall be allocated among
the Partners in accordance with their respective Percentage Interests.
(c) In the event Interests are transferred in accordance with the
provisions of Article VIII hereof during any taxable year, the distributive
share of Partnership income, gain, loss and deductions attributable to such
transferred Interests for that taxable year shall be apportioned between the
transferor Partner and the person to whom the Interest is transferred (the
"Transferee") in proportion to the number of days during such taxable year that
each was the owner of the Interests transferred, but subject to the constraints
and limitations imposed by Code Section 706. Distributions with respect to
Interests transferred shall be made only to Partners of record on a date
designated by the Managing Partner as the date of such distribution.
4.6 Tax Allocations; Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, solely for income tax purposes, income,
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gain, loss and deduction with respect to any property contributed to the capital
of the Partnership (including income, gain, loss and deduction determined with
respect to the alternative minimum tax) shall, be allocated among the Partners
so as to take account of any variation between the adjusted basis of such
property to the Partnership for federal income tax purposes (including such
adjusted basis for alternative minimum tax purposes) and its initial Gross Asset
Value, including, but not limited to, special allocations to a contributing
Partner that are required under Code Section 704(c) to be made upon distribution
of such property to any of the non-contributing Partners.
(b) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to paragraph (ii) of the definition of "Gross Asset Value"
contained herein, solely for federal income tax purposes, subsequent allocations
of income, gain, loss and deduction with respect to such asset (including
income, gain, loss and deduction determined with respect to the alternative
minimum tax) will take account of any variation between the adjusted basis of
such asset (including such adjusted basis for alternative minimum tax purposes)
and its Gross Asset Value in the same manner as under Code Section 704(c) and
the Regulations thereunder.
(c) Any elections or other decisions relating to allocations under
this Section 4.6, including the selection of any allocation method permitted
under Regulations Section 1.704-3, will be made as approved by the Managing
Partner in any manner that reasonably reflects the purpose and intention of this
Agreement. Except as otherwise provided in this Section 4.6, all items of
Partnership income, gain, loss, deduction and credit will for tax purposes be
divided among the Partners in the same manner as they share correlative Profits,
Losses or Partnership items of income, gain, loss or deduction, as the case may
be, for the Partnership taxable year. Allocations pursuant to this Section 4.6
are solely for purposes of federal, state and local taxes and will not affect,
or in any way be taken into account in computing, any Partner's Capital Account
or share of Profits, Losses or other items or distributions pursuant to any
provision of this Agreement.
(d) If any taxable item of income or gain is computed differently
from the taxable item of income or gain which results for purposes of the
alternative minimum tax, then to the extent possible, without changing the
overall allocations of items for purposes of either the Partners' Capital
Accounts or the regular income tax (i) each Partner will be allocated items of
taxable income or gain for alternative minimum tax purposes taking into account
the prior allocations of originating tax preferences or alternative minimum tax
adjustments to such Partner (and its
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predecessors) and (ii) other Partnership items of income or gain for alternative
minimum tax purposes of the same character that would have been recognized but
for the originating tax preferences or alternative minimum tax adjustments, will
be allocated away from those Partners that are allocated amounts pursuant to
clause (i) so that, to the extent possible, the other Partners are allocated the
same amount, and type, of alternative minimum tax income and gain that would
have been allocated to them had the originating tax preferences or alternative
minimum tax adjustments not occurred.
(e) If any portion of gain recognized from the disposition of property
by the Partnership represents the "recapture" of previously allocated deductions
by virtue of the application of Code Section 1245 or 1250 ("Recapture Gain"),
such Recapture Gain will be allocated as follows:
First, to the Partners, pro rata, in proportion to the lesser of each
Partner's (i) allocable share of the total gain recognized from the disposition
of such Partnership property and (ii) share of depreciation or amortization with
respect to such property (as determined under Proposed Treasury Regulation
section 1.1245-1(e)(2)), until each such Partner has been allocated Recapture
Gain equal to such lesser amount; and
Second, the balance of Recapture Gain will be allocated among the Partners
whose allocable shares of total gain exceed their shares of depreciation or
amortization with respect to such property (as determined under Proposed
Treasury Regulation section 1.1245-1(e)(2)), in proportion to their shares of
total gain (including Recapture Gain) from the disposition of such property;
provided, however, that no Partner will be allocated Recapture Gain under this
Section 4.6(e) in excess of the total gain allocated to such Partner from such
disposition.
ARTICLE V
DISTRIBUTIONS
5.1 Distributions of Available Cash Flow. Except as otherwise
provided in Article IX hereof, Available Cash Flow, if any, shall be
distributed, at such times as the Managing Partner may determine to be
appropriate, to the Partners in accordance with their respective Percentage
Interests.
5.2 Withholding. Notwithstanding any other provision of this
Agreement, the Tax Matters Partner is authorized to take any action that it
determines to be necessary or appropriate to cause the Partnership to comply
with any withholding requirements established under any federal, state or local
tax law, including,
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without limitation, withholding on any distribution to any Partner. For all
purposes of this Article V, any amount withheld on any distribution and paid
over to the appropriate governmental body shall be treated as if such amount
had, in fact, been distributed to the Partner.
ARTICLE VI
MANAGEMENT OF PARTNERSHIP
6.1 Management of Partnership.
(a) The Partners hereby authorize the appointment of BHI as the
Managing Partner of the Partnership.
(b) The exclusive management and control of the business and affairs
of the Partnership shall be vested in the Managing Partner. Each Partner hereby
waives any and all claims such Partner may have against the Partnership or any
other Partner for breach of fiduciary duty, or other similar responsibility or
obligation. The Managing Partner shall have full power and authority to do all
things deemed necessary or desirable by it to conduct the business of the
Partners, including, without limitation, the following:
(i) the making of any expenditures, the lending or borrowing of
money, the assumption, guarantee of or other contracting of indebtedness
and other liabilities, the issuance of evidences of indebtedness and the
incurring of any obligations it deems necessary for the conduct of the
activities of the Partnership;
(ii) the making of tax, regulatory and other filings or rendering
of periodic or other reports to governmental or other agencies having
jurisdiction over the Partnership or the business or assets of the
Partnership;
(iii) the acquisition, disposition, mortgage, pledge, encumbrance,
hypothecation or exchange of any assets of the Partnership or the merger or
other combination of the Partnership with or into another entity;
(iv) the use of the assets of the Partnership (including, without
limitation, cash on hand) for any purpose and on any terms it sees fit,
including, without limitation, the financing of the conduct of the
operations of the Managing Partner or the Partnership, the lending of funds
to other Persons and the repayment of obligations of the Partnership;
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(v) the negotiation, execution and performance of any contracts,
conveyances or other instruments that the Managing Partner considers useful
or necessary to the conduct of the Partnership's operations or the
implementation of the Managing Partner's powers under this Agreement,
including management, development or operating agreements with respect to
the Project;
(vi) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(vii) the selection and dismissal of employees of the Partnership
or the Managing Partner and agents, outside attorneys, accountants,
consultants and contractors of the Managing Partner or the Partnership and
the determination of their compensation and other terms of employment or
hiring;
(viii) the maintenance of insurance for the benefit of the
Partnership;
(ix) the formation of or acquisition of an interest in and the
contribution of property to any further limited or general partnerships,
joint ventures or other relationships that it deems desirable;
(x) the control of any matters affecting the rights and
obligations of the Partnership, including the conduct of litigation,
incurring of legal expense and settlement of claims and litigation, and the
indemnification of any Person against liabilities and contingencies to the
extent permitted by law;
(xi) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any other Person (including,
without limitation, the contribution or loan of funds by the Partnership to
such Persons); and
(xii) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable method of
valuation as the Managing Partner may adopt.
(c) The Partners agree that the Managing Partner is authorized to
execute, deliver and perform the above-mentioned agreements and transactions on
behalf of the Partnership without any further act, approval or vote of the
Partners.
(d) At all times from and after the date hereof, the Managing Partner
may cause the Partnership to obtain and maintain
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casualty, liability and other insurance on the properties of the Partnership.
(e) At all times from and after the date hereof, the Managing Partner
may cause the Partnership to establish and maintain working capital reserves in
such amounts as the Managing Partner, in its sole and absolute discretion, deems
appropriate and reasonable from time to time.
6.2 [Intentionally Omitted.]
6.3 Compensation and Expense Reimbursement of Partners.
(a) No payment will be made by the Partnership for the services of
any Partner or any member, employee, agent or partner of any Partner or an
Affiliate thereof, except as may be expressly approved by the Managing Partner.
(b) Each of the Partners, and all Affiliates thereof, shall, at the
request of such Partner, be reimbursed by the Partnership for the reasonable
out-of-pocket expenses incurred by such Partner, or an Affiliate thereof, on
behalf of the Partnership in connection with the business and affairs of the
Partnership, including all legal, accounting, travel and other similar expenses
reasonably incurred by the Partners in connection with the formation of the
Partnership or the acquisition, development, renovation, rehabilitation, repair,
management or operation of the Project or any other Partnership Property.
6.4 Limitation of Liability. Neither the Partners, nor any officer,
director, partner, employee or Affiliate of any Partner shall be liable,
responsible or accountable in damages or otherwise to the Partnership or any
Partner for any action taken or failure to act on behalf of the Partnership
within the scope of the authority conferred on such Person by this Agreement or
by law, unless such action or omission was performed or omitted fraudulently or
in bad faith or constituted gross negligence or willful misconduct.
6.5 Indemnification. The Partnership shall indemnify and hold
harmless the Partners and each of their respective partners, officers,
directors, stockholders, employees, agents and Affiliates (collectively the
"Parties") from and against any and all losses, expenses, damages or injuries
suffered or sustained by the Parties (or any of them) by reason of any acts,
omissions or alleged acts or omissions arising out of its or their activities on
behalf of the Partnership or in furtherance of the interests of the Partnership,
including, but not limited to, any judgment, award, settlement, reasonable
attorney's fees and other costs or expenses
21
<PAGE>
incurred in connection with the defense of any actual or threatened action,
proceeding or claim provided that the acts, omissions or alleged acts or
omissions upon which such actual or threatened action, proceeding or claim is
based was performed or omitted in good faith and were not performed or omitted
fraudulently or in bad faith or as a result of gross negligence or willful
misconduct by any such Party and provided that such Party reasonably believed
that the acts, omissions or alleged acts or omissions upon which such actual or
threatened action, proceeding or claim is based was in the best interests of the
Partnership. Such indemnification shall be made only to the extent of the
assets of the Partnership.
ARTICLE VII
BOOKS AND RECORDS
7.1 Books and Records. The Managing Partner shall keep proper and
usual books and records pertaining to the Partnership's business on an accrual
basis in accordance with tax accounting principles or generally accepted
accounting principles consistently applied, showing all of its assets and
liabilities, receipts and disbursements, profits and losses, Partners' Capital
Contributions and distributions and all transactions entered into by the
Partnership. The books and records and all files of the Partnership shall be
kept at its principal office or such other place as the Managing Partner may
designate from time to time. The fiscal year of the Partnership shall end on
December 31 of each year.
7.2 Bank Accounts. Funds of the Partnership shall be deposited in an
account or accounts in the bank or banks designated by the Managing Partner.
Such account or accounts shall be in the name of the Partnership and shall be
subject to withdrawal only upon signatures of those Persons authorized from time
to time by the Managing Partner.
7.3 Tax Returns. Federal, state and local tax returns of the
Partnership shall be prepared and timely filed by or at the direction of the
Managing Partner at the expense of the Partnership.
7.4 Tax Decisions and Elections. BHI is hereby designated the "Tax
Matters Partner" of the Partnership for all purposes under this Agreement and as
such term is defined under the Code. The Tax Matters Partner shall make or
revoke all elections and take all reporting positions which, in its discretion,
it deems necessary or desirable for the Partnership. Each item of Partnership
income and deduction shall be separately reported on
22
<PAGE>
each Partner's income tax return, pursuant to Regulations Section 1.702-1(a).
The Managing Partner shall make the election under Code Section 754. Tax
decisions and elections for the Partnership not provided for herein shall be
determined and made by the Managing Partner. The Managing Partner shall provide
all Partners with all tax information that the Managing Partner receives, shall
notify all Partners of any meetings with respect to the Partnership's income tax
returns and shall afford representatives of each Partner the opportunity to be
present at such meetings. No Partner shall take a position on any income tax
return which is inconsistent with any position taken by the Partnership on the
Partnership's income tax returns.
7.5 Tax Examination. Each Partner shall give prompt notice to the
other Partners upon receipt of notice that the Internal Revenue Service or any
state or local taxing authority intends to examine any Partnership income tax
returns. The Tax Matters Partner shall promptly notify the Partners of the
commencement of any administrative or judicial proceedings involving the tax
treatment of items of Partnership income, loss, deductions and credits, and
shall further keep the Partners fully informed of all material developments
involved in such proceedings.
ARTICLE VIII
TRANSFER OR ASSIGNMENT OF PARTNERSHIP INTERESTS
8.1 Restrictions on Transfer. Each Partner may Transfer all or any
portion of its rights or Interest in the Partnership, but may not withdraw or
retire from the Partnership without the prior written consent of the Managing
Partner; provided, however, that no Transfer will be permitted until the
Transferee (a) delivers to the Managing Partner a written instrument evidencing
such Transfer; (b) executes a copy of this Agreement accepting and agreeing to
all of the terms, conditions and provisions of this Agreement; and (c) pays to
the Partnership its reasonable out-of-pocket costs and expenses incurred in
connection with such Transfer and the admission of the Transferee as a Partner.
8.2 Admission of Transferees. A Transferee of an Interest in the
Partnership in accordance with the provisions of Section 8.1 of this Article
VIII shall be admitted as a Partner with respect to the Interest Transferred
upon the fulfillment of such provisions. Until such provisions are fulfilled, a
Transferee shall not be admitted as a Partner in the Partnership or otherwise be
recognized by the Partnership as having any rights as a Partner, including any
right to receive distributions from the Partnership
23
<PAGE>
(directly or indirectly) or to acquire an interest in the capital or profits of
the Partnership.
ARTICLE IX
DISSOLUTION AND WINDING UP
9.1 Liquidating Events. The Partnership shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following
("Liquidating Events"):
(a) December 31, 2047;
(b) the sale of all or substantially all of the Property;
(c) the unanimous agreement of all Partners;
(d) the happening of any other event that makes it unlawful,
impossible or impractical to carry on the business of the Partnership; or
(e) an event of dissolution required under the Act.
The Partners hereby agree that, notwithstanding any provision of the Act, the
Partnership shall not dissolve prior to the occurrence of a Liquidating Event.
Furthermore, if an event specified in Section 9.1(e) hereof occurs, the
remaining Partners may, within ninety (90) days of the date such event occurs,
unanimously vote to continue the Partnership business, in which case the
Partnership shall not dissolve and the occurrence of the event under Section
9.1(e) shall not be deemed a Liquidating Event. The Partners further agree that
in the event the Partnership is dissolved prior to a Liquidating Event, the
Partnership may be continued upon the unanimous vote of the existing Partners at
such time to so continue the Partnership, provided such vote occurs within
thirty (30) days of the event triggering such dissolution.
9.2 Winding Up. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purpose of winding up its affairs in
an orderly manner, liquidating its assets and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The Managing Partner (or, in the event
there is no Managing Partner, the other Partners or any Person elected by a
majority of the other Partners) shall be responsible for overseeing the winding
up and dissolution of the Partnership and shall take full account of the
Partnership's
24
<PAGE>
liabilities and the Partnership Property shall be liquidated as promptly as is
consistent with obtaining the fair value thereof, and the proceeds therefrom, to
the extent sufficient, shall be applied and distributed in the following order:
(a) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than Partners;
(b) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to Partners; and
(c) The balance, if any, to the Partners in accordance with their
respective Capital Accounts, after giving effect to all contributions,
distributions and allocations for all periods.
9.3 Liquidating Trust. In the discretion of the Managing Partner
(or such other Person responsible for overseeing the winding up and dissolution
of the Partnership), a pro rata portion of the distributions that would
otherwise be made to the Partners pursuant to this Article IX may be:
(a) distributed to a trust established for the benefit of the
Partners, provided such trust is a liquidating trust or a grantor trust for
federal income tax purposes, for the purpose of liquidating Partnership
assets, collecting amounts owed to the Partnership and paying any
contingent or unforeseen liabilities or obligations of the Partnership or
of the Partners arising out of or in connection with the Partnership. The
assets of any such trust shall be distributed to the Partners from time to
time at such times and in such amounts as determined, in the reasonable
discretion of the Managing Partner (or such other Person responsible for
overseeing the winding up and dissolution of the Partnership), to be
appropriate in the same proportions as the amount distributed to such trust
by the Partnership would otherwise have been distributed to the Partners
pursuant to this Agreement; or
(b) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion
of any installment obligations owed to the Partnership, provided that such
withheld amounts shall be distributed to the Partners as soon as
practicable.
25
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given on the
date of service if served personally; three (3) business days after the date of
mailing, if mailed, by first class mail, registered or certified, postage
prepaid; one (1) business day after delivery to the courier if sent by private
receipt courier guaranteeing next day delivery, delivery charges prepaid and, in
each case, addressed as follows:
If to BLC to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: President
Facsimile No.: (312) 917-0460
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg, Esq.
Facsimile No.: (312) 558-5700
and to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Michael W. Reschke
Facsimile No.: (312) 917-1511
and, if to BHI to:
c/o Brookdale Holdings, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: President
Facsimile No.: (312) 917-0460
26
<PAGE>
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg, Esq.
Facsimile No.: (312) 558-5700
and to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Michael W. Reschke
Facsimile No.: (312) 917-1511
or at such other place as the respective Partner may, from time to time,
designate in a written notice to the other Partners. All communications among
Partners in the normal course of the Partnership business shall be deemed
sufficiently given if sent by regular mail, postage prepaid.
10.2 Binding Effect. Except as otherwise provided in this Agreement,
every covenant, term and provision of this Agreement shall be binding upon and
inure to the benefit of the Partners and their respective heirs, legatees, legal
representatives, successors, transferees and assigns.
10.3 Creditors. None of the provisions of this Agreement shall be for
the benefit of or enforced by any creditor of the Partnership or any Partner.
10.4 Remedies Cumulative. No remedy herein conferred upon any party
is intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise. No single or partial exercise by any party of any right, power or
remedy hereunder shall preclude any other or further exercise thereof.
10.5 Construction. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Partner.
10.6 Headings. Section and other headings contained in this Agreement
are for reference purposes only and are not intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.
27
<PAGE>
10.7 Severability. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
or legality of the remainder of this Agreement.
10.8 Incorporation by Reference. Every exhibit, schedule and other
appendix attached to this Agreement and referred to herein is hereby
incorporated in this Agreement by reference.
10.9 Further Action. Each Partner, upon the request of the Managing
Partner, agrees to perform all further acts and execute, acknowledge and deliver
any documents which may be reasonably necessary, appropriate or desirable to
carry out the provisions of this Agreement.
10.10 Variation of Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine or neuter, singular or plural,
as the identity of the Person or Persons may require.
10.11 Governing Law. The laws of the State of Illinois shall govern
the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the Partners, without regard to the
principles of conflicts of laws.
10.12 Waiver of Action for Partition. Each of the Partners
irrevocably waives any right that it may have to maintain any action for
partition with respect to any of the Partnership Property.
10.13 Counterpart Execution. This Agreement may be executed in any
number of counterparts with the same effect as if all of the Partners had signed
the same document. All counterparts shall be construed together and shall
constitute one agreement.
[signature page follows]
28
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED
PARTNERSHIP AGREEMENT
OF
RIVER OAKS PARTNERS,
AN ILLINOIS GENERAL PARTNERSHIP
<TABLE>
<CAPTION>
GROSS ASSET VALUE OF PERCENTAGE
NAMES AND ADDRESSES CAPITAL CONTRIBUTIONS PROPERTY CONTRIBUTED INTERESTS
- ------------------- --------------------- -------------------- ----------
<S> <C> <C> <C>
Brookdale Living N/A N/A 99%
Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Brookdale Holdings, Inc. N/A N/A 1%
77 West Wacker Drive
Chicago, Illinois 60601
________ ____
TOTALS N/A 100%
=== ====
</TABLE>
<PAGE>
EXHIBIT B
---------
PROJECT DESCRIPTION
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day first above set forth.
PARTNERS:
--------
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By: /s/ Mark J. Schulte
---------------------------------
Its: President
---------------------------
BROOKDALE HOLDINGS, INC., a Delaware
corporation
By: /s/ Mark J. Schulte
---------------------------------
Its: President
---------------------------
29
<PAGE>
Exhibit 10.15
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
THE PONDS OF PEMBROKE LIMITED PARTNERSHIP,
AN ILLINOIS LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
ARTICLE I ----
<C> <S> <C>
CERTAIN DEFINITIONS...................................................... 2
1.1 "Act"2......................................................... 2
1.2 "Adjusted Capital Account Deficit"............................. 2
1.3 "Affiliate".................................................... 3
1.4 "Agreement" or "Partnership Agreement"......................... 3
1.5 "Assignee"..................................................... 3
1.6 "Available Cash Flow".......................................... 3
1.7 "BHI".......................................................... 4
1.8 "BLC".......................................................... 4
1.9 "Capital Account".............................................. 4
1.10 "Capital Contributions"........................................ 5
1.11 "Certificate".................................................. 5
1.12 "Code"......................................................... 6
1.13 "Depreciation"................................................. 6
1.14 "General Partner".............................................. 6
1.15 "Gross Asset Value"............................................ 6
1.16 "Interest"..................................................... 7
1.17 "Limited Partner".............................................. 7
1.18 "Managing General Partner"..................................... 8
1.19 "Nonrecourse Deductions"....................................... 8
1.20 "Nonrecourse Liability"........................................ 8
1.21 "Partner Minimum Gain"......................................... 8
1.22 "Partner Nonrecourse Debt"..................................... 8
1.23 "Partner Nonrecourse Deductions"............................... 8
1.24 "Partners"..................................................... 8
1.25 "Partnership".................................................. 9
1.26 "Partnership Minimum Gain"..................................... 9
1.27 "Percentage Interest".......................................... 9
1.28 "Person"....................................................... 9
1.30 "Project"...................................................... 10
1.31 "Property"..................................................... 10
1.32 "Recapture Gain"............................................... 10
1.33 "Regulations".................................................. 10
1.34 "Tax Matters Partner".......................................... 10
1.35 "Transfer"..................................................... 10
1.36 "Transferee"................................................... 10
ARTICLE II
THE PARTNERSHIP.......................................................... 11
2.1 Organization................................................... 11
2.2 Partnership Name............................................... 11
2.3 Purpose........................................................ 11
2.4 Principal Place of Business.................................... 11
2.5 Term........................................................... 11
2.6 Filings; Agent for Service of Process.......................... 11
2.7 Reservation of Other Business Opportunities.................... 12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ARTICLE III
<C> <S> <C>
PARTNERS' CAPITAL CONTRIBUTIONS;
ADDITIONAL FINANCING AND CONTRIBUTIONS............................... 12
3.1 General Partner.............................................. 12
3.2 Limited Partners............................................. 13
3.3 Additional Financing......................................... 13
3.4 Other Matters................................................ 13
ARTICLE IV
ALLOCATIONS.......................................................... 13
4.1 Profits...................................................... 13
4.2 Losses....................................................... 13
4.3 Special Allocations.......................................... 13
4.4 Curative Allocations......................................... 16
4.5 Other Allocation Rules....................................... 17
4.6 Tax Allocations; Code Section 704(c)......................... 18
ARTICLE V
DISTRIBUTIONS........................................................ 20
5.1 Distributions of Available Cash Flow......................... 20
5.2 Withholding.................................................. 20
ARTICLE VI
MANAGEMENT OF PARTNERSHIP............................................ 20
6.1 Management of Partnership.................................... 20
6.2 [Intentionally Omitted.]..................................... 22
6.3 Compensation and Expense Reimbursement of Partners........... 22
6.4 Limitation of Liability...................................... 23
6.5 Indemnification.............................................. 23
6.6 No Participation in Management............................... 23
6.7 No Personal Liability........................................ 23
ARTICLE VII
BOOKS AND RECORDS.................................................... 24
7.1 Books and Records............................................ 24
7.2 Bank Accounts................................................ 24
7.3 Tax Returns.................................................. 24
7.4 Tax Decisions and Elections.................................. 24
7.5 Tax Examination.............................................. 25
ARTICLE VIII
TRANSFER OR ASSIGNMENT OF PARTNERSHIP INTERESTS...................... 25
8.1 Restrictions on Transfer..................................... 25
8.2 Admission of Transferees..................................... 25
ARTICLE IX
DISSOLUTION AND WINDING UP........................................... 26
9.1 Liquidating Events........................................... 26
9.2 Winding Up................................................... 26
9.3 Liquidating Trust............................................ 27
</TABLE>
- ii -
<PAGE>
<TABLE>
<CAPTION>
ARTICLE X
<C> <S> <C>
MISCELLANEOUS........................................................... 28
10.1 Notices......................................................... 28
10.2 Binding Effect.................................................. 29
10.3 Creditors....................................................... 29
10.4 Remedies Cumulative............................................. 29
10.5 Construction.................................................... 29
10.6 Headings........................................................ 29
10.7 Severability.................................................... 29
10.8 Incorporation by Reference...................................... 30
10.9 Further Action.................................................. 30
10.10 Variation of Pronouns........................................... 30
10.11 Governing Law................................................... 30
10.12 Waiver of Action for Partition.................................. 30
10.13 Counterpart Execution........................................... 30
</TABLE>
EXHIBIT A - PARTNERS' CAPITAL CONTRIBUTIONS
EXHIBIT B - PROJECT DESCRIPTION
- iii -
<PAGE>
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
THE PONDS OF PEMBROKE LIMITED PARTNERSHIP,
AN ILLINOIS LIMITED PARTNERSHIP
-------------------------------
This AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP (this
"Agreement") is entered into this 7th day of May, 1997, by and between Brookdale
Holdings, Inc., a Delaware corporation ("BHI"), as the General Partner, and
Brookdale Living Communities, Inc., a Delaware corporation ("BLC"), as the
Limited Partner, pursuant to the provisions of the Illinois Revised Uniform
Limited Partnership Act, as amended, on the following terms and conditions:
WITNESSETH:
WHEREAS, KILICO Realty Corporation, an Illinois corporation ("KRC"),
The Prime Group, Inc., an Illinois corporation ("Prime") and Arnold G. Gough, an
individual, ("Gough"), entered into that certain Agreement of Limited
Partnership of The Ponds of Pembroke Limited Partnership, dated as of December
11, 1987, as amended as of December 11, 1990 and as further amended as of August
15, 1991 (effective as of December 11, 1990), as of December 31, 1991, as of
March 22, 1994 and as of August 31, 1994 (as so amended, the "Original
Agreement");
WHEREAS, among other things, the amendments referred to in the
immediately preceding recital effected (i) the transfer of the interest of Gough
in the Partnership (as hereinafter defined) from Gough to Kemper Investors Life
Insurance Company, an Illinois insurance corporation ("KILICO"), (ii) the
withdrawal of Gough as a limited partner of the Partnership; and (iii) the
admission of KILICO as a limited partner of the Partnership;
WHEREAS, pursuant to that certain letter agreement, dated September
17, 1996, by and among Prime, KRC and KILICO, as amended (the "Kemper
Agreement"), KRC and KILICO (collectively, the "Kemper Transferors") have agreed
to convey certain interests in the Partnership to Prime or its designee or
assignee;
WHEREAS, pursuant to that certain Formation Agreement, dated as of the
date hereof (the "Formation Agreement"), by and among (i) BLC, (ii) BHI, (iii)
Mark J. Schulte, an individual, (iv) Prime, and (v) Prime Group Limited
Partnership, an Illinois limited partnership,as of the date hereof, the rights
to acquire the interests in the Partnership from the Kemper Transferors pursuant
to the Kemper Agreement are being assigned to BLC, and BLC has agreed to assume
the obligation to pay the purchase price under the Kemper Agreement;
<PAGE>
WHEREAS, pursuant to the Formation Agreement, Prime is assigning, as
of the date hereof immediately after the KRC Assignment, a twenty five percent
(25%) Interest in the Partnership to BLC (or to BHI as its designee);
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement in its entirety, and desire to reflect herein, among other things, (i)
the withdrawal of Prime, KRC and KILICO as partners of the Partnership, (ii) the
admission of BHI as the General Partner of the Partnership; (iii) the admission
of BLC as the Limited Partner of the Partnership; and (iv) certain other
amendments to the Original Agreement so that the Original Agreement, as amended
and restated, reads, in its entirety, as follows:
ARTICLE I
CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth in this Article I (such meanings to be equally applicable in
both the singular and plural forms of the term defined).
1.1 "Act" means the Illinois Revised Uniform Limited Partnership
Act, as amended from time to time (or any corresponding provisions of succeeding
law).
1.2 "Adjusted Capital Account Deficit" means, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant Partnership taxable year, after giving effect to the
following adjustments:
(i) Credit to such Capital Account any amounts which such Partner is
obligated to restore pursuant to any provision of this Agreement or
pursuant to Regulations Section 1.704-1(b)(2)(ii)(c) or is deemed to be
obligated to restore pursuant to the penultimate sentences of Regulations
Sections 1.704-2(g)(1) and 1.704-2(i)(5); and
(ii) Debit to such Capital Account the items described in Regulations
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) and 1.704-
1(b)(2)(ii)(d)(6).
The foregoing definition of Adjusted Capital Account Deficit is intended to
comply with the provisions of Regulations Section 1.704-1(b)(2)(ii)(d) and shall
be interpreted consistently therewith.
2
<PAGE>
1.3 "Affiliate" means any (i) Person owning a majority interest in
any corporate Partner; (ii) Person owning an interest as a general partner of
any Partner or a majority interest as a limited partner of any Partner; (iii)
Person who is an officer, director, trustee, partner or stockholder of any
Partner or of any Person described in the preceding clause (ii); or (iv) Person
that is controlling, controlled by or under common control with a Partner or any
Person described in the preceding clauses (i), (ii) or (iii).
1.4 "Agreement" or "Partnership Agreement" means this Amended and
Restated Agreement of Limited Partnership, as amended from time to time. Words
such as "herein," "hereinafter," "hereof," and "hereunder" refer to this
Agreement as a whole, unless the context otherwise requires.
1.5 "Assignee" means any Person who has acquired a beneficial
interest in the Interest of a Partner in the Partnership.
1.6 "Available Cash Flow" means, with respect to the applicable
period of measurement (i.e., any period beginning on the first day of the fiscal
year or other period commencing immediately after the last day of the
calculation of Available Cash Flow which was distributed, and ending on the last
day of the month, quarter or other applicable period immediately preceding the
date of calculation, the excess, if any, of the gross cash receipts of the
Partnership for such period from all sources whatsoever, including, without
limitation, the following:
(a) (i) all rents, revenues, income and proceeds derived by the
Partnership from its operations, including, without limitation,
distributions received by the Partnership from any entity in which the
Partnership has an interest; (ii) all proceeds and revenues received on
account of any sales of property of the Partnership or received by the
Partnership for payments of principal, interest, costs, fees, penalties or
otherwise on account of any loans made by the Partnership or financings or
refinancings of any property of the Partnership; (iii) the amount of any
insurance proceeds and condemnation awards received by the Partnership;
(iv) all Capital Contributions received by the Partnership from its
Partners; (v) all cash amounts previously reserved by the Partnership, if
the specific purposes for which such amounts were reserved are no longer
applicable; and (vi) the proceeds of liquidation of the Partnership's
property in accordance with this Agreement:
over the sum of:
3
<PAGE>
(b) (i) all operating costs and expenses of the Partnership and
capital expenditures made during such period (without deduction, however,
for any capital expenditures, charges for depreciation or other expenses
not paid in cash or expenditures from reserves described in (vii) below);
(ii) all costs and expenses expended or payable during such period in
connection with the sale or other disposition, or financing or refinancing,
of property of the Partnership or the recovery of insurance or condemnation
proceeds; (iii) all fees provided for under this Agreement; (iv) all debt
service, including principal and interest, paid during such period on all
indebtedness of the Partnership; (v) all Capital Contributions, advances,
reimbursements or similar payments made to any Person (whether a
partnership, corporation or other entity) in which the Partnership has an
interest; (vi) all loans made by the Partnership; and (vii) any and all
reserves reasonably determined by the Managing General Partner to be
necessary or appropriate for working capital, capital improvements,
payments of periodic expenditures, debt service or other purposes.
1.7 "BHI" means Brookdale Holdings, Inc., a Delaware corporation.
1.8 "BLC" means Brookdale Living Communities, Inc., a Delaware
corporation
1.9 "Capital Account" means, with respect to any Partner, the
Capital Account maintained for such Partner in accordance with the following
provisions:
(i) To each Partner's Capital Account there shall be credited the
amount of cash and the Gross Asset Value of any Property contributed by
such Partner to the Partnership, such Partner's distributive share of
Profits and any items in the nature of income or gain which are specially
allocated pursuant to Sections 4.3 or 4.4 hereof, and the amount of any
Partnership liabilities assumed by such Partner or which are secured by any
Property distributed to such Partner.
(ii) To each Partner's Capital Account there shall be debited the
amount of cash and the Gross Asset Value of any Property distributed to
such Partner pursuant to any provision of this Agreement, such Partner's
distributive share of Losses and any items in the nature of expenses or
losses which are specially allocated pursuant to Sections 4.3 or 4.4
hereof, and the amount of any liabilities of such Partner assumed by the
Partnership or which are secured by Property contributed by such Partner to
the Partnership.
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(iii) In determining the amount of any liability for purposes of the
foregoing subparagraphs (i) and (ii), there shall be taken into account
Code Section 752(c) and any other applicable provisions of the Code and
Regulations.
The foregoing provisions and the other provisions of this Agreement
relating to the maintenance of Capital Accounts are intended to comply with
Regulations Sections 1.704-1(b) and 1.704-2, and shall be interpreted and
applied in a manner consistent with such Regulations. In the event the Managing
General Partner shall determine that it is prudent to modify the manner in which
the Capital Accounts, or any debits or credits thereto (including, without
limitation, debits or credits relating to liabilities which are secured by
contributed or distributed property or which are assumed by the Partnership,
General Partner or the Limited Partners) are computed in order to comply with
such Regulations, the Managing General Partner may make such modification,
provided that it is not likely to have a material adverse effect on the amounts
distributable to any Partner pursuant to Article IX hereof upon the dissolution
of the Partnership. The Managing General Partner also shall (i) make any
adjustments that are necessary or appropriate to maintain equality between the
Capital Accounts of the Partners and the amount of Partnership capital reflected
on the Partnership's balance sheet, as computed for book purposes, in accordance
with Regulations Section 1.704-1(b)(2)(iv)(q), and (ii) make any appropriate
modifications in the event unanticipated events might otherwise cause this
Agreement not to comply with Regulations Sections 1.704-1(b) or 1.704-2.
1.10 "Capital Contributions" means, with respect to any Partner, the
amount of money and the initial Gross Asset Value of any property (other than
money), net of the amount of any debt to which such property is subject,
contributed to the Partnership with respect to the Interest in the Partnership
held by such Partner. The principal amount of a promissory note which is not
readily tradable on an established securities market and which is contributed to
the Partnership by the maker of the note shall not be included in the Capital
Account of any Person until the Partnership makes a taxable disposition of the
note or until (and to the extent) such Partner makes principal payments on the
note, all in accordance with Regulations Section 1.704-1(b)(2)(iv)(d)(2).
1.11 "Certificate" shall mean the Certificate of Limited Partnership
of the Partnership filed with the Secretary of State of Illinois in accordance
with the Act or the applicable predecessor statute thereof, as such Certificate
may be amended from time to time.
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1.12 "Code" means the Internal Revenue Code of 1986, as amended from
time to time (or any corresponding provisions of succeeding law).
1.13 "Depreciation" means, for each Partnership taxable year or other
period, an amount equal to the depreciation, amortization or other cost recovery
deduction allowable with respect to an asset for such year or other period,
except that, if the Gross Asset Value of an asset differs from its adjusted
basis for federal income tax purposes at the beginning of such year or other
period, Depreciation shall be an amount which bears the same ratio to such
beginning Gross Asset Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year or other period bears to such
beginning adjusted tax basis; provided, however, that, if the federal income tax
depreciation, amortization or other cost recovery deduction for such year is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the Managing General
Partner; and provided, further, however, that to the extent the "remedial"
method described in Regulations Section 1.704-3 is elected pursuant to the terms
of this Agreement, Depreciation will be determined in a manner consistent
therewith.
1.14 "General Partner" means any Person which (i) is referred to as
such in the first paragraph of this Agreement or has become a General Partner
pursuant to the terms of this Agreement and (ii) has not ceased to be a General
Partner pursuant to the terms of this Agreement. "General Partners" means all
such Persons if at any time there shall be more than one General Partner. All
references in this Agreement to a majority in interest or a specified percentage
of the General Partners shall mean General Partners whose combined Percentage
Interests represent more than 50% or such specified percentage, respectively, of
the Percentage Interests then held by all General Partners.
1.15 "Gross Asset Value" means, with respect to any asset, the
asset's adjusted basis for federal income tax purposes, except as follows:
(i) The initial Gross Asset Value of any asset contributed by a
Partner to the Partnership shall be the gross fair market value of such
asset, as determined by the contributing Partner and the Partnership;
(ii) The Gross Asset Values of all Partnership assets shall be
adjusted to equal their respective gross fair market values, as reasonably
determined by the Managing General Partner, as of the following times: (a)
the acquisition of an additional Interest in the Partnership by any new or
existing
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Partner in exchange for more than a de minimis Capital Contribution; (b)
the distribution by the Partnership to a Partner of more than a de minimis
amount of Partnership assets, including money, as consideration for an
Interest in the Partnership; and (c) the liquidation of the Partnership
within the meaning of Regulations Section 1.704-1(b)(2)(ii)(g); provided,
however, that adjustments pursuant to clauses (a) and (b) above shall be
made only if the Managing General Partner reasonably determines that such
adjustments are necessary or appropriate to reflect the relative economic
interests of the Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership asset distributed to
any Partner shall be the gross fair market value of such asset on the date
of distribution; and
(iv) The Gross Asset Values of Partnership assets shall be increased
(or decreased) to reflect any adjustments to the adjusted basis of such
assets pursuant to Code Section 734(b) or 743(b), but only to the extent
that such adjustments are taken into account in determining Capital
Accounts pursuant to Regulations Section 1.704-1(b)(2)(iv)(m) and the
definition of "Capital Account" hereof; provided, however, that Gross Asset
Values shall not be adjusted pursuant to this subparagraph (iv) to the
extent the Managing General Partner determines that an adjustment pursuant
to the foregoing subparagraph (ii) of this definition hereof is necessary
or appropriate in connection with a transaction that would otherwise result
in an adjustment pursuant to this subparagraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant to
any of the foregoing subparagraphs (i), (ii) or (iv), such Gross Asset Value
shall thereafter be adjusted by the Depreciation taken into account with respect
to such asset for purposes of computing Profits and Losses.
1.16 "Interest" means a Partner's ownership interest in the
Partnership, including any and all benefits to which the holder of such an
Interest may be entitled as provided in this Agreement, together with all
obligations of such Partner to comply with the terms and provisions of this
Agreement.
1.17 "Limited Partner" means the Person (i) the name of which is set
forth on Exhibit A attached hereto and designated as such or who has become a
Limited Partner pursuant to the terms of this Agreement and (ii) who holds an
Interest. "Limited Partners" means all such Persons if at any time there shall
be more than one Limited Partner. All references in this Agreement to a
majority in interest or a specified percentage of the Limited Partners shall
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mean Limited Partners whose combined Percentage Interests represent more than
50% or such specified percentage, respectively, of the Percentage Interests then
held by all Limited Partners.
1.18 "Managing General Partner" means the General Partner elected as
such pursuant to this Agreement, as described in Section 6.1(a).
1.19 "Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(b). The amount of Nonrecourse Deductions for a
Partnership taxable year equals the excess, if any, of the net increase, if any,
in the amount of Partnership Minimum Gain during that Partnership taxable year
over the aggregate amount of any distributions during that Partnership taxable
year of proceeds of a Nonrecourse Liability that are allocable to an increase in
Partnership Minimum Gain, determined according to the provisions of Regulations
Section 1.704-2(c).
1.20 "Nonrecourse Liability" has the meaning set forth in Regulations
Section 1.704-2(b)(3).
1.21 "Partner Minimum Gain" has the meaning set forth in the
definition of "partner nonrecourse debt minimum gain" in Regulations Section
1.704-2(i)(2), and will be computed as provided in Regulations Section 1.704-
2(i)(3).
1.22 "Partner Nonrecourse Debt" has the meaning set forth in
Regulations Section 1.704-2(b)(4).
1.23 "Partner Nonrecourse Deductions" has the meaning set forth in
Regulations Section 1.704-2(i). The amount of Partner Nonrecourse Deductions
with respect to a Partner Nonrecourse Debt for a Partnership taxable year equals
the excess, if any, of the net increase, if any, in the amount of Partnership
Minimum Gain attributable to such Partner Nonrecourse Debt during that
Partnership taxable year over the aggregate amount of any distributions during
that Partnership taxable year to the Partner that bears the economic risk of
loss for such Partner Nonrecourse Debt to the extent such distributions are from
the proceeds of such Partner Nonrecourse Debt and are allocable to an increase
in Partnership Minimum Gain attributable to such Partner Nonrecourse Debt,
determined in accordance with Regulations Section 1.704-2(i).
1.24 "Partners" means the General Partners and the Limited Partners,
where no distinction is required by the context in which the term is used
herein. "Partner" means any one of the Partners. All references in this
Agreement to a majority interest or a specified percentage of the Partners shall
mean Partners whose combined Percentage Interests represent more than 50% or
such
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specified percentage, respectively, of the Percentage Interests then held by all
Partners.
1.25 "Partnership" means the partnership formed pursuant to the
Original Agreement and continued pursuant to this Agreement and the partnership
continuing the business of this Partnership in the event of dissolution as
herein provided.
1.26 "Partnership Minimum Gain" has the meaning set forth in
Regulations Section 1.704-2(b)(2), and will be computed as provided in
Regulations Section 1.704-2(d).
1.27 "Percentage Interest" means the percentage set forth for the
General Partners and Limited Partners on Exhibit A hereto.
1.28 "Person" means any individual, general partnership, limited
partnership, corporation, trust or other association or entity.
1.29 "Profits" and "Losses" and reference to any item of income,
gain, loss or deduction thereof, means, for each Partnership taxable year or
other period, an amount equal to the Partnership's taxable income or loss for
such year or period, determined in accordance with Code Section 703(a) (for this
purpose, all items of income, gain, loss or deduction required to be stated
separately pursuant to Code Section 703(a)(1) shall be included in taxable
income or loss), with the following adjustments:
(i) Any income of the Partnership that is exempt from federal income
tax and not otherwise taken into account in computing Profits or Losses
pursuant to this definition shall be added to such taxable income or loss;
(ii) Any expenditures of the Partnership described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i) and not otherwise taken into
account in computing Profits or Losses pursuant to this definition shall be
subtracted from such taxable income or loss;
(iii) In the event the Gross Asset Value of any Partnership asset is
adjusted pursuant to subparagraph (ii) or (iv) of the definition of Gross
Asset Value hereof, the amount of such adjustment shall be taken into
account as gain or loss from the disposition of such asset for purposes of
computing Profits or Losses;
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(iv) Gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property
disposed of notwithstanding that the adjusted tax basis of such property
differs from its Gross Asset Value;
(v) In lieu of the depreciation, amortization and other cost recovery
deductions taken into account in computing such taxable income or loss,
there shall be taken into account Depreciation for such Partnership taxable
year or other period, computed in accordance with the definition of
Depreciation herein; and
(vi) Notwithstanding any other provision of this definition of
"Profits" and "Losses," any items which are specially allocated pursuant to
Sections 4.3 or 4.4 hereof shall not be taken into account in computing
Profits or Losses.
1.30 "Project" means the senior and assisted living facility
described in Exhibit B attached hereto and all of the Partnership's interest
therein, including all real estate related thereto and buildings and
improvements thereon.
1.31 "Property" means all real and personal property acquired by the
Partnership and any improvements thereto and shall include both tangible and
intangible property.
1.32 "Recapture Gain" has the meaning set forth in Section 4.6(e).
1.33 "Regulations" means the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
1.34 "Tax Matters Partner" shall mean BHI or any successor Managing
General Partner.
1.35 "Transfer" means, as a noun, any voluntary or involuntary
transfer, sale, pledge, hypothecation or other disposition or encumbrance and,
as a verb, voluntarily or involuntarily to transfer, sell, pledge, hypothecate
or otherwise dispose of or encumber.
1.36 "Transferee" has the meaning set forth in Section 4.5(c).
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ARTICLE II
THE PARTNERSHIP
2.1 Organization. The Partners hereby agree to (i) continue the
Partnership as a limited partnership pursuant to the provisions of the Act and
upon the terms and conditions set forth in this Agreement and (ii) amend and
restate herein the Partnership Agreement in its entirety.
2.2 Partnership Name. The name of the Partnership shall be "The
Ponds of Pembroke Limited Partnership" and all business of the Partnership shall
be conducted in such name or such other name as the Managing General Partner
shall determine. The Partnership shall hold all of its property in the name of
the Partnership and not in the name of any Partner.
2.3 Purpose. The purpose and business of the Partnership shall be to
own real property, including, without limitation, the Project, to acquire,
lease, own, mortgage or otherwise encumber personal property, fixtures and real
property to accomplish the foregoing; to operate, manage, lease (or cause the
operation, management and leasing by independent contractors including a Partner
or its Affiliates) the Project and any other Property owned by the Partnership,
and otherwise deal in and with the business and assets of the Partnership; to do
any and all other acts which may be necessary or incidental to any of the
foregoing or the promotion or conduct of the business of the Partnership or any
of the Partnership Property, including, without limitation, being a partner in
another partnership or other partnerships; and to pursue or conduct any other
business or activity approved by the Partners.
2.4 Principal Place of Business. The principal place of business of
the Partnership shall be c/o Brookdale Living Communities, Inc., 77 West Wacker
Drive, Chicago, Illinois 60601 or such other location as may be designated from
time to time.
2.5 Term. The term of the Partnership commenced on the date on which
the Certificate was filed in the office of the Secretary of State of Illinois in
accordance with the Act and shall continue until the winding up and liquidation
of the Partnership and its business is completed, as provided in Article IX
hereof.
2.6 Filings; Agent for Service of Process.
(a) The Certificate has been filed in the office of the Secretary of
State of Illinois in accordance with the provisions of the Act. The Managing
Partner shall take any and all other actions reasonably necessary to perfect and
maintain the status of the Partnership as a limited partnership under the laws
of the State of
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Illinois. The Managing Partner shall cause amendments to the Certificate to be
filed whenever required by the Act. Such amendments may be executed by the
Managing Partner only.
(b) The Managing Partner shall execute and cause to be filed original
or amended Certificates and shall take any and all other actions as may be
reasonably necessary to perfect and maintain the status of the Partnership as a
limited partnership or similar type of entity under the laws of any other states
or jurisdictions in which the Partnership engages in business.
(c) The agent for service of process on the Partnership in the State
of Illinois, and the address of such agent, shall initially be Robert J. Rudnik,
c/o The Prime Group, Inc., 77 West Wacker Drive, Suite 3900, Chicago, Illinois
60601 or any successor as appointed by the Managing Partner. The Managing
Partner, in it sole and absolute discretion, may change the registered agent and
appoint successor registered agents.
(d) Upon the dissolution of the Partnership, the Managing General
Partner (or, in the event there is no Managing General Partner, the Person
responsible for winding up and dissolution of the Partnership pursuant to
Article IX hereof) shall promptly execute and cause to be filed certificates of
dissolution in accordance with the Act and the laws of any other states or
jurisdictions in which the Partnership has filed certificates.
2.7 Reservation of Other Business Opportunities. No business
opportunities other than those actually exploited by the Partnership pursuant to
Section 2.3 shall be deemed the property of the Partnership, and any Partner or
its Affiliate may engage in or possess an interest in any other business
venture, independently or with others, of any nature or description; and neither
any other Partner nor the Partnership shall have any rights by virtue hereof in
and to such other business ventures, or to the income or profits derived
therefrom. The provisions of this Section 2.7 shall be subject to, and not in
any way affect the enforceability of, any separate agreement by a Partner or any
Affiliate thereof restricting or prohibiting certain business activities of such
Partner or Affiliate.
ARTICLE III
PARTNERS' CAPITAL CONTRIBUTIONS;
ADDITIONAL FINANCING AND CONTRIBUTIONS
3.1 General Partner. The name, address, Capital Contribution and
Percentage Interest of each General Partner is set forth on Exhibit A hereto.
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3.2 Limited Partners. The name, address, initial Capital Contribution
and Percentage Interest of the Limited Partners are set forth on Exhibit A
attached hereto.
3.3 Additional Financing. The sums of money required to finance the
business and affairs of the Partnership shall be derived from the Capital
Contributions made by the Partners to the Partnership, from funds generated from
the operation and the business of the Partnership and from any loans, bond
financing or other indebtedness which the Managing General Partner may, in its
discretion, approve for the Partnership. No additional Capital Contributions
shall be made to the Partnership except as approved by the Managing General
Partner.
3.4 Other Matters.
(a) Except as otherwise provided in this Agreement, no Partner shall
demand or receive a return of its Capital Contributions from the Partnership
without the consent of the other Partners. Under circumstances requiring a
return of any Capital Contributions, no Partner shall have the right to receive
property other than cash except as may be specifically provided herein.
(b) No Partner shall receive any interest, salary or drawing with
respect to its Capital Contributions or its Capital Account or for services
rendered on behalf of the Partnership or otherwise in its capacity as a Partner,
except as otherwise provided in this Agreement or with the consent of the other
Partner.
ARTICLE IV
ALLOCATIONS
4.1 Profits. After giving effect to the special allocations set forth
in Sections 4.3 and 4.4 hereof, Profits for any Partnership taxable year shall
be allocated pro rata between the Partners in accordance with their Percentage
Interests.
4.2 Losses. After giving effect to the allocations set forth in
Sections 4.3 and 4.4 hereof, Losses for any Partnership taxable year shall be
allocated to the Partners pro rata to the Partners in accordance with their
Percentage Interests.
4.3 Special Allocations. The following special allocations will be
made in following order and priority:
(a) If there is a net decrease in Partnership Minimum Gain
during any Partnership taxable year, each Partner will be specially allocated
items of Partnership income and gain for
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such year (and, if necessary, subsequent years) in proportion to, and to the
extent of, an amount equal to such Partner's share of the net decrease in
Partnership Minimum Gain determined in accordance with Regulations Section 1.704
- -2(g)(2). The items to be allocated will be determined in accordance with
Regulations Section 1.704-2(f). This Section 4.3(a) is intended to comply with
such Sections of the Regulations and will be interpreted consistently therewith.
(b) The allocations otherwise required pursuant to Section
4.3(a) hereof will not apply to a Partner to the extent that: (i) such Partner's
share of the net decrease in Partnership Minimum Gain is caused by a guaranty,
refinancing or other change in the instrument evidencing a nonrecourse debt of
the Partnership which causes such debt to become a partially or wholly recourse
debt or a Partner Nonrecourse Debt, and such Partner bears the economic risk of
loss (within the meaning of Regulations Section 1.752-2) for such changed debt;
(ii) such Partner's share of the net decrease in Partnership Minimum Gain
results from the repayment of a nonrecourse liability of the Partnership, which
repayment is made using funds contributed by such Partner to the capital of the
Partnership; (iii) the Internal Revenue Service, pursuant to Regulations Section
1.704-2(f)(4), waives the requirement of such allocation in response to a
request for such waiver made by the Managing General Partner on behalf of the
Partnership (which request the Managing General Partner may or may not make, in
its discretion); or (iv) additional exceptions to the requirement of such
allocation are established by revenue rulings issued by the Internal Revenue
Service pursuant to Regulations Section 1.704-2(f)(5), which exceptions apply to
such Partner, as determined by the Managing General Partner in its discretion.
(c) Except as provided in Section 4.3(a) hereof, if there is a
net decrease in Partner Minimum Gain attributable to Partner Nonrecourse Debt
during any Partnership taxable year, determined in accordance with Regulations
Section 1.704-2(i)(3), then, except as provided in Regulations Section 1.704-
2(i)(4), each Partner who has a share of the Partner Minimum Gain attributable
to such Partner Nonrecourse Debt, determined in accordance with Regulations
Section 1.704-2(i)(5), will be allocated items of income and gain for such
Partnership taxable year (and, if necessary, subsequent Partnership taxable
years) equal to such Partner's share of the net decrease in Partner Minimum
Gain. The items to be allocated will be determined in accordance with
Regulations Section 1.704-2(j)(2). This Section 4.3(c) is intended to comply
with Regulations Section 1.704-2(i) and will be applied and interpreted in
accordance with such Regulation.
(d) Any item of Partnership loss, deduction or expenditure under
Code Section 705(a)(2)(b) attributable to Partner
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Nonrecourse Debt will be allocated in accordance with Regulations Section 1.704-
2(i) to the Partner who bears the economic risk of loss for such Partner
Nonrecourse Debt.
(e) In the event any Partner unexpectedly receives any
adjustments, allocations or distributions described in Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) or (6) resulting in an Adjusted Capital Account
Deficit for such Partner, items of income and gain will be specially allocated
to such Partner in any amount and manner sufficient to eliminate, to the extent
required by the Regulations, such Adjusted Capital Account Deficit as quickly as
possible. The items to be allocated will be determined in accordance with
Regulations Section 1.704-1(b)(2)(ii)(d)(6). This Section 4.3(e) is intended to
comply with Regulations Section 1.704-1(b)(2)(ii)(d) and will be applied and
interpreted in accordance with such Regulation.
(f) No items of loss or deduction will be allocated to any
Partner to the extent that any such allocation would cause the Partner to have
an, or increase the amount of an existing, Adjusted Capital Account Deficit at
the end of any Partnership taxable year. All items of loss or deduction in
excess of the limitation set forth in this Section 4.3(f) will be allocated
among such other Partners which do not have Adjusted Capital Account Deficit
balances, pro rata, in proportion to their Percentage Interests, until no
Partner may be allocated any further items of loss or deduction without creating
or increasing an Adjusted Capital Account Deficit. Thereafter , any remaining
items of loss or deduction will be allocated to the Partners, pro rata, in
proportion to their relative aggregate Capital Contributions made prior to the
last day of the period to which the loss or deduction relates.
(g) In the event any Partner has an Adjusted Capital Account
Deficit at the end of any Partnership taxable year, each such Partner will be
specially allocated items of Partnership income and gain (consisting of a pro
rata portion of each item of Partnership income and gain) to eliminate such
Adjusted Capital Account Deficit as quickly as possible, provided that an
allocation pursuant to this Section 4.3(g) will be made to a Partner if and only
to the extent that such Partner would have an Adjusted Capital Account Deficit
in excess of such sum after all other allocations provided for in this Article
IV have been tentatively made.
(h) To the extent an adjustment to the adjusted tax basis of any
Property pursuant to Sections 734(b) or 743(b) of the Code is required, pursuant
to Regulations Section 1.704-1(b)(2)(iv)(m), to be taken into account in
determining Capital Accounts, the amount of such adjustment to the Capital
Accounts will be treated as an item of gain (if the adjustment
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increases the basis of the asset) or loss (if the adjustment decreases such
basis) and such gain or loss will be specially allocated among the Partners in a
manner consistent with the manner in which their Capital Accounts are required
to be adjusted pursuant to such Section of the Regulations.
4.4 Curative Allocations.
(a) The "Regulatory Allocations" consist of the "Basic Regulatory
Allocations," as defined in Section 4.4(b) hereof, the "Nonrecourse Regulatory
Allocations," as defined in Section 4.4(c) hereof, and the "Partner Nonrecourse
Regulatory Allocations," as defined in Section 4.4(d) hereof.
(b) The "Basic Regulatory Allocations" consist of allocations
pursuant to Sections 4.3(e), 4.3(f), 4.3(g) and 4.3(h) hereof. Notwithstanding
any other provision of this Agreement, other than the Regulatory Allocations,
the Basic Regulatory Allocations shall be taken into account in allocating items
of income, gain, loss and deduction among the Partners so that, to the extent
possible, the net amount of such allocations of the Basic Regulatory Allocations
and such other items to each Partner shall be equal to the net amount that would
have been allocated to each such Partner as if the Basic Regulatory Allocations
had not occurred. For purposes of applying the foregoing sentence, allocations
pursuant to this Section 4.4(b) shall only be made with respect to allocations
pursuant to Section 4.3(h) hereof to the extent the Managing General Partner
reasonably determines that such allocations will otherwise be inconsistent with
the economic agreement among the parties to this Agreement.
(c) The "Nonrecourse Regulatory Allocations" consist of all
allocations pursuant to Sections 4.3(a) hereof. Notwithstanding any other
provision of this Agreement, other than the Regulatory Allocations, the
Nonrecourse Regulatory Allocations shall be taken into account in allocating
items of income, gain, loss and deduction among the Partners so that, to the
extent possible, the net amount of such allocations of the Nonrecourse
Regulatory Allocations and such other items to each Partner shall be equal to
the net amount that would have been allocated to each such Partner if the
Nonrecourse Regulatory Allocations had not occurred. For purposes of applying
the foregoing sentence, no allocations pursuant to this Section 4.4(c) shall be
made prior to the Partnership taxable year during which there is a net decrease
in Partnership Minimum Gain, and then only to the extent necessary to avoid any
potential economic distortions caused by such net decrease in Partnership
Minimum Gain.
(d) The "Partner Nonrecourse Regulatory Allocations" consist of all
allocations pursuant to Sections 4.3(c) and 4.3(d)
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hereof. Notwithstanding any other provision of this Agreement, other than the
Regulatory Allocations, the Partner Nonrecourse Regulatory Allocations shall be
taken into account in allocating items of income, gain, loss and deduction among
the Partners so that, to the extent possible, the net amount of such allocations
of the Partner Nonrecourse Regulatory Allocations and such other items to each
Partner shall be equal to the net amount that would have been allocated to each
such Partner if the Partner Nonrecourse Regulatory Allocations had not occurred.
For purposes of applying the foregoing sentence (i) no allocations pursuant to
this Section 4.4(d) shall be made with respect to allocations pursuant to
Section 4.3(c) relating to a particular Partner Nonrecourse Debt prior to the
Partnership taxable year during which there is a net decrease in Partner Minimum
Gain attributable to such Partner Nonrecourse Debt, and then only to the extent
necessary to avoid any potential economic distortions caused by such net
decrease in Partner Minimum Gain, and (ii) allocations pursuant to this Section
4.4(d) shall be deferred with respect to allocations pursuant to Section 4.3(d)
hereof relating to a particular Partner Nonrecourse Debt to the extent the
Managing General Partner reasonably determines that such allocations are likely
to be offset by subsequent allocations pursuant to Section 4.3(c) hereof.
(e) The Managing General Partner shall have reasonable discretion,
with respect to each Partnership taxable year, to (i) apply the provisions of
Sections 4.4(b), 4.4(c) and 4.4(d) hereof in whatever order is likely to
minimize the economic distortions that might otherwise result from the
Regulatory Allocations and (ii) divide all allocations pursuant to Sections
4.4(b), 4.4(c) and 4.4(d) hereof among the Partners in a manner that is likely
to minimize such economic distortions.
4.5 Other Allocation Rules.
(a) For purposes of determining the Profits, Losses or any other
items allocable to any period, Profits, Losses and any such other items shall be
determined on a daily, monthly or other basis, as determined by the Managing
General Partner using any permissible method under Code Section 706 and the
Regulations thereunder.
(b) For purposes of Regulations Section 1.752-3(a)(3), the Partners
agree that Nonrecourse Liabilities of the Partnership in excess of the sum of
(i) the amount of Partnership Minimum Gain and (ii) the total amount of built-in
gain (as defined in Regulations Section 1.752-3(a)(2)) shall be allocated among
the Partners in accordance with their respective Percentage Interests.
(c) In the event Interests are transferred in accordance with the
provisions of Article VIII hereof during any
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taxable year, the distributive share of Partnership income, gain, loss and
deductions attributable to such transferred Interests for that taxable year
shall be apportioned between the transferor Partner and the person to whom the
Interest is transferred (the "Transferee") in proportion to the number of days
during such taxable year that each was the owner of the Interests transferred,
but subject to the constraints and limitations imposed by Code Section 706.
Distributions with respect to Interests transferred shall be made only to
Partners of record on a date designated by the Managing General Partner as the
date of such distribution.
4.6 Tax Allocations; Code Section 704(c).
(a) In accordance with Code Section 704(c) and the Regulations
thereunder, solely for income tax purposes, income, gain, loss and deduction
with respect to any property contributed to the capital of the Partnership
(including income, gain, loss and deduction determined with respect to the
alternative minimum tax) shall, be allocated among the Partners so as to take
account of any variation between the adjusted basis of such property to the
Partnership for federal income tax purposes (including such adjusted basis for
alternative minimum tax purposes) and its initial Gross Asset Value, including,
but not limited to, special allocations to a contributing Partner that are
required under Code Section 704(c) to be made upon distribution of such property
to any of the non-contributing Partners.
(b) In the event the Gross Asset Value of any Partnership asset
is adjusted pursuant to paragraph (ii) of the definition of "Gross Asset Value"
contained herein, solely for federal income tax purposes, subsequent allocations
of income, gain, loss and deduction with respect to such asset (including
income, gain, loss and deduction determined with respect to the alternative
minimum tax) will take account of any variation between the adjusted basis of
such asset (including such adjusted basis for alternative minimum tax purposes)
and its Gross Asset Value in the same manner as under Code Section 704(c) and
the Regulations thereunder.
(c) Any elections or other decisions relating to allocations
under this Section 4.6, including the selection of any allocation method
permitted under Regulations Section 1.704-3, will be made as approved by the
Managing General Partner in any manner that reasonably reflects the purpose and
intention of this Agreement. Except as otherwise provided in this Section 4.6,
all items of Partnership income, gain, loss, deduction and credit will for tax
purposes be divided among the Partners in the same manner as they share
correlative Profits, Losses or Partnership items of income, gain, loss or
deduction, as the case may be, for the taxable year. Allocations pursuant to
this Section 4.6 are solely
18
<PAGE>
for purposes of federal, state and local taxes and will not affect, or in any
way be taken into account in computing, any Partner's Capital Account or share
of Profits, Losses or other items or distributions pursuant to any provision of
this Agreement.
(d) If any taxable item of income or gain is computed
differently from the taxable item of income or gain which results for purposes
of the alternative minimum tax, then to the extent possible, without changing
the overall allocations of items for purposes of either the Partners' Capital
Accounts or the regular income tax (i) each Partner will be allocated items of
taxable income or gain for alternative minimum tax purposes taking into account
the prior allocations of originating tax preferences or alternative minimum tax
adjustments to such Partner (and its predecessors) and (ii) other Partnership
items of income or gain for alternative minimum tax purposes of the same
character that would have been recognized, but for the originating tax
preferences or alternative minimum tax adjustments, will be allocated away from
those Partners that are allocated amounts pursuant to clause (i) so that, to the
extent possible, the other Partners are allocated the same amount, and type, of
alternative minimum tax income and gain that would have been allocated to them
had the originating tax preferences or alternative minimum tax adjustments not
occurred.
(e) If any portion of gain recognized from the disposition of
property by the Partnership represents the "recapture" of previously allocated
deductions by virtue of the application of Code Section 1245 or 1250 ("Recapture
Gain"), such Recapture Gain will be allocated as follows:
First, to the Partners, pro rata, in proportion to the lesser of each
Partner's (i) allocable share of the total gain recognized from the disposition
of such Partnership property and (ii) share of depreciation or amortization with
respect to such property (as determined under Proposed Treasury Regulation
section 1.1245-1(e)(2)), until each such Partner has been allocated Recapture
Gain equal to such lesser amount; and
Second, the balance of Recapture Gain will be allocated among the Partners
whose allocable shares of total gain exceed their shares of depreciation or
amortization with respect to such property (as determined under Proposed
Treasury Regulation section 1.1245-1(e)(2)), in proportion to their shares of
total gain (including Recapture Gain) from the disposition of such property;
provided, however, that no Partner will be allocated Recapture Gain under this
Section 4.6(e) in excess of the total gain allocated to such Partner from such
disposition.
19
<PAGE>
ARTICLE V
DISTRIBUTIONS
5.1 Distributions of Available Cash Flow. Except as otherwise
provided in Article IX hereof, Available Cash Flow, if any, shall be
distributed, at such times as the Managing General Partner may determine to be
appropriate, to the Partners in accordance with their respective Percentage
Interests.
5.2 Withholding. Notwithstanding any other provision of this
Agreement, the Tax Matters Partner is authorized to take any action that it
determines to be necessary or appropriate to cause the Partnership to comply
with any withholding requirements established under any federal, state or local
tax law, including, without limitation, withholding on any distribution to any
Partner. For all purposes of this Article V, any amount withheld on any
distribution and paid over to the appropriate governmental body shall be treated
as if such amount had, in fact, been distributed to the Partner.
ARTICLE VI
MANAGEMENT OF PARTNERSHIP
6.1 Management of Partnership.
(a) The exclusive management and control of the business and affairs
of the Partnership shall be vested in the General Partners. The powers of the
General Partners shall include all powers, statutory or otherwise, possessed by
or permitted to general partners under the laws of the State of Illinois. Each
Partner hereby waives any and all claims such Partner may have against the
Partnership or any other Partner for breach of fiduciary duty or other similar
responsibility or obligation. If there is more than one General Partner, the
Partners shall elect one of the General Partners to be the "Managing General
Partner," who shall be responsible for the day-to-day operations of the
Partnership. (To the extent there is only one General Partner, all references in
this Agreement to the Managing General Partner shall mean such General Partner.)
The Managing General Partner shall have full power and authority to do all
things deemed necessary or desirable by it to conduct the business of the
Partners, including, without limitation, the following:
(i) the making of any expenditures, the lending or borrowing of
money, the assumption, guarantee of or other contracting of indebtedness
and other liabilities, the issuance of evidences of indebtedness and the
incurring of any
20
<PAGE>
obligations it deems necessary for the conduct of the activities of the
Partnership;
(ii) the making of tax, regulatory and other filings or
rendering of periodic or other reports to governmental or other agencies
having jurisdiction over the Partnership or the business or assets of the
Partnership;
(iii) the acquisition, disposition, mortgage, pledge,
encumbrance, hypothecation or exchange of any assets of the Partnership or
the merger or other combination of the Partnership with or into another
entity;
(iv) the use of the assets of the Partnership (including,
without limitation, cash on hand) for any purpose and on any terms it sees
fit, including, without limitation, the financing of the conduct of the
operations of the Managing General Partner or the Partnership, the lending
of funds to other Persons and the repayment of obligations of the
Partnership;
(v) the negotiation, execution and performance of any
contracts, conveyances or other instruments that the Managing General
Partner considers useful or necessary to the conduct of the Partnership's
operations or the implementation of the Managing General Partner's powers
under this Agreement, including management, development or operating
agreements with respect to the Project;
(vi) the distribution of Partnership cash or other Partnership
assets in accordance with this Agreement;
(vii) the selection and dismissal of employees of the
Partnership or the Managing General Partner and agents, outside attorneys,
accountants, consultants and contractors of the Managing General Partner or
the Partnership and the determination of their compensation and other terms
of employment or hiring;
(viii) the maintenance of insurance for the benefit of the
Partnership;
(ix) the formation of or acquisition of an interest in and the
contribution of property to any further limited or general partnerships,
joint ventures or other relationships that it deems desirable;
(x) the control of any matters affecting the rights and
obligations of the Partnership, including the conduct of litigation,
incurring of legal expense and
21
<PAGE>
settlement of claims and litigation and the indemnification of any Person
against liabilities and contingencies to the extent permitted by law;
(xi) the undertaking of any action in connection with the
Partnership's direct or indirect investment in any other Person (including,
without limitation, the contribution or loan of funds by the Partnership to
such Persons); and
(xii) the determination of the fair market value of any
Partnership property distributed in kind using such reasonable method of
valuation as it may adopt.
(b) The Limited Partners agree that the Managing General Partner is
authorized to execute, deliver and perform the above-mentioned agreements and
transactions on behalf of the Partnership without any further act, approval or
vote of the Limited Partners.
(c) Without limiting the generality of the authority granted to the
Managing General Partner in Section 6.1(a), the Managing General Partner shall
provide accounting, administrative, management, marketing and promotion,
property management, leasing, tenant coordination, development, construction
management, renovation, redevelopment and rehabilitation services to the
Partnership in its capacity as a Partner of the Partnership.
(d) At all times from and after the date hereof, the Managing General
Partner may cause the Partnership to obtain and maintain casualty, liability and
other insurance on the properties of the Partnership.
(e) At all times from and after the date hereof, the Managing General
Partner may cause the Partnership to establish and maintain working capital
reserves in such amounts as the Managing General Partner, in its sole and
absolute discretion, deems appropriate and reasonable from time to time.
6.2 [Intentionally Omitted.]
6.3 Compensation and Expense Reimbursement of Partners.
(a) No payment will be made by the Partnership for the services of
any Partner or any member, employee, agent or partner of any Partner or an
Affiliate thereof, except as may be expressly approved by the Managing General
Partner.
(b) Each of the Partners, and all Affiliates thereof, shall, at the
request of such Partner, be reimbursed by the Partnership for the reasonable
out-of-pocket expenses incurred by
22
<PAGE>
such Partner, or an Affiliate thereof, on behalf of the Partnership in
connection with the business and affairs of the Partnership, including all
legal, accounting, travel and other similar expenses reasonably incurred by the
Partners in connection with the formation of the Partnership or the acquisition,
development, renovation, rehabilitation, repair, management or operation of the
Project or any other Partnership Property.
6.4 Limitation of Liability. Neither the Partners, nor any officer,
director, partner, employee or Affiliate of any Partner shall be liable,
responsible or accountable in damages or otherwise to the Partnership or any
Partner for any action taken or failure to act on behalf of the Partnership
within the scope of the authority conferred on such Person by this Agreement or
by law, unless such action or omission was performed or omitted fraudulently or
in bad faith or constituted gross negligence or willful misconduct.
6.5 Indemnification. The Partnership shall indemnify and hold
harmless the General Partners and the Limited Partners and each of their
respective partners, officers, directors, stockholders, employees, agents and
Affiliates (collectively the "Parties") from and against any and all losses,
expenses, damages or injuries suffered or sustained by the Parties (or any of
them) by reason of any acts, omissions or alleged acts or omissions arising out
of its or their activities on behalf of the Partnership or in furtherance of the
interests of the Partnership, including, but not limited to, any judgment,
award, settlement, reasonable attorney's fees and other costs or expenses
incurred in connection with the defense of any actual or threatened action,
proceeding or claim provided that the acts, omissions or alleged acts or
omissions upon which such actual or threatened action, proceeding or claim is
based was performed or omitted in good faith and were not performed or omitted
fraudulently or in bad faith or as a result of gross negligence or willful
misconduct by any such Party and provided that such Party reasonably believed
that the acts, omissions, or alleged acts or omissions upon which such actual or
threatened action, proceeding or claim is based was in the best interests of the
Partnership. Such indemnification shall be made only to the extent of the assets
of the Partnership.
6.6 No Participation in Management. The Limited Partners shall not
participate in the management or control of the Partnership's business, nor
shall the Limited Partners transact any business for the Partnership or have the
power to act for or bind the Partnership, said powers being vested solely and
exclusively in the General Partners.
6.7 No Personal Liability. The Limited Partners shall not have any
personal liability whatsoever, whether to the
23
<PAGE>
Partnership, to the General Partners or to the creditors of the Partnership for
the debts, obligations, expenses or liabilities of the Partnership or any of its
losses, beyond the Limited Partner's Capital Contribution.
ARTICLE VII
BOOKS AND RECORDS
7.1 Books and Records. The Managing General Partner shall keep proper
and usual books and records pertaining to the Partnership's business on an
accrual basis in accordance with tax accounting principles or generally accepted
accounting principles consistently applied, showing all of its assets and
liabilities, receipts and disbursements, profits and losses, Partners' Capital
Contributions and distributions and all transactions entered into by the
Partnership. The books and records and all files of the Partnership shall be
kept at its principal office or such other place as the Managing General Partner
may designate from time to time. The fiscal year of the Partnership shall end on
December 31 of each year.
7.2 Bank Accounts. Funds of the Partnership shall be deposited in an
account or accounts in the bank or banks designated by the Managing General
Partner. Such account or accounts shall be in the name of the Partnership and
shall be subject to withdrawal only upon signatures of those Persons authorized
from time to time by the Managing General Partner.
7.3 Tax Returns. Federal, state and local tax returns of the
Partnership shall be prepared and timely filed by or at the direction of the
Managing General Partner at the expense of the Partnership.
7.4 Tax Decisions and Elections. The Managing General Partner is
hereby designated the "Tax Matters Partner" of the Partnership for all purposes
under this Agreement and as such term is defined under the Code. The Tax Matters
Partner shall make or revoke all elections and take all reporting positions
which, in its discretion, it deems necessary or desirable for the Partnership.
Each item of Partnership income and deduction shall be separately reported on
each Partner's income tax return, pursuant to Regulations Section 1.702-1(a).
The Managing General Partner shall make the election under Code Section 754. Tax
decisions and elections for the Partnership not provided for herein shall be
determined and made by the Managing General Partner. The Managing General
Partner shall provide all Partners with all tax information that the Managing
General Partner receives, shall notify all Partners of any meetings with respect
to the Partnership's income
24
<PAGE>
tax returns and shall afford representatives of each Partner the opportunity to
be present at such meetings. No Partner shall take a position on any income tax
return which is inconsistent with any position taken by the Partnership on the
Partnership's income tax returns.
7.5 Tax Examination. Each Partner shall give prompt notice to the
other Partners upon receipt of notice that the Internal Revenue Service or any
state or local taxing authority intends to examine any Partnership income tax
returns. The Tax Matters Partner shall promptly notify the Partners of the
commencement of any administrative or judicial proceedings involving the tax
treatment of items of Partnership income, loss, deductions and credits, and
shall further keep the Partners fully informed of all material developments
involved in such proceedings.
ARTICLE VIII
TRANSFER OR ASSIGNMENT OF PARTNERSHIP INTERESTS
8.1 Restrictions on Transfer. Each Partner may Transfer all or any
portion of its rights or Interest in the Partnership, but may not withdraw or
retire from the Partnership without the prior written consent of the Managing
General Partner; provided, however, that no Transfer will be permitted until the
Transferee (a) delivers to the Managing General Partner a written instrument
evidencing such Transfer; (b) executes a copy of this Agreement accepting and
agreeing to all of the terms, conditions and provisions of this Agreement; and
(c) pays to the Partnership its reasonable out-of-pocket costs and expenses
incurred in connection with such Transfer and the admission of the Transferee as
a Partner.
8.2 Admission of Transferees. A Transferee of an Interest in the
Partnership in accordance with the provisions of Section 8.1 of this Article
VIII shall be admitted as a Partner with respect to the Interest Transferred
upon the fulfillment of such provisions. Until such provisions are fulfilled, a
Transferee shall not be admitted as a Partner in the Partnership or otherwise be
recognized by the Partnership as having any rights as a Partner, including any
right to receive distributions from the Partnership (directly or indirectly) or
to acquire an interest in the capital or profits of the Partnership.
25
<PAGE>
ARTICLE IX
DISSOLUTION AND WINDING UP
9.1 Liquidating Events. The Partnership shall dissolve and commence
winding up and liquidating upon the first to occur of any of the following
("Liquidating Events"):
(a) December 31, 2047;
(b) the sale of all or substantially all of the Property;
(c) the unanimous agreement of all Partners;
(d) the happening of any other event that makes it unlawful,
impossible or impractical to carry on the business of the Partnership; or
(e) an event of dissolution required under the Act. The Partners
hereby agree that, notwithstanding any provision of the Act or the Illinois
Uniform Partnership Act, the Partnership shall not dissolve prior to the
occurrence of a Liquidating Event. Furthermore, if an event specified in
Section 9.1(e) hereof occurs, the remaining Partners may, within ninety
(90) days of the date such event occurs, unanimously vote to elect a
successor General Partner (if necessary) and continue the Partnership
business, in which case the Partnership shall not dissolve and the
occurrence of the event under Section 9.1(e) shall not be deemed a
Liquidating Event. The Partners further agree that in the event the
Partnership is dissolved prior to a Liquidating Event, the Partnership may
be continued upon the unanimous vote of the existing Partners at such time
to so continue the Partnership, provided such vote occurs within thirty
(30) days of the event triggering such dissolution.
9.2 Winding Up. Upon the occurrence of a Liquidating Event, the
Partnership shall continue solely for the purpose of winding up its affairs in
an orderly manner, liquidating its assets and satisfying the claims of its
creditors and Partners. No Partner shall take any action that is inconsistent
with, or not necessary to or appropriate for, the winding up of the
Partnership's business and affairs. The Managing General Partner (or, in the
event there is no Managing General Partner, the other Partners or any Person
elected by a majority of the other Partners) shall be responsible for overseeing
the winding up and dissolution of the Partnership and shall take full account of
the Partnership's liabilities and the Partnership Property shall be liquidated
as promptly as is consistent with obtaining the fair value thereof,
26
<PAGE>
and the proceeds therefrom, to the extent sufficient, shall be applied and
distributed in the following order:
(a) First, to the payment and discharge of all of the Partnership's
debts and liabilities to creditors other than Partners;
(b) Second, to the payment and discharge of all of the Partnership's
debts and liabilities to Partners; and
(c) The balance, if any, to the General Partners and Limited Partners
in accordance with their respective Capital Accounts, after giving effect
to all contributions, distributions and allocations for all periods.
9.3 Liquidating Trust. In the discretion of the Managing General
Partner (or such other Person responsible for overseeing the winding up and
dissolution of the Partnership), a pro rata portion of the distributions that
would otherwise be made to the General Partners and Limited Partners pursuant to
this Article IX may be:
(a) distributed to a trust established for the benefit of the General
Partners and the Limited Partners, provided such trust is a liquidating
trust or a grantor trust for federal income tax purposes, for the purpose
of liquidating Partnership assets, collecting amounts owed to the
Partnership and paying any contingent or unforeseen liabilities or
obligations of the Partnership or of the Partners arising out of or in
connection with the Partnership. The assets of any such trust shall be
distributed to the General Partners and the Limited Partners from time to
time at such times and in such amounts as determined, in the reasonable
discretion of the Managing General Partner (or such other Person
responsible for overseeing the winding up and dissolution of the
Partnership), to be appropriate in the same proportions as the amount
distributed to such trust by the Partnership would otherwise have been
distributed to the General Partners and the Limited Partners pursuant to
this Agreement; or
(b) withheld to provide a reasonable reserve for Partnership
liabilities (contingent or otherwise) and to reflect the unrealized portion
of any installment obligations owed to the Partnership, provided that such
withheld amounts shall be distributed to the General Partners and the
Limited Partners as soon as practicable.
27
<PAGE>
ARTICLE X
MISCELLANEOUS
10.1 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given on the
date of service if served personally; three (3) business days after the date of
mailing, if mailed, by first class mail, registered or certified, postage
prepaid; one (1) business day after delivery to the courier if sent by private
receipt courier guaranteeing next day delivery, delivery charges prepaid, and in
each case, addressed as follows:
If to BLC, to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: President
Facsimile No.: (312) 917-0460
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
Attention: Wayne D. Boberg, Esq.
Facsimile No.: (312) 558-5700
and to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Michael W. Reschke
Facsimile No.: (312) 917-1511
and, if to BHI, to:
Brookdale Holdings, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: President
Facsimile No.: (312) 917-0460
with a copy to:
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
28
<PAGE>
Attention: Wayne D. Boberg, Esq.
Facsimile No.: (312) 558-5700
and to:
Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Michael W. Reschke
Facsimile No.: (312) 917-1511
or at such other place as the respective Partner may, from time to time,
designate in a written notice to the other Partners. All communications among
Partners in the normal course of the Partnership business shall be deemed
sufficiently given if sent by regular mail, postage prepaid.
10.2 Binding Effect. Except as otherwise provided in this Agreement,
every covenant, term and provision of this Agreement shall be binding upon and
inure to the benefit of the Partners and their respective heirs, legatees, legal
representatives, successors, transferees and assigns.
10.3 Creditors. None of the provisions of this Agreement shall be for
the benefit of or enforced by any creditor of the Partnership or any Partner.
10.4 Remedies Cumulative. No remedy herein conferred upon any party is
intended to be exclusive of any other remedy, and each and every such remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise. No single or partial exercise by any party of any right, power or
remedy hereunder shall preclude any other or further exercise thereof.
10.5 Construction. Every covenant, term and provision of this
Agreement shall be construed simply according to its fair meaning and not
strictly for or against any Partner.
10.6 Headings. Section and other headings contained in this Agreement
are for reference purposes only and are not intended to describe, interpret,
define or limit the scope, extent or intent of this Agreement or any provision
hereof.
10.7 Severability. Every provision of this Agreement is intended to be
severable. If any term or provision hereof is illegal or invalid for any reason
whatsoever, such illegality or invalidity shall not affect the validity or
legality of the remainder of this Agreement.
29
<PAGE>
10.8 Incorporation by Reference. Every exhibit, schedule and other
appendix attached to this Agreement and referred to herein is hereby
incorporated in this Agreement by reference.
10.9 Further Action. Each Partner, upon the request of the Managing
General Partner, agrees to perform all further acts and execute, acknowledge and
deliver any documents which may be reasonably necessary, appropriate or
desirable to carry out the provisions of this Agreement.
10.10 Variation of Pronouns. All pronouns and any variations thereof
shall be deemed to refer to masculine, feminine or neuter, singular or plural,
as the identity of the Person or Persons may require.
10.11 Governing Law. The laws of the State of Illinois shall govern
the validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the Partners, without regard to the
principles of conflicts of laws.
10.12 Waiver of Action for Partition. Each of the Partners
irrevocably waives any right that it may have to maintain any action for
partition with respect to any of the Partnership Property.
10.13 Counterpart Execution. This Agreement may be executed in any
number of counterparts with the same effect as if all of the Partners had signed
the same document. All counterparts shall be construed together and shall
constitute one agreement.
[signature page follows]
30
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of
the day first above set forth.
GENERAL PARTNER:
---------------
BROOKDALE HOLDINGS, INC., a Delaware
corporation
By: /s/ Mark J. Schulte
--------------------------------
Its: President
---------------------------
LIMITED PARTNER:
---------------
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By: /s/ Mark J. Schulte
--------------------------------
Its: President
---------------------------
31
<PAGE>
EXHIBIT A
---------
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
PONDS OF PEMBROKE LIMITED PARTNERSHIP,
AN ILLINOIS LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
GROSS ASSET VALUE OF PERCENTAGE
NAMES AND ADDRESSES CAPITAL CONTRIBUTIONS PROPERTY CONTRIBUTED INTERESTS
- ------------------- --------------------- -------------------- ----------
<S> <C> <C> <C>
GENERAL PARTNER
Brookdale Holdings, Inc.
77 West Wacker Drive N/A N/A 1%
Chicago, Illinois 60601
LIMITED PARTNER
Brookdale Living
Communities, Inc.
77 West Wacker Drive N/A N/A 99%
Chicago, Illinois 60601
__________ ____
TOTALS N/A 100%
=== ====
</TABLE>
<PAGE>
EXHIBIT B
---------
PROJECT DESCRIPTION
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement as
of the date first above set forth.
GENERAL PARTNER:
---------------
BROOKDALE HOLDINGS, INC., a Delaware
corporation
By: /s/ Mark J. Schulte
------------------------------
Its: President
-------------------------
LIMITED PARTNER:
---------------
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By: /s/ Mark J. Schulte
------------------------------
Its: President
-------------------------
31
<PAGE>
Exhibit 10.34
PURCHASE AND SALE AGREEMENT
SELLER:
GABLES AT FARMINGTON ASSOCIATES
c/o Allegis Realty Investors, LLC
242 Trumbull Street
Hartford, CT 06103-1205
PURCHASER:
BROOKDALE LIVING COMMUNITIES, INC.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
PROPERTY:
The Gables at Farmington
Farmington, Connecticut
June 11, 1997
<PAGE>
<TABLE>
<CAPTION>
INDEX Page
----
<S> <C>
1. The Property........................................................... 1
1.1 Description................................................. 1
1.2 "As-Is" Purchase............................................ 2
1.3 Agreement to Convey......................................... 3
2. Price and Payment...................................................... 3
2.1 Purchase Price.............................................. 3
2.2 Payment..................................................... 3
2.3 Closing..................................................... 4
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 Right to Terminate.............................. 7
3.6 Confidentiality............................................. 7
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
5. Representations and Warranties......................................... 8
5.1 By Seller................................................... 8
5.2 By Purchaser................................................ 9
5.3 Mutual...................................................... 10
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
7. Damage, Destruction or Condemnation.................................... 13
7.1 Material Event.............................................. 13
7.2 Immaterial Event............................................ 13
7.3 Termination and Return of Deposit........................... 13
7.4. Notice of Damage or Eminent Domain..................................... 13
</TABLE>
<PAGE>
-ii-
<TABLE>
<CAPTION>
<S> <C>
8. Notices................................................................ 13
9. Closing and Escrow..................................................... 15
9.1 Escrow Instructions......................................... 15
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
10. Default; Failure of Condition.......................................... 17
10.1 PURCHASER DEFAULT........................................... 17
10.2 SELLER DEFAULT.............................................. 17
10.3 Failure of Condition........................................ 18
10.4 Licensing Contingency....................................... 18
11. Miscellaneous.......................................................... 20
11.1 Entire Agreement............................................ 20
11.2 Severability................................................ 20
11.3 Applicable Law.............................................. 20
11.4 Assignability............................................... 20
11.5 Successors Bound............................................ 21
11.6 Breach...................................................... 21
11.7 No Public Disclosure........................................ 21
11.8 Captions.................................................... 22
11.9 Attorney's Fees............................................. 22
11.10 No Partnership.............................................. 22
11.11 Time of Essence............................................. 22
11.12 Counterparts................................................ 22
11.13 Recordation................................................. 22
11.14 Proper Execution............................................ 22
11.15 Tax Protest................................................. 22
11.16 Time to Execute and Deliver................................. 22
11.17 Limitation of Liability..................................... 22
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
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Exhibit 3.2 Title Commitment No. 9641-00030 (NBU #9610404) issued by
Chicago Title Insurance Company
Exhibit 3.3 Schedule of Contracts
Exhibit 9.1 General Settlement Instructions (Escrow)
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
</TABLE>
<PAGE>
PURCHASE AND SALE AGREEMENT
THIS AGREEMENT, dated as of the 11th day of June, 1997, is made by and
between GABLES AT FARMINGTON ASSOCIATES, a Connecticut general partnership
("Seller"), with an office in care of Allegis Realty Investors, LLC, 242
Trumbull Street, Hartford, Connecticut 06103-1205 and BROOKDALE LIVING
COMMUNITIES, INC., a Delaware 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 Farmington located at 20 Devonwood Drive, Farmington, Connecticut,
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 Farmington, Connecticut, 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 motor vehicles, 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;
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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 Farmington" 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, 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
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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 TWENTY TWO MILLION FOUR HUNDRED THOUSAND DOLLARS ($22,400,000) 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 with the Title
Company (defined below) of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000)
("Initial Deposit") prior to or contemporaneously with the execution of this
Agreement.
(b) On or before the third business day following the Approval
Date, the Purchaser shall make an additional deposit with the Title Company of
TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) (the "Additional Deposit") (the
Initial Deposit and, to the extent such deposits are made as of the applicable
dates, the Additional Deposit, the First Extension Deposit and the Second
Extension Deposit (as defined in Section 10.4), collectively shall be referred
to hereinafter as "Deposit.")
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(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 TWENTY TWO MILLION
FOUR HUNDRED THOUSAND DOLLARS ($22,400,000), 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 August
17, 1997 (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.
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.
<PAGE>
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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 which policy and insurance company are reasonably
acceptable to Seller, and, upon request of Seller, Purchaser 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 and except as required by law) 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. 9641-00030 (NBU #9610404) a copy of which is attached hereto as
Exhibit 3.2 ("Title Commitment"), and a certain survey of the Land entitled
"Updated As-Built Plan Prepared for Anthony J. Tanner known as "THE GABLES" #20
Devonwood Road Farmington, Connecticut Scale 1"=40' DATE JUNE, 1986 revised
through Jan. 31, 1989" ("1989 Survey"). Purchaser shall have until June 23,
1997, ("Interim Date") to provide written notice to Seller of any matters shown
by the Title Commitment or 1989 Survey which are not satisfactory to
Purchaser, which notice ("Title Notice") must specify the reason such matter(s)
are not satisfactory. Purchaser and Seller shall also order an update of the
1989 Survey (such updated survey, the "New Survey"). Purchaser shall have until
July 3, 1997 to provide written notice to Seller of any matters shown by the New
Survey which are not shown on the 1989 Survey (including any matters shown on
the Title Commitment which were not shown on the 1989 Survey, "New Matters")
which New Matters are not satisfactory to Purchaser, which notice ("New Survey
Notice") must specify
<PAGE>
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the reason such matter(s) are not satisfactory and the curative steps necessary
to remove the basis for Purchaser's disapproval. 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 or New Survey Notice.
Purchaser's sole right with respect to any Title Commitment, 1989 Survey or New
Survey matter to which it objects in a Title Notice or New Survey Notice given
in a timely manner, as applicable, 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 1989 Survey and/or New Survey with respect
to which Purchaser fails to give a Title Notice or New Survey Notice on or
before the last date for so doing, or with respect to which a timely Title
Notice or New Survey 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 (excluding the personal care
services agreement and Management Agreement described in paragraphs 2 and 25,
respectively, of Exhibit 3.3) 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. Notwithstanding anything to the contrary contained
herein, at the Closing Purchaser shall assume in writing the Seller's
obligations under the Security Agreement described in paragraph 9 of Exhibit 3.3
attached hereto in the event the loan described therein has not been paid in
full.
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 1989 Survey or New 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;
<PAGE>
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3.4.3 The lien of non-delinquent real and personal property taxes and
assessments;
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, in
Purchaser's sole and absolute discretion and for any reason or no reason, by
giving Seller written notice ("Termination Notice") on or before July 7, 1997
("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 and except as required by law or court order. 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 it same is consummated, in connection
with the ownership and 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.
<PAGE>
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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 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 1997 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 Connecticut, is authorized
to do business in the State of Connecticut, 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, it 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, other than those
<PAGE>
-9-
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 to 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 party 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.
5.1.6 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 Seller.
5.1.7 Kevin M. Crean and Lawrence S. Puzzo are the employees of
Allegis Realty Investors, LLC, an investment advisor 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.
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 Allegis Realty
Investors, LLC, an investment advisor 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 advisors or agents, or of Old Farms Forest 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 given to Seller within nine (9) months 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 $200,000.00.
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 Delaware, 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. Any assignee of Purchaser,s rights and obligations
hereunder pursuant to
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Section 11.4 hereof shall be duly organized, validly existing and in good
standing under the laws of the State of its formation and authorized to do
business in the State of Connecticut on the Date of Closing.
5.2.2 Purchaser is acting as principal in this transaction
with authority to close the transaction.
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 on or before 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 on or before 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. and CLW Realty Group, Inc. (collectively, "Broker") 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.
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6. Costs and Prorations.
6.1 Purchaser's Costs. Purchaser will pay the following costs of closing
this transaction (at Closing with respect to items 6.1.2 through 6.1.7):
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 (other than such additional premium charge(s) for which
Seller is responsible pursuant to Section 10.3) 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 or unless this
Agreement is terminated by Purchaser in accordance with the provisions of this
Agreement;
6.1.6 One-half (1/2) of the reasonable cost of the New Survey;
6.1.7 One-half (1/2) if any recording fees relating to the transfer
documents; 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 (at Closing with respect to items 6.2.2 through
6.2.8):
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 to Purchaser;
6.2.3 One-half (1/2) of any sales or use taxes relating to the
transfer of personal property to Purchaser;
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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 New Survey;
6.2.6 One-half of any recording fees relating to the transfer
documents;
6.2.7 The cost of any additional premium charged by the title company
to issue Purchaser's owner's policy without exception for (or with affirmative
coverage insuring over) any defect, limitation or encumbrance which Seller
elects to cure by issuance of such a title policy pursuant to Section 10.3
hereof; and
6.2.8 The broker's fee payable to Broker pursuant to its written
agreement with Seller.
6.3 Prorations. A statement of prorations and adjustments shall be
prepared by Seller in conformity with the provisions of this Agreement and
submitted to Purchaser 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, 1998 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.
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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 Hartford County, Connecticut.
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.
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
(l5%) 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 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.
7.3 Termination and Return of Deposit. If Purchaser 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.
7.4 Notice of Damage or Eminent Domain. Seller shall promptly give notice
to Purchaser of any damage to the Property which renders any of the building(s)
or parking areas on the Property or any access to the Property untenantable and
of any taking (or threatened taking of which Seller has received written notice)
under power of eminent domain.
<PAGE>
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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
Phone: (860) 275-0180
Fax: (860) 275-0344
If to Purchaser: Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attention: Matthew F. Whitlock
Phone: (312) 917-1500
Fax: (312) 782-3867
With a copy to: Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Attention: Robert J. Rudnik
Phone: (312) 917-4234
Fax: (312) 917-1684
<PAGE>
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With a copy to: Murtha, Cullina, Richter and Pinney
CityPlace I
185 Asylum Street
Hartford, Connecticut 06103
Attention: Frank J. Saccomandi, III, Esq.
Phone: (860) 240-6043
Fax: (860) 240-6150
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, including the supplementary
escrow instructions attached hereto as Exhibit 9.1. Seller and 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
(including Exhibit 9.1), 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 and any certificates of title relating to motor
vehicles to the extent in Seller's possession.
9.2.3 (i) The Leases described in Section 1.1.6 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.
<PAGE>
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9.2.5 An assignment to Purchaser of Seller's right, title and
interest, if any, in the name The Gables at Farmington and in the telephone
numbers used at the Property, 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.
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 3.3,
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 and Seller
shall notify each utility company serving the Property to terminate Seller's
account, effective at 11:59 p.m. on the Date of Closing, by written notice in
substantially the form attached hereto as Exhibit 9.6.
9.7 Notice Letters. At the 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.
<PAGE>
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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 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 Connecticut, providing for coverage in
the amount of the Purchase Price and insuring title to the Property in
Purchaser, subject only to the Permitted Exceptions; (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.
<PAGE>
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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 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 (S20,000.00) 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 MJS SELLER 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 1989 Survey or New Survey 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, either the personal care services agreement or the
Management Agreement described in paragraphs 2 and 25, respectively, of Exhibit
3.3, 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 1989 Survey or New
Survey 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
<PAGE>
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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 Connecticut 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 take no exception
for or insures over such defect, limitation or encumbrance and are issued for no
additional premium or for an additional premium if Seller agrees to pay such
additional premium upon Closing.
10.4 Licensing Contingency. (a) Notwithstanding any other provisions
of this Agreement, Purchaser's obligation to purchase the Property and close the
transaction contemplated hereby is conditional (the "Regulatory License
Condition") 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 managed residential community, all
licenses and permits, if any, necessary to permit Purchaser (or its affiliate)
to operate as an assisted living services agency for the purpose of providing
assisted living services to residential tenants of the Property (collectively,
the "Regulatory Licenses"). No later than five (5) days after the date hereof,
Purchaser shall initiate the application process for and diligently pursue the
obtaining of all Regulatory Licenses. Purchaser shall provide Seller with copies
of all applications filed or submissions made in connection with the obtaining
of such Regulatory Licenses and shall keep Seller fully informed as to the
status of its efforts to obtain the same. Purchaser shall immediately inform
Seller when each Regulatory License has been issued.
(b) If Purchaser fails, despite diligent efforts, to obtain the
Regulatory Licenses on or before the Approval Date, and Purchaser has not
otherwise terminated its obligation to purchase the Property pursuant to Section
3.5 hereof, then on or before the Approval Date, Purchaser shall notify Seller
in writing (in either case, a "First Notice") (i) that Purchaser has waived the
Regulatory License Condition and approved all matters with respect to the
Property and that subject only to the provisions of Section 9.10 hereof and
Seller's compliance with Seller's obligations to be satisfied at the Closing,
Purchaser will purchase the Property on August 17, 1997 without having obtained
the Regulatory Licenses (in which case Purchaser shall hire an assisted living
services agency to provide assisted living services to residential tenants of
the Property following the Closing), or (ii) that Purchaser has approved all
matters with respect to the Property and that subject only to the provisions of
Section 9.10 hereof, Seller's compliance with Seller's obligations to be
satisfied at the Closing, and Purchaser's obtaining all Regulatory Licenses on
or before the Date of Closing (as the same may be extended pursuant to this
Section 10.4), Purchaser shall be obligated to close and purchase the Property
on the Date of Closing. In the event that Purchaser elects to proceed under
subparagraph 10.4(b)(ii), then on or before the third business day following
the Approval Date, Purchaser shall make the Additional Deposit with the Title
Company. If Purchaser has failed to obtain the Regulatory Licenses on or before
the Approval Date and Purchaser fails to so send a First Notice, Purchaser shall
be deemed to have elected to proceed under subparagraph 10.4(b)(ii). In any
event, if Purchaser fails to make the Additional Deposit when required, then
Seller may terminate this Agreement.
(c) In the event Purchaser, despite diligent efforts, has failed
to obtain the Regulatory Licenses on or before August 7, 1997 and such failure
is due solely to timing issues outside of Purchaser's control, then on August 7,
1997, Purchaser shall notify Seller in writing (in either case, a "Second
Notice") (i) that Purchaser has waived the Regulatory License Condition and
approved all matters with respect to the Property and that subject only to the
provisions of Section 9.10 hereof and Seller's
<PAGE>
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compliance with Seller's obligations to be satisfied at the Closing, Purchaser
will purchase the Property on August 17, 1997 without having obtained the
Regulatory Licenses (in which case Purchaser shall hire an assisted living
services agency to provide assisted living services to residential tenants of
the Property following the Closing), (ii) that Purchaser is extending the Date
of Closing for one thirty (30) day period (the "First Extension Period") solely
for purposes of obtaining the Regulatory Licenses, or (iii) that Purchaser is
terminating this Agreement; provided, however, in the event Purchaser elects to
proceed under Section 10.4 (c)(ii), Purchaser shall deposit with the Title
Company $100,000 (the "First Extension Deposit") on or before August 7, 1997. If
Purchaser has failed to obtain the Regulatory Licenses on or before the August
7, 1997 and Purchaser fails to so send a Second Notice, Purchaser shall be
deemed to have elected to proceed under subparagraph 10.4(c)(ii). If Purchaser
elects, or is deemed to have elected, to proceed under subparagraph 10.4(c)(ii)
and fails to deposit with the Title Company the First Extension Deposit when
required, then Seller may terminate this Agreement.
(d) In the event that Purchaser properly exercises its option with respect
to the First Extension Period and pays the First Extension Deposit, but fails,
despite diligent efforts, to receive the Regulatory Licenses on or before
September 7, 1997 and such failure is due solely to timing issues outside of
Purchaser's control, then on September 7, 1997, Purchaser shall notify Seller in
writing (in either case, a "Third Notice"): (i) that Purchaser has waived the
Regulatory License Condition and approved all matters with respect to the
Property and that subject only to the provisions of Section 9.10 hereof and
Seller's compliance with Seller's obligations to be satisfied at the Closing,
Purchaser will purchase the Property on September 17, 1997 without having
obtained the Regulatory Licenses (in which case Purchaser shall hire an assisted
living services agency to provide assisted living services to residential
tenants of the Property following the Closing), (ii) that Purchaser is extending
the Date of Closing for one additional consecutive thirty (30) day period (the
"Second Extension Period") solely for purposes of obtaining the Regulatory
Licenses, or (iii) that Purchaser is terminating this Agreement; provided,
however, in the event Purchaser elects to proceed under clause (d)(ii),
Purchaser shall deposit with the Title Company $100,000 (the "Second Extension
Deposit") on or before September 7, 1997. If Purchaser has failed to obtain the
Regulatory Licenses on or before the September 7, 1997 and Purchaser fails to so
send a Third Notice, Purchaser shall be deemed to have elected to proceed under
subparagraph 10.4(d)(ii). If Purchaser elects, or is deemed to have elected to
proceed under subparagraph 10.4(d)(ii) and fails to deposit with the Title
Company the Second Extension Deposit when required, then Seller may terminate
this Agreement.
(e) The First Extension Deposit and Second Extension Deposit shall be
added to and held on the same terms and conditions as the Initial Deposit and
the Additional Deposit.
(f) Upon any termination permitted under this Section 10.4, Seller shall
direct the Title Company 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
<PAGE>
-21-
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 Connecticut.
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 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.
In the event Purchaser assigns this Agreement pursuant to is Section 11.4,
the assignee's name will be substituted for the name "Brookdale Living
Communities, Inc." throughout the transfer documents the forms of which are
attached hereto.
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
<PAGE>
-22-
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 be 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 and except for disclosures
which are required by law or court order; provided, however, in any SEC filing
Purchaser shall request that all terms of this Agreement other than the Purchase
Price, Date of Closing and location of the Property be kept confidential if the
foregoing option is available.
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 its 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.
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
<PAGE>
-23-
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 June 12, 1997.
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 148 (also
known as the Congregate Care Fund). Separate Account 148 is a separate account
as determined in Section 3(17) of ERISA. Only the assets of such separate
account shall be bound for obligations of Separate Account 148 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 148 to maintain currently available funds on hand of at least
$200,000.00 during the period beginning on the Date of Closing and ending nine
(9) months thereafter.
REMAINDER OF PAGE INTENTIONALLY BLANK
<PAGE>
-24-
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 FARMINGTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By: /s/ David J. Ingram
------------------------------------
Printed name: David J. Ingram
-------------------------
Its: Vice President
------------------------------------
PURCHASER: BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
------------------------------------
Printed name: Mark J. Schulte
-------------------------
Its: President
------------------------------------
An original, fully executed copy of this Agreement, together with the
Initial Deposit, has been received by the Title Company this ______day of
_______________, 1997 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:
-----------------------------
Printed name:
-------------------
Its:
-----------------------------
<PAGE>
EXHIBIT 1.1.1.
LEGAL DESCRIPTION
Page 1 of 2
A certain piece or parcel of land situated in the Town of Farmington,
County of Hartford and State of Connecticut, in the rear of the northerly side
of Farmington Avenue, being shown as Stage 1A on a map entitled "Map of Land to
be conveyed to Old Farms Forest Development Corporation Town Farm Road &
Farmington Avenue Farmington, Connecticut Scale 1" =200' February 1983 Certified
substantially correct in accordance with Class A-2 of the Code of Recommended
Practice for Accuracy of Surveys and Maps, W.F. Grunewald Edward F. Reuber,
Surveyors Hodge Surveying Associates, P.C. Sheet 1 of 2 and Sheet 2 of 2, which
map is on file in the office of the Town Clerk of Farmington, to which reference
is hereby made; said premises being more particularly bounded and described as
follows:
Beginning at a point in the northwesterly corner of land now or formerly of
Joseph F. Frenette et al., which point is N 11 degrees 09' 42" E, a distance of
751.77 feet from an iron pipe set in the northerly line of Farmington Avenue at
the southwesterly corner of land now or formerly of Martin J. Comer; thence
running S 81 degrees 18' 38" E along land now or formerly of Joseph F. Frenette
et al., 1,117.13 feet to a point; thence running N 06 degrees 29 '39" E along
land now or formerly of Fairway Sod Farms Inc., a distance of 796.08 feet to a
point; thence running N 81 degrees 18' 38" W along land now or formerly of The
Pennington Corporation, being Stage 1B as shown on said map, a distance of
1,052.29 feet to a point; thence running S 11 degrees 09' 42" W along land now
or formerly of The Pennington Corporation, being Stage 1B as shown on said map,
a distance of 673.78 feet to a point; thence running N 81 degrees 18' 38" W
along land now or formerly of The Pennington Corporation, being Stage 1B on said
map, a distance of 74.18 feet to a point; thence running southerly in a curve to
the right having a radius of 514 feet, along land now or formerly of The
Pennington Corporation, being Stage 1B as shown on said map, a distance of 91.85
feet to a point; thence running S 11 degrees 10' 00" W along land now or
formerly of The Pennington Corporation, being Stage 1B as shown on said map, a
distance of 30.75 feet to a point; thence running S 81 degrees 18' 38" E along
land now or formerly of The Pennington Corporation, being Stage 1B as shown on
said map, a distance of 66 feet to the point or place of beginning.
<PAGE>
Page 2 of 2
Together with the following:
1. Sewer Easement from Devonwood, Incorporated dated December 8, 1983 and
recorded on December 12, 1983 in Volume 300 at Page 81 of the Farmington
Land Records, as rerecorded in Volume 300 at Page 83 of the said Land
Records.
2. Rights and easements as more particularly described and set forth in an
Agreement by and between Devonwood Incorporated and Old Farms Forest
Associates, Limited Partnership dated December 21, 1983 and recorded on
March 10, 1984 in Volume 301 at Page 805 of the Farmington Land Records.
3. Rights and easements as more particularly set forth in an Agreement by and
between Old Farms Forest Associates, Limited Partnership and The
Connecticut Light and Power Company dated October 24, 1984 and recorded
on March 28, 1985 in Volume 312 at Page 1051 of the Farmington Land
Records.
4. Rights and easements as more particularly set forth in an Agreement by
and between Old Farms Forest Associates, Limited Partnership and The
Connecticut Light and Power Company dated October 29, 1986 and recorded
on January 30, 1987 in Volume 347 at Page 997 of the Farmington Land
Records.
5. A right of way for all purposes for which public highways are ordinarily
used, including, but not limited to, the right to connect to and use all
utilities over, upon and under all streets and roadways referenced in and
as more particularly described and set forth in a Quit Claim Deed from The
Pennington Corporation to Old Farms Forest Development Corporation dated
and recorded on March 30, 1983 an Volume 293 at Page 122 of the
Farmington Land Records.
<PAGE>
Exhibit 10.35
FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement"),
dated as of the 3rd day of July, 1997, is made by and between GABLES AT
FARMINGTON ASSOCIATES, a Connecticut general partnership ("Seller"), with an
office in care of Allegis Realty Investors, LLC, 242 Trumbull Street, Hartford,
Connecticut 06103-1205 and BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation ("Purchaser") with an office at 77 West Wacker Drive, Suite 3900,
Chicago, IL 60601.
RECITALS:
Seller and Purchaser have entered into that certain Purchase and Sale
Agreement dated as of June 11, 1997 with respect to that certain improved real
property commonly known as The Gables at Farmington located at 20 Devonwood
Drive, Farmington, Connecticut along with certain related personal and
intangible property (the "Purchase Agreement").
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 to amend the Purchase Agreement as follows:
1. Section 3.2 of the Purchase Agreement is hereby amended to delete the
date "July 3, 1997" which appears in the eleventh line on page 5 thereof and to
substitute therefor the following: "July 11, 1997".
2. Section 3.5 of the Purchase Agreement is hereby amended to delete the
date "July 7, 1997" which appears in the third line on page 7 thereof and to
substitute therefor the following: "July 16, 1997".
3. The Term Sheet included in the Purchase Agreement is hereby amended to
delete the date "July 7, 1996" which appears after the caption: "Approval
Date:" and to substitute therefor the following: "July 16, 1997".
4. All references in the Purchase Agreement to "this Agreement" or "the
Agreement" shall mean the Purchase Agreement, as amended by this Agreement.
5. This Agreement shall be construed and enforced in accordance with the
laws of the State of Connecticut.
6. This Agreement shall be binding upon and inure to the benefit of
Purchaser and Seller and their successors and permitted assigns.
<PAGE>
-2-
7. 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.
8. The submission by Seller of this Agreement for execution by Purchaser
and the actual execution and delivery thereof by Purchaser to Seller shall
similarly have no binding force and effect on Seller unless and until both
general partners of Seller shall have executed this Agreement on behalf of
Seller and a counterpart thereof shall have been delivered to Purchaser.
9. The Purchase Agreement, as amended hereby, remains in full force and
effect and is hereby ratified and confirmed.
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 FARMINGTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By: /s/ David J. Ingram
------------------------------------
Printed name: David J. Ingram
--------------------------
Its: Vice President
-----------------------------------
Date: July 3, 1997
----------------------------------
PURCHASER: BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
-------------------------------------
Printed name: Mark J. Schulte
---------------------------
Its: President
------------------------------------
Date: July 3, 1997
-----------------------------------
<PAGE>
-3-
An original, fully executed copy of this Agreement, has been received by
the Title Company this 3rd day of July, 1997, 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/ Philip J. Fanning
-------------------------------------
Printed name: Philip J. Fanning
--------------------------
Its: Associate Regional Counsel
------------------------------------
<PAGE>
Exhibit 10.36
SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement"),
dated as of the 16th day of July, 1997, is made by and between GABLES AT
FARMINGTON ASSOCIATES, a Connecticut general partnership ("Seller"), with an
office in care of Allegis Realty Investors, LLC, 242 Trumbull Street, Hartford,
Connecticut 06103-1205 and BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation ("Purchaser") with an office at 77 West Wacker Drive, Suite 3900,
Chicago, IL 60601.
RECITALS:
Seller and Purchaser have entered into that certain Purchase and Sale
Agreement dated as of June 11, 1997 with respect to that certain improved real
property commonly known as The Gables at Farmington located at 20 Devonwood
Drive, Farmington, Connecticut along with certain related personal and
intangible property, as amended by First Amendment to Purchase and Sale
Agreement dated as of July 3, 1997 (the "First Amendment", and said Purchase and
Sale Agreement, as amended by the First Amendment, the "Purchase Agreement").
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 to amend the Purchase Agreement as follows:
1. Section 3.5 of the Purchase Agreement is hereby amended to delete the
date "July 16, 1997" which appears in the third line on page 7 thereof and to
substitute therefor the following: "July 23, 1997" .
2. The Term Sheet included in the Purchase Agreement is hereby amended to
delete the date "July 16, 1997" which appears after the caption: "Approval
Date:" and to substitute therefor the following: "July 23, 1997".
3. Section 10.4(b) and Section 10.4(c) of the Purchase Agreement are hereby
amended to delete the date "August 17, 1997" which appears in the seventh line
of each of said Sections and to substitute therefor the following: "August 25,
1997".
4. Section 10.4(c) of the Purchase Agreement is hereby amended to delete
the date "August 7, 1997" in each place it appears therein and to substitute
therefor the following: "August 14, 1997".
<PAGE>
-2-
5. Section 10.4(d) of the Purchase Agreement is hereby amended to delete
the date "September 7, 1997" in each place it appears therein and to substitute
therefor the following: "September 15, 1997".
6. Section 10.4(d) of the Purchase Agreement is hereby amended to delete
the date "September 17, 1997" in the eighth line thereof and to substitute
therefor the following: "September 24, 1997".
7. All references in the Purchase Agreement to "this Agreement" or "the
Agreement" shall mean the Purchase Agreement, as amended by this Agreement.
8. This Agreement shall be construed and enforced in accordance with the
laws of the State of Connecticut.
9. This Agreement shall be binding upon and inure to the benefit of
Purchaser and Seller and their successors and permitted assigns.
10. 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. The First Amendment is hereby amended to delete Paragraph 8 thereof,
which Paragraph 8 shall have no force or effect with respect to the binding
nature of the First Amendment.
12. The Purchase Agreement, as amended hereby, remains in full force and
effect and is hereby ratified and confirmed.
<PAGE>
-3-
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 FARMINGTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By: Day, Berry & Howard
Its Attorneys
By: /s/ Rosemary G. Ayers
-------------------------------
Printed Name: Rosemary G. Ayers
---------------------
Date: 7/16/97
----------------------------
PURCHASER: BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
-------------------------------
Printed name: Mark J. Schulte
--------------------
Its: Chief Executive Officer
-----------------------------
Date: July 16, 1997
-----------------------------
An original, fully executed copy of this Agreement, has been received by
the Title Company this ____ day of ______, 1997, 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/ Philip J. Fanning
-----------------------------
Printed name: Philip J. Fanning
-------------------
Its: Associate Regional Counsel
----------------------------
<PAGE>
Exhibit 10.37
THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS THIRD AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement"),
dated as of the 23rd day of July, 1997, is made by and between GABLES AT
FARMINGTON ASSOCIATES, a Connecticut general partnership ("Seller"), with an
office in care of Allegis Realty Investors, LLC, 242 Trumbull Street, Hartford,
Connecticut 06103-1205 and BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation ("Purchaser") with an office at 77 West Wacker Drive, Suite 3900,
Chicago, IL 60601.
RECITALS:
Seller and Purchaser have entered into that certain Purchase and Sale
Agreement dated as of June 11, 1997 with respect to that certain improved real
property commonly known as The Gables at Farmington located at 20 Devonwood
Drive, Farmington, Connecticut along with certain related personal and
intangible property, as amended by First Amendment to Purchase and Sale
Agreement dated as of July 3, 1997 and as further amended by Second Amendment to
Purchase and Sale Agreement dated as of July 23, 1997 (as amended, the "Purchase
Agreement").
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 to amend the Purchase Agreement as follows:
1. Section 3.5 of the Purchase Agreement is hereby amended to delete the
date "July 23, 1997" which appears in the third line on page 7 thereof and to
substitute therefor the following: "July 30, 1997".
2. The Term Sheet included in the Purchase Agreement is hereby amended to
delete the date "July 23, 1997" which appears after the caption: "Approval
Date:" and to substitute therefor the following: "July 30, 1997".
3. All references in the Purchase Agreement to "this Agreement" or "the
Agreement" shall mean the Purchase Agreement, as amended by this Agreement.
4. This Agreement shall be construed and enforced in accordance with the
laws of the State of Connecticut.
5. This Agreement shall be binding upon and inure to the benefit of
Purchaser and Seller and their successors and permitted assigns.
<PAGE>
-2-
6. 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.
7. The Purchase Agreement, as amended hereby, remains in full force and
effect and is hereby ratified and confirmed.
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 FARMINGTON ASSOCIATES
BY: Aetna Life Insurance
Company, a general partner
By: Day, Berry & Howard
Its Attorneys
By: /s/ Rosemary Gayes
----------------------------
Printed Name: Rosemary Gayes
-------------------
Date: 7/23/97
---------------------------
PURCHASER: BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Darryl W. Copeland, Jr.
----------------------------------
Printed name: Darryl W. Copeland, Jr.
------------------------
Its: Executive Vice President
---------------------------------
Date: 7/23/97
--------------------------------
An original, fully executed copy of this Agreement, has been received by
the Title Company this 24th day of July, 1997, 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/ Philip J. Fanning
------------------------------
Printed name: Philip J. Fanning
--------------------
Its: Associate Regional Counsel
-----------------------------
<PAGE>
Exhibit 10.38
FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FOURTH AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement"),
dated as of the 30th day of July, 1997, is made by and between GABLES AT
FARMINGTON ASSOCIATES, a Connecticut general partnership ("Seller"), with an
office in care of Allegis Realty Investors, LLC, 242 Trumbull Street, Hartford,
Connecticut 06103-1205 and BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation ("Purchaser") with an office at 77 West Wacker Drive, Suite 3900,
Chicago, IL 60601.
RECITALS:
Seller and Purchaser have entered into that certain Purchase and Sale
Agreement dated as of June 11, 1997 with respect to that certain improved real
property commonly known as The Gables at Farmington located at 20 Devonwood
Drive, Farmington, Connecticut along with certain related personal and
intangible property, as amended by First Amendment to Purchase and Sale
Agreement dated as of July 3, 1997, as further amended by Second Amendment to
Purchase and Sale Agreement dated as of July 16, 1997 and as further amended by
Third Amendment to Purchase and Sale Agreement dated as of July 23, 1997 (as
amended, the "Purchase Agreement").
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 to amend the Purchase Agreement as follows:
1. Sections 2.2.1(b), 3.1.3, 3.3, 5.2.4, 5.2.5 and 10.4(b) of the Purchase
Agreement are hereby amended to delete the words "Approval Date" in all places
appearing therein and to substitute therefor the following: "Final Approval
Date".
2. Section 3.2 of the Purchase Agreement is hereby amended to add the
following text after the words "until the Approval Date" appearing therein:
"(until the Final Approval Date with respect to the matter described in Section
3.5(a))".
3. Section 3.2 of the Purchase Agreement is hereby further amended to add
the following text after the words "prior to the Approval Date" appearing
therein: "(prior to the Final Approval Date with respect to the matter described
in Section 3.5(a))".
4. Section 3.2 of the Purchase Agreement is hereby further amended to add
the following text after the words "on or before the Approval Date" appearing
therein: "(on or before the Final Approval Date with respect to the matter
described in Section 3.5(a))".
5. The Purchase Agreement is hereby amended to delete Section 3.5 thereof
in its entirety and to substitute therefor the following:
<PAGE>
-2-
3.5 Purchaser's Right to Terminate. Purchaser shall have the right,
in Purchaser's sole and absolute discretion and for any reason or for no
reason, by giving Seller written notice ("Termination Notice") on or before
July 30, 1997 ("Approval Date") to terminate its obligation to purchase the
Property.
Purchaser shall have the right, in its sole and absolute discretion,
by giving Seller written notice ("New Termination Notice") on or before
August 6, 1997 ( "Final Approval Date"), to terminate its obligation to
purchase the Property if Purchaser and Seller shall have failed to reach a
mutually satisfactory agreement with respect to (a) addressing the fact
that a portion of the Improvements is located within a special flood hazard
area, (b) the security deposit discrepancy currently under review, or (c)
transfer of the existing certificate of need applicable to the Property to
Purchaser or any assignee of Purchaser permitted hereunder.
If the Termination Notice or the New 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.
6. The Term Sheet included in the Purchase Agreement is hereby amended to
add the following term thereto: "Final Approval Date: August 6, 1997".
7. All references in the Purchase Agreement to "this Agreement" or "the
Agreement" shall mean the Purchase Agreement, as amended by this Agreement.
8. This Agreement shall be construed and enforced in accordance with the
laws of the State of Connecticut.
9. This Agreement shall be binding upon and inure to the benefit of
Purchaser and Seller and their successors and permitted assigns.
10. 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. The Purchase Agreement, as amended hereby, remains in full force and
effect and is hereby ratified and confirmed.
<PAGE>
-3-
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 FARMINGTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By: Day, Berry & Howard
Its Attorneys
By: /s/ Rosemary G. Ayers
---------------------------
Printed name: Rosemary G. Ayers
Date: July 30, 1997
PURCHASER: BROOKDALE LIVING COMMUNITIES, INC.
By:/s/ Darryl W. Copeland, Jr
----------------------------------
Printed name: Darryl W. Copeland, Jr
------------------------
Its: Executive Vice President
--------------------------------
Date: July 30, 1997
--------------------------------
An original, fully executed copy of this Agreement, has been received by
the Title Company this ___ day of _____, 1997, 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/ Philip J. Fanning
-----------------------------
Printed name: Philip J. Fanning
-------------------
Its: Associate Regional Counsel
----------------------------
<PAGE>
Exhibit 10.39
FIFTH AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS FIFTH AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement"),
dated as of the 5th day of August, 1997, is made by and between GABLES AT
FARMINGTON ASSOCIATES, a Connecticut general partnership ("Seller"), with an
office in care of Allegis Realty Investors, LLC, 242 Trumbull Street, Hartford,
Connecticut 06103-1205 and BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation ("Purchaser") with an office at 77 West Wacker Drive, Suite 3900,
Chicago, IL 60601.
RECITALS:
Seller and Purchaser have entered into that certain Purchase and Sale
Agreement dated as of June 11, 1997 with respect to that certain improved real
property commonly known as The Gables at Farmington located at 20 Devonwood
Drive, Farmington, Connecticut along with certain related personal and
intangible property, as amended by First Amendment to Purchase and Sale
Agreement dated as of July 3, 1997, as further amended by Second Amendment to
Purchase and Sale Agreement dated as of July 16, 1997, as further amended by
Third Amendment to Purchase and Sale Agreement dated as of July 23, 1997 and as
further amended by Fourth Amendment to Purchase and Sale Agreement dated as of
July 30, 1997 (as amended, the "Purchase Agreement").
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 to amend the Purchase Agreement as follows:
1. Section 3.5 of the Purchase Agreement is hereby amended to delete the
date "August 6, 1997" appearing therein and to substitute therefor the
following: "August 8, 1997".
2. The Term Sheet included in the Purchase Agreement is hereby amended to
delete therefrom the term "Final Approval Date: August 6, 1997" and to
substitute therefor the term "Final Approval Date: August 8, 1997".
3. All references in the Purchase Agreement to "this Agreement" or "the
Agreement" shall mean the Purchase Agreement, as amended by this Agreement.
4. This Agreement shall be construed and enforced in accordance with the
laws of the State of Connecticut.
5. This Agreement shall be binding upon and inure to the benefit of
Purchaser and Seller and their successors and permitted assigns.
<PAGE>
-2-
6. 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.
7. The Purchase Agreement, as amended hereby, remains in full force and
effect and is hereby ratified and confirmed.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
-3-
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 FARMINGTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By: Day, Berry & Howard
Its Attorneys
By: Rosemary G. Ayers
----------------------------
Printed name: Rosemary G. Ayers
Date: August 5, 1997
PURCHASER: BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Darryl W. Copeland, Jr.
----------------------------------
Printed name: Darryl W. Copeland, Jr.
Its: Executive Vice President
--------------------------------
Date: August 5, 1997
--------------------------------
An original, fully executed copy of this Agreement, has been received by
the Title Company this ___ day of __________, 1997, 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:__________________________________
Printed name:________________________
Its:_________________________________
<PAGE>
Exhibit 10.40
SIXTH AMENDMENT TO PURCHASE AND SALE AGREEMENT
THIS SIXTH AMENDMENT TO PURCHASE AND SALE AGREEMENT (this "Agreement"),
dated as of the 8th day of August, 1997, is made by and between GABLES AT
FARMINGTON ASSOCIATES, a Connecticut general partnership ("Seller"), with an
office in care of Allegis Realty Investors, LLC, 242 Trumbull Street, Hartford,
Connecticut 06103-1205 and BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation ("Purchaser") with an office at 77 West Wacker Drive, Suite 3900,
Chicago, IL 60601.
RECITALS:
Seller and Purchaser have entered into that certain Purchase and Sale
Agreement dated as of June 11, 1997 with respect to that certain improved real
property commonly known as The Gables at Farmington located at 20 Devonwood
Drive, Farmington, Connecticut along with certain related personal and
intangible property, as amended by First Amendment to Purchase and Sale
Agreement dated as of July 3, 1997, as further amended by Second Amendment to
Purchase and Sale Agreement dated as of July 16, 1997, as further amended by
Third Amendment to Purchase and Sale Agreement dated as of July 23, 1997, as
further amended by Fourth Amendment to Purchase and Sale Agreement dated as of
July 30, 1997 and as further amended by Fifth Amendment to Purchase and Sale
Agreement dated as of August 5, 1997 (as amended, the "Purchase Agreement").
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 to amend the Purchase Agreement as follows:
1. The Purchase Agreement is hereby amended to delete therefrom Section
2.2.1(b) in its entirety and to substitute therefor the following:
(b) On or before the third business day following the earlier to
occur of (i) issuance of a Certificate of Need with respect to the Property
in the name of Purchaser, its nominee or designee, and (ii) receipt by
Purchaser or the Connecticut Office of Health Care Access (with a copy
received by Purchaser) of a letter from the holder of the Certificate of
Need issued under DN 95-715, as modified under DN 97-709Ra, directing or
agreeing to a transfer of said Certificate of Need to Purchaser, its
nominee or designee, Purchaser shall make an additional deposit with the
Title Company of TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) (the
"Additional Deposit") (the Initial Deposit and, to the extent such deposits
are made as of the applicable dates, the Additional Deposit, the First
Extension Deposit and the Second Extension Deposit (as defined in Section
10.4), collectively shall be referred to hereinafter as "Deposit").
<PAGE>
-2-
2. Section 2.3 of the Purchase Agreement is hereby amended to delete the
date "August 17, 1997" therefrom and to substitute therefor the following:
"October 17, 1997".
3. The Purchase Agreement is hereby amended to delete therefrom Section
10.4(b) in its entirety and to substitute therefor the following: "(b)
Intentionally Deleted".
4. The Purchase Agreement is hereby amended to delete therefrom Section
10.4(c) and Section 10.4(d) in their entirety and to substitute therefor the
following:
(c) In the event Purchaser, despite diligent efforts, has failed to
obtain the Regulatory Licenses on or before October 5, 1997, then on
October 5, 1997, Purchaser shall notify Seller in writing (in either case,
a "First Notice") (i) that Purchaser has waived the Regulatory License
Condition and that subject only to the provisions of Section 9.10 hereof
and Seller's compliance with Seller's obligations to be satisfied at the
Closing. Purchaser will purchase the Property on October 17, 1997, or such
earlier date as may be mutually agreed upon by Seller and Purchaser,
without having obtained the Regulatory Licenses (in which case Purchaser
shall hire an assisted living services agency to provide assisted living
services to residential tenants of the Property following the Closing),
(ii) that Purchaser is extending the Date of Closing for one thirty (30)
day period (the "First Extension Period") solely for purposes of obtaining
the Regulatory Licenses, or (iii) that Purchaser is terminating this
Agreement; provided, however, in the event Purchaser elects to proceed
under Section 10.4 (c)(ii), Purchaser shall deposit with the Title Company
$100,000 (the "First Extension Deposit") on or before October 5, 1997. If
Purchaser has failed to obtain the Regulatory Licenses on or before the
October 5, 1997 and Purchaser fails to so send a First Notice, Purchaser
shall be deemed to have elected to proceed under subparagraph 10.4(c)(ii).
If Purchaser elects, or is deemed to have elected, to proceed under
subparagraph 10.4(c)(ii) and fails to deposit with the Title Company the
First Extension Deposit when required, then Seller may terminate this
Agreement.
(d) In the event that Purchaser properly exercises its option with
respect to the First Extension Period and pays the First Extension Deposit,
but fails, despite diligent efforts, to receive the Regulatory Licenses on
or before November 7, 1997, then on November 7, 1997, Purchaser shall
notify Seller in writing (in either case, a "Second Notice"): (i) that
Purchaser has waived the Regulatory License Condition and that subject only
to the provisions of Section 9.10 hereof and Seller's compliance with
Seller's obligations to be satisfied at the Closing, Purchaser will
purchase the Property on November 17, 1997 without having obtained the
Regulatory Licenses (in which case Purchaser shall hire an assisted living
services agency to provide assisted living services to residential tenants
of the Property following the Closing), (ii) that Purchaser is
<PAGE>
-3-
extending the Date of Closing until December 17, 1997, solely for purposes
of obtaining the Regulatory Licenses, or (iii) that Purchaser is
terminating this Agreement; provided, however, in the event Purchaser
elects to proceed under clause (d)(ii), Purchaser shall deposit with the
Title Company $100,000 (the "Second Extension Deposit") on or before
November 7, 1997. If Purchaser has failed to obtain the Regulatory
Licenses on or before the November 7, 1997 and Purchaser fails to so send
a Second Notice, Purchaser shall be deemed to have elected to proceed under
subparagraph 10.4(d)(ii). If Purchaser elects, or is deemed to have
elected to proceed under subparagraph 10.4(d)(ii) and fails to deposit with
the Title Company the Second Extension Deposit when required, then Seller
may terminate this Agreement.
5. The Purchase Agreement is hereby amended to add thereto as a new
Section 10.5 the following:
10.5 Rights of Old Farms Forest. Purchaser acknowledges that Old Farms
Forest Associates, Limited Partnership ("Old Farms"), the general partner
of Aetna Life Insurance Company ("Aetna") in Seller, has thirty (30) days
after receipt of written notice of the terms of Purchaser's offer to
purchase the Property (the "Terms") to exercise certain rights under the
terms of Seller's partnership agreement. This Agreement and Seller's
obligations hereunder are contingent upon Old Farms approving (or being
deemed to have approved) the sale of the Property to Purchaser pursuant to
the Terms within said thirty (30) day period. In the event that the
contingency set forth in this Section 10.5 is not satisfied on or before
the expiration of such thirty (30) day period, then either party may
terminate this Agreement upon written notice delivered to the other party
within five (5) business days after the date on which Seller notifies
Purchaser that Old Farms is exercising its rights under Seller's
partnership agreement. If such termination notice is given, this Agreement
shall be deemed to have been terminated by Purchaser as of, and with
notice deemed to have been given to Seller by Purchaser on or before, the
Final Approval Date pursuant to Section 3.5.
Seller agrees to cause Aetna to promptly send notice of the Terms to
Old Farms. Promptly upon the expiration of said thirty (30) day period, or
promptly after such earlier date, if any, that Aetna receives written
notice of approval or exercise of Old Farm's rights pursuant to Seller's
partnership agreement, Seller shall inform Purchaser of such approval,
deemed approval or exercise.
6. The Purchase Agreement is hereby amended to add thereto as a new
Section 10.6 the following:
<PAGE>
-4-
10.6 Letter of Map Amendment. The parties acknowledge that a portion
of the subject building lies within a special flood hazard area ("SHFA") as
approximately shown on the Updated Survey. Seller has agreed, at its
expense up to a maximum amount of $7,500, to cause R.M. Crossen &
Associates ("Crossen") to file an Application for Letter of Map Amendment
- Single Structure in connection with such matter. In the event that the
Federal Emergency Management Agency ("FEMA") determines that the subject
building cannot be removed from the SHFA (a "Negative Determination"), then
Purchaser shall be entitled to terminate this Agreement by giving notice of
termination to Seller within five (5) business days after Purchaser
receives notice of the Negative Determination ( "SHFA Termination Notice").
Promptly after the execution hereof, Purchaser shall instruct Crossen in
writing to inform both Purchaser's and Seller's counsel of any Negative
Determination by telephone and in writing after notice thereof (verbal or
otherwise) is received by Crossen. In the event that notice of a Negative
Determination is sent directly by FEMA to Seller, Seller shall promptly
provide a copy thereof to Purchaser.
If the SHFA 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.
7. The Purchase Agreement is hereby amended to add thereto as a new
Section 10.7 the following:
10.7 Security Deposits. In performing its due diligence with respect
to the Property, Purchaser has been unable to determine that Seller has in
its security deposit account cash in an amount equal to all security
deposits identified in the leases as having been deposited with Seller by
residential tenants, together with accrued unpaid interest thereon required
by Connecticut law. Purchaser and Seller shall use reasonable efforts to
resolve the discrepancies on or before August 22, 1997. If Purchaser and
Seller have not resolved such matter to their mutual satisfaction on or
before said date, Purchaser shall be entitled to terminate this Agreement
by giving written notice to Seller on or before said date. If such
notice is given, this Agreement shall be deemed to have been terminated by
Purchaser as of, and with notice deemed to have been given to Seller by
Purchaser on or before, the Final Approval Date pursuant to Section 3.5.
8. The Term Sheet included in the Purchase Agreement is hereby amended to
delete the date "August 17, 1997" which appears after the caption "Date of
Closing" and to substitute therefor the following: "October 17, 1997".
<PAGE>
-5-
9. All references in the Purchase Agreement to "this Agreement" or "the
Agreement" shall mean the Purchase Agreement, as amended by this Agreement. All
initial capitalized terms not defined herein shall have the meanings ascribed to
them in the Purchase Agreement.
10. This Agreement shall be construed and enforced in accordance with the
laws of the State of Connecticut.
11. This Agreement shall be binding upon and inure to the benefit of
Purchaser and Seller and their successors and permitted assigns.
12. 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.
13. The Purchase Agreement, as amended hereby, remains in full force and
effect and is hereby ratified and confirmed.
REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
<PAGE>
-6-
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 FARMINGTON ASSOCIATES
By: Aetna Life Insurance Company, a general
partner
By: Day, Berry & Howard
Its Attorneys
By: /s/ Rosemary G. Ayers
--------------------------
Printed name: Rosemary G. Ayers
Date: August 8, 1997
PURCHASER: BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Darryl W. Copeland, Jr.
-------------------------------
Printed name: Darryl W. Copeland, Jr.
Its: Executive Vice President
Date: August 8, 1997
An original, fully executed copy of this Agreement, has been received by
the Title Company this ___ day of August, 1997, 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:_________________________________
Printed name:_______________________
Its:________________________________
<PAGE>
Exhibit 10.41
FIRST AMENDMENT TO MASTER
-------------------------
LEASE AGREEMENT AND INCIDENTAL DOCUMENTS
----------------------------------------
THIS FIRST AMENDMENT TO MASTER LEASE AGREEMENT AND INCIDENTAL DOCUMENTS
(this "Amendment") is entered into as of this 7th day of May, 1997, by and among
(i) HEALTH AND RETIREMENT PROPERTIES TRUST, a Maryland real estate investment
trust ("HRP"); (ii) BLC PROPERTY, INC., a Delaware corporation, ("Tenant");
(iii) BROOKDALE LIVING COMMUNITIES OF WASHINGTON, INC., a Delaware corporation
(the "Washington Subtenant"); (iv) BROOKDALE LIVING COMMUNITIES OF ARIZONA,
INC., BROOKDALE LIVING COMMUNITIES OF ILLINOIS, INC. and BROOKDALE LIVING
COMMUNITIES OF NEW YORK, INC., each a Delaware corporation (collectively, the
"Existing Subtenants"); (v) BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation ("Brookdale"); and (vi) THE PRIME GROUP, INC., PRIME INTERNATIONAL,
INC. AND PGLP, INC., each a Delaware corporation, and PRIME GROUP LIMITED
PARTNERSHIP and PRIME GROUP II, L.P., each an Illinois limited partnership
(collectively, the "Prime Entities").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, pursuant to a Master Lease Agreement, dated as of December 27, 1996
(the "Master Lease"), HRP leased to Tenant and Tenant leased from HRP certain
properties located in Chicago, Illinois, Brighton, New York and Phoenix,
Arizona, all as more particularly described in and subject to and upon the terms
and conditions set forth in the Master Lease; and
WHEREAS, the obligations of Tenant under the Master Lease are secured and
guaranteed by certain undertakings and agreements of the Existing Subtenants,
Brookdale and the Prime Entities pursuant to the Incidental Documents (this and
other capitalized terms used and not otherwise defined herein having the
meanings ascribed to such terms in the Master Lease); and
WHEREAS, Tenant has requested that HRP acquire certain premises located in
Spokane, Washington, as more particularly described in Exhibit A to this
Amendment (the "Additional Premises"), and lease the same to Tenant, subject to
and upon the terms and conditions hereinafter set forth; and
WHEREAS, the transactions contemplated by this Amendment are of direct
substantial and material benefit to the Existing Subtenants, Brookdale and the
Prime Entities and, therefore, such parties have agreed to amend the Incidental
Documents as hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and for other good and valuable consideration,
<PAGE>
-2-
the mutual receipt and legal sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Master Lease is hereby amended by inserting the following
immediately prior to Section 1.1 thereof:
1.0 "Additional Premises Commencement
Date" shall mean May 7, 1997.
2. Section 1.5 of the Master Lease is hereby amended by deleting the
reference to "A-3" therein and inserting a reference to "A-4" in its place.
3. Section 1.16 of the Master Lease is hereby deleted in its entirety and
the following inserted in its place:
1.16 "Commencement Date" shall mean the Additional Premises
Commencement Date or the Original Commencement Date, as the context
may require.
4. Section 1.69 of the Master Lease is hereby deleted in its entirety and
the following inserted in its place:
"Minimum Rent" shall mean (a) with respect to the period commencing on
the Original Commencement Date and expiring on the day preceding the
Additional Premises Commencement Date, $692,709 per month; (b) with
respect to the period commencing the Additional Premises Commencement
Date and expiring December 31, 1997, $806,314 per month; (c) with
respect to the 1998 Lease Year, $848,751 per month; (d) with respect
to the 1999 Lease Year, $891,188 per month; and (e) with respect to
the 2000 Lease Year and each Lease Year thereafter (including each
Lease Year during any Extended Term), $933,626 per month.
5. The Master Lease is hereby further amended by inserting the following
immediately after Section 1.71 thereof:
1.71A "Original Commencement Date" shall mean December 27, 1997.
6. Section 1.76 of the Master Lease is hereby amended by deleting the
phrase "dated as of the date hereof" appearing therein.
7. Section 1.77 of the Master Lease is hereby amended by deleting the
word "and" between clauses (b) and (c) thereof and inserting the following new
clause at the end thereof:
<PAGE>
-3-
; and (d) Brookdale Living Communities of Washington, Inc., a
Delaware corporation, with respect to the Leased Property located
in Spokane, Washington.
8. Section 2.1 (a) of the Master Lease is hereby amended by deleting the
reference to Exhibit "A-3" therein and inserting a reference to Exhibit "A-4" in
its place.
9. Exhibit A to the Master Lease is hereby amended by adding Exhibit A to
this Amendment thereto as Master Lease Exhibit A-4.
10. Exhibit B to the Master Lease is hereby amended by inserting the
following at the end thereof:
Spokane, Washington $14,350,000
11. All references in the Master Lease to the Incidental Documents are
hereby amended to refer to the Incidental Documents as amended by this
Amendment.
12. Each of the Incidental Documents is hereby amended so that each
reference therein to the Master Lease or to any other Incidental Document shall
mean the Master Lease and such Incidental Document as amended by this Amendment.
13. The Pledge and Security Agreement is hereby amended such that (a) all
references therein to the "Properties" shall include the Additional Premises;
(b) all references therein to the "Subleases" shall include the sublease of even
date, between Tenant and the Washington Subtenant; (c) all references therein to
the "Subtenants" shall include the Washington Subtenant; and (d) the information
set forth in Schedule 1 to this Amendment is inserted at the end of Schedule 1
thereto.
14. The Stock Pledge Agreement is hereby amended such that (a) all
references therein to the "Properties" shall include the Additional Premises;
(b) all references therein to the "Subleases" shall include the Sublease of even
date between Tenant and the Washington Subtenant; and (c) all references therein
to the "Subtenants" shall include the Washington Subtenant.
15. As an inducement to HRP to enter into this Agreement, Tenant hereby
represents and warrants (x) that all of the representations and warranties of
Tenant set forth in Section 20.1 of the Master Lease are true and correct as of
the date hereof and (y) that no Default or Event of Default has occurred and is
continuing under the Master Lease or any other Incidental Document.
16. By execution of this Amendment, the Washington Subtenant hereby joins
in (x) the Guaranty as a guarantor, and (y) the Pledge and Security Agreement as
a debtor.
<PAGE>
-4-
17. As amended hereby, the Master Lease and the Incidental Documents shall
remain in full force and effect in accordance with their respective terms and
provisions.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal as of the date above first written.
HEALTH AND RETIREMENT PROPERTIES
TRUST
By: /s/ David J. Hegarty
----------------------------
Its President
BLC PROPERTY, INC.
By: /s/ Mark J. Schulte
----------------------------
Its President
BROOKDALE LIVING COMMUNITIES OF
WASHINGTON, INC.
By: /s/ Mark J. Schulte
----------------------------
Its President
BROOKDALE LIVING COMMUNITIES OF
ARIZONA, INC.
By: /s/ Mark J. Schulte
----------------------------
Its President
BROOKDALE LIVING COMMUNITIES OF
ILLINOIS, INC.
By: /s/ Mark J. Schulte
----------------------------
Its President
BROOKDALE LIVING COMMUNITIES OF
NEW YORK, INC.
By: /s/ Mark J. Schulte
----------------------------
Its President
<PAGE>
-5-
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Mark J. Schulte
-----------------------------
Its President
THE PRIME GROUP, INC.
By: /s/ Michael W. Reschke
------------------------------
Its President
PRIME INTERNATIONAL, INC.
By: /s/ Michael W. Reschke
------------------------------
Its President
PGLP, INC.
By: /s/ Michael W. Reschke
------------------------------
Its President
PRIME GROUP LIMITED PARTERSHIP
By: /s/ Michael W. Reschke
------------------------------
Michael W. Reschke, its
Managing General Partner
PRIME GROUP II
By: PGLP, Inc. its
Managing General Partner
By: /s/ Michael W. Reschke
-------------------------
Its (Vice) President
<PAGE>
EXHIBIT A
---------
ADDITIONAL PREMISES
-------------------
[See attached copies.]
<PAGE>
SCHEDULE 1
----------
Debtor Chief Executive Chief Place of
- ------ Office Business
--------------- --------------
Brookdale Living Brookdale Living Brookdale Living
Communities of Communities of Communities of
Washington, Inc. Washington, Inc. Washington, Inc.
c/o The Prime c/o The Prime
Group, Inc. Group, Inc.
77 W. Wacker Drive 77 W. Wacker Drive
Suite 3900 Suite 3900
Chicago, IL 60601 Chicago, IL 60601
<PAGE>
EXHIBIT 10.42
STOCK OPTION AND DEPOSIT AGREEMENT
This Stock Option and Deposit Agreement dated as of May 7, 1997 (the
"Date of Grant"), by and between Darryl W. Copeland, Jr., an individual residing
in Cranbury, New Jersey (the "Optionee"), and The Prime Group, Inc., an Illinois
corporation ("PGI").
W I T N E S S E T H:
-------------------
WHEREAS, as used herein the term "Shares" shall mean shares of
Brookdale Living Communities, Inc., a Delaware corporation (the "Company")
common stock, par value $0.01 per share (the "Common Stock");
WHEREAS, the Optionee is a key employee of the Company;
WHEREAS, PGI is a stockholder of the Company;
WHEREAS, PGI desires to grant to the Optionee an option to purchase
from PGI 100,000 Shares for a purchase price per share of $.01, subject to the
terms and conditions hereinafter set forth;
WHEREAS, PGI has delivered to Healthcare Realty Trust Incorporated, a
Maryland real estate investment trust ("HRT"), a Guaranty dated as of May 7,
1997 (as amended, restated, modified or supplemented, the "PGI Guaranty"),
pursuant to which PGI has guaranteed the repayment by Prime Group VI, L.P.
("PG6LP") of an $18,000,000 loan (the "HRT Loan") made to it by HRT; and
WHEREAS, as security for the performance by it of its obligations
under the PGI Guaranty, PGI has pledged to HRT certain Shares, including the
Option Shares (as defined below), pursuant to that certain Pledge and Security
Agreement dated as of May 7, 1997 (as amended, restated, modified or
supplemented, the "PGI/HRT Pledge") between PGI and HRT;
WHEREAS, the repayment of the HRT Loan is also secured by the pledge
by PG6LP and Prime Group Limited Partnership ("PGLP") of certain Shares;
NOW, THEREFORE, for good and valuable consideration, the parties
hereto agree as follows:
1. Option. PGI hereby grants to the Optionee the right to purchase (the
------
"Option"), subject to the terms, conditions and restrictions stated herein,
from PGI 100,000 Shares (the "Option Shares") at a price per share of $.01.
<PAGE>
2. Escrow.
(a) Upon the termination of the PGI/HRT Pledge and the return of
the Certificate (as hereinafter defined) to PGI, PGI will
deposit the certificate (the "Certificate") representing the
Option Shares with Winston & Strawn (the "Escrow Agent") and
duly endorse in blank and transmit to the Escrow Agent a stock
power (in the form attached hereto as Exhibit A) for the
certificate representing the Shares.
(b) Upon its receipt of the Certificate from PGI, The Escrow Agent
will hold the Certificate and deliver it either to Optionee or
to PGI, as the case may be, in the manner and at the times
specified herein.
(c) During the period the Certificate is held by the Escrow Agent,
(i) PGI may not sell, transfer, pledge, exchange, hypothecate
or otherwise dispose of such Shares, (ii) PGI shall exercise
all voting rights with respect to the Shares, (iii) all
dividends and other distributions, whether of cash, stock or
otherwise, paid on the Shares and any stock issued in
connection with any stock splits shall be held by the Escrow
Agent for the benefit of PGI and Optionee and (iv) any cash
dividends or other cash distributions with respect to the
Shares shall be held in an interest bearing account for the
benefit of PGI and Optionee.
3. Vesting.
(a) The Option shall fully and completely vest on the first
anniversary of the Date of Grant; unless Optionee's employment
with the Company has previously been terminated by Optionee
without good reason (as determined under Section 5(b)(ii) of
that certain Employment Agreement (the "Employment Agreement"),
dated as of the date hereof, between Optionee and the Company).
Notwithstanding the foregoing, upon termination of Optionee's
employment with the Company by the Company by reason of
disability, or with or without cause, or by Optionee by reason
of death or a change of control (as determined under Sections
5(a), 5(b)(i) and 5(c) of the Employment Agreement) prior to
the first anniversary of the Date of Grant, the Option shall
immediately vest.
(b) If, at any time prior to the first anniversary of the Date of
Grant, Optionee's employment with the Company has been
terminated by Optionee without good reason (as determined under
Section 5(b)(ii) of the Employment Agreement), all Shares shall
be returned to PGI or its designee and this Stock Option and
Deposit Agreement shall terminate, and the Escrow Agent shall
deliver to PGI or its designee the Certificate for the Shares,
the stock power
-2-
<PAGE>
for such Shares and all dividends or other distributions with
respect to the Shares held by the Escrow Agent together with
all interest accrued thereon.
(c) Notwithstanding anything to the contrary herein, if at any
time, whether prior to or on or after the date on which the
Option shall have vested, HRT shall foreclose on the Option
Shares, the Option shall be cancelled; provided, however, that
the Optionee shall be entitled to share in any cash paid to
PGI, PG6LP, PGLP or Mark J. Schulte, and in any Shares pledged
to HRT to secure the repayment of the HRT Loan which are
returned to PGI, PG6LP, PGLP or Mark J. Schulte, in connection
with such foreclosure, in accordance with the applicable terms
of that certain Stock Purchase Agreement and Agreement
Concerning Option Shares, dated as of the date hereof, between
PGI and the Optionee.
4. Exercise Period. The Optionee (or in the event of the death of the
Optionee, the Optionee's success in interest) may exercise the Option at any
time after the Option has fully vested as provided herein, but prior to the
expiration of five years from the Date of Grant.
5. Manner of Exercise.
(a) Subject to Section 5(c) hereof, an exercisable Option, or any
exercisable portion thereof, may be exercised solely by delivery to the
Secretary of PGI or the Secretary's office (with a copy thereof to the Escrow
Agent) of all of the following prior to the time as of which such Option ceases
to be exercisable:
(i) notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion thereof, stating
that such Option or portion is exercised;
(ii) full payment (in cash or by check) for the Option Shares with
respect to which such Option is thereby exercised;
(iii) the payment to PGI of all amounts, if any, which it is required
to withhold under federal, state or local law in connection
with the exercise of the Option;
(iv) such representations and documents as PGI, in its absolute
discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act of 1933
and any other federal or state securities laws or regulations;
and
-3-
<PAGE>
(v) in the event that the Option or a portion thereof shall be
exercised by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to
exercise the Option or portion thereof.
(b) Upon such exercise of the Option as provided above, the Escrow
Agent shall deliver to Optionee the Certificate for the Shares, the stock power
for such Shares and all dividends or other distributions with respect to the
Shares held by the Escrow Agent together with all interest accrued thereon. In
the event that Optionee exercises the Option with respect to some, but not all
of the Option Shares, the Escrow Agent shall deliver the Certificate to the
Company and request that the Company issue to Optionee a replacement certificate
(the "Optionee Certificate") for the number of Shares for which Optionee has
exercised the Opt ion and to PGI a replacement certificate for the remaining
Shares (the "PGI Certificate"). The Optionee Certificate, together with all
dividends and other distributions with respect to the Shares represented by the
Optionee Certificate, shall be delivered to Optionee by the Escrow Agent. The
PGI Certificate, together with all dividends and other distributions with
respect to the Shares represented by the PGI Certificate and a new stock power
executed by PGI for the PGI Certificate, shall be held by the Escrow Agent
subject to the terms and conditions of this Stock Option and Deposit Agreement.
(c) Notwithstanding anything to the contrary herein, the Option may
not be exercised, in whole or in part, unless and until the PGI/HRT Pledge is
terminated and the Certificate is returned to PGI (or to the Escrow Agent at the
direction of PGI).
6. Transferability. This Option is personal to the Optionee and the same
may not in any manner or in any respect be assigned or transferred, other than
by will or the laws of descent and distribution.
7. Miscellaneous.
(a) The granting of this Option shall not be construed as giving to
the Optionee any right to be retained in the employ of the
Company.
(b) This Option shall not be treated as an incentive stock option
under the Internal Revenue Code of 1986, as amended.
(c) The validity, interpretation and effect of this Stock Option
and Deposit Agreement shall be governed by the laws of the
State of Delaware, excluding the "conflicts of laws" rules
thereof.
8. Acknowledgment of PGI Pledge. The Optionee does hereby acknowledge
and agree that (a) the Option Shares have been pledged by PGI to HRT pursuant to
the PGI/HRT Pledge to secure PGI's obligations under the PGI Guaranty, (b) the
Certificate has been delivered to HRT in accordance with the terms of the
PGI/HRT Pledge and (c) in the event that HRT forecloses on the Option Shares and
the Certificate in accordance with the terms of the PGI/HRT Pledge, the Option
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<PAGE>
shall be cancelled; provided, however, the Optionee shall be entitled to share
in any cash paid to PGI, PG6LP, PGLP or Mark J. Schulte, and in any Shares
pledged to HRT to secure the repayment of the HRT Loan returned to PGI, PG6LP,
PGLP or Mark J. Schulte, in connection with such foreclosure, in accordance with
the applicable terms of that certain Stock Purchase Agreement and Agreement
Concerning Option Shares, dated as of the date hereof, between PGI and the
Optionee.
[SIGNATURE PAGES FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Stock
Option and Deposit Agreement on the day and year first above written.
THE PRIME GROUP, INC.
By: /s/ Micheal W. Reschke
---------------------------------------
Title: President
------------------------------------
/s/ Darryl W. Copeland, Jr.
------------------------------------------
Darryl W. Copeland, Jr.
-6-
<PAGE>
The Escrow Agent hereby acknowledges receipt of the Certificate referred to
above and agrees to hold it in accordance with the terms of the foregoing Stock
Option and Deposit Agreement.
WINSTON & STRAWN
By:______________________________________
Title:___________________________________
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<PAGE>
EXHIBIT A
STOCK POWER
FOR VALUE received The Prime Group, Inc. hereby sells, assigns and
transfers unto Darryl W. Copeland, Jr. 100,000 Shares of the Brookdale Living
Communities, Inc. Common Stock and represented by Certificate Number ________
and does hereby irrevocably constitute and appoint ____________________________
Attorney to transfer the said stock on the books of Brookdale Living
Communities, Inc. with full power of substitution in the premises.
DATED:___________________ THE PRIME GROUP, INC.
By:___________________________________
Its:__________________________________
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<PAGE>
Exhibit 10.43
STOCK PURCHASE AGREEMENT AND
AGREEMENT CONCERNING OPTION SHARES
----------------------------------
THIS STOCK PURCHASE AGREEMENT AND AGREEMENT CONCERNING OPTION SHARES (this
"Agreement"), is made and entered as of the 7th day of May, 1997, by and among
The Prime Group, Inc., an Illinois corporation ("PGI"), Prime Group VI , L.P.,
an Illinois limited partnership ("PG6LP"), and Darryl W. Copeland, Jr., an
individual currently residing at 54 Petty Road, Cranbury, New Jersey 08512
("DWC").
WITNESSETH
----------
WHEREAS, PGI and DWC are parties to that certain Stock Option and Deposit
Agreement (the "Stock Option Agreement"), dated as of the date hereof, pursuant
to which PGI grants to DWC the option to purchase 100,000 shares (the "Option
Shares") of common stock of Brookdale Living Communities, Inc., a Delaware
corporation ("Brookdale"); and
WHEREAS, in connection with the initial public offering of Brookdale, which
was completed on the date hereof, (i) PGI received 1,382,410 shares (the "PGI
Shares") of common stock of Brookdale, (ii) Prime Group Limited Partnership, an
Illinois limited partnership and an affiliate of PGI ("PGLP"; PGI, PG6LP and
PGLP are sometimes referred to herein collectively as the "Prime Entities"),
received 320,633 shares (the "PGLP Shares") of common stock of Brookdale, (iii)
Mark J. Schulte ("MJS ") received 296,957 shares (the "MJS Shares") of common
stock of Brookdale and (iv) PG6LP purchased 2,500,000 shares (the "PG6LP
Shares") of common stock of Brookdale for $10.695 per share; and
WHEREAS, PG6LP financed a portion of the purchase price for the PG6LP
shares with the proceeds of a loan (the "HR Loan") in the amount of Eighteen
Million and no/100 Dollars ($18,000,000.00) made to PG6LP by Healthcare Realty
Trust Incorporated, a Maryland real estate investment trust ("HR"); and
WHEREAS, to satisfy a requirement imposed by HR as a condition to making
the HR Loan, all of the PGLP Shares, all of the MJS Shares, all of the PG6LP
Shares (the "Pledged PG6LP Shares") and 1,369,910 of the PGI Shares (the
"Pledged PGI Shares") were pledged to HR to secure the repayment of the HR Loan
(all shares pledged to HR to secure the HR Loan are referred to herein,
collectively as the "Pledged Shares"); and
WHEREAS, the Pledged PGI Shares include the Option Shares; and
WHEREAS, DWC desires to purchase from PG6LP, and PG6LP desires to sell to
DWC,
1
<PAGE>
25,000 shares (including any adjustments pursuant to paragraph 1(c) below, the
"Purchase Shares") of common stock of Brookdale upon the terms and subject to
the conditions set forth in this Agreement; and
WHEREAS, the Pledged PG6LP Shares include the Purchase Shares.
NOW THEREFORE, in consideration for the mutual agreements, covenants,
representations and warranties set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which we hereby acknowledged, the
parties hereto agree as follows:
1. PG6PL hereby agrees to sell the Purchase Shares to DWC, and DWC hereby
agrees to purchase the Purchase Shares from PG6LP, upon the following terms and
conditions:
(a) The purchase price (the "Purchase Price") for the Purchase Shares
shall be Two Hundred Seventy-Two Thousand Seven Hundred Twenty-Two and
50/100 Dollars ($272,722.50), payable at the Closing (defined below) in
immediately available funds. The Purchase Price shall be reduced by the
amount of any cash distributions received by PG6LP with respect to the
Purchase Shares to the extent any such cash distribution exceeds the
aggregate amount of the Unpaid Portions (defined below) as of the date on
which such cash distribution is received.
(b) From and after the date hereof until the Closing, DWC shall pay
to PG6LP the following:
(i) Until the HR Loan is repaid or refinanced, but subject
to the provisions of subparagraph 1(b)(iii) hereof, (A) on the first
business day of each month, commencing June 1, 1997, DWC shall pay
PG6LP an amount calculated at the rate of 10.25% per annum on the
Purchase Price, computed on the basis of a year of 360 days and actual
days elapsed, and (B) on each June 30, 1997, September 30, 1997,
December 31, 1997 and March 31, 1998, DWC shall pay PG6LP the sum of
Two Thousand Six Hundred Seventy-Three and 75/100 Dollars ($2,673.75).
(ii) After the HR Loan is repaid or refinanced, but subject to
the provisions of subparagraph 1(b)(iii) hereof, on the first business
day of each month, commencing on the first month following the date on
which the HR Loan is repaid or refinanced, DWC shall pay PG6LP an
amount calculated at the rate of 8.75% per annum on the Purchase
Price, computed on the basis of a year of 360 days and actual days
elapsed. (The amounts payable pursuant to subparagraphs 1(b)(i) and
1(b)(ii) hereof are referred to as the "Periodic Payments".)
(iii) DWC shall be obligated to pay only one-half of the Periodic
Payments otherwise payable pursuant to subparagraph 1(b)(i) and
1(b)(ii) hereof unless and until DWC receives bonuses or other cash
compensation (other than base salary) from
2
<PAGE>
Brookdale from and after the date hereof. In the event any portion of
the Periodic Payments (the "Unpaid Portion") are not paid in
accordance with this subparagraph 1(b)(iii) because DWC has not
received a sufficient amount of bonuses or other cash compensation
(other than base salary), said Unpaid Portion shall accrue (without
interest). The Unpaid Portion (or a portion thereof) shall be payable
by DWC to PG6LP promptly following the receipt by DWC of a bonus or
other cash compensation from Brookdale, upon which, DWC shall pay PGI
the lesser of (A) the aggregate amount of the Unpaid Portions not
previously paid or (B) the amount of the bonus or the cash
compensation (other than base salary) received by DWC from Brookdale
(net of income tax withholdings and other payroll deductions). In
addition, the amount of the Unpaid Portions shall be reduced by the
amount of any cash distributions received by PG6LP with respect to the
Purchase Shares. Any Unpaid Portions not paid prior to the Closing
shall be due and payable in full at the Closing.
(c) The Purchase Shares shall be adjusted for or include, as the case
may be, any stock issued by Brookdale with respect to the Purchase Shares
as a result of or in connection with a stock dividend, stock split, spin-
off or other non-cash distributions occurring prior to the Closing.
(d) PG6LP will notify DWC in writing of the amounts due PG6LP under
this paragraph 1. In the event DWC fails to pay any amount due and payable
pursuant to subparagraph 1(b) hereof within fifteen (15) business days
after written notice from PG6LP to DWC, PG6LP shall have the right to
terminate the right of DWC to purchase the Purchase Shares.
(e) The purchase and sale of the Purchase Shares (the "Closing")
pursuant to this subparagraph 1 shall occur on a date (the "Closing Date")
designated by DWC upon not less than five (5) business days written notice
to PG6LP; provided, however, the Closing Date shall not be later than May
8, 2000. In the event the Closing does not occur on or before May 8, 2000,
DWC's right to purchase the Purchase Shares, and PG6LP's obligation to sell
the Purchase Shares, shall automatically terminate.
(f) DWC shall have no voting rights as a shareholder with respect to
the Purchase Shares until the Closing of the purchase and sale of the
Purchase Shares.
(g) In the event DWC acquires the Option Shares before DWC pays in
full all amounts payable under this paragraph 1, DWC shall pledge the
Option Shares to PG6LP to secure DWC's obligation to pay the Purchase
Price, the Periodic Payments and the Unpaid Portions pursuant to this
paragraph 1.
(h) Notwithstanding anything in this Agreement to the contrary, in
the event of a failure by DWC to pay the Purchase Price and the Periodic
Payments, PG6LP's remedies shall be limited to (i) terminating the
agreement for the sale and purchase of the Purchase
3
<PAGE>
Shares, (ii) terminating the Stock Option Agreement (to the extent DWC has
not previously exercised the option under the Stock Option Agreement and
purchased some or all of the Option Shares), (iii) foreclosing on the
Option Shares previously acquired by DWC and pledged to PG6LP to secure the
payments due under this paragraph 1, and (iv) bringing an action at law to
recover from DWC the portion of the Periodic Payments which are due and
payable by DWC under paragraph 1(b) hereof excluding that portion of the
Periodic Payments which are payable only to the extent of bonuses and other
cash compensation (other than base salary) received by DWC.
2. (a) DWC hereby acknowledges, consents to and approves the pledge by
PG6LP to HR of the Pledged PG6LP Shares, including the Purchase Shares.
DWC hereby subordinates his right to purchase the Purchase Shares pursuant
to paragraph 1 hereof to the rights and interests of HR in the Purchase
Shares as set forth in that certain Pledge and Security Agreement, dated as
of the date hereof, between PG6LP and HR. DWC acknowledges and agrees that
DWC shall not be entitled to purchase the Purchase Shares unless and until
the pledge of the Pledged PG6LP Shares to HR is terminated, and
acknowledges and agrees that a foreclosure by HR on the Purchase Shares
shall not affect DWC's obligation to pay to PGI the Purchase Price, the
Periodic Payments and the Unpaid Portions in accordance with paragraph 1
hereof even if PGI does not own some or all of the Purchase Shares, as if
DWC purchased the Purchase Shares as of the date hereof in consideration
for the delivery to PGI of a note in the principal amount equal to the
Purchase Price.
(b) DWC hereby acknowledges, consents to and approves the pledge by
PGI to HR of the Option Shares. DWC hereby subordinates his rights and
interests in and to the Option Shares to the rights and interest of HR in
the Option Shares as set forth in that certain Pledge and Security
Agreement, dated as of the date hereof, between PGI and HR. DWC
acknowledges and agrees that DWC shall not be entitled to exercise his
option to purchase the Option Shares, unless and until the pledge of the
Pledged PGI Shares to HR is terminated.
(c) (i) In the event HR forecloses on all of the Pledged Shares, PGI
shall pay to DWC an amount equal to 125,000 (representing the
aggregate number of Purchase Shares and the Option Shares) multiplied
by the Effective Per Share Foreclosure Sales Price (defined below),
but only to the extent of the aggregate amount of cash, if any,
received by the Prime Entities in connection with such foreclosure
(after all amounts due under the HR Loan have been paid in full and
after PGI has satisfied its obligations to MJS with respect to the
Pledged MJS Shares pursuant to that certain letter agreement, dated as
of the date hereof (the "PGI/MJS Letter Agreement"), a copy of which
is attached hereto as Exhibit A); provided, however, that any cash to
which DWC is entitled under this subparagraph 2(c)(i) shall be applied
against, and shall reduce, the amount of the Purchase Price, together
with the aggregate amount of all accrued but unpaid Periodic Payments
(including the aggregate amount of all Unpaid Portions), with the
balance payable to DWC, and the obligations of the parties
4
<PAGE>
hereto under paragraph 1 hereof shall terminate.
(ii) In the event HR forecloses on some but not all of the
Pledged Shares, and if at least 421,957 of the Pledged Shares are
returned to the Prime Entities and MJS in connection with such
foreclosure (after all amounts due under the HR Loan have been paid in
full), (A) the Prime Entities shall deliver to MJS up to 296,957 of
the returned Pledged Shares in accordance with the PGI/MJS Letter
Agreement, and (B) the Prime Entities shall deliver 100,000 of the
returned Pledged Shares to DWC upon the exercise by DWC of the option
to purchase the Option Shares and the payment by DWC to PGI of the
purchase price for the Option Shares in accordance with the terms of
the Stock Option Agreement, and DWC shall, in turn, pledge such
100,000 shares to PG6LP to secure DWC's obligation to purchase the
Purchase Shares in accordance with paragraph 1 of this Agreement.
(iii) In the event HR forecloses on some but not all of the
Pledged Shares, and if at least 396,957 but less than 421,957 of the
Pledged Shares are returned to the Prime Entities and MJS in
connection with such foreclosure (after all amounts due under the HR
Loan have been paid in full), (A) the Prime Entities shall deliver to
MJS up to 296,957 of the returned Pledged Shares in accordance with
the PGI/MJS Letter Agreement, (B) the Prime Entities shall deliver
100,000 of the returned Pledged Shares to DWC upon the exercise by DWC
of the option to purchase the Option Shares and the payment by DWC to
PGI of the purchase price for the Option Shares in accordance with the
terms of the Stock Option Agreement, and DWC shall, in turn, pledge
such 100,000 shares to PG6LP to secure DWC's obligation to purchase
the Purchase Shares in accordance with paragraph 1 of this Agreement;
provided, however, that the number of Purchase Shares which PG6LP is
obligated to deliver to DWC pursuant to paragraph 1 hereof shall be
reduced to the remaining balance of the Pledged Shares returned to the
Prime Entities, and the Purchase Price shall be reduced by an amount
equal to the lesser of (1) the number by which the number of Purchase
Shares is reduced pursuant to this paragraph 2(c)(iii) multiplied by
the Effective Per Share Foreclosure Sales Price and (2) the aggregate
amount of cash received by the Prime Entities in connection with the
HR foreclosure (after all amounts due under the HR Loan have been paid
in full).
(iv) In the event HR forecloses on some but not all of the
Pledged Shares, and if at least 296,957 but less than 396,957 of the
Pledged Shares are returned to the Prime Entities and MJS in
connection with such foreclosure (after all amounts due under the HR
Loan have been paid in full), (A) the Prime Entities shall deliver to
MJS up to 296,957 of the returned Pledged Shares in accordance with
the PGI/MJS Letter Agreement, (B) the number of Option Shares which
DWC has an option to purchase pursuant to the Stock Option Agreement
shall be reduced by the remaining balance of the returned Pledged
Shares and such returned Pledged Shares shall be delivered to DWC upon
the exercise by DWC of the option to purchase such shares pursuant
5
<PAGE>
to the Stock Option Agreement and the payment by DWC of an amount
equal to $0.01 per share, and DWC shall, in turn, pledge such shares
to PG6LP to secure DWC's obligation to purchase the Purchase Shares in
accordance with paragraph 1 of this Agreement, (C) PG6LP shall not be
required to deliver any Purchase Shares at the Closing pursuant to
paragraph 1 hereof, and (D) the Purchase Price payable by DWC pursuant
to paragraph 1 of this Agreement shall be reduced by an amount equal
to the lesser of (1) the Effective Per Share Foreclosure Sales Price
multiplied by the sum of 25,000 plus the number of shares by which the
Option Shares are reduced pursuant to subparagraph (B) of this
paragraph 2(c)(iv), and (2) the aggregate amount of cash, if any,
received by the Prime Entities in connection with the HR foreclosure
(after all amounts due under the HR Loan have been paid in full).
(v) In the event HR forecloses on some but not all of the
Pledged Shares, and if less than 296,957 of the Pledged Shares are
returned to the Prime Entities and MJS in connection with such
foreclosure (after all amounts due under the HR Loan have been paid in
full) (A) (1) the Prime Entities shall deliver to MJS all of the
Pledged Shares returned to the Prime Entities in accordance with the
PGI/MJS Letter Agreement, and (2) PGI shall pay to MJS all or a
portion of any cash received by the Prime Entities in connection with
the HR foreclosure in accordance with the PGI/MJS Letter Agreement,
and (B) PGI shall pay to DWC an amount equal to the lesser of (1) the
balance of the cash, if any, received by the Prime Entities in
connection with HR foreclosure and (2) 125,000 multiplied by the
Effective Per Share Foreclosure Sales Price, provided, however, the
Prime Entities shall retain such cash to the extent of, and shall
apply such cash against, the amount of the Purchase Price, together
with the aggregate amount of all accrued but unpaid Periodic Payments
(including the aggregate amount of all Unpaid Portions) payable by DWC
under paragraph 1 hereof, and the obligations of the parties hereto
under paragraph 1 hereof shall terminate.
(vi) For purposes hereof, (a) the term "Effective Per Share
Foreclosure Sales Price") shall mean the quotient of (A) the amount by
which the aggregate amount due under the HR Loan (including interest,
fees, costs and expenses payable thereunder) is reduced in connection
with the HR foreclosure, divided by (B) the number of Pledged Shares
on which HR forecloses, (b) Pledged Shares shall be deemed to have
been foreclosed on by HR to the extent such Pledged Shares are sold by
HR, and (c) the Pledged Shares returned to the Prime Entities and MJS
shall include the Pledged Shares with respect to which HR has released
the pledge and its security interests and, accordingly, a Prime Entity
or MJS holds such Pledged Shares free and clear of any pledge or
security interest in favor of HR.
3. (a) PGI hereby agrees that, in connection with the repayment or
refinancing of the HR Loan, PGI will cause the pledge to HR of the Option
Shares to be released and terminated, and that, following such release and
termination of the pledge to HR of the Option Shares, PGI will deposit the
Option Shares with Winston & Strawn, as "Escrow Agent" under the
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<PAGE>
Stock Option Agreement and the Option Shares shall thereafter be held in
accordance with the terms of the Stock Option Agreement.
(b) PG6LP hereby agrees that, in connection with the repayment or
refinancing of the HR Loan, PG6LP will cause the pledge to HR of the
Purchase Shares to be released and terminated, and that, following said
release and termination of the pledge to HR of the Purchase Shares, PG6LP
will hold the Purchase Shares free and clear of all pledges, liens,
security interests and other encumbrances unless and pursuant to paragraph
1 hereof terminates, and, at DWC's request, PG6LP will deposit the Purchase
Shares in an escrow with Winston & Strawn or another escrow agent
reasonably acceptable to PG6LP and DWC pursuant to an escrow agreement
reasonably acceptable to PG6LP and DWC.
4. All notices and other communications provided for herein (including,
without limitation, any modifications of, or consents under, this Agreement)
shall be given or made by Telecopy, or in writing and telecopied (with
confirmation), mailed, sent by overnight courier or delivered to the intended
recipient at the address specified below; or, as to any party, at such other
address as shall be designated by such party in a notice to each other party.
Except as otherwise provided in this Agreement, all such communications shall be
deemed to have been duly given when transmitted by telecopier (with confirmation
or receipt), or personally delivered or, in the case of a mailed or couriered
notice, upon receipt, in each case given or addressed as aforesaid. The giving
of any notice required hereunder may be waived in writing by the party entitled
to receive such notice.
If to DWC, to:
Darryl W. Copeland, Jr.
c/o Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Telecopy Number: (312) 917-0460
If to PGI, to:
The Prime Group, Inc.
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: Michael W. Reschke
Telecopy Number: (312) 917-1511
7
<PAGE>
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: Robert J. Rudnik, Esq.
Telecopy Number: (312) 917-1684
If to PG6LP, to:
Prime Group VI, L.P.
c/o The Prime Group, Inc.
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: Michael W. Reschke
Telecopy Number: (312) 917-1511
With a copy to:
The Prime Group, Inc.
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attention: Robert J. Rudnik, Esq.
Telecopy Number: (312) 917-1684
5. Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction or invalidate any other provision of this Agreement in such
or any other jurisdiction.
6. This Agreement may be executed by the parties hereto in counterparts,
each of which when so executed and delivered shall be an original, but all such
counterparts shall together constitute but one and the same instrument.
7. None of PGI, PG6LP or DWC may assign its rights or obligations
hereunder without the prior written consent of the other parties. This
Agreement shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns and shall be binding upon
and inure to the benefit of DWC's heirs.
8. This Agreement may be amended, and compliance with any provision
hereof may be waived, but only in a written instrument signed by PGI, PG6LP and
DWC.
8
<PAGE>
9. THE TERMS OF THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS
(EXCLUSIVE OF ANY RULES AS TO CONFLICT OF LAWS).
10. All defined terms used in this Agreement which refer to other
documents shall be deemed to refer to such other documents as they may be
amended from time to time, provided such documents were not amended in breach of
a covenant contained in this Agreement or any such other document.
11. The term "business day" shall mean any day other than a Saturday,
Sunday or any other day on which banks in the Chicago, Illinois are required or
authorized to close.
[signature page follows]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first set forth above.
THE PRIME GROUP, INC.
By: Michael W. Reschke
--------------------------
Title: President
--------------------------
PRIME GROUP VI, L.P.
By: PGLP, Inc.
Managing General Partner
By: Michael W. Reschke
--------------------------
Title: President
--------------------------
Name: Michael W. Reschke
--------------------------
Darryl W. Copeland, Jr.
---------------------------------
Darryl W. Copeland, Jr.
10
<PAGE>
EXHIBIT A
PGI/MJS LETTER AGREEMENT
------------------------
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997<F1>
<PERIOD-END> JUN-30-1997
<CASH> 15,486,681
<SECURITIES> 0
<RECEIVABLES> 484,476
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,971,157
<PP&E> 125,803,774
<DEPRECIATION> 10,209,009
<TOTAL-ASSETS> 150,318,133
<CURRENT-LIABILITIES> 10,632,347
<BONDS> 65,000,000
0
0
<COMMON> 71,750
<OTHER-SE> 26,261,742
<TOTAL-LIABILITY-AND-EQUITY> 150,318,133
<SALES> 6,540,366
<TOTAL-REVENUES> 6,571,942
<CGS> 3,488,271
<TOTAL-COSTS> 3,488,271
<OTHER-EXPENSES> 2,712,098
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 588,739
<INCOME-PRETAX> (217,166)
<INCOME-TAX> (135,447)
<INCOME-CONTINUING> (81,719)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (81,719)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
<FN>
<F1> Brookdale Living Communities, Inc. commenced operations on May 7, 1997. As
such, the actual period covered for the period January 1, 1997 through June
30, 1997, is May 7, 1997 through June 30, 1997.
</FN>
</TABLE>
