<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 8, 1997
REGISTRATION NO. 333-12259
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 5
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BROOKDALE LIVING COMMUNITIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 8361 36-4103821
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
---------------
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 456-0239
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
---------------
MARK J. SCHULTE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BROOKDALE LIVING COMMUNITIES, INC.
77 WEST WACKER DRIVE, SUITE 3900
CHICAGO, ILLINOIS 60601
(312) 456-0239
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
WAYNE D. BOBERG, ESQ. J. VAUGHAN CURTIS, ESQ.
BRIAN T. BLACK, ESQ. KIMBERLY A. KNIGHT, ESQ.
WINSTON & STRAWN ALSTON & BIRD
35 WEST WACKER DRIVE 1201 WEST PEACHTREE STREET
CHICAGO, ILLINOIS 60601 ATLANTA, GEORGIA 30309
(312) 558-5600 (404) 881-7000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this Registration
Statement.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AMOUNT OFFERING PROPOSED AMOUNT OF
TITLE OF CLASS OF SECURITIES TO BE PRICE PER MAXIMUM AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) OFFERING PRICE(1)(2) FEE(3)
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<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share.... 5,750,000 $16.00 $92,000,000 $27,879
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</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the
registration fee.
(3) The Registrant previously paid the registration fee with the original
filing of the Registration Statement on September 18, 1996.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various costs and expenses in connection
with the issuance and distribution of the securities being registered hereby,
other than underwriting discounts and commissions. The Company will bear all of
such expenses. All amounts are estimated except for the Securities and Exchange
Commission ("SEC") registration fee, the National Association of Securities
Dealers, Inc. ("NASD") filing fee and the Nasdaq National Market listing fee.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 42,134
NASD filing fee............................................... 12,719
Nasdaq National Market listing fee............................ 35,250
Blue sky fees and expenses (including attorneys' fees and
expenses).................................................... 30,000
Accounting fees and expenses.................................. 865,000
Legal fees and expenses....................................... 1,350,000
Printing and engraving expenses............................... 555,000
Transfer agent and registrar's fees........................... 7,000
Directors' and officers' liability insurance premium.......... 300,000
Miscellaneous................................................. 802,897
----------
Total..................................................... $4,000,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporation Law of the State of Delaware
("Section 145"), a corporation may indemnify its directors, officers, employees
and agents and its former directors, officers, employees and agents and those
who serve, at the corporation's request, in such capacities with another
enterprise, against expenses (including attorneys' fees), as well as judgments,
fines and settlements in non-derivative lawsuits, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding in
which they or any of them were or are made parties or are threatened to be made
parties by reason of their serving or having served in such capacity. Section
145 provides, however, that such person must have acted in good faith and in a
manner he or she reasonably believed to be in (or not opposed to) the best
interests of the corporation, and, in the case of a criminal action, such
person must have had no reasonable cause to believe his or her conduct was
unlawful. In addition, Section 145 does not permit indemnification in an action
or suit by or in the right of the corporation, where such person has been
adjudged liable to the corporation, unless, and only to the extent that, a
court determines that such person fairly and reasonably is entitled to
indemnity for expenses the court deems proper in light of liability
adjudication. Indemnity is mandatory to the extent a claim, issue or matter has
been successfully defended.
The Company's Amended and Restated By-laws (the "By-laws") provide for
mandatory indemnification of directors and officers generally to the same
extent authorized by Section 145. Under the By-laws, the Company shall advance
expenses incurred by an officer or director in defending any such action if the
director or officer undertakes to repay such amount if it is determined that he
or she is not entitled to indemnification.
The Company maintains directors' and officers' liability insurance.
The Company also intends to enter into indemnification agreements with each
of the Company's directors and certain of its officers. The indemnification
agreements will require, among other things, that the Company indemnify such
directors and officers to the fullest extent permitted by law, and advance to
such directors and officers all related expenses, subject to reimbursement if
it is subsequently determined that indemnification is not permitted. The
Company also must indemnify and advance all expenses incurred by such directors
and officers seeking to enforce their rights under the indemnification
agreements and cover such directors and officers under the Company's directors'
and officers' liability insurance.
II-1
<PAGE>
The Company's Restated Certificate of Incorporation provides that the
Company's directors will not be personally liable to the Company or its
stockholders for monetary damages resulting from breaches of their fiduciary
duty as directors, except (a) for any breach of the directors' duty of loyalty
to the Company or its stockholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(c) under Section 174 of the General Corporation Law of the State of Delaware,
which makes directors liable for unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (d) for transactions from which directors
derive improper personal benefit.
The Underwriting Agreement provides for indemnification by the Underwriters
of the directors, officers and controlling persons of the Company against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended (the "Securities Act"), under certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information as to all securities sold by
the Company within the last three years that were not registered under the
Securities Act. As to all such transactions, an exemption is claimed under
Section 4(2) of the Securities Act.
On September 4, 1996, the Company issued 100 shares of Common Stock to
Michael W. Reschke for $10.00 per share, or an aggregate purchase price of
$1,000. This Common Stock was purchased solely for investment purposes to
facilitate the organization of the Company. Upon completion of the Offering,
all of the shares so acquired by Mr. Reschke will be redeemed by the Company
for an aggregate redemption price of $1,000.
Simultaneously with the completion of the Offering, the Company also will
issue 2,178,000 shares of Common Stock to PGI in exchange for all of the
capital stock of BLC, its interests in the Heritage and the Devonshire
facilities and the operations relating to its senior and assisted living
division and 322,000 shares of Common Stock to Mark J. Schulte in exchange for
his interests in PGI's senior and assisted living division.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Form of Restated Certificate of Incorporation of the Company
3.2+ Form of Amended and Restated By-laws of the Company
4.1+ Form of certificate representing Common Stock of the Company
5.1 Opinion of Winston & Strawn regarding legality of shares being reg-
istered
10.1 Form of Formation Agreement by and among the Company, PGI and Mark
J. Schulte
10.2 Form of Space Sharing Agreement by and between the Company and PGI
10.3+ Form of Registration Rights Agreement by and between the Company and
PGI
10.4+ Form of Voting Agreement by and among the Company and PGI
10.5+ Form of Non-Compete Agreement by and among the Company, PGI and
Michael W. Reschke
10.6+ Subscription Agreement dated September 4, 1996 by and between the
Company and Michael W. Reschke
10.7 Form of Employment Agreement by and between the Company and Michael
W. Reschke
10.8 Form of Employment Agreement by and between the Company and Mark J.
Schulte
10.9 Form of Employment Agreement by and between the Company and Darryl
W. Copeland, Jr.
10.10+ Form of Employment Agreement by and between the Company and Matthew
F. Whitlock
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
EXHIBIT DESCRIPTION
NUMBER -----------
-------
10.11+ Form of Employment Agreement by and between the Company and Mark J.
Iuppenlatz
10.12+ Form of Management Agreement by and between Brookdale Living Commu-
nities of Texas, Inc. and The Island on Lake Travis, Ltd.
10.13+ Form of Management Agreement by and between Brookdale Living Commu-
nities of Minnesota, Inc. and Kenwood Associates Limited Partnership
10.14+ Form of Stock Incentive Plan
10.15+ Form of Indemnification Agreement
10.16+ Form of Amended and Restated Partnership Agreement of River Oaks
Partners
10.17+ Form of Amended and Restated Agreement of Limited Partnership of The
Ponds of Pembroke Limited Partnership
10.18+ Real Estate Purchase Agreement dated as of September 16, 1996 by and
between PGI and Gables at Brighton Associates
10.19+ Real Estate Purchase Agreement dated as of September 16, 1996 by and
between PGI and Edina Park Plaza Associates Limited Partnership
10.20+ Real Estate Purchase Agreement dated as of September 16, 1996 by and
between PGI and East Mesa Senior Living Limited Partnership
10.21+ Real Estate Purchase Agreement dated as of September 16, 1996 by and
between PGI and Hawthorn Lakes Associates
10.22+ Letter Agreement dated September 17, 1996 by and among PGI, KILICO
Realty Corporation and Kemper Investors Life Insurance Company
10.23+ 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
10.24+ Purchase and Sale Agreement dated as of February 20, 1997 by and be-
tween the Company and Park Place General Partnership
10.25+ Purchase and Sale Agreement dated as of February 20, 1997 by and be-
tween the Company and Park Place II, L.L.C.
10.26+ Master Lease Agreement dated as of December 27, 1996 by and between
HRPT, as landlord, and BLC, as tenant
10.27+ Sublease Agreement dated as of December 27, 1996 by and between BLC,
as sublandlord, and Brookdale Living Communities of Arizona, Inc.,
as subtenant
10.28+ Sublease Agreement dated as of December 27, 1996 by and between BLC,
as sublandlord, and Brookdale Living Communities of Illinois, Inc.,
as subtenant
10.29+ Sublease Agreement dated as of December 27, 1996 by and between BLC,
as sublandlord, and Brookdale Living Communities of New York, Inc.,
as subtenant
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
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.31+ Real Estate Purchase Agreement dated as of February 14, 1997 by and
between PGI and AC Properties, L.L.C.
10.32+ Contract for Sale dated February 21, 1997 by and between PGI and VG
Office Partnership '95, Ltd.
10.33+ First Amendment dated as of February 21, 1997 to Contract for Sale
dated February 14, 1997 by and between PGI and VG Office Partnership
'95, Ltd.
10.34 Form of Share Transfer Agreement by and among PGI, Darryl W. Cope-
land, Jr. and Mark J. Schulte
10.35 Second Amendment dated April 3, 1997 to Letter Agreement dated Sept-
ember 17, 1996 by and among PGI, KILICO Realty Corporation and Kem-
per Investors Life Insurance Company
21.1+ Subsidiaries of the Company
23.1+ Consent of Ernst & Young LLP
23.2 Consent of Winston & Strawn (included in opinion filed as Exhibit
5.1)
23.3.1+ Consent of Darryl W. Copeland, Jr.
23.3.2+ Consent of Wayne D. Boberg
23.3.3+ Consent of Bruce L. Gewertz
23.3.4+ Consent of Darryl W. Hartley-Leonard
23.3.5+ Consent of Daniel J. Hennessy
24.1+ Powers of attorney (included on signature page included in Part II
of the initial filing)
27.1+ Financial Data Schedule
</TABLE>
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+ Previously filed.
(b) FINANCIAL STATEMENT SCHEDULES.
Financial Statement Schedules have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Company hereby further undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE COMPANY HAS
DULY CAUSED THIS AMENDMENT NO. 5 TO REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO,
STATE OF ILLINOIS, ON THE 8TH DAY OF APRIL, 1997.
Brookdale Living Communities, Inc.
/s/ Craig G. Walczyk
By___________________________________
Craig G. Walczyk
Vice President--Chief Financial
Officer and Secretary
----------------
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 5 TO REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON APRIL 8, 1997 BY THE
FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Michael W. Reschke* Chairman of the Board, Director
___________________________________________
Michael W. Reschke
Mark J. Schulte* President and Chief Executive Officer
___________________________________________ (principal executive officer), Director
Mark J. Schulte
/s/ Craig G. Walczyk Vice President--Chief Financial Officer and
___________________________________________ Secretary (principal financial officer)
Craig G. Walczyk
Sheryl A. Wolf* Controller (principal accounting officer)
___________________________________________
Sheryl A. Wolf
</TABLE>
/s/ Craig G. Walczyk
*By__________________________________
Craig G. Walczyk, Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
1.1 Form of Underwriting Agreement.............................
3.1+ Form of Restated Certificate of Incorporation of the Compa-
ny.........................................................
3.2+ Form of Amended and Restated By-laws of the Company........
4.1+ Form of certificate representing Common Stock of the Compa-
ny.........................................................
5.1 Opinion of Winston & Strawn regarding legality of shares
being registered...........................................
10.1 Form of Formation Agreement by and among the Company, PGI
and Mark J. Schulte........................................
10.2 Form of Space Sharing Agreement by and between the Company
and PGI....................................................
10.3+ Form of Registration Rights Agreement by and between the
Company and PGI............................................
10.4+ Form of Voting Agreement by and among the Company and PGI..
10.5+ Form of Non-Compete Agreement by and among the Company, PGI
and Michael W. Reschke.....................................
10.6+ Subscription Agreement dated September 4, 1996 by and be-
tween the Company and Michael W. Reschke...................
10.7 Form of Employment Agreement by and between the Company and
Michael W. Reschke.........................................
10.8 Form of Employment Agreement by and between the Company and
Mark J. Schulte............................................
10.9 Form of Employment Agreement by and between the Company and
Darryl W. Copeland, Jr.....................................
10.10+ Form of Employment Agreement by and between the Company and
Matthew F. Whitlock........................................
10.11+ Form of Employment Agreement by and between the Company and
Mark J. Iuppenlatz.........................................
10.12+ Form of Management Agreement by and between Brookdale Liv-
ing Communities of Texas, Inc. and The Island on Lake Trav-
is, Ltd....................................................
10.13+ Form of Management Agreement by and between Brookdale Liv-
ing Communities of Minnesota, Inc. and Kenwood Associates
Limited Partnership........................................
10.14+ Form of Stock Incentive Plan...............................
10.15+ Form of Indemnification Agreement..........................
10.16+ Form of Amended and Restated Partnership Agreement of River
Oaks Partners..............................................
10.17+ Form of Amended and Restated Agreement of Limited Partner-
ship of The Ponds of Pembroke Limited Partnership..........
10.18+ Real Estate Purchase Agreement dated as of September 16,
1996 by and between PGI and Gables at Brighton Associates..
10.19+ Real Estate Purchase Agreement dated as of September 16,
1996 by and between PGI and Edina Park Plaza Associates
Limited Partnership........................................
10.20+ Real Estate Purchase Agreement dated as of September 16,
1996 by and between PGI and East Mesa Senior Living Limited
Partnership................................................
10.21+ Real Estate Purchase Agreement dated as of September 16,
1996 by and between PGI and Hawthorn Lakes Associates......
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
10.22+ Letter Agreement dated September 17, 1996 by and among PGI,
KILICO Realty Corporation and Kemper Investors Life Insur-
ance Company ..............................................
10.23+ 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....
10.24+ Purchase and Sale Agreement dated as of February 20, 1997
by and between the Company and Park Place General Partner-
ship.......................................................
10.25+ Purchase and Sale Agreement dated as of February 20, 1997
by and between the Company and Park Place II, L.L.C........
10.26+ Master Lease Agreement dated as of December 27, 1996 by and
between HRPT, as landlord, and BLC, as tenant..............
10.27+ Sublease Agreement dated as of December 27, 1996 by and be-
tween BLC, as sublandlord, and Brookdale Living Communities
of Arizona, Inc., as subtenant.............................
10.28+ Sublease Agreement dated as of December 27, 1996 by and be-
tween BLC, as sublandlord, and Brookdale Living Communities
of Illinois, Inc., as subtenant............................
10.29+ Sublease Agreement dated as of December 27, 1996 by and be-
tween BLC, as sublandlord, and Brookdale Living Communities
of New York, Inc., as subtenant............................
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......................................
10.31+ Real Estate Purchase Agreement dated as of February 14,
1997 by and between PGI and AC Properties, L.L.C...........
10.32+ Contract for Sale dated February 21, 1997 by and between
PGI and VG Office Partnership '95, Ltd.....................
10.33+ First Amendment dated as of February 21, 1997 to Contract
for Sale dated February 14, 1997 by and between PGI and VG
Office Partnership '95, Ltd................................
10.34 Form of Share Transfer Agreement by and among PGI, Darryl
W. Copeland, Jr. and Mark J. Schulte.......................
10.35 Second Amendment dated April 3, 1997 to Letter Agreement
dated September 17, 1996
by and among PGI, KILICO Realty Corporation and Kemper In-
vestors Life Insurance Company.............................
21.1+ Subsidiaries of the Company................................
23.1+ Consent of Ernst & Young LLP...............................
23.2 Consent of Winston & Strawn (included in opinion filed as
Exhibit 5.1)...............................................
23.3.1+ Consent of Darryl W. Copeland, Jr..........................
23.3.2+ Consent of Wayne D. Boberg.................................
23.3.3+ Consent of Bruce L. Gewertz................................
23.3.4+ Consent of Darryl W. Hartley-Leonard.......................
23.3.5+ Consent of Daniel J. Hennessy..............................
24.1+ Powers of attorney (included on signature page included in
Part II of the initial filing).............................
27.1+ Financial Data Schedule....................................
</TABLE>
- ---------------------
+Previously filed.
II-7
<PAGE>
EXHIBIT 1.1
BROOKDALE LIVING COMMUNITIES, INC.
(a Delaware corporation)
5,000,000 SHARES
COMMON STOCK
(Par Value $0.01 Per Share)
UNDERWRITING AGREEMENT
----------------------
March __,1997
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
1001 Nineteenth Street North
Arlington, Virginia 22209
Dear Sirs:
Brookdale Living Communities, Inc., a Delaware corporation (the
"Company") confirms its agreement with Friedman, Billings, Ramsey & Co., Inc.
("FBR") and the underwriters listed on Schedule A attached hereto (collectively,
the "Underwriters," which term shall also include any underwriter substituted as
provided in Section 9 hereof), for whom FBR is acting as representative and is
hereinafter referred to as the "Representative", subject to the terms and
conditions stated herein, with respect to the sale by the Company to the
Underwriters, acting severally and not jointly, of 5,000,000 shares (the "Firm
Shares") of the Company's Common Stock, par value $0.01 per share (the "Common
Stock"), and with respect to the grant by the Company to the Underwriters of the
option described in Section 2(b) hereof to purchase all or any part of an
additional 750,000 shares of Common Stock (the "Option Shares") to cover
overallotments. The Firm Shares and the Option Shares are collectively
hereinafter called the "Shares." For purposes hereof and of the representations
and warranties contained herein, the operations of the Company are deemed to
include the operations of the senior housing division of The Prime Group, Inc.,
a Delaware corporation and a stockholder of the Company ("Prime"), on and before
the Closing Time.
Prior to the purchase and public offering of the Shares by the
Underwriters, the Company and the Representative, acting on behalf of the
Underwriters, shall enter into an agreement substantially in the form of Exhibit
A hereto (the "Pricing Agreement"). The Pricing Agreement may take the form of
an exchange of any standard form of written telecommunication between the
Company and the Representative and shall specify such applicable information as
is indicated in Exhibit A hereto. The offering of the Shares will be governed
by this Agreement, as supplemented by the Pricing Agreement. From and after the
date of the execution and delivery of the Pricing Agreement, this Agreement
shall be deemed to incorporate the Pricing Agreement.
<PAGE>
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-12259) and a related
preliminary prospectus for the registration of the Shares under the Securities
Act of 1933, as amended (the "1933 Act"), and has filed such amendments thereto
and such amended preliminary prospectuses as may have been required to the date
hereof, and will file such additional amendments thereto and such amended
prospectuses as may hereafter be required. Such registration statement when it
becomes effective (as amended, if applicable) and the prospectus constituting a
part thereof (including in each case the information, if any, deemed to be a
part thereof pursuant to Rule 430A(b) of the rules and regulations under the
1933 Act (the "1933 Act Regulations")), as from time to time amended or
supplemented pursuant to the 1933 Act or otherwise, are hereinafter referred to
as the "Registration Statement" and the "Prospectus," respectively, except that
if any revised prospectus shall be provided to the Underwriters by the Company
for use in connection with the offering of the Shares which differs from the
Prospectus on file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is required to be
filed by the Company pursuant to Rule 424(b) of the 1933 Act Regulations), the
term "Prospectus" shall refer to such revised prospectus from and after the time
it is first provided to the Underwriters for such use.
The Company understands that the Underwriters propose to make a public
offering of the Shares as soon as the Representative deems advisable after the
Registration Statement becomes effective and the Pricing Agreement has been
executed and delivered.
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND PRIME.
l(a) The Company and Prime, jointly and severally, represent and
warrant to, and agree with, each Underwriter as of the date hereof and as of the
date of the Pricing Agreement (such later date being hereinafter referred to as
the "Representation Date") as follows:
(i) At the time the Registration Statement becomes effective and at
the Representation Date, the Registration Statement, as amended or supplemented,
if applicable, will comply in all material respects with the requirements of the
1933 Act and the 1933 Act Regulations and will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and the
Prospectus, at the Representation Date (unless the term "Prospectus" refers to a
prospectus that has been provided to the Underwriters by the Company for use in
connection with the offering of the Shares which differs from the Prospectus on
file at the Commission at the time the Registration Statement becomes effective,
in which case at the time it is first provided to the Underwriters for such use)
and at the Closing Time referred to in Section 2(c) hereof, will comply in all
material respects
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<PAGE>
with the requirements of the 1933 Act and the 1933 Act Regulations and will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or Prospectus made in
reliance upon and in conformity with information contained in the section of the
Prospectus captioned "Underwriting" relating to any Underwriter furnished to the
Company in writing on behalf of such Underwriter through you expressly for use
therein.
(ii) The Registration Statement has become effective or will become
effective prior to execution of the Pricing Agreement and no stop order
suspending the effectiveness of the Registration Statement or any part thereof
has been issued and no proceeding for that purpose has been instituted or, to
the knowledge of the Company, threatened by the Commission or by the state
securities authority of any jurisdiction. No order preventing or suspending the
use of the Prospectus has been issued and no proceeding for that purpose has
been instituted or, to the knowledge of the Company, threatened by the
Commission or by the state securities authority of any jurisdiction.
(iii) Ernst & Young LLP, who have certified the financial statements
and financial statement schedules included in the Registration Statement, are
independent public accountants as required by the 1933 Act and the 1933 Act
Regulations.
(iv) The financial statements (including the notes thereto) included
in the Registration Statement and the Prospectus present fairly the financial
position of the respective entity or entities presented therein at the
respective dates indicated and the results of their operations for the
respective periods specified, and except as otherwise stated in the Registration
Statement, such financial statements have been prepared in conformity with
generally accepted accounting principles applied on a consistent basis. The
financial statement schedules included in the Registration Statement present
fairly the information required to be stated therein. The financial information
and data included in the Registration Statement and the Prospectus present
fairly the information included therein and have been prepared on a basis
consistent with that of the financial statements included in the Registration
Statement and the Prospectus and the books and records of the respective
entities presented therein. Other than the historical financial statements (and
schedules) included therein, no other historical or pro forma financial
statements (or schedules) are required by the 1933 Act or the 1933 Act
Regulations to be included in the Registration Statement. Except as reflected
or disclosed in the financial statements included in the Registration Statement
or otherwise set forth in the Prospectus, none of the Company or the
Subsidiaries (as hereinafter defined) are subject to any material indebtedness,
obligation, or liability, contingent or otherwise, known to the Company.
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(v) All of the consolidated corporations and partnerships in which the
Company has a direct or indirect ownership interest are listed in Exhibit 21 to
the Registration Statement (collectively, the "Subsidiaries"). The Company's
ownership, leasehold or management interest in each of the facilities listed in
the Prospectus under the caption "Business-Facilities" is owned, leased or
managed by the Company directly or indirectly through one or more such wholly-
owned Subsidiaries.
(vi) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as otherwise stated therein,
(A) there has been no material adverse change in the condition, financial or
otherwise, or in the earnings, assets, or business affairs of the Company and
the Subsidiaries considered as a single enterprise, whether or not arising in
the ordinary course of business, (B) no material casualty loss or material
condemnation or other material adverse event has occurred with respect to any of
the Properties (as the same are defined in the Prospectus), (C) there have been
no acquisitions or other transactions entered into by the Company or any
Subsidiary that are material with respect to such entities, considered as a
single enterprise, or would result in any inaccuracy in the representations
contained in Section l(a)(iv) above, (D) there has been no dividend or
distribution of any kind declared, paid, or made by the Company on any class of
its capital stock, (E) there has been no change in the capital stock of the
Company or any Subsidiary, and (F) there has been no increase in the
indebtedness of the Company or any Subsidiary that is material to such entities,
considered as a single enterprise.
(vii) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with the
corporate power and authority to own its properties, conduct its business as
described in the Prospectus and to enter into and perform its obligations under
this Agreement. The Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws of each
other jurisdiction in which such qualification is required, whether by reason of
the ownership, leasing, or management of any properties or the conduct of any
other business, except where the failure to so qualify would not have a material
adverse effect on the condition, financial or otherwise, or the earnings, assets
or business affairs of the Company and the Subsidiaries (as defined below)
considered as a single enterprise.
(viii) Each Subsidiary that is a corporation (a "Corporate Subsidiary")
has been duly organized, is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has the corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus, and is duly qualified and is in good
standing as a foreign corporation authorized to do business in each jurisdiction
in which the nature of its business or its ownership or
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<PAGE>
leasing of property requires such qualification, except where the failure to be
so qualified would not have a material adverse effect on the condition
(financial or other), business, prospects, properties, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole. All of the
outstanding shares of capital stock of each Corporate Subsidiary have been duly
authorized and validly issued, are fully paid and nonassessable, were issued and
sold in compliance with all applicable federal and state securities laws, were
not issued in violation of or subject to any preemptive or similar rights, and
are owned by the Company directly, or indirectly through one of the other
Subsidiaries, free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature, except (i) for those encumbrances disclosed
in the Prospectus, (ii) for interests or liens held by others as security for
indebtedness of the Company or any Subsidiary disclosed in the Prospectus and
(iii) for transfer restrictions under applicable federal and state securities
and real estate syndication laws.
(ix) Each Subsidiary that is a general partnership or a limited partnership
(a "Partnership Subsidiary") has been duly organized and is existing as a
general partnership or limited partnership, as the case may be, in good standing
under the laws of its jurisdiction of organization and has the power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus, and is duly qualified and is in good standing
(where applicable) as a foreign partnership authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the condition (financial
or other), business, prospects, properties, net worth or results of operations
of the Company and the Subsidiaries, taken as a whole. All outstanding
partnership interests in the Partnership Subsidiaries were issued and sold in
compliance with the applicable limited partnership agreements of such
Partnership Subsidiaries and all applicable federal and state securities laws,
and the partnership interests therein held directly or indirectly by the Company
are owned free and clear of any security interest, claim, lien, encumbrance or
adverse interest of any nature, except (i) for those encumbrances disclosed in
the Prospectus, (ii) for interests or liens held by others as security for
indebtedness of the Company or any Subsidiary disclosed in the Prospectus, (iii)
to the extent provided in the applicable partnership agreements of such
Partnership Subsidiaries and (iv) for transfer restrictions under applicable
federal and state securities and real estate syndication laws. To the knowledge
of the Company, each partnership agreement pursuant to which the Company or a
Subsidiary holds a partnership interest in a Partnership Subsidiary is in full
force and effect and constitutes the legal, valid and binding agreement of the
parties thereto, enforceable against such parties in accordance with the terms
thereof, except as enforcement thereof may be limited by bankruptcy, insolvency
or other similar laws affecting the enforcement of creditors' rights generally
or by general equitable principles. There has been no material breach of or
default under, and no event which with notice or lapse of time would
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<PAGE>
constitute a material breach of or default under, such limited partnership
agreements by the Company or any Subsidiary or, to the Company's knowledge, any
other party to such agreements.
(x) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company conform
in all material respects to all statements relating thereto contained in the
Prospectus. At the Closing Time, excluding the Shares to be issued pursuant
hereto, 2,500,000 shares of Common Stock will be issued and outstanding. All
such shares of Common Stock have been or will be duly and validly authorized and
issued, fully paid and non-assessable, and are not subject to preemptive or
other similar rights, and have been or will be offered and sold in compliance
with all applicable laws (including federal and state securities laws). No
shares of capital stock of the Company are reserved for any purpose except in
connection with the stock option plans of the Company as described in the
Prospectus. Except as described in the Prospectus, there are no outstanding
securities convertible into or exchangeable for any capital stock of the Company
and no outstanding options, rights (preemptive or otherwise) or warrants to
purchase or to subscribe for such shares or any other securities of the Company.
(xi) The Shares to be issued and sold by the Company to the Underwriters
hereunder have been duly and validly authorized for issuance and sale to the
Underwriters, and, when issued and delivered by the Company pursuant to this
Agreement against payment of the consideration set forth in the Pricing
Agreement, will be duly and validly issued and fully paid and non-assessable and
will be sold free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest. The terms of the Shares conform to all statements
and descriptions related thereto contained in the Prospectus and comply with all
applicable legal requirements. The Shares conform to the provisions of the
Charter. The form of share certificate to be used to evidence the Shares is in
due and proper form and complies with all applicable legal requirements. No
preemptive right, co-sale right, tag along right, registration right, right of
first refusal or other similar right of stockholders exists with respect to any
of the Shares or the issuance and sale thereof, other than those that have been
expressly waived prior to the date hereof and those that will automatically
expire upon the consummation of the transactions contemplated by this Agreement
on the date of Closing. No further consent, approval or authorization of any
stockholder, the Board of Directors of the Company, any court or governmental
agency or body, or others is required for the issuance and sale or transfer of
the Shares except as may be required under the federal securities laws or under
any state or other securities, Blue Sky or real estate syndication laws and
except as may be required to be obtained by the Underwriters. Except as
disclosed in the Prospectus, there are no stockholders agreements or voting
agreements with respect to the Common Stock to which the Company is a party or,
to the knowledge of the Company, between or among
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<PAGE>
any of the Company's stockholders, other than those that will automatically
terminate upon the consummation of the transactions contemplated by this
Agreement on the date of Closing.
(xii) None of the Company or any Subsidiary is in violation of its
charter, by-laws, certificate of limited partnership, partnership agreement, or
other organizational document, as applicable. None of the Company or any
Subsidiary is in default in the performance or observance of any obligation,
agreement, covenant, or condition contained in any material contract, indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which the Company or any Subsidiary is, or at the Closing Time
will be, a party or by which the Company or any Subsidiary is, or at the Closing
Time will be, bound or to which any of the property or assets of the Company or
any Subsidiary is, or at the Closing Time will be, subject, except where a
default thereunder would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, assets, or business affairs of the
Company and the Subsidiaries, considered as a single enterprise. For purposes
of this paragraph the phrase "material contract, indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument" shall mean any
contract, indenture, mortgage, deed of trust, loan agreement or other agreement
or instrument that is required to be filed as an exhibit to a registration
statement on Form S-1 pursuant to Section 601(b) of Regulation S-K. Neither
the Company nor any of the Subsidiaries is in material violation of any order,
writ, injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or any
of the Subsidiaries or over any of their respective property.
(xiii) Except as described in the Prospectus, the Company or all
Subsidiaries have operated and currently operate their business in conformity
with all applicable laws, rules and regulations of each jurisdiction in which it
is conducting business, except where the failure to be so in compliance would
not have a material adverse effect on the condition (financial or other),
business, prospects, properties, net worth or results of operations of the
Company and the Subsidiaries, taken as a whole. The operations of the Company
and its subsidiaries with respect to any real property currently leased or owned
or by any means controlled by the Company or any Subsidiary are in material
compliance with all federal, state and local laws, ordinances, rules and
regulations relating to occupational health and safety and the environment. The
Company and each of the Subsidiaries operates its business as described in the
Prospectus and has such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("permits"), including, without
limitation, under any applicable Environmental Laws and any applicable state
laws to furnish assisted living services as described under the heading
"Services" beginning on page 29 of the Prospectus, as are necessary to own,
lease and operate its respective properties and to conduct its business in the
manner described in the Prospec-
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<PAGE>
tus; the Company and each of the Subsidiaries has fulfilled and performed all of
its material obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or results in any other material impairment of the rights of
the holder of any such permit; and, except as described in the Prospectus, such
permits contain no restrictions that are materially burdensome to the Company or
any of the Subsidiaries. The Company and the Subsidiaries are not aware of any
existing or imminent matter which could reasonably be expected to adversely
impact their operations or business prospects other than as disclosed in the
Prospectus.
(xiv) This Agreement has been duly authorized, executed, and delivered by
the Company and Prime, and, assuming due authorization, execution, and delivery
by the Underwriters, is a valid and binding agreement of the Company and Prime,
enforceable against the Company and Prime, in accordance with its terms; and at
the Representation Date, the Pricing Agreement will have been duly authorized,
executed, and delivered by the Company and, assuming due authorization,
execution, and delivery by the Representative, will be a valid and binding
agreement of the Company, enforceable against the Company in accordance with its
terms; provided that the enforceability of the foregoing agreements may be
limited by bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity; provided further that the
indemnification provisions of this Agreement may be unenforceable under general
principles of equity or public policy.
(xv) The issuance and sale of the Firm Shares and the Option Shares by the
Company, the performance by the Company, Prime and the Subsidiaries of their
respective obligations under this Agreement, the Pricing Agreement, and the
consummation of the transactions herein and therein contemplated, including the
application of the net proceeds from the sale of the Firm Shares and the Option
Shares as described in the Prospectus will not (A) conflict with or result in a
breach or violation of any of the terms or provisions of, constitute a default
under, or result in the acceleration of the maturity of any indebtedness under,
any material contact, indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument to which the Company or any Subsidiary is
a party or by which the Company or any Subsidiary is bound or to which any of
the property or assets of the Company or any Subsidiary is subject, (B) result
in any violation of the provisions of the, certificate of incorporation or by-
laws or other organizational documents, as the case may be, of the Company or
any Subsidiary, or any statute or any order, rule or regulation of any court or
governmental agency or body having jurisdiction over the Company or any
Subsidiary or any of their respective properties, or (C) result in the loss of
tax-exempt status of any tax-exempt bonds described in the Prospectus. For
purposes of this paragraph the phrase "material contract, indenture, mort-
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<PAGE>
gage, deed of trust, loan agreement or other material agreement or instrument"
shall mean any contract, indenture, mortgage, deed of trust, loan agreement or
other agreement or instrument that is required to be filed as an exhibit to a
registration statement on Form S-1 pursuant to Section 601(b) of Regulation S-K.
(xvi) Except to the extent obtained prior to the Closing Time, no consent,
approval, authorization, order, registration or qualification of or with any
court or governmental agency or body or any other person is required for the
issue and sale of the Shares or the consummation by the Company and the
Subsidiaries of the transactions contemplated by this Agreement and the Pricing
Agreement except the registration under the 1933 Act of the Shares and such
consents, approvals, authorizations, registrations or qualifications as may be
required under state or foreign securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters.
(xvii) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or any
Subsidiary is a party or of which any property of, or that will be conveyed at
or prior the Closing Time to, the Company or any Subsidiary is the subject
which, (i) are required to be set forth in the Registration Statement or (ii) if
determined adversely to the Company or any Subsidiary, would individually or in
the aggregate be reasonably expected to have a material adverse effect on the
consolidated financial position, stockholders' equity or results of operations
of the Company and the Subsidiaries, and, to the best knowledge of the Company,
no such proceedings are threatened or contemplated by governmental authorities
or threatened by others.
(xviii) The Company and the Subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all personal
property owned by them, as described in the Prospectus, in each case free and
clear of all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially adversely affect the value of such
property and do not materially adversely interfere with the use made and
proposed to be made of such property by the Company and the Subsidiaries; and
any real property and buildings described in the Prospectus as being held under
lease by the Company or any Subsidiary are held by it under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
materially adversely interfere with the use made and proposed to be made of such
property and buildings by the Company and the Subsidiaries.
(xix) The agreements to which the Company or any of the Subsidiaries is a
party described in the Registration Statement and Prospectus are valid
agreements, enforceable by the Company and the Subsidiaries (as applicable),
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, mora-
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<PAGE>
torium or other similar laws relating to or affecting creditors' rights
generally or by general equitable principles and, to the Company's knowledge,
the other contracting party or parties thereto are not in material breach or
material default under any of such agreements.
(xx) Except as disclosed in the Prospectus, there are no consensual
encumbrances or restrictions on the ability of any Subsidiary (i) to pay any
dividends or make any distributions on such Corporate Subsidiary's capital stock
or such Partnership Subsidiary's partnership interests or to pay any
indebtedness owed to the Company or any other Subsidiary, (ii) to make any loans
or advances to, or investments in, the Company or any other Subsidiary, or (iii)
to transfer any of its properties or assets to the Company or any other
Subsidiary.
(xxi) The Company and the Subsidiaries maintain insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and consistent with insurance
coverage maintained by similar companies in similar businesses, including, but
not limited to, insurance covering real and personal property owned or leased by
the Company or its subsidiaries against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.
(xxii) Neither the Company nor any of the Subsidiaries is, or after giving
effect to the issuance and sale of the Shares by the Company (i) an "investment
company" or a company "controlled" by an "Investment company" within the meaning
of the Investment Company Act of 1940, as amended (the "Investment Company
Act"), or (ii) a "holding company" or a "subsidiary company" of a "registered
holding company," as defined in the Public Utility Holding Company Act of 1938,
as amended.
(xxiii) Except as set forth in the Prospectus, no holder of any securities
of the Company has any rights to require the Company to register any securities
of the Company under the 1933 Act.
(xxiv) Other than this Agreement and the Pricing Agreement, the Company is
not a party to any contract, agreement or understanding with any person that
would give rise to a valid claim against the Company for a brokerage commission,
finder's fee or like payment in connection with the sale of the Shares.
(xxv) The Shares have been authorized for inclusion in the Nasdaq National
Market.
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<PAGE>
(xxvi) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida).
(xxvii) The Company has filed a registration statement pursuant to Section
12(g) of the Exchange Act, to register the Common Stock, has filed an
application to list the Shares on the New York Stock Exchange, and has received
notification that the listing has been approved, subject to official notice of
issuance.
(xxviii) Except as disclosed in the Prospectus, there are no business
relationships or related party transactions required to be disclosed therein by
Item 404 of Regulation S-K of the Commission.
(xxix) The Company and each of the Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxx) Neither the Company nor any of the Subsidiaries, nor to the
knowledge of the Company, any agent or other person acting on behalf of the
Company or any Subsidiary has, directly or indirectly, used any corporate funds
for unlawful contributions, gift, entertainment or other unlawful expenses
related to foreign or domestic political activity; made any unlawful payment to
foreign or domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; failed to disclose fully
any contribution in violation of law; violated in any material respect any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or made any
unlawful bribe, rebate, payoff, influence, kick-back or other unlawful payment.
(xxxi) No statement, representation, warranty or covenant made by the
Company in any certificate or document required by this Agreement to be
delivered to the Underwriters was or will be, when made, inaccurate, untrue or
incorrect in any material respect.
(xxxii) Neither of the Company nor any of their directors, officers or
controlling persons, has taken or will take, directly or indirectly, any action
resulting in a violation of Rule 10b-6 under the 1934 Act, or designed to cause
or result in or that has constituted or reasonably might be expected to
constitute, the stabilization or manipula-
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<PAGE>
tion of the price of any security of the Company to facilitate the sale or
resale of the Shares.
(xxxiii) Neither the execution, delivery or performance of the
transactions contemplated by the Formation (as defined in the Prospectus) nor
the consummation of the transactions contemplated thereby (i) required any
consent, approval, authorization or other order of, or registration or filing
with, any court regulatory body, administrative agency or other governmental
body, agency or official which was not obtained or filed, (ii) conflicted with
or constituted a default under, the certificate or articles of incorporation or
bylaws, or other organizational documents, of the Company or any of the
Subsidiaries, (iii) except as disclosed in the Prospectus, conflicted or
constituted a breach of or default under, any material agreement, indenture,
lease, or other instrument to which the Company or any of the Subsidiaries is a
party or by which any of them or any of their respective properties may be
bound, or violated any statute, law, regulation or filing of judgment,
injunction, order or decree applicable to the Company or any of the Subsidiaries
or any of the respective properties, or resulted in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the Company or
any of the Subsidiaries pursuant to the terms of any agreement or instrument to
which the Company or any of the Subsidiaries may be bound or to which any of the
property or assets of any of them is subject, in each case which, individually
or in the aggregate, would result in a material adverse change in the condition
(financial or other), business, properties, prospects, net worth or results of
operations of the Company and the Subsidiaries taken as a whole.
(xxxiv) At the time of the Formation (as defined in the Prospectus), River
Oaks Partnership and Ponds of Pembroke will have aggregate unrestricted cash
balances in the minimum amount of $800,000 and the Original Facilities (as
defined in the Prospectus) will have been operated in the ordinary course of
business in accordance with past practices and will be in good condition and
repair, with all maintenance and capital expenditures having been made in
accordance with past practices.
(xxxv) The Company has entered into definitive agreements with
________________, containing no contingencies or conditions which have not been
satisfied, providing for the issuance of replacement credit enhancement securing
the $65.0 million of tax-exempt bonds relating to the Hallmark and the
Devonshire facilities on the terms described in the Prospectus.
(xxxvi) The Company estimates that approximately 99.9% of its pro forma
revenues are derived from private pay sources.
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<PAGE>
SECTION 2. SALE AND DELIVERY TO UNDERWRITERS; CLOSING; RESERVATION OF
SHARES.
2(a) On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company agrees to
sell the 5,000,000 Firm Shares to each Underwriter, severally and not jointly,
and each Underwriter, severally and not jointly, agrees to purchase from the
Company, at the price per share set forth in the Pricing Agreement, the number
of Firm Shares set forth in Schedule A hereto opposite the name of such
Underwriter (except as otherwise provided in the Pricing Agreement), plus any
additional number of Firm Shares which such Underwriter may become obligated to
purchase pursuant to Section 9 hereof.
If the Company has elected not to rely upon Rule 430A under the 1933 Act
Regulations, the public offering price and the purchase price per share to be
paid by the Underwriters for the Shares have each been determined and set forth
in the Pricing Agreement, dated the date hereof, and an amendment to the
Registration Statement and the Prospectus reflecting such information will be
filed before the Registration Statement becomes effective.
If the Company has elected to rely upon Rule 430A under the 1933 Act
Regulations, the purchase price per share to be paid by the Underwriters for the
Shares shall be an amount equal to the public offering price, less an amount per
share to be determined by agreement between the Representative and the Company.
The public offering price per share of the Shares shall be a fixed price to be
determined by agreement between the Representative and the Company. The public
offering price and the purchase price, when so determined, shall be set forth in
the Pricing Agreement. In the event that such prices have not been agreed upon
and the Pricing Agreement has not been executed and delivered by all parties
thereto by the close of business on the fourth business day following the date
of this Agreement, this Agreement shall terminate forthwith, without liability
of any party to any other party hereunder other than pursuant to Section 6
hereof, unless otherwise agreed to by the Company and the Representative.
2(b) In addition, on the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
hereby grants an option to the Underwriters to purchase up to an additional
750,000 shares of Common Stock, as Option Shares, at the price per share set
forth in the Pricing Agreement. The option hereby granted will expire 30 days
after the date hereof (or, if the Company has elected to rely upon Rule 430A
under the 1933 Act Regulations, 30 days after the Representation Date) and may
be exercised in whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with the offering and
distribution of the Firm Shares upon notice by the Representative to the
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Company setting forth the number of Option Shares as to which the Underwriters
are then exercising the option and the time, date and place of payment and
delivery for such Option Shares. Any such time and date of delivery (a "Date of
Delivery") shall be determined by the Representative but shall not be later than
seven full business days after the exercise of said option, nor in any event
prior to Closing Time, as hereinafter defined, unless otherwise agreed upon by
the Representative and the Company. If the option is exercised as to all or any
portion of the Option Shares, the Option Shares shall be purchased by the
Underwriters, severally and not jointly, in proportion to their respective Firm
Share underwriting obligations as set forth in Schedule A hereto (except as may
be otherwise provided in the Pricing Agreement).
2(c) Payment of the purchase price for and delivery of certificates for
the Firm Shares (the "Closing") shall be made at the offices of Friedman,
Billings, Ramsey & Co., Inc., 1001 Nineteenth Street North, Arlington, Virginia,
or at such other place as shall be agreed upon by the Representative and the
Company, at 10:00 a.m., Washington, D.C. time, on the third business day
following the date the Registration Statement becomes effective (or, if the
Company has elected to rely upon Rule 430A, the third business day after the
Representation Date), or such other time not later than 10 business days after
such date as shall be agreed upon by the Representative and the Company (such
time and date of payment and delivery being herein called "Closing Time"). In
addition, in the event that any or all of the Option Shares are purchased by the
Underwriters, payment of the purchase price for and the delivery of such Option
Shares shall be made at the above-mentioned offices of Friedman, Billings,
Ramsey & Co., Inc., or at such other place as shall be mutually agreed upon by
the Representative and the Company, on each Date of Delivery as specified in the
notice from the Representative to the Company. Payment shall be made to the
Company by certified or official bank check or checks in New York Clearing House
or similar next day funds payable to the order of the Company or, at the
election of the Company made at the time of execution of this Agreement, in same
day funds, provided that the Company reimburses the Underwriters for the
additional cost of same day funds, in each case against delivery to the
Representative for the respective accounts of the Underwriters of certificates
for the Shares to be purchased by the Underwriters. The certificates for the
Firm Shares and the Option Shares shall be in such authorized denominations and
registered in such names as the Representative may request in writing at least
two business days before Closing Time or each Date of Delivery, as the case may
be. It is understood that each Underwriter has authorized the Representative,
for its account, to accept delivery of, receipt for, and make payment of the
purchase price for, the Shares which it has agreed to purchase. FBR,
individually and not as the Representative of the Underwriters, may (but shall
not be obligated to) make payment of the purchase price for the Shares to be
purchased by any Underwriter whose check has not been received by Closing Time,
but such payment shall not relieve such Underwriter from its obligations
hereunder. The certificates for the Firm Shares and the Option
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Shares will be made available for examination and packaging by the Underwriters
not later than 10:00 a.m., Washington, D.C. time, on the last business day prior
to Closing Time or each Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY.
3(a) The Company covenants with each Underwriter as follows:
(i) The Company will (i) prepare the Prospectus in a form approved by
the Representative and file such Prospectus pursuant to Rule 424(b) of the 1933
Act Regulations not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) of the 1933
Act Regulations; (ii) advise the Representative, promptly after it receives
notice thereof, of the time when the Registration Statement, or any amendment
thereto, has been filed or becomes effective or any supplement to the Prospectus
or any amended Prospectus has been filed; (iii) advise the Representative,
promptly after it receives notice thereof, of (A) the receipt of any comments
from the Commission, (B) the issuance by the Commission of any stop order or of
any order preventing or suspending the use of any preliminary prospectus or the
Prospectus, (C) the suspension of the qualification of the Shares for offering
or sale in any jurisdiction, (D) the initiation or threatening of any proceeding
for any such purpose, or (E) any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; (iv) advise the Representative promptly of the occurrence of any
event, during such period as a prospectus is required by law to be delivered in
connection with sales by an Underwriter or a dealer, which makes any statement
of a material fact made in the Registration Statement or the Prospectus untrue
or which requires the making of any additions to or changes in the Registration
Statement or the Prospectus in order to make the statements therein not
misleading; and, (v) in the event of the issuance of any stop order or any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, use promptly its best efforts to obtain its
withdrawal.
(ii) The Company will (i) give the Representative notice of its
intention to prepare or file any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus that the Company proposes for use
by the Underwriters in connection with the offering of the Shares that differs
from the prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the 1933 Act Regulations), (ii) furnish
the Underwriters with copies of any such amendments or supplements a reasonable
time prior to the proposed filing or use thereof, and (iii) not file any such
amend-
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<PAGE>
ment or any supplement or use any such prospectus to which the Representative
shall reasonably object promptly after reasonable notice thereof.
(iii) Promptly from time to time, the Company will take such action
as the Representative may reasonably request to qualify the Shares for offering
and sale under the securities laws of such jurisdictions as the Representative
may request and to comply with such laws so as to permit the continuance of
sales and dealings therein in such jurisdictions for as long as may be necessary
to complete the distribution of the Shares, provided that in connection
therewith the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction. In
addition, the Company agrees to comply in all material respects with (i) the
undertakings set forth in numbered paragraphs 12, 13, 14 and 18 of its
"Application for Exemption Under Sections 352-9(2) and 359-f(2) of the New York
General Business Law for a Real Estate Syndication Offering Registered with the
Securities and Exchange Commission Under the Federal Securities Act of 1933,"
dated March 21, 1996, as amended to date and as may be amended hereafter, and
(ii) any applicable provisions of Section 352-e of the New York General Business
Law or the rules and regulations promulgated thereunder.
(iv) The Company will furnish each Underwriter with copies of the
Prospectus in such quantities as such Underwriter may from time to time
reasonably request. If the delivery of a prospectus is required at any time
prior to the expiration of nine months after the time of issue of the Prospectus
in connection with the offering or sale of the Shares, and if at such time any
event shall have occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be necessary
during such period to amend or supplement the Prospectus in order to comply with
the 1933 Act and the 1933 Act Regulations, the Company will notify the
Representative and upon the Representative's request will prepare and furnish
without charge to the Underwriters and to any dealer in securities as many
copies as the Underwriters may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance. In case the Underwriters are
required to deliver a prospectus in connection with sales of any of the Shares
at any time nine months or more after the time of issue of the Prospectus, upon
the Underwriter's request but at the Underwriter's expense, the Company will
prepare and deliver to the Underwriters as many copies as the Underwriters may
request of an amended or supplemented Prospectus complying with Section 10(a)(3)
of the 1933 Act.
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<PAGE>
(v) The Company will make generally available to its securityholders
as soon as practicable, but in any event not later than eighteen months after
the "effective date of the Registration Statement" (as defined in Rule 158(c)),
an earnings statement of the Company and its subsidiaries (which need not be
audited) complying with Section 11(a) of the 1933 Act and the rules and
regulations thereunder (including, at the option of the Company, Rule 158).
(vi) The Company will furnish to its stockholders, as soon as
practicable after the end of each fiscal year, an annual report (including a
balance sheet and statements of income, stockholders' equity and cash flow of
the Company and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the first
three quarters of each fiscal year (beginning with the fiscal quarter ending
after the effective date of the Registration Statement), consolidated summary
financial information of the Company and its subsidiaries for such quarter in
reasonable detail.
(vii) During a period of five years from the effective date of the
Registration Statement, the Company will furnish to the Representative copies of
all reports or other communications (financial or other) furnished to
stockholders, and deliver to the Representative, as soon as they are available,
copies of any reports and financial statements furnished to or filed with the
Commission or any national securities exchange or quotation system on which any
class of securities of the Company is listed.
(viii) The Company will not invest, reinvest or otherwise use the
proceeds received by the Company from the sale of the Firm Shares or Option
Shares in such a manner, or take any action or omit to take any action, that
would cause the Company to become an "investment company" as that term is
defined in the Investment Company Act.
(ix) The Company will use the net proceeds of the sale of the Firm
Shares and Option Shares for the purposes described in the Prospectus under "Use
of Proceeds."
(x) The Company will take all action to ensure that the Common Stock
continues to be listed on the Nasdaq National Market or any national securities
exchange.
(xi) Except for the authorization of actions permitted to be taken by
the Underwriters as contemplated herein or in the Prospectus, the Company will
not (A) take, directly or indirectly, any action designed to cause or to result
in, or that might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares, (B) sell, bid for or pur-
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<PAGE>
chase the Shares or pay any person any compensation for soliciting purchases of
the Shares, or (C) pay or agree to pay to any person any compensation for
soliciting another to purchase any other securities of the Company.
(xii) During the period from the date of the Pricing Agreement until
one year after Closing Time, the Company will not, without the prior written
consent of the Representative, directly or indirectly, sell, offer to sell,
grant any option for the sale of, or otherwise dispose of, any Common Stock or
shares of Common Stock or any other security convertible into or exchangeable
into or exercisable for Common Stock, otherwise than (i) in accordance with this
Agreement, (ii) in connection with the Company's stock option plans described in
the Prospectus, or (iii) as otherwise contemplated in the Prospectus.
(xiii) The Company and Prime shall use its best efforts to do and
perform all things required or necessary to be done and performed under this
Agreement by the Company prior to the Closing Time and to satisfy all conditions
precedent on the Company's part to the delivery of the Shares.
SECTION 4. PAYMENTS OF FEES AND EXPENSES. The Company covenants and agrees
with the Underwriters that (a) the Company will pay or cause to be paid the
following: (i) the printing and filing of the Registration Statement as
originally filed and of each amendment thereto, (ii) the preparation, issuance
and delivery of the certificates for the Shares to the Underwriters, (iii) the
fees and other charges of the Company's counsel and accountants, (iv) the
qualification of the Shares under securities laws and real estate syndication
laws in accordance with the provisions of Section 3(a)(iii) hereof, including
filing fees and the reasonable fees and other charges of counsel for the
Underwriters in connection therewith and in connection with the preparation of
the Blue Sky Memorandum, (v) the printing and delivery to the Underwriters of
copies of the Registration Statement as originally filed and of each amendment
thereto, of the preliminary prospectuses, and of the Prospectus and any
amendments or supplements thereto, (vi) the printing and delivery to the
Underwriters of copies of the Blue Sky Memorandum; (vii) the fee of the NASD,
including the reasonable fees and other charges of counsel for the Underwriters
in connection with the NASD's review of the terms of the proposed public
offering of the Shares, (viii) the fees and expenses incurred in connection with
the listing of the Common Stock on the Nasdaq National Market, including filing
and listing fees, and (ix) all out-of-pocket expenses of the Underwriters,
including reasonable fees and disbursements of counsel, reasonably incurred by
the Underwriters in making preparations for the offering, purchase, sale and
delivery of the Shares.
If this Agreement is canceled or terminated by the Representative in
accordance with the provisions of Section 5 hereof, the Company also shall
reimburse the Underwrit-
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<PAGE>
ers for its out-of-pocket expenses, including the reasonable fees and other
charges of counsel for the Underwriters, to the extent provided in and limited
by Section 8 hereof.
SECTION 5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters hereunder, as to the Shares to be delivered at each Date of
Delivery, shall be subject to the condition that all representations and
warranties and other statements of the Company herein are, at and as of such
Date of Delivery, true and correct, the condition that the Company shall have
each performed all of its obligations hereunder theretofore to be performed, and
the following additional conditions:
5(a) The Registration Statement shall have become effective not later than
5:30 p.m. Eastern time on the first business day following the date hereof, no
stop order suspending the effectiveness of the Registration Statement or any
part thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to the Representative's reasonable satisfaction. If the Company has
elected to rely upon Rule 430A of the 1933 Act Regulations, the price of the
Shares and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 424(b) of the 1933 Act Regulations
within the applicable time period prescribed for such filing by the 1933 Act
Regulations and in accordance with Section 3(a) hereof, or a post-effective
amendment providing such information shall have been promptly filed and declared
effective in accordance with the requirements of Rule 430A of the 1933 Act
Regulations.
5(b) Winston & Strawn, counsel for the Company, shall have furnished to
the Representative their written opinion (which shall state that counsel for the
Underwriters may rely upon such opinion in rendering their opinion pursuant to
Section 5(b) hereof), dated such Date of Delivery, in form and substance
satisfactory to the Representative, to the effect that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its business as
described in the Prospectus.
(ii) Each of the Corporate Subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus.
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<PAGE>
(iii) Each Limited Partnership Subsidiary was formed and is validly
existing and in good standing under the laws of its jurisdiction, with limited
partnership power and authority to own its properties and conduct its business
as described in the Prospectus.
(iv) The Company has an authorized capitalization as set forth in the
Prospectus; all of the issued shares of capital stock of the Company (including
the Shares being delivered at such Date of Delivery) have been duly and validly
authorized and issued and are fully paid and nonassessable; the terms of the
Shares conform in all material respects to all statements and descriptions
related thereto contained in the Prospectus.
(v) Each of the Company and the Subsidiaries has been duly qualified
as a foreign corporation, limited partnership, or otherwise, as appropriate, for
the transaction of business and is in good standing (to the extent applicable)
under the laws of each other jurisdiction specified in such opinion (which shall
include each jurisdiction in which the Company or any Subsidiary owns, leases,
or manages properties, or conducts any other business, so as to require such
qualification, or is subject to no material liability or disability by reason of
failure to be so qualified in any such jurisdiction (such counsel being entitled
to rely in respect of the opinion in this clause in respect of matters of fact
upon certificates of officers of the Company and governmental authorities,
provided that such counsel shall state that they believe that both the
Underwriters and they are justified in relying upon such certificates)).
(vi) All of the outstanding shares of capital stock of each Corporate
Subsidiary have been duly authorized and are validly issued, fully paid and
nonassessable, and are owned by the Company, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(vii) To the best of such counsel's knowledge and other than as set
forth in the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any Subsidiary is a party or of which any property of
the Company or any Subsidiary is the subject which would individually or in the
aggregate, be reasonably expected to have a material adverse effect on the
consolidated financial position, stockholders' equity or results of operations
of the Company and its subsidiaries; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by governmental
authorities or threatened by others.
(viii) This Agreement has been duly authorized, executed, and
delivered by the Company. The Pricing Agreement has been duly authorized,
executed, and delivered by the Company.
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<PAGE>
(ix) The issuance and sale of the Shares being delivered at such Date
of Delivery by the Company, the performance by the Company and the Subsidiaries
of their respective obligations under this Agreement, the Pricing Agreement, and
the consummation of the transactions herein and therein contemplated, including
the application of the net proceeds from the sale of the Shares as described in
the Prospectus will not (A) conflict with or result in a breach or violation of
any of the terms or provisions of, constitute a default under, or result in the
acceleration of the maturity of any indebtedness under, any indenture, mortgage,
deed of trust, loan agreement, or other agreement or instrument filed or
incorporated by reference in the Registration Statement to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary is bound or
to which any of the property or assets of the Company or any Subsidiary is
subject or (B) result in any violation of the provisions of the certificate of
incorporation or by-laws, certificate of limited partnership, partnership
agreement or other organizational documents, as the case may be, of the Company
or any Subsidiary, or any statute or any order, rule or regulation known to such
counsel of any court or governmental agency or body having jurisdiction over the
Company or any Subsidiary or any of their respective properties.
(x) The Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized for issuance and
sale to the Underwriters, and, when issued and delivered by the Company pursuant
to this Agreement against payment of the consideration set forth in the Pricing
Agreement, will be duly and validly issued and fully paid and non-assessable.
The issuance of the Shares is not subject to any preemptive or similar rights.
The terms of the Shares conform to all statements and descriptions related
thereto contained in the Prospectus and comply with all applicable legal
requirements. The Shares conform to the provisions of the Charter. The form of
share certificate to be used to evidence the Shares is in due and proper form
and complies with all applicable legal requirements.
(xi) The issuance and sale of the Shares being delivered at such Date
of Delivery by the Company, the performance by the Company and the Subsidiaries
of their respective obligations under this Agreement, the Pricing Agreement, and
the consummation of the transactions herein and therein contemplated, including
the application of the proceeds from the sale of the Shares as described in the
Prospectus will not affect the treatment of the bonds designated "tax-exempt
bonds" in the Prospectus.
(xii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body or other
person is required for the issuance and sale of the Shares by the Company or the
performance by the Company or any Subsidiary of their respective obligations
under this Agreement, the Pricing Agreement, and the consummation of the
transactions herein and therein contemplated, other than such consents,
approvals, authorizations, registrations or qualifications as have
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<PAGE>
been obtained prior to the Closing Time or may be required under state
securities or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters.
(xiii) The statements made under the captions "Risk Factors," "The
Company and the Formation," "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Overview," "Business - Facilities,"
"Business -Hospital Affiliations," "Business - Development," "Business -
Government Regulation," "Business - The Company and the Formation," "Management
- - Compensation of Directors; Indemnification Agreements," "Management--Stock
Incentive Plans," "Management-Employment Agreements", "Certain Transactions,"
"Description of Capital Stock," and "Shares Available for Future Sale," in the
Prospectus and Items 14 and 15 of Part II of the Registration Statement, to the
extent they constitute matters of law or legal conclusions or constitute
summaries of documents described therein, are true and accurate in all material
respects, and fairly present the information called for with respect to such
legal matters, documents and proceedings.
(xiv) The Company is not, and (assuming the application by the
Company of the net proceeds of the issue and sale of the Shares in the manner
described in the Prospectus under the caption "Use of Proceeds") after giving
effect to the issuance and sale of the Shares by the Company will not be, an
"investment company" or a company "controlled" by an "investment company" within
the meaning of the Investment Company Act.
(xv) The Registration Statement, as of the Effective Date, and the
Prospectus, as of its date, appeared on their face to be appropriately
responsive in all material respects to the requirements of the 1933 Act and the
1933 Act Regulations, except that such counsel need express no opinion as to the
financial statements and related notes thereto and the other financial,
statistical, and accounting data included in the Registration Statement or the
Prospectus, or as to the accuracy, completeness or fairness of the statements
contained in the Registration Statement, except to the extent set forth in
paragraph (xiii) and the paragraph immediately following paragraph (xx).
(xvi) The Company and each of the Subsidiaries has such permits,
licenses, franchises and authorizations of governmental or regulatory
authorities ("permits"), including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease and operate its respective
properties and to conduct its business in the manner described in the
Prospectus; to the best of such counsel's knowledge after due inquiry, the
Company and each of the Subsidiaries has fulfilled and performed all of its
material obligations with respect to such permits and no event has occurred
which allows, or after notice or lapse of time would allow, revocation or
termination thereof or
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<PAGE>
results in any other material impairment of the rights of the holder of any such
permit, subject in each case to such qualification as may be set forth in the
Prospectus; and, except as described in the Prospectus, such permits contain no
restrictions that are materially burdensome to the Company or any of the
Subsidiaries. Without limiting the foregoing, each of the Company's facilities
currently holds (or has pending a renewal application for) the appropriate
permit authorizing such facility to furnish services as described under the
heading "Services" beginning on page ___ of the Prospectus.
(xvii) To the knowledge of such counsel, there is no action, suit, or
proceeding before or by any court or governmental agency or body, domestic or
foreign, now pending or threatened against the Company, any Subsidiary, or any
officer or director of any of the foregoing that is required to be disclosed in
the Registration Statement (other than as disclosed therein). To the knowledge
of such counsel, there are no contracts or documents of a character that are
required to be described in the Prospectus or filed as exhibits to or
incorporated by reference into the Registration Statement by the 1933 Act or the
1933 Act Regulations that have not been so described or filed.
(xviii) To the best of such counsel's knowledge after due inquiry,
the Company owns directly or indirectly the ownership interests in the
Subsidiaries set forth on Exhibit 21 to the Registration Statement.
(xix) To the best of such counsel's knowledge after due inquiry,
except as otherwise specifically set forth in the Registration Statement, the
Company and each of the Subsidiaries has good and marketable title, free and
clear of all liens, claims, encumbrances and restrictions, except liens for
taxes not yet due and payable, to all property and assets described in the
Registration Statement as being owned by it.
(xx) The Formation (as such term is defined in the Prospectus) and
each of the documents and agreements executed and delivered by the Company, the
Subsidiaries and Prime in connection with the Formation have been duly
authorized, executed and delivered by the parties thereto, are the valid and
binding agreements of the parties thereto enforceable by the Company in
accordance with their terms, and are sufficient in form to transfer to the
Company all right, title and interest in the Devonshire and Heritage facilities
and the Acquired Facilities (as defined in the Prospectus) and all leasehold
right, title and interest in the Leased Facilities (as defined in the
Prospectus).
In giving its opinion required by this Section 5(b), such counsel shall
additionally state that, although it has not independently verified and is not
passing upon and assumes no responsibility for the accuracy, completeness or
fairness of the statements contained in the Registration or Prospectus (except
to the extent set forth in paragraph (xiii) above), no facts have come to the
attention of such counsel that lead it to believe that, as of its
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effective date, the Registration Statement or any further amendment thereto made
by the Company prior to such Date of Delivery contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading (it being understood
that such counsel need express no opinion as to the financial statements and
related notes thereto and the other financial, statistical, and accounting data
included in the Registration Statement or the Prospectus) or that, as of its
date, the Prospectus or any further amendment or supplement thereto made by the
Company prior to such Date of Delivery contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading (it being understood that such counsel need express no opinion as to
the financial statements and related notes thereto and the other financial,
statistical, and accounting data included in the Registration Statement or the
Prospectus) or that, as of such Date of Delivery, either the Registration
Statement or the Prospectus or any further amendment or supplement thereto made
by the Company prior to such Date of Delivery contains an untrue statement of a
material fact or omits to state a material fact necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading
(it being understood that such counsel need express no opinion as to the
financial statements and related notes thereto and the other financial,
statistical, and accounting data included in the Registration Statement or the
Prospectus).
In rendering such opinion, such counsel may state that they express no
opinion as to the laws of any jurisdiction other than the laws of the United
States, the general corporate law of Illinois and the general corporate law of
Delaware.
5(c) Alston & Bird L.L.P., counsel for the Underwriters, shall have
furnished to the Representative such opinion or opinions, dated such Date of
Delivery, with respect to the incorporation of the Company, this Agreement, the
Pricing Agreement, the validity of the Shares being delivered at such Date of
Delivery, the Registration Statement, the Prospectus, and other related matters
as the Representative may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to enable
them to pass upon such matters.
5(d) At the time of the execution of this Agreement and on the effective
date of the most recently filed post-effective amendment to the Registration
Statement and also at each Date of Delivery, Ernst & Young LLP shall have
furnished to the Representative a letter or letters, dated the respective date
of delivery thereof, in form and substance satisfactory to the Representative,
to the effect set forth in Annex I hereto and, if the Company has elected to
rely upon Rule 430A of the 1933 Act Regulations, to the further effect that they
have carried out procedures specified in paragraph (v) of Annex I with respect
to certain amounts, percentages, and financial information specified by the
Repre-
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<PAGE>
sentative and deemed to be part of the Registration Statement pursuant to
Rule 430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such paragraph (v).
5(e) The Registration Statement and the Prospectus shall contain all
statements that are required to be stated therein in accordance with the 1933
Act and the 1933 Act Regulations and shall conform in all material respects to
the requirements of the 1933 Act and the 1933 Act Regulations. Neither the
Registration Statement nor the Prospectus shall contain any untrue Statement of
a material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
5(f) No action, suit, or proceeding at law or in equity shall be pending
or, to the knowledge of the Company, be threatened against the Company or any
Subsidiary, that would be required to be described in the Prospectus other than
as described therein.
5(g) (A) Neither the Company nor any of its Subsidiaries shall have
sustained since the date of the latest audited financial statements included in
the Prospectus (i) any material adverse change, or any development involving a
prospective material adverse change, in the condition (financial or other),
business, prospects, properties, net worth or results of operations, whether or
not arising in the ordinary course of business or (ii) any loss or interference
with its business from fire, explosion, flood or other calamity, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the Prospectus,
and (B) since the respective dates as of which information is given in the
Prospectus and there shall not have been any change in the capital stock or
long-term debt of the Company or any Subsidiary or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company and the Subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case described in clause (A) or
(B), is in the Representative's judgment so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Date of Delivery on the terms and in the
manner contemplated in the Prospectus.
5(h) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the Nasdaq National Market or any national stock exchange; (ii) a
general moratorium on commercial banking activities declared by either Federal
or District of Columbia authorities; or (iii) the outbreak or escalation of
hostilities involving the United States or the declaration by the United States
of a national emergency or war, if the effect of any such event specified in
this clause (iii), in the Representative's judgment, makes it impractica-
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ble or inadvisable to proceed with the public offering or the delivery of the
Shares being delivered at such Date of Delivery on the terms and in the manner
contemplated by the Prospectus.
5(i) The Shares to be sold by the Company at such Date of Delivery shall
have been duly authorized for inclusion on the Nasdaq National Market.
5(j) The Company shall have furnished or caused to be furnished to the
Representative at such Date of Delivery certificates of officers of the Company
satisfactory to the Underwriters as to the accuracy of the representations and
warranties of the Company herein at and as of such Date of Delivery, as to the
performance by the Company of all of its obligations hereunder to be performed
at or prior to such Date of Delivery, as to the matters set forth in subsections
(a) and (e) through (g) of this Section and as to such other matters as the
Representative may reasonably request.
5(k) The Company shall not have failed at or prior to the Closing to
perform or comply with any of the agreements herein contained and required to be
performed or complied with by the Company at or prior to the Closing.
If any condition specified in this Section 5 shall not have been fulfilled
when and as required to be fulfilled, this Agreement may be terminated by the
Underwriters by notice to the Company at any time at or prior to the Closing
Time, and such termination shall be without liability of any party to any other
party except as provided in Section 8 hereof.
SECTION 6. INDEMNIFICATION.
6(a) The Company and Prime, jointly and severally, will indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of section 15 of the 1933 Act, against any losses, claims,
damages, or liabilities to which any Underwriter or such controlling person may
become subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereto arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Underwriters and such controlling persons for any legal
or other expenses reasonably incurred by the Underwriters or such controlling
persons in connection with investigating or defending any such action or claim
as such expenses are incurred; provided, however, that (i) neither the Company
or Prime shall be liable in any such case to
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<PAGE>
the extent that any such loss, claim, damage, or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the second paragraph under the caption "Underwriting"
in the Prospectus and (ii) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of the Underwriters (or any person
controlling the Underwriters) if the person asserting any such loss, claim,
damage or liability did not receive a copy of the Prospectus (or the Prospectus
as supplemented) at or prior to the confirmation of the sale of Shares to such
person in any case where such delivery is required by the 1933 Act and the
untrue statement or omission of a material fact contained in such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as supplemented).
6(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company and each of the Company's directors, each officer of the Company who
signed the Registration Statement, and each other person who controls the
Company within the meaning of the 1933 Act, against any losses, claims, damages,
or liabilities to which the Company or each such other person may become
subject, under the 1933 Act or otherwise, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
in each case to the extent, but only to the extent, that such untrue statement
or alleged untrue statement or omission or alleged omission was made in the
second paragraph under the caption "Underwriting" in the Prospectus, and will
reimburse the Company or each such other person for any legal or other expenses
reasonably incurred by the Company or each such other person in connection with
investigating or defending any such action or claim as such expenses are
incurred.
6(c) Promptly after receipt by an indemnified party under subsection 6(a)
or (b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in writing of the
commencement thereof, but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying
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<PAGE>
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
under such subsection for any legal expenses of other counsel or any other
expenses, in each case subsequently incurred by such indemnified party, in
connection with the defense thereof other than reasonable costs of
investigation, unless such indemnified party reasonably objects to such
assumption on the ground that the named parties to any such action (including
any impleaded parties) include both such indemnified party and an indemnifying
party and such indemnified party reasonably believes that there may be legal
defenses available to it that are different from or in addition to those
available to such indemnifying party. In no event shall the indemnifying parties
be liable for fees and expenses of more than one counsel (in addition to local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar related actions in the
same jurisdiction arising out of the same general allegations or circumstances.
6(d) If the indemnification provided for in this Section 6 is unavailable
to, or insufficient to hold harmless, an indemnified party under subsection 6(a)
or (b) above in respect of any losses, claims, damages or liabilities (or
actions in respect thereof) referred to therein, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under subsection 6(c)
above, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares purchased
under this Agreement (before deducting expenses) received by the Company bear to
the total underwriting discounts and commissions received by the Underwriters
with respect to the Shares purchased under this Agreement, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree that it would not
be just and equitable if contributions pursuant to this subsection 6(d)
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<PAGE>
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this
subsection 6(d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this subsection 6(d) shall be deemed to include any legal
or other expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this subsection 6(d), no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such Underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 6(d) are several in proportion to the respective number of shares
purchased by each of the Underwriters hereunder and not joint.
6(e) The obligations of the Company and Prime under this Section 6 shall
be in addition to any liability which the Company and Prime may otherwise have
and shall extend, upon the same terms and conditions, to each person, if any,
who controls the Underwriters within the meaning of the 1933 Act; and the
obligations of the Underwriters under this Section 6 shall be in addition to any
liability which the Underwriters may otherwise have and shall extend, upon the
same terms and conditions, to each officer and director of the Company
(including any person who, with his or her consent, is named in the Registration
Statement as about to become a director of the Company) and to each person, if
any, who controls the Company within the meaning of the 1933 Act.
6(f) The provisions of this Section 6 shall supersede the indemnification
provisions included in the letter agreement dated __________, 1997 among the
Underwriters, on the one hand, and the Company, on the other hand (the
"Engagement Letter"), insofar, but only insofar, as such indemnification
provisions relate to any such loss, claim, damage or liability that arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement thereto. In all
other respects, the provisions of the Engagement Letter shall remain in full
force and effect.
SECTION 7. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and other
statements of the Company and the Underwriters, as set forth in this Agreement
and the Pric-
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<PAGE>
ing Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of the Underwriters or any controlling person of the Underwriters, or the
Company, or any officer or director or controlling person of the Company, and
shall survive delivery of and payment for the Shares.
SECTION 8. TERMINATION OF AGREEMENT. The Underwriters may terminate this
Agreement, by notice to the Company, at any time at or prior to the Closing
Time, pursuant to Section 5, in which event the Company will reimburse the
Underwriters for all out of-pocket expenses, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for the
offering, purchase, sale and delivery of the Shares and in connection with their
services rendered pursuant to the Engagement Letter; but the Company shall then
be under no further liability to the Underwriters in respect of the Shares not
so delivered except with respect to the Company as provided in Section 4 and
Section 6 hereof.
SECTION 9. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of
the Underwriters shall fail at Closing Time to purchase the Shares which it or
they are obligated to purchase under this Agreement and the Pricing Agreement
(the "Defaulted Shares"), the Representative shall have the right, within 24
hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Shares in such amounts as may be agreed upon and upon the terms
herein set forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Shares does not exceed ten percent (10%) of
the Shares, the non-defaulting Underwriters shall be obligated to purchase the
full amount thereof in the proportions that their respective underwriting
obligations hereunder bear to the underwriting obligations of all non-defaulting
Underwriters; or
(b) if the number of Defaulted Shares exceeds ten percent (10%) of the
Shares, this Agreement shall terminate without liability on the part of any non-
defaulting Underwriter.
No action taken pursuant to this Section 9 shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, the Representative and the Company each shall have the right to
postpone the Closing Time for a period not exceeding seven days in order to
effect any required
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<PAGE>
changes in the Registration Statement or Prospectus or in any other documents or
arrangements.
SECTION 10. NOTICES. All statements, requests, notices and agreements
hereunder shall be in writing, and, if to the Underwriters, shall be delivered
or sent by mail, telex or facsimile transmission to Friedman, Billings, Ramsey &
Co., Inc., 1001 Nineteenth Street North, Arlington, Virginia 22209, Attention:
Eric Billings; if to the Company, shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Mark J. Schulte. Any such statements,
requests, notices or agreements shall take effect at the time of receipt
thereof.
SECTION 11. PARTIES. This Agreement and the Pricing Agreement shall be
binding upon, and inure solely to the benefit of, (i) the Underwriters, the
Company and Prime, and (ii) to the extent provided in Sections 6 and 7 hereof,
the officers and directors of the Company and the Underwriters and each person
who controls the Company or the Underwriters, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement or the Pricing
Agreement. No purchaser of any of the Shares from the Underwriters shall be
deemed a successor or assign merely by reason of such purchase.
SECTION 12. TIME OF ESSENCE. Time shall be of the essence of this
Agreement and the Pricing Agreement. As used herein, the term "business day"
shall mean any day when the Commission's office in Washington, D.C. is open for
business.
SECTION 13. CHOICE OF LAW. This Agreement and the Pricing Agreement shall
be governed by and construed in accordance with the laws of the State of
Illinois.
SECTION 14. COUNTERPARTS. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us four counterparts hereof, and, upon the acceptance hereof by the
Underwriters, this letter and such acceptance hereof shall constitute a binding
agreement between the Underwriters, the Company and Prime.
Very truly yours,
BROOKDALE LIVING COMMUNITIES, INC.
By:________________________
Name:
Title:
THE PRIME GROUP, INC.
By: __________________________
Name:________________________
Title:__________________________
CONFIRMED AND ACCEPTED,
as of the date first above written:
FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
By:_________________________
Name:____________________
Title:_____________________
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<PAGE>
SCHEDULE A
Number of
Firm Shares
Underwriter to be Purchased
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<PAGE>
ANNEX I
Pursuant to Section 5(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Representative to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its subsidiaries within the meaning of the 1933 Act and the
applicable rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplemental
financial information and schedules audited (and, if applicable, and/or pro
forma financial information examined) by them and included in the Prospectus or
the Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and the related published
rules and regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of Certified
Public Accountants of the unaudited consolidated interim financial statements as
indicated in their reports thereon, copies of which have been furnished to the
Underwriters;
(iii) The unaudited selected financial information with respect to
the consolidated results of operations and financial position of the Company for
the five recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years for such fiscal
years;
(iv) On the basis of limited procedures, not constituting an audit in
accordance with generally accepted auditing standards, consisting of a reading
of the unaudited financial statements and other information referred to below, a
reading of the latest available interim financial statements of the Company and
its subsidiaries, inspection of the minute books of the Company and its
subsidiaries since the date of the latest audited financial statements included
in the Prospectus, inquiries of officials of the Company and its subsidiaries
responsible for financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to their attention
that caused them to believe that:
(A) the unaudited consolidated statements of income, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus do not comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the related published rules and
regulations thereunder, or are not in conformity with generally accepted
accounting principles applied on a basis substantially consistent with the basis
for the audited consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus;
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<PAGE>
(B) any other unaudited income statement data and balance sheet
items included in the Prospectus do not agree with the corresponding items in
the unaudited consolidated financial statements from which such data and items
were derived, and any such unaudited data and items were not determined on a
basis substantially consistent with the basis for the corresponding amounts in
the audited consolidated financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement data and
balance sheet items included in the Prospectus and referred to in Clause (B)
were not determined on a basis substantially consistent with the basis for the
audited consolidated financial statements included in the Prospectus;
(D) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options and stock
appreciation rights, upon earn-outs of performance shares and upon conversions
of convertible securities, in each case which were outstanding on the date of
the latest financial statements included in the Prospectus) or any increase in
the consolidated long-term debt of the Company and its subsidiaries, or any
decreases in consolidated net current assets or other items specified by the
Underwriters or any increases in any items specified by the Underwriters, in
each case as compared with amounts shown in the latest balance sheet included in
the Prospectus, except in each case for changes, increases or decreases which
the Prospectus discloses have occurred or may occur or which are described in
such letter; and
(E) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause (D) there
were any decreases in consolidated net revenues or operating profit or the total
or per share amounts of consolidated net income or other items specified by the
Underwriters, or any increases in any items specified by the Underwriters, in
each case as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the Underwriters, except
in each case for decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(v) In addition to the audit referred to in their report(s) included
in the Prospectus and the limited procedures, inspection of minute books,
inquiries and other procedures referred to in paragraphs (iii) and (IV) above,
they have carried out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect to certain
amounts, percentages and financial information specified by the Underwriters,
which are derived from the general accounting records of the Company and its
subsidiaries, which appear in the Prospectus, or in Part II of, or in exhibits
and schedules to, the Registration Statement specified by the Underwriters, and
have compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have found
them to be in agreement.
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<PAGE>
Exhibit A
BROOKDALE LIVING COMMUNITIES, INC.
(a Delaware corporation)
5,000,000 Shares
Common Sock
(Par value $0.01 Per Share)
PRICING AGREEMENT
_________, 1997
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
1001 Nineteenth Street North
Arlington, Virginia 22209
Dear Sirs:
Reference is made to the Underwriting Agreement, dated _________, 1997 (the
"Underwriting Agreement"), relating to the purchase by Friedman, Billings,
Ramsey & Co., Inc. and those underwriters listed on Schedule A thereto
(collectively, the "Underwriters,") of the above shares of Common Stock and
Option Shares, as each such term is defined in the Underwriting Agreement
(collectively, the "Shares"), of Brookdale Living Communities, Inc. (the
"Company").
Pursuant to Section 2 of the Underwriting Agreement, the Company agrees
with each Underwriter as follows:
1. The public offering price per share for the Shares, determined as
provided in such Section 2, shall be $_____________.
2. The purchase price per share for the Shares to be paid by the several
Underwriters shall be $________, being an amount equal to the public offering
price set forth above less $_____ per share.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company a counterpart hereof, whereupon this
instrument, along with all counterparts, will become a binding agreement between
the Underwriters and the Company in accordance with its terms.
Very truly yours,
BROOKDALE LIVING COMMUNITIES, INC.
By:________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
FRIEDMAN, BILLINGS, RAMSEY
& CO., INC.
By:__________________________
Name:
Title:
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<PAGE>
EXHIBIT 5.1
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601
April 8, 1997
Board of Directors
Brookdale Living Communities, Inc.
77 West Wacker Drive
Suite 3900
Chicago, IL 60601
Re: Brookdale Living Communities, Inc. -- Issuance of
up to 5,750,000 Shares of Common Stock
--------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Brookdale Living Communities, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-1 (File No. 333-12259) filed by the Company
with the Securities and Exchange Commission (the "Commission") on September 18,
1996 (together with all amendments thereto, the "Registration Statement"). The
Registration Statement relates to the registration under the Securities Act of
1933, as amended (the "Securities Act"), of up to 5,750,000 shares of the
Company's Common Stock, par value $0.01 per share (the "Common Stock"), all of
which shares are being sold by the Company. This opinion letter is being
delivered in accordance with the requirements of Item 601(b)(5) of Regulation
S-K promulgated under the Securities Act.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Restated Certificate of Incorporation and the Amended and Restated By-
Laws of the Company, (ii) certain resolutions of the Board of Directors of the
Company relating to the offering of the Common Stock, (iii) the Registration
Statement and (iv) the proposed form of Underwriting Agreement by and between
Friedman, Billings, Ramsey & Co., Inc., as representative of the several
underwriters to be named therein, and the Company (the "Underwriting
Agreement"), filed as Exhibit 1.1 to the Registration Statement. We have also
examined such other agreements, instruments and documents and such matters of
law as we have deemed necessary or appropriate as a basis for the opinion set
forth below. In such examination, we have assumed the genuineness of all
signatures, the legal capacity of natural
<PAGE>
Board of Directors
Brookdale Living Communities, Inc.
April 8, 1997
Page 2
persons, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as certified
or photostatic copies and the authenticity of the originals of such latter
documents. In making our examination of the documents executed or to be executed
by parties other than the Company, we have assumed that such parties have the
power, corporate or other, to enter into and perform all obligations thereunder
and we have also assumed the due authorization by all requisite action,
corporate or other, and execution and delivery by such parties of such documents
and the validity and binding effect thereof. As to any facts material to this
opinion which we did not independently establish or verify, we have relied upon
statements and representations of officers and other representatives of the
Company and others.
Based upon the foregoing and subject to the assumptions, qualifications and
limitations set forth herein, we are of the opinion that the Common Stock has
been duly authorized by the requisite corporate action on the part of the
Company and, following the execution and delivery by the Company of the
Underwriting Agreement, when issued and delivered pursuant to the terms of the
Underwriting Agreement, the Common Stock will be validly issued, fully paid and
nonassessable.
The foregoing opinion is limited to the General Corporation Law of the
State of Delaware. We express no opinion herein as to any other laws, statutes,
regulations or ordinances.
This opinion is rendered as of the date hereof and we undertake no, and
disclaim any, obligation to advise you of any changes in any matter set forth
herein, regardless of whether changes in such matters come to our attention
after the date hereof. This opinion is furnished to you solely for your benefit
in connection with the issuance of the Common Stock and is not to be used,
circulated, quoted or otherwise referred to for any other purpose without our
prior written consent.
We hereby consent to the reference to our firm under the heading "Legal
Matters" in the Prospectus forming a part of the Registration Statement and to
the filing of this opinion with the Commission as an exhibit to the Registration
Statement. In giving such consent, we do not concede that we are "experts"
within the
<PAGE>
Board of Directors
Brookdale Living Communities, Inc.
April 8, 1997
Page 3
meaning of the Securities Act or the rules and regulations thereunder or that
this consent is required by Section 7 of the Securities Act.
Very truly yours,
/s/ Winston & Strawn
WINSTON & STRAWN
<PAGE>
EXHIBIT 10.1
FORM OF
FORMATION AGREEMENT
THIS FORMATION AGREEMENT (this "Agreement") is made and entered into as of
the _____ day of April, 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:
--------
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. 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").
C. 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.
D. 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.
E. PGI has entered into an agreement (the "Kemper Agreement") with KILICO
Realty Corporation and Kemper Investors Life Insurance Company (collectively,
the "Kemper
<PAGE>
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.
[F. PGI has agreed to contribute to Holdings a 1% interest in each of River
Oaks and Pembroke in return for 100% of Holdings stock.]
G. PGI has agreed to convey and assign to the Corporation PGI's rights to
receive certain partnership interests as hereinafter described from the Kemper
Transferors, and the Corporation has agreed to assume PGI's 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 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.
-2-
<PAGE>
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
will convey (x) the Contributed Projects together with (y) the rights of Prime
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) Its rights under the Kemper Agreement, including its rights
to purchase the following partnership interests from the Kemper Transferors
pursuant to the Kemper Agreement:
(A) A 50% general partnership interest in River Oaks.
(B) A 25% limited partnership interest and a 50% general
partnership interest in Pembroke.
(iv) All of its rights and interests in the Facility Acquisition
Agreements and the Development Site Acquisition Agreements.
(v) 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.
(vi) All of its stock in Holdings.
(c) Schulte shall transfer to the Corporation all of the remaining
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, dated
-3-
<PAGE>
___________, 1997 (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).
(d) In conjunction with the transfers described in clauses (a), (b)
and (c) of this Section 1,
(i) Schulte shall transfer to the Corporation all of the
remaining 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(d), 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 Transferor 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 PGI
(or, if the Earnest Money is credited against the purchase price payable to the
Kemper Transferors, the Corporation shall reimburse PGI 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.
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 2,078,000 shares of its Common Stock to PGI and PGLP
[(100,000 shares of which PGI has agreed to transfer and assign to Darryl W.
Copeland, Jr. pursuant to the terms, and subject to the conditions, of that
certain Employment Agreement dated as of the date hereof by and among the
Corporation, Darryl W. Copeland, Jr. and PGI)], and 322,000 shares of its Common
Stock to Schulte. All such shares of Common Stock shall be fully paid and
nonassessable.
-4-
<PAGE>
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.
(c) On or prior to the Closing Date, the Corporation will pay
directly, or will reimburse PGI for the payment of, all expenses incurred 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.
-5-
<PAGE>
(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.
-6-
<PAGE>
(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.
-7-
<PAGE>
(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 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
-8-
<PAGE>
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
-9-
<PAGE>
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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<PAGE>
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
With a copy to:
Winston & Strawn
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<PAGE>
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
Fax:
-------------------
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.
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<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]
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<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:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
BROOKDALE HOLDINGS, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
TRANSFERORS:
-------------------------------------------------
MARK J. SCHULTE
THE PRIME GROUP, INC.
By:
----------------------------------------------
Name:
--------------------------------------------
Title:
-------------------------------------------
PRIME GROUP LIMITED PARTNERSHIP
By:
----------------------------------------------
Michael W. Reschke
Managing General Partner
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<PAGE>
SCHEDULE 1
TO
FORMATION AGREEMENT
CERTAIN PAYMENTS
Amount Payee's Wire Instructions
- ------ -------------------------
[$ ] [PGI wire information]
[$ ] [KILICO/Kemper wire information]
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<PAGE>
SCHEDULE 2
TO
FORMATION AGREEMENT
POST-CLOSING CONSENTS
[to be supplied]
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<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.
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.
<PAGE>
IN WITNESS WHEREOF, Assignors and Assignees have executed this
Assignment as of the _____ day of ____________, 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:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
BROOKDALE HOLDINGS, INC., a Delaware
corporation
By:
----------------------------------
Name:
--------------------------------
Its:
---------------------------------
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<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.
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 dated 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 each of (i) BLC Property,
Inc., a Delaware corporation, and (ii) [__________________________], a
[Delaware] corporation.
C. Kemper Agreement
All of the rights of PGI under the Kemper Agreement, including the
rights of PGI 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
--------------------
[to be supplied by PGI]
<PAGE>
SCHEDULE 2
TO ASSIGNMENT AND ASSUMPTION AGREEMENT
TRADE NAMES AND INTANGIBLES
---------------------------
[to be supplied by PGI]
<PAGE>
SCHEDULE 3
TO ASSIGNMENT AND ASSUMPTION AGREEMENT
EXCLUDED ASSETS
---------------
[to be supplied by PGI]
<PAGE>
EXHIBIT B
TO
FORMATION AGREEMENT
FORM OF SPACE SHARING AGREEMENT
<PAGE>
EXHIBIT C
TO
FORMATION AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT D
TO
FORMATION AGREEMENT
FORM OF NON-COMPETE AGREEMENT
<PAGE>
EXHIBIT E
TO
FORMATION AGREEMENT
FORM OF VOTING AGREEMENT
<PAGE>
EXHIBIT F
TO
FORMATION AGREEMENT
FORM OF MANAGEMENT AGREEMENT
<PAGE>
EXHIBIT G
TO
FORMATION AGREEMENT
FORM OF INDEMNITY AGREEMENT
<PAGE>
EXHIBIT 10.2
[THE PRIME GROUP, INC. LETTERHEAD]
_______________, 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.
<PAGE>
Mr. Mark J. Schulte
_________________, 1997
Page 2
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 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:
---------------------------
Date: ______________________, 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:
---------------------------
Name:
-------------------------
Title:
------------------------
Date: _______________________, 1997
<PAGE>
EXHIBIT 10.7
FORM OF
-------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 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
2
<PAGE>
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
3
<PAGE>
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
4
<PAGE>
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
5
<PAGE>
(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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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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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
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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.
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:
(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:____________________________________
Title:__________________________________
_______________________________________
Michael W. Reschke
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EXHIBIT 10.8
FORM OF
-------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 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.
<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 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.
2
<PAGE>
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 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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<PAGE>
(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
5
<PAGE>
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
6
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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.
7
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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;
8
<PAGE>
(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
9
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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
10
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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
12
<PAGE>
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:____________________________________
Title:__________________________________
_______________________________________
Mark J. Schulte
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EXHIBIT 10.9
FORM OF
-------
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is made and entered into this
____ day of ____________, 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
<PAGE>
Chicago periodically as may be reasonably necessary in the performance of
Executive's duties hereunder.
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
2
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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.
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:
3
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(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.
(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.
4
<PAGE>
(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. 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
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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 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
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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 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
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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.
(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.
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(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;
(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
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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)(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,
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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.
(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
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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:
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
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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 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:____________________________________
Title:__________________________________
_______________________________________
Darryl W. Copeland, Jr.
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EXHIBIT 10.34
FORM OF
AGREEMENT
---------
This Agreement (this "Agreement") is made and entered into this ___ day of
_______, 1997, by and between The Prime Group, Inc. ("PGI"), Darryl W. Copeland,
Jr. ("Copeland") and Mark J. Schulte ("Schulte").
WITNESSETH
----------
A. Contemporaneously with the execution of this Agreement, Copeland is
entering into an Employment Agreement (the "Employment Agreement") with
Brookdale Living Communities, Inc. ("Employer"), of which PGI is a stockholder
and Schulte is the President and Chief Executive Officer and a stockholder.
B. As stockholders of Employer, PGI and Schulte will both benefit from the
unique skills, experience and background which Copeland will bring to Employer.
C. In order to induce Copeland to enter into the Employment Agreement, PGI
and Schulte have each agreed to transfer and assign to Copeland certain shares
of common stock of Employer held by them upon satisfaction of certain
conditions.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants
herein set forth, and for other good and valuable consideration, the parties
hereby agree as follows:
1. Subject to Section 2 hereof, in the event that Employer's after-tax
earnings per share plus depreciation and amortization on a fully diluted basis
for the period commencing on the date hereof through December 31, 1998 (the
"Measurement Period"), determined on a cumulative basis in accordance with
generally accepted accounting principals and auditing standards and practices,
consistently applied, equals or exceeds the earnings per share plus depreciation
and amortization set forth in Employer's Board of Directors approved annual
basis plans for the Measurement Period (the "EPS Target"), then PGI and Schulte
each agrees to transfer and assign to Copeland, subject to any applicable
withholding tax requirements, 22,500 shares and 2,500 shares, respectively, of
the common stock of Employer (collectively, the "Incentive Stock") within thirty
(30) days after the conclusion of the Measurement Period.
2. In the event that Copeland's employment with Employer is terminated
pursuant to Section 5(a)(ii) or 5(b)(ii) of the Employment Agreement prior to
the conclusion of the Measurement Period, Copeland shall forfeit any and all
rights to receive the Incentive Stock. In the event that Copeland's employment
with Employer is terminated pursuant to Section 5(b)(i) of the Employment
Agreement prior to the conclusion of the Measurement Period, subject to any
applicable withholding tax requirements, Copeland shall be entitled to receive
the Incentive Stock. In the event that Copeland's employment with Employer is
terminated pursuant to Section 5(a)(i), 5(a)(iii) or 5(c) of the Employment
Agreement prior to January 1, 1998, Copeland, or his heirs, executor or personal
<PAGE>
representatives, as applicable, shall be entitled to receive, subject to any
applicable withholdings tax requirements, 50% of the Incentive Stock, provided
that the EPS Target for the period commencing on the date hereof and ending on
December 31, 1998 is met. In the event that Copeland's employment with
Employer is terminated pursuant to Section 5(a)(i), 5(a)(iii) or 5(c) of the
Employment Agreement during 1998, Copeland, or his heirs, executor or personal
representatives, as applicable shall be entitled to receive, subject to any
applicable withholding tax requirements, 100% of the Incentive Stock, provided
that the EPS Target is met at the conclusion of the Measurement Period.
3. Each of Copeland, Schulte and PGI acknowledges and agrees, for purposes
of Sections 83, 61 and 1001 of the Internal Revenue Code of 1986, as amended
(the "Code") as follows:
(a) No "transfer" of any of the Incentive Stock shall occur, unless, until
and to the extent the conditions described in Section 1 and 2 of this
Agreement are met with respect to any such Incentive Stock;
(b) Upon the transfer of Incentive Stock to Copeland, such Incentive Stock
shall not be subject to any "substantial risk of forfeiture"; and
(c) Based on the foregoing subsection (a) and (b), Copeland may not and
will not file any election under Code Section 83(b) in respect of the
Incentive Stock which may be transferred under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE PRIME GROUP, INC.
By: ___________________________________
Title: ________________________________
________________________________________
Darryl W. Copeland, Jr.
_________________________________________
Mark J. Schulte
-2-
<PAGE>
[The Prime Group Letterhead]
EXHIBIT 10.35
April 3, 1997
VIA FACSIMILE
AND MESSENGER
(312) 236-1548
KILICO Realty Corporation and
Kemper Investors Life Insurance Company
c/o ZKS Real Estate Partners
225 W. Washington
Suite 1450
Chicago, Illinois 60606
Attention: Robert J. Korslin
Re: Second Amendment to September 17, 1996
Senior Housing Portfolio Letter Agreement
-----------------------------------------
Dear Bob:
Reference is hereby made to that certain Letter Agreement, dated September
17, 1996 (the "9/17/96 Letter Agreement"), between The Prime Group, Inc.
("Prime"), on the one hand, and KILICO Realty Corporation and Kemper Investors
Life Insurance Company (collectively, "Kemper"), on the other hand, as amended
by that certain Letter Agreement, dated December 20, 1996 (the "First
Amendment"), between Prime and Kemper (the 9/17/96 Letter Agreement, as amended
by the First Amendment, is referred to herein as the "Original Agreement"). This
letter (the "Second Amendment") amends the Original Agreement. All capitalized
terms used in this Second Amendment which are not specifically defined in this
Second Amendment, but which are defined in the Original Agreement, shall have
the meaning given such terms in the Original Agreement.
The parties hereby agree to amend the Original Agreement as follows:
1. The parties hereto hereby agree and acknowledge that, as of the date
hereof, there has been deposited with Kemper in accordance with paragraph 3 of
the Original Agreement an aggregate amount (for purposes of this Second
Amendment, the "Original Deposit") of Five Million Seven Hundred Seventy-Nine
Thousand Five Hundred Seventeen and no/100 dollars ($5,779,517.00), which amount
includes the amount designated as the Original Deposit in the First Amendment.
The parties hereto hereby agree that, from and after the date of this
Amendment, except as provided in paragraph 9(b) of
<PAGE>
Mr. Robert Korslin
April 3, 1997
Page 2
the Original Agreement, as amended by this Second Amendment: Kemper shall be
the sole owner of the Original Deposit free and clear of any claim or interest
of Prime; the Original Deposit shall not be considered or treated as Earnest
Money for any purpose under the Original Agreement; and the Original Deposit
shall not be refundable to Prime for any reason; provided, however, that, at the
Closing, the Original Deposit shall be credited against the Purchase Price.
Notwithstanding the foregoing, the provisions of paragraph 3 of the Original
Agreement shall remain in force and obligate Prime to deposit with Kemper as
Earnest Money under the Original Agreement, on the first business day of each
month after the date hereof until Closing, the Net Cash Flow generated by Ponds
L.P. and ROP during the preceding month.
2. Clause (a) of paragraph 2 of the Original Agreement is hereby deleted
in its entirety and replaced with the following:
"(a) Five Million Four Hundred Twenty-Eight Thousand and no/100 Dollars
($5,428,000.00) plus Six Thousand and no/100 Dollars ($6,000.00) per day
from and after April 1, 1997 until the Closing Date (the "Purchase Price"),
and".
3. Paragraph 4 of the Original Agreement (including that portion of
paragraph 4 of the Original Agreement which was added by the First Amendment) is
hereby deleted in its entirety and replaced with the following:
"4. Closing; Closing Date. The sale and purchase of the Kemper Senior
Housing Interests (the "Closing") shall occur on a date (the "Closing
Date") designated by Prime upon written notice delivered to Kemper on or
before April 8, 1997; provided, however, the Closing Date shall not be
later than April 15, 1997."
4. Kemper hereby reaffirms and reiterates, as of the date of this Second
Amendment, all of the representations and warranties made by Kemper in paragraph
6 of the Original Agreement. Prime hereby reaffirms and reiterates, as of the
date of this Second Amendment, all of the representations and warranties made by
Prime in paragraph 7 of the Original Agreement.
5. Paragraph 9(b) of the Original Agreement is hereby amended (a) by
deleting the amount of "Two Million Six Hundred Sixty-Five Thousand Nine Hundred
Twenty-Two and no/100 Dollars ($2,665,922)" in clause (i) thereof (which was
added by the First Amendment) and replacing such amount with the amount of "Two
Million Three Hundred Sixty-Five Thousand Twenty-Four and no/100
<PAGE>
Mr. Robert Korslin
April 3, 1997
Page 3
Dollars ($2,365,024)", and (b) deleting therefrom the words ", and (ii) that
portion of the Earnest Money deposited with Kemper from and after January 2,
1997 that is attributable to Prime's respective percentage interests in
distributions of Ponds L.P. and ROP based on current ownership interests" (which
was added by the First Amendment).
6. The parties hereto acknowledge that the letter, dated March 31, 1997,
from Prime to Kemper which designated April 9, 1997 as the Closing Date is
rescinded.
7. Except as amended or modified by this Second Amendment, the terms and
provisions of the Original Agreement shall remain and continue in full force
and effect. All references to the Agreement shall refer to the Original
Agreement as amended by this Second Amendment. All reference to the Sale
Agreement in that certain letter, dated September 17, 1996, delivered by ROP and
Ponds L.P. to Realty and KILICO in accordance with Paragraph 10 of the Original
Agreement, which letter was confirmed by Realty and KILICO and consented to by
PGI, shall mean the Original Agreement as amended by the Second Amendment.
8. This Second Amendment may be executed in one or more counterparts, each
of which, when executed and delivered, shall be deemed to be an original and all
of which counterparts, taken together, shall constitute one and the same
document with the same force and effect as if the signatures of all of the
parties were on a single counterpart.
If the foregoing corresponds to Kemper's understanding of the terms of the
agreement between Kemper and Prime to amend the Original Agreement, please so
signify by having a duly authorized officer or duly authorized officers of
Kemper execute the enclosed copy of this letter and returning the executed copy
of this letter to the undersigned.
Very truly yours,
THE PRIME GROUP, INC.
By: /s/ Robert J. Rudnik
------------------------------
Name: Robert J. Rudnik
----------------------------
Title: Executive Vice President
---------------------------
<PAGE>
Mr. Robert Korslin
April 3, 1997
Page 4
ACCEPTED AND AGREED TO:
- -----------------------
KILICO REALTY CORPORATION
By: /s/ Timothy R. Verrilli
-------------------------------
Name: Timothy R. Verrilli
-----------------------------
Title: Authorized Signatory
----------------------------
Date: 4-4-97
-----------------------------
KEMPER INVESTORS LIFE INSURANCE COMPANY
By: /s/ Frederick Stephens
-------------------------------
Name: Frederick Stephens
-----------------------------
Title: Authorized Signatory
----------------------------
Date: 4-4-97
-----------------------------
By: /s/ Timothy R. Verrilli
-------------------------------
Name: Timothy R. Verrilli
-----------------------------
Title: Authorized Signatory
----------------------------
Date: 4-4-97
-----------------------------
