UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, for the Quarterly Period ended June 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934, for the Transition Period from ________ to _______.
Commission File Number 0-22253
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BROOKDALE LIVING COMMUNITIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-4103821
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
77 W. Wacker Drive, Suite 4400
Chicago, IL 60601
- ------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
(312) 977-3700
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address, or former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 13, 1998, 9,572,802 shares of the Registrant's Common Stock, $0.01
par value per share, were outstanding.
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC.
FORM 10-Q
INDEX
-----
PART I: FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (Unaudited)......................................3
Consolidated Balance Sheets of Brookdale Living
Communities, Inc. as of June 30, 1998 and as of December 31, 1997.....4
Consolidated Statements of Operations of Brookdale Living
Communities, Inc. for the period from April 1, 1998 through
June 30, 1998 and for the period from May 7, 1997 through
June 30, 1997 and Combined Statement of Operations of
Predecessor Properties (predecessor to Brookdale Living
Communities, Inc.) for the period from April 1, 1997
through May 6, 1997...................................................5
Consolidated Statements of Operations of Brookdale Living
Communities, Inc. for the period from January 1, 1998 through
June 30, 1998 and for the period from May 7, 1997 through
June 30, 1997 and Combined Statement of Operations of
Predecessor Properties (predecessor to Brookdale Living
Communities, Inc.) for the period from January 1, 1997
through May 6, 1997...................................................6
Consolidated Statements of Operations of Brookdale Living
Communities, Inc. for the period from January 1, 1998 through
June 30, 1998 and for the period from May 7, 1997 through
June 30, 1997 and Combined Statement of Operations of
Predecessor Properties (predecessor to Brookdale Living
Communities, Inc.) for the period from January 1, 1997
through May 6, 1997...................................................7
Notes to Consolidated and Combined Financial Statements of
Brookdale Living Communities, Inc. and Predecessor Properties
(predecessor to Brookdale Living Communities, Inc.)...................9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................12
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........16
PART II: OTHER INFORMATION....................................................17
Item 1. Legal Proceedings....................................................17
Item 2. Changes in Securities................................................17
Item 3. Defaults Upon Senior Securities......................................17
Item 4. Submission of Matters to a Vote of Security Holders..................17
Item 5. Other Information....................................................17
Item 6. Exhibits and Reports on Form 8-K.....................................17
Signatures ...................................................................23
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<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
The information furnished in the accompanying consolidated and combined
balance sheets, statements of operations, and statements of cash flows reflects
all adjustments which are, in the opinion of management, necessary for a fair
presentation of the aforementioned financial statements for the interim period.
Brookdale Living Communities, Inc. ("Brookdale") was incorporated on
September 4, 1996 and commenced operations upon the completion of its initial
public offering on May 7, 1997. The consolidated financial statements of
Brookdale and Subsidiaries (the "Company") represent the results of operations
of 15 facilities the Company operated during the period presented. The combined
financial statements of Predecessor Properties (the "Predecessor" to the
Company) are presented for comparative purposes due to common ownership and
management and represent the results of operations of the entities (five
facilities) which comprised the Predecessor Properties for the period from
January 1, 1997 to May 6, 1997.
The aforementioned financial statements should be read in conjunction
with the notes to the financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations and the financial
statements for the period ended December 31, 1997 included in the Company's
Annual Report on Form 10-K as filed with the Securities and Exchange Commission
on March 31, 1998.
-3-
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
ASSETS June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Cash and cash equivalents........................................ $ 1,437 $ 13,292
Accounts receivable.............................................. 613 214
Note receivable.................................................. 1,903 -
Prepaid expenses and other....................................... 6,430 3,077
------------- ---------------
Total current assets........................................ 10,383 16,583
------------- ---------------
Property, plant and equipment.................................... 115,068 113,294
Accumulated depreciation......................................... (3,946) (2,164)
------------- ---------------
Property, plant and equipment, net............................... 111,122 111,130
------------- ---------------
Property under development....................................... 8,693 11,427
Cash and investments - restricted................................ 19,701 5,920
Letter of credit deposits........................................ 13,014 12,138
Lease security deposits.......................................... 32,054 18,542
Other............................................................ 8,824 7,429
------------- ---------------
Total assets................................................ $ 203,791 $ 183,169
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current portion of long-term debt................................ $ 298 $ 286
Unsecured line of credit......................................... 8,250 -
Current portion of deferred gain on sale of property............. 806 806
Accrued interest payable......................................... 494 566
Accounts payable and accrued expenses............................ 7,110 4,256
Other............................................................ 993 344
------------- ---------------
Total current liabilities................................... 17,951 6,258
------------- ---------------
Long-term debt, less current portion............................. 95,729 95,881
Tenant entrance and security deposits............................ 4,752 4,377
Deferred lease liability......................................... 2,425 1,811
Deferred gain on sale of property, less current portion.......... 16,520 16,922
------------- ---------------
Total liabilities........................................... 137,377 125,249
------------- ---------------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 75,000 shares authorized, 9,560
and 9,175 shares issued and outstanding at June 30, 1998 and
December 31, 1997, respectively.............................. 96 92
Additional paid-in-capital....................................... 63,241 57,383
Retained earnings................................................ 3,077 445
------------- ---------------
Total stockholders' equity.................................. 66,414 57,920
------------- ---------------
Total liabilities and stockholders' equity.................. $ 203,791 $ 183,169
============== ===============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
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<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY AND
COMBINED STATEMENT OF OPERATIONS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Brookdale Living Brookdale Living Predecessor
Communities, Inc. Communities, Inc. Properties
period from period from period from
April 1, 1998 May 7, 1997 April 1, 1997
through through through
June 30, 1998 June 30, 1997 May 6, 1997
---------------- ---------------- --------------
<S> <C> <C> <C>
Revenue
Resident fees......................................... $ 17,198 $ 6,539 $ 3,008
Development fees...................................... 1,390 - -
Management fees....................................... 63 32 -
---------------- ---------------- --------------
Total revenue..................................... 18,651 6,571 3,008
---------------- ---------------- --------------
Expenses
Facility operating.................................... 9,691 3,483 1,677
General and administrative............................ 1,204 478 -
Lease expense......................................... 4,141 1,544 866
Depreciation and amortization......................... 1,205 691 206
Property management fees.............................. - - 59
---------------- ---------------- --------------
Total operating expenses.......................... 16,241 6,196 2,808
---------------- ---------------- --------------
Income from operations............................ 2,410 375 200
Interest income....................................... 936 126 19
Interest expense...................................... (936) (715) (294)
---------------- ---------------- --------------
Income (loss) before minority interest expense and
income tax (expense) benefit.................... 2,410 (214) (75)
Minority interest expense............................. - - (56)
Income tax (expense) benefit.......................... (889) 133 (67)
---------------- ---------------- --------------
Net income (loss)................................. $ 1,521 $ (81) $ (198)
================ ================ ===============
Basic earnings (loss) per common share................ $ 0.16 $ (0.01)
================ ================
Weighted average shares used for computing basic
earnings (loss) per common share .................. 9,487 6,844
================ ================
Diluted earnings (loss) per common share.............. $ 0.16 $ (0.01)
================ ================
Weighted average shares used for computing diluted
earnings (loss) per common share 9,793 6,851
================ ================
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-5-
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY AND
COMBINED STATEMENT OF OPERATIONS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Brookdale Living Brookdale Living Predecessor
Communities, Inc. Communities, Inc. Properties
period from period from period from
January 1, 1998 May 7, 1997 January 1, 1997
through through through
June 30, 1998 June 30, 1997 May 6, 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
Revenue
Resident fees......................................... $ 32,855 $ 6,539 $ 10,473
Development fees...................................... 2,578 - -
Management fees....................................... 116 32 -
---------------- ---------------- ---------------
Total revenue..................................... 35,549 6,571 10,473
---------------- ---------------- ---------------
Expenses
Facility operating.................................... 18,278 3,483 5,872
General and administrative............................ 2,496 478 -
Lease expense......................................... 7,992 1,544 3,042
Depreciation and amortization......................... 2,431 691 857
Property management fees.............................. - - 230
---------------- ---------------- ---------------
Total operating expenses.......................... 31,197 6,196 10,001
---------------- ---------------- ---------------
Income from operations............................ 4,352 375 472
Interest income....................................... 1,641 126 68
Interest expense...................................... (1,858) (715) (830)
---------------- ---------------- ---------------
Income (loss) before minority interest expense and
income tax (expense) benefit.................... 4,135 (214) (290)
Minority interest expense............................. - - (138)
Income tax (expense) benefit.......................... (1,503) 133 (236)
---------------- ---------------- ---------------
Net income (loss)................................. $ 2,632 $ (81) $ (664)
================ ================ ===============
Basic earnings (loss) per common share................ $ 0.28 $ (0.01)
================ ================
Weighted average shares used for computing basic
earnings (loss) per common share.................. 9,448 6,844
================ ================
Diluted earnings (loss) per common share.............. $ 0.27 $ (0.01)
================ ================
Weighted average shares used for computing diluted
earnings (loss) per common share 9,721 6,851
================ ================
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-6-
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Brookdale Living Brookdale Living Predecessor
Communities, Inc. Communities, Inc. Properties
period from period from period from
January 1, 1998 May 7, 1997 January 1, 1997
through through through
June 30, 1998 June 30, 1997 May 6, 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss).................................... $ 2,632 $ (81) $ (664)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization................... 2,431 691 857
Deferred income taxes........................... 1,536 (133) -
Minority interest expense....................... - - 138
Change in deferred lease liability.............. 614 210 419
Deferred gain on sale of property............... (402) (122) (281)
Changes in:
Accounts receivable........................... (399) (85) (61)
Prepaid expenses and other.................... (4,767) (740) (110)
Accrued interest payable...................... (72) 98 111
Accounts payable and accrued expenses......... 2,854 3,526 431
Tenant entrance and security deposits......... (108) 38 35
Other current liabilities..................... (851) (1,368) 1,022
---------------- ---------------- ---------------
Net cash provided by operating activities... 3,468 2,034 1,897
---------------- ---------------- ---------------
Cash Flows from Investing Activities
Lease security deposits and acquisitions.......... (12,638) (30,266) -
Proceeds from sale of property under development.. 3,300 - -
Changes in cash and investments - restricted...... (12,758) (712) (1,180)
Property under development........................ (9,915) (427) (2)
Payments received on notes receivable............. 7,446 - -
Reimbursable leasehold improvements............... (919) - -
Additions to property, plant and equipment........ (1,961) (644) (149)
---------------- ---------------- ---------------
Net cash used in investing activities....... (27,445) (32,049) (1,331)
---------------- ---------------- ---------------
Cash Flows from Financing Activities
Repayment of long-term debt....................... (140) (44) -
Proceeds from unsecured line of credit............ 10,750 - -
Repayment of unsecured line of credit............. (2,500) - -
Increase in letter of credit deposit.............. (876) (11,177) -
Payment of deferred financing costs............... (504) (42) (287)
Net distributions to partners..................... - - (2,594)
Proceeds from issuance of common stock, net....... 5,392 50,742 -
---------------- ---------------- ---------------
Net cash provided by (used in)
financing activities........................ 12,122 39,479 (2,881)
---------------- ---------------- ---------------
Net (decrease) increase in cash and
cash equivalents............................ (11,855) 9,464 (2,315)
Cash and cash equivalents at beginning
of period................................... 13,292 1,915 4,230
---------------- ---------------- ---------------
Cash and cash equivalents at end of period.. $ 1,437 $ 11,379 $ 1,915
================ ================ ===============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-7-
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENT OF CASH FLOWS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Brookdale Living Brookdale Living Predecessor
Communities, Inc. Communities, Inc. Properties
period from period from period from
January 1, 1998 May 7, 1997 January 1, 1997
through through through
June 30, 1998 June 30, 1997 May 6, 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized............ $ 1,930 $ 636 $ 723
================ ================ ===============
Income taxes paid.................................... $ 657 $ - $ -
================ ================ ===============
Supplemental Schedule of Noncash Investing and
Financing Activities:
In connection with property acquisitions
and net lease transactions, assets acquired
and liabilities assumed were as follows:
Fair value of assets acquired ................... $ 13,860 $ 68,545 $ -
Less: Consideration given
Cash paid ................................. 11,875 30,266 -
---------------- ---------------- ---------------
Liabilities assumed ............................. $ 1,985 $ 38,279 $ -
================ ================ ===============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-8-
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(In Thousands, Except Per Share Amounts)
(Unaudited)
1. Organization
Brookdale Living Communities, Inc. ("Brookdale") was incorporated in
Delaware on September 4, 1996 and commenced operations in connection with its
initial public offering (the "IPO"), which closed on May 7, 1997. On December
24, 1997, Brookdale completed a follow-on offering of 2,000 shares of its common
stock at $16.6875 per share (the "Follow-on Offering").
The consolidated financial statements of the Company include the properties
owned or leased by the Company. The combined financial statements of the
Predecessor Properties (defined below) include the facilities owned or leased by
the senior independent and assisted living division of The Prime Group, Inc. and
its affiliates ("PGI"), which consisted of the five facilities as indicated in
the table below (PGI owned or leased The Heritage, The Devonshire and The
Hallmark facilities during the period from January 1, 1995 through May 6, 1997
and leased The Springs of East Mesa and The Gables at Brighton facilities for
the period from December 27, 1996 through May 6, 1997). The following table sets
forth the properties owned, leased, managed or under development by the Company
as of June 30, 1998 (collectively, the "Properties").
Property Name Date Owned or Leased
- ------------- ---------------------
Owned Facilities:
- -----------------
The Heritage (1) May 7, 1997
The Devonshire (1) May 7, 1997
Hawthorn Lakes (2) May 7, 1997
Edina Park Plaza (2) May 7, 1997
Leased Facilities:
- ------------------
The Hallmark (1) May 7, 1997
The Springs of East Mesa (1) May 7, 1997
The Gables at Brighton (1) May 7, 1997
The Park Place (2) May 7, 1997
The Gables at Farmington November 24, 1997
The Classic at West Palm Beach December 18, 1997
The Brendenwood Retirement Community December 22, 1997
Harbor Village March 6, 1998
The Atrium of San Jose May 12, 1998
Managed Facilities:
- -------------------
The Island on Lake Travis (3)
The Kenwood (4)
Development Projects Under Construction:
- ----------------------------------------
Austin, Texas (5)
Southfield, Michigan (5)
Raleigh, North Carolina (5)
Projects In Development:
- ------------------------
Glen Ellyn, Illinois (5) (6)
New York (Battery Park City), New York
(1) Collectively referred to as the "Predecessor Properties"
(2) Collectively referred to as the "IPO Properties"
(3) Management services commenced May 7, 1997
(4) Management services commenced July 1, 1997
(5) The Company is developing these projects for third party owners and has the
option to purchase these facilities
(6) Construction commenced August 5, 1998
-9-
<PAGE>
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included. Operating results for such interim
periods are not necessarily indicative of the results that may be expected for a
full fiscal year. For further information regarding significant accounting
policies please refer to the financial statements and footnotes thereto for the
period ended December 31, 1997 included in the Company's Annual Report on Form
10-K as filed with the Securities and Exchange Commission on March 31, 1998.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates
The preparation of the consolidated and combined financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the consolidated
and combined financial statements and accompanying notes. Actual results could
differ from these estimates.
Development Fees
Development fees are recognized in the period earned.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current financial statement presentation.
3. Recent Developments
On April 15, 1998, the Company purchased land in Raleigh, North Carolina (the
"Raleigh Project") for the purpose of developing a Brookdale prototype senior
independent and assisted living facility. The Company acquired the land for a
total consideration of approximately $2,100 in cash. On June 30, 1998, the
Company sold the Raleigh Project to an unaffiliated third party. The sales price
for the Raleigh Project was $2,903, of which $1,000 was received in cash and
$1,903 was received by the delivery of a promissory note. The note accrues
interest at 9.0% per annum and is payable on September 30, 1998. The Company
continues to develop the Raleigh Project pursuant to a development agreement and
has an option to purchase the Raleigh Project.
On April 27, 1998, the Company obtained a $15,000 unsecured revolving line of
credit from LaSalle National Bank to be used for working capital or in
connection with the acquisition, leasing or development of real property.
Interest accrues on the outstanding principal amount of the loan at a rate equal
to the prime rate plus 1/2% per annum with interest payable monthly. The
outstanding principal amount of the loan and accrued but unpaid interest are
payable in full on April 26, 1999. The Company must pay an unused commitment fee
in an amount equal to 1/4% per annum of the amount of the line of credit which
is not outstanding, which fee is payable quarterly (see Note 7 related to the
increase in the line of credit).
On May 12, 1998, the Company entered into an agreement to lease The Atrium of
San Jose facility, a 292-unit facility located in San Jose, California. The
lease is an operating lease with an initial 10-year term and five one-year
renewal terms, and annual lease payments ranging from $2,331 to $2,405 through
the initial lease term. The Company has an option to acquire this facility. In
connection with the lease, the Company funded a security deposit of
approximately $6,965.
On May 12, 1998, the Company entered into a purchase agreement to acquire land
in Sterling Heights, Michigan for approximately $1,800 for the purpose of
developing a Brookdale prototype senior independent and assisted living
facility. The closing of the purchase of this property is subject to customary
closing contingencies, and there can be no assurance that such closing
contingencies will be satisfied in a timely manner, if at all.
On May 29, 1998, the Company filed a shelf registration statement on Form S-3
with the Securities and Exchange Commission for $200,000 in securities that may
include common stock, preferred stock, and debt securities (the "Registration
Statement"). Debt securities covered by the Registration Statement may include
debt which is convertible to common stock. This registration is intended to
facilitate future public offerings of securities. The Registration Statement was
declared effective by the Securities and Exchange Commission on July 8, 1998.
-10-
<PAGE>
On June 25, 1998, the Company and Nomura Asset Management Corporation
("NACC") entered into a master financing facility in which NACC will provide
financing, in the aggregate principal amount of up to $100,000, for the
development and construction of senior independent living facilities. The owners
of the Austin, Texas and Southfield, Michigan development projects have secured
loan commitments of $24,250 and $26,625, respectively under the master financing
facility.
4. Income Taxes
Income tax expense differs from the amounts computed by applying the U.S.
federal income tax rate of 34% to income before income tax expense principally
as a result of non-taxable amortization of the deferred gain on sale of the
property and state income taxes.
5. Earnings (Loss) Per Share
The following table sets forth the computation of basic and diluted earnings
(loss) per share for the three months ended June 30, 1998, the six months ended
June 30, 1998 and the period from May 7, 1997 through June 30, 1997.
<TABLE>
<CAPTION>
Period from
Three months Six months May 7, 1997
Ended Ended Through
June 30, 1998 June 30, 1998 June 30, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Numerator for basic and diluted earnings (loss)
per common share................................ $ 1,521 $ 2,632 $ (81)
Denominator:
Denominator for basic earnings (loss) per share
- weighted-average shares.................... 9,487 9,448 6,844
Effect of dilutive securities -
Employee stock options........................ 306 273 7
------------- ------------- -------------
Denominator for diluted earnings (loss) per
share-adjusted weighted-average
shares and assumed conversions............ 9,793 9,721 6,851
============= ============= =============
Basic earnings (loss) per share.................. $ 0.16 $ 0.28 $ (0.01)
============= ============= =============
Diluted earnings (loss) per share............... $ 0.16 $ 0.27 $ (0.01)
============= ============= =============
</TABLE>
During the second quarter of 1998, certain employees exercised stock
options. The Company received a tax benefit with respect to the exercise of
non-qualified stock options and the disqualifying disposition of incentive stock
options of $470 which was credited to additional paid-in capital.
6. Pro Forma Information
On July 2, 1998, the Company entered into an agreement to lease The Chatfield,
a 125-unit senior independent and assisted living facility located in West
Hartford, Connecticut. The lease is an operating lease with an initial five year
term and five one-year renewal terms, and annual lease payment amounts ranging
from $1,013 to $1,034 through the initial lease term. The Company has an option
to acquire this facility. In connection with the lease, the Company funded a
security deposit of approximately $5,300.
The following unaudited pro forma condensed, consolidated and combined
statements of operations of the Company for the three months ended June 30, 1998
and June 30, 1997 and the six months ended June 30, 1998 and June 30, 1997 are
presented as if, at January 1, 1998 and January 1, 1997, the Company had
completed the IPO and Follow-on Offering and purchased the Owned Facilities and
leased the Leased Facilities and The Chatfield facility which was leased
beginning July 2, 1998. If The Chatfield facility was not included in the pro
forma operations, revenue, net income, basic earnings per share and diluted
earnings per share would be $19,408, $1,602, $0.17 and $0.16, respectively, for
the three months ended June 30, 1998 and $15,857, $488, $0.07 and $0.07,
respectively, for the three months ended June 30, 1997 and $38,481, $2,934,
$0.31 and $0.30, respectively, for the six months ended June 30, 1998 and
$34,125, $249, $0.04 and $0.04, respectively, for the six months ended June 30,
1997.
-11-
<PAGE>
These unaudited pro forma condensed, consolidated and combined statements of
operations are not necessarily indicative of what the actual results of
operations of the Company would have been assuming the Company had completed the
transactions described in the preceding paragraph at the beginning of each
period presented, nor do they purport to represent the results of operations of
the Company for future periods.
Three months Six months
ended June 30, ended June 30,
-------------- ---------------
1998 1997 1998 1997
-------------- ---------------
Revenue $20,256 $16,706 $40,178 $35,822
Net income 1,630 515 2,994 303
Basic earnings per share 0.17 0.08 0.32 0.04
Diluted earnings per share 0.17 0.08 0.31 0.04
7. Subsequent Events
On July 16, 1998, the Company increased its unsecured revolving line of credit
with LaSalle National Bank from $15,000 to $25,000. The maturity date for the
amended line of credit was revised so that the loan must be paid down to $10,000
upon the completion of an offering of securities; provided that, if an offering
has not occurred on or before October 15, 1998, the loan must be paid down to
$15,000 (see Note 3). The line of credit will continue to bear interest
according to the original terms of the loan agreement at prime plus 1/2% per
annum. As of August 13, 1998, the outstanding balance under the line of credit
was $15,750.
On July 23, 1998, the Company sold a development site located in Glen
Ellyn, Illinois (the "Glen Ellyn Project") to an unaffiliated third party. The
sales price for the Glen Ellyn Project was $4,125 of which $1,400 was received
in cash and $2,725 was received by the delivery of a promissory note. The note
accrues interest at 9.0% per annum and is payable on September 30, 1998. The
Company will develop the Glen Ellyn Project pursuant to a development agreement
and has an option to purchase the Glen Ellyn Project.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion is based on the Consolidated Financial Statements of
the Company as of June 30, 1998 and December 31, 1997, and for the periods from
January 1, 1998 through June 30, 1998 and from May 7, 1997 through June 30, 1997
and the Combined Statement of Operations of Predecessor Properties for the
periods from January 1, 1997 to May 6, 1997. The financial statements of the
Predecessor Properties combine the results of operations of five properties
which were contributed by PGI to the Company simultaneously with the
consummation of its IPO and are now consolidated in the Company's consolidated
financial statements. Historical results and any apparent percentage
relationships with respect thereto are not necessarily indicative of future
operations.
Cautionary Statements
This quarterly report on Form 10-Q contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. When
used in this report, the words "believes," "expects," "anticipates," "estimates"
and similar words and expressions are generally intended to identify
forward-looking statements. Statements that
describe the Company's future strategic plans,
goals or objectives are also forward-looking statements. Readers of this report
are cautioned that any forward-looking statements, including those regarding the
intent, belief, or current expectations of the Company or management, are not
guarantees of future performance, results or events and involve risks and
uncertainties and that actual results and events may differ materially from
those in the forward-looking statements as a result of various factors,
including, but not limited to, (i) general economic conditions in the markets in
which the Company operates, (ii) competitive pressures within the industry
and/or the markets in which the Company operates, (iii) the successful
completion of the acquisition of the facilities which the Company has under
contract, the successful completion of development activities, the successful
integration of newly acquired or leased facilities with the operations of the
Company's existing facilities, fluctuations in operating results, occupancy
levels in the markets in which the Company competes, and/or unanticipated
changes in expenses or capital expenditures, (iv) the effect of future
legislation or regulatory changes on the Company's operations and (v) other
factors described from time to time in the Company's filings with the Securities
and Exchange Commission. The forward-looking statements included in this report
are made only as of the date hereof. The Company undertakes no obligation to
update such forward-looking statements to reflect subsequent events or
circumstances.
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<PAGE>
Overview
As of June 30, 1998, the Company operated 15 senior independent and assisted
living facilities containing a total of 3,372 units. Four of such facilities are
owned by the Company, nine facilities are leased by the Company and two
facilities (one of which is owned by PGI) are managed by Brookdale pursuant to
management contracts. The Company's senior independent and assisted living
facilities offer residents a supportive, "home-like" setting as well as
assistance with certain activities of daily living. By providing residents a
range of service options as their needs change, the Company seeks to achieve
greater continuity of care, enabling senior residents to "age-in-place" and
thereby maintain their stay for a longer time period. The ability to allow
residents to age-in-place is beneficial to the Company's residents as well as
their families who are burdened with care decisions for their elderly relatives.
The Company derives its revenues from resident fees, development fees and
management fees. Resident fees consist of charges for leasing units, providing
basic care services, and, in certain instances, providing supplemental care
services to residents. Basic care services include meal service, housekeeping
services within the resident units, social and recreational activities,
scheduled transportation, security, emergency call response, access to on-site
medical services and medical education and wellness programs. In addition to
basic care services, the Company offers custom tailored supplemental care
services for residents who desire or need such services. Optional supplemental
care services include check-in services and escort and companion services.
Depending on the particular facility and as dictated by state licensing
requirements, the Company also provides assistance with activities of daily
living, such as dressing, bathing, eating and medication administration or
reminders. The Company plans to expand its supplemental service offerings, as
permitted by licensing, in order to capture incremental revenue and enable its
residents to remain in its facilities longer. In addition, where practicable,
the Company may obtain licensing to provide home health services to residents.
Resident fees typically are paid monthly by residents, their families or other
responsible parties. As of June 30, 1998, 99.6% of the Company's revenue was
derived from private pay sources.
The Company derives additional revenue from development fees associated with
developing senior independent and assisted living facilities for unaffiliated
third parties and management fees from managing senior independent and assisted
living facilities for unaffiliated third parties pursuant to management
contracts. Management services income consists of management fees, which
typically range from 3.0% to 5.0% of a managed facility's total gross revenues.
All such fees are recognized as revenues when management services are rendered.
The Company classifies its operating expenses into the following categories:
(i) facility operating expenses, which include property personnel payroll and
related costs, food, marketing, other direct facility expenses and real estate
taxes; (ii) general and administrative expenses, which primarily include
corporate and other overhead costs; (iii) lease expenses; and (iv) depreciation
and amortization.
Comparison of six months ended June 30, 1998 to six months ended June 30, 1997
For the six months ended June 30, 1998, results reflect the operations of the
Company's 15 facilities. For the six months ended June 30, 1997, results reflect
the operations of the Predecessor's five facilities, the operations of the
Company's three IPO Properties and the management by the Company of one facility
after the IPO.
Revenue. Total revenue increased by $18.5 million, or 108.6%, to $35.5 million
for the six months ended June 30, 1998 when compared to the six months ended
June 30, 1997. Resident fees increased by $15.8 million, or 93.1%, to $32.9
million. Of this increase, approximately $783,000 (or a "same store" increase of
5.2%) reflects an increase in resident fees at the properties that have been
operated during both periods, which resulted primarily from increases in monthly
charges under residency agreements. Approximately $15.0 million of such increase
reflects revenue from facilities acquired, leased or managed subsequent the IPO.
The remaining $2.7 million of the total revenue increase reflects revenue from
development and management fees associated with projects being developed and
managed by the Company for unaffiliated third parties. The Company has the
option to purchase such development properties.
Operating Expenses. Total operating expenses increased by $15.0 million, or
92.6%, to $31.2 million for the six months ended June 30, 1998 when compared to
the six months ended June 30, 1997. Facility operating expenses increased by
$8.9 million, or 95.4%, to $18.3 million primarily due to the addition of the
expenses of the facilities acquired or leased subsequent to the IPO. From the
commencement of its operations on May 7, 1997, the Company has managed all of
its facilities and, accordingly, incurred general and administrative expenses of
approximately $2.5 million for the six months ended June 30, 1998 compared to
$478,000 for the period from May 7, 1997 through June 30, 1997. Prior to May 7,
1997, two of the Predecessor Properties incurred property management fees of
approximately $230,000.
Lease expense increased by approximately $3.4 million, or 74.3%, to $8.0
million for the six months ended June 30, 1998 when compared to the six months
ended June 30, 1997 due primarily to the addition of lease expense for the
facilities leased subsequent to the IPO.
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<PAGE>
Depreciation and amortization increased by approximately $883,000, or 57.0%, to
$2.4 million for the six months ended June 30, 1998 when compared to the six
months ended June 30, 1997. This increase primarily reflects the depreciation of
the step-up in basis of two of the Predecessor Properties that resulted in
connection with the IPO and the depreciation of two of the IPO Properties
acquired on May 7, 1997.
Interest expense increased by approximately $313,000, or 20.3%, to $1.9
million for the six months ended June 30, 1998 when compared to the six months
ended June 30, 1997 primarily due to the assumption of debt on the Hawthorn
Lakes and Edina Park Plaza facilities in connection with the purchase of these
properties on May 7, 1997. Interest income increased by approximately $1.4
million to $1.6 million for the six months ended June 30, 1998 when compared to
the six months ended June 30, 1997 due to an increase in average cash balances
and various deposits and restricted investments.
Net Income. For the six months ended June 30, 1998, the Company generated net
income of approximately $2.6 million, as compared to a net loss of $745,000 for
the six months ended June 30, 1997 primarily due to the changes in revenue and
expenses described above. Net income for the six months ended June 30, 1998
versus the net loss for the six months ended June 30, 1997, which included the
Predecessor Properties only, is not necessarily comparable, in the opinion of
management, due to the different ownership and capital structures for the
respective periods.
Comparison of three months ended June 30, 1998 to three months ended June 30,
1997
For the three months ended June 30, 1998, results reflect the operations of
the Company's 15 facilities. For the three months ended June 30, 1997, results
reflect the operations of the Predecessor's five facilities, the operations of
the Company's three IPO Properties and the management by the Company of one
facility after the IPO.
Revenue. Total revenue increased by $9.1 million, or 94.7%, to $18.7 million
for the three months ended June 30, 1998 when compared to the three months ended
June 30, 1997. Resident fees increased by $7.7 million, or 80.1%, to $17.2
million. Of this increase, approximately $341,000 (or a "same store" increase of
4.5%) reflects an increase in resident fees at the properties that have been
operated during both periods, which resulted primarily from increases in monthly
charges under residency agreements. Approximately $7.4 million of such increase
reflects revenue from facilities acquired, leased or managed subsequent to the
IPO. The remaining $1.4 million of the total revenue increase reflects revenue
from development and management fees associated with projects being developed
and managed by the Company for unaffiliated third parties. The Company has the
option to purchase such development properties.
Operating Expenses. Total operating expenses increased by $7.2 million, or
80.4%, to $16.2 million for the three months ended June 30, 1998 when compared
to the three months ended June 30, 1997. Facility operating expenses increased
by $4.5 million, or 87.8%, to $9.7 million primarily due to the addition of the
expenses of the facilities acquired or leased subsequent to the IPO. From the
commencement of operations on May 7, 1997, the Company has managed all of its
facilities and, accordingly, incurred general and administrative expenses of
approximately $1.2 million for the three months ended June 30, 1998 compared to
$478,000 for the period from May 7, 1997 through June 30, 1997. For the period
from April 1, 1997 through May 6, 1997, two of the Predecessor Properties
incurred property management fees of approximately $59,000.
Lease expense increased by approximately $1.7 million, or 71.8%, to $4.1
million for the three months ended June 30, 1998 when compared to the three
months ended June 30, 1997 due to the addition of lease expense for the
facilities leased subsequent to the IPO. Depreciation and amortization increased
by approximately $308,000, or 34.3%, to $1.2 million for the three months ended
June 30, 1998 when compared to the three months ended June 30, 1997. This
increase primarily reflects the depreciation of the step-up in basis of two of
the Predecessor Properties that resulted in connection with the IPO and the
depreciation of two of the IPO Properties acquired on May 7, 1997.
Interest expense decreased by approximately $73,000, or 7.2%, to $936,000 for
the three months ended June 30, 1998 when compared to the three months ended
June 30, 1997 primarily due to lower floating interest rates on the tax-exempt
bonds relating to The Heritage and The Devonshire facilities partially offset by
the debt on the Hawthorn Lakes and Edina Park Plaza facilities purchased on May
7, 1997. Interest income increased by approximately $791,000 to $936,000 for the
three months ended June 30, 1998 when compared to the three months ended June
30, 1997 due to an increase in average cash balances and various deposits and
restricted investments.
Net Income. For the three months ended June 30, 1998, the Company generated
net income of approximately $1.5 million, as compared to a net loss of $279,000
for the three months ended June 30, 1997 primarily due to the changes in revenue
and expenses described above. Net income for the three months ended June 30,
1998 versus the net loss for the three months ended June 30, 1997, which
included the Predecessor Properties only, is not necessarily comparable, in the
opinion of management, due to the different ownership and capital structures for
the respective periods.
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<PAGE>
Liquidity and Capital Resources
On December 24, 1997, the Company completed a follow-on public offering of
2,000,000 shares of common stock, $.01 par value per share, at $16.6875 per
share. The underwriters of the offering exercised their over-allotment option,
and, on January 21, 1998, the Company sold an additional 300,000 shares of the
Company's common stock at $16.6875 per share. The proceeds from such offering
(including the exercise of the underwriters' over-allotment option), net of
related underwriting discounts and commissions and offering costs, totaled
approximately $35.5 million ($4.6 million from the exercise of the underwriters'
over-allotment option). The Company used approximately $25.8 million of such net
proceeds to repay outstanding indebtedness and fund lease security deposits paid
subsequent to such offering. The remaining net proceeds were used to finance a
portion of subsequent acquisitions, leasing and developments of senior
independent and assisted living facilities and working capital and for general
corporate purposes.
Cash and cash equivalents (which does not include cash and
investments-restricted of $19.7 million, the letter of credit deposit of $13.0
million and lease security deposits of $32.1 million) decreased by $11.9 million
to $1.4 million at June 30, 1998 primarily due to cash utilized for the
acquisition, leasing and development of facilities offset in part by the
proceeds from the exercise of the underwriters' over-allotment option related to
the Follow-on Offering.
Net cash provided by operating activities for the six months ended June 30,
1998 totaled approximately $3.5 million as a result of increased property
operations before depreciation and amortization and properties acquired and
leased subsequent to the IPO.
Net cash used in investing activities totaled approximately $27.4 million for
the six months ended June 30, 1998. Investing activities included net cash used
for lease security deposits in connection with the lease of Harbor Village and
The Atrium of San Jose facilities in the amounts of $5.3 million and $7.0
million, respectively, cash paid for property under development of $9.9 million,
proceeds from the sale of property under development of $3.3 million, payments
received on notes receivable of $7.4 million, an increase in cash and
investments-restricted of $12.8 million and other uses of $3.1 million.
Net cash provided by financing activities was approximately $12.1 million for
the six months ended June 30, 1998. Financing activities included proceeds from
the exercise of the underwriters' over-allotment option related to the follow-on
offering of $4.4 million, $1.0 million from the exercise of employee stock
options and net proceeds from an unsecured line of credit of $8.3 million offset
by other net uses of approximately $1.6 million.
The Company currently plans to acquire or lease four to six senior independent
and assisted living facilities per year containing an aggregate of approximately
800 to 1,200 units and to commence development of at least three new facilities
per year containing approximately 220 units. The total construction costs,
including construction period financing costs and operating deficits during the
lease-up period, for the 220-unit prototype are estimated to be approximately
$30.0 million, or approximately $135,000 per unit. At June 30, 1998, the Company
had several sites under consideration for development for new senior independent
and assisted living facilities, two of which were under construction. Subsequent
to such date, the Company commenced construction on its Raleigh, North Carolina
and Glen Ellyn, Illinois projects. Capital expenditures related to the Company's
existing facilities are estimated to be approximately $3.0 million to $5.0
million in the aggregate in 1998. The Company anticipates that it will use a
combination of cash on hand, additional equity financing and debt financing,
lease transactions and cash generated from operations to fund its acquisition
and development activities. The Company currently estimates that the cash
generated from operations, together with cash on hand, existing debt facilities
and commitments and anticipated future financing, will be sufficient to meet its
liquidity needs for at least six months. Thereafter, in order to achieve its
growth plans, the Company will be required to obtain a substantial amount of
additional financing. The Company presently has no commitment, arrangement or
understanding regarding financing to fund the debt portion of the Company's
acquisition and development plans other than the $100.0 million commitment from
Nomura Asset Capital Corporation for development projects. There can be no
assurance that the Company will be able to obtain the financing necessary for
its acquisition and development programs.
As of June 30, 1998, the Company had $65.0 million of long-term indebtedness
in tax-exempt bonds with floating rates. The interest rates (exclusive of credit
enhancement and other fees) on such debt averaged 3.64% during the six months
ended June 30, 1998. Such tax-exempt bonds contain covenants requiring the
facilities to maintain a minimum number of units for income qualified residents.
The Company may obtain similar bond financing for future facilities.
As of June 30, 1998, the Company also had $8.3 million outstanding under its
unsecured line of credit at a floating rate of prime plus 1/2%. The interest
rate on the line remained at 9% during the three months ended June 30, 1998.
The Company is dependent on third-party financing for its acquisition, leasing
and development programs. Some financing obtained in the future is expected to
contain terms and conditions and representations and warranties that are
customary for such loans and may contain financing covenants and other
restrictions that (i) require the Company to meet certain financial tests and
maintain certain amounts
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<PAGE>
of funds in escrow, (ii) limit, among other things, the ability of the Company
to borrow additional funds, dispose of assets and engage in mergers or other
business combinations and (iii) restrict the ability of the Company to operate
competing facilities within certain distances from mortgaged facilities. There
can be no assurance that financing for the Company's acquisition and development
program will be available to the Company on acceptable terms or at all. A lack
of funds may require the Company to delay or eliminate all or some of its
development projects and acquisition and leasing plans and could therefore have
a material adverse effect on the Company's growth plans and on its future
results of operations.
Impact of Recently Issued Accounting Standards
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5, "Reporting on the Cost of Start-Up Activities" (SOP 98-5)
which is effective for fiscal years beginning after December 15, 1998. SOP 98-5
provides guidance on financial reporting of start-up costs and organization
costs. Adoption of SOP 98-5 is not anticipated to affect the financial position
or results of operations of the Company.
Impact of Inflation
Resident fees from senior independent and assisted living facilities owned or
leased by the Company, management fees from facilities managed by the Company
for third parties and development fees from facilities developed by the Company
for third parties are primary sources of revenue. These revenues are affected by
monthly resident fee rates and facility occupancy rates. The rates charged for
senior independent and assisted living services are highly dependent upon local
market conditions and the competitive environment in which the facilities
operate. Substantially all of the Company's resident agreements allow for
adjustments in the monthly fees payable thereunder upon each anniversary of the
commencement of the residency agreement, thereby enabling the Company to seek
increases in monthly fees due to inflation or other demand factors. Any such
increase would be subject to market and competitive conditions. The Company
believes, however, that the ability to adjust the monthly fees payable under the
residency agreements on an annual basis serves to reduce the risk to the Company
of the adverse effect of inflation. In addition, employee compensation expense
is a principal cost element of facility operations and is also dependent upon
local market conditions. There can be no assurance that resident fees will
increase or that costs will not increase due to inflation or other causes. In
addition, as of June 30, 1998, approximately $73.3 million in principal amount
of the Company's indebtedness bore interest at floating rates and future
indebtedness may bear floating rate interest. Inflation, and its impact on
floating interest rates, could affect the amount of interest payments due on
such indebtedness.
Readiness for Year 2000
The Company is in the process of planning the nature and extent of the work
required to make its systems and infrastructure Year 2000 compliant. Based on a
recent assessment, the Company will have to modify or replace certain portions
of its hardware and software so that its systems will function properly with
respect to the Year 2000 and beyond. The Company believes that with
modifications to existing software and conversions to new software applications,
in addition to hardware upgrades on certain mechanical systems, the Year 2000
issue will not pose significant operational problems. However, if such
modifications and conversions are not made, or are not completed in a timely
manner, the Year 2000 issue could have a material impact on the operations of
the Company.
The Company continues to evaluate the Year 2000 issue and will utilize both
internal and external resources in order to reprogram, or replace, systems that
are not in compliance with the Year 2000. The Company anticipates completing the
project no later than March 31, 1999. The cost to complete the project has not
yet been determined.
The project completion date is based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
ability of third parties to modify the Company's systems on a timely basis.
There can be no guarantee that the project will be completed in a timely manner.
Specific factors that might delay completion of the project include, but are not
limited to, the availability of qualified personnel, the ability to locate and
correct all relevant computer codes, and similar uncertainties. Although the
Company intends to continue preparations for Year 2000, it is not possible to
quantify potential indirect effects resulting from the lack of readiness of any
third party with whom the Company conducts its business.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
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<PAGE>
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
No material developments with respect to legal proceedings
occurred during the period covered by this quarterly report.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's Annual Meeting of Stockholders was held on May
21, 1998. At the meeting, stockholders voted on (i) the
election of two directors; (ii) ratification of the
appointment of Ernst & Young LLP as the Company's independent
auditors for 1998; and (iii) the approval of the Company's
1998 Stock Incentive Plan. Voting on each such matter was as
follows:
Votes Votes Withheld/ Broker
For Against Abstentions Non-Votes
---------- --------- ----------- ---------
1. Election of Directors:
Michael W. Reschke 8,985,257 - 47,000 -
Dr. Bruce L. Gewertz 9,027,257 - 5,000 -
2. Ratification of Auditors 8,613,907 417,100 1,250 -
3. Approval of 1998 Stock
Incentive Plan 7,483,447 1,540,820 6,725 -
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation of the Company, as filed with
the Securities and Exchange Commission on June 16, 1997 as Exhibit
3.1 to the Company's Form 10-Q for the period ended March 31, 1997
(File No. 0-22253) and incorporated herein by reference
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<PAGE>
Exhibit
Number Description
------- -----------
3.2 Amended and Restated By-laws of the Company, as filed with the
Securities and Exchange Commission on June 16, 1997 as Exhibit 3.2
to the Company's Form 10-Q for the period ended March 31, 1997
(File No. 0-22253) and incorporated herein by reference
4.1 Form of certificate representing Common Stock of the Company, as
filed with the Securities and Exchange Commission on March 17, 1997
as Exhibit 10.14 to the Company's Registration Statement on Form
S-1 (Registration No. 333-12259) and incorporated herein by
reference
10.1 Lease dated as of May 11, 1998 by and between Brookdale Living
Communities of California, Inc., as lessee, and Atrium of San Jose
LLC, as lessor-owner, as filed with the Securities and Exchange
Commission on May 26, 1998 as Exhibit 10.1 to the Company's Form
8-K dated May 12, 1998 (File No. 0-22253) and incorporated herein
by reference
10.2 Note and Deed of Trust Modification and Assumption Agreement dated
as of May 12, 1998 by and among LaSalle National Bank, as Trustee
for the Registered Holders of DLJ Mortgage Acceptance Corp.,
Commercial Mortgage Pass-Through Certificates, Series 1996-CF1
("Trustee"), Atrium Venture, The Atrium of San Jose LLC and
Brookdale Living Communities of California, Inc., as filed with the
Securities and Exchange Commission on May 26, 1998 as Exhibit 10.2
to the Company's Form 8-K dated May 12, 1998 (File No. 0-22253) and
incorporated herein by reference
10.3 Leasehold Deed of Trust, Assignment of Rents, Security Agreement
and Fixture Filing dated as of May 12, 1998 by Brookdale Living
Communities of California, Inc. in favor of The Atrium of San Jose
LLC, as filed with the Securities and Exchange Commission on May
26, 1998 as Exhibit 10.3 to the Company's Form 8-K dated May 12,
1998 (File No. 0-22253) and incorporated herein by reference
10.4 Pledge and Security Agreement dated as of May 12, 1998 by Brookdale
Living Communities of California, Inc. and The Atrium of San Jose
LLC in favor of Key Corporate Capital, Inc. and SELCO Service
Corporation, as filed with the Securities and Exchange Commission
on May 26, 1998 as Exhibit 10.4 to the Company's Form 8-K dated May
12, 1998 (File No. 0-22253) and incorporated herein by reference
10.5 Indemnity and Guaranty Agreement dated as of May 12, 1998 from
Brookdale Living Communities of California, Inc. and Brookdale
Living Communities, Inc. in favor of Trustee, as filed with the
Securities and Exchange Commission on May 26, 1998 as Exhibit 10.5
to the Company's Form 8-K dated May 12, 1998 (File No. 0-22253) and
incorporated herein by reference
10.6 Hazardous Substances Indemnity Agreement dated as of May 12, 1998
from The Atrium of San Jose LLC, Brookdale Living Communities of
California, Inc. and Brookdale Living Communities, Inc. in favor of
Trustee, as filed with the Securities and Exchange Commission on
May 26, 1998 as Exhibit 10.6 to the Company's Form 8-K dated May
12, 1998 (File No. 0- 22253) and incorporated herein by reference
10.7 Indemnity and Guaranty Agreement dated as of May 12, 1998 from
Brookdale Living Communities, Inc. in favor of Healthcare Realty
Trust Incorporated, as filed with the Securities and Exchange
Commission on May 26, 1998 as Exhibit 10.7 to the Company's Form
8-K dated May 12, 1998 (File No. 0-22253) and incorporated herein
by reference
10.8 Indemnity Agreement dated as of May 12, 1998 by and among Brookdale
Living Communities, Inc. in favor of The Atrium of San Jose LLC,
Healthcare Realty Trust Incorporated, Key Corporate Capital, Inc.,
SELCO Service Corporation and Wilmington Trust Company, as filed
with the Securities and Exchange Commission on May 26, 1998 as
Exhibit 10.8 to the Company's Form 8-K dated May 12, 1998 (File No.
0-22253) and incorporated herein by reference
10.9 Master Facility Agreement, dated as of June 17, 1998, by and
between Brookdale Living Communities, Inc. and Nomura Asset Capital
Corporation as filed with the Securities and Exchange Commission on
July 16, 1998 as Exhibit 10.1 to the Company's Form 8-K dated June
25, 1998 (File No. 0-22253) and incorporated herein by reference
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<PAGE>
Exhibit
Number Description
------- -----------
10.10 Loan Agreement, dated as of June 17, 1998, by and among Nomura
Asset Capital Corporation, AH Texas Owner Limited Partnership and
BLC of Texas-II, L.P. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.2 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.11 Building Loan Agreement, dated as of June 17, 1998, by and among
Nomura Asset Capital Corporation, AH Texas Owner Limited
Partnership and BLC of Texas-II, L.P. as filed with the Securities
and Exchange Commission on July 16, 1998 as Exhibit 10.3 to the
Company's Form 8-K dated June 25, 1998 (File No. 0-22253) and
incorporated herein by reference
10.12 Guaranty of Payment of Note, Rate Lock Obligations, Carrying Costs
and Recourse Obligations, dated as of June 17, 1998, from Brookdale
Living Communities, Inc. in favor of Nomura Asset Capital
Corporation. as filed with the Securities and Exchange Commission
on July 16, 1998 as Exhibit 10.4 to the Company's Form 8-K dated
June 25, 1998 (File No. 0-22253) and incorporated herein by
reference
10.13 Guaranty of Completion, dated as of June 17, 1998, by Brookdale
Living Communities, Inc. in favor of Nomura Asset Capital
Corporation as filed with the Securities and Exchange Commission on
July 16, 1998 as Exhibit 10.5 to the Company's Form 8-K dated June
25, 1998 (File No. 0-22253) and incorporated herein by reference
10.14 Environmental Indemnity Agreement, dated as of June 17, 1998, from
Brookdale Living Communities, Inc. in favor of Nomura Asset Capital
Corporation as filed with the Securities and Exchange Commission on
July 16, 1998 as Exhibit 10.6 to the Company's Form 8-K dated June
25, 1998 (File No. 0-22253) and incorporated herein by reference
10.15 Loan Agreement, dated as of June 17, 1998, by and between Banc One
Capital Partners IV, Ltd. and AH Texas Subordinated, LLC. as filed
with the Securities and Exchange Commission on July 16, 1998 as
Exhibit 10.7 to the Company's Form 8-K dated June 25, 1998 (File
No. 0-22253) and incorporated herein by reference
10.16 Guaranty Agreement, dated as of June 17, 1998, from Brookdale
Living Communities, Inc. in favor of Banc One Capital Partners IV,
Ltd. as filed with the Securities and Exchange Commission on July
16, 1998 as Exhibit 10.8 to the Company's Form 8-K dated June 25,
1998 (File No. 0-22253) and incorporated herein by reference
10.17 Guaranty of Completion, dated as of June 17, 1998, by Brookdale
Living Communities, Inc. in favor of Banc One Capital Partners IV,
Ltd. as filed with the Securities and Exchange Commission on July
16, 1998 as Exhibit 10.9 to the Company's Form 8-K dated June 25,
1998 (File No. 0-22253) and incorporated herein by reference
10.18 Non-recourse Guaranty Agreement, dated as of June 17, 1998, from
Brookdale Living Communities, Inc. in favor of Banc One Capital
Partners IV, Ltd. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.10 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.19 Environmental Indemnity Agreement, dated as of June 17, 1998, from
Brookdale Living Communities, Inc. in favor of Banc One Capital
Partners IV, Ltd. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.11 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.20 Environmental Indemnity Agreement, dated as of June 17, 1998, from
Brookdale Living Communities, Inc. in favor of the Indemnified
Parties (as defined therein) and AH Texas Owner Limited Partnership
as filed with the Securities and Exchange Commission on July 16,
1998 as Exhibit 10.12 to the Company's Form 8-K dated June 25, 1998
(File No. 0-22253) and incorporated herein by reference
10.21 Conditional Investment Agreement, dated as of June 17, 1998, by and
between Brookdale Living Communities, Inc. and Banc One Capital
Funding Corporation as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.13 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
-19-
<PAGE>
Exhibit
Number Description
------- -----------
10.22 Warrant Certificate, dated as of June 17, 1998, issued by Brookdale
Living Communities, Inc. in favor of Banc One Capital Markets, Inc.
for up to 5,000 shares of Common Stock of Brookdale Living
Communities, Inc. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.14 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.23 Warrant Certificate, dated as of June 17, 1998, issued by Brookdale
Living Communities, Inc. in favor of Banc One Capital Partners IV,
Ltd. for up to 20,000 shares of Common Stock of Brookdale Living
Communities, Inc. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.15 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.24 Amended and Restated Development Agreement, dated as of June 17,
1998, by and between BLC of Texas-II, L.P. and AH Texas Owner
Limited Partnership as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.16 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.25 Management Agreement, dated as of June 17, 1998, by and between BLC
of Texas-II, L.P. and AH Texas Owner Limited Partnership as filed
with the Securities and Exchange Commission on July 16, 1998 as
Exhibit 10.17 to the Company's Form 8-K dated June 25, 1998 (File
No. 0-22253) and incorporated herein by reference
10.26 Equity Option Agreement, dated as of June 17, 1998, by and among
Brookdale Living Communities, Inc., AH Texas Owner Limited
Partnership, AH Texas Subordinated, LLC, AH Texas CGP, Inc. and AH
Texas Investor, Inc. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.18 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.27 Property Option Agreement, dated as of June 17, 1998, by and among
Brookdale Living Communities, Inc., AH Texas Owner Limited
Partnership and AH Texas Subordinated, LLC. as filed with the
Securities and Exchange Commission on July 16, 1998 as Exhibit
10.19 to the Company's Form 8-K dated June 25, 1998 (File No.
0-22253) and incorporated herein by reference
10.28 Loan Agreement, dated as of June 17, 1998, by and among Nomura
Asset Capital Corporation, AH Michigan Owner Limited Partnership
and Brookdale Living Communities of Michigan, Inc. as filed with
the Securities and Exchange Commission on July 16, 1998 as Exhibit
10.20 to the Company's Form 8-K dated June 25, 1998 (File No.
0-22253) and incorporated herein by reference
10.29 Building Loan Agreement, dated as of June 17, 1998, by and among
Nomura Asset Capital Corporation, AH Michigan Owner Limited
Partnership and Brookdale Living Communities of Michigan, Inc. as
filed with the Securities and Exchange Commission on July 16, 1998
as Exhibit 10.21 to the Company's Form 8-K dated June 25, 1998
(File No. 0-22253) and incorporated herein by reference
10.30 Guaranty of Payment of Note, Rate Lock Obligations, Carrying Costs
and Recourse Obligations, dated as of June 17, 1998, from Brookdale
Living Communities, Inc. in favor of Nomura Asset Capital
Corporation as filed with the Securities and Exchange Commission on
July 16, 1998 as Exhibit 10.22 to the Company's Form 8-K dated June
25, 1998 (File No. 0- 22253) and incorporated herein by reference
10.31 Guaranty of Completion, dated as of June 17, 1998, by Brookdale
Living Communities, Inc. in favor of Nomura Asset Capital
Corporation as filed with the Securities and Exchange Commission on
July 16, 1998 as Exhibit 10.23 to the Company's Form 8-K dated June
25, 1998 (File No. 0-22253) and incorporated herein by reference
10.32 Environmental Indemnity Agreement, dated as of June 17, 1998, from
Brookdale Living Communities, Inc. in favor of Nomura Asset Capital
Corporation as filed with the Securities and Exchange Commission on
July 16, 1998 as Exhibit 10.24 to the Company's Form 8-K dated June
25, 1998 (File No. 0-22253) and incorporated herein by reference
-20-
<PAGE>
Exhibit
Number Description
------- -----------
10.33 Loan Agreement, dated as of June 17, 1998, by and between Banc One
Capital Partners IV, Ltd. and AH Michigan Subordinated, LLC as
filed with the Securities and Exchange Commission on July 16, 1998
as Exhibit 10.25 to the Company's Form 8-K dated June 25, 1998
(File No. 0-22253) and incorporated herein by reference
10.34 Guaranty Agreement, dated as of June 17, 1998, from Brookdale
Living Communities, Inc. in favor of Banc One Capital Partners IV,
Ltd. as filed with the Securities and Exchange Commission on July
16, 1998 as Exhibit 10.26 to the Company's Form 8-K dated June 25,
1998 (File No. 0-22253) and incorporated herein by reference
10.35 Guaranty of Completion, dated as of June 17, 1998, by Brookdale
Living Communities, Inc. in favor of Banc One Capital Partners IV,
Ltd. as filed with the Securities and Exchange Commission on July
16, 1998 as Exhibit 10.27 to the Company's Form 8-K dated June 25,
1998 (File No. 0-22253) and incorporated herein by reference
10.36 Non-recourse Guaranty Agreement, dated as of June 17, 1998, from
Brookdale Living Communities, Inc. in favor of Banc One Capital
Partners IV, Ltd. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.28 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.37 Environmental Indemnity Agreement, dated as of June 17, 1998, from
Brookdale Living Communities, Inc. in favor of Banc One Capital
Partners IV, Ltd. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.29 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.38 Environmental Indemnity Agreement, dated as of June 17, 1998, from
Brookdale Living Communities, Inc. in favor of the Indemnified
Parties (as defined therein) and AH Michigan Owner Limited
Partnership as filed with the Securities and Exchange Commission on
July 16, 1998 as Exhibit 10.30 to the Company's Form 8-K dated June
25, 1998 (File No. 0- 22253) and incorporated herein by reference
10.39 Conditional Investment Agreement, dated as of June 17, 1998, by and
between Brookdale Living Communities, Inc. and Banc One Capital
Funding Corporation as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.31 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.40 Warrant Certificate, dated as of June 17, 1998, issued by Brookdale
Living Communities, Inc. in favor of Banc One Capital Markets, Inc.
for up to 5,000 shares of Common Stock of Brookdale Living
Communities, Inc. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.32 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.41 Warrant Certificate, dated as of June 17, 1998, issued by Brookdale
Living Communities, Inc. in favor of Banc One Capital Partners IV,
Ltd. for up to 20,000 shares of Common Stock of Brookdale Living
Communities, Inc. as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.33 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.42 Amended and Restated Development Agreement, dated as of June 17,
1998, by and between Brookdale Living Communities of Michigan, Inc.
and AH Michigan Owner Limited Partnership as filed with the
Securities and Exchange Commission on July 16, 1998 as Exhibit
10.34 to the Company's Form 8-K dated June 25, 1998 (File No.
0-22253) and incorporated herein by reference
10.43 Management Agreement, dated as of June 17, 1998, by and between
Brookdale Living Communities of Michigan, Inc. and AH Michigan
Owner Limited Partnership as filed with the Securities and Exchange
Commission on July 16, 1998 as Exhibit 10.35 to the Company's Form
8-K dated June 25, 1998 (File No. 0-22253) and incorporated herein
by reference
10.44 Equity Option Agreement, dated as of June 17, 1998, by and among
Brookdale Living Communities, Inc., AH Michigan Owner Limited
Partnership, AH Michigan Subordinated, LLC, AH Michigan CGP, Inc.
and AH Michigan Investor, Inc. as filed with the Securities and
Exchange Commission on July 16, 1998 as Exhibit 10.36 to the
Company's Form 8-K dated June 25, 1998 (File No. 0-22253) and
incorporated herein by reference
-21-
<PAGE>
10.45 Property Option Agreement, dated as of June 17, 1998, by and among
Brookdale Living Communities, Inc., AH Michigan Owner Limited
Partnership and AH Michigan Subordinated, LLC. as filed with the
Securities and Exchange Commission on July 16, 1998 as Exhibit
10.37 to the Company's Form 8-K dated June 25, 1998 (File No.
0-22253) and incorporated herein by reference
10.46 Purchase and Sale Agreement, dated as of June 30, 1998, by and
between AH North Carolina Owner Limited Partnership and Brookdale
Living Communities of North Carolina, Inc., and guaranteed by
Brookdale Living Communities, Inc. as filed with the Securities and
Exchange Commission on July 17, 1998 as Exhibit 10.1 to the
Company's Form 8-K dated June 30, 1998 (File No. 0-22253) and
incorporated herein by reference
10.47 Note, dated June 30, 1998, issued by AH North Carolina Owner
Limited Partnership in favor of Brookdale Living Communities of
North Carolina, Inc. in the principal amount of $1,902,776.97 as
filed with the Securities and Exchange Commission on July 17, 1998
as Exhibit 10.2 to the Company's Form 8-K dated June 30, 1998 (File
No. 0-22253) and incorporated herein by reference
10.48 Development Agreement, dated as of June 30, 1998, by and between AH
North Carolina Owner Limited Partnership and Brookdale Living
Communities of North Carolina, Inc., and guaranteed by Brookdale
Living Communities, Inc. as filed with the Securities and Exchange
Commission on July 17, 1998 as Exhibit 10.3 to the Company's Form
8-K dated June 30, 1998 (File No. 0-22253) and incorporated herein
by reference
10.49 Guaranty Agreement, dated as of June 30, 1998, issued by AH North
Carolina CPG, Inc. and AH North Carolina Subordinated, LLC in favor
of Brookdale Living Communities of North Carolina, Inc. as filed
with the Securities and Exchange Commission on July 17, 1998 as
Exhibit 10.4 to the Company's Form 8-K dated June 30, 1998 (File
No. 0-22253) and incorporated herein by reference
10.50 Collateral Assignment of Partnership Interests, dated as of June
30, 1998, issued by AH North Carolina CPG, Inc. and AH North
Carolina Subordinated, LLC for the benefit of Brookdale Living
Communities of North Carolina, Inc. as filed with the Securities
and Exchange Commission on July 17, 1998 as Exhibit 10.5 to the
Company's Form 8-K dated June 30, 1998 (File No. 0-22253) and
incorporated herein by reference
10.51 Loan Agreement dated as of April 27, 1998 by and between the
Company and LaSalle National Bank
10.52 Note dated April 27, 1998 issued by the Company payable to the
order of LaSalle National Bank
27 Financial Data Schedule
(b) Reports on Form 8-K:
On May 26, 1998, the Company filed a Current Report on Form 8-K dated May 12,
1998 with the Securities and Exchange Commission announcing pursuant to Item 5
of Form 8-K the lease of The Atrium of San Jose which commenced on May 12, 1998.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BROOKDALE LIVING COMMUNITIES, INC.
----------------------------------
Registrant
Date: August 13, 1998 /s/ Mark J. Schulte
----------------------------- -------------------
Mark J. Schulte
President and
Chief Executive Officer
Date: August 13, 1998 /s/ Darryl W. Copeland, Jr.
----------------------------- ---------------------------
Darryl W. Copeland, Jr.
Executive Vice President and
Chief Financial Officer
-23-
LOAN AGREEMENT
THIS LOAN AGREEMENT, dated as of April ___, 1998 (this "Agreement"), is
entered into by and between BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation (the "Borrower"), and LaSALLE NATIONAL BANK, a national banking
association (the "Bank"). In consideration of the covenants, agreements and
provisions set forth herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. DEFINITIONS; RULES OF CONSTRUCTION.
1.01 Definitions. The following words and phrases, as used herein,
shall have the following respective meanings:
"Accounts" shall mean any and all accounts, contract rights, notes,
drafts, chattel paper, instruments, documents and general intangibles consisting
of rights to payment (all as defined in the UCC).
"Affiliate" shall mean any Person which, directly or indirectly, owns
or controls, on an aggregate basis, including all beneficial ownership and
ownership or control as a trustee, guardian or other fiduciary, any of the
outstanding Stock having ordinary voting power to elect a majority of the board
of directors (irrespective of whether, at the time, Stock of any other class or
classes of such corporation have or might have voting power by reason of the
happening of any contingency) of the Borrower, or which controls, is controlled
by or is under common control with the Borrower or any stockholders of the
Borrower. For purposes hereof, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of management and
policies, whether through the ownership of voting securities, by contract or
otherwise.
"Authorized Borrower Representative" shall mean Mark J. Schulte,
Darryl W. Copeland, Jr., Craig G. Walczyk, or such other person or persons
approved by resolution of the Board of Directors of the Borrower from time to
time, a certified copy of which resolution shall be delivered to the Bank.
"Bank" shall mean LaSalle National Bank, a national banking
association, with its principal place of business at 135 South LaSalle Street,
Chicago, Illinois 60603.
"Borrower" shall mean Brookdale Living Communities, Inc., a Delaware
corporation having its principal place of business at 77 West Wacker Drive,
Suite 4800, Chicago, Illinois 60601.
"Business Day" shall mean any calendar day, other than a Saturday,
Sunday or other day in which the Bank's downtown Chicago, Illinois office is
authorized to close for domestic business.
"Closing" shall have the meaning specified in Section 3.01.
<PAGE>
"Debt" shall mean, with respect to the subject Person, all items of
indebtedness, obligation or liability, whether matured or unmatured, liquidated
or unliquidated, direct or indirect, or joint or several, including:
(A) all Obligations of such Person;
(B) all indebtedness in effect guaranteed, directly or indirectly, in
any manner, or endorsed by such Person (other than for collection or deposit in
the ordinary course of business) or discounted by such Person with recourse;
(C) all indebtedness in effect guaranteed by such Person, directly or
indirectly through agreements, contingent or otherwise: (1) to purchase such
indebtedness, or (2) to purchase, sell or lease (as lessee or lessor) property,
products, materials or supplies or to purchase or sell services, primarily for
the purpose of enabling the debtor to make payment of such indebtedness or to
assure the owner of the indebtedness against loss, or (3) to supply funds to or
in any other manner invest in any Person;
(D) all indebtedness secured (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured) by any
mortgage, trust deed, deed of trust, pledge, lien, security interest or other
charge or encumbrance upon property owned or acquired by such Person subject
thereto, whether or not the liabilities secured thereby have been assumed; and
(E) all indebtedness incurred by such Person as the lessee of goods or
services under leases that, in accordance with GAAP, are or should be reflected
on the lessee's balance sheet as a capital lease.
"Documents" shall mean this Agreement, the Note and any other
documents, instruments or certificates to be executed and delivered hereunder or
in connection herewith by or on behalf of the Borrower or any of its Affiliates.
"EBITDAR" shall mean for any period the consolidated net income (or
loss) of the Borrower and its Subsidiaries for the fiscal quarter ending on the
last day of such period, plus (to the extent included in determining such net
income (or loss)) the sum of the following: (i) consolidated interest expense,
plus (ii) consolidated income tax expense, plus (iii) extraordinary losses,
minus (iv) extraordinary gains, plus (v) consolidated depreciation,
amortization, and similar non-cash charges, plus (vi) consolidated rental
expenses for Real Property, all determined in accordance with GAAP.
"Equipment" shall mean all equipment, machinery, fixtures and supplies
and any and all
- 2 -
<PAGE>
parts, accessories, attachments, fittings, special tools, additions and
accessories thereto and any renewals, substitutions or replacements thereof.
"Employee Benefit Plan" shall mean any employee benefit plan (within
the meaning of Section 3(3) of ERISA) and any other profit sharing, deferred
compensation, bonus, stock option, stock ownership, stock purchase, employment,
consulting, incentive, vacation, sick leave, salary continuation, service ward,
severance pay, insurance, or other retirement, welfare or fringe benefit plan,
agreement or practice, that is (or within the last five years was) established,
maintained or contributed to by the Borrower or by any ERISA Affiliate of the
Borrower. For purposes of this definition, an ERISA Affiliate is any
corporation, trade or business that is considered a single employer, or
otherwise aggregated, with the Borrower under Section 414(b), (c), (m), (n), or
(o) of the Code or Section 4001(b)(1) of ERISA.
"Environmental Laws" shall mean any federal, state or local law,
statute, ordinance, order, decree, rule or regulation relating to releases,
discharges, emissions or disposals to air, water, land or groundwater, to the
withdrawal or use of groundwater, to the use, handling or disposal of
polychlorinated biphenyls, asbestos or urea formaldehyde, to the treatment,
storage, disposal or management of Hazardous Substances, to exposure to toxic,
hazardous or other controlled, prohibited or regulated substances and to the
transportation, storage, disposal, management or release of gaseous or other
liquid substances, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 USC '9601 et seq., the Resource,
Conservation and Recovery Act of 1976, as amended by the Hazardous Solid Waste
Amendments of 1984, 42 USC '6901 et seq., the Toxic Substances Control Act, 15
USC '2601 et seq., the Occupational Safety and Health Act of 1970, 29 USC '651
et seq., the Clean Air Act of 1966, as amended, 42 USC '7401 et seq., and the
Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977,
33 USC '1251 et seq., the Illinois Environmental Protection Act, as amended (415
ILCS 5/1 et seq.) and all rules, regulations and guidance documents promulgated
pursuant thereto or published thereunder.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended, together with any successor statutes of similar import, together
with all regulations thereunder, in each case as amended from time to time.
"Event of Default" shall have the meaning specified in Section 7.01.
"Financial Statements" shall mean any of the audited consolidated
financial statements of the Borrower for its most recently ended fiscal year,
the unaudited consolidated financial statements for the most recently ended
quarter of the Borrower that have been filed with a Governmental Authority, the
internally prepared monthly cash flow statements of the Borrower, and any other
information and data concerning the financial affairs of the Borrower (including
without limitation
- 3 -
<PAGE>
pro forma financial statements), copies of which have previously been furnished
to the Bank.
"GAAP" shall mean generally accepted accounting principles
consistently applied.
"General Intangibles" shall mean all general intangibles, including
choses in action, designs, patents, trademarks, service marks, trade names, good
will, applications for registration, registrations, licenses, franchises,
customer lists, [rights to indemnification and other rights under the Stock
Purchase Agreement,] and all other intangible property of every nature (other
than Accounts).
"Governmental Authority" shall mean the United States of America, any
state, territory or district thereof, and any other political subdivision or
body politic created pursuant to any applicable Law, and any court, agency,
department, commission, board, bureau or instrumentality of any of the
foregoing.
"Hazardous Substances" shall mean (i) any hazardous or toxic substance,
chemical or waste, or any pollutant or contaminant defined as such in any now or
hereafter existing Environmental Law, (ii) asbestos, (iii) radon, (iv)
petroleum, its derivative by-products and other hydrocarbons, (v)
polychlorinated biphenyls, (vi) explosives, (vii) radioactive materials and
(viii) any additional substances or materials which at any time are classified
or considered to be hazardous or toxic under any Environmental Laws.
"Inventory" shall mean all inventory, goods, merchandise and other
personal property held for sale or lease, or furnished or to be furnished under
any contract of service, or held as raw materials, work in process or material
used or consumed, or to be used or consumed, in business (all as defined in the
UCC).
"Laws" shall mean any federal, state or local law, statute, ordinance,
order, decree, rule or regulation.
"Loan" shall mean the unsecured loan in the principal amount of up to
Fifteen Million Dollars ($15,000,000.00) contemplated by this Agreement.
"Loan Advance" shall have the meaning specified in Section 2.01(a).
"Loan Commitment" shall have the meaning specified in Section 2.01(a).
"Maturity Date" means April ___, 1998.
"NASDAQ" shall mean the National Association of Securities Dealers
Automated Quotations system.
- 4 -
<PAGE>
"Note" shall mean the Note in form attached hereto as Exhibit A.
"Obligations" shall mean all of Borrower's liabilities, obligations and
indebtedness to the Bank of any and every kind and nature, including the Loan,
Borrower's liabilities obligations, representations, warranties or covenants
with or to the Bank under this Agreement, and Borrower's liabilities and
obligations to the Bank under any other agreement, document or instrument,
(including any guaranty of another Person's Obligations), whether heretofore,
now or hereafter owing, arising, due or payable by or from such Person to the
Bank, howsoever evidenced, created, incurred, acquired or owing, and whether
joint, several, primary, secondary, direct, contingent, fixed or otherwise.
"Ordinary Course of Business" shall mean, with respect to Borrower,
such debt, financing or other obligations incurred by the Borrower in the normal
operation and course of its business, specifically excluding, however, any
indebtedness, liabilities, guarantees or obligations incurred in connection with
the acquisition or development of real estate, or which is prohibited under
other provisions of this Agreement.
"Person" shall mean any individual, corporation, partnership,
association, limited liability company, limited liability partnership,
joint-stock company, trust, unincorporated association, joint venture, court,
Governmental Authority, or any other similar entity.
"Prime Rate" shall mean the rate of interest referred to by the Bank
from time to time as its prime rate, as fixed by the management of the Bank for
the guidance of its loan officers, whether or not such rate is otherwise
published, with each change in such prime rate to take effect on the same day as
the determination of each change by the Bank. Such rate is not necessarily the
most favorable rate offered by the Bank to its borrowers.
"Real Property" shall mean any improved or unimproved real property now
or hereafter owned or leased by Borrower.
"Reportable Event" shall mean any of the events described in Section
4043 of ERISA, other than any such event for which the thirty (30) day notice
requirement has been waived.
"Stock" shall mean all shares, options, interests, participations or
other equivalents, howsoever designated, of or in a corporation, partnership or
similar entity, whether voting or nonvoting, including common stock, warrants,
preferred stock, convertible debentures, partnership interests and all
agreements, instruments and documents convertible, in whole or in part, into any
one or more of the foregoing.
"Subsidiary" shall mean, with respect to any Person, any corporation,
partnership or similar entity of which fifty percent (50%) or more of the
outstanding Stock having ordinary voting power
- 5 -
<PAGE>
is at the time, directly or indirectly, owned by such Person and/or one or more
of such Person's Subsidiaries (irrespective of whether, at the time, Stock of
any other class or classes of such entity shall have or might have voting power
by reason of the happening of any contingency).
"Supplemental Documentation" means all agreements, instruments,
documents, financing statements, warehouse receipts, schedules of accounts
assigned, certificates of title and other written matter necessary or requested
by the Bank to create, evidence, enforce, or to consummate the transactions
contemplated in or by this Agreement and the other Documents.
"UCC" shall mean the Uniform Commercial Code as in effect in Illinois.
1.02 Rules of Construction. Whenever it is provided in this Agreement
that a party "may" perform an act or do anything, it shall be construed that
such party "may, but shall not be obligated to," so perform or so do. The
following words and phrases shall be construed as follows: (i) "at any time"
shall be construed as "at any time or from time to time;" (ii) "any" shall be
construed as "any and all;" (iii) "include" and "including" shall be construed
as "including but not limited to;" and (iv) "will" and "shall" shall each be
construed as mandatory. Except as otherwise specifically indicated herein, all
references to Article, Section and Sub-Section numbers and letters shall refer
to Articles, Sections and Sub-Sections of this Agreement; all references to
Exhibits and Schedules shall refer to the Exhibits and Schedules attached to
this Agreement. The words "hereby", "hereof", "hereto", "herein" and "hereunder"
and any similar terms shall refer to this Agreement as a whole and not to any
particular Article, Section or Sub-Section. The word "hereafter" shall mean
after the date this Agreement is executed and delivered by the parties hereto,
and the word "heretofore" shall mean before such date. Words of the masculine,
feminine or neuter gender shall mean and include the correlative words of other
genders, and words importing the singular number shall mean and include the
plural number and vice versa. The Article headings are inserted in this
Agreement for convenience only and are not intended to, and shall not be
construed to limit, enlarge or affect the scope or intent of this Agreement or
the meaning of any provision hereof. Any accounting terms used in this Agreement
which are not specifically defined shall have the meaning customarily given them
in accordance with GAAP; provided, however, that, in the event that changes in
generally accepted accounting principles shall be mandated by the Financial
Accounting Standards Board, or any similar accounting body of comparable
standing, or shall be recommended by the Borrower's certified public
accountants, to the extent that such changes would modify such accounting terms
or the interpretation or computation thereof, such changes shall be followed in
defining such accounting terms only from and after such date as the Borrower and
the Bank shall have amended this Agreement to the extent necessary to reflect
any such changes in the financial covenants and other terms and conditions of
this Agreement. All other terms contained in this Agreement shall, when the
context so indicates, have the meanings provided for by the UCC to the extent
the same are used or defined therein.
- 6 -
<PAGE>
ARTICLE II. THE LOAN.
2.01 Loan Terms.
(A) Subject to the terms and conditions of this Agreement, the Bank
will make an unsecured loan facility (the "Loan Commitment") available to the
Borrower, pursuant to which the Bank shall from time to time make credit
advances (each, a "Loan Advance") to the Borrower. The Borrower may repay and
reborrow under the Loan Commitment subject to the terms and conditions of this
Agreement. The aggregate amount of Loan Advances outstanding under the Loan
Commitment shall at no time exceed the sum of $15,000,000.00. The Loan
Commitment shall terminate on the Maturity Date at which time no further Loan
Advances shall be made by the Bank. Requests for Loan Advances under this
Agreement may be made by the Borrower at any time, and from time to time, prior
to the Maturity Date.
(B) The proceeds of each Loan Advance shall be disbursed by deposit to
the Borrower's operating account pursuant to instructions provided by the
Borrower, unless other arrangements are agreed upon between the Bank and the
Borrower. The Loan shall be used by the Borrower solely for working capital and
real estate acquisition purposes on an interim basis pending the Borrower's
procurement of permanent financing.
(C) Commencing on the first day of the first month following the first
disbursement of any portion of the Loan Commitment and on the first day of each
consecutive month thereafter until the Maturity Date, the Borrower shall pay all
interest that has accrued on the outstanding balance of the Loan. All
outstanding Loan Advances together with any accrued but unpaid interest thereon
and any other costs or amounts owed to the Bank hereunder shall be due and paid
in full on the Maturity Date. If any payment falls due on a day which is not a
Business Day, payment shall be made on the next Business Day, and interest shall
accrue until such later date.
(D) The Loan shall be evidenced by the Note.
2.02 Interest Rate; Calculation. Except as provided in Section 2.03,
Loan Advances under the Loan Commitment shall bear interest at the Prime Rate
plus one-half of one percent (0.50%) per annum. Interest shall be calculated on
the basis of a 360-day year, counting the actual number of days elapsed, and
shall be paid monthly in arrears.
2.03 Default Rate. Any Obligation of the Borrower which is not paid
when due, whether at stated maturity, by acceleration or otherwise, shall,
without notice, bear interest payable on demand at the interest rate then in
effect with respect thereto plus three percent (3%). In addition, after the
occurrence of any other Event of Default and delivery to the Borrower of the
Bank's notice to charge post-default interest, all Obligations of the Borrower
hereunder shall bear interest at the
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rate provided for in the immediately preceding sentence.
2.04 Excessive Rate. If, at any time, the interest rate and other
charges imposed hereunder shall be deemed by any competent Governmental
Authority to exceed the maximum rate of interest permitted by any applicable
Laws, for such time as the interest and such charges would be deemed excessive,
its application shall be suspended and there shall be charged instead the
maximum rate of interest and charges permissible under such Laws.
2.05 Prepayment. The Borrower may prepay the outstanding amounts of the
Loan from time to time in whole or in part on any Business Day without penalty
or premium.
2.06 Application of Payments. All payments, which are not prepayments,
received from the Borrower for payment on the Loan shall be applied by the Bank
first to unpaid interest due and payable on the Loan, and second the reduction
of the principal outstanding on the Loan.
2.07 No Setoff. All payments received or due from the Borrower
hereunder shall be paid directly to the Bank without setoff or counterclaim in
immediately available funds. The Bank shall send the Borrower statements of all
amounts due hereunder, which statements shall be considered correct and
conclusively binding on the Borrower absent manifest error.
2.08 Bank Fees. At the Closing, the Borrower shall pay the Bank a
non-refundable closing fee of $75,000.00, which fee was fully earned at the time
the Borrower accepted the Bank's commitment letter dated April 3, 1998. In
addition to the $75,000.00 closing fee, the Borrower shall pay to the Bank, on
the first day of each month, a fee in the amount of one-quarter of one percent
(0.25%) multiplied by the unused portion of the Loan Commitment during the
immediately preceding month.
ARTICLE III. CONDITIONS PRECEDENT
The obligation of the Bank to make the Loan is subject to the following
conditions precedent:
3.01 Conditions Precedent to Initial Loan Advance. The Borrower shall
have delivered or caused to be delivered to the Bank on the date of, but prior
to, the disbursement of any Loan Advance pursuant to the Loan Commitment
(hereinafter called the "Closing"), the following:
(A) the Note, duly executed by the Borrower;
(B) a certificate of the secretary or an assistant secretary of the
Borrower, dated the date of the Closing, as to incumbency, and resolutions of
the Board of Directors of Borrower (or an authorized committee thereof)
approving the transaction contemplated hereby;
(C) a certificate, dated as of the most recent date practicable, of the
Secretary of State of
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Delaware and the Secretary of State of Illinois as to the good
standing of the Borrower;
(D) a Solvency and Business Purpose Affidavit, in form and substance
satisfactory to the Bank, duly executed by the Borrower;
(E) an opinion of counsel to the Borrower in form and substance
satisfactory to the Bank;
(F) the Borrower shall have paid the $75,000.00 closing fee set forth
above and agrees to reimburse the Bank for all other out-of-pocket expenses and
fees incurred by the Bank, including reasonable legal fees of Bank counsel; and
(G) such other documents, certificates or evidence as the Bank may
reasonably request to consummate the transactions contemplated hereby.
3.02 Condition Precedent to Subsequent Loan Advances. At the time of
the Closing, at the time of each subsequent request for and disbursement under
the Loan Commitment and on the last day of each fiscal quarter of the Borrower
after the date hereof, each of the following statements shall be true:
(A) The representations and warranties set forth in this Agreement are
true and correct in all material respects unless otherwise disclosed to and
approved by the Bank in writing, in its sole discretion, since the prior Loan
Advance.
(B) No Event of Default shall have occurred and be continuing, and no
event shall have occurred and be continuing that, with the giving of notice or
passage of time or both, would be an Event of Default.
(C) No material adverse change shall have occurred in the financial
condition of the Borrower since the date of this Agreement.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
To induce the Bank to consummate the transactions contemplated hereby,
the Borrower represents and warrants to the Bank as follows:
4.01 The Borrower is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware, has the lawful power
and authority to own its properties and to carry on its business as now
conducted, and possesses all material permits necessary to operate the business
it conducts. Borrower is duly qualified to conduct business as a foreign
corporation and is in good standing in the State of Illinois and in each other
jurisdiction in which such qualification is required for the conduct of
Borrower's business. Each Subsidiary of Borrower is qualified to
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conduct business and is in good standing in each jurisdiction in which such
qualification is required for the conduct of such Subsidiary's business.
4.02 The Borrower is empowered to perform all acts and things
undertaken and done pursuant to this Agreement and has taken all corporate or
other action necessary to authorize the execution, delivery and performance of
the Documents. The officers of Borrower executing the Documents have been duly
elected or appointed and have been fully authorized to execute such Documents at
the time executed. The Documents, when executed and delivered, will be the
legal, valid and binding obligations of the Borrower, enforceable against it in
accordance with their respective terms.
4.03 The Financial Statements furnished by or on behalf of the Borrower
to the Bank are complete and accurate, fairly present the financial condition of
the Borrower and its Subsidiaries at the respective dates thereof and the
results of operations for the respective periods covered thereby, and (subject
to normal year-end adjustments with respect to interim Financial Statements)
were prepared in accordance with GAAP. The Borrower does not have any material
liabilities or obligations (contingent or otherwise), liability for taxes, or
unusual forward or long-term commitments, except as disclosed in the Financial
Statements.
4.04 Since the date of Borrower's most recent Financial Statements
furnished to the Bank, there has been no material change in the assets,
liabilities or condition, financial or otherwise, of Borrower or its
Subsidiaries, other than changes arising from transactions in the Borrower's
Ordinary Course of Business, and none of such changes has been materially
adverse.
4.05 Other than as set forth in the Financial Statements, there are no
actions, suits or proceedings pending, or, to the best of the knowledge of the
Borrower, threatened against or affecting the Borrower or any of its
Subsidiaries at law or in equity or before or by any Governmental Authority or
any foreign equivalent thereof, which is reasonably likely to result in a
material judgment or liability, or which are, in the aggregate, material in
light of the financial condition and assets of the Borrower or any of its
Subsidiaries, as determined by the Bank in its sole discretion. There are no
actions, suits, investigations or proceedings pending, or to the best of the
knowledge of the Borrower, threatened against the Borrower or any of its
Subsidiaries or its properties regarding Environmental Laws, the manufacture,
storage or treatment of Hazardous Substances or products liability.
4.06 The Borrower is not in violation of, and the execution and
delivery of the Documents and the performance by the Borrower of its obligations
under the Documents, do not and will not result in the Borrower being in
violation of or in conflict with, or constitute a default under any of, the
Borrower's Articles of Incorporations or By-Laws, any term or provision of any
note, mortgage, indenture, contract, agreement, instrument, judgment or Law
applicable to the Borrower, and the execution and delivery of the Documents and
the performance by Borrower of its obligations under the Documents do not and
will not result in the creation or imposition of any mortgage, lien, charge
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or encumbrance of any nature whatsoever (other than those in favor of Bank) upon
any of the assets of the Borrower or any of its Subsidiaries pursuant to any
such term or provision. Neither the Borrower nor any of its Subsidiaries is in
default, after the expiration of any applicable grace or cure periods, in any
respect in the performance or fulfillment of any of its obligations, covenants
or conditions contained in any agreement or instrument to which it is a party or
by which any of its properties may be bound, and the Borrower does not know of
any dispute regarding any such agreement or instrument.
4.07 Neither the Borrower nor any of its Subsidiaries have outstanding
any Debt or other obligation for borrowed money, or for the deferred purchase
price of property or services nor are the Borrower or any Subsidiary obligated
as guarantor, co-signer or otherwise on any Debt or other obligation of any kind
of any other Person, except and to the extent shown on the Financial Statements
or trade debt incurred in the Borrower's Ordinary Course of Business. No Person
is in default under any of said obligations.
4.08 All tax returns and reports of the Borrower and its Subsidiaries
required by law to be filed have been duly filed, and all taxes, assessments,
fees and other governmental charges (other than those presently payable without
penalty or interest) upon each or upon any of its properties or assets, which
are due and payable, have been paid. The charges, accruals and reserves on the
books of the Borrower and its Subsidiaries in respect of taxes are considered
adequate by the Borrower, and the Borrower does not know of any assessment of a
material nature against it or any of its Subsidiaries.
4.09 Except to the extent that failure to comply would not materially
or practically interfere with the conduct of the business of the Borrower or its
Subsidiaries, or affect in any way the Borrower's obligations (or Bank's rights)
under the Documents, the Borrower and its Subsidiaries have complied with all
applicable laws with respect to: (i) any restrictions, specifications or other
requirements pertaining to products that the Borrower or its Subsidiaries
manufacture and/or sell or the services they perform, including without
limitation all Environmental Laws, (ii) the conduct of their business and (iii)
the use, maintenance, and operation of the real and personal properties owned or
leased by them in the conduct of their business.
4.10 No authorization, consent, license or approval of, or filing or
registration with, or notification to, any Governmental Authority is required in
connection with the execution, delivery or performance of the Documents by the
Borrower.
4.11 With respect to each Employee Benefit Plan:
(A) each Employee Benefit Plan that is intended to qualify under
Section 401(a) of the Code and the assets of which are exempt from taxation
under Section 501 of the Code ("Qualified Plan") has received a favorable
determination letter as to such qualification and there has been no
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<PAGE>
development or circumstance since the date of such letter that creates a
material risk of the loss of such plan's qualified status, except with respect
to Borrower's 401k plan, in which case a favorable determination letter as to
such qualification has been applied for and Borrower has no reason to believe
such favorable determination letter will not be issued;
(B) each Qualified Plan that is subject to the requirements of Title IV
of ERISA has met the minimum funding standards of Section 412 of the Code and is
not subject to any event or condition (including a reportable event under
Section 4043 of ERISA) that would be grounds for the termination of such plan by
the Pension Benefit Guaranty Corporation or would otherwise subject the Borrower
to any liability with respect to such plan (including liability for Pension
Benefit Guaranty Corporation premiums for periods prior to the Closing);
(C) no Employee Benefit Plan has engaged in a transaction prohibited by
or under Section 406 of ERISA, or which would subject the Borrower or any of its
Subsidiaries to any tax on prohibited transactions under Section 4975 of the
Code;
(D) each Employee Benefit Plan is in full compliance in all material
respects (as determined by the Bank in its sole discretion) with the reporting
and disclosure requirements of ERISA and all other applicable laws;
(E) no Qualified Plan is a multi-employer plan within the meaning of
Section 3(37) of ERISA; and
(F) there are no obligations for future post-retirement health, medical
or death benefits under any Employee Benefit Plan except for death benefits
under a Qualified Plan.
4.12 The Borrower is solvent, no transaction under or contemplated by
this Agreement renders or will render the Borrower insolvent, the Borrower
retains sufficient capital for the business and transactions in which it engages
or intends to engage, no obligation incurred hereby is beyond the ability of the
Borrower to pay as such obligation matures, the Borrower is not contemplating
either the filing of a petition under any state or federal bankruptcy or
insolvency laws or the liquidating of all or a major portion of any of its
property, and Borrower has no knowledge of any person contemplating the filing
of any such petition against it.
4.13 There exists no actual or threatened termination, cancellation or
limitation of, or any modification or change in, the proposed business
relationship of Borrower or any of its Subsidiaries with any customer or group
of customers whose purchases individually or in the aggregate are material to
the current business of Borrower or any of its Subsidiaries, or in the proposed
business relationship of Borrower or any of its Subsidiaries with any material
supplier, and Borrower reasonably anticipates that all such customers and
suppliers will continue a business relationship with Borrower and its
Subsidiaries, as the case may be, on a basis no less favorable to the Borrower
than that heretofore conducted; and there exists no other condition or state of
facts or circumstances
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<PAGE>
which would materially adversely affect the current operation of the business of
Borrower after the consummation of the transactions contemplated by this
Agreement on a basis no less favorable to the Borrower than that in which it has
heretofore been conducted by Borrower.
4.14 No strike, work stoppage or other labor dispute relating to the
Borrower or any of its Subsidiaries is pending or, to the best knowledge of the
Borrower or any of its Subsidiaries, is threatened and no application for
certification of a collective bargaining agent is pending or, to the best
knowledge of the Borrower, is threatened. There are no unfair labor practice
charges or grievances or similar matters pending or in process or, to the best
knowledge of the Borrower, threatened by or on behalf of any employee of the
Borrower or any of its Subsidiaries, nor any complaints received by the
Borrower, or any of its Subsidiaries or, to the best knowledge of the Borrower,
threatened or on file, with any federal, state or local governmental agencies
alleging employment discrimination or other violations of laws pertaining to
such employees which could have a material adverse effect on the condition
(financial or otherwise), properties, assets, operations, results of operations,
business or rights of the Company or any of its Subsidiaries.
4.15 The Borrower's execution and delivery of this Agreement or any
other Document does not directly or indirectly violate or result in a violation
of Section 7 of the Securities and Exchange Act of 1934, as amended, or any
regulations issued pursuant thereto, including, without limitation, regulations
G, U, T and X of the Board of Governors of the Federal Reserve System, and
neither the Borrower nor any of its Subsidiaries owns any "margin stock," within
the meaning of said regulations, or is engaged in the business of extending
credit to others for such purpose, and no part of the proceeds of any borrowing
hereunder will be used to purchase or carry any "margin stock" or to extend
credit to others for the purpose of purchasing or carrying any "margin stock."
4.16 No representation or warranty by the Borrower contained herein or
in any certificate or other document furnished by or on behalf of the Borrower
or its Subsidiaries in connection with the transactions hereunder contains any
untrue statement of material fact or omits to state a material fact necessary to
make such representation or warranty not misleading in any material respect, as
determined by the Bank in its sole discretion, in light of the circumstances
under which it was made.
4.17 The Borrower has not encumbered, pledged, mortgaged, granted a
security interest in, assigned, sold, leased or otherwise disposed of a
transfer, in whole or in part, any Real Estate, Accounts, Inventory, Equipment,
General Intangibles or other assets or properties now or hereafter owned or
leased by Borrower or in which Borrower has an interest; provided, however,
Borrower may pledge Borrower's partnership, membership or ownership interest in
a Subsidiary of Borrower in connection with Debt incurred by such Subsidiaries
to the extent not prohibited by other provisions of this Agreement.
4.18 All of the representations and warranties set forth in this
Article IV shall survive and continue to be true, complete and correct until all
Obligations of the Borrower hereunder are paid and satisfied in full and this
Agreement shall have been terminated.
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<PAGE>
ARTICLE V. NEGATIVE COVENANTS
The Borrower covenants that until all Obligations of Borrower hereunder
are paid and satisfied in full, and the Bank's obligation to make advances
hereunder has terminated, the Borrower will not, directly or indirectly, without
the prior consent in writing of the Bank:
5.01 dispose by sale, assignment, lease, sale leaseback or otherwise
any material portion, as determined by the Bank in its sole discretion, of its
properties or assets (other than obsolete or worn out property or equipment not
used or useful in its business), whether now owned or hereafter acquired and
including, without limitation, any notes, accounts receivable, equipment or
machinery;
5.02 transfer, directly or indirectly, any of its assets or pay out,
directly or indirectly, money or property or provide services or do any other
act, or fail to do any act, which would have the effect of materially and
adversely affecting its ability to perform its obligations hereunder;
5.03 own, hold, purchase from or acquire stock, bonds, debentures or
other securities of, or make any capital contribution to any new Subsidiary or
dissolve or liquidate any existing Subsidiary; provided, however, Borrower may
create and contribute capital to new Subsidiaries upon the conditions that (i)
Borrower owns 100% of all of the Stock of each such Subsidiary, and (ii) such
subsidiary is formed for the sole purpose of acquiring real estate to be owned,
operated or developed by such Subsidiary and does not violate any other
provision of this Agreement;
5.04 make any material change in its ownership or financial structure,
make any material change in its management (except on 15 days prior notice to
the Bank), change its name (except on 15 days prior notice to the Bank), enter
into any merger, consolidation, dissolution, liquidation, reorganization or
recapitalization, or reclassification of its stock except for stock options
granted to employees of Borrower pursuant to employment incentive plans as
previously disclosed to the Bank and issuing stock pursuant to such stock
options;
5.05 engage in business activities or operations substantially
different from and unrelated to its business activities on the date of this
Agreement;
5.06 directly or indirectly apply any part of the proceeds of the Loan
for any purpose other than as set forth herein;
5.07 directly or indirectly apply any part of the proceeds of the Loan
to the purchasing or carrying of any "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, or any
regulations, interpretations or rulings thereunder;
5.08 create, incur, remain obligated on or assume any Debt other than
(i) the Loan, (ii) Debt disclosed in Financial Statements provided to the Bank
on or before the date hereof, (iii) debt incurred in the Borrower's Ordinary
Course of Business, provided such Debt is not borrowed from
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<PAGE>
or owed to a bank, financial, lending or similar institution and which is not
prohibited by the other provisions of this Agreement, (iv) the guarantees and
indemnities of Debt incurred by Subsidiaries of Borrower that is in existence as
of the date of this Agreement in connection with the (A) Health Retirement
Property Trust leases referred to on Exhibit B hereto, and (B) Borrower's
guarantee of the financing currently in place from Nomura Asset Capital
Corporation to certain Subsidiaries of Borrower in connection with the projects,
also referred to on Exhibit B hereto, (v) up to $50,000,000.00 of additional
guarantees and indemnities of Debt incurred by Subsidiaries of Borrower
subsequent to the date of this Agreement in connection with real estate
acquisitions and developments by such Subsidiaries of Borrower, (vi)
environmental indemnities to lenders in connection with real estate acquisition
loans made to Subsidiaries of Borrower, upon the condition that Borrower has
procured from a qualified environmental professional a Phase I and, if
necessary, a Phase II environmental audit of each property for which an
environmental indemnity is delivered, which concludes that there is no presence
or likely presence of Hazardous Substances and that there has been no release or
substantial threat of a release of Hazardous Substances in connection with such
property, and (vii) loan guaranties to lenders in connection with nonrecourse
loans made to Subsidiaries of Borrower in connection with real estate
acquisitions by Subsidiaries of Borrower, upon the condition that such
guaranties are limited to the customary "carve-outs" to nonrecourse financing
due to fraud, misrepresentation and similar conduct of Borrower or such
Subsidiary;
5.09 encumber, pledge, mortgage, grant a security interest in, assign,
sell, lease or otherwise disposes of a transfer, in whole or in part, any Real
Estate, Accounts, Inventory, Equipment, General Intangibles or other assets or
properties now or hereafter owned or leased by Borrower or in which Borrower has
an interest; provided, however, Borrower may pledge, on a non-recourse basis to
Borrower, Borrower's partnership, membership or ownership interest in a
Subsidiary of Borrower in connection with Debt incurred by such Subsidiaries to
the extent not prohibited by other provisions of this Agreement.
5.10 enter into, or be a party to, any transaction with any Affiliate,
except in the ordinary course of and pursuant to the reasonable requirements of
its business and upon fair and reasonable terms which are fully disclosed in
writing to the Bank and are no less favorable to such Person than would be
obtained in a comparable arm's length transaction with a person not an
Affiliate;
5.11 change its fiscal year; or
5.12 furnish the Bank any certificate or other document that will
contain any untrue statement of material fact or that will omit to state a
material fact necessary to make it not misleading in any material respect, as
determined by the Bank in its sole discretion, in light of the circumstances
under which it was furnished.
ARTICLE VI. AFFIRMATIVE COVENANTS
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The Borrower covenants that until all Obligations of the Borrower are
paid and satisfied in full, and the Bank's obligation to make advances hereunder
has terminated, the Borrower will:
6.01 furnish and deliver to the Bank:
(A) as soon as practicable, and in any event within 120 days after
the end of each fiscal year: (i) a statement of cash flows of the
Borrower for such year, (ii) an income statement of the Borrower
for such year, (iii) a balance sheet of the Borrower as of the
end of such year; all in reasonable detail, including all
footnotes, and audited by certified public accountants selected
by the Borrower and reasonably acceptable to the Bank and
certified by such accountants to have been prepared in accordance
with GAAP, except for any inconsistencies explained in such
certificate, and (iv) a copy of all Form 10-K reports required to
be filed with any Governmental Authority;
(B) as soon as practicable, and in any event within 45 days after the
end of each quarter commencing with the quarter ending
immediately subsequent to the first Loan Advance, (i) a statement
of cash flows of the Borrower for such quarter and the portion of
the fiscal year then ended, (ii) an income statement of the
Borrower for such quarter and the portion of the fiscal year then
ended, (iii) a balance sheet of the Borrower as of the end of
such quarter; all in reasonable detail and certified by an
Authorized Borrower Representative as complete and accurate in
all material respects, fairly presenting the financial condition
of the Borrower and prepared in accordance with GAAP, and (iv) a
copy of all Form 10-Q reports required to be filed with any
Governmental Authority, and
(C) within 45 days after the end of each month commencing as of the
date of this Agreement, a report of all cash flows and operations
of the Borrower as is typically prepared by the Borrower for the
preceding month and year to date; and
(D) concurrent with year end and quarterly fiscal statements required
to be delivered hereunder, a certificate of an Authorized
Borrower Representative (a) calculating Borrower's compliance (or
lack thereof) with the financial covenants in Section 6.13
hereof, in reasonable detail, and (b) stating that no Event of
Default has occurred and is continuing or if an Event of Default
has occurred and is continuing setting forth a description of
such event and the steps being taken to remedy such event;
(E) with reasonable promptness, such other information materially
concerning the business, properties, conditions or operations,
financial or otherwise, of the Borrower, or compliance by the
Borrower with any of the covenants in the Documents, as the Bank
may from time to time reasonably request;
6.02 furnish and deliver to Bank:
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(A) immediately after the occurrence thereof, notice of any Event of
Default or of any fact, condition or event that with the giving
of notice or passage of time or both, could become an Event of
Default, or of the failure by the Borrower to observe any of its
respective undertakings hereunder;
(B) immediately after the occurrence thereof, notice of any default
under any Debt, or under any indenture, mortgage or other
agreement relating thereto for which the Borrower is liable;
(C) immediately after knowledge thereof, notice of any litigation or
proceeding in which the Borrower is a party if an adverse
decision therein would require the Borrower to pay more than
$1,000,000 or deliver assets the value of which exceeds such sum
(whether or not the claim is considered to be covered by
insurance);
(D) immediately after receipt of notice thereof, notice of the
institution of any other suit or proceeding involving the
Borrower that would reasonably likely materially and adversely
affect the Borrower's business, properties or conditions or
operations, financial or otherwise, as determined by the Bank in
its sole discretion;
(E) immediately after the occurrence thereof, notice of any other
matter which has resulted in, or would reasonably likely result
in, a materially adverse change in the business, properties, or
the conditions or operations, financial or otherwise, of the
Borrower, as determined by the Bank in its sole discretion; and
(F) immediately upon their becoming available, Borrower shall deliver
or cause to be delivered to the Bank a copy of (i) all regular or
special reports or effective registration statements which
Borrower, or any Subsidiary of Borrower, shall file with the U.S.
Securities and Exchange Commission (or any successor thereto) or
any securities exchange, (ii) all reports, proxy statements,
financial statements and other information distributed by
Borrower, or any Subsidiary of Borrower, to all of its
stockholders, bondholders or the financial community in general,
and (iii) any written reports submitted to Borrower, or any
Subsidiary of Borrower, by independent accountants in connection
with any annual, interim or special audit of the financial
statements of Borrower, or any Subsidiary of Borrower;
6.03 promptly pay and discharge when due all taxes, assessments and
other governmental charges imposed upon it, or upon its income, profits or
property, and all claims for labor, material or supplies which, if unpaid, might
by law become a lien or charge upon its property; provided, however, that it
shall not be required to pay any tax, assessment, charge or claim if so
permitted by law, so long as the validity thereof shall be contested in good
faith by appropriate proceedings and adequate reserves therefor in accordance
with GAAP shall be maintained on its books;
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<PAGE>
6.04 maintain its inventory, equipment, real estate and other
properties in good condition and repair (normal wear and tear excepted), pay and
discharge or cause to be paid and discharged when due, the costs of repairs to
or maintenance of the same, and pay or cause to be paid all rental or mortgage
payments due on the same except if it is in good faith contesting by appropriate
proceedings such amounts due and is maintaining adequate reserves for such
liability in accordance with GAAP;
6.05 maintain and comply with leases covering real property, if any,
used by it in accordance with the respective terms thereof so as to prevent any
default thereunder which may result in the exercise or enforcement of any
landlord's or other lien against it or its property; provided, however, that it
may contest any matters in connection with such leases in good faith and by
appropriate proceedings if it makes such payments as are required by law and
maintains adequate reserves on its books in accordance with GAAP in connection
therewith;
6.06 maintain its corporate existence, maintain all rights, privileges,
franchises, permits and approvals necessary or desirable for the continuation of
its business, and comply with the requirements of all material agreements to
which it is a party or by which any of its assets is bound, and all applicable
Laws, including Environmental Laws, and orders of any Governmental Authority,
noncompliance with which would materially adversely affect its business,
properties, condition, financial or otherwise, or ability to repay its
Obligations;
6.07 keep adequate records and books of the accounts and operations of
Borrower, in which complete entries will be made in accordance with its past
practices and consistent with sound business practice, reflecting all of its
financial transactions, and collect its accounts only in the Ordinary Course of
Business;
6.08 permit any of the Bank's representatives to examine and inspect
all properties and operations of Borrower, and all books of account, records,
reports and other papers and to make copies and extracts therefrom, and to
discuss the Borrower's affairs, finances and accounts with its officers and
employees or its independent public accountants (and by this provision the
Borrower authorizes said accountants to discuss the finances and affairs of the
Borrower), all at such reasonable times and as often as may be reasonably
requested and upon two (2) Business Days notice by the Bank, (not to exceed
$3,000.00 provided no Event of Default has occurred);
6.09 at its sole cost and expense, keep and maintain all of its
property and assets insured for the full insurable value thereof against loss or
damage by fire, theft, explosions, sprinklers and all other hazards and risks
(i) covered by extended coverage and/or (ii) ordinarily insured against by other
owners or users of properties in similar businesses. All such policies of
insurance shall be in form, with insurers and in such amounts as may be
reasonably satisfactory to the Bank;
6.10 pay when due all of its Debt except if (with respect to Debt other
than the Obligations hereunder) it is in good faith contesting by appropriate
proceedings such amounts due and has
- 18 -
<PAGE>
maintained adequate reserves for such liability in accordance with GAAP;
6.11 at the Bank's request, execute and/or deliver to the Bank, at any
time or times hereafter, all Supplemental Documentation that the Bank may
request, in form and substance acceptable to the Bank, and pay the costs of any
recording or filing of the same;
6.12 Maintain its principal banking relationship and accounts with the
Bank; and
6.13 for each calendar quarter ending on the date set forth below,
maintain a minimum quarterly EBITDAR as set forth next to such date:
March 31 - June 30, 1998 - $4,100,000.00 plus seventy-five percent
(75%) of the quarterly EBITDAR of each
business acquired by Borrower after the date
hereof and prior to June 30, 1998 (determined
as set forth below)
July 1 - September 30, 1998- $4,630,000.00 plus seventy-five percent (75%) of
qthe uarterly EBITDAR of each business acquired by
Borrower after the date hereof and prior to
September 30, 1998 (determined as set forth below)
October 1 - December 31, 1998-$5,000,000.00 plus seventy-five percent (75%) of
the quarterly EBITDAR of each business acquired
by Borrower after the date hereof and prior to
December 31, 1998 (determined as set forth below)
The quarterly EBITDAR of each business acquired by Borrower after the date
hereof shall be determined by the Bank in accordance with GAAP based upon a the
financial statements of the acquired company, together with proforma
projections, which shall be delivered by Borrower to the Bank at least fifteen
(15) days prior to the closing of such acquisition. Each determination of
EBITDAR by the Bank shall be controlling absent proof of manifest error in
calculation.
ARTICLE VII. EVENTS OF DEFAULT
7.01 The occurrence of any of the following events or acts shall
constitute an Event of Default ("Event of Default"):
(A) The Borrower defaults in the payment of any of its Obligations or
any part thereof when the same shall become due and payable,
either by their terms or as otherwise herein provided.
- 19 -
<PAGE>
(B) Any Financial Statement, representation or warranty made by the
Borrower herein or delivered by the Borrower pursuant hereto or
otherwise made in writing by the Borrower in connection with this
Agreement proves to have been false in any material respect as of
the date on which it was made or deemed made, or the Borrower
defaults in the performance of any of the covenants, conditions
or agreements contained in this Agreement.
(C) The Borrower fails to pay any Debt when due, or suffers to exist
any other event of default giving rise to any obligation under
any agreement binding the Borrower and such failure or event of
default continues beyond any applicable grace period, the effect
of which is to cause the Debt or such obligation to become due
prior to its stated maturity or prior to its regularly scheduled
dates of payment.
(D) The Borrower or any of its Subsidiaries files a petition under
any section or chapter of the United States Bankruptcy Code or
any similar federal or state law or regulation, the Borrower or
any of its Subsidiaries admits its inability to pay debts as they
mature, the Borrower or any of its Subsidiaries makes an
assignment for the benefit of one or more of its creditors, the
Borrower or any of its Subsidiaries makes an application for the
appointment of a receiver, trustee or custodian for any of its
properties or assets, or the Borrower or any of its Subsidiaries
files any case or proceeding for its reorganization, dissolution
or liquidation or for relief from creditors; provided that any of
the foregoing with respect to a Subsidiary will constitute an
Event of Default only if it materially and adversely affects the
ability of Borrower to perform its Obligations hereunder.
(E) The Borrower or any of its Subsidiaries is enjoined, restrained
or in any way prevented by court order from conducting all or any
material part of its business affairs, a petition under any
section or chapter of the United States Bankruptcy Code or any
similar federal or state law or regulation is filed against the
Borrower or any of its Subsidiaries, any case or proceeding is
filed against the Borrower or any of its Subsidiaries for its
reorganization, dissolution or liquidation or for creditor
relief, or an application is made by any Person other than the
Borrower or any of its Subsidiaries for the appointment of a
receiver, trustee, or custodian for any of its properties or
assets, and such injunction, restraint, petition or application
is not dismissed or stayed within thirty (30) days after the
entry or filing thereof; provided that any of the foregoing with
respect to a Subsidiary will constitute an Event of Default only
if it materially and adversely affects the ability of Borrower to
perform its Obligations hereunder.
(F) The Borrower or any of its Subsidiaries conceals or removes or
permits to be concealed or removed any part of its property with
intent to hinder, delay or defraud
- 20 -
<PAGE>
its creditors or any of them, or makes or suffers to be made a
transfer of any of its property that may be fraudulent under any
federal or state bankruptcy, fraudulent conveyance or similar
law.
(G) The Borrower or any of its Subsidiaries permits any of its
properties or assets to be attached, seized, subjected to a writ
or distress warrant, or levied upon, or to come within the
possession of any receiver, trustee, custodian or assignee for
the benefit of creditors; provided that any of the foregoing with
respect to a Subsidiary will constitute an Event of Default only
if it materially and adversely affects the ability of Borrower to
perform its Obligations hereunder.
(H) The Borrower or any of its Subsidiaries suffers a final judgment
for payment of money in excess of $1,000,000 which shall not be
stayed on appeal and does not discharge the same within a period
of thirty (30) days; provided that any of the foregoing with
respect to a Subsidiary will constitute an Event of Default only
if it materially and adversely affects the ability of Borrower to
perform its Obligations hereunder, as determined by the Bank in
its sole discretion.
(I) A judgment creditor of the Borrower or any of its Subsidiaries
obtains possession of any of its properties or assets with an
aggregate value in excess of $1,000,000 by any means, including
without limitation, levy, distraint, replevin or self-help;
provided that any of the foregoing with respect to a Subsidiary
will constitute an Event of Default only if it materially and
adversely affects the ability of Borrower to perform its
Obligations hereunder, as determined by the Bank in its sole
discretion.
(J) Any authorization, consent, approval, license, exemption,
registration, qualification, designation, declaration, report
filing or other action or undertaking now or hereafter made by or
with any Governmental Authority in connection with the business
or operations of Borrower or any of its Subsidiaries, or with
this Agreement or any other Document or any such action or
undertaking now or hereafter necessary to make its business and
operations or this Agreement or any other Document legal, valid,
enforceable and admissible in evidence is not obtained or shall
have ceased to be in full force and effect or shall have been
revoked, modified or amended or shall have been held to be
illegal or invalid and, as a result thereof, the ability of the
Borrower to perform its Obligations hereunder is materially and
adversely affected, as determined by the Bank in its sole
discretion.
(K) Any permit material to the business, operations or financial
condition of the Borrower or any of its Subsidiaries shall be
terminated, suspended or revoked and, as a result thereof, the
ability of the Borrower to perform its Obligations hereunder is
materially and adversely affected, as determined by the Bank in
its sole discretion.
- 21 -
<PAGE>
(L) There shall occur any uninsured damage to, or loss, theft, or
destruction of, any of the properties or assets of the Borrower
in excess of $1,000,000.
(M) A notice of lien or assessment is filed or recorded with respect
to all or any of the Borrower's or any Subsidiary of the
Borrower's assets by the United States, or any department, agency
or instrumentality thereof, or by any state, county, municipal or
other governmental agency, or if any taxes or debts owing at any
times hereafter to any one of these becomes a lien or encumbrance
upon any such Person's assets and the same is not released within
thirty (30) days after the same becomes a lien or encumbrance
and, as a result, the ability of the Borrower to perform its
obligations hereunder is or could be materially and adversely
affected, as determined by the Bank in its sole discretion;
provided that such Person shall have the right to contest by
appropriate proceedings any such lien, levy or assessment if such
Person provides the Bank with a bond or indemnity satisfactory to
the Bank assuring the payment of such lien, levy or assessment.
(N) Any of the following events if such event could have a material
adverse effect on the Borrower as reasonably determined by the
Bank: (i) the existence of a Reportable Event, (ii) the
withdrawal of the Borrower or any of its Subsidiaries, or any
ERISA Affiliate from an Employee Benefit Plan during a plan year
in which it was a "substantial employer" as defined in Section
4001(a)(2) of ERISA, (iii) the occurrence of an obligation to
provide affected parties with a written notice of intent to
terminate an Employee Benefit Plan in a distress termination
under Section 4041 of ERISA, (iv) the institution by PBGC of
proceedings to terminate any Employee Benefit Plan, (v) any event
or condition which would require the appointment of a trustee to
administer an Employee Benefit Plan, (vi) the withdrawal of the
Borrower or any of its Subsidiaries, or any ERISA Affiliate from
a Multi-employer Plan, and (vii) any event that would give rise
to a Lien under Section 302(f) of ERISA.
(O) At any time that any portion of the Loan remains outstanding, the
closing price of the Borrower's publicly traded shares of stock
as quoted on the NASDAQ is less than $14.00 per share (adjusted
for any share splits after the date of this Agreement).
(P) The occurrence of a default or an Event of Default under any of
the other Documents which is not cured within the time, if any,
specified therefor in such other Document.
7.02 Upon the occurrence of any Event of Default, and at any and all
times while any Event of Default shall be continuing, the Bank shall have all
rights and remedies provided by this Agreement or any other Document and by
applicable law and, without limiting the generality of the foregoing, may, at
its option, declare the Loan Commitment to be terminated by giving written
notice thereof to the Borrower, and the Note, upon such declaration, shall
thereupon be and become forthwith, due and payable, without any presentment,
demand, protest or other notice of any kind,
- 22 -
<PAGE>
all of which are hereby expressly waived. The Bank should further have the
right, without notice to the Borrower, to set off against and to appropriate and
apply to such due and payable amounts any debt owing to, and any other funds,
accounts, deposits or amounts held in any manner for the account of the Borrower
by Lender.
ARTICLE VIII. MISCELLANEOUS
8.01 No failure or delay on the part of the Bank in exercising any
right, power or remedy hereunder or under any other Documents shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder or under any other Document. The
remedies herein provided and under any other Document are cumulative and not
exclusive of any remedies provided by law.
8.02 This Agreement and the other Documents constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and there are no promises expressed or implied unless contained herein
and therein. No amendment, modification, termination or waiver of any provision
of the Documents nor consent to any departure by the Borrower therefrom shall in
any event be effective unless the same shall be in writing and signed by the
Bank, and then such waiver or consent shall be effective only for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other or further notice or demand in similar
or other circumstances.
8.03 The Borrower will pay any documentary, stamp or similar taxes
payable in respect of the Documents. The Borrower will, on demand, reimburse the
Bank for all expenses, including the reasonable fees and expenses of legal
counsel (including, without limitation, legal assistants) for the Bank, incurred
by the Bank in connection with any amendment or modification of the Documents,
the administration of the Loan and the enforcement of the Documents and the
collection or attempted collection of the Obligations.
8.04 (A) For the purposes of any action or proceeding involving the
Documents or any other agreement or document referred to therein, the Borrower
hereby expressly submits to the jurisdiction of all federal and state courts
located in the State of Illinois and consents that any order, process, notice of
motion or other application to or by any of said courts or a judge thereof may
be served within or without such court's jurisdiction by registered mail or by
personal service, provided a reasonable time for appearance is allowed. To the
extent permitted by applicable law, the Borrower hereby irrevocably waives any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement or any other
Document brought in any federal or state court sitting in Cook County, State of
Illinois, and, to the extent permitted by law, hereby further irrevocably waives
any claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum.
- 23 -
<PAGE>
(B) THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES
(TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY OF ANY DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT, THE NOTE, ANY
OTHER OF THE DOCUMENTS AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A
JUDGE SITTING WITHOUT A JURY.
8.05 Any notices or consents required or permitted by this Agreement
shall be in writing and shall be delivered in person or sent by certified mail,
postage prepaid, return receipt requested, or delivered by, facsimile, telegram
or telex, or delivered by a nationally recognized overnight express delivery
service, addressed as follows, unless such address is changed by written notice
hereunder:
If to the Borrower: Brookdale Living Communities, Inc.
77 West Wacker Drive, Suite 4800
Chicago, Illinois 60601
Attn: Darryl W. Copeland, Jr.
Executive Vice President
FAX: (312) 977-3699
with a copy to: Brookdale Living Communities, Inc.
c/o The Prime Group, Inc.
77 West Wacker Drive, Suite 3900
Chicago, Illinois 60601
Attn: Robert J. Rudnik
General Counsel
FAX: (312) 917-1684
If to the Bank: LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Attn: Ann B. O'Shaughnessy
Assistant Vice President
Any such notice or communication shall be deemed to have been given either at
the time of personal delivery, or in the case of overnight express delivery, as
of the date delivery was first attempted, or in the case of facsimile, telegram
or telex, upon receipt or in the case of certified mail, two (2) Business Days
after delivery to the United States Postal Service.
8.06 This Agreement may be executed in any number of counterparts and
by the different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same
- 24 -
<PAGE>
instrument.
8.07 This Agreement shall become effective when it shall have been
executed and delivered by the Borrower and the Bank, and thereafter shall be
binding upon and inure to the benefit of the Borrower and the Bank and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Bank.
8.08 This Agreement has been, and any other Documents will be,
delivered and accepted in and shall be deemed to be, contracts made under and
governed by the laws of the State of Illinois, and for all purposes shall be
construed in accordance with the laws of said State.
8.09 Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction; wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable Law.
8.10 All covenants, agreements, representations and warranties made by
the Borrower herein and any and all certificates and instruments delivered by
the Borrower in connection herewith shall, notwithstanding any investigation by
the Bank, be deemed material and relied on by the Bank and shall survive the
execution and delivery to the Bank of this Agreement, the Note and any extension
or renewal thereof.
8.11 From time to time, the Borrower will execute and deliver to Bank
such additional documents and will provide such additional information as the
Bank may reasonably require to carry out the terms of this Agreement and be
informed of the Borrower's status and affairs.
8.12 All Exhibits attached to this Agreement shall be deemed
incorporated herein by this reference.
8.13 Whenever under the terms of this Agreement, the time for
performance of a covenant or condition falls upon a day other than a Business
Day, such time for performance shall be extended to the next Business Day.
Unless otherwise stated, all references herein to "days" shall mean calendar
days.
8.14 The Borrower hereby consents to the Bank's participation, sale,
assignment or transfer, at any time or times hereafter of this Agreement or the
Documents, or any portion hereof or thereof, without affecting the liability of
the Borrower hereunder; provided, however, the Bank shall at all times act as
sole agent on behalf of itself and any participant that acquires any interest in
this Agreement or the Documents and shall at all times service the Loan on
behalf of itself and any participant.
- 25 -
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
BROOKDALE LIVING COMMUNITIES, INC.
By:
Print Name:
Title:
ATTEST:
By:
Print Name:
Title:
BANK:
LaSALLE NATIONAL BANK
By:
Print Name:
Title:
- 26 -
<PAGE>
EXHIBIT A
Note
See attached.
- 27 -
<PAGE>
EXHIBIT B
Health Retirement Property Trust Leases
Current Projects Financed By Nomura Asset Capital Corporation
Austin, Texas
Southfield, Michigan
Raleigh, North Carolina
Glen Ellyn, Illinois
New York, New York (Battery Park City)
- 28 -
<PAGE>
NOTE
$15,000,000.00 Chicago, Illinois
April , 1998
FOR VALUE RECEIVED, BROOKDALE LIVING COMMUNITIES, INC., a Delaware
corporation (the "Maker"), with its principal place of business at 77 West
Wacker Drive, Suite 4800, Chicago, Illinois 60601, hereby promises to pay to the
order of LaSALLE NATIONAL BANK, a national banking association (the ABank@), at
its office at 135 South LaSalle Street, Chicago, Illinois 60603, or such other
place as Bank may direct from time to time, in lawful money of the United States
and in available funds, the principal amount of FIFTEEN MILLION DOLLARS
($15,000,000.00), or such lesser amount as Bank advanced to Maker hereunder
which is outstanding as of the Maturity Date, as defined in that certain Loan
Agreement dated the date hereof by and between Maker and the Bank (the "Loan
Agreement").
All advances under this Note shall bear interest in accordance with and
be governed by the terms and provisions of the Loan Agreement. All payments
received from the Maker hereunder shall be applied by the Bank in accordance
with the terms of the Loan Agreement.
The Maker may prepay the outstanding amounts of the Loan from time to
time in whole or in part on any business day without penalty or premium. The
Maker may reborrow any amounts prepaid, provided all conditions to the Bank's
obligations to fund subsequent amounts under the Loan Agreement have been
satisfied.
This Note is issued under the Loan Agreement, and this Note and the
Bank are entitled to all of the benefits, rights and remedies provided for by
the Loan Agreement or referred to therein, to which Loan Agreement reference is
made for a statement thereof. All capitalized terms used herein which are not
defined herein, but which are defined in the Loan Agreement, shall have the
meaning prescribed in the Loan Agreement.
<PAGE>
All unpaid amounts owing on this Note or on any other Obligations under
the Loan Agreement or the other Documents immediately shall become due and
payable at the option of the Bank, without notice or demand, upon the occurrence
of any Event of Default.
In the event of default in the payment of any sums due under this Note,
the Maker hereby agrees that the Bank may offset all money, bank or other
deposits or credits now or hereafter held by the Bank or owed by the Bank to the
Maker against all amounts due under this Note or against any other amounts which
may be due the Bank from the Maker.
No clause or provision contained in this Note or any documents related
hereto shall be construed or shall so operate (a) to raise the interest rate set
forth in this Note above the lawful maximum, if any, in effect from time to time
in the applicable jurisdiction for loans to borrowers of the type, in the
amount, for the purposes, and otherwise of the kind contemplated, or (b) to
require the payment or the doing of any act contrary to law, but if any clause
or provision contained shall otherwise so operate to invalidate this Note, in
whole or in part, then (i) such clauses or provisions shall be deemed modified
to the extent necessary to be in compliance with the law, or (ii) to the extent
not possible, shall be deemed void as though not contained and the remainder of
this Note and such document shall remain operative and in full force and effect.
All makers and any endorsers, guarantors, sureties, accommodation
parties and all other persons liable or to become liable for all or any part of
the indebtedness evidenced by this Note, jointly and severally waive, to the
extent permitted by law, except as otherwise provided in the Loan Agreement or
the other Loan Documents, diligence, presentment, protest and demand, and also
notice of protest, of demand, of nonpayment, of dishonor and of maturity and
also recourse or suretyship defenses generally; and they also jointly and
severally hereby consent to any and all renewals, extensions or modifications of
the terms of this Note, including time for payment, and further agree that any
such renewals, extension or modification of the terms of this Note or the
release or substitution of any security for the indebtedness under this Note or
any other indulgences shall not affect the liability of any of the parties for
the indebtedness evidenced by this Note. Any such renewals, extensions or
modifications may be made without notice to any of said parties.
The Maker shall be liable to the Bank for all costs and expenses
incurred in connection with collection, whether by suit or otherwise, of any
amount due under this Note, including, without limitation, reasonable attorneys'
fees, as more fully set forth in the Loan Agreement.
<PAGE>
This Note shall be governed by and construed in accordance with the
laws of the State of Illinois.
BROOKDALE LIVING COMMUNITIES, INC.,
a Delaware corporation
By:
Print Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
ACCOMPANYING FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,437
<SECURITIES> 0
<RECEIVABLES> 2,516
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,383
<PP&E> 115,068
<DEPRECIATION> 3,946
<TOTAL-ASSETS> 203,791
<CURRENT-LIABILITIES> 17,951
<BONDS> 95,729
0
0
<COMMON> 96
<OTHER-SE> 66,318
<TOTAL-LIABILITY-AND-EQUITY> 203,791
<SALES> 32,855
<TOTAL-REVENUES> 35,549
<CGS> 18,278
<TOTAL-COSTS> 31,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,858
<INCOME-PRETAX> 4,135
<INCOME-TAX> (1,503)
<INCOME-CONTINUING> 2,632
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,632
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
</TABLE>
