UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1998
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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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
77 West Wacker Drive, Suite 4400, Chicago, IL 60601
(Address of principal executive offices and zip code)
(312) 977-3700
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
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(Title of Class)
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ].
As of March 25, 1999, there were 11,572,082 shares of the Registrant's common
stock outstanding. The aggregate market value of the Registrant's shares held on
such date by non-affiliates of the Registrant, based on the closing price
($14.94 per share) of the Registrant's common stock on the Nasdaq National
Market on such date, was $172,886,905.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the Registrant's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 20, 1999.
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BROOKDALE LIVING COMMUNITIES, INC.
Form 10-K
December 31, 1998
TABLE OF CONTENTS
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Part I Page
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Item 1. Business .................................................................. 1
Item 2. Properties ................................................................ 9
Item 3. Legal Proceedings ......................................................... 10
Item 4. Submission of Matters to a Vote of Security Holders ....................... 10
Part II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters ..... 10
Item 6. Selected Financial Data ................................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ..................................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................ 17
Item 8. Financial Statements and Supplementary Data ............................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure ...................................................... 35
Part III
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Item 10. Directors and Executive Officers of the Registrant ........................ 35
Item 11. Executive Compensation .................................................... 35
Item 12. Security Ownership of Certain Beneficial Owners and Management ............ 35
Item 13. Certain Relationships and Related Transactions ............................ 35
Part IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......... 35
Signatures .......................................................................... 45
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PART I
ITEM 1. BUSINESS.
The Company
Brookdale Living Communities, Inc. and its subsidiaries (collectively, the
"Company" or "Brookdale") provide senior independent and assisted living
services to the elderly through their facilities located in urban and suburban
areas of major metropolitan markets. As of December 31, 1998, the Company
operated 18 senior independent and assisted living facilities in 11 states
containing a total of 3,903 units which, as of December 31, 1998, were 95%
occupied. The Company owns 4 of such facilities, leases 12 facilities and
manages 2 facilities pursuant to management contracts. With facilities that
contained an average of approximately 217 units, the Company believes it is able
to achieve economies of scale within its facilities and provide senior
independent and assisted living services in a more cost-effective manner. The
Company plans to acquire or lease approximately 4 to 6 facilities per year
containing an aggregate of approximately 800 to 1,200 units, and to commence
development of 2 to 3 new facilities per year containing approximately 220 units
each.
Brookdale's facilities are designed for middle to upper income residents
who desire an upscale residential environment providing the highest level of
quality, care and value. The Company's objective is to allow its residents to
age-in-place by providing them with a continuum of senior independent and
assisted living services. The residents in a Brookdale facility have the ability
to maintain their residency in such facility for an extended period of time due
to the range of service options available to such residents as their needs
change. An individual can move into a Brookdale facility while the individual is
able to live independently, requiring little or no assistance with the
activities of daily living. As the resident ages and requires more assistance
with the activities of daily living, the resident is able to receive an enhanced
level of services at the Brookdale facility and does not have to move to another
facility to receive such level of services. The ability to allow residents to
age-in-place is beneficial to Brookdale's residents as well as their families
who are burdened with care option decisions for their elderly relatives. In
addition to studio, one-bedroom and two-bedroom units, the Company provides all
residents with basic services, such as meal service, 24-hour emergency response,
housekeeping, concierge services, transportation and recreational activities.
For residents who require additional supplemental care services, the Company
provides assistance with activities of daily living. As of December 31, 1998,
the average age of Brookdale's residents was approximately 82 years old, and
many of these residents require some level of assistance with their activities
of daily living. The Company intends to bring "in-house" as many of these
services as practicable and has established a program providing various levels
and combinations of these services called "Personally Yours"SM. The levels of
care provided by the Company to residents vary from facility to facility
depending upon the licensing requirements of the state in which the facility is
located.
The Company was incorporated in Delaware on September 4, 1996 by an
affiliate of The Prime Group, Inc. The Company was formed to continue and expand
the business and operations of the senior independent and assisted living
division of The Prime Group, Inc. and certain of its affiliates (collectively,
"PGI"), which, since 1985, had been involved in the development, construction,
marketing and operation of senior independent and assisted living facilities for
the elderly.
At the completion of the Company's initial public offering of its common
stock on May 7, 1997 (the "IPO"), the shares of the Company owned by such
affiliate were repurchased by the Company at a nominal price in accordance with
a subscription agreement between the Company and such affiliate. In connection
with the completion of the IPO, PGI and senior management of the Company
contributed their interests in the senior independent and assisted living
division of PGI to the Company in exchange for 2,000,000 shares of the Company's
common stock. PGI also purchased 2,500,000 shares of the 4,500,000 shares of the
Company's common stock sold in the IPO. Since the IPO, the Company has managed,
and continues to manage, The Island on Lake Travis facility, which continues to
be owned by PGI. The Company's principal executive offices are located at 77
West Wacker Drive, Suite 4400, Chicago, Illinois 60601, and its telephone number
is (312) 977-3700.
Cautionary Statements
This annual report on Form 10-K 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 forward-looking statements, including
those regarding the intent, belief, or current expectations of the Company or
management, are not guarantees of future performance, results or events and
involve risks and uncertainties, and that actual results and events may differ
materially from those in the forward-looking statements as a result of various
factors, including, but not limited to (i) general economic conditions in the
markets in which the Company operates, (ii) competitive pressures within the
industry and/or the markets in which the Company operates, (iii) the effect of
future legislation or regulatory changes on the Company's operations and (iv)
other factors described from time to time in the Company's filings with the
Securities and Exchange Commission. The forward-looking statements included in
this report are made only as of the date hereof. Except as required by law, the
Company undertakes no obligation to update such forward-looking statements to
reflect subsequent events or circumstances.
The Senior Independent and Assisted Living Industry
The senior independent and assisted living industry is a rapidly growing
component of the non-acute health care system for the elderly. The senior
independent and assisted living industry serves the needs of the elderly who
benefit from living in a supportive environment and may require or prefer
occasional assistance with the activities of daily living, and who no longer
desire, or cannot live alone. It is estimated that 35% of the people over age 85
require assistance with more than one activity of daily living, such as bathing,
eating, personal hygiene, grooming and dressing.
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The rapid growth of the senior independent and assisted living industry is
supported by several significant trends, including the following:
Favorable Demographics. The primary consumers of senior independent and
assisted living services are persons over age 65. This group represents one of
the fastest growing segments of the U.S. population. According to U.S. Bureau of
the Census data, the number of people in the U.S. age 65 and older increased by
more than 27% from 1981 to 1994, growing from 26.2 million to 33.2 million. The
segment of the population over 85 years of age, which comprises the largest
percentage of residents at senior care facilities, is projected to increase by
more than 40% between the years 1990 and 2000. Brookdale believes that these
trends will contribute to continued strong demand for senior independent and
assisted living services.
Consumer Preference. The Company believes that senior independent and
assisted living facilities provide prospective residents and their families with
an attractive alternative to home care or skilled nursing facilities,
particularly those prospective residents who do not require the level of care or
institutional setting provided by skilled nursing facilities. Senior independent
and assisted living facilities allow residents, who typically furnish their own
units, to age-in-place and preserve their independence in a more residential
setting. The Company believes these factors result in a higher quality of life
than that experienced in the more institutional or clinical settings.
Cost-Effective Alternative. The annual per resident cost for senior
independent and assisted living care is significantly less than the annual per
resident cost for skilled nursing care. The Company believes that the cost of
senior independent and assisted living care (which includes housing and meal
preparation) compares favorably with home health care when the costs associated
with housing and meal preparation are added to the costs of home health care.
Pricing pressure is also forcing skilled nursing facilities to shift their focus
toward providing more intense levels of care enabling them to charge higher
fees, thus adding to the shortage of facilities providing less intensive care.
The rapid growth of the elderly population coupled with continuing constraints
on the supply and availability of long-term care beds is leading to a continued
shortage of long-term care beds for the elderly.
Increasing Awareness of Benefits of Congregate Living. The Company believes
that consumers and their adult children are becoming increasingly aware of the
benefits of living in senior independent or congregate living facilities which
provide assisted living services. For the potential resident who may not
necessarily require assistance with activities of daily living, senior
independent living facilities can provide significant benefits to improve
quality of life. By receiving proper nutrition and the enhanced physical,
mental, and social stimulation, which are provided in a senior independent or
congregate living facility, residents may realize such improved quality of
living. In facilities, such as the Company's facilities, which also provide
assistance with activities of daily living, residents and their adult children
can take comfort in knowing that such residents can age-in-place in a more
secure and structured environment than typically available in the home.
Changing Family Dynamics. As a result of the growing number of two-income
families, many children are not able to care for elderly parents in their own
homes. Two-income families are, however, better able to provide financial
support for elderly parents. In addition, other factors, such as the growth in
the divorce rate and single-parent households, as well as the increasing
geographic dispersion of families, have contributed to the growing inability of
children to care for aging parents in the home.
Business and Growth Strategy
The Company's business and growth strategy is based on the following key
elements:
Purchase and Lease Existing Senior Independent and Assisted Living
Facilities. The Company believes that significant opportunities exist to take
advantage of the fragmented senior independent and assisted living industry by
selectively purchasing or leasing existing facilities. The Company's acquisition
and leasing strategy has focused, and will continue to focus, primarily on
facilities that are designed or can be repositioned by the Company, by improving
or enhancing available services and amenities, for middle to upper-income
private pay residents. Facilities which the Company expects to purchase or lease
will primarily consist of large facilities, similar to the Company's current
facilities that contain an average of approximately 217 units, located in urban
and suburban areas of major metropolitan markets. See "--Acquisitions, Leases
and Development."
Develop the Brookdale Prototype Facility in Targeted Markets. The Company
intends to continue to leverage its development expertise and construct its
prototype facility on selected sites located in urban and suburban areas of
major metropolitan markets. The Company's prototype facility, which is flexible
and can be adapted to the specific requirements of individual markets and site
requirements, contains 220 units, but can be constructed to accommodate between
150 and 250 units. The prototype offers a mix of studio, one-bedroom and
two-bedroom units and common areas providing premium amenities. The Company
intends to begin development of at least 2 to 3 facilities on behalf of third
parties in each of the next 5 years and anticipates that each development will
require approximately 22 to 24 months to complete. See "--Acquisitions, Leases
and Development."
Provide Access to a Full Continuum of Senior Independent and Assisted
Living Services. The Company's strategy is to provide access to a full continuum
of senior independent and assisted living services that allows its residents to
age-in-place. These services are provided either by the Company or by outside
agencies. It is the Company's strategy to increase the availability of
additional services and to capture the incremental revenue generated by
providing these services through Company employees. In addition, one of
Brookdale's goals is to establish hospital or health care network affiliations
for each of its facilities. Hospital and health care network affiliations
provide for on-site physician and nursing services and facilitate the provision
of health care services and wellness programs to the
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Company's residents. In addition, the Company is presently developing an 82-bed
skilled nursing facility on the campus of The Devonshire facility located in
Lisle, Illinois. The Company does not currently intend to pursue the development
of additional skilled nursing facilities at its other facilities. See "--Company
Operations -- Hospital and Health Care Network Affiliations."
Utilize Sophisticated Marketing Programs to Maintain High Occupancy Rates.
The Company utilizes sophisticated marketing programs to achieve high occupancy
rates. As of December 31, 1998, the Company's facilities were 95% occupied. The
Company believes that its marketing programs will improve the occupancy rates of
facilities that the Company purchases or leases in the future. The Company's
marketing programs are designed to create community awareness of the Company,
its facilities and its services, and to cultivate relationships with referral
sources such as health care providers, physicians, clergy, area agencies for the
elderly, home health agencies and social workers. In addition, hospital
affiliations have been successfully implemented by the Company at certain of its
facilities, which provide referrals of prospective residents. The Company
believes that the success of its marketing programs is demonstrated not only by
its high occupancy rates, but also by the Company's ability to maintain waiting
lists at its facilities for prospective residents who pay a deposit in order to
be included on such lists. See "--Company Operations--Marketing and Sales."
Utilize Operational Expertise to Enhance Profitability. The Company has
developed and implemented sophisticated management and operational procedures
resulting in strong operating margins and occupancy rates. These procedures
include securing national vendor contracts to ensure consistent low pricing,
implementing sophisticated budgeting and financial controls at each facility and
establishing standardized training and operations procedures. Although the
Company's business is not dependent on its national vendor contracts, such
contracts provide the Company with better pricing on required goods and services
due to high volume purchases from a few national vendors. There are, however,
several other vendors from whom the Company could purchase its required goods
and services if the national vendor contracts were to be terminated or were to
expire. The Company believes that the systematic implementation of its
management and operating policies will enable the Company to enhance the
financial performance of its existing and future facilities and will continue to
improve the profitability of its stabilized facilities.
Expand Facilities Where Economically Advantageous. The Company has found
that certain of its facilities with stabilized occupancies benefit from
additions and expansions offering increased capacity, as well as additional
levels of service for residents requiring higher levels of care. Furthermore,
the expansion of existing facilities allows the Company to enhance its economies
of scale by increasing the revenue base at a facility while leveraging such
facility's existing infrastructure such as the laundry equipment and the
kitchen. In addition to the planned 82-bed skilled nursing facility on the
campus of The Devonshire facility, the Company is currently expanding its
Hawthorn Lakes facility located in Vernon Hills, Illinois with an additional 54
assisted living units.
Services
The Company's senior independent and assisted living facilities offer
residents personal support services and assistance with certain activities of
daily living in a supportive, home-like setting. Residents of the Company's
facilities are typically unable or choose not to live alone, but do not require
the 24-hour nursing care provided in skilled nursing facilities. The Company's
service options are designed to meet residents' changing needs and to achieve a
continuity of care, enabling seniors to age-in-place and thereby maintain their
residency for a longer time period.
Basic Care Program
The basic care package, which is received by all residents, includes meal
service, housekeeping services within the resident's unit, social and
recreational activities, scheduled transportation to medical centers and
shopping, security, emergency call response, access to on-site medical services
and medical education and wellness programs.
Supplemental Care Services
In addition to the basic care program, 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. Residents with cognitive or physical frailties and higher
level service needs are either accommodated with supplemental services in their
own units or, in certain facilities, are cared for in a more structured and
supervised environment on a separate wing or floor of the facility with a
dedicated staff and with separate dining room and activity areas.
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 and bathing 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
intends to obtain licensing to provide home health services to residents. At
present, many residents receive supplemental health care services from outside
third parties. The Company's ability to provide certain services depends on the
licensing requirements of particular states. However, the Company's general
strategy is to provide assistance with activities of daily living, subject to
states licensing limitations.
Certain services, such as physician care, infusion therapy, which includes
intravenous delivery of medication, physical and speech therapy and other more
intensive home health care services, are provided to many of Brookdale's
residents by third parties. The Company assists residents in locating qualified
providers for such health care services.
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Company Operations
Overview
The Company continually reviews opportunities to expand the amount of
services it provides to its residents. To date, the Company has been able to
increase its monthly service fees on an annual basis and has experienced
increasing facility operating margins through a combination of the
implementation of efficient operating procedures and the economies of scale
associated with the size of its facilities. The Company's operating procedures
include securing national vendor contracts to obtain consistent low pricing for
certain services such as food and energy, implementing strict budgeting and
financial controls at each facility and establishing standardized training and
operations procedures. The Company believes that successful senior independent
and assisted living operators must effectively combine the business disciplines
of hospitality, health care, marketing, finance and real estate expertise.
Brookdale has implemented intensive standards, policies and procedures and
systems, including detailed staff manuals, which the Company believes have
contributed to Brookdale's facility operating margins. The Company has
centralized accounting controls, finance and other operating functions at its
corporate headquarters so that, consistent with its operating philosophy,
facility-based personnel can focus on resident care and efficient operations.
Headquarters staff in Chicago, Illinois are responsible for the establishment of
Company-wide policies and procedures relating to, among other things, resident
care, facility design and facility operations; billings and collections;
accounts payable; finance and accounting; development of employee training
materials and programs; marketing activities; the hiring and training of
management and other facility-based personnel; compliance with applicable local
and state regulatory requirements; and implementation of the Company's
acquisition, development and leasing plans.
Facility Staffing and Training
Each facility has an Executive Director responsible for the day-to-day
operations of the facility, including quality of care, social services and
financial performance. Each Executive Director receives specialized training
from the Company. In addition, a portion of each Executive Director's
compensation is directly tied to the operating performance of the facility and
to the maintenance of high occupancy levels. The Company believes that the
quality and size of its facilities, coupled with its competitive compensation
philosophy, have enabled it to attract high-quality, professional
administrators. Each Executive Director is supported by a Resident Services
Director who is directly responsible for day-to-day care of the residents and a
Marketing Director who oversees the facility's marketing and community outreach
programs. Other key positions at each facility include the Food Service
Director, the Activities Director, the Housekeeping Director, the Engineering
Director and the Business Manager.
The Company believes that quality of care and operating efficiency can be
maximized by direct resident and staff contact. Employees involved in resident
care, including the administrative staff, are trained in the support and care
needs of the residents and emergency response techniques. The Company has
adopted formal training and evaluation procedures to help ensure quality care
for its residents. The Company has extensive policy and procedure manuals for
each department and holds frequent training sessions for management and staff at
each site.
Quality Assurance
The Company maintains quality assurance programs at each of its facilities
through its corporate headquarters staff. The Company's quality assurance
program is designed to achieve a high degree of resident and family member
satisfaction with the care and services provided by the Company. The Company's
quality control measures include, among other things, facility inspections
conducted by corporate staff on at least a monthly basis. These inspections
cover the appearance of the exterior and grounds; the appearance and cleanliness
of the interior; the professionalism and friendliness of staff; resident care
plans; the quality of activities and the dining program; observance of residents
in their daily living activities; and compliance with government regulations.
The Company's quality control measures also include the survey of residents
and family members on a regular basis to monitor the quality of services
provided to residents. The survey process begins with a visitor's survey sent
one week following a potential resident's visit to a facility to ascertain his
or her opinions and initial impressions. Detailed annual written surveys and
exit surveys are used to appraise and monitor the level of satisfaction of
residents and their families with facility operations and services.
In order to foster a sense of community as well as to respond to residents'
desires, the Company has established at each facility a resident council, an
advisory committee elected by the residents, that meets monthly with the
Executive Director of the facility. Separate resident committees also exist or
are being initiated for food service, activities, marketing and hospitality.
These committees promote resident involvement and satisfaction and enable
facility management to be more responsive to the residents' needs and desires.
Marketing and Sales
The Company's marketing strategy is intended to create awareness of the
Company, its facilities and its services among potential residents and their
family members and among referral sources, such as hospital discharge planners,
physicians, clergy, area agencies for the elderly, skilled nursing facilities,
home health agencies and social workers. Brookdale's marketing staff develops
overall strategies for promoting the Company's properties and monitors the
success of the Company's marketing efforts. Each facility has a Director of
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Marketing who oversees the facility's marketing and outreach programs and
supervises the on-site marketing staff and move-in coordinators. Besides direct
contacts with prospective referral sources, the Company also relies on print
advertising, yellow pages advertising, direct mail, signage and special events,
such as grand openings for new facilities, health fairs and community
receptions. In addition, resident referral programs have been established and
are promoted at each facility.
Hospital and Health Care Network Affiliations
Another key element in the Company's operating strategy is to establish
affiliations between Brookdale's facilities and hospitals and health care
networks. Hospital and health care network affiliations provide for on-site
physician and nursing services and facilitate the provision of health care
services and wellness programs to the Company's residents and provide the
Company with a referral source. Such affiliations exist at various Brookdale
facilities. As examples, The Hallmark (located in Chicago, Illinois) and The
Heritage (located in Des Plaines, Illinois) facilities are affiliated with Saint
Joseph Health Centers and Hospital and Holy Family Hospital, respectively,
pursuant to agreements with the respective hospitals. The agreements
establishing the affiliations typically grant the hospital or health care
network the right to lease space at a Brookdale facility and provide that the
hospital or health care network will maintain centers in the facility to make
services available to facility residents. The hospital or health care network
pays rent for its leased space and is compensated for making the services they
render available at the facility. The annual amounts paid by the hospital or
health care network approximate the annual amounts paid to such hospital or
health care network. The Company intends to establish affiliations with
hospitals and health care networks if the Company believes such affiliations
would be beneficial to the residents of the facility and if the facility can
accommodate such affiliations.
Acquisitions, Leases and Development
The Company evaluates markets for acquisition, lease and development
opportunities based on demographics and market studies. The Company's
acquisition, lease and development strategy focuses on the urban and suburban
areas of major metropolitan markets.
Acquisitions and Leases
The Company currently expects to purchase or lease 4 to 6 facilities per
year containing an aggregate of approximately 800 to 1,200 units. In some cases,
the purchase contract for a facility may be assigned to a third party which
would acquire the facility and in turn enter into an operating lease with a
wholly-owned subsidiary of the Company, with the subsidiary obtaining
substantially all of the benefits and risks of ownership. The Company utilizes
an operating lease structure for its acquisitions in order to minimize its
overall cost of capital.
The Company may acquire facilities as a means of entry into new markets and
may also attempt to increase its market share in existing markets through
selected acquisitions based on its experience in and knowledge of existing
markets. Acquisitions are expected to consist primarily of large facilities that
are similar to the Company's current facilities, which average approximately 217
units per facility. In reviewing acquisition opportunities, the Company
considers, among other things, underlying demographics, facility location within
its neighborhood or community, the current reputation of the facility in the
marketplace and the ability of the Company to improve or enhance a facility's
available services and amenities. Further, the Company evaluates the opportunity
to improve or enhance services and operating results through the implementation
of the Company's standard operating procedures.
Development
It is the Company's development strategy to commence the development and
construction of 2 to 3 facilities per year on behalf of third party owners. The
Company's flexible prototype facility contains approximately 220 units, but can
be constructed to accommodate between 150 to 250 units. The size of a particular
facility will depend on site size, zoning and underlying market characteristics.
The Company's 220-unit prototype contains approximately 220,000 square feet in a
four-story building and contains a mix of studio, one-bedroom and two-bedroom
units. In addition to the living units, the Company's prototype contains common
areas for residents, including a living room, library, lounges, billiards room,
multi-purpose room, arts and crafts room, exercise room, convenience store,
beauty/barber shop, mail room, common dining room and private dining room. The
Company anticipates that new developments will require 8 to 10 months for
pre-construction development, 12 to 14 months for construction and approximately
12 months after opening to achieve stabilized occupancy. The total construction
costs for the 220-unit prototype, including construction period financing costs
and operating deficits during the lease-up period, are estimated to be
approximately $35.0 million, or approximately $159,000 per unit.
The Company evaluates markets in which to develop its prototype based on a
number of factors, including demographic profiles of both potential residents
and their adult children, existing competitors and the foreseeable level of new
entrants in the market, estimated market demand and zoning prospects. Site
selection is based on established criteria relating to land cost and condition,
visibility, accessibility, immediate adjacencies, community perception and
zoning prospects. Full market feasibility studies, which include evaluations of
all potential competitors, extensive interviews with key municipal officials and
health care providers, and demographic studies are conducted for each site.
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The table set forth below summarizes certain information related to the
Company's operating lease transactions and developments during 1998:
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Operating Leases
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Property Location Units Date Acquired
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Harbor Village Chicago, Illinois 276 March 6, 1998
The Atrium San Jose, California 292 May 12, 1998
The Chatfield West Hartford, Connecticut 120 July 2, 1998
The Ponce de Leon Santa Fe, New Mexico 144 October 21, 1998
Woodside Terrace Redwood City, California 270 December 22, 1998
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Total Units 1,102
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On January 19, 1999, the Company entered into an operating lease for The
River Bay Club, a 285-unit senior living facility located in Quincy,
Massachusetts.
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Third Party Developments
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Projected
Development Location Units Completion Date
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The Heritage at Austin Austin, Texas 209 June, 1999
The Heritage at Southfield Southfield, Michigan 219 June, 1999
The Meadows of Glen Ellyn Glen Ellyn, Illinois 233 January, 2000
The Heritage at Raleigh Raleigh, North Carolina 219 May, 2000
The Hallmark at Battery Park New York, New York 218 June, 2000
The Heritage at Mt. Lebanon Pittsburgh, Pennsylvania 233 February, 2001
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Total Units 1,331
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</TABLE>
Competition
The senior independent and assisted living industry is highly competitive,
and the Company expects that it will become more competitive in the future. The
Company will continue to face competition from numerous local, regional and
national providers of senior independent and assisted living services. The
Company will compete with such providers primarily on the basis of cost, quality
of care and the array of services provided. The Company will also compete with
companies providing home based health care based on those factors as well as the
reputation, geographic location and physical appearance of facilities and family
preferences. Some of the Company's competitors operate on a not-for-profit basis
or as charitable organizations or have, or may obtain, greater financial
resources than those of the Company.
Moreover, in the implementation of the Company's business and growth
strategy, the Company expects to face competition for the acquisition and
development of senior independent and assisted living facilities. Consequently,
there can be no assurance that the Company will not encounter increased
competition in the future which could limit its ability to attract residents or
expand its business and could have a material adverse effect on the Company's
financial condition, results of operations and prospects.
Governmental Regulation
Senior independent and assisted living facilities are subject to varying
degrees of federal, state and local regulation and licensing by local and state
health and social service agencies and other regulatory authorities. While
regulations and licensing requirements often vary significantly from state to
state, they typically address, among other things, personnel education, training
and records; facility services; physical plant specifications; furnishing of
resident units; food and housekeeping services; emergency evacuation plans; and
resident rights and responsibilities. In many states, senior independent and
assisted living facilities also are subject to state or local building codes,
fire codes and food service licensing or certification requirements. Assisted
living facilities may be subject to periodic survey or inspection by
governmental authorities. To date, state regulation has not had a material
adverse effect on the Company's ability to offer services or conduct its
business. In certain states where the Company operates and where the Company may
operate in the future, the Company may be unable to provide certain higher
levels of assisted living services without obtaining the appropriate licenses.
The Company's success will depend in part on its ability to satisfy such
regulations and requirements and to acquire and maintain required licenses. The
Company's operations could also be adversely affected by, among other things,
regulatory developments such as revisions in licensing and certification
standards.
Some states have adopted certificate of need or similar laws applicable to
assisted living and nursing facilities which generally require that the
appropriate state agency approve certain acquisitions or capital expenditures
and determine whether a need exists for certain new unit or bed additions or new
services. Certain states have placed a moratorium on granting certificates of
need or otherwise stated their intent not to grant approval for such capital
expenditures. To the extent certificates of need or other similar approvals are
required for expansion of Company operations, such expansion could be adversely
affected by the failure or inability to obtain the necessary approvals or
possible delays in obtaining such approvals.
-6-
<PAGE>
Although the Company currently does not participate in the Medicare or
Medicaid programs, the hospitals and other health care providers with which it
has affiliations do participate in those programs, and the Company may
participate in the Medicare program at the skilled nursing facility to be
constructed at The Devonshire facility. As of December 31, 1998, the Company is
paid for services it provides to 12 residents in the state of Washington by the
Department of Social and Health Services. Some portion of such funds are derived
by such agency from the federal Medicaid program. Also, all of the Company's
residents are eligible for Medicare benefits. Therefore, certain aspects of the
Company's business are and will be subject to federal and state laws and
regulations which govern financial and other arrangements between and among
health care providers, suppliers and vendors. These laws prohibit certain direct
and indirect payments and fee-splitting arrangements designed to induce or
encourage the referral of patients to, or the recommendation of, a particular
provider or other entity or person for medical products and services. These laws
include, but are not limited to, the federal "anti-kickback law" which
prohibits, among other things, the offer, payment, solicitation or receipt of
any form of remuneration in return for the referral of Medicare and Medicaid
patients. The Office of the Inspector General of the Department of Health and
Human Services, the Department of Justice and other federal agencies interpret
these statutes liberally and enforce them aggressively. Congress and state
legislatures have proposed legislation that would significantly expand the
government's involvement in curtailing fraud and abuse and increase the monetary
penalties for violation of these provisions. Violation of these laws can result
in, among other things, loss of licensing, civil and criminal penalties for
individuals and entities and exclusion of health care providers or suppliers
from participation in the Medicare and/or Medicaid programs.
In addition, although the Company is not a Medicare or Medicaid provider or
supplier, it is subject to these laws because (i) the state laws typically apply
regardless of whether Medicare or Medicaid payments are at issue, (ii) the
Company plans to build and operate a skilled nursing facility at its Devonshire
facility and may establish licensed home health agencies which are intended to
participate in the Medicare program and (iii) as required under some state
licensing laws, or for the convenience of its residents, some of the Company's
senior independent and assisted living facilities maintain affiliations with
hospitals and other health care providers, including pharmacies, home health
agencies and hospices, through which the health care providers make their health
care items or services (some of which may be covered by Medicare or Medicaid)
available to facility residents. There can be no assurance that such laws will
be interpreted in a manner consistent with the practices of the Company.
Under the Americans with Disabilities Act of 1990, all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist which also may require modifications to existing and planned
properties to create access to the properties by disabled persons. While the
Company believes that its facilities are substantially in compliance with
present requirements or are exempt therefrom, if required changes involve a
greater expenditure than anticipated or must be made on a more accelerated basis
than anticipated, additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with respect to access
by disabled persons, the costs of compliance with which could be substantial.
The Company and its activities are subject to zoning and other state and
local government regulations. Zoning variances or use permits are often required
for construction. Severely restrictive regulations could impair the ability of
the Company to open additional facilities at desired locations or could result
in delays, which could adversely affect the Company's business and growth
strategy and results of operations.
Environmental Matters
Under various federal, state and local laws and regulations, an owner of
real estate is liable for the costs of removal or remediation of certain
hazardous substances on its property. Such laws often impose liability without
regard to whether the owner knew of, or was responsible for, the presence of the
hazardous substances. The costs of remediation or removal may be substantial,
and the presence of the hazardous substances, or the failure to promptly
remediate them, may adversely affect the owner's ability to sell the real estate
or to borrow using the real estate as collateral. In connection with its
ownership and operation of its facilities, the Company may be potentially liable
for the costs of removal or remediation of hazardous substances.
The Company has no knowledge, nor has the Company been notified by any
governmental authority, of any material noncompliance, liability or claim
relating to hazardous substances in connection with any properties in which any
of such entities now has or heretofore had an interest. However, no assurances
can be given that (i) future laws, ordinances or regulations will not impose any
material environmental liability or (ii) the current environmental condition of
its facilities will not be affected by the condition of the properties in the
vicinity of its facilities (such as the presence of underground storage tanks)
or by third parties unrelated to the Company.
Employees
As of December 31, 1998, the Company had approximately 1,700 employees, of
which 78 were employed at the Company's headquarters. The Company believes
employee relations are good.
Insurance
The provision of personal and health care services entails an inherent risk
of liability. Compared to more institutional long-term care facilities, senior
independent and assisted living residences offer residents a greater degree of
independence in their daily lives. This
-7-
<PAGE>
increased level of independence, however, may subject the resident and the
Company to certain risks that would be reduced in more institutionalized
settings. The Company currently maintains liability insurance intended to cover
such claims, in addition to fire, flood, and property insurance. The Company
believes its insurance coverage is adequate based on the nature of the risks,
its historical experience and industry standards.
Executive Officers
The following table sets forth certain information concerning each of the
Company's executive officers:
<TABLE>
<CAPTION>
Name Age Position with the Company
- - ---- --- -------------------------
<S> <C> <C>
Michael W. Reschke ......... 43 Chairman of the Board, Director
Mark J. Schulte ............ 45 President and Chief Executive Officer, Director
Darryl W. Copeland, Jr. .... 39 Executive Vice President and Chief Financial Officer, Director
Robert J. Rudnik ........... 44 Executive Vice President, General Counsel and Secretary
R. Stanley Young ........... 46 Senior Vice President - Finance and Treasurer
David J. Schaus ............ 43 Senior Vice President - Human Services
Matthew F. Whitlock ........ 34 Vice President - Acquisitions
Stephan T. Beck ............ 43 Vice President - Operations
Sheryl A. Wolf ............. 36 Controller
</TABLE>
Michael W. Reschke has served as Chairman of the Board and as a Director of
the Company since May 1997. Mr. Reschke founded PGI in 1981 and, since that
time, has served as PGI's Chairman, Chief Executive Officer and President. For
the last 18 years, Mr. Reschke has directed and managed the development,
finance, construction, leasing, marketing, acquisition, renovation and property
management activities of PGI. Mr. Reschke is also Chairman of the Board and a
Director of Prime Retail, Inc. (NYSE:PRT), a publicly traded real estate
investment trust involved in the ownership, acquisition, development and
management of factory outlet centers and the successor in interest to the former
retail division of PGI, and is Chairman of the Board and a Director of Prime
Group Realty Trust (NYSE:PGE), a publicly traded real estate investment trust
involved in the ownership, acquisition, development and management of office and
industrial buildings and the successor in interest to the former office and
industrial divisions of PGI. Mr. Reschke is also a member of the Board of
Directors of Horizon Group Properties, Inc. (NASDAQ:HPGI), a publicly traded
real estate investment trust involved in the ownership, acquisition,
redevelopment and management of factory outlet centers. Mr. Reschke is licensed
to practice law in the State of Illinois and is a certified public accountant.
Mr. Reschke is a member of the Chairman's Roundtable and the Executive Committee
of the National Realty Committee, as well as a full member of the Urban Land
Institute. Mr. Reschke also serves on the Board of Visitors of the University of
Illinois Law School.
Mark J. Schulte has served as President and Chief Executive Officer and a
director of the Company since May 1997. From January 1991 to May 1997, Mr.
Schulte was employed by PGI in its Senior Housing Division, most recently
serving as Executive Vice President, with primary responsibility for overseeing
all aspects of PGI's Senior Housing Division. Prior to joining PGI, Mr. Schulte
had 13 years of experience in the development and operation of multi-family
housing, senior housing, senior independent and assisted living and health care
facilities. Mr. Schulte is licensed to practice law in the State of New York.
Mr. Schulte serves on the Executive Committee of the American Seniors Housing
Association.
Darryl W. Copeland, Jr. has served as Executive Vice President and a
director of the Company since May 1997 and as the Chief Financial Officer since
May, 1998. From August 1989 to February 1997, Mr. Copeland was employed by
Donaldson, Lufkin & Jenrette Securities Corporation as an investment banker,
most recently serving as Senior Vice President in the Health Care and Leveraged
Finance groups.
Robert J. Rudnik has served as Executive Vice President, General Counsel
and Secretary of the Company since July 1997. Mr. Rudnik also serves as
Executive Vice President, General Counsel and Secretary of PGI. Mr. Rudnik has
served in such capacity for PGI since 1984. Mr. Rudnik is licensed to practice
law in the State of Illinois and is a member of the bar in the State of Florida.
R. Stanley Young has served as Senior Vice President-Finance and Treasurer
of the Company since August 1998. From 1977 to 1998, Mr. Young was with KPMG
Peat Marwick LLP, and was admitted to the partnership in 1987. Mr. Young is a
certified public accountant.
David J. Schaus has served as Senior Vice President-Human Services of the
Company since August 1998. From January 1997 to August 1998, Mr. Schaus was a
principal in the firm of Workplace Dynamics, Inc., a human resources consulting
firm, and from August 1989 to January 1997, Mr. Schaus served as Senior Vice
President and Managing Director of Dain Rauscher, a financial services
broker-dealer. Prior to joining Brookdale, Mr. Schaus had over twenty years of
management experience.
Matthew F. Whitlock has served as Vice President - Acquisitions of the
Company since May 1997. From August 1996 to May 1997, Mr. Whitlock was employed
by PGI in its Senior Housing Division as Director of Acquisitions. Prior to
joining PGI, Mr. Whitlock was employed by the Forum Group, previously one of the
largest operators of senior and assisted living facilities, as an acquisition
specialist from August 1995 to July 1996. Mr. Whitlock was a principal with
Concordia Group, a senior and assisted living consulting firm, from June 1991 to
July 1995.
-8-
<PAGE>
Stephan T. Beck has served as Vice President - Operations of the Company
since May 1997. From January 1993 to May 1997, Mr. Beck was employed by PGI,
most recently serving as Corporate Director of Operations of its Senior Housing
Division. Prior to joining PGI, Mr. Beck was employed by Classic Residence by
Hyatt as Executive Director of The Hallmark facility, which was then managed by
Classic Residence by Hyatt, from August 1990 to December 1992.
Sheryl A. Wolf has served as Controller of the Company since May 1997. From
September 1991 to May 1997, Ms. Wolf was employed by PGI, most recently serving
as Corporate Director of Finance of its Senior Housing Division.
ITEM 2. PROPERTIES.
Facilities
The following table sets forth certain information regarding the Company's
facilities:
<TABLE>
<CAPTION>
Year Occupancy Rate at Ownership
Facility Location Units Opened December 31, (1) Status(2)(3)
- - -------- -------- ----- ------ ----------------- ------------
1998 1997
---- ----
<S> <C> <C> <C> <C> <C> <C>
The Hallmark............................ Chicago, IL 341 1990 99% 100% Leased
The Devonshire (4)...................... Lisle, IL 321 1990 100% 100% Owned
The Classic at West Palm Beach.......... West Palm Beach, FL 301 1990 95% 92% Leased
The Heritage............................ Des Plaines, IL 254 1993 98% 100% Owned
The Park Place.......................... Spokane, WA 208 1992 95% 88% Leased
Edina Park Plaza........................ Edina, MN 208 1987 94% 96% Owned
The Island on Lake Travis............... Lago Vista, TX 207 1988 90% 91% Managed
Hawthorn Lakes (4)...................... Vernon Hills, IL 202 1987 98% 100% Owned
The Springs of East Mesa................ Mesa, AZ 185 1986 95% 100% Leased
The Gables at Farmington................ Farmington, CT 172 1984 94% 99% Leased
The Kenwood............................. Minneapolis, MN 154 1987 100% 100% Managed
The Brendenwood Retirement Community.... Voorhees, NJ 145 1987 92% 88% Leased
The Gables at Brighton.................. Brighton, NY 103 1988 78% 95% Leased
------
Total Units as of December 31, 1997 .. 2,801
------
Harbor Village (5)...................... Chicago, IL 276 1954 82% 78% Leased
The Atrium.............................. San Jose, CA 292 1987 100% N/A Leased
The Chatfield........................... West Hartford, CT 120 1989 91% N/A Leased
The Ponce de Leon....................... Santa Fe, NM 144 1985 97% N/A Leased
Woodside Terrace........................ Redwood City, CA 270 1988 96% N/A Leased
------
Total Units as of December 31, 1998 .. 3,903
======
The River Bay Club...................... Quincy, MA 285 1986 (6) N/A Leased
- - ------------------
(1) Occupancy rate is calculated by dividing total occupied units by total units
operated as of such date.
(2) All facilities indicated as "Owned" are 100% owned by Brookdale.
(3) The operating lease terms vary from 1 to 5 years (with 5 to 14 one-year
extension options) to 23 years (with two 25-year extension options).
(4) Total units exclude the planned 82-bed skilled nursing facility at The
Devonshire facility and the 54-unit expansion at the Hawthorn Lakes facility
currently under construction.
(5) This facility was operated as an apartment building until 1991, at which
point the prior owner purchased, substantially renovated and began operating
it as a senior independent and assisted living facility.
(6) This facility was 94% leased on January 19, 1999, the date on which the
Company began leasing this facility.
</TABLE>
The following table sets forth certain information regarding facilities
under development by the Company for third parties:
<TABLE>
<CAPTION>
Estimated
Location Units Status Expected Opening
-------- -------- ------ ----------------
<S> <C> <C> <C>
Austin, TX .......................... 209 Under Construction June, 1999
Southfield, MI ...................... 219 Under Construction June, 1999
Glen Ellyn, IL ...................... 233 Under Construction January, 2000
Raleigh, NC ......................... 219 Under Construction May, 2000
New York (Battery Park City), NY .... 218 Under Construction August, 2000
Pittsburgh, PA ...................... 233 In Development February, 2001
--------
Total Estimated Units ........... 1,331
========
</TABLE>
-9-
<PAGE>
Corporate Office Lease
On September 25, 1997, the Company entered into a 5-year lease (the "Office
Lease"), which commenced October 1, 1997, for its corporate office with 77 West
Wacker Limited Partnership (the "Landlord"), a partnership which is currently
owned by Prime Group Realty Trust, an affiliate of PGI. The original Office
Lease provided for the lease by the Company of approximately 13,500 square feet
of office space on the 48th floor, with base rent of $18.50 per square foot,
escalating by $0.75 per square foot at each anniversary of the commencement
date. On October 2, 1997, in consideration for the signing of the Office Lease,
the Company received a $404,000 cash payment from the Landlord for tenant
improvements which are amortized over the term of the Office Lease.
On March 17, 1998, the Company and the Landlord amended the Office Lease,
pursuant to which the Company and the Landlord agreed (i) to relocate the
Company's corporate office from the 48th floor to the 44th floor effective April
24, 1998, (ii) to increase the space leased by the Company to approximately
22,600 square feet and (iii) to extend the term of the Office Lease until April
30, 2005. The base rent under the amended Office Lease continues to be $18.50
per square foot, escalating $0.75 per square foot on each May 1 of the term
commencing May 1, 1999. In consideration for executing the amendment of the
Office Lease, which required the Company to relocate to another floor and lease
additional space, the Company received a $452,000 cash payment from the Landlord
for tenant improvements which are amortized over the term of the amended Office
Lease.
The Company's corporate office is located at 77 West Wacker Drive, Suite
4400, Chicago, Illinois 60601.
ITEM 3. LEGAL PROCEEDINGS.
The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management of the Company, although
the outcomes of these suits and claims are uncertain, in the aggregate they
should not have a material adverse effect on the Company's business, financial
condition and results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Company's security holders during
the quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Price Range of Common Stock
The Company's common stock is listed and traded on the Nasdaq National
Market ("Nasdaq") under the symbol "BLCI." The following table sets forth the
high and low closing prices for the common stock, as reported by Nasdaq, for the
periods indicated:
<TABLE>
<CAPTION>
1998 1997
------ ------
High Low High Low
<S> <C> <C> <C> <C>
First Quarter..................... $ 25.25 $ 16.50 $ -- $ --
Second Quarter (1)................ 29.25 22.63 12.13 11.50
Third Quarter..................... 25.63 17.44 19.00 11.88
Fourth Quarter.................... 21.59 13.25 20.63 16.50
- - ------------------
(1) The common stock commenced trading on May 2, 1997.
</TABLE>
On March 25, 1999, the closing price for the common stock, as reported by
Nasdaq was $14.94 per share. At such date, the Company had approximately 860
holders of record of common stock.
Dividend Policy
The Company has never declared or paid any cash dividends on its common
stock and currently plans to retain future earnings, if any, to finance the
growth of the Company's business rather than to pay cash dividends. Payments of
any cash dividends in the future will depend on the financial condition, results
of operations, terms of debt covenants and capital requirements of the Company
as well as other factors deemed to be relevant by the Company's Board of
Directors.
ITEM 6. SELECTED FINANCIAL DATA.
The following table presents selected financial and operating data for the
Company. The selected financial data as of December 31, 1998 and 1997 and for
the years ended December 31, 1998, 1997 and 1996 have been derived from the
consolidated financial statements of the Company and the audited combined
financial statements of The Heritage, The Hallmark, The Devonshire, The Gables
of Brighton, and The Springs of East Mesa facilities (the "Predecessor
Properties") included elsewhere in this Annual Report on Form 10-K which should
be read in conjunction with those financial statements and notes thereto. The
selected financial data as of December 31, 1996, 1995 and 1994 and for the years
ended December 31, 1995 and 1994 have been derived from the combined financial
statements of the Predecessor
-10-
<PAGE>
Properties not included in this Annual Report on Form 10-K which should be read
in conjunction with those financial statements and notes thereto. The Company
initiated operations on May 7, 1997 in connection with the consummation of the
IPO.
<TABLE>
<CAPTION>
Predecessor Properties
-------------------------------------------
Years Ended December 31, Brookdale Living Communities, Inc.
------------------------ ----------------------------------
January 1, to May 7, to Year Ended
1994(1) 1995(1) 1996(1) May 6, 1997(2) December 31, 1997(2) December 31, 1998
------- ------- ------- ------------- ----------------- -----------------
(in thousands, except per share and operating data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues .................................. $ 15,122 $ 21,848 $ 23,221 $ 10,473 $ 30,237 $ 77,701
Facility operating expenses(3) ............ (11,270) (13,253) (12,805) (6,102) (15,892) (39,935)
Lease expense ............................. -- -- -- (3,042) (6,942) (17,876)
General and administrative expenses(3) .... -- -- -- -- (2,187) (4,878)
Depreciation and amortization ............. (4,029) (4,598) (3,527) (857) (2,967) (4,853)
-------- -------- -------- -------- -------- --------
Operating (loss) income ................... (177) 3,997 6,889 472 2,249 10,159
Interest (expense) income, net ............ (3,227) (5,421) (4,524) (762) (2,326) 122
-------- -------- -------- -------- -------- --------
(Loss) income before minority interest,
(provision)/benefit for income taxes
and extraordinary item .................. (3,404) (1,424) 2,365 (290) (77) 10,281
Loss (income) allocated to minority
interest ............................... 1,178 802 (756) (138) -- --
-------- -------- -------- -------- -------- --------
(Loss) income before (provision)/benefit
benefit for income taxes and
extraordinary item ..................... (2,226) (622) 1,609 (428) (77) 10,281
(Provision)/benefit for income taxes ..... -- -- -- (236) 558 (3,627)
Extraordinary item (net of deferred tax
benefit for income taxes of $24 for 1997) -- 3,274 -- -- (36) --
-------- -------- -------- -------- -------- --------
Net (loss) income ........................ $ (2,226) $ 2,652 $ 1,609 $ (664) $ 445 $ 6,654
======== ======== ======== ======== ======== ========
Basic earnings per common share .......... -- -- -- -- $ 0.06 $ 0.68
Diluted earnings per common share ........ -- -- -- -- $ 0.06 $ 0.67
Basic weighted average shares
outstanding ............................ -- -- -- -- 7,208 9,751
Diluted weighted average shares
outstanding ............................ -- -- -- -- 7,351 9,978
Selected Operating and Other Data:
Number of facilities (at end of period) 3 3 5 (9) 13 18
Total units operated (4) ................. 916 916 1,204 (9) 2,801 3,903
Occupancy rate (4)(6) .................... 95.6% 98.1% 99.7% (9) 96.4% 94.8%
Average monthly revenue per unit (5)(6) $ 1,732 $ 2,015 $ 2,050 (9) $ 1,965 $ 2,046
Balance Sheet Data:
Cash and cash equivalents ................ $ 4,127 $ 5,086 $ 4,230 $ 1,915 $ 13,292 $ 1,065
Cash and investments-restricted (7) ...... 2,047 1,733 1,089 2,269 5,920 8,226
Investment certificates - restricted ..... -- -- -- -- -- 15,951
Letter of credit deposit (7) ............. -- -- -- -- 12,138 13,919
Lease security deposits (8) .............. -- -- -- -- 18,542 55,453
Total assets ............................. 102,579 100,325 57,836 55,982 183,169 244,633
Total long-term debt ..................... 101,242 99,627 65,000 65,000 96,167 95,880
Total stockholders' equity and
predecessor capital (deficit) .......... 1,852 3,597 (25,427) (28,685) 57,920 101,316
</TABLE>
(1) The historical financial and operating data for the years ended December
31, 1994, 1995 and 1996 represent combined historical financial data for
the Predecessor Properties.
(2) The financial and operating data for year ended December 31, 1997 represent
combined historical financial data for the Predecessor Properties until May
7, 1997 and, thereafter, the operations of the Company.
(3) Prior to May 7, 1997, general and administrative expenses were allocated to
the then existing facilities; however, following such date, the Company
began reporting general and administrative expenses as a separate item.
(4) Total units operated represents the total units operated as of the end of
the period. Occupancy rate is calculated by dividing total occupied units
by total units operated as of the end of the period.
(5) Average monthly revenue per unit represents the average of the total
monthly revenues divided by occupied units at the end of the period
averaged over the respective period presented and for the period of time in
operation during the period.
(6) For the year ended December 31, 1996, all the properties of the Predecessor
Properties have been included in the occupancy rate. However, the average
monthly revenue per unit excludes The Gables at Brighton and The Springs of
East Mesa which were leased for less than a full month in 1996.
-11-
<PAGE>
(7) Cash and investments-restricted represents segregated amounts to be used
for the payment of real estate taxes and other operating activities and
deposits in accordance with governmental and debt agreement requirements.
Letter of credit deposit represents cash collateral securing the credit
enhancement issued to secure the $65.0 million of tax-exempt bonds with
respect to The Heritage and The Devonshire facilities. The Company earns
interest income on both cash and investments-restricted and letter of
credit deposits amounts. See Note 3 to the Consolidated and Combined
Financial Statements included elsewhere in this Annual Report on Form 10-K.
(8) Lease security deposits represents investments collateralizing the
Company's lease obligations.
(9) All Selected Operating and Other Data for 1997 is as of and for the year
ended December 31, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
As of December 31, 1998 and 1997, the Company operated 18 and 13 senior
independent and assisted living facilities, respectively, containing a total of
3,903 units and 2,801 units, respectively. Four of such facilities are owned by
the Company, 12 (seven at December 31, 1997) facilities are leased by the
Company and 2 facilities (one of which is owned by PGI) are managed by the
Company 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 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 independents to age-in-place and
thereby maintain their residency for a longer time period. The ability to allow
residents to age-in-place is beneficial to the Company's residents as well as
their families who are burdened with care decisions for their elderly relatives.
The Company derives its revenue from resident fees, development fees and
management fees. Resident fees typically are paid monthly by residents, their
families or other responsible parties. As of December 31, 1998 and 1997, over
99% of the Company's resident fee revenue was derived from private pay sources.
Development fees are earned for developing senior independent and assisted
living facilities for third parties. 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 services are
provided.
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses, which includes labor, food,
marketing and other direct facility expenses and real estate taxes; (ii) general
and administrative expenses, which primarily include corporate headquarters and
other overhead costs; (iii) lease payments; and (iv) depreciation and
amortization.
<TABLE>
<CAPTION>
Results of Operations
Year Ended January 1 to May 7 to Year Ended
December 31, May 6, December 31, December 31,
------------ ------------ ----------- ------------
1996 1997 1997 1998
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Total revenue ............................................. 100.0 % 100.0 % 100.0 % 100.0 %
Facility operating expenses (1) ........................... (55.1) (58.3) (52.6) (51.4)
Lease expense ............................................. -- (29.0 (23.0) (23.0)
General and administrative expenses (1) ................... -- -- (7.2) (6.3)
Depreciation and amortization ............................. (15.2) (8.2) (9.8) (6.2)
----------- ------------ ----------- ------------
Operating income .......................................... 29.7 4.5 7.4 13.1
Interest income (expense), net ............................ (19.5) (7.3) (7.7) 0.2
----------- ------------ ----------- ------------
Income (loss) before minority interest, (provision)/benefit
for income taxes and extraordinary item ................ 10.2 (2.8) (0.3) 13.3
Income allocated to minority interest ..................... (3.3) (1.3) -- --
----------- ------------ ----------- ------------
Income (loss) before (provision)/benefit for income taxes
and extraordinary item ................................. 6.9 (4.1) (0.3) 13.3
(Provision)/benefit for income taxes ...................... -- (2.2) 1.8 (4.7)
Extraordinary item (net of deferred tax benefit for income
taxes of 0.1% for 1997) ................................ -- -- (0.1) --
----------- ------------ ----------- ------------
Net income (loss) ......................................... 6.9 % (6.3)% 1.4 % 8.6 %
=========== ============ =========== ============
Selected Operating and Other Data:
Number of facilities (at end of period) (5) .......... 5 -- 13 18
Total units operated (2)(5) .......................... 1,204 -- 2,801 3,903
Occupancy rate (2)(5) ................................ 99.7 % -- 96.4 % 95.3 %
Average monthly revenue per unit (3)(4)(5) ........... $2,050 -- $1,965 $2,046
</TABLE>
- - ------------------
(1) Prior to May 7, 1997, general and administrative expenses were allocated to
the then existing facilities; however, following May 7, 1997, the Company,
which commenced operations as of such date, began reporting general and
administrative expenses as a separate item.
-12-
<PAGE>
(2) Total units operated represents the total units operated as of the end of
the period. Occupancy rate is calculated by dividing total occupied units
by total units operated as of the end of the period.
(3) Average monthly revenue per unit represents the average of the total
monthly resident fees divided by occupied units at the end of the period
averaged over the respective period presented and for the period of time in
operation during the period.
(4) For the year ended December 31, 1996, The Hallmark, The Heritage, The
Devonshire, The Springs of East Mesa and The Gables at Brighton (The
Springs of East Mesa and Gables of Brighton beginning December 26, 1996)
(the "Predecessor Properties") have been included in the occupancy rate.
However, the average monthly revenue per unit excludes The Gables at
Brighton and The Springs of East Mesa which were leased for less than a
full month in 1996.
(5) All Selected Operating and Other Data is as of and for the year ended
December 31, 1997.
Comparison of Year Ended December 31, 1998 to Year Ended December 31, 1997
For the year ended December 31, 1997, results reflect operations of the
Predecessor Properties facilities through May 7, 1997 and all of the Company's
facilities thereafter.
Revenue. Total revenue increased by $37.0 million, or 90.9%, to $77.7
million for the year ended December 31, 1998 when compared to the year ended
December 31, 1997. Of this increase, $31.2 million was from increased resident
fees, $5.7 million was from development fees earned from third parties, and $.1
million was from management fees.
Of the increased resident fees, $1.4 million (an increase of 4%) was from
the five "same store" properties operated for the full year 1998 and 1997, $20.0
million was from the six properties purchased or leased during 1997 and operated
for the full year 1998, and $9.8 million was from the five properties leased in
1998.
Operating Expenses. Total operating expenses increased by $29.6 million, or
77.8%, to $67.5 million for the year ended December 31, 1998 when compared to
the year ended December 31, 1997. Facility operating expenses increased $18.2
million, or 83.5%; general and administrative increased $2.7 million, or 123%
(there was no general and administrative expense prior to the IPO on May 7,
1997); lease expense increased $7.9 million, or 79%; depreciation and
amortization increased $1.0 million, or 26.9%; and property management fees for
the Predecessor Properties decreased $.2 million, or 100%, as a result of the
Predecessor Properties contracting for outside management.
Of the increased facility operating expenses, $0 was from the five "same
store" properties operated from the full year 1998 and 1997, $11.8 million was
from the six facilities purchased or leased during 1997 and operated for the
full year 1998, and $6.4 million was from the five facilities leased in 1998.
The increased lease expense was due to the four facilities leased during
1997 and operated for the full year 1998, and the five additional facilities
leased in 1998.
General and administrative expenses increased $2.7 million, or 123%, due to
a full year of operations subsequent to the formation of the Company on May 7,
1997. Increased general and administrative costs were partially offset by the
$.2 million decrease in property management fees for the Predecessor Properties
prior to the formation of the Company on May 7, 1997.
Depreciation and amortization increased $1.0 million primarily due to full
year's depreciation of the Hawthorn Lakes and Edina Park Plaza facilities
purchased on May 7, 1997, and depreciation of additional furniture, fixtures and
equipment at the Company's corporate office.
Interest income increased $3.5 million, or 461.0%, for the year ended
December 31, 1998 when compared to December 31, 1997, due primarily to the
increase of restricted deposits in connection with the leased facilities, cash
investments collateralizing The Devonshire and The Heritage letters of credit
and investment certificates acquired by the Company in 1998.
Interest expense increased $.3 million for the year ended December 31, 1998
when compared to December 31, 1997 primarily due to the full year in 1998 of
mortgage interest for the Hawthorn Lakes and Edina Park Plaza facilities which
was partially offset by the lower interest rates on The Devonshire and The
Heritage facilities' variable rate tax-exempt bonds.
Net Income. Net income of $6.7 million for the year ended December 31, 1998
increased from the combined net loss of the Predecessor Properties and the
Company for the year ended December 31, 1997 due to improved operations for the
five "same store" properties, a full year's operation of the seven facilities
purchased or leased in 1997 and the operation of five facilities leased in 1998.
-13-
<PAGE>
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
For the year ended December 31, 1996, results reflect operations of The
Hallmark, The Heritage and The Devonshire facilities. For the year ended
December 31, 1997, results reflect operations of the Predecessor Properties
facilities through May 7, 1997 and all of the Company's facilities thereafter.
Revenue. Total revenue increased by $17.5 million, or 75.3%, to $40.7
million for the year ended December 31, 1997 when compared to the year ended
December 31, 1996. Of this increase, approximately $1.6 million (or an increase
of 7.0%) relates to increased resident fees at the properties that have been
operated during both periods. Approximately $14.9 million of such increase
relates to revenue from The Springs of East Mesa, The Gables at Brighton,
Hawthorn Lakes, Edina Park Plaza and The Park Place facilities acquired or
leased in December 1996 or during 1997, and approximately $1.0 million of such
increase relates to revenue from The Gables at Farmington, The Classic at West
Palm Beach and The Brendenwood Retirement Community facilities leased in
November and December of 1997.
Operating Expenses. Total operating expenses increased by $21.7 million, or
132.6%, to $38.0 million for the year ended December 31, 1997 when compared to
the year ended December 31, 1996. Facility operating expenses increased by $9.9
million, or 83.3%, to $21.8 million primarily due to the inclusion of the
acquired or leased facilities. From the commencement of operations on May 7,
1997 through December 31, 1997, the Company managed its facilities and,
accordingly, did not pay any property management fees, but incurred general and
administrative expenses of approximately $2.2 million. Lease expense increased
by $10.0 million due to the inclusion of The Springs of East Mesa, The Gables at
Brighton, The Hallmark, The Park Place, The Gables at Farmington, The Classic at
West Palm Beach and The Brendenwood Retirement Community facilities.
Depreciation and amortization increased by approximately $297,000, or 8.4%,
to $3.8 million for the year ended December 31, 1997. Of this increase,
approximately $182,000 relates to the depreciation of the step-up basis of The
Devonshire and The Heritage properties that resulted in connection with the IPO,
which totaled $130,000 and $52,000, respectively. The remainder of the increase,
or approximately $115,000, relates to the depreciation of the acquired or leased
facilities of $1.1 million offset by a decrease in depreciation on The Hallmark
facility of $1.2 million due to the sale and lease-back of this facility at the
end of 1996.
Interest expense decreased by approximately $890,000, or 18.8%, to $3.9
million for the year ended December 31, 1997 primarily due to the sale and
lease-back of The Hallmark facility. As a result of the sale and lease-back of
such facility on December 27, 1996, the facility was no longer encumbered by
debt. This decrease was slightly offset by the assumption of debt on the
Hawthorn Lakes and Edina Park Plaza facilities in connection with the purchase
of these properties during 1997. Interest income increased by approximately
$546,000, or 252.8%, to $762,000 due to an increase in average cash balances.
Property management fees decreased by approximately $700,000, or 75.3%, to
$230,000 due to the elimination of all management fee expense with respect to
facilities owned or leased by the Company once the Company commenced operations
on May 7, 1997.
Net Income. For the year ended December 31, 1997, net income, when
combining the Predecessor Properties and the Company, decreased by approximately
$1.8 million, or 113.6%, to a net loss of $219,000 when compared to the year
ended December 31, 1996. The net loss of $219,000 is composed of net income of
the Company of $445,000 for the period from May 7, 1997 to December 31, 1997 and
a net loss of the Predecessor Properties of $664,000 for the period from January
1, 1997 to May 6, 1997. Net income for the year ended December 31, 1997 (which
included the Predecessor Properties through May 7, 1997 and all of the Company's
facilities thereafter), versus net income for the year ended December 31, 1996,
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 years.
Liquidity and Capital Resources
Since formation of the Company on May 7, 1997, the Company has financed its
growth through issuances of common stock, borrowings under lines of credit,
entering into operating leases with third parties and cash generated from the
operation of the facilities.
Cash and cash equivalents (which excludes cash and investments-restricted
of $8.2 million, letter of credit deposits of $13.9 million, investment
certificates of $16.0 million, and lease security deposits of $55.5 million)
decreased by $12.2 million to $1.1 million at December 31, 1998 compared to
$13.3 million at December 31, 1997. The decrease was primarily due to the
funding of lease security deposits in connection with the leasing of five
facilities in 1998, earnest money deposits for The River Bay Club facility
leased in January, 1999, development costs related to development activities,
improvements at owned and leased facilities and general corporate purposes.
Net cash provided by operating activities for the year ended December 31,
1998 increased to $10.3 million from $4.9 million for the year ended December
31, 1997. The increase is primarily due to an additional five facilities leased
in 1998, a full year's operating results for the six facilities purchased and
leased during 1997 and improved operating results for the five facilities
operated for the full year 1998 and 1997.
Net cash used in investing activities increased for the year ended December
31, 1998 to $66.8 million from $61.8 million for the year ended December 31,
1997 due to increased development activity for third parties which was partially
offset by the decrease in cash paid for lease security deposits and
acquisitions. In 1998, the Company leased five facilities, and in 1997, the
Company leased four facilities, purchased the Hawthorn Lakes and Edina Park
Plaza facilities and acquired a third party's interest in The Heritage and The
Devonshire facilities.
-14-
<PAGE>
Net cash provided by financing activities for the year ended December 31,
1998 decreased to $44.3 million from $66.0 million for the year ended December
31, 1997. The decrease was primarily due to the decrease in proceeds from the
issuance of common stock from the follow-on offerings of $45.9 million offset by
increased borrowings under the line of credit of $11.0 million and decreased
fundings in letter of credit deposits of $10.4 million related to tax-exempt
bonds.
In January, 1999 the Company increased its unsecured line of credit to
$25.0 million of which approximately $11.0 million was drawn at December 31,
1998. The line of credit bears interest at prime plus 1/2% per annum (8.25% at
December 31, 1998). The Company obtained an additional line of credit of $5.0
million bearing interest at 12% per annum subsequent to December 31, 1998.
As of December 31, 1998 and 1997, the Company had $65.0 million of
long-term indebtedness in the form of variable rate tax-exempt bonds. The
interest rates (exclusive of credit enhancement and other fees) on such debt was
4.1% and 3.8% at December 31, 1998 and 1997, respectively (the average interest
rate was 3.5%, 3.7%, and 3.4% for the years ended December 31, 1998, 1997 and
1996, respectively). Such tax-exempt bonds contain covenants requiring the
facilities to maintain a minimum number of units for income qualified residents.
The Company currently plans to acquire or lease 4 to 6 senior independent
and assisted living facilities per year containing an aggregate of approximately
800 to 1,200 units, and to commence development of 2 to 3 new facilities per
year containing approximately 220 units. The Company anticipates that new
developments will require 8 to 10 months for pre-construction development, 12 to
14 months for construction and approximately 12 months after opening to achieve
a stabilized occupancy rate of approximately 95%. 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
$35.0 million, or approximately $159,000 per unit. At March 29, 1999, the
Company had 6 sites under development for third parties for new senior
independent and assisted living facilities, 5 of which were under construction.
The Company's estimated capital expenditures related to sites under development
aggregate to approximately $10.8 million to $14.8 million. Capital expenditures
related to the Company's existing facilities, including the 54-unit expansion at
the Hawthorn Lakes facility currently under construction, are estimated to be
approximately $6.0 million to $7.0 million in 1999.
The Company is currently negotiating to increase and extend its line of
credit. The Company has an effective "shelf" registration statement pursuant to
which the Company may issue up to $200.0 million of equity or debt securities.
In November 1998, the Company issued $33.0 million of common stock and may
consider additional financing through the issuance of debt and/or equity. In
order to achieve its growth plans, the Company will be required to obtain a
substantial amount of additional financing. The Company anticipates that it may
use a combination of additional equity financing and debt financing, lease
transactions and cash generated from operations to fund its acquisition and
development activities. 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
Capital Corporation of America, of which $51 million has been committed to the
Austin, Texas and Southfield, Michigan development projects which are being
developed for third parties. There can be no assurance that the Company will be
able to obtain the financing necessary for its acquisition and development
programs.
The Company is dependent on third-party financing for its acquisition 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 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 plans and
could therefore have a material adverse effect on the Company's growth plans and
its business plan, financial condition and results of operations.
To date, the Company's ability to increase cash flow to meet rising costs
has not been adversely affected in any material way by existing, or proposed,
rent control ordinances. Rent control ordinances may not be applicable to the
Company's facilities due to the services provided for the monthly fees charged
to its residents. If the Company's facilities were subject to rent control
ordinances, an imposed limitation on the resident fees that the Company may
charge at such facility could impair the Company's ability to meet any rising
costs of operating the facility.
Impact of Inflation
Resident fees from senior independent and assisted living facilities owned
or leased by the Company and management fees from facilities managed by the
Company for third parties are its 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 not less frequently than
every 13 months, thereby enabling the Company to seek increases in monthly fees
due to inflation or other factors. Any such increase would be subject to market
and competitive conditions and could result in a decrease in occupancy at the
Company's facilities. The Company believes, however, that the ability of the
Company to periodically adjust the monthly fee generally serves to reduce the
risk to the Company of the adverse effect of inflation. In addition, employee
compensation expense is a principal cost element of facility operations and is
also dependent upon local market conditions. There can be no assurance that
resident fees will increase or that costs will not increase due to inflation or
other causes. In addition, as of December 31, 1998, approximately $65.0 million
in principal amount of the Company's indebtedness bore interest at tax-exempt
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.
-15-
<PAGE>
Readiness for Year 2000
The Company has implemented a program to assess, remediate and mitigate the
potential impact of the Year 2000 Issue throughout the Company. The Company's
program has been structured to address its internal computer systems and
applications, network services operations, facilities operations and third-party
vendors and suppliers. The Company believes that it is taking the necessary
steps within its control to mitigate the potential impact of the Year 2000 Issue
on the Company.
Information Systems
The Company is in the process of upgrading its accounting, human resources,
property management and marketing systems prior to the assessment of its Year
2000 Issue. The Company expects that the replacement of its current system will
mitigate the impact of the Year 2000 Issue on its accounting operations. The
corporate software selection has been completed, a contract was executed in the
third quarter of 1998 and development and implementation were commenced in the
fourth quarter of 1998. The Company has one vendor software package that is used
to process property level accounting information at each facility which is not
Year 2000 compliant. The vendor is developing a conversion to ensure that the
software package is Year 2000 compliant. The Company is in the process of
selecting replacement software at the facilities it owns or operates and is
expected to do so in the second quarter of 1999 in the event it is determined
that the vendor of the current software is unable to ensure the software package
is Year 2000 compliant. The Company anticipates completing the corporate project
no later than the second quarter of 1999 and the facilities' project no later
than the fourth quarter of 1999.
Facilities
The Company has commenced an assessment of each facility, including an
assessment of infrastructure equipment such as elevator, HVAC and security
systems, and other critical service provider readiness issues. The Company
completed its preliminary assessment by December 31, 1998. The vendor software
package at each facility is used for resident billing and payable processing. As
noted above, the Company is in the process of selecting replacement software in
the event the vendor of the current software is unable to ensure that the
existing software is Year 2000 compliant. During the first half of 1999, the
Company will undertake contingency planning for each of its facilities as
necessary.
Third-Party Vendors and Suppliers
The Company's approach to third-party suppliers involves the process of
identification and prioritization of critical suppliers and communicating with
them about their plans and progress in addressing the Year 2000 Issue. This
evaluation, including prioritization of critical suppliers, and the subsequent
contingency planning will be undertaken during the first half of calendar 1999.
Costs
The final cost to complete the project has not yet been determined;
however, the estimated total cost, including capital expenditures, will
approximate $2.5 million to $3.0 million through December 31, 2000. The
Company's costs include outside consultants and contractors and hardware and
software replacements and upgrades.
The Company anticipates that cash on hand, cash generated from operations
and additional debt and equity financings will provide sufficient cash to fund
Year 2000 compliance expenditures. The Company's allocation of other personnel
resources and planned expenditures has not resulted in the deferral of any
information technology projects. Remediation costs, other than the planned
expenditures described above, are not expected to be material.
Risks
The Company may face potential Year 2000 related risks and may experience
business interruption to its operations as a result of third-party vendors and
suppliers failing to address their Year 2000 compliance issues. The Company's
plan includes an assessment of third-party vendors and suppliers to identify
Year 2000 compliance issues and the potential impact upon the Company and its
operations.
Project completion dates are 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.
Readers are cautioned that forward-looking statements contained in the Year
2000 disclosure should be read in conjunction with "Cautionary Statements" on
page 1.
-16-
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to interest rate risk primarily through its
borrowing and leasing activities. There is inherent risk from borrowings and
leasing as they mature and are renewed at current market rates. The extent of
this risk is not quantifiable or predictable because of the variability of
future interest rates and the Company's future financing requirements. The
Company does not enter into financial instruments transactions for trading or
other speculative purposes.
Long-term debt -- As of December 31, 1998, the Company had $95,880,000 of
long-term debt at a weighted average interest rate of 4.16% of which $3,000,000
matures May 1, 1999. Mortgage notes of $27,880,000 bear interest of 8.0 to
8.525% through maturity in 2027 when the loans are fully repaid. Two facilities
are financed with variable rate tax-exempt bonds of $33,000,000 and $32,000,000
which are payable interest only until maturity in 2025 and 2019, respectively.
Line of credit -- As of December 31, 1998, the Company had $10,997,000
outstanding on its unsecured line of credit which has a variable rate of prime
plus 1/2%.
The Company has entered into interest rate lock agreements on behalf of
third party owners of development projects to limit their exposure to movements
in variable interest rates. The notional amount of the construction loans is
$103,689,000 and the approximate value of the liability is $2,092,000. The
Company is to be reimbursed by the third party for any payments made pursuant to
the agreements.
If interest rates on the Company's variable rate debt, including tax-exempt
bonds, increased by 1 percentage point, the annual interest expense would
increase by approximately $750,000.
Lease expense -- The Company has entered into operating leases which have
fixed terms and are subject to renewal at the option of the Company. The Company
has an option to purchase the properties prior to or at the end of the lease.
Four of the facilities' lease requires the payment of additional rent of 10% of
the excess of each year's revenue compared to 1998.
The Company does not enter into financial instruments transactions for
trading or other speculative purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<TABLE>
<CAPTION>
Financial Statements
The information required by this Item is set forth at the pages
indicated below.
<S> <C>
Report of Independent Auditors....................................................................................18
Consolidated Balance Sheets of Brookdale Living Communities, Inc. as of December 31, 1998 and 1997................19
Consolidated Statements of Operations of Brookdale Living Communities, Inc. for the year ended December
31, 1998 and for the period from May 7, 1997 through December 31, 1997 and Combined Statements of
Operations of Predecessor Properties (predecessor to Brookdale Living Communities, Inc.) for the period
from January 1, 1997 through May 6, 1997 and for the year ended December 31, 1996 ................................20
Consolidated Statements of Stockholders' Equity of Brookdale Living Communities, Inc. for the year ended
December 31, 1998 and for the period from May 7, 1997 through December 31, 1997 ..................................21
Combined Statements of Changes in Partners' Capital (Deficit) of Predecessor Properties (predecessor to
Brookdale Living Communities, Inc.) for the period from January 1, 1997 through May 6, 1997 and for the
year ended December 31, 1996 .....................................................................................22
Consolidated Statements of Cash Flows of Brookdale Living Communities, Inc. for the year ended December
31, 1998 and for the period from May 7, 1997 through December 31, 1997 and Combined Statements of Cash
Flows of Predecessor Properties (predecessor to Brookdale Living Communities, Inc.) for the period from
January 1, 1997 through May 6, 1997 and for the year ended December 31, 1996 .....................................23
Notes to Consolidated and Combined Financial Statements of Brookdale Living Communities, Inc. and the
Predecessor Properties (predecessor to Brookdale Living Communities, Inc.) .......................................25
Financial Statement Schedules Not Filed:
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required
under the related instruction or are inapplicable and, therefore, have
been omitted.
</TABLE>
-17-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Brookdale Living Communities, Inc.
We have audited the accompanying consolidated balance sheets of Brookdale
Living Communities, Inc., a Delaware corporation, and subsidiaries (the
"Company") as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year ended
December 31, 1998 and for the period from May 7, 1997 (date of formation)
through December 31, 1997. We have also audited the combined statements of
operations, changes in partners' capital (deficit) and cash flows of the
Predecessor Properties (predecessor to Brookdale Living Communities, Inc.) (the
"Predecessor") for the period from January 1, 1997 through May 6, 1997 and for
the year ended December 31, 1996. These financial statements are the
responsibility of the Company's and the Predecessor's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Brookdale Living Communities, Inc. and subsidiaries as of December 31, 1998 and
1997, and the consolidated results of their operations and their cash flows for
the year ended December 31, 1998 and for the period from May 7, 1997 through
December 31, 1997, and the combined results of operations and cash flows of the
Predecessor Properties for the period from January 1, 1997 through May 6, 1997
and for the year ended December 31, 1996, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 4, 1999
-18-
<PAGE>
<TABLE>
<CAPTION>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
CONSOLIDATED BALANCE SHEETS OF THE COMPANY
December 31, 1998 and 1997
(In Thousands, Except Par Value Amounts)
Assets 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................................. $ 1,065 $ 13,292
Accounts receivable.................................................... 379 312
Notes receivable....................................................... 3,486 --
Reimbursable development costs......................................... 9,815 210
Prepaid expenses and other............................................. 4,752 2,769
------------- -------------
Total current assets............................................. 19,497 16,583
------------- -------------
Property, plant and equipment.......................................... 115,801 113,294
Accumulated depreciation............................................... (5,689) (2,164)
------------- -------------
Property, plant and equipment, net..................................... 110,112 111,130
------------- -------------
Property under development............................................. 11,221 11,427
Cash and investments - restricted...................................... 8,226 5,920
Investment certificates - restricted................................... 15,951 --
Letter of credit deposits.............................................. 13,919 12,138
Lease security deposits................................................ 55,453 18,542
Other.................................................................. 10,254 7,429
------------- -------------
Total assets..................................................... $ 244,633 $ 183,169
============= =============
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt...................................... $ 3,310 $ 286
Unsecured line of credit............................................... 10,997 --
Current portion of deferred gain on sale of property................... 806 806
Accrued interest payable............................................... 968 566
Accrued real estate taxes.............................................. 1,485 1,284
Accounts payable and accrued expenses.................................. 7,749 2,972
Tenant refundable entrance fees and security deposits.................. 5,838 4,377
Other.................................................................. 629 344
------------- -------------
Total current liabilities........................................ 31,782 10,635
------------- -------------
Long-term debt, less current portion................................... 92,570 95,881
Deferred lease liability............................................... 2,849 1,811
Deferred gain on sale of property, less current portion................ 16,116 16,922
------------- -------------
Total liabilities................................................ 143,317 125,249
------------- -------------
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value, 20,000 shares authorized, none issued. -- --
Common stock, $.01 par value, 75,000 shares authorized, 11,572 and
9,175 shares issued and outstanding at December 31, 1998 and 1997,
respectively ...................................................... 116 92
Additional paid-in-capital............................................. 94,101 57,383
Accumulated earnings................................................... 7,099 445
------------- -------------
Total stockholders' equity....................................... 101,316 57,920
------------- -------------
Total liabilities and stockholders' equity....................... $ 244,633 $ 183,169
============= =============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-19-
<PAGE>
<TABLE>
<CAPTION>
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
STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
Brookdale Living Communities, Inc. Predecessor Properties
------------------------------------ ---------------------------------
Period from Period from
May 7, 1997 January 1, 1997
Year Ended through through Year Ended
December 31, 1998 December 31, 1997 May 6, 1997 December 31, 1996
----------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Revenue
Resident fees ....................................... $ 71,785 $ 30,105 $ 10,473 $ 23,221
Development fees .................................... 5,655 -- -- --
Management fees ..................................... 261 132 -- --
------------- ----------- -------- ---------
Total revenue .................................. 77,701 30,237 10,473 23,221
------------- ----------- -------- ---------
Expenses
Facility operating .................................. 39,935 15,892 5,872 11,875
General and administrative .......................... 4,878 2,187 -- --
Lease expense ....................................... 17,876 6,942 3,042 --
Depreciation and amortization ....................... 4,853 2,967 857 3,527
Property management fees ............................ -- -- 230 930
------------- ----------- -------- ---------
Total operating expenses ....................... 67,542 27,988 10,001 16,332
------------- ----------- -------- ---------
Income from operations ......................... 10,159 2,249 472 6,889
Interest income ..................................... 4,275 694 68 216
Interest expense .................................... (4,153) (3,020) (830) (4,740)
------------- ----------- -------- ---------
Income (loss) before minority interest,
(provision)/benefit for income taxes and
extraordinary item ........................... 10,281 (77) (290) 2,365
Minority interest ................................... -- -- (138) (756)
(Provision)/benefit for income taxes ................ (3,627) 558 (236) --
------------- ----------- -------- ---------
Income (loss) from continuing operations
before extraordinary item .................... 6,654 481 (664) 1,609
Extraordinary item (net of deferred tax
benefit of $24 for 1997) ......................... -- (36) -- --
------------- ----------- -------- ---------
Net income (loss) .............................. $ 6,654 $ 445 $ (664) $ 1,609
============= =========== ======== =========
Basic earnings per common share:
Income from continuing operations before
extraordinary item ............................. $ 0.68 $ 0.07
Extraordinary item ............................... -- (0.01)
------------- -----------
Net income ....................................... $ 0.68 $ 0.06
============= ===========
Diluted earnings per common share:
Income from continuing operations before
extraordinary item ............................. $ 0.67 $ 0.07
Extraordinary item ............................... -- (0.01)
------------ -----------
Net income ....................................... $ 0.67 $ 0.06
============ ===========
Weighted average shares used for
computing basic earnings per share ............. 9,751 7,208
============= ============
Weighted average shares used for
computing diluted earnings per share ........... 9,978 7,351
============= ============
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-20-
<PAGE>
<TABLE>
<CAPTION>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY OF THE COMPANY
YEAR ENDED DECEMBER 31, 1998 AND
PERIOD FROM MAY 7, 1997 THROUGH DECEMBER 31, 1997
(In Thousands)
Brookdale Living
Common Stock Communities, Inc.
------------------------ Additional Accumulated
Shares Amount Paid-in Capital Earnings
------------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Balances at May 7, 1997 .............................. -- $ -- $ -- $ --
Reclassification of net deficit of predecessor ....... -- -- (28,685) --
Deferred tax asset ................................... -- -- 4,002 --
Issuance of common stock, net ........................ 9,175 92 82,066 --
Net income ........................................... -- -- -- 445
------------------------ ----------- -----------
Balances at December 31, 1997 ........................ 9,175 92 57,383 445
------------------------ ----------- -----------
Issuance of common stock, net ........................ 2,397 24 36,234 --
Tax benefit on options ............................... -- -- 484 --
Net income ........................................... -- -- -- 6,654
------------------------ ----------- -----------
Balances at December 31, 1998 ....................... 11,572 $ 116 $ 94,101 $ 7,099
======================== =========== ===========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-21-
<PAGE>
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
COMBINED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) OF THE PREDECESSOR
PERIOD FROM JANUARY 1, 1997 THROUGH MAY 6, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(In Thousands)
Balance at January 1, 1996 .................... $ 3,597
Contributions ................................. 51
Distributions ................................. (26,152)
Advances made to general partners ............. (4,532)
Net income .................................... 1,609
-------------
Balance at December 31, 1996 .................. (25,427)
Contributions ................................. 813
Distributions ................................. (3,407)
Net loss ...................................... (664)
-------------
Balance at May 6, 1997 ........................ $ (28,685)
=============
See accompanying notes to consolidated and combined financial statements.
-22-
<PAGE>
<TABLE>
<CAPTION>
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
STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
(In Thousands)
Brookdale Living Communities, Inc. Predecessor Properties
------------------------------------ ----------------------------------
Period from Period from
May 7, 1997 January 1, 1997
Year Ended through through Year Ended
December 31, 1998 December 31, 1997 May 6, 1997 December 31,1996
----------------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net income (loss) $ 6,654 $ 445 $ (664) $ 1,609
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization ..................... 4,853 2,967 857 3,527
Minority interest ................................. -- -- 138 756
Extraordinary item ................................ -- 36 -- --
Increase in deferred lease liability .............. 1,038 1,379 419 13
Deferred gain on sale of property ................. (806) (525) (281) --
Deferred income taxes ............................. 2,628 (582) -- --
Changes in:
Accounts receivable ............................. (67) (218) (5) (66)
Prepaid expenses and other assets................ (7,719) (1,120) 597 (1,114)
Due from/to affiliates, net ..................... -- 53 (763) 531
Accrued interest payable ........................ 402 273 111 (22)
Accrued real estate taxes ....................... 24 199 54 38
Accounts payable and accrued expenses ........... 4,671 1,786 377 223
Tenant refundable entrance fees and security
deposits ....................................... (8) 374 35 354
Other liabilities................................ (1,381) (2,101) 1,022 616
----------------- ----------------- ------------- ------------------
Net cash provided by operating activities ..... 10,289 2,966 1,897 6,465
----------------- ----------------- ------------- ------------------
Cash Flows from Investing Activities:
Cash paid for lease security deposits and
acquisitions, net ................................. (35,203) (47,705) -- --
Proceeds from sale of property under development, net 5,550 -- -- --
Changes in cash and investments-restricted .......... (758) (2,614) (1,180) 1,529
Increase in investment certificates-restricted ...... (15,951) -- -- --
Cash paid for property under development ............ (18,615) (8,350) (2) (6)
Proceeds from sale of property ...................... -- -- -- 24,152
Payments received on notes receivable ............... 9,785 -- -- --
Additions to property, plant and equipment and
reimbursable development costs .................... (11,588) (1,769) (149) (358)
----------------- ----------------- ------------- ------------------
Net cash (used in) provided by
investing activities ........................ (66,780) (60,438) (1,331) 25,317
----------------- ----------------- ------------- -------------------
Cash Flows from Financing Activities:
Repayment of long-term debt ......................... (286) (178) -- (306)
Proceeds from unsecured line of credit .............. 46,946 -- -- --
Repayment of unsecured line of credit ............... (35,950) -- -- --
Increase in letter of credit deposit ................ (1,781) (12,138) -- --
Payment of deferred costs ........................... (923) (993) (287) (814)
Proceeds from issuance of common stock, net ......... 36,258 82,158 -- --
Net contributions, advances/distributions to partners -- -- (2,594) (30,633)
----------------- ----------------- ------------- -------------------
Net cash provided by (used in)
financing activities ........................ 44,264 68,849 (2,881) (31,753)
----------------- ----------------- ------------- -------------------
Net (decrease) increase in cash and cash equivalents ... (12,227) 11,377 (2,315) 29
Cash and cash equivalents at beginning of period ....... 13,292 1,915 4,230 4,201
----------------- ----------------- ------------- -------------------
Cash and cash equivalents at end of period ............. $ 1,065 $ 13,292 $ 1,915 $ 4,230
================= ================= ============= ====================
</TABLE>
See accompanying notes to consolidated and combined financial statements.
-23-
<PAGE>
<TABLE>
<CAPTION>
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
STATEMENTS OF CASH FLOWS OF THE PREDECESSOR (continued)
(In Thousands)
Brookdale Living Communities, Inc. Predecessor Properties
------------------------------------ ----------------------------------
Period from Period from
May 7, 1997 January 1, 1997
Year Ended through through Year Ended
December 31, 1998 December 31, 1997 May 6, 1997 December 31,1996
----------------- ----------------- ------------- ------------------
<S> <C> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid, net of amounts capitalized .............. $ 3,751 $ 2,747 $ 723 $ 4,762
================= ================= ============= ====================
Income taxes paid ...................................... $ 661 $ -- $ -- $ --
================= ================= ============= ====================
Supplemental Schedule of Noncash Investing and Financial
Activities:
In connection with net lease transactions and
acquisitions, assets acquired and liabilities
assumed were as follows -
Fair value of assets acquired ........................ $ 35,151 $ 87,260 $ -- $ --
Less cash paid ....................................... 31,591 47,643 -- --
----------------- ----------------- ------------- --------------------
Liabilities assumed .................................. $ 3,560 $ 39,617 $ -- $ --
================= ================= ============= ====================
</TABLE>
The following assets and liabilities were contributed by the Predecessor to the
Company on May 7, 1997:
Cash ................................................... $ 1,915
Cash-restricted ........................................ 2,269
Accounts receivable .................................... 95
Prepaid rent ........................................... 396
Due from affiliates, net ............................... 53
Property, plant and equipment, net ..................... 48,808
Property under development ............................. 77
Deferred costs, net .................................... 1,710
Other assets ........................................... 421
----------
Total assets ...................................... 55,744
Deferred gain on sale of property, current ............. 806
Prepaid rent ........................................... 1,402
Accrued interest payable ............................... 293
Accrued real estate taxes .............................. 1,085
Accounts payable and accrued expenses .................. 1,190
Income taxes payable ................................... 236
Tenant refundable entrance fees and security deposits .. 2,649
Deferred lease liability ............................... 432
Bonds payable .......................................... 65,000
Deferred gain on sale of property, noncurrent .......... 17,447
----------
Total liabilities ................................. 90,540
Minority interest ..................................... (6,111)
----------
Predecessor owners' deficit contributed ................ $ (28,685)
==========
See accompanying notes to consolidated and combined financial statements.
-24-
<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 and Square Feet)
1. Organization
Brookdale Living Communities, Inc. was incorporated in Delaware on
September 4, 1996 and commenced operations upon completion of its initial public
offering (the "IPO") which closed on May 7, 1997. Brookdale Living Communities,
Inc. and its subsidiaries (collectively, "the Company") were formed in order to
create a company focused on senior independent and assisted living, which would
succeed to such property ownership interests and operations of the senior
independent and assisted living division of The Prime Group, Inc. and certain of
its affiliates (collectively, "PGI").
In connection with the IPO, which closed on May 7, 1997, the Company sold
4,500 shares of its common stock at $11.50 per share and received net proceeds
of $44,097. PGI contributed its senior independent and assisted living property
ownership interests and operations of the Predecessor Properties as described
below, in exchange for 1,703 shares of common stock of the Company. Mark J.
Schulte (President and Chief Executive Officer of the Company) contributed his
interests in PGI's senior independent and assisted living division to the
Company in exchange for 297 shares of common stock of the Company. PGI also
purchased 2,500 of the 4,500 shares of common stock sold in the IPO. In
connection with the IPO, the Company granted the underwriters an option to
purchase up to 675 additional shares of common stock for the purpose of covering
over-allotments. On June 3, 1997, the underwriters exercised their
over-allotment option, and the Company sold an additional 675 shares at $11.50
per share. The Company received net proceeds of approximately $7,210 from the
sale of these additional shares. On December 24, 1997, January 21, 1998 and
November 18, 1998, the Company completed follow-on public offerings of 2,000,
300 and 2,000 shares of its common stock at $16.6875, $16.6875 and $16.50 per
share, respectively.
In connection with the IPO, the Company acquired a third party's interest
in two of the Predecessor Properties, acquired two facilities from an
unaffiliated third party and entered into an agreement to lease another facility
from an unaffiliated third party.
The consolidated financial statements of the Company include the properties
owned or leased by the Company. The combined financial statements of the
Predecessor Properties include the properties owned or leased by the senior
independent and assisted living division of PGI, which consisted of five
properties 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 Company operates in the senior independent and assisted living segment. Its
properties, which are owned, leased, managed or under development by the Company
(collectively, the "Properties") are located throughout the United States as
indicated below:
<TABLE>
Property Name Date Owned or Leased Location
------------- -------------------- --------
<S> <C> <C> <C>
Owned Facilities: The Heritage (1) May 7, 1997 Des Plaines, IL
- - ---------------- The Devonshire (1) May 7, 1997 Lisle, IL
Hawthorn Lakes May 7, 1997 Vernon Hills, IL
Edina Park Plaza May 7, 1997 Edina, MN
Leased Facilities: The Hallmark (1) May 7, 1997 Chicago, IL
- - ----------------- The Springs of East Mesa (1) May 7, 1997 Mesa, AZ
The Gables of Brighton (1) May 7, 1997 Rochester, NY
The Park Place May 7, 1997 Spokane, WA
The Gables at Farmington November 24, 1997 Farmington, CT
The Classic at West Palm Beach December 18, 1997 West Palm Beach, FL
The Brendenwood Retirement Community December 22, 1997 Vorhees, NJ
Harbor Village March 6, 1998 Chicago, IL
The Atrium May 12, 1998 San Jose, CA
The Chatfield July 2, 1998 West Hartford, CT
The Ponce de Leon October 21, 1998 Santa Fe, NM
Woodside Terrace December 22, 1998 Redwood City, CA
The River Bay Club January 19, 1999 (See Note 18) Quincy, MA
Managed Facilities: The Island on Lake Travis (2) Lago Vista, TX
- - ------------------ The Kenwood (3) Minneapolis, MN
Development Projects Under Construction (4):
- - -------------------------------------------
Austin, Texas
Southfield, Michigan
Glen Ellyn, Illinois
Raleigh, North Carolina
New York (Battery Park City), New York
Pittsburgh, Pennsylvania
</TABLE>
(1) Collectively referred to as "the Predecessor Properties"
(2) Management services commenced May 7, 1997
-25-
<PAGE>
(3) Management services commenced July 1, 1997
(4) The Company is developing these projects for third party owners
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated and combined financial statements include the accounts
of the Company and the Predecessor Properties.
Principles of Consolidation
The consolidated financial statements include the financial statements
of Brookdale Living Communities, Inc. and its wholly-owned subsidiaries.
Significant intercompany accounts and transactions have been eliminated in
consolidation and combination.
Use of Estimates
The preparation of the consolidated and combined financial statements
in accordance with generally accepted accounting principles requires management
to make estimates and assumptions that affect amounts reported in the
consolidated and combined financial statements and accompanying notes. Actual
results could differ from those estimates.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
investments with an original maturity of three months or less to be cash
equivalents.
Resident Fee Revenue
Resident fee revenue is recorded when services are rendered and
consists of fees for basic housing, support services and fees associated with
additional services such as personalized health and assisted living care.
Resident leases are generally for a term of one year.
Development Fees
Development fees related to development activities provided for
projects owned by third parties are earned over the term of the development.
Such fees are recognized as revenue as the development services are provided to
the owner during the pre-construction and construction periods, which typically
extend for 12 to 14 months.
Property, Plant and Equipment
Property, plant and equipment are carried at cost less accumulated
depreciation. Expenditures for ordinary maintenance and repairs are expensed to
operations as incurred. Renovations and improvements which improve and/or extend
the useful life of the asset are capitalized and depreciated over the shorter of
their estimated useful life and the term of the operating lease.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of assets, which are as follows:
Buildings and improvements 40-45 years
Leasehold improvements 5-23 years
Furniture and equipment 3-12 years
Property Under Development
Development costs, including interest, fees and costs incurred in
developing new properties, are capitalized to property under development as
incurred. Upon completion of construction, development costs are amortized over
the useful lives of the respective properties on a straight-line basis.
Deferred Costs
Bond credit enhancement costs are amortized on a straight-line basis
over the term of the letters of credit. Deferred financing costs are amortized
on a straight-line basis over the term of the long-term debt. Deferred lease
costs are amortized on a straight-line basis over the term of the lease.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.
-26-
<PAGE>
Prior to May 7, 1997, certain PGI entities were partnerships and, as such,
were not taxable entities. The income or loss from the partnerships was
includable on the respective federal income tax returns of the partners.
Stock Based Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and related interpretations, in accounting for its fixed plan stock
options. As such, no compensation expense is recognized for the stock option
grants because the exercise price of the options equals the market price of the
underlying stock at the date of grant.
Impact of Recently Issued Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Investments and Hedging Activities" which is effective for fiscal
years beginning after June 15, 1999. SFAS No. 133 provides guidance for the
recognition and measurement of derivatives and hedging activities. Adoption of
SFAS No. 133 is not anticipated to affect the consolidated results of
operations, financial position or cash flows of the Company.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
current financial statement presentation.
3. Cash and Investments-Restricted
Cash and investments-restricted consists of:
December 31,
------------
1998 1997
------------ -----------
Life Care escrow deposits ................... $ 3,033 $ 2,899
Tenant security deposits .................... 2,346 2,121
Construction escrow deposit ................. 1,150 --
Real estate tax and insurance reserve ....... 1,697 900
------------ -----------
Total cash and investments-restricted .. $ 8,226 $ 5,920
============ ===========
The Heritage and The Hallmark are required to make Life Care escrow
deposits under the Illinois Life Care Facility Act, Section 7(b) which have been
and will be funded from time to time in accordance with a schedule provided by
the Illinois Department of Public Health.
Investment certificates-restricted in connection with certain development
related activities consist of long-term investments which earn interest at 9%
per annum.
4. Property, Plant and Equipment
Property, plant and equipment consists of:
December 31,
------------
1998 1997
----------- ----------
Land ........................................ $ 9,988 $ 9,988
Buildings and improvements .................. 99,262 98,849
Leasehold improvements ...................... 1,361 349
Furniture and equipment ..................... 5,190 4,108
----------- ----------
115,801 113,294
Less accumulated depreciation ............... (5,689) (2,164)
----------- ----------
Net property, plant and equipment ........... $ 110,112 $ 111,130
=========== ==========
During 1998, the Company was reimbursed for leasehold improvements of $187
and the related accumulated depreciation of $16 was written off.
-27-
<PAGE>
5. Deferred Costs
Deferred costs, included in other assets in the accompanying consolidated
balance sheets, consist of the following:
December 31,
------------------
1998 1997
--------- ---------
Bond credit enhancement and deferred financing costs .. $ 3,631 $ 2,642
Lease costs ........................................... 179 787
--------- ---------
3,810 3,429
Less accumulated amortization ......................... (1,511) (199)
--------- ---------
Net deferred costs .................................... $ 2,299 $ 3,230
========= =========
6. Credit Agreement
During 1998, the Company obtained an original $15,000 unsecured revolving
line of credit which was increased to $25,000 in January 1999 and matures April
26, 1999. Borrowings under the line of credit bear interest at prime plus 1/2%
per annum (8.25% percent at December 31, 1998) and a fee of 1/4% on the unused
line of credit payable quarterly. As of December 31, 1998, the Company had $903
of outstanding letters of credit which reduces the amount available under the
line of credit. Pursuant to the terms of the agreement, the Company must
maintain certain facility operating margins, and is required to repay a portion
or all of the loan if the Company's publicly traded stock is less than a per
share price all as defined (See note 18).
During 1997, the Company obtained an unsecured $20,000 interim credit
facility from a financial institution for working capital and acquisition needs.
Interest accrued on the outstanding principal amount of the loan at the prime
plus 1% per annum and was payable monthly. The credit facility was repaid and
terminated on December 24, 1997, which resulted in an extraordinary loss on
extinguishment of debt, net of a $24 tax benefit, of $36. Otherwise, the
maturity date was April 1998.
7. Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------
1998 1997
----------- ---------
<S> <C> <C>
Mortgage notes payable, issued by local municipalities
secured by the Edina Park Plaza and Hawthorn
Lakes facilities, bearing interest at 8.0% to 8.525%
through maturity in 2027 ................................ $ 27,880 $ 28,167
Note payable bearing interest at 8% payable upon
maturity on May 1, 1999 ................................. 3,000 3,000
Variable rate tax-exempt bonds issued by state and
local governmental authorities (a) ...................... 65,000 65,000
----------- ---------
Total debt .................................................. 95,880 96,167
Less current portion ........................................ 3,310 286
----------- ---------
Total long-term debt ........................................ $ 92,570 $ 95,881
=========== =========
</TABLE>
(a) Permanent financing for The Devonshire and The Heritage facilities
has been provided by an aggregate of $65,000 (The Devonshire -
$33,000, The Heritage - $32,000) of tax-exempt Qualified
Residential Rental Bonds (the "Bonds"). The Bonds mature on
December 15, 2025 and December 15, 2019, respectively.
Under the terms of the bond loan agreement, The Devonshire and The
Heritage (the "Partnerships") are required to make interest-only
payments monthly, calculated using a floating rate that is adjusted
weekly based upon the remarketing rate of the Bonds. The weighted
average interest rate was 3.53%, 3.74% and 3.43% for the years
ended December 31, 1998, 1997 and 1996, respectively. The interest
rates for The Devonshire and The Heritage were 4.07% and 4.20%, and
3.77% and 3.80% at December 31, 1998 and 1997, respectively. The
annual interest rate on the Bonds cannot exceed 15%. Under certain
conditions, the interest rate on the Bonds may be converted to a
fixed rate at the request of the Company.
Beginning May 7, 1997, the Bonds were collateralized by letters of
credit in the stated amount of $66,715 which were issued by two
financial institutions with a stated termination date of May 18,
2000. The letters of credit are collateralized, in part, by the
$13,919 and $12,138 letter of credit deposit with the financial
institutions at December 31, 1998 and 1997, respectively. The
Company amortized letter of credit and other credit enhancement
fees of $1,205 and $549 during the year ended December 31, 1998 and
the period from May 7, 1997 through December 31, 1997. Prior to May
7, 1997, the Bonds were collateralized by irrevocable letters of
credit issued by various financial institutions. The Predecessor
Properties amortized letter of credit and the credit enhancement
fees of $250 and $581 during the period from January 1, 1997
through May 6, 1997 and for the year ended December 31, 1996,
respectively.
-28-
<PAGE>
The annual aggregate scheduled maturities of debt obligations for the five
years subsequent to December 31, 1998 are as follows:
Year ended December 31,
1999 ........................ $ 3,310
2000 ........................ 336
2001 ........................ 365
2002 ........................ 396
2003 ........................ 429
Thereafter .................. 91,044
---------
$ 95,880
=========
The Company and the Predecessor Properties incurred interest cost for
the year ended December 31, 1998, period from May 7, 1997 to December 31, 1997,
the period from January 1, 1997 to May 6, 1997 and for the year ended December
31, 1996 of $5,711, $3,211, $830 and $4,740, respectively, of which $1,558 and
$191 was capitalized for the year ended December 31, 1998 and for the period
from May 7, 1997 to December 31, 1997, respectively.
On December 27, 1996, The Hallmark facility was sold by PGI in a
sale-leaseback transaction and a portion of the sale proceeds was used to repay
a mortgage note secured by The Hallmark. In addition, The Hallmark was required
to pay a prepayment fee of $2,723, which was netted against the deferred gain on
sale of property. The deferred gain on sale of property is being recognized over
the life of the lease as a reduction of the related lease expense.
8. Developments
At December 31, 1997, the Company had development sites in Austin, Texas
and Southfield, Michigan, and, in 1998, sold these sites at cost, including
expenses incurred by the Company with respect to said sites. During 1998, the
Company sold certain of its rights and interests in development sites in Glen
Ellyn, Illinois; Raleigh, North Carolina; and Pittsburgh, Pennsylvania and
Battery Park City, New York for a price equal to the Company's cost and, in
connection with each of the sales, entered development agreements with respect
to such sites. The aggregate sales price for the development sites and the
Company's rights and interests therein, was $18,821, all of which has been paid
in cash by December 31, 1998 with the exception of promissory notes of $3,486
for three projects which bear interest at 9% per annum and are due through
September, 2001 of which one note receivable of $1,903 was repaid in February,
1999. No gain or loss was recognized by the Company in connection with these
sales as the development sites were sold at cost.
At December 31, 1998, the Company had $2,467 of unbilled reimbursable
development costs. Included in other assets at December 31, 1998 in the
accompanying consolidated balance sheets, are development fees of $5,655 related
to development activities provided for projects owned by third parties.
The Company has entered into interest rate lock agreements on behalf of
third party owners of development projects with respect to interest rates on
floating rate construction debt. The agreements are designed to limit the
exposure to movements in floating interest rates on the development construction
project loans and the Company is to be reimbursed by the third party for any
payments made pursuant to the agreements. The notional amount of the
construction loans is $103,689 and the approximate current value of the
liability under such hedging contracts is $2,092.
9. Stock Based Compensation Plan
The Company has granted stock options to various employees and directors
under its 1998 and 1997 Stock Incentive Plans. Under the provisions of the
Company's non-qualified and incentive stock option plans for officers and key
employees, 250 shares and 733 shares of common stock are reserved for issuance
under the 1998 and 1997 Stock Incentive Plans, respectively, at December 31,
1998. All options have 10 year terms and vest and become exercisable either
immediately or over a three to four year period at the date of grant. The prices
of all options granted were equal to the fair market value at the date of the
grant.
In November 1995, the FASB issued SFAS No. 123 "Accounting for Stock-Based
Compensation". SFAS No. 123 allows entities to continue to apply the provisions
of APB Opinion No. 25 and provide pro forma net income and pro forma earnings
per share disclosures for employee stock option grants as if the fair-value
method defined in SFAS No. 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion No. 25 and provide the pro forma
disclosures provisions of SFAS No. 123.
The per share weighted-average fair value of stock options granted during
1998 and 1997 was $10.78 and $4.89 and is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used: 1998 - risk-free interest rate 5.5%; expected volatility of
55.5%; expected life of 4 years and no expected dividend yield; 1997 - risk free
interest rate of 6.6%; expected volatility of 43.5%; expected life of 4 years
and no expected dividend yield.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
-29-
<PAGE>
Had compensation cost for these plans been determined consistent with SFAS
123, the Company's net income and earnings per share would have been reduced to
the following unaudited pro forma amounts:
Period from
May 7, 1997
Year Ended through
December 31, 1998 December 31, 1997
----------------- -----------------
Net income:
As reported ... $ 6,654 $ 445
Pro forma ..... $ 5,181 $ 92
Basic EPS:
As reported ... $ 0.68 $ 0.06
Pro forma ..... $ 0.53 $ 0.01
Diluted EPS:
As reported ... $ 0.67 $ 0.06
Pro forma ..... $ 0.52 $ 0.01
The table below summarizes the transactions in the Company's stock
incentive plan during 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------ ------
Number Weighted-Average Number Weighted-Average
of Shares Exercise Price of Shares Exercise Price
--------- ---------------- --------- ----------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year .. 762 $11.60 -- $ --
Granted ................................... 312 22.85 762 11.60
Exercised ................................. (97) 11.50 -- --
Canceled .................................. (76) 14.27 -- --
--------- -------
Options outstanding at end of year....... 901 15.28 762 11.60
========= =======
Exercisable at end of year ............... 207 18.08 -- --
========= =======
</TABLE>
The following table summarizes information about certain options in the
Company's stock incentive plan outstanding as of December 31, 1998 in accordance
with SFAS 123:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------- ----------------------------
Weighted Avg.
Number Remaining Weighted Avg. Number Weighted Avg.
Range of Exercise Prices Outstanding Contractual Life Exercise Price Outstanding Exercise Price
------------------------ ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$11.50 ...................... 542 8.35 years $11.50 78 $11.50
$11.88 - $21.42 ............. 141 9.12 years $17.11 17 $12.64
$23.48 ...................... 218 9.39 years $23.48 112 $23.48
---- ----
$11.50 - $23.48 ............. 901 8.72 years $15.28 207 $18.08
==== ===== ====== ==== ======
</TABLE>
10. Income Taxes
The (provision) benefit for income taxes (including income taxes on
extraordinary item in 1997) is composed of the following:
<TABLE>
<CAPTION>
Period from Period from
May 7, 1997 January 1, 1997
Year Ended through through
December 31, 1998 December 31, 1997 May 6, 1997
----------------- ----------------- -------------
<S> <C> <C> <C>
Federal:
Current ........................ $ (894) $ - $ (195)
Deferred ....................... (2,271) 509 -
---------- ---------- ---------
(3,165) 509 (195)
---------- ---------- ---------
State:
Current ........................ (105) - (41)
Deferred ....................... (357) 73 -
----------- ---------- ---------
(462) 73 (41)
----------- ---------- ---------
$ (3,627) $ 582 $ (236)
========== ========== =========
</TABLE>
-30-
<PAGE>
A reconciliation of the (provision) benefit for income taxes to the amount
computed at the U.S. federal statutory rate of 34% and 35% for 1998 and 1997,
respectively, is as follows:
<TABLE>
<CAPTION>
Period from Period from
May 7, 1997 January 1, 1997
Year Ended through through
December 31, 1998 December 31, 1997 May 6, 1997
----------------- ----------------- -------------
<S> <C> <C> <C>
Computed "expected" tax (expense) benefit........... $ (3,495) $ 27 $ 150
State taxes, net of federal income tax benefit ..... (305) 73 (41)
Non-taxable amortization of deferred gain on
sale of property ................................. 274 184 -
Income of non-taxable Predecessor
Properties ....................................... - - (71)
Rental income taxable to the Predecessor ........... - 286 (242)
Deferred lease costs ............................... - - (43)
Extraordinary item ................................. - 21 -
Other, net ......................................... (101) (9) 11
----------------- ----------------- -------------
$ (3,627) $ 582 $ (236)
================= ================= ==============
</TABLE>
During 1998, the Company received a tax benefit of $484 in connection with
the exercise by certain employee stock options. Such amount was credited to
additional paid-in capital.
Prior to formation of the Company on May 7, 1997, the Predecessor
Properties were held in either partnerships which passed through tax liabilities
and benefits to the owners or in a C-Corporation (operations began December 12,
1997) which was subject to income taxes. The transfer of assets at the formation
of the Company was taxable, in part, to the owners, which resulted in a $4,002
deferred tax asset at the contribution date. In addition, the Predecessor had
$236 of current income taxes payable for the period from January 1, 1997 through
May 6, 1997, which were paid in 1998. Accordingly, the tax basis of a majority
of the property and equipment of the Company exceeds its respective book basis
for financial reporting purposes. The tax effects of temporary differences that
give rise to significant portions of the deferred tax assets recognized as of
the date of formation of the Company and at December 31, 1998 and 1997 are
presented below and included in other assets and other current liabilities in
the accompanying consolidated balance sheets.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Noncurrent:
Deferred tax assets:
Property, plant and equipment .................... $ 481 $ 3,676
Deferred lease costs ............................. 914 523
Operating loss carryforward ...................... 397 343
AMT tax credit ................................... 508 --
Deferred revenue ................................. -- 42
------------ ------------
Total gross deferred tax assets .................. 2,300 4,584
Less valuation allowance ......................... -- --
------------ ------------
Net noncurrent deferred tax assets ............... $ 2,300 $ 4,584
============ ============
Current deferred tax liability - deferred revenue .. $ 344 $ --
============ ============
</TABLE>
At December 31, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $1,045 which are available to
offset future federal taxable income, if any, through 2011.
11. Tax Incremental Financing
The Heritage is located in a redevelopment area designated by a local
municipality as a tax incremental financing district ("TIF"). Under the terms of
the redevelopment agreement, The Heritage was eligible to receive payments, in
accordance with the terms of the Tax Incremental Financing Bond ("Bond") issued
to it. The Bond was scheduled to mature on December 1, 2007 and had interest at
10% per annum, with principal and interest payable annually on each December 1.
The Bond was subject to optional redemption, in whole or in part, at any time,
at a redemption price equal to the principal outstanding at the date redeemed.
The Bond was subject to mandatory redemption, in part, by the application of
annual sinking fund installments by the municipality on each December 1, at a
redemption price equal to the principal outstanding at the date redeemed. The
Bond was payable solely from real estate tax incremental revenues and certain
sales tax receipts generated in the TIF. Payments were to be made to the extent
of available TIF revenues. The insufficiency of TIF revenues generated in the
redevelopment area for any given year would not be considered a default in
payment, but all past due amounts would be a continuing obligation payable from
future TIF revenues. Any unpaid amounts including interest, at maturity, would
be forgiven. As the collectibility of the Bond principal and interest was
dependent upon sufficient TIF revenues being generated in the redevelopment
area, revenue was recognized by The Heritage when principal and interest were
received. For the period from May 7, 1997 through December 31, 1997 (final
payment) and for the year ended December 31, 1996, The Heritage received
payments totaling $576 and $610, respectively.
-31-
<PAGE>
12. Employee Benefit Plan
In August 1994, PGI established a 401(k) plan for all employees of the
PGI Entities who meet minimum employment criteria. The plan provides that the
participants may defer up to 15% of their eligible compensation on a pre-tax
basis subject to certain maximum amounts. PGI contributed an additional 25% of
the employee's contribution to the plan, up to $500 per employee per annum. On
September 1, 1997, the Company established a 401(k) plan for all employees of
the Company's entities that meet minimum employment criteria. The plan provides
that the participants may defer up to 15% of their eligible compensation on a
pre-tax basis subject to certain maximum amounts. The Company contributes an
additional 25% of the employee's contribution to the plan. Employees are always
100% vested in their own contributions and vested in PGI's and the Company's
contributions over five years. The Company and the PGI entities made
contributions to such plans in the amount of $176, $55, $15 and $30 for the year
ended December 31, 1998, the period from May 7, 1997 through December 31, 1997,
the period from January 1, 1997 through May 6, 1997 and for the year ended
December 31, 1996, respectively. Such amounts are included in facility operating
expense in the consolidated and combined statements of operations.
13. Earnings Per Share
The following table sets forth the computation of basic and diluted
earnings per share for the year ended December 31, 1998 and for the period from
May 7, 1997 through December 31, 1997.
<TABLE>
<CAPTION>
Period May 7, 1997
Year Ended through
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Numerator:
Income from continuing operations before extraordinary item $ 6,654 $ 481
Extraordinary item (net of tax benefit of $24 for 1997) - (36)
--------- --------
Numerator for basic and diluted earnings per common share $ 6,654 $ 445
========= ========
Denominator:
Denominator for basic earnings per share - weighted-average
shares 9,751 7,208
Effect of dilutive securities - Employee stock options 227 143
--------- ---------
Denominator for diluted earnings per share-adjusted
weighted average shares and assumed conversions 9,978 7,351
========= =========
Basic earnings per share $ 0.68 $ 0.06
========= =========
Diluted earnings per share $ 0.67 $ 0.06
========= =========
</TABLE>
Options to purchase 297 and 11 shares of common stock at $22.96 and
$16.66 weighted average per share were outstanding during the year ended
December 31, 1998 and for the period from May 7, 1997 through December 31, 1997,
respectively, and warrants to purchase 83 shares of common stock at $25.25
weighted average per share were outstanding at December 31, 1998 but were not
included in the computation of diluted earnings per share because the options'
exercise price was greater than the average market price of the common shares
and, therefore, the effect would be anti-dilutive.
14. Related Party Transactions
Prior to the IPO, in connection with the management and administration
of The Heritage, The Devonshire and the Hallmark facilities, PGI was entitled to
fees for services provided. Such amounts incurred for the period from January 1,
1997 through May 6, 1997 and for the year ended December 31, 1996 are summarized
as follows:
<TABLE>
<CAPTION>
Period from
January 1, 1997
through Year Ended
May 6, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Property management fee of 5% (3% for The Hallmark
facility through December 26, 1996) $ 230 $ 930
====== ======
Administration fee for providing services to The
Devonshire and The Heritage facilities $ 130 $ 372
====== ======
</TABLE>
On May 7, 1997, the Company began providing management services for The
Island on Lake Travis facility, which is owned by PGI. The Company is entitled
to a fee based on 5% of revenue. The Company recognized $210 and $132 in
management fee revenue for the year ended December 31, 1998 and for the period
from May 7, 1997 through December 31, 1997, respectively.
15. Fair Value of Financial Instruments
Cash and cash equivalents, cash and investments-restricted and variable
rate and fixed rate debt are reflected in the accompanying consolidated balance
sheets at amounts considered by management to reasonably approximate fair value.
Management estimates the fair value of its long-term fixed rate debt using a
discounted cash flow analysis based upon the Company's current borrowing rate
for debt with similar maturities.
-32-
<PAGE>
16. Commitments and Contingencies
Leases
The Company entered into operating lease agreements ("Lease
Agreements") with various third parties for the Leased Facilities. The Lease
Agreement for The Hallmark, The Springs of East Mesa, The Gables at Brighton and
The Park Place facilities has an initial term of 23 years, with two options to
extend for 25 years each, and requires annual base rent payments ranging from
$10,185 to $11,204. The Lease Agreement for these four facilities also requires
additional rent each year beginning in 1999 based on 10% of the excess of each
year's revenue compared to 1998 revenue. The Lease Agreements for the remaining
facilities have initial terms of one to five years with options to extend (as
defined). The Company has the option to acquire the Leased Facilities at fair
market value prior to or at the end of such lease terms. The Company has pledged
lease security deposits of $55,453 and $18,542 at December 31, 1998 and 1997,
respectively, in connection with certain leased facilities.
On September 25, 1997, the Company entered into a five year lease for its
corporate office with an affiliate of PGI (the "Landlord") which was amended on
March 17, 1998. The lease expires April 30, 2005, with base rent that escalates
at each anniversary of the commencement date by $0.75 per square foot per year.
In conjunction with the signing of the lease and the amendment, the Company
received cash payments of $404 and $452, respectively, from the Landlord, which
have been deferred and are being amortized using the straight-line method over
the life of the office lease. Office lease expense of $300 and $193 for the year
ended December 31, 1998 and for the period from May 7, 1997 through December 31,
1997 is included in General and Administrative expense.
The aggregate amount of all future minimum operating lease payments
including $3,006 of payments to be made to the Landlord for the office lease as
of December 31, 1998 are as follows:
Year ended December 31,
1999 $ 24,062
2000 25,017
2001 25,092
2002 24,940
2003 17,461
Thereafter 180,146
-----------
$ 296,718
===========
Litigation
The Company is involved in various lawsuits and claims arising in the
normal course of business. In the opinion of management of the Company, although
the outcomes of these suits and claims are uncertain, in the aggregate they
should not have a material adverse effect on the Company's business, financial
condition and results of operations.
Other
The Company has a $100,000 commitment from Capital Corporation of America
of which $51,000 has been committed to the third parties developing the Austin,
Texas and Southfield, Michigan projects. In connection with the aforementioned
projects and certain other developments, the Company has guarantees for
construction loans aggregating approximately $82,000 of which $18,982 was
outstanding at December 31, 1998.
17. Pro Forma (Unaudited)
The following unaudited pro forma financial information of the Company for
the years ended December 31, 1998 and 1997 are presented as if, at January 1,
1998 and 1997, the Company had sold and issued 11,572 shares of its common
stock, purchased the Owned Facilities and leased the Leased Facilities and The
River Bay Club (see note 18) which was leased beginning January 19, 1999. If The
River Bay Club was not included in the pro forma operations, revenue, net
income, basic earnings per share and diluted earnings per share would be
$92,013, $8,006, $0.69, and $0.68, respectively, for 1998 and $83,617, $3,226,
$0.28, and $0.28, respectively for 1997.
-33-
<PAGE>
These unaudited pro forma financial information is not necessarily
indicative of what the actual results of operations of the Company would have
been assuming the IPO and follow-on public offerings had been consummated at the
beginning of each period presented, nor do they purport to represent the results
of operations of the Company for future periods.
Year ended December 31,
----------------------
1998 1997
---- ----
Revenue $98,195 $89,799
Net income 8,758 3,978
Basic earnings per share 0.76 0.34
Diluted earnings per share 0.74 0.34
Weighted diluted shares 11,799 11,715
18. Subsequent Events
On January 19, 1999, the Company entered into an operating lease
agreement to lease The River Bay Club facility, a 285-unit facility located in
Quincy, Massachusetts. The lease is an operating lease with an initial five-year
term with five one-year renewal option periods with annual payment amounts of
approximately $2,500 through the initial lease term. The Company has an option
to acquire this facility at the end of the lease term.
On January 25, 1999, the Company entered into a $5,000 unsecured loan
agreement bearing interest at 12%, payable interest only, and maturing April 26,
1999. The loan is subordinated to the Company's existing unsecured line of
credit (see Note 6) and prohibits the Company from paying any dividends.
17. Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
1998 Quarter Ended 1997 Quarter Ended
--------------------------------------- --------------------------------
Mar. 31 Jun. 30 Sept. 30 Dec. 31 June 30 (1) Sept. 30 Dec. 31
------- ------- -------- ------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue ..................................$ 16,898 $ 18,651 $ 20,482 $ 21,670 $ 6,571 $11,242 $12,424
Operating expenses ....................... (13,730) (15,036) (16,785) (17,138) (5,505) (9,020) (10,496)
Interest income (expense), net ........... (217) -- 244 95 (589) (884) (853)
Depreciation and amortization ............ (1,226) (1,205) (1,146) (1,276) (691) (1,158) (1,118)
-------- ------- ------- -------- -------- ------- -------
Income (loss) before (provision)/benefit
for income taxes and extraordinary item 1,725 2,410 2,795 3,351 (214) 180 (43)
(Provision)/benefit for income taxes...... (614) (889) (982) (1,142) 133 10 415
-------- ------- ------- -------- -------- ------- -------
Income (loss) from continuing operations
before extraordinary item .............. 1,111 1,521 1,813 2,209 (81) 190 372
Extraordinary item (net of deferred tax
benefit for income taxes of $24) ....... -- -- -- -- -- -- (36)
-------- ------- ------- -------- -------- ------- -------
Net income (loss) ......................$ 1,111 $ 1,521 $ 1,813 $ 2,209 $ (81) $ 190 $ 336
======== ======= ======= ======== ======== ======= =======
Basic earnings per common share:
Income (loss) from continuing operations
before extraordinary item ..............$ 0.12 $ 0.16 $ 0.19 $ 0.21 $ (0.01) $ 0.03 $ 0.05
Extraordinary item ....................... -- -- -- -- -- -- --
-------- ------- ------- -------- -------- ------- -------
Net income (loss) ........................$ 0.12 $ 0.16 $ 0.19 $ 0.21 $ (0.01) $ 0.03 $ 0.05
======== ======= ======= ======== ======== ======= =======
Weighted average shares used for
computing basic earnings per common
share .................................. 9,408 9,487 9,569 10,529 6,844 7,175 7,458
======== ======= ======= ======== ======== ======= =======
Diluted earnings per common share:
Income (loss) from continuing operations
before extraordinary item .............$ 0.12 $ 0.16 $ 0.19 $ 0.21 $ (0.01) $ 0.03 $ 0.05
Extraordinary item ....................... -- -- -- -- -- -- (0.01)
-------- ------- -------- -------- -------- ------- -------
Net income (loss) ........................$ 0.12 $ 0.16 $ 0.19 $ 0.21 $ (0.01) $ 0.03 $ 0.04
======== ======= ======== ======== ======== ======= =======
Weighted average shares used for
computing diluted earnings per common
share .................................. 9,646 9,793 9,771 10,672 6,844 7,317 7,671
======== ======= ======= ======== ========= ======== =======
(1) The period includes operations from May 7, 1997 through June 30, 1997.
</TABLE>
-34-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to
the information contained under the headings "Election of Directors" and "Other
Information-Compliance with Section 16(a) of the Securities Exchange Act of
1934" in the Company's 1999 Annual Meeting Proxy Statement, which the Company
intends to file within 120 days of its fiscal year end. Certain information
regarding executive officers is contained in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to
the information contained under the headings "Compensation of Executive
Officers," "Compensation Committee Interlocks and Insider Participation" and
"Report of Compensation Committee" in the Company's 1999 Annual Meeting Proxy
Statement, which the Company intends to file within 120 days of its fiscal year
end.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is incorporated herein by reference to
the information contained under the heading "Principal Security Holders of the
Company" in the Company's 1999 Annual Meeting Proxy Statement, which the Company
intends to file within 120 days of its fiscal year end.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference to
the information contained under the heading "Other Information-Certain
Relationships and Related Transactions" in the Company's 1999 Annual Meeting
Proxy Statement, which the Company intends to file within 120 days of its fiscal
year end.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
The financial statements files as part of this report are set forth in
response to Item 8.
(a)(2) Financial Statement Schedules
(a)(3) Exhibits
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
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 March 6, 1998 by and between Brookdale Living
Communities of Illinois-H.V., Inc., as lessee, and The Harbor Village
Business Trust, as lessor, as filed with the Securities and Exchange
Commission on April 14, 1998 as Exhibit 10.1 to the Company's Form 8-K
dated March 6, 1998 (File No. 0-22253) and incorporated herein by
reference
10.2 Loan Agreement dated as of March 6, 1998 by and among The Harbor Village
Business Trust, Brookdale Living Communities of Illinois-H.V., Inc. and
Nomura Asset Capital Corporation, as filed with the Securities and
Exchange Commission on April 14, 1998 as Exhibit 10.2 to the Company's
Form 8-K dated March 6, 1998 (File No. 0-22253) and incorporated herein
by reference
-35-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.3 Certificate Pledge Agreement dated as of March 6, 1998 by Brookdale
Living Communities of Illinois-H.V., Inc. in favor of The Harbor Village
Business Trust, as filed with the Securities and Exchange Commission on
April 14, 1998 as Exhibit 10.3 to the Company's Form 8-K dated March 6,
1998 (File No. 0-22253) and incorporated herein by reference
10.4 Securities Pledge Agreement dated as of March 6, 1998 by Brookdale Living
Communities of Illinois-H.V., Inc. in favor of The Harbor Village
Business Trust and Wilmington Trust Company, as filed with the Securities
and Exchange Commission on April 14, 1998 as Exhibit 10.4 to the
Company's Form 8-K dated March 6, 1998 (File No. 0-22253) and
incorporated herein by reference
10.5 Indemnity Agreement dated as of March 6, 1998 from Brookdale Living
Communities, Inc. in favor of Wilmington Trust Company and FBTC Leasing
Corp., as filed with the Securities and Exchange Commission on April 14,
1998 as Exhibit 10.5 to the Company's Form 8-K dated March 6, 1998 (File
No. 0-22253) and incorporated herein by reference
10.6 Guaranty and Suretyship Agreement dated as of March 6, 1998 from
Brookdale Living Communities of Illinois-H.V., Inc. in favor of Nomura
Asset Capital Corporation, as filed with the Securities and Exchange
Commission on April 14, 1998 as Exhibit 10.6 to the Company's Form 8-K
dated March 6, 1998 (File No. 0-22253) and incorporated herein by
reference
10.7 Environmental Indemnity Agreement dated as of March 6, 1998 from
Brookdale Living Communities, Inc. in favor of Nomura Asset Capital
Corporation, as filed with the Securities and Exchange Commission on
April 14, 1998 as Exhibit 10.7 to the Company's Form 8-K dated March 6,
1998 (File No. 0-22253) and incorporated herein by reference
10.8 Mezzanine Loan Agreement dated as of March 6, 1998 by and among The
Harbor Village Business Trust, Brookdale Living Communities of
Illinois-H.V., Inc. and Nomura Asset Capital Corporation, as filed with
the Securities and Exchange Commission on April 14, 1998 as Exhibit 10.8
to the Company's Form 8-K dated March 6, 1998 (File No. 0-22253) and
incorporated herein by reference
10.9 Mezzanine Guaranty and Suretyship Agreement dated as of March 6, 1998
from Brookdale Living Communities of Illinois-H.V., Inc. in favor of
Nomura Asset Capital Corporation, as filed with the Securities and
Exchange Commission on April 14, 1998 as Exhibit 10.9 to the Company's
Form 8-K dated March 6, 1998 (File No. 0-22253) and incorporated herein
by reference
10.10 Mezzanine Environmental Indemnity Agreement dated as of March 6, 1998
from Brookdale Living Communities, Inc. in favor of Nomura Asset Capital
Corporation, as filed with the Securities and Exchange Commission on
April 14, 1998 as Exhibit 10.10 to the Company's Form 8-K dated March 6,
1998 (File No. 0-22253) and incorporated herein by reference
10.11 Purchase and Sale Agreement, dated as of March 31, 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 April 15, 1998 as Exhibit 10.1 to the Company's Form 8-K dated March
31, 1998 (File No. 0-22253) and incorporated herein by reference
10.12 Note, dated March 31, 1998, issued by AH Michigan Owner Limited
Partnership payable to the order of Brookdale Living Communities of
Michigan, Inc. in the principal amount of $3,044,082.12, as filed with
the Securities and Exchange Commission on April 15, 1998 as Exhibit 10.2
to the Company's Form 8-K dated March 31, 1998 (File No. 0-22253) and
incorporated herein by reference
10.13 Development Agreement, dated as of March 31, 1998, by and between AH
Michigan Owner Limited Partnership and Brookdale Living Communities of
Michigan, Inc., as filed with the Securities and Exchange Commission on
April 15, 1998 as Exhibit 10.3 to the Company's Form 8-K dated March 31,
1998 (File No. 0-22253) and incorporated herein by reference
10.14 Guaranty Agreement, dated as of March 31, 1998, issued by AH Michigan
CPG, Inc. and AH Michigan Subordinated, LLC in favor of Brookdale Living
Communities, Inc., as filed with the Securities and Exchange Commission
on April 15, 1998 as Exhibit 10.4 to the Company's Form 8-K dated March
31, 1998 (File No. 0-22253) and incorporated herein by reference
10.15 Collateral Assignment of Partnership Interests, dated as of March 31,
1998, issued by AH Michigan CPG, Inc. and AH Subordinated, LLC for the
benefit of Brookdale Living Communities of Michigan, Inc., as filed with
the Securities and Exchange Commission on April 15, 1998 as Exhibit 10.5
to the Company's Form 8-K dated March 31, 1998 (File No. 0-22253) and
incorporated herein by reference
-36-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.16 Purchase and Sale Agreement, dated as of March 31, 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 April 15, 1998 as Exhibit
10.6 to the Company's Form 8-K dated March 31, 1998 (File No. 0-22253)
and incorporated herein by reference
10.17 Note, dated March 31, 1998, issued by AH Texas Owner Limited Partnership
payable to the order of BLC of Texas-II, L.P. in the principal amount of
$4,016,340.53., as filed with the Securities and Exchange Commission on
April 15, 1998 as Exhibit 10.7 to the Company's Form 8-K dated March 31,
1998 (File No. 0-22253) and incorporated herein by reference
10.18 Development Agreement, dated as of March 31, 1998, by and between AH
Texas Owner Limited Partnership and BLC of Texas-II, L.P., as filed with
the Securities and Exchange Commission on April 15, 1998 as Exhibit 10.8
to the Company's Form 8-K dated March 31, 1998 (File No. 0-22253) and
incorporated herein by reference
10.19 Guaranty Agreement, dated as of March 31, 1998, issued by AH Texas CPG,
Inc. and AH Texas Subordinated, LLC in favor of BLC of Texas-II, L.P., as
filed with the Securities and Exchange Commission on April 15, 1998 as
Exhibit 10.9 to the Company's Form 8-K dated March 31, 1998 (File No.
0-22253) and incorporated herein by reference
10.20 Collateral Assignment of Partnership Interests, dated as of March 31,
1998, issued by AH Texas CPG, Inc. and AH Texas Subordinated, LLC for the
benefit of BLC of Texas-II, L.P., as filed with the Securities and
Exchange Commission on April 15, 1998 as Exhibit 10.10 to the Company's
Form 8-K dated March 31, 1998 (File No. 0-22253) and incorporated herein
by reference
10.21 Development Agreement, dated as of March 31, 1998, by and between
Brookdale Living Communities, Inc. and National Development Eastern
Associates, Inc., as filed with the Securities and Exchange Commission on
May 15, 1998 as Exhibit 10.21 to the Company's Form 10-Q for the period
ended March 31, 1998 (File No. 0-22253) and incorporated herein by
reference
10.22 Agreement to Assign Agreement of Sale and Purchase, dated as of March 31,
1998, by and among Brookdale Living Communities, Inc., National
Development Eastern Associates, Inc., Kenneth A. LeDonne, Robert A.
LeDonne, Karen A. LeDonne, Peter O. LeDonne and Dorthea J. LeDonne, as
filed with the Securities and Exchange Commission on May 15, 1998 as
Exhibit 10.22 to the Company's Form 10-Q for the period ended March 31,
1998 (File No. 0-22253) and incorporated herein by reference
10.23 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
10.24 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
10.25 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
10.26 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
10.27 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
-37-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.28 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
10.29 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
10.30 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
10.31 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
10.32 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
10.33 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
10.34 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
10.35 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
10.36 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
10.37 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
10.38 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
10.39 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
10.40 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
-38-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.41 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
10.42 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
10.43 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
10.44 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
10.45 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
10.46 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
10.47 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
10.48 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
10.49 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
10.50 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
10.51 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
10.52 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
10.53 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
-39-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.54 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
10.55 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
10.56 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
10.57 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
10.58 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
10.59 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
10.60 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
10.61 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
10.62 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
10.63 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
10.64 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
10.65 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
-40-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.66 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
10.67 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
10.68 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
10.69 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
10.70 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
10.71 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 10-Q for the period ended June 30, 1998 (File No.
0-22253) and incorporated herein by reference
10.72 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 10-Q for the
period ended June 30, 1998 (File No. 0-22253) and incorporated herein by
reference
10.73 Loan Agreement dated as of April 27, 1998 by and between the Company and
LaSalle National Bank, as filed with the Securities and Exchange
Commission on July 17, 1998 as Exhibit 10.51 to the Company's Form 10-Q
for the period ended June 30, 1998 (File No. 0-22253) and incorporated
herein by reference
10.74 Note dated April 27, 1998 issued by the Company payable to the order of
LaSalle National Bank as filed with the Securities and Exchange
Commission on July 17, 1998, as Exhibit 10.52 to the Company's Form 10-Q
for the period ended June 30, 1998 (File No. 0-22253) and incorporated
herein by reference
10.75 Lease, dated as of July 1, 1998, by and between Brookdale Living
Communities of Connecticut-WH, Inc., as lessee, and The Chatfield
Business Trust, S.T., as lessor-owner, as filed with the Securities and
Exchange Commission on July 16, 1998 as Exhibit 10.1 to the Company's
Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated herein by
reference
10.76 Fixed Rate Program Promissory Note Secured by Mortgage, dated July 1,
1998, from The Chatfield Business Trust, S.T., as maker, payable to the
order of Heller Financial, Inc., as filed with the Securities and
Exchange Commission on July 16, 1998 as Exhibit 10.2 to the Company's
Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated herein by
reference
10.77 Guaranty, dated as of July 1, 1998, issued by Brookdale Living
Communities of Connecticut-WH, Inc. in favor of Heller Financial, Inc.,
as filed with the Securities and Exchange Commission on July 16, 1998 as
Exhibit 10.3 to the Company's Form 8-K dated July 2, 1998 (File No.
0-22253) and incorporated herein by reference
10.78 Certificate A Pledge Agreement, dated as of July 1, 1998, by Brookdale
Living Communities of Connecticut-WH, Inc. in favor of The Chatfield
Business Trust, S.T., Wilmington Trust Company and LaSalle National Bank,
as filed with the Securities and Exchange Commission on July 16, 1998 as
Exhibit 10.4 to the Company's Form 8-K dated July 2, 1998 (File No.
0-22253) and incorporated herein by reference
-41-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.79 Certificate B Pledge Agreement, dated as of July 1, 1998, by Brookdale
Living Communities of Connecticut-WH, Inc. in favor of The Chatfield
Business Trust, S.T., Wilmington Trust Company and LaSalle National Bank,
as filed with the Securities and Exchange Commission on July 16, 1998 as
Exhibit 10.5 to the Company's Form 8-K dated July 2, 1998 (File No.
0-22253) and incorporated herein by reference
10.80 Hazardous Substance Indemnification Agreement, dated as of July 1, 1998,
from Brookdale Living Communities of Connecticut-WH, Inc. and Brookdale
Living Communities, Inc. in favor of Heller Financial, Inc., as filed
with the Securities and Exchange Commission on July 16, 1998 as Exhibit
10.6 to the Company's Form 8-K dated July 2, 1998 (File No. 0-22253) and
incorporated herein by reference
10.81 Indemnity Agreement, dated as of July 1, 1998, from Brookdale Living
Communities, Inc. in favor of Wilmington Trust Company and Bank Hapoalim,
B.M., as filed with the Securities and Exchange Commission on July 16,
1998 as Exhibit 10.7 to the Company's Form 8-K dated July 2, 1998 (File
No. 0-22253) and incorporated herein by reference
10.82 Letter Agreement regarding liability for carve-outs to non-recourse
provisions, dated July 1, 1998, issued by Brookdale Living Communities,
Inc. in favor of Heller Financial, Inc., as filed with the Securities and
Exchange Commission on July 16, 1998 as Exhibit 10.8 to the Company's
Form 8-K dated July 2, 1998 (File No. 0-22253) and incorporated herein by
reference
10.83 First Amendment to Loan Agreement and Documents, dated as of July 16,
1998, by and between the Company and LaSalle National Bank., as filed
with the Securities and Exchange Commission on November 16, 1998 as
Exhibit 10.9 to the Company's Form 10-Q for the period ended September
30, 1998 (File No. 0-22253) and incorporated herein by reference
10.84 Amended and Restated Note dated July 16, 1998 issued by the Company
payable to the order of LaSalle National Bank, as filed with the
Securities and Exchange Commission on November 16, 1998 as Exhibit 10.10
to the Company's Form 10-Q for the period ended September 30, 1998 (File
No. 0-22253) and incorporated herein by reference
10.85 Lease, dated as of October 14, 1998, by and between Brookdale Living
Communities of New Mexico-SF, Inc., as lessee, and The PDL Business
Trust, S.T., as lessor-owner, as filed with the Securities and Exchange
Commission on November 2, 1998 as Exhibit 10.1 to the Company's Form 8-K
dated October 21, 1998 (File No. 0-22253) and incorporated herein by
reference
10.86 Fixed Rate Program Promissory Note Secured by Mortgage, dated October 14,
1998, from The PDL Business Trust, S.T., as maker, payable to the order
of Heller Financial, Inc., as filed with the Securities and Exchange
Commission on November 2, 1998 as Exhibit 10.2 to the Company's Form 8-K
dated October 21, 1998 (File No. 0-22253) and incorporated herein by
reference
10.87 Guaranty, dated as of October 14, 1998, issued by Brookdale Living
Communities of New Mexico-SF, Inc. in favor of Heller Financial, Inc., as
filed with the Securities and Exchange Commission on November 2, 1998 as
Exhibit 10.3 to the Company's Form 8-K dated October 21, 1998 (File No.
0-22253) and incorporated herein by reference
10.88 Certificate A Pledge Agreement, dated as of October 14, 1998, by
Brookdale Living Communities of New Mexico-SF, Inc. in favor of The PDL
Business Trust, S.T., Wilmington Trust Company, as valuation agent, and
LaSalle National Bank, as collateral account bank, as filed with the
Securities and Exchange Commission on November 2, 1998 as Exhibit 10.4 to
the Company's Form 8-K dated October 21, 1998 (File No. 0-22253) and
incorporated herein by reference
10.89 Certificate B Pledge Agreement, dated as of October 14, 1998, by
Brookdale Living Communities of New Mexico-SF, Inc. in favor of The PDL
Business Trust, S.T., Wilmington Trust Company, as valuation agent, and
LaSalle National Bank, as collateral account bank, as filed with the
Securities and Exchange Commission on November 2, 1998 as Exhibit 10.5 to
the Company's Form 8-K dated October 21, 1998 (File No. 0-22253) and
incorporated herein by reference
10.90 Hazardous Substance Indemnification Agreement, dated as of October 14,
1998, from Brookdale Living Communities of New Mexico-SF, Inc. and
Brookdale Living Communities, Inc. in favor of Heller Financial, Inc., as
filed with the Securities and Exchange Commission on November 2, 1998 as
Exhibit 10.6 to the Company's Form 8-K dated October 21, 1998 (File No.
0-22253) and incorporated herein by reference
-42-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.91 Indemnity Agreement, dated as of October 14, 1998, from Brookdale Living
Communities, Inc. in favor of Wilmington Trust Company, SELCO Service
Corporation and Bank Hapoalim B.M., as filed with the Securities and
Exchange Commission on November 2, 1998 as Exhibit 10.7 to the Company's
Form 8-K dated October 21, 1998 (File No. 0-22253) and incorporated
herein by reference
10.92 Letter Agreement regarding liability for carve-outs to non-recourse
provisions, dated October 14, 1998, issued by Brookdale Living
Communities, Inc. in favor of Heller Financial, Inc., as filed with the
Securities and Exchange Commission on November 2, 1998 as Exhibit 10.8 to
the Company's Form 8-K dated October 21, 1998 (File No. 0-22253) and
incorporated herein by reference
10.93 Lease, dated as of December 18, 1998, by and between Brookdale Living
Communities of California-RC, Inc., as lessee, and The Woodside Business
Trust, as lessor-owner, as filed with the Securities and Exchange
Commission on January 6, 1999 as Exhibit 10.1 to the Company's Form 8-K
dated December 22, 1998 (File No. 0-22253) and incorporated herein by
reference
10.94 Multifamily Note, dated December 18, 1998, from The Woodside Business
Trust, as maker, payable to the order of Glaser Financial Group, Inc., as
filed with the Securities and Exchange Commission on January 6, 1999 as
Exhibit 10.2 to the Company's Form 8-K dated December 22, 1998 (File No.
0-22253) and incorporated herein by reference
10.95 Multifamily Guaranty Agreement, dated as of December 18, 1998, issued by
Brookdale Living Communities of California-RC, Inc. in favor of Glaser
Financial Group, Inc., as filed with the Securities and Exchange
Commission on January 6, 1999 as Exhibit 10.3 to the Company's Form 8-K
dated December 22, 1998 (File No. 0-22253) and incorporated herein by
reference
10.96 Multifamily Leasehold Deed of Trust, Assignment of Rents, Security
Agreement and Fixture Filing, dated as of December 18, 1998, issued by
Brookdale Living Communities of California-RC, Inc. in favor of Chicago
Title Company, as trustee, for the benefit of Glaser Financial Group,
Inc., as filed with the Securities and Exchange Commission on January 6,
1999 as Exhibit 10.4 to the Company's Form 8-K dated December 22, 1998
(File No. 0-22253) and incorporated herein by reference
10.97 Certificate A Pledge Agreement, dated as of December 22, 1998, by
Brookdale Living Communities of California-RC, Inc. in favor of The
Woodside Business Trust, Wilmington Trust Company, as valuation agent,
and LaSalle National Bank, as collateral account bank, as filed with the
Securities and Exchange Commission on January 6, 1999 as Exhibit 10.5 to
the Company's Form 8-K dated December 22, 1998 (File No. 0-22253) and
incorporated herein by reference
10.98 Certificate B Pledge Agreement, dated as of December 22, 1998, by
Brookdale Living Communities of California-RC, Inc. in favor of The
Woodside Business Trust, Wilmington Trust Company, as valuation agent,
and LaSalle National Bank, as collateral account bank, as filed with the
Securities and Exchange Commission on January 6, 1999 as Exhibit 10.6 to
the Company's Form 8-K dated December 22, 1998 (File No. 0-22253) and
incorporated herein by reference
10.99 Exceptions to Non-Recourse Guaranty, dated as of December 18, 1998, from
Brookdale Living Communities, Inc. in favor of Glaser Financial Group,
Inc., as filed with the Securities and Exchange Commission on January 6,
1999 as Exhibit 10.7 to the Company's Form 8-K dated December 22, 1998
(File No. 0-22253) and incorporated herein by reference
10.100 Indemnity Agreement, dated as of December 22, 1998, from Brookdale Living
Communities, Inc. in favor of Wilmington Trust Company and SELCO Service
Corporation, as filed with the Securities and Exchange Commission on
January 6, 1999 as Exhibit 10.8 to the Company's Form 8-K dated December
22, 1998 (File No. 0-22253) and incorporated herein by reference
10.101 Second Amendment to Loan Agreement and Documents, dated as of October 14,
1998, by and between the Company and LaSalle National Bank
10.102 Third Amendment to Loan Agreement and Documents, dated as of October 20,
1998, by and between the Company and LaSalle National Bank
10.103 Fourth Amendment to Loan Agreement and Documents, dated as of November 3,
1998, by and between the Company and LaSalle National Bank
10.104 Fifth Amendment to Loan Agreement and Documents, dated as of December 21,
1998, by and between the Company and LaSalle National Bank
-43-
<PAGE>
Exhibit
Number Description
- - ------- -----------
10.105 Third Amended and Restated Note dated December 21, 1998 issued by the
Company payable to the order of LaSalle National Bank
10.106 Warrant Certificate, dated as of October 23, 1998, issued by Brookdale
Living Communities, Inc. in favor of Banc One Capital Partners IV, Ltd.
for up to 33.163 shares of Common Stock of Brookdale Living Communities,
Inc.
12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends
21 Subsidiaries of the Registrant
23 Consent of Ernst & Young LLP
27 Financial Data Schedule
(b) Reports on Form 8-K
On November 2, 1998, the Company filed a Current Report on Form 8-K dated
October 21, 1998 announcing pursuant to Item 5 of Form 8-K the lease of
The Ponce de Leon which commenced on October 21, 1998.
On November 4, 1998, the Company filed a Current Report on Form 8-K dated
November 3, 1998 announcing pursuant to Item 5 of Form 8-K the Company's
third quarter 1998 results.
On November 10, 1998, the Company filed a Current Report on Form 8-K
dated June 30, 1998 announcing pursuant to Item 7 of Form 8-K the
Company's Computation of Ratio of Earnings to Combined Fixed Charges for
the Six Months Ended June 30, 1998
On November 19, 1998, the Company filed a Current Report on Form 8-K/A
dated June 30, 1998 announcing pursuant to Item 7 of Form 8-K/A the
Company's Computation of Ratio of Earnings to Combined Fixed Charges for
the Six Months Ended June 30, 1998
On December 7, 1998, the Company filed a Current Report on Form 8-K dated
December 4, 1998 announcing pursuant to Item 5 of Form 8-K the Company's
interest in acquiring ILM Senior Living, Inc., ILM II Senior Living,
Inc., ILM I Lease Corporation and ILM II Lease Corporation.
(c) Exhibits
The list of exhibits filed with this report is set forth in response to
Item 14(a)(3). The required exhibits have been filed as indicated in the
Exhibit Index.
(d) Financial Statements and Schedules
Not applicable.
-44-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Dated: March 31, 1999 /s/ Mark J. Schulte
-----------------------------------------------
Mark J. Schulte
President and Chief Executive Officer
Dated: March 31, 1999 /s/ Darryl W. Copeland, Jr.
-----------------------------------------------
Darryl W. Copeland, Jr.
Executive Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Michael W. Reschke March 31, 1999
---------------------------------------------------
Michael W. Reschke
Chairman of the Board, Director
/s/ Mark J. Schulte March 31, 1999
---------------------------------------------------
Mark J. Schulte
President and Chief Executive Officer, Director
(Principal Executive Officer)
/s/ Darryl W. Copeland, Jr. March 31, 1999
---------------------------------------------------
Darryl W. Copeland, Jr.
Executive Vice President and Chief Financial Officer, Director
(Principal Financial Officer)
/s/ R. Stanley Young March 31, 1999
---------------------------------------------------
R. Stanley Young
Senior Vice President - Finance and Treasurer
(Principal Accounting Officer)
/s/ Wayne D. Boberg March 31, 1999
---------------------------------------------------
Wayne D. Boberg, Director
/s/ Bruce L. Gewertz March 31, 1999
---------------------------------------------------
Bruce L. Gewertz, Director
/s/ Darryl W. Hartley-Leonard March 31, 1999
---------------------------------------------------
Darryl W. Hartley-Leonard, Director
/s/ Daniel J. Hennessy, Director March 31, 1999
---------------------------------------------------
Daniel J. Hennessy, Director
-45-
SECOND AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS
THIS SECOND AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS, dated as of
October 14, 1998 (the "Amendment"), 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").
WITNESSETH
WHEREAS, Borrower has previously executed and delivered to the Bank a
certain Note dated April 27, 1998 in the original principal amount of up to
Fifteen Million Dollars ($15,000,000.00) (the "Original Note") evidencing a
certain loan (the "Loan") set forth more fully in and governed by a certain Loan
Agreement of that same date to which the Bank is also a party (the "Original
Loan Agreement");
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Amended and Restated Note dated
July 16, 1998 increasing the principal amount of the Loan by $10,000,000.00, on
an interim basis only, from $15,000,000.00 to $25,000,000.00 (the "Amended and
Restated Note") and a certain First Amendment to Loan Agreement and Documents of
that same date to which the Bank is also a party (the "First Amendment") that
(a) increased the principal amount of the Loan on an interim basis as aforesaid
and (b) permitted a portion of the Loan to be reserved for the issuance of
standby Letters of Credit by the Bank to and for the benefit of municipalities
and other governmental units in connection with projects developed by Borrower
from time to time as set forth more fully therein (the Original Loan Agreement,
as amended by the First Amendment, is herein referred to as the "Loan
Agreement");
WHEREAS, subject to the terms and conditions of this Amendment,
Borrower has requested the Bank (a) to consent to the Borrower's issuance of a
convertible subordinated and unsecured note to OZ Master Fund, Ltd. in the
principal amount of Ten Million Dollars ($10,000,000.00), (b) to permit Borrower
to guarantee financing from other financial institutions to certain Subsidiaries
of Borrower in connection with certain development projects located in New York,
New York (Battery Park City), Glen Ellyn, Illinois and Raleigh, North Carolina,
which projects were to be originally financed by Nomura Asset Capital
Corporation, (c) to modify the Event of Default set forth in Section 7.01(O) of
the Loan Agreement, and (d) to extend the Interim Maturity Date to November 3,
1998 (the foregoing matters referred to in (a), (b) (c) and (d) of this recital
paragraph being referred to collectively herein as the "Requested Activities");
WHEREAS, the Requested Activities are prohibited under the existing
Loan Agreement and Documents and require the consent of the Bank; and
WHEREAS, the Bank is willing to consent to the Requested Activities,
subject to and conditioned upon the terms and conditions set forth in this
Amendment.
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Incorporation of Recitals. The above and foregoing recitals are
incorporated into and made a part of this Amendment. All capitalized terms used
herein, if not otherwise specifically defined, shall have the meanings and
definitions prescribed in the Loan Agreement and the Documents referred to
therein.
-1-
<PAGE>
2. Outstanding Principal Balance of Loan. For purposes of this
Amendment and the Loan Agreement, the outstanding principal balance of the Loan
at any time shall be the sum of (a) all amounts of the Loan Advances made under
the Loan Agreement remaining unpaid plus (b) all outstanding LC Reserves.
3. Consent to Subordinated Note. The Bank consents to the Borrower's
proposed issuance of a convertible subordinated and unsecured note to OZ Master
Fund, Ltd. in the principal amount of Ten Million Dollars ($10,000,000.00) in
accordance with terms and conditions not materially different (as determined by
the Bank in its sole discretion) than those set forth in the Term Sheet provided
to the Bank on October 14, 1998 (the "Term Sheet") [the "Subordinated Note"] and
acknowledges that the Subordinated Note shall not constitute an Event of Default
under the Loan Agreement upon the condition that (a) the Subordinated Note shall
be subordinate to the Loan and (b) proceeds from the Subordinated Note shall be
used and applied immediately and directly to reduce the outstanding principal
balance of the Loan to $15,000,000.00 on or before the Interim Maturity Date,
and (c) the terms and conditions of the Subordinated Note are not materially
different (as determined by the Bank in its sole discretion) than those set
forth in the Term Sheet.
4. Interim Maturity Date. The term "Interim Maturity Date" is hereby
amended and restated to mean the earlier of (a) November 3, 1998, or (b) a date
certain which is the date on which Borrower issues the Subordinated Note.
5. Decreased Loan Commitment. On the Interim Maturity Date, without
further notice and without regard to whether the Offering has occurred, (a) the
outstanding principal balance of the Loan shall be reduced to $15,000,000.00,
and (b) the principal amount of the Loan and Maximum Revolving Loan Commitment
shall be decreased from $25,000,000.00 to an amount not to exceed
$15,000,000.00.
6. Maturity Date. The term "Maturity Date" is hereby amended and
restated to mean (a) the Interim Maturity Date as to any and all amounts of the
outstanding principal balance of the Loan in excess of $15,000,000.00, and (b)
April 26, 1999 as to the outstanding principal balance of the Loan together with
any accrued but unpaid interest thereon and any other costs or amount owed to
the Bank under the Loan Agreement as amended hereby.
7. Interim Interest Rate. Effective as of October 14, 1998, (a) any and
all outstanding principal balance of the Loan in excess of $15,000,000.00 shall
bear interest payable on demand at the Prime Rate plus four and one-half of one
percent (4.50%) and (b) any and all outstanding principal balance of the Loan
not in excess of $15,000,000.00 shall bear interest payable at the Prime Rate
plus one-half of one percent (0.50%) per annum (the "Interim Interest Rate").
The Interim Interest Rate is, during its pendency, in lieu of the interest rate
set forth in Section 2.02 of the Loan Agreement.
8. Interim Maturity Default Rate. If the outstanding principal balance
of the Loan is not reduced to $15,000,000.00 by the Interim Maturity Date as
required under this Amendment, Borrower shall be considered in default under the
Loan Agreement and, in addition to all other rights and remedies available to
the Bank under the Loan Agreement, the Documents, at law or equity, any and all
amounts outstanding under the Loan Agreement shall, without notice, bear
interest payable on demand at the Prime Rate plus six and one-half of one
percent (6.50%) ("Revised Default Rate"). The Revised Default Rate is, during
its pendency, in lieu of the default rate of interest set forth in Section 2.03
of the Loan Agreement.
-2-
<PAGE>
9. Consent to Outside Financing. The Bank consents to the Borrower's
guarantee of financing to certain Subsidiaries of Borrower from financial
institutions (including, but not limited to, insurance companies) other than
Nomura Asset Capital Corporation in connection with certain development projects
located in New York, New York (Battery Park City), Glen Ellyn, Illinois and
Raleigh, North Carolina (the "Guarantees") and acknowledges that the Guarantees
shall not constitute (a) a breach of Section 5.08(iv)(B) of the Loan Agreement
or (b) an Event of Default under the Loan Agreement; provided however, that
prior to the execution of any documents relating to the Guarantees and as a
condition to the foregoing consent, Borrower shall provide the Bank with
commitment letters setting forth the terms and conditions of each such financing
and the Bank shall approve the terms and conditions of each such financing,
which approval shall be at the Bank's sole but reasonable discretion.
10. Further Decrease of Loan Commitment. As of the date of this
Amendment, the Loan Agreement and Documents are hereby amended and restated to
provide that if at any time that any portion of the loan remains outstanding and
the closing price of Borrower's publicly traded shares of stock as quoted on the
NASDAQ (the "Stock Price") (the date of the occurrence described herein is
hereafter referred to as the "Trigger Date") is:
a. Less than $14.00 per share but not less than $12.50 per
share, the principal amount of the Loan and the Maximum Revolving Loan
Commitment shall, without further notice, be decreased to
$10,000,000.00 and Borrower shall pay within one business day of the
Trigger Date, without further notice or demand, amounts necessary to
reduce the outstanding principal balance of the Loan to $10,000,000.00.
b. Less than $12.50 per share but not less than $10.00, the
principal amount of the Loan and the Maximum Revolving Loan Commitment
shall, without further notice, be decreased to $5,000,000.00 and
Borrower shall pay within one business day of Trigger Date, without
further notice or demand, amounts necessary to reduce the outstanding
principal balance of the Loan to $5,000,000.00.
c. Less than $10.00 per share, the principal amount of the
Loan and the Maximum Revolving Loan Commitment shall, without further
notice, be decreased to $0.00 and Borrower shall pay within one
business day of Trigger Date, without further notice or demand, amounts
necessary to reduce the outstanding principal balance of the Loan to
$0.00. If any amount of the outstanding principal balance of the Loan
is comprised of LC Reserves, Borrower shall provide the Bank with cash
collateral in an amount equal to the outstanding LC Reserve to secure
the amount of the outstanding principal balance comprised of the LC
Reserve.
If the outstanding principal balance of the Loan is not reduced to the
applicable amount by the close of the next business day immediately following
the Trigger Date or if Borrower fails to provide the Bank with sufficient cash
collateral as required in subsection (c) herein, Borrower shall be considered in
default under the Loan Agreement and, in addition to all other rights and
remedies available to the Bank under the Loan Agreement, the Documents, at law
or equity, any and all amounts outstanding under the Loan Agreement shall,
without notice, bear interest payable on demand at (i) the default rate of
interest set forth in Section 2.03 of the Loan Agreement if the event of default
set forth herein occurs after the Interim Maturity Date or (ii) the Revised
Default Rate if the event of default set forth herein occurs before the Interim
Maturity Date.
11. NASDAQ Registration. If at any time that any portion of the loan
remains outstanding and Borrower's publicly traded shares of stock cease to be
quoted on the NASDAQ, Borrower shall be considered to be in default under the
Loan Agreement.
-3-
<PAGE>
12. Information. Borrower shall provide Bank, upon request, with copies
of all documentation and information concerning the Subordinated Note and the
outside financing referred to in this Amendment.
13. Reaffirmation. To the extent any term(s) or condition(s) in any of
the Documents (including, without limitation, the Amended and Restated Note)
shall contradict or be in conflict with the amended terms of the Loan as set
forth herein, such terms and conditions are hereby deemed modified and amended
accordingly, upon the effective date hereof, to reflect the terms of the Loan as
so amended herein. All terms of the Documents (including, without limitation,
the Amended and Restated Note), as amended hereby, shall be and remain in full
force and effect and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Bank. As of the date of this Amendment, Borrower
herein restates, ratifies and reaffirms each and every term and condition set
forth in the Documents as amended herein. There are no other changes to the
Documents except for the changes specifically set forth herein.
14. Certification. To further induce the Bank to enter into this
Amendment, Borrower represents and warrants to the Bank as follows: (a) Borrower
is empowered to perform all acts and things undertaken and done pursuant to this
Amendment and has taken all corporate or other action necessary to authorize the
execution, delivery and performance of the of this Amendment; (b) the officers
of Borrower executing this Amendment have been duly elected or appointed and
have been fully authorized to execute the same at the time executed; (c) this
Amendment, when executed and delivered, will be the legal, valid and binding
obligation of Borrower, enforceable against it in accordance with its respective
terms; and (d) Borrower is delivering to the Bank contemporaneously herewith, a
certificate of Borrower's Secretary certifying as to the resolutions of the
Executive Committee of Borrower's Board of Directors approving this Amendment
and the incumbency and signatures of the officers of Borrower signing this
Amendment.
15. Absence Of Claim. To further induce the Bank to enter into this
Amendment, Borrower hereby acknowledges and agrees that, as of the date hereof,
there exists no right of offset, defense, counterclaim or objection in favor of
Borrower as against the Bank with respect to the Obligations to the Bank.
16. Illinois Law To Govern. This Amendment and each transaction
contemplated hereunder shall be deemed to be made under and shall be construed
and interpreted in accordance with the laws of the State of Illinois.
17. Binding Effect. The terms, provisions and conditions of this
Amendment shall be binding upon and inure to the benefit of each respective
party and their respective legal representatives, successors and assigns.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Robert J. Rudnik
Print Name: Robert J. Rudnik
Title: Executive Vice President
ATTEST:
By: /s/ R. Stanley Young
Print Name: R. Stanley Young
Title: Senior Vice President
BANK:
LaSALLE NATIONAL BANK
By: /s/ Ann B. O'Shaughnessy
Print Name: Ann B. O'Shaughnessy
Title: Assistant Vice President
-5-
THIRD AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS
THIS THIRD AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS, dated as of
October 20, 1998 (the "Amendment"), 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").
WITNESSETH
WHEREAS, Borrower has previously executed and delivered to the Bank a
certain Note dated April 27, 1998 in the original principal amount of up to
Fifteen Million Dollars ($15,000,000.00) (the "Original Note") evidencing a
certain loan (the "Loan") set forth more fully in and governed by a certain Loan
Agreement of that same date to which the Bank is also a party (the "Original
Loan Agreement");
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Amended and Restated Note dated
July 16, 1998 increasing the principal amount of the Loan by $10,000,000.00, on
an interim basis only, from $15,000,000.00 to $25,000,000.00 (the "Amended and
Restated Note") and a certain First Amendment to Loan Agreement and Documents of
that same date to which the Bank is also a party (the "First Amendment") that
(a) increased the principal amount of the Loan on an interim basis as aforesaid
and (b) permitted a portion of the Loan to be reserved for the issuance of
standby Letters of Credit by the Bank to and for the benefit of municipalities
and other governmental units in connection with projects developed by Borrower
from time to time as set forth more fully therein;
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Second Amendment to Loan
Agreement and Documents dated October 14, 1998 to which the Bank is also a party
(the "Second Amendment") wherein (a) the Bank consented to the Borrower's
proposed issuance of a convertible subordinated and unsecured note to OZ Master
Fund, Ltd. in the principal amount of Ten Million Dollars ($10,000,000.00), (b)
the Bank permitted the Borrower to guarantee financing from other financial
institutions to certain Subsidiaries of Borrower in connection with certain
development projects located in New York, New York (Battery Park City), Glen
Ellyn, Illinois and Raleigh, North Carolina, which projects were to be
originally financed by Nomura Asset Capital Corporation, (c) the Event of
Default set forth in Section 7.01(O) of the Loan Agreement was modified and
restructured, and (d) the Interim Maturity Date was extended to November 3,
1998, all of the foregoing as set forth more fully in and subject to the terms
and conditions of the Second Amendment (the Original Loan Agreement, as amended
by the First Amendment and the Second Amendment, is herein referred to as the
"Loan Agreement");
WHEREAS, the Borrower has requested to Bank to modify certain
provisions of the Loan Agreement, which the Bank is willing to do subject to the
terms and conditions set forth herein:
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Incorporation of Recitals. The above and foregoing recitals are
incorporated into and made a part of this Amendment. All capitalized terms used
herein, if not otherwise specifically defined, shall have the meanings and
definitions prescribed in the Loan Agreement and the Documents referred to
therein.
- 1 -
<PAGE>
2. Outstanding Principal Balance of Loan. For purposes of this
Amendment and the Loan Agreement, the outstanding principal balance of the Loan
at any time shall be the sum of (a) all amounts of the Loan Advances made under
the Loan Agreement remaining unpaid plus (b) all outstanding LC Reserves.
3. Borrowing Availability Restricted. As of the date of this Amendment,
the outstanding principal balance of the Loan is $24,953,750.00 (the
"Outstanding Principal Amount"). Notwithstanding any provision of the Loan
Agreement or the Documents to the contrary, the Maximum Revolving Loan
Commitment is hereby frozen at, and shall not exceed, the Outstanding Principal
Amount, unless otherwise consented to by the Bank in writing.
4. Interim Maturity Date. The term "Interim Maturity Date" is hereby
amended and restated to mean November 3, 1998.
5. Decreased Loan Commitment. On the Interim Maturity Date, without
further notice (a) the outstanding principal balance of the Loan shall be
reduced to $10,000,000.00, and (b) the principal amount of the Loan and Maximum
Revolving Loan Commitment shall be decreased from $25,000,000.00 to an amount
not to exceed $10,000,000.00.
6. Maturity Date. The term "Maturity Date" is hereby amended and
restated to mean (a) the Interim Maturity Date as to any and all amounts of the
outstanding principal balance of the Loan in excess of $10,000,000.00, and (b)
April 26, 1999 as to the outstanding principal balance of the Loan together with
any accrued but unpaid interest thereon and any other costs or amount owed to
the Bank under the Loan Agreement as amended hereby.
7. Interim Interest Rate. The Loan Agreement is hereby amended to
provide that, effective as of October 20, 1998, (a) the outstanding principal
balance of the Loan in excess of $10,000,000.00 shall bear interest payable on
demand at the Prime Rate plus four percent (4.0%) and (b) the outstanding
principal balance of the Loan not in excess of $10,000,000.00 shall bear
interest payable at the Prime Rate plus one-half of one percent (0.50%) per
annum (the "Interim Interest Rate"). The Interim Interest Rate is, during its
pendency, in lieu of the interest rate set forth in Section 2.02 of the Loan
Agreement and in lieu of the Interim Interest Rate set forth in the Second
Amendment.
8. Interim Maturity Default Rate. The Loan Agreement is hereby amended
to provide that if the outstanding principal balance of the Loan is not reduced
to $10,000,000.00 by the Interim Maturity Date as required under this Amendment,
Borrower shall be considered in default under the Loan Agreement and, in
addition to all other rights and remedies available to the Bank under the Loan
Agreement, the Documents, at law or equity, any and all amounts outstanding
under the Loan Agreement shall, without notice, bear interest payable on demand
at the Prime Rate plus six and one-half of one percent (6.50%) ("Revised Default
Rate"). The Revised Default Rate is, during its pendency, in lieu of the default
rate of interest set forth in Section 2.03 of the Loan Agreement and in lieu of
the Revised Default Rate set forth in the Second Amendment.
9. Further Decrease of Loan Commitment. As of the date of this
Amendment, the Loan Agreement and Documents are hereby amended and restated to
provide that if at any time that any portion of the loan remains outstanding and
the closing price of Borrower's publicly traded shares of stock as quoted on the
NASDAQ (the "Stock Price") (the date of the occurrence described herein is
hereafter referred to as the "Trigger Date") is:
a. Less than $12.50 per share but not less than $10.00, the
principal amount of the Loan and the Maximum Revolving Loan Commitment
shall, without further notice, be decreased to $5,000,000.00 and
Borrower shall pay within one business day of Trigger Date, without
further notice or demand, amounts
- 2 -
<PAGE>
necessary to reduce the outstanding principal balance of the Loan to
$5,000,000.00.
b. Less than $10.00 per share, the principal amount of the
Loan and the Maximum Revolving Loan Commitment shall, without further
notice, be decreased to $0.00 and Borrower shall pay within one
business day of Trigger Date, without further notice or demand, amounts
necessary to reduce the outstanding principal balance of the Loan to
$0.00. If any amount of the outstanding principal balance of the Loan
is comprised of LC Reserves, Borrower shall provide the Bank with cash
collateral in an amount equal to the outstanding LC Reserve to secure
the amount of the outstanding principal balance comprised of the LC
Reserve.
If the outstanding principal balance of the Loan is not reduced to the
applicable amount by the close of the next business day immediately following
the Trigger Date or if Borrower fails to provide the Bank with sufficient cash
collateral as required in subsection (b) herein, Borrower shall be considered in
default under the Loan Agreement and, in addition to all other rights and
remedies available to the Bank under the Loan Agreement, the Documents, at law
or equity, any and all amounts outstanding under the Loan Agreement shall,
without notice, bear interest payable on demand at (i) the default rate of
interest set forth in Section 2.03 of the Loan Agreement if the event of default
set forth herein occurs after the Interim Maturity Date or (ii) the Revised
Default Rate if the event of default set forth herein occurs before the Interim
Maturity Date. The Bank waives any prior default that occurred under the Second
Amendment due to the Borrower not reducing the outstanding principal balance of
the Loan to $10,000,000.00 or less within one business day after the Stock Price
closed below 14.00 per share.
10. Reaffirmation. To the extent any term(s) or condition(s) in any of
the Documents (including, without limitation, the Amended and Restated Note)
shall contradict or be in conflict with the amended terms of the Loan as set
forth herein, such terms and conditions are hereby deemed modified and amended
accordingly, upon the effective date hereof, to reflect the terms of the Loan as
so amended herein. All terms of the Documents (including, without limitation,
the Amended and Restated Note), as amended hereby, shall be and remain in full
force and effect and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Bank. As of the date of this Amendment, Borrower
herein restates, ratifies and reaffirms each and every term and condition set
forth in the Documents as amended herein. There are no other changes to the
Documents except for the changes specifically set forth herein.
11. No Waiver. 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.
12. Certification. To further induce the Bank to enter into this
Amendment, Borrower represents and warrants to the Bank as follows: (a) Borrower
is empowered to perform all acts and things undertaken and done pursuant to this
Amendment and has taken all corporate or other action necessary to authorize the
execution, delivery and performance of the of this Amendment; (b) the officers
of Borrower executing this Amendment have been duly elected or appointed and
have been fully authorized to execute the same at the time executed; (c) this
Amendment, when executed and delivered, will be the legal, valid and binding
obligation of Borrower, enforceable against it in accordance with its respective
terms; and (d) Borrower is delivering to the Bank contemporaneously herewith, a
certificate of Borrower's Secretary certifying as to the resolutions of the
Executive Committee of Borrower's Board of Directors approving this Amendment
and the incumbency and signatures of the officers of Borrower signing this
Amendment.
- 3 -
<PAGE>
13. Absence Of Claim. To further induce the Bank to enter into this
Amendment, Borrower hereby acknowledges and agrees that, as of the date hereof,
there exists no right of offset, defense, counterclaim or objection in favor of
Borrower as against the Bank with respect to the Obligations to the Bank.
14. Illinois Law To Govern. This Amendment and each transaction
contemplated hereunder shall be deemed to be made under and shall be construed
and interpreted in accordance with the laws of the State of Illinois.
15. Binding Effect. The terms, provisions and conditions of this
Amendment shall be binding upon and inure to the benefit of each respective
party and their respective legal representatives, successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Darryl W. Copeland, Jr.
Print Name: Darryl W. Copeland, Jr.
Title: Executive Vice President
ATTEST:
By: /s/ Robert J. Rudnik
Print Name: Robert J. Rudnik
Title: Secretary
BANK:
LaSALLE NATIONAL BANK
By: /s/ Ann B. O'Shaughnessy
Print Name: Ann B. O'Shaughnessy
Title: Assistant Vice President
- 4 -
FOURTH AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS
THIS FOURTH AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS, dated as of November
3, 1998 (the "Amendment"), 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").
WITNESSETH
WHEREAS, Borrower has previously executed and delivered to the Bank a
certain Note dated April 27, 1998 in the original principal amount of up to
Fifteen Million Dollars ($15,000,000.00) (the "Original Note") evidencing a
certain loan (the "Loan") set forth more fully in and governed by a certain Loan
Agreement of that same date to which the Bank is also a party (the "Original
Loan Agreement");
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Amended and Restated Note dated
July 16, 1998 increasing the principal amount of the Loan by $10,000,000.00, on
an interim basis only, from $15,000,000.00 to $25,000,000.00 (the "Amended and
Restated Note") and a certain First Amendment to Loan Agreement and Documents of
that same date to which the Bank is also a party (the "First Amendment") that
(a) increased the principal amount of the Loan on an interim basis as aforesaid
and (b) permitted a portion of the Loan to be reserved for the issuance of
standby Letters of Credit by the Bank to and for the benefit of municipalities
and other governmental units in connection with projects developed by Borrower
from time to time as set forth more fully therein;
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Second Amendment to Loan
Agreement and Documents dated October 14, 1998 to which the Bank is also a party
(the "Second Amendment") wherein (a) the Bank consented to the Borrower's
proposed issuance of a convertible subordinated and unsecured note to OZ Master
Fund, Ltd. in the principal amount of Ten Million Dollars ($10,000,000.00), (b)
the Bank permitted the Borrower to guarantee financing from other financial
institutions to certain Subsidiaries of Borrower in connection with certain
development projects located in New York, New York (Battery Park City), Glen
Ellyn, Illinois and Raleigh, North Carolina, which projects were to be
originally financed by Nomura Asset Capital Corporation, (c) the Event of
Default set forth in Section 7.01(O) of the Loan Agreement was modified and
restructured, and (d) the Interim Maturity Date was extended to November 3,
1998;
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Third Amendment to Loan
Agreement and Documents dated October 20, 1998 to which the Bank is also a party
(the "Third Amendment") wherein (a) the Maximum Revolving Loan Commitment was
frozen at $24,953,750 (the "Outstanding Principal Amount"), (b) the "Interim
Maturity Date" was extended to November 3, 1998, (c) it was agreed that, on the
Interim Maturity Date (x) the outstanding principal balance of the Loan was to
be reduced to $10,000,000, and (y) the principal amount of the Loan and Maximum
Revolving Loan Commitment were to be decreased from $25,000,000 to an amount not
to exceed $10,000,000, (d) the Interim Interest Rate and the Revised Default
Rate were adjusted, and (e) certain additional changes to the Maximum Revolving
Loan Commitment were mandated based upon the Stock Price of the Company from
time to time, all of the foregoing as set forth more fully in and subject to the
terms and conditions of the Third Amendment (the Original Loan Agreement, as
amended by the First Amendment, the Second Amendment, and the Third Amendment,
is herein referred to as the "Loan Agreement");
- 1 -
<PAGE>
WHEREAS, the Borrower has represented to the Bank that it intends to
close on a convertible subordinated debt offering of approximately $35,000,000
(the "Offering") on or about November 18, 1998, the proceeds of which would be
used by the Borrower to reduce the outstanding principal balance of the Loan to
zero, and has therefore requested the Bank to extend the Interim Maturity Date
as set forth herein, which the Bank is willing to do subject to the terms and
conditions set forth herein:
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Incorporation of Recitals. The above and foregoing recitals are
incorporated into and made a part of this Amendment. All capitalized terms used
herein, if not otherwise specifically defined, shall have the meanings and
definitions prescribed in the Loan Agreement and the Documents referred to
therein.
2. Outstanding Principal Balance of Loan. Except for the provisions of
Paragraph 4 (a) of this Amendment, for purposes of this Amendment and the Loan
Agreement, the outstanding principal balance of the Loan at any time shall be
the sum of (a) all amounts of the Loan Advances made under the Loan Agreement
remaining unpaid plus (b) all outstanding LC Reserves. For the purposes of
Paragraph 4 (a) of this Amendment, the outstanding principal balance of the Loan
shall mean all amounts of the Loan Advances made under the Loan Agreement
remaining unpaid excluding the outstanding LC Reserves.
3. Interim Maturity Date. The term "Interim Maturity Date" is hereby
amended and restated to mean a date certain which is the first to occur of (a)
November 30, 1998, or (b) the date on which Borrower closes on the Offering.
4. Decreased Loan Balance and Commitment. On the Interim Maturity Date,
without further notice, (a) the Borrower shall pay down the outstanding
principal balance of the Loan to zero ($0.00) provided the Offering has closed,
and (b) the Borrower shall pay down the outstanding principal balance of the
Loan to $10,000,000.00 regardless of whether the Offering has closed, and (c)
the principal amount of the Loan and Maximum Revolving Loan Commitment shall be
decreased from $25,000,000.00 to an amount not to exceed $10,000,000.00
regardless of whether the Offering has closed.
5. Maturity Date. The term "Maturity Date" is hereby amended and
restated to mean (a) the Interim Maturity Date as to any and all amounts of the
outstanding principal balance of the Loan in excess of $10,000,000.00, and (b)
April 26, 1999 as to the outstanding principal balance of the Loan at or below
$10,000,000.00 together with any accrued but unpaid interest thereon and any
other costs or amount owed to the Bank under the Loan Agreement as amended
hereby.
6. Interim Interest Rate. The Borrower acknowledges and agrees that
effective as of October 20, 1998, (a) the outstanding principal balance of the
Loan in excess of $10,000,000.00 has been bearing and shall continue to bear
interest at the Prime Rate plus four percent (4.0%), and (b) the outstanding
principal balance of the Loan not in excess of $10,000,000.00 has been bearing
and shall continue to bear interest payable at the Prime Rate plus one-half of
one percent (0.50%) per annum (the "Interim Interest Rate"). The Interim
Interest Rate is, during its pendency, in lieu of the interest rate set forth in
Section 2.02 of the Loan Agreement and in lieu of the Interim Interest Rate set
forth in the Second Amendment.
- 2 -
<PAGE>
7. Fee. As an inducement and condition to the execution of this
Amendment by the Bank, the Borrower shall pay the Bank an extension fee in the
amount of $50,000.00 (the "Extension Fee"). If on the Interim Maturity Date the
outstanding principal balance of the Loan is reduced to zero ($0.00) by
application of the proceeds of the Offering and if the Borrower is not otherwise
in default under the Loan Agreement or the Documents, the Extension Fee shall be
refunded to Borrower. If on the Interim Maturity Date the outstanding principal
balance of the Loan has not been reduced to zero ($0.00) by application of the
proceeds of the Offering or if the Borrower is otherwise in default under the
Loan Agreement or the Documents, the Extension Fee shall be deemed fully paid to
and earned by the Bank.
8. Reaffirmation. To the extent any term(s) or condition(s) in any of
the Documents (including, without limitation, the Amended and Restated Note)
shall contradict or be in conflict with the amended terms of the Loan as set
forth herein, such terms and conditions are hereby deemed modified and amended
accordingly, upon the effective date hereof, to reflect the terms of the Loan as
so amended herein. All terms of the Documents (including, without limitation,
the Amended and Restated Note), as amended hereby, shall be and remain in full
force and effect and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Bank. As of the date of this Amendment, Borrower
herein restates, ratifies and reaffirms each and every term and condition set
forth in the Documents as amended herein. There are no other changes to the
Documents, including without limitation the Loan Agreement, except for the
changes specifically set forth herein.
9. No Waiver. 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.
10. Certification. To further induce the Bank to enter into this
Amendment, Borrower represents and warrants to the Bank as follows: (a) Borrower
is empowered to perform all acts and things undertaken and done pursuant to this
Amendment and has taken all corporate or other action necessary to authorize the
execution, delivery and performance of the of this Amendment; (b) the officers
of Borrower executing this Amendment have been duly elected or appointed and
have been fully authorized to execute the same at the time executed; (c) this
Amendment, when executed and delivered, will be the legal, valid and binding
obligation of Borrower, enforceable against it in accordance with its respective
terms; and (d) Borrower is delivering to the Bank contemporaneously herewith, a
certificate of Borrower's Secretary certifying as to the resolutions of the
Executive Committee of Borrower's Board of Directors approving this Amendment
and the incumbency and signatures of the officers of Borrower signing this
Amendment.
11. Absence Of Claim. To further induce the Bank to enter into this
Amendment, Borrower hereby acknowledges and agrees that, as of the date hereof,
there exists no right of offset, defense, counterclaim or objection in favor of
Borrower as against the Bank with respect to the Obligations to the Bank.
12. Illinois Law To Govern. This Amendment and each transaction
contemplated hereunder shall be deemed to be made under and shall be construed
and interpreted in accordance with the laws of the State of Illinois.
13. Binding Effect. The terms, provisions and conditions of this
Amendment shall be binding upon and inure to the benefit of each respective
party and their respective legal representatives, successors and assigns.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Darryl W. Copeland, Jr.
Print Name: Darryl W. Copeland, Jr.
Title: Executive Vice President
ATTEST:
By: /s/ Robert J. Rudnik
Print Name: Robert J. Rudnik
Title: Secretary
BANK:
LaSALLE NATIONAL BANK
By: /s/ Ann B. O'Shaughnessy
Print Name: Ann B. O'Shaughnessy
Title: Assistant Vice President
- 4 -
FIFTH AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS
THIS FIFTH AMENDMENT TO LOAN AGREEMENT AND DOCUMENTS, dated as of
December 21, 1998 (this "Amendment"), 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").
WITNESSETH
WHEREAS, Borrower has previously executed and delivered to the Bank a
certain Note dated April 27, 1998 in the original principal amount of up to
Fifteen Million Dollars ($15,000,000.00) (the "Original Note") evidencing a
certain loan (the "Loan") set forth more fully in and governed by a certain Loan
Agreement of that same date to which the Bank is also a party (the "Original
Loan Agreement");
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Amended and Restated Note dated
July 16, 1998 increasing the principal amount of the Loan by $10,000,000.00, on
an interim basis only, from $15,000,000.00 to $25,000,000.00 (the "Amended and
Restated Note") and a certain First Amendment to Loan Agreement and Documents of
that same date to which the Bank is also a party (the "First Amendment") that
(a) increased the principal amount of the Loan on an interim basis as aforesaid
and (b) permitted a portion of the Loan to be reserved for the issuance of
standby Letters of Credit by the Bank to and for the benefit of municipalities
and other governmental units in connection with projects developed by Borrower
from time to time as set forth more fully therein;
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Second Amendment to Loan
Agreement and Documents dated October 14, 1998 to which the Bank is also a party
(the "Second Amendment") wherein (a) the Bank consented to the Borrower's
proposed issuance of a convertible subordinated and unsecured note to OZ Master
Fund, Ltd. in the principal amount of Ten Million Dollars ($10,000,000.00), (b)
the Bank permitted the Borrower to guarantee financing from other financial
institutions to certain Subsidiaries of Borrower in connection with certain
development projects located in New York, New York (Battery Park City), Glen
Ellyn, Illinois and Raleigh, North Carolina, which projects were to be
originally financed by Nomura Asset Capital Corporation, (c) the Event of
Default set forth in Section 7.01(O) of the Loan Agreement was modified and
restructured, and (d) the Interim Maturity Date was extended to November 3,
1998;
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Third Amendment to Loan
Agreement and Documents dated October 20, 1998 to which the Bank is also a party
(the "Third Amendment") wherein (a) the Maximum Revolving Loan Commitment was
frozen at $24,953,750.00, (b) the "Interim Maturity Date" was extended to
November 3, 1998, (c) it was agreed that, on the Interim Maturity Date (x) the
outstanding principal balance of the Loan was to be reduced to $10,000,000.00,
and (y) the principal amount of the Loan and Maximum Revolving Loan Commitment
were to be decreased from $25,000,000.00 to an amount not to exceed
$10,000,000.00, (d) the Interim Interest Rate and the Revised Default Rate were
adjusted, and (e) certain additional changes to the Maximum Revolving Loan
Commitment were mandated based upon the Stock Price of the Company from time to
time, all of the foregoing as set forth more fully in and subject to the terms
and conditions of the Third Amendment;
- 1 -
<PAGE>
WHEREAS, the Loan was subsequently modified and amended by Borrower's
execution and delivery to the Bank of a certain Fourth Amendment to Loan
Agreement and Documents dated November 3, 1998 to which the Bank is also a party
(the "Fourth Amendment") wherein (a) the "Interim Maturity Date" was extended to
a date certain which was the first to occur of (x) the earlier of November 30,
1998, or (y) the date on which Borrower closed on the "Offering," and (b) it was
agreed that, on the Interim Maturity Date (x) the outstanding principal balance
of the Loan was to be reduced to zero ($0.00) provided that the Offering had
closed, (y) the outstanding principal balance of the Loan was to be reduced to
$10,000,000.00 regardless of whether the Offering had closed, and (z) the
principal amount of the Loan and Maximum Revolving Loan Commitment were to be
decreased from $25,000,000.00 to an amount not to exceed $10,000,000.00
regardless of whether the Offering had closed, all of the foregoing as set forth
more fully in and subject to the terms and conditions of the Fourth Amendment
(the Original Loan Agreement, as amended by the First Amendment, the Second
Amendment, the Third Amendment, and the Fourth Amendment is herein referred to
as the "Loan Agreement");
WHEREAS, subject to the terms and conditions of this Amendment,
Borrower has requested the Bank to increase the principal amount of the Loan and
of the Maximum Revolving Loan Commitment by $5,000,000.00 from $10,000,000.00 to
$15,000,000.00, to which the Bank is willing to agree subject to the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises, the covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Incorporation of Recitals. The above and foregoing recitals are
incorporated into and made a part of this Amendment. All capitalized terms used
herein, if not otherwise specifically defined, shall have the meanings and
definitions prescribed in the Loan Agreement and the Documents referred to
therein.
2. Increased Loan Commitment. As of the date of this Amendment, the
Loan Agreement and the Documents are hereby amended to increase the principal
amount of the Loan and the Maximum Revolving Loan Commitment from $10,000,000.00
to $15,000,000.00.
3. Interest Rate. Except as provided in Section 2.03 of the Loan
Agreement, Loan Advances under the Loan Commitment shall bear interest at the
Prime Rate plus one-half of one percent (0.50%) per annum. The Interim Interest
Rate is no longer applicable and accordingly, all references to Interim Interest
Rate in the Loan Agreement are hereby deleted.
4. Execution Note. Contemporaneous with the execution of this
Agreement, the Borrower has executed and delivered Third Amended and Restated
Note in the principal sum of up to $15,000,000.00 evidencing the Loan as amended
by this Amendment, which Third Amended and Restated Note shall replace and
supersede the Second Amended and Restated Note.
5. Maturity Date. The definition of Maturity Date in the Loan Agreement
is confirmed and defined to be April 26, 1999. 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.
- 2 -
<PAGE>
6. Default Rate. Any Obligation of the Borrower under the Loan
Agreement or any of the other Documents 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 Borrowers hereunder shall bear
interest at the rate provided for in the immediately preceding sentence.
7. Reaffirmation. To the extent any term(s) or condition(s) in the Loan
Agreement or any of the Documents shall contradict or be in conflict with the
amended terms of the Loan as set forth herein, such terms and conditions are
hereby deemed modified and amended accordingly, upon the effective date hereof,
to reflect the terms of the Loan as so amended herein. All terms of the Loan
Agreement and the Documents, as amended hereby, shall be and remain in full
force and effect and shall constitute the legal, valid, binding and enforceable
obligations of Borrower to the Bank. As of the date of this Amendment, Borrower
herein restates, ratifies and reaffirms each and every term and condition set
forth in the Loan Agreement and the Documents as amended herein. There are no
other changes to the Documents, including without limitation the Loan Agreement,
except for the changes specifically set forth herein.
8. No Waiver. 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.
9. Certification. To further induce the Bank to enter into this
Amendment, Borrower represents and warrants to the Bank as follows: (a) Borrower
is empowered to perform all acts and things undertaken and done pursuant to this
Amendment and has taken all corporate or other action necessary to authorize the
execution, delivery and performance of the of this Amendment; (b) the officers
of Borrower executing this Amendment have been duly elected or appointed and
have been fully authorized to execute the same at the time executed; (c) this
Amendment, when executed and delivered, will be the legal, valid and binding
obligation of Borrower, enforceable against it in accordance with its respective
terms; and (d) Borrower is delivering to the Bank contemporaneously herewith, a
certificate of Borrower's Secretary certifying as to the resolutions of the
Executive Committee of Borrower's Board of Directors approving this Amendment
and the incumbency and signatures of the officers of Borrower signing this
Amendment.
10. Absence Of Claim. To further induce the Bank to enter into this
Amendment, Borrower hereby acknowledges and agrees that, as of the date hereof,
there exists no right of offset, defense, counterclaim or objection in favor of
Borrower as against the Bank with respect to the Obligations to the Bank.
11. Illinois Law To Govern. This Amendment and each transaction
contemplated hereunder shall be deemed to be made under and shall be construed
and interpreted in accordance with the laws of the State of Illinois.
12. Binding Effect. The terms, provisions and conditions of this
Amendment shall be binding upon and inure to the benefit of each respective
party and their respective legal representatives, successors and assigns.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
BORROWER:
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ Darryl W. Copeland, Jr.
Print Name: Darryl W. Copeland, Jr.
Title: Executive Vice President
ATTEST:
By: /s/ Robert J. Rudnik
Print Name: Robert J. Rudnik
Title: Secretary
BANK:
LaSALLE NATIONAL BANK
By: /s/ Ann B. O'Shaughnessy
Print Name: Ann B. O'Shaughnessy
Title: Assistant Vice President
- 4 -
THIRD AMENDED AND RESTATED NOTE
$15,000,000.00 Chicago, Illinois
December 21, 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 4400, Chicago, Illinois 60601, hereby promises to pay to the
order of LaSALLE NATIONAL BANK, a national banking association (the "Bank"), 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 Fifth
Amendment to Loan Agreement and Documents dated December 21, 1998 by and between
Maker and the Bank (the "Fifth Amendment").
Maker previously executed and delivered to the Bank a certain Note
dated April 27, 1998 in the original principal amount of $15,000,000.00 (the
"Original Note") pursuant to a Loan Agreement dated April 27, 1998 (the
"Original Loan Agreement") evidencing a Loan made by the Bank to the Maker
pursuant to such Original Loan Agreement. Maker subsequently executed and
delivered to the Bank a certain Amended and Restated Note dated July 16, 1998 in
the principal amount of $25,000,000.00 (the "Restated Note") pursuant to a
certain First Amendment to Loan Agreement and Documents of the same date (the
"First Amendment"), as amended by a Second Amendment to Loan Agreement and
Documents (the "Second Amendment") with the Bank dated October 14, 1998, and
further evidenced by a Second Amended and Restated Note dated October 14, 1998
(the "Second Amended and Restated Note"), as amended by a Third Amendment to
Loan Agreement and Documents (the "Third Amendment") with the Bank dated October
20, 1998, and as amended by a Fourth Amendment to Loan Agreement and Documents
(the "Fourth Amendment") with the Bank dated November 3, 1998 (the Original Loan
Agreement, as Amended by the First Amendment, the Second Amendment, the Third
Amendment, the Fourth Amendment and the Fifth Amendment, is herein referred to
as the "Loan Agreement"). The Second Amended and Restated Note is amended,
restated and superseded in its entirety by this Third Amended and Restated Note,
and any amounts outstanding under the Second Amended and Restated Note are
transferred to this Third Amended and Restated Note.
The Loan evidenced by this Third Amended and Restated Note constitutes
a revolving credit under applicable Laws and Maker may repay and reborrow
hereunder subject to the terms and conditions of the Loan Agreement and
Documents. All advances under this Third Amended and Restated 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.
- 1 -
<PAGE>
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.
This Third Amended and Restated Note is issued under the Loan
Agreement, and this Third Amended and Restated 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.
All unpaid amounts owing on this Third Amended and Restated 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 Third
Amended and Restated Note, the Maker hereby agrees that the Bank may offset all
of Maker's 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 Third
Amended and Restated Note or against any other amounts which may be due the Bank
from the Maker.
No clause or provision contained in this Third Amended and Restated
Note or any documents related hereto shall be construed or shall so operate (a)
to raise the interest rate set forth in this Third Amended and Restated 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 Third Amended and
Restated 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 Third Amended and Restated 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 Third Amended and Restated Note, jointly and
severally waive, to the extent permitted by law, except as otherwise provided in
the Loan Agreement or the other 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 Third Amended and Restated Note, including
time for payment, and further agree that any such renewals, extension or
modification of the terms of this Third Amended and Restated Note or the release
or substitution of any security for the indebtedness under this Third Amended
and Restated Note or any other indulgences shall not affect the liability of any
of the parties for the indebtedness evidenced by this
- 2 -
<PAGE>
Third Amended and Restated 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 Third Amended and Restated Note, including, without
limitation, reasonable attorneys' fees, as more fully set forth in the Loan
Agreement.
This Third Amended and Restated 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: /s/ Darryl W. Copeland, Jr.
Print Name: Darryl W. Copeland, Jr.
Title: Executive Vice President
- 3 -
<PAGE>
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE, AND MAY
NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED, HYPOTHECATED OR OFFERED UNLESS
THERE IS IN EFFECT A REGISTRATION STATEMENT UNDER SUCH ACT AND LAWS COVERING
SUCH SECURITIES OR THE ISSUER RECEIVES AN OPINION OF COUNSEL OR A NO-ACTION
LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION STATING THAT
SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT, HYPOTHECATION OR OFFER IS EXEMPT
FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS.
-----------------------------------------------------
Brookdale Living Communities, Inc.
Warrant Certificate
Issued to
Banc One Capital Partners IV, Ltd.
in the
Purchase of Common Stock
of
Brookdale Living Communities, Inc.
-------------------------------------------------------
Dated as of October 23, 1998
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TABLE OF CONTENTS
Page
Section 1. Definitions..................................................1
Section 2. Duration and Exercise of Warrant.............................6
2.1 Number of Shares of Common Stock. ................6
2.2 Warrant Exercise Period. ..........................6
2.3 Manner of Exercise. ..............................6
2.4 When Exercise Effective. .........................6
2.5 Delivery of Stock Certificates,
New Warrant Certificate, etc......................6
Section 3. Anti-dilution Adjustment.....................................6
3.1 Adjustment Event. .................................6
3.2 Reorganization Event. .............................7
3.3 Other Event. ......................................7
3.4 Rights Offering. ..................................7
3.5 Preemptive Rights. ................................8
Section 4. Restrictions on Transfer.....................................8
4.1 Restrictive Legends.................................8
4.2 Notice of Proposed Transfer; Opinion of Counsel.....9
Section 5. Availability of Information.................................10
Section 6. Reservation of Stock, Etc...................................10
Section 7. Capitalization..............................................10
Section 8. Ownership; Registration of Transfer; Exchange and Substitution
of Warrant..................................................10
8.1 Ownership of Warrant...............................10
8.2 Registration of Transfers..........................11
8.3 Replacement of Warrant Certificate.................11
8.4 Expenses...........................................11
Section 9. No Rights as Stockholder....................................11
Section 10. Demand Registration Rights .................................11
10.1 Demand for Registration............................11
10.2 Registration Statement Form........................12
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10.3 Effective Registration Statement...................12
10.4 Expenses...........................................12
10.5 Underwritten Offerings.............................12
10.6 Priority in Requested Registrations................12
Section 11. "Piggyback" Registration Rights.............................13
11.1 Participation in Registration......................13
11.2 Expenses..........................................13
11.3 Underwritten Offerings.............................13
11.4 Priority in Registrations..........................14
Section 12. Registration Procedures.....................................14
Section 13. Indemnification.............................................17
13.1 Indemnification by the Company.....................17
13.2 Indemnification by the Holder......................17
13.3 Procedures for Claims..............................18
Section 14. Rule 144....................................................18
Section 15. Termination of Registration Rights..........................18
Section 16. Miscellaneous...............................................19
16.1 Amendment..........................................19
16.2 Choice of Law......................................19
16.3 Headings...........................................19
Form of Warrant Certificate..................................................A-1
Form of Assignment of Warrant................................................B-1
ii
<PAGE>
Warrant Certificate
Dated as of October 23, 1998
This Warrant Certificate ("Warrant Certificate") certifies that, for
value received, Banc One Capital Partners IV, Ltd., an Ohio limited liability
company (the "BOCP IV"), is entitled to purchase from Brookdale Living
Communities, Inc., a Delaware corporation (the "Company"), up to 33,163 shares
of the Common Stock of the Company as hereinafter provided, in the manner and
subject to the terms and conditions set forth herein.
The Warrant evidenced by this Warrant Certificate is being issued by
the Company to the Holder as additional consideration with respect to a certain
loan transaction entered into between AH Illinois Subordinated, LLC, an Ohio
limited liability company (the "Borrower"), as borrower, and Holder, as lender,
effective the date hereof, wherein Holder is making loans to the Borrower in the
aggregate principal amount of $8,497,766 (collectively, the "Loan"). The Company
has issued a limited recourse guarantee in connection with the Loan and will
derive significant benefits from the Loan.
Section 1. Definitions.
1.1 "Affiliate" of any specified Person means any other
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with, such specified Person. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly, the
power to vote 10% or more of the Voting Power of a Person, or the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
1.2 "Applicable Law" means, with respect to any Person,
any and all federal, national, state, regional, local, municipal or foreign
laws, statutes, rules, regulations, guidelines, ordinances, licenses, permits,
judicial or administrative decisions of any country, or any political
subdivision, agency, commission, official or court thereof having jurisdiction
over such Person or its business.
1.3 "Adjustment Event" means any of the following events:
(i) the Company declares a dividend or makes a
distribution with respect to outstanding
shares of its Capital Stock, which dividend
or distribution is paid entirely or in part
in shares of Common Stock or Convertible
Securities; or
(ii) the Company subdivides, combines or
reclassifies outstanding shares of its
Common Stock or Convertible Securities.
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In no event shall an offering described in Section 3.5 also constitute
an Adjustment Event.
1.4 "BOCP IV" means Banc One Capital Partners IV, Ltd.,
an Ohio limited liability company, together with its successors.
1.5 "Borrower" has the definition set forth in the second
grammatical paragraph of this Warrant Certificate.
1.6 "Business Day" means any day other than a Saturday,
Sunday or day on which banking institutions are authorized or required by law or
executive order to be closed in the City of Columbus, Ohio or in the City of
Chicago, Illinois.
1.7 "Capital Stock" of any Person means any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock (including each class of common stock and preferred stock) or
partnership or membership interests of such Person.
1.8 "Charter Documents" mean a Person's formation or
other governing documents, including but not limited to, as applicable, its
certificate or articles of incorporation, by-laws, code of regulations, articles
of organization, operating agreement, certificate of limited partnership and
partnership agreement.
1.9 "Commission" means the United States Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act.
1.10 "Common Shares" or "Common Stock" means the shares of
common stock, $0.01 par value per share, of the Company, treated as a single
class of stock, at any time outstanding.
1.11 "Company" means Brookdale Living Communities, Inc., a
Delaware corporation, and includes any Person which shall succeed to or assume
the obligations of the Company, through restructuring or otherwise.
1.12 "Convertible Securities" means evidences of
indebtedness, shares of stock or other securities that are convertible into or
exchangeable for, with or without payment of additional consideration in cash or
property, or options, warrants or other rights that are exercisable for, Common
Shares, whether or not the right to convert, exchange or exercise is at the time
exercisable.
1.13 "Formation Registration Rights Agreement" means that
certain Registration Rights Agreement, dated as of May 7, 1997, by and among the
Company, The Prime Group, Inc., Prime Group Limited Partnership, and Prime Group
VI, L.P., as amended.
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1.14 "Formation Holders" means the "Holders" as defined in
the Formation Registration Rights Agreement.
1.15 "Holder" means BOCP IV, together with its successors
and permitted assigns.
1.16 "Loan" has the definition set forth in the second
grammatical paragraph of this Warrant Certificate.
1.17 "Notice" has the meaning set forth in ss.4.2.
1.18 "Person" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint stock company,
trust, unincorporated organization, governmental authority or any other form of
entity.
1.19 "Preemption Offering" means any offering of Common
Shares, Convertible Securities or other shares of Capital Stock of the Company
by or on behalf of the Company other than:
(i) any Rights Offering;
(ii) the issuance of the Warrant Shares subject
to this Warrant Certificate;
(iii) the issuance of Common Shares to the holder
of any other warrant certificates issued to
BOCP IV by the Company in exercise of such
warrant certificate;
(iv) the issuance of Common Shares to the holder
of any other warrant certificates issued to
any of BOCP IV's Affiliates (including but
not limited to those two warrant
certificates dated June 17, 1998 for 5,000
shares each issued to Banc One Capital
Markets, Inc.) by the Company in exercise of
such warrant certificate;
(v) the issuance or sale of Common Shares
pursuant to any employee, officer or
director stock option plan approved by the
board of directors of the Company; provided,
that (a) options are granted only with
respect to Common Shares, (b) the minimum
exercise price per Common Share for such
shares is not less than the market
determined value per share on the date such
options were granted, as determined in
accordance with the Company's stock
incentive plans, and (c) no options are
granted to Persons other than officers,
directors and employees of the Company or
any Subsidiary; and
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(vi) the sale and issuance of Common Shares,
Convertible Securities or other Capital
Stock pursuant to any Qualified Public
Offering.
1.19 "Qualified Public Offering" means the first offer and
sale to the public by the Company or any holders of shares of any Common Shares,
Convertible Securities or other Capital Stock, after the dated hereof, pursuant
to a registration statement that has been declared effective by the Commission.
1.20 "Reorganization Event" means:
(i) any capital reorganization or
reclassification or recapitalization of any
shares of Capital Stock of the Company
(other than an event described in Section
1.3);
(ii) any merger or consolidation of the Company
with or into any other Person in which the
Company is not the surviving entity, or
which effects a reclassification or
recapitalization of any shares of Capital
Stock of the Company; or
(iii) the sale, exchange or transfer of all or
substantially all of the property of the
Company to any other Person.
1.21 "Restricted Securities" means (a) any Warrant bearing
the applicable legend set forth in such Warrant, (b) any Warrant Shares which
are evidenced by a certificate or certificates bearing such legend, and (c)
unless the context otherwise requires, any Common Shares which are at the time
issuable upon the exercise of any Warrant and which, when so issued, will be
evidenced by a certificate or certificates bearing such legend.
1.22 "Rights Offering" means any offering of Capital Stock
or Convertible Securities of the Company or any distribution of rights to
purchase Capital Stock or Convertible Securities of the Company that is made
substantially on a pro rata basis among the holders of Capital Stock of the
Company.
1.23 "Securities" means collectively, the Warrant and the
Warrant Shares.
1.24 "Securities Act" means the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as of the same shall be in effect at the time.
References to a particular section of the Securities Act of 1933 shall include a
reference to the comparable section, if any, of any such similar successor
federal statute.
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<PAGE>
1.25 "Securities Exchange Act" means the Securities
Exchange Act of 1934, as amended, or any similar federal statute, and the rules
and regulations of the Commission thereunder, all as of the same shall be in
effect at the time. Reference to a particular section of the Securities Exchange
Act of 1934 shall include a reference to the comparable section, if any, of any
similar successor federal statute.
1.26 "Subsidiary" means any entity of which more than 50%
of the Voting Power is owned or controlled by the Company at any date of
determination, either directly or through Subsidiaries.
1.27 "Tax(es)" means any federal, state, local or foreign
income, gross receipts, license, franchise, payroll, employment, excise,
unemployment, personal property, severance, disability, real property, sales,
use, transfer, value added, alternative, estimated or other tax of any kind
whatsoever, including any interest, penalty or addition thereto, whether
disputed or not.
1.28 "Transfer", "Transferred" means, with respect to any
item, the sale, exchange, pledge (except with respect to ss.8), conveyance,
lease, transfer or other disposition of such item or any interest therein.
1.29 "Voting Power" means with respect to any entity, the
power to vote for or designate members of the board of directors or similar
group, whether exercised by virtue of the record ownership of securities, under
a close corporation or similar agreement or under an irrevocable proxy.
1.30 "Warrant" means the warrant issued by the Company to
the Holder evidenced by this Warrant Certificate.
1.31 "Warrant Certificate" means this warrant certificate
or any replacement warrant certificate issued to the Holder.
1.32 "Warrant Exercise Price" means $------------- per
Warrant Share, which is equal to 110% the average of the daily per share closing
prices of the Common Stock on NASDAQ for the ten (10) consecutive trading days
prior to the date hereof.
1.33 "Warrant Expiration Date" means the fourth
anniversary of the date hereof.
1.34 "Warrant Shares" means the Common Shares issuable
upon exercise of the Warrant.
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<PAGE>
Section 2. Duration and Exercise of Warrant.
2.1 Number of Shares of Common Stock. Subject to the
terms and conditions set forth in this Warrant Certificate, Holder may purchase
up to 33,163 shares of Common Stock of Company. The number of Warrant Shares
that may be purchased by the Holder pursuant to this Section 2.1 in
consideration of the payment of the Warrant Exercise Price is subject to
adjustment as provided for in Section 3.
2.2 Warrant Exercise Period. The Warrant shall be
exercisable in a single or partial exercise at any time after the date hereof
but on or before the Warrant Expiration Date.
2.3 Manner of Exercise. The Warrant may be exercised by
the Holder in a single exercise upon surrender of this Warrant Certificate and
the delivery of the Notice of Exercise attached hereto duly completed and
executed on behalf of the Holder, at the principal office of the Company (or at
such other office or agency of the Company as it may designate by notice to the
Holder at the address of the Holder appearing on the books of the Company), upon
payment of an amount equal to the Warrant Exercise Price multiplied by the
number of Warrant Shares to be purchased pursuant to such exercise by wire
transfer or delivery of a certified or cashier's check to the Company. Any
exercise of a Warrant pursuant to this Warrant Certificate shall be for only
full Warrant Shares and shall not be for partial Warrant Shares.
2.4 When Exercise Effective. The exercise of the Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which (a) the Notice of Exercise shall have been
delivered to the Company, (b) this Warrant Certificate shall have been
surrendered to the Company, and (c) the Company shall have received payment of
the Warrant Exercise Price for the Warrant Shares to be purchased in connection
with such exercise as provided in Section 2.3, and immediately prior to the
close of business on such Business Day the Holder shall be deemed to have become
the holder of record of the Warrant Shares.
2.5 Delivery of Stock Certificates, New Warrant
Certificate, etc. As soon as practicable after the effective exercise of the
Warrant, the Company at its expense (including any applicable issue taxes) will
cause to be issued in the name of and delivered to the Holder a certificate or
certificates for the number of Warrant Shares to which the Holder shall be
entitled upon such exercise.
Section 3. Anti-dilution Adjustment.
3.1 Adjustment Event. Upon the occurrence of any
Adjustment Event, the number of Warrant Shares shall be adjusted immediately
after the applicable record date with respect to such Adjustment Event as
follows. The adjusted number of Warrant Shares shall be a number equal to the
number of Warrant Shares issuable upon exercise of the Warrant immediately prior
to
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such record date multiplied by a fraction (i) the numerator of which is the
number of outstanding Common Shares immediately after such Adjustment Event, and
(ii) the denominator of which is the number of outstanding Common Shares
immediately prior to the record date. Any such adjustment shall be calculated to
the nearest whole Warrant Share. Notwithstanding any other provision of this
Section 3.1, no adjustment shall be made with respect to the issuance of Common
Shares, Convertible Securities or other Capital Stock after the date hereof when
such issuance constitutes a Preemption Offering.
3.2 Reorganization Event. Upon the occurrence of a
Reorganization Event, there shall thereafter be issuable upon the exercise of
the Warrant (in lieu of the Warrant Shares), as appropriate, the number of
shares of stock, other securities or property to which the Holder would have
been entitled had the Holder exercised the Warrant and received the Warrant
Shares immediately prior to the record date for such Reorganization Event.
Prior to and as a condition of the consummation of any Reorganization
Event, the Company shall cause effective provisions to be made to effect the
purposes of this Section 3.2, including, if appropriate, an agreement among the
Company, any successor to the Company and the Holder.
3.3 Other Event. In case any event shall occur as to
which the other provisions of this Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by the Warrant in accordance with the essential intent and
principles hereof, then the Holder may request in writing within one hundred
twenty (120) days after the occurrence of such event that the Company examine
the propriety of an adjustment to the number of Warrant Shares issuable upon
exercise of the Warrant. Unless the Company and the Holder shall have mutually
agreed upon an adjustment, or that no adjustment is required, within thirty (30)
days after the receipt of such request, the Company shall appoint a firm of
independent certified public accountants of recognized national standing (which
may be the regularly engaged accountants of the Company), to give an opinion
upon the adjustment, if any, on a basis consistent with the essential intent and
principles established in this Section 3, necessary to preserve the purchase
rights represented by the Warrant. Upon receipt of such opinion, the Company
will promptly mail a copy thereof to the Holder and shall make the adjustments,
if any, described therein. If such opinion states that no such adjustment is
necessary, the Holder shall reimburse the Company for the cost and expense of
such opinion, and if an adjustment is necessary, the Company shall pay the cost
and expense of such opinion. Notwithstanding any other provision of this Section
3.3, no adjustment shall be made with respect to the issuance of Common Shares,
Convertible Securities or other Capital Stock after the date hereof when such
issuance constitutes a Preemption Offering.
3.4 Rights Offering. In the event the Company shall
effect a Rights Offering, the Holder shall be entitled, at its option, to elect
to participate in each and every such offering as if the Warrant had been
exercised and the Holder was, at the time of any such rights offering, then
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<PAGE>
a holder of that number of Common Shares to which the Holder is then entitled on
the exercise of the Warrant.
3.5 Preemptive Rights. In the event of any Preemption
Offering, (i) the Company shall notify the Holder in writing of the number of
Common Shares, Convertible Securities or other Capital Stock subject to such
Preemption Offering and the cash or cash equivalent purchase price (determined
by the Company in good faith) thereof, and (ii) the Holder shall have the right
for a period of thirty (30) days following such notice to purchase prior to the
exercise of the Warrant up to that number of Common Shares, Convertible
Securities or other Capital Stock that is sufficient to permit the Holder to
maintain the percentage of outstanding Common Shares which the Holder owns or
would be entitled to purchase upon exercise of the Warrant, after giving effect
to the Holder's purchase under this Section 3.5 and the sale of the Common
Shares subject to such Preemption Offering.
The Holder shall have the right, during the period specified herein, to
purchase any or all of the new Common Shares or Convertible Securities that it
is entitled to purchase under this provision at the purchase price and on the
terms stated in the Preemption Offering. Notice by the Holder of its
participation, in whole or in part, in the Preemption Offering shall be in
writing and signed by the Holder and shall be delivered to the Company prior to
the end of the period specified herein, setting forth the number of new Common
Shares or Convertible Securities the Holder elects to purchase. With respect to
any of the new Common Shares or Convertible Securities not purchased by the
Holder hereunder, the Company may during the period one hundred and eighty (180)
days following the date of expiration of the Preemption Offering sell to any
other Person or Persons all or any part of such Common Shares or Convertible
Securities, but only on terms and conditions that are no more favorable to such
Person or Persons or less favorable to the Company than those set forth in the
Preemption Offering.
Section 4. Restrictions on Transfer.
4.1 Restrictive Legends. Except as otherwise permitted by
this Section 4, the Warrant, each Warrant issued in exchange or substitution for
any Warrant, each Warrant issued upon the registration of Transfer of any
Warrant, each certificate representing the Warrant Shares and each certificate
issued upon the registration of Transfer of any Warrant Shares, shall be stamped
or otherwise imprinted with a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF
ANY STATE, AND MAY NOT BE DISTRIBUTED, SOLD, TRANSFERRED, ASSIGNED,
HYPOTHECATED OR OFFERED UNLESS THERE IS IN EFFECT A REGISTRATION
STATEMENT UNDER SUCH ACT AND LAWS COVERING SUCH SECURITIES OR THE
ISSUER
8
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RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER OR
A NO-ACTION LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION STATING THAT SUCH DISTRIBUTION, SALE, TRANSFER, ASSIGNMENT,
HYPOTHECATION OR OFFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS OF SUCH ACT AND LAWS."
4.2 Notice of Proposed Transfer; Opinion of Counsel.
Prior to any Transfer of any Restricted Securities, the Holder will give written
notice ("Notice") to the Company of the Holder's intention to effect such
Transfer. Each such Notice of a proposed Transfer (a) shall describe the manner
and circumstances of the proposed Transfer in sufficient detail to enable
counsel to render the opinion referred to below, and (b) shall designate counsel
for the Holder. The Holder will submit a copy of such Notice to the counsel
designated in such Notice and the Company will promptly submit a copy of the
Notice to its counsel. The following provisions shall then apply:
(i) If in the opinion of counsel to the Company
the proposed Transfer may be effected
without registration of such Restricted
Securities under the Securities Act, the
Company will promptly notify the Holder and
the Holder shall thereupon be entitled to
Transfer such Restricted Securities in
accordance with the terms of the Notice
delivered by the Holder to the Company. Each
Warrant or certificate for Warrant Shares,
if any, issued upon or in connection with
such Transfer shall bear the applicable
restrictive legend set forth in Section 4.1,
unless in the opinion of such counsel, such
legend, ----------- requires modification or
is no longer required to ensure compliance
with the Securities Act. If for any reason,
counsel for the Company (after having been
furnished with the information required by
this Section 4.2) shall fail to deliver an
opinion to the Company, or the -----------
Company shall fail to notify the Holder as
aforesaid, within sixty (60) days after
receipt of Notice of the Holder's intention
to effect a Transfer, then for all purposes
of the Warrant, the opinion of counsel for
the Holder shall be sufficient to authorize
the proposed Transfer, provided the opinion
is issued by counsel recognized as experts
in security law matters, and the opinion of
counsel for the Company shall not be
required in connection with such proposed
Transfer; or
(ii) If, in the opinion of counsel to the
Company, the proposed Transfer may not be
effected without registration of such
Restricted Securities under the Securities
Act, the Company will promptly so notify the
Holder and the Holder shall not be entitled
to Transfer such Restricted Securities until
receipt of a further Notice from the
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Company under clause (i) above or until
registration of such Restricted Securities
under the Securities Act has become
effective.
Section 5. Availability of Information.
To the extent they are applicable to the Company, the Company will
comply with the reporting requirements of Sections 13 and 15(d) of the
Securities Exchange Act and all other public information reporting requirements
of the Commission (including the requirements of Rule 144 promulgated by the
Commission under the Securities Act) from time to time in effect. The Company
will cooperate with the Holder at the Holder's expense to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
Transfer of any Restricted Securities or the Transfer of Restricted Securities
by Affiliates of the Company.
Section 6. Reservation of Stock, Etc.
The Company will at all times prior to the Warrant Expiration Date
reserve and keep available, solely for issuance and delivery upon the exercise
of the Warrant and free from preemptive rights, a sufficient number of shares of
Common Stock to cover the Warrant Shares issuable or exchangeable upon the
exercise of the Warrant. All such shares shall be duly authorized and, when
issued upon such exercise against payment therefor as provided for in Section
2.3, shall be validly issued, fully paid and non-assessable.
Section 7. Capitalization.
The Company represents and warrants that its authorized Capital Stock
as of the date hereof consists solely of (i) 75,000,000 shares of Common Stock,
of which 9,572,082 shares are issued and outstanding and 50,000 shares are
reserved for issuance upon the exercise or conversion of outstanding Convertible
Securities, and 982,918 shares are reserved for issuance upon the exercise of
options under the Company's Stock Incentive Plans, and (ii) 20,000,000 shares of
preferred stock of which zero (0) shares are issued and outstanding and that it
has no other Capital Stock authorized, issued or outstanding.
Section 8. Ownership; Registration of Transfer; Exchange and
Substitution of Warrant.
8.1 Ownership of Warrant. Until due presentment for
Transfer, the Company may treat the Person in whose name the Warrant is
registered on the register kept at the Company's principal office as the owner
and holder hereof for all purposes, notwithstanding any notice to the contrary,
provided that when the Warrant has been properly Transferred, the Company shall
treat such transferee as the owner of the Warrant for all purposes,
notwithstanding any Notice to the
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contrary. Subject to the foregoing provisions and to Section 4, the Warrant, if
properly Transferred, may be exercised by the transferee without first having a
new Warrant Certificate issued.
8.2 Registration of Transfers. Subject to Section 4
hereof, the Company shall register the Transfer of the Warrant permitted under
the terms hereof upon records to be maintained by the Company for that purpose
upon surrender of this Warrant Certificate to the Company at the Company's
principal office, together with the Form of Assignment attached hereto duly
completed and executed. Upon any such registration of Transfer, a new Warrant
Certificate in substantially the form of this Warrant Certificate, shall be
issued to the transferee.
8.3 Replacement of Warrant Certificate. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant Certificate and of an indemnification reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender of this Warrant Certificate for cancellation at the Company's
principal office, the Company at the Holder's expense will promptly execute and
deliver, in lieu thereof, a new Warrant Certificate of like tenor.
8.4 Expenses. Except as otherwise provided for herein,
the Company will pay all expenses, Taxes (other than transfer and income Taxes)
and other charges in connection with the preparation, issuance and delivery from
time to time of this Warrant Certificate or the Warrant Shares.
Section 9. No Rights as Stockholder.
Nothing contained in this Warrant Certificate shall be construed as
conferring upon the Holder any rights as a stockholder of the Company prior to
the exercise hereof or as imposing any obligation on the Holder to purchase any
Capital Stock of the Company.
Section 10. Demand Registration Rights.
10.1 Demand for Registration. At anytime after the
exercise of the Warrant, and subject to the conditions set forth below, if the
Company shall receive a written request from the Holder requesting that the
Company effect the registration under the Securities Act of all of the Holder's
and its Affiliate's Warrant Shares, the Company shall use its reasonable best
efforts to effect such registration as soon as practicable. Subject to the
provisions of Section 10.6, the Company may register for sale in such
registration other securities which the Company has been requested or otherwise
desires to register by the holders thereof (which may include Common Shares held
by the Formation Holders and/or their permitted assigns); provided, however,
that no securities other than Warrant Shares shall be included in such
registration if the managing underwriter advises the Holder that the inclusion
of such other securities would adversely affect such offering unless the Holder
shall have consented in writing to the inclusion of such other securities. The
Company shall
11
<PAGE>
not be required to effect more than one registration pursuant to requests made
pursuant to this Section 10, and shall not be required to effect any
registration pursuant to this Section 10 unless any registration can be made on
Form S-3.
10.2 Registration Statement Form. Registrations under this
Section 10 shall be on such appropriate registration forms as shall be selected
by the Company, provided that such forms permit the disposition of the Warrant
Shares in accordance with the Holder's intended method or methods of disposition
as specified in its request for such registration. The Company shall include in
any such registration statement all information which the Holder shall
reasonably request.
10.3 Effective Registration Statement. A registration
requested pursuant to this Section 10 shall not be deemed to have been effected
(i) unless a registration statement with respect thereto has become effective
under the Securities Act, (ii) if such registration is not kept continuously
effective in accordance with Section 12, (iii) if such registration becomes the
subject of any stop order, injunction or other order or requirement of the
Commission or other governmental agency or court for any reason other than an
act or omission of the Holder and the effectiveness or such registration
statement is not re-instituted within ninety (90) days, or (iv) if any
conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied
for any reason other than an act or omission of the Holder.
10.4 Expenses. The Company shall pay all registration
expenses in connection with any registration requested pursuant to this Section
10. The Holder shall pay all underwriting discounts and commissions and transfer
taxes, if any, relating to the sale or other disposition of its Warrant Shares.
10.5 Underwritten Offerings. Only if a registration
pursuant to this Section 10 involves any Capital Stock of the Company or any
other securities other than the Warrant Shares held by the Holder and its
Affiliates, may the Holder at its option, request an underwritten offering. The
underwriter or underwriters thereof shall be selected by the Company. To the
extent customary for transactions similar to the transactions contemplated
hereby, the Holder may, at its option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of the Holder. Holder shall not be required to make any
representations and warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding the
Holder, the Holder's intended method of distribution, any other information
provided by the Holder for inclusion in the registration statement or prospectus
and any other representation required by law or by customary practice of
underwritten secondary offerings.
10.6 Priority in Requested Registrations. If a requested
registration pursuant to this Section 10 involves an underwritten offering, and
if the managing underwriter shall advise the Company in writing that, in its
opinion, the number of securities of any class requested to be
12
<PAGE>
included in such registration exceeds the number which can be sold in (or during
the time of) such offering without delaying or jeopardizing the success of the
offering, then the Company will include in such registration (i) first, all of
the Holder's Warrant Shares that the Company is so advised can be sold in such
offering, (ii) second, to the extent permitted by the managing underwriter,
securities to be registered by the Company for its own account and/or by other
holders of securities (which may include the Formation Holders and/or their
permitted assigns) in such manner and amounts required by the Formation
Registration Rights Agreement, if applicable, or as the Company shall determine.
Section 11. "Piggyback" Registration Rights.
11.1 Participation in Registration. If the Company at any
time proposes to register any securities under the Securities Act (other than by
a registration on Form S-4 or Form S-8 or any successor or similar form and
other than pursuant to Section 10), whether or not for sale for its own account,
it will each such time, promptly give notice to the Holder. Upon the written
request of the Holder made within thirty (30) days after the receipt of any such
Notice (which request shall specify the Warrant Shares intended to be disposed
of and the intended method of disposition), the Holder shall have the right,
subject to the prior registration rights of the Formation Holders, to
participate in such registration on the terms and conditions thereof. If, at any
time after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to the Holder and,
thereupon, (i) in the case of a determination not to register, the Company shall
be relieved of its obligation to register any Warrant Shares in connection with
such registration (but not from its obligation to pay any registration expenses
in connection therewith), without prejudice, however, to the rights of the
Holder to request that such registration be effected as a registration under
Section 10, and (ii) in the case of a determination to delay registration, the
Company shall be permitted to delay registering any Warrant Shares for the same
period as the delay in registering such other securities. No registration
effected under this Section 11 shall relieve the Company of its obligation to
effect any registration under Section 10.
11.2 Expenses. The Company will pay all registration
expenses in connection with each registration of Warrant Shares requested
pursuant to this Section 11. The Holder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or other
disposition of its Warrant Shares.
11.3 Underwritten Offerings. If a registration pursuant to
this Section 11 involves an underwritten offering, the Company shall, if
requested by the Holder, and subject to the prior registration rights of the
Formation Holders, arrange for such underwriters to include the Holder's Warrant
Shares among the securities to be distributed by such underwriters. In such
case, the Holder shall be a party to the underwriting agreement and may, at its
option, require that any or
13
<PAGE>
all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of the Holder. Holder shall not be required to make
any representations and warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding the
Holder, the Holder's intended method of distribution, any other information
provided by the Holder for inclusion in the registration statement or prospectus
and any other representation required by law or by customary practices for such
transactions.
11.4 Priority in Registrations. If a registration pursuant
to this Section 11 involves an underwritten offering, and if the managing
underwriter shall advise the Company in writing that, in its opinion, the number
of securities of any class requested to be included in such registration exceeds
the number which can be sold in (or during the time of) such offering without
delaying, jeopardizing or otherwise adversely affecting the success of the
offering, then the Company will include in such registration, to the extent to
which the Company is advised can be sold in such offering, first, all securities
proposed by the Company to be sold for its own account, and second, such Common
Shares held by the Formation Holders and/or their permitted assigns requested by
the Formation Holders and/or their permitted assigns to be included in such
registration pursuant to the Formation Registration Rights Agreement, and third,
such Warrant Shares requested to be included in such registration and all other
securities proposed to be sold by other holders shall be included in such
registration pro rata on the basis of the number of shares so proposed to be
sold.
Section 12. Registration Procedures.
If the Company is required to effect the registration of any Warrant
Shares as provided herein (subject to the minimum number of Warrant Shares to be
registered pursuant to Section 10.1), the Company shall proceed in the following
manner:
(i) prepare and as expeditiously as possible
file (and in any event within one hundred
and twenty (120) days of receipt of Holder's
request under Section 10) with the
Commission the registration statement to
effect such registration and use its
reasonable best efforts to cause such
Registration Statement to become effective;
(ii) prepare and file with the Commission such
amendments and supplements to such
registration statement and the prospectus
used in connection therewith as may be
necessary to keep such registration statement
effective and to comply with the provisions
of the Securities Act with respect to the
disposition of all securities covered by such
registration statement until such time as all
Warrant Shares have been disposed of in
accordance with the intended methods of
disposition by the Holder, but, in no event
longer than two (2) years;
14
<PAGE>
(iii) furnish to Holder such number of prospectuses
(including preliminary prospectuses) and
copies of each amendment and supplement
thereto and such other documents as Holder
may reasonably request in order to facilitate
the disposition of the Warrant Shares;
(iv) use its reasonable best efforts to register
or qualify all Warrant Shares covered by such
registration statement under the securities
or blue sky laws of such jurisdictions as the
Holder shall reasonably request, to keep such
registration or qualification in effect for
so long as such registration statement
remains in effect, and take any other action
which may be reasonably necessary or
desirable to enable the Holder to consummate
the disposition of its Warrant Shares in such
jurisdictions in accordance with the intended
method of disposition, provided, however,
that the Company shall not be required to
register or qualify to the Warrant Shares
under the securities or blue sky laws of any
jurisdiction if so qualifying or registering
the Warrant Shares would require the Company
to qualify to do business, to consent to
general service of process, or to register as
a broker or dealer in any such jurisdiction;
(v) enter into and perform its obligations under
any underwriting or placement agreement, and
take all reasonable actions in connection
therewith in order to expedite or facilitate
the disposition of the Warrant Shares;
(vi) notify the Holder in writing of (i) any stop
order or the commencement of any proceedings
for that purpose, (ii) any suspension of the
qualification of the Warrant Shares for sale
in any jurisdiction or the commencement of
any proceedings for that purpose, or (iii)
any notification received by the Company
regarding the necessity or desirability of
filing any supplement or amendment to the
registration statement;
(vii) in any underwritten offering, furnish to the
Holder (a) an opinion of counsel for the
Company, dated the effective date of such
registration statement, in form and
substance as is customarily given to
underwriters, and (b) a comfort letter,
dated the effective date of such
registration statement, signed by the
Company's independent public accountants in
form and substance as is customarily given
to
15
<PAGE>
underwriters, in each case addressed to the
underwriters and the Holder;
(viii) notify Holder upon discovery of the happening
of any event as a result of which the
prospectus included in such registration
statement includes an untrue statement of any
material fact or omits to state any material
fact required to be stated therein or
necessary to make the statements therein not
misleading in the light of the circumstances
then existing, or any other event that would
cause the registration statement to no longer
be current as required by the Securities Act,
and at the request of the Holder promptly
prepare, file and furnish to Holder a
reasonable number of copies of a supplement
or an amendment to such prospectus which may
be required on account of such event and use
its reasonable best efforts to cause such
supplement or amendment to become effective;
(ix) cause to be maintained a transfer agent for
its securities from and after a date not
later than the effective date of such
registration statement;
(x) use its reasonable best efforts to list all
Warrant Shares covered by such registration
statement on any securities exchange on
which any of the Common Shares is then
listed; and
(xi) enter into such agreements and take such
other actions as the Holder shall reasonably
request in order to expedite or facilitate
the disposition of such Warrant Shares.
The Holder shall furnish to the Company such information regarding the
Holder and the distribution of the Warrant Shares as the Company may from time
to time reasonably request in writing.
Upon receipt of any Notice from the Company of the happening of any
circumstance or event of the kind described in subdivision (viii) of this
Section 12, the Holder shall forthwith discontinue the disposition of Warrant
Shares pursuant to the registration statement until it receives copies of the
supplemented or amended prospectus or other notification that such disposition
may be resumed, and, if so directed by the Company, will destroy all copies,
other than permanent file copies, then in Holder's possession of the prospectus
relating to such Warrant Shares. The Company will use its reasonable best
efforts to effect such amendment or supplement as promptly as possible.
16
<PAGE>
Section 13. Indemnification.
13.1 Indemnification by the Company. In the event of any
registration pursuant to Section 11 or 12, the Company will, and hereby does,
indemnify and hold harmless the Holder, its directors, partners, members and
officers, any underwriter acting on behalf of the Holder and each other Person,
if any, who controls any such Person within the meaning of the Securities Act
(individually, an "Indemnified Party", and, collectively the "Indemnified
Parties"), against any losses, claims, damages, expenses (including reasonable
legal fees and expenses) or liabilities, joint or several, to which any one of
them may become subject under the Securities Act or otherwise; provided,
however, that the Company shall not be so liable (i) to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon the
Company's reliance upon written information furnished to the Company by any
Indemnified Party expressly stating that it is for use in the registration
statement, (ii) to the extent that any such loss, claim, damage, liability or
expense arise out of such Indemnified Party's failure to provide a copy of the
final prospectus, as the same may be then supplemented or amended, to the
purchaser at or prior to the written confirmation of the sale of Warrant Shares
and (iii) to the extent that any such loss, claim, damage, liability or expense
arise from an act or omission in a violation of the Securities Act by Holder or
such Indemnified Party or from the gross negligence or willful misconduct of the
Holder or such Indemnified Party. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Holder or
other Person and shall survive the transfer of the Warrant Shares by the Holder.
13.2 Indemnification by the Holder. As a condition to the
Company's obligation to include any Warrant Shares in any registration statement
filed pursuant to Section 11 or 12, the Holder shall indemnify and hold harmless
(in the same manner and to the same extent as the Company is required to
indemnify and hold harmless the Indemnified Parties as set forth in Section
13.1) the Company, each director and officer of the Company and any underwriter
acting on behalf of the Company and each other Person, if any, who controls any
such Person within the meaning of the Securities Act, against any losses,
claims, damages, expenses (including reasonable legal fees and expenses) or
liabilities, joint or several, to which any one of them may become subject under
the Securities Act or otherwise, (i) to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon the Company's
reliance upon written information furnished to the Company by such Person
expressly stating that it is for use in the registration statement; provided,
however, that the Holder shall not be so liable to the extent that any such
loss, claim, damage, liability or expense arise out of such Person's (other than
the Holder's or any Indemnified Party's) failure to provide a copy of the final
prospectus, as the same may be then supplemented or amended, to the purchaser at
or prior to the written confirmation of the sale of any securities; (ii) to the
extent that any such loss, claim, damage, liability or expense arise out of the
Holder's failure to provide a copy of the final prospectus, as the same may be
then supplemented or amended, to the purchaser at or prior to the written
confirmation of the sale of Warrant Shares; and (iii) to the extent that any
such loss, claim, damage, liability or expense arise from an act or omission in
a violation of the
17
<PAGE>
Securities Act by Holder or from the gross negligence or willful misconduct of
the Holder. Such indemnity shall remain in full force and effect, regardless of
any investigation made by or on behalf of the Company or any such Person and
shall survive the transfer of such Registrable Securities or Warrant Shares by
the Holder.
13.3 Procedures for Claims. Promptly after receipt of
notice of the commencement of any action or proceeding involving a claim
referred to in this Section 13, an indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give Notice to the
indemnifying party of the commencement of such action. Failure to give prompt
Notice shall not relieve the indemnifying party of its obligation under this
Section 13, except to the extent that the indemnifying party is actually
prejudiced by such failure. The indemnifying party shall be entitled to
participate in and to assume the defense of such action at its expense, jointly
with any other indemnifying party, with counsel reasonably satisfactory to the
indemnified party; provided, however, that an indemnified party shall have the
right to retain its own counsel, with fees and expenses thereof to be paid by
the indemnifying party, if in such indemnified party's reasonable judgment an
actual or potential conflict of interest between such indemnified and
indemnifying party may exist in respect of such claim. No indemnifying party
shall, without the consent of the indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof a release from all liability by the plaintiff to the indemnified
party. The amount paid or payable by an indemnifying party shall include any
legal or other expenses reasonably incurred by the indemnified party in
connection with the investigation or defense of any such action or claim.
Section 14. Rule 144.
If the Company shall have filed a registration statement, the Company
will file the reports required to be filed by it under the Securities Act and
the Securities Exchange Act and the rules and regulations adopted by the
Commission thereunder. The Company shall, upon the reasonable request of the
Holder, provide the Holder and any institutional investor designated by such
Holder such financial and other information as the Holder may reasonably
determine to be necessary in order to permit the Holder's compliance with Rule
144A under the Securities Act in connection with the resale of any Warrant
Shares, except at such time as the Company is subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act.
Section 15. Termination of Registration Rights.
The registration rights granted herein shall terminate on the date that
neither the Holder nor any Affiliate of the Holder owns any Warrant Shares.
18
<PAGE>
Section 16. Miscellaneous.
16.1 Amendment. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver, discharge
or termination is sought.
16.2 Choice of Law. This Warrant Certificate and the
Warrant evidenced thereby shall be governed by the laws of the State of Delaware
without regard to conflict of laws principles.
16.3 Headings. The Headings in this Warrant Certificate
are inserted for convenience only and shall not be deemed to constitute a part
hereof.
BROOKDALE LIVING COMMUNITIES,
INC.
By:----------------------------------
Name:--------------------------------
Its:---------------------------------
19
<PAGE>
FORM OF
NOTICE OF EXERCISE OF WARRANT
The undersigned is the holder of, and hereby elects to exercise, the
Warrant evidenced by that certain Warrant Certificate, dated as of October 23,
1998 issued to Banc One Capital Partners IV, Ltd. by Brookdale Living
Communities, Inc. ( the "Warrant Certificate"), and to purchase the Warrant
Shares issuable pursuant to the Warrant Certificate and herewith makes payment
in full therefor by delivery of a certified check payable to the order of the
Company in the amount of the Warrant Exercise Price or by wire transfer of
immediately available funds in the amount of the Warrant Exercise Price and
requests that certificate(s) for such Warrant Shares be issued in the name of
and delivered to -----------------------------------------------, or in such
denominations as requested by the undersigned in writing to the Company
concurrently herewith. Capitalized terms used herein which are not defined
herein, but which are defined in the Warrant Certificate, shall have the
meanings given such terms in the Warrant Certificate.
Name of
Holder (Print):--------------------------
Dated:-----------------------------------
By:--------------------------------------
Title:-----------------------------------
20
<PAGE>
FORM OF ASSIGNMENT OF WARRANT
FOR VALUED RECEIVED, ------------------- hereby sells, assigns and
transfers to -------------------- all of the rights of the undersigned in and to
this Warrant and in and to that certain Warrant Certificate dated October 23,
1998, issued by Brookdale Living Communities, Inc.
to Banc One Capital Partners IV, Ltd.
Name of
Holder (Print):--------------------------
Dated:-----------------------------------
By:--------------------------------------
Title:-----------------------------------
21
<TABLE>
<CAPTION>
Exhibit 12
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY")
AND PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
STATEMENTS REGARDING COMPUTATION OF RATIO
OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(In Thousands, Except Ratios)
Predecessor
Predecessor Historical Historical Brookdale Living Communities, Inc.
---------------------- --------------- ---------------------------------
Years ended December 31, January 1, 1997 May 7, 1997
------------------------ to to Year ended
1994 1995 1996 May 6, 1997 Dec. 31, 1997 Dec. 31, 1998
------ ------ ------ ------------- ------------- -------------
EARNINGS
- - --------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before minority
interest, (provision)/benefit for
income taxes and extraordinary item . $ (3,404) $ (1,424) $ 2,365 $ (290) $ (77) $ 10,281
Interest cost ........................ 3,427 5,626 4,740 3,872 10,153 23,139
Interest cost (capitalized) .......... -- -- -- -- (191) (1,558)
Amortization of debt expense ......... 743 878 581 225 846 1,292
Preferred stock dividends ............ -- -- -- -- -- --
---------- -------- --------- ---------- ----------- ------------
Earnings ............................. $ 766 $ 5,080 $ 7,686 $ 3,807 $ 10,731 $ 33,154
========== ======== ========= ========== =========== ============
FIXED CHARGES
- - -------------
Interest cost ........................ $ 3,427 $ 5,626 $ 4,740 $ 3,872 $ 10,153 $ 23,139
Amortization of debt expense ......... 743 878 581 225 846 1,292
Preferred stock dividends ............ -- -- -- -- -- --
---------- -------- --------- ---------- ----------- ------------
Total fixed charges .................. $ 4,170 $ 6,504 $ 5,321 $ 4,097 $ 10,999 $ 24,431
========== ======== ========= ========== =========== ============
Ratio of earnings to combined
fixed charges and preferred
stock dividends .................... -- -- 1.44 -- -- 1.36
========== ======== ========= ========== =========== ============
Excess (deficit) of earnings to
combined fixed charges and
preferred stock dividends .......... $ (3,404) $ (1,424) $ 2,365 $ (290) $ (268) $ 8,723
========== ======== ========= ========== =========== ============
</TABLE>
EXHIBIT 21
Brookdale Living Communities, Inc.
List of Subsidiaries
Direct or Indirect
Subsidiaries Ownership
- - ------------ ------------------
BLC Acquisitions, Inc. 100%
BLC of New York Holdings, Inc. 100%
BLC of Texas II L.P. 100%
BLC Property, Inc. 100%
Brookdale Holdings, Inc. 100%
Brookdale Living Communities of Arizona, Inc. 100%
Brookdale Living Communities of California, Inc. 100%
Brookdale Living Communities of California-RC, Inc. 100%
Brookdale Living Communities of Connecticut, Inc. 100%
Brookdale Living Communities of Connecticut-WH, Inc. 100%
Brookdale Living Communities of Delaware, Inc. 100%
Brookdale Living Communities of Florida, Inc. 100%
Brookdale Living Communities of Illinois II, Inc. 100%
Brookdale Living Communities of Illinois, Inc. 100%
Brookdale Living Communities of Illinois-GE, Inc. 100%
Brookdale Living Communities of Illinois-H.V., Inc. 100%
Brookdale Living Communities of Massachusetts-RB, Inc. 100%
Brookdale Living Communities of Michigan, Inc. 100%
Brookdale Living Communities of Minnesota II, Inc. 100%
Brookdale Living Communities of Minnesota, Inc. 100%
Brookdale Living Communities of New Jersey, Inc. 100%
Brookdale Living Communities of New Mexico-SF, Inc. 100%
Brookdale Living Communities of New York, Inc. 100%
Brookdale Living Communities of New York-BPC, Inc. 100%
Brookdale Living Communities of New York-CPW, Inc. 100%
Brookdale Living Communities of North Carolina, Inc. 100%
Brookdale Living Communities of Pennsylvania-ML, Inc. 100%
Brookdale Living Communities of Texas II, Inc. 100%
Brookdale Living Communities of Texas, Inc. 100%
Brookdale Living Communities of Washington, Inc. 100%
Madison Senior Care, Inc. 100%
River Oaks Partners 100%
The Ponds of Pembroke, L.P. 100%
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
indicated below of Brookdale Living Communities, Inc. of our report indicated
below filed with the Securities and Exchange Commission.
Registration Statements
- - -----------------------
Form S-8 No. 333-51493
Form S-3 No. 333-53969
Form S-3 No. 333-65843
Financial Statements Date of Auditor's Report
-------------------- ------------------------
Consolidated Financial Statements of March 4, 1999
Brookdale Living Communities, Inc. as of
December 31, 1998 and 1997 and for the
year ended December 31, 1998 and for the
period from May 7, 1997 through December
31, 1997 and the combined statements of
operations, changes in partners' capital
(deficit) and cash flows of Predecessor
Properties for the period from January
1, 1997 through May 6, 1997 and for the
year ended December 31, 1996 included in
the Annual Report (Form 10-K) of
Brookdale Living Communities, Inc. for
the year ended December 31, 1998 dated
March 31, 1999.
/s/ Ernst & Young LLP
Chicago, Illinois
March 30, 1999
<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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,065
<SECURITIES> 0
<RECEIVABLES> 3,865
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 19,497
<PP&E> 115,801
<DEPRECIATION> 5,689
<TOTAL-ASSETS> 244,633
<CURRENT-LIABILITIES> 31,782
<BONDS> 92,570
0
0
<COMMON> 116
<OTHER-SE> 101,200
<TOTAL-LIABILITY-AND-EQUITY> 244,633
<SALES> 71,785
<TOTAL-REVENUES> 77,701
<CGS> 39,935
<TOTAL-COSTS> 67,542
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,153
<INCOME-PRETAX> 10,281
<INCOME-TAX> (3,627)
<INCOME-CONTINUING> 6,654
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,654
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.67
</TABLE>
