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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from _____________ to _____________
Commission File Number 0-22253
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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
incorporation or organization) Identification No.)
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 ___
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 26, 1998, there were 9,475,000 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
($22.125 per share) of the Registrant's common stock on the Nasdaq National
Market on such date, was $110,071,875.
DOCUMENTS INCORPORATED BY REFERENCE
Part III: Portions of the Registrant's Proxy Statement for the Annual Meeting
of Stockholders to be held on May 21, 1998.
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BROOKDALE LIVING COMMUNITIES, INC.
FORM 10-K
DECEMBER 31, 1997
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................................... 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk.............................................. 18
Item 8. Financial Statements and Supplementary Data................ 18
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................... 18
PART III
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Item 10. Directors and Executive Officers of the Registrant......... 18
Item 11. Executive Compensation..................................... 18
Item 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 18
Item 13. Certain Relationships and Related Transactions............. 18
PART IV
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Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K................................................. 18
Signatures........................................................... 27
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PART I
ITEM 1. BUSINESS.
OVERVIEW
Brookdale Living Communities, Inc. and its subsidiaries (collectively, the
"Company" or "Brookdale") provides senior independent and assisted living
services to the elderly through its facilities located in urban and suburban
areas of major metropolitan markets. As of December 31, 1997, the Company
operated 13 senior independent and assisted living facilities in nine states
containing a total of 2,808 units which, as of December 31, 1997, were 96.4%
occupied. The Company owns four of such facilities, leases seven facilities and
manages two facilities pursuant to management contracts. With facilities that
contained an average of approximately 216 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 four to six facilities per year
containing an aggregate of approximately 800 to 1,200 units, and to commence
development of two to three 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, 1997,
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 depending upon the licensing
requirements of the state in which the facility is located.
On May 7, 1997, the Company completed its initial public offering of its
common stock (the "IPO"), and on December 24, 1997, the Company completed a
follow-on public offering of its common stock pursuant to which the Company
offered and sold additional shares of its common stock to the public following
the IPO. Net proceeds to the Company from such offerings totaled approximately
$82.2 million. The Company used approximately $40.1 million of the net proceeds
from the IPO to fund (i) the purchase prices for facilities purchased in
connection with the IPO, (ii) cash collateral deposits required with respect to
financings assumed in connection with the IPO and (iii) expenses incurred in
connection with the IPO. The Company used approximately $20.0 million of the net
proceeds from the follow-on offering to repay outstanding indebtedness and
approximately $5.8 million of such net proceeds to fund deposits made in
connection with a facility operating lease transaction completed subsequent to
such offering. The remaining net proceeds from such offerings were used to fund
developments of senior independent and assisted living facilities and for
working capital and general corporate purposes.
In March 1998, the Company entered into an operating lease transaction with
respect to The Harbor Village facility, a 272-unit senior independent and
assisted living facility located in Chicago, Illinois, pursuant to which the
Company leases and operates such facility. In February 1998, the Company entered
into an agreement to purchase The Atrium of San Jose, a 292-unit senior
independent and assisted living facility located in San Jose, California. The
Company expects to assign the purchase agreement for this facility to a third
party which will acquire the facility and in turn enter into an operating lease
with the Company. The closing of a purchase and subsequent operating lease
transaction involving The Atrium of San Jose facility is expected to occur prior
to April 30, 1998. There can be no assurance that such transaction will be
consummated in a timely manner, if at all. The Company has acquired development
sites located in Austin, Texas and Southfield, Michigan for the construction of
facilities with 209 and 219 units, respectively, at each site and has commenced
construction at both sites. In addition, the Company has entered into agreements
to acquire development sites located in Raleigh, North Carolina and Glen Ellyn,
Illinois for the construction of facilities with approximately 219 to 234 units
at each site, the closings of which are contingent upon the receipt of all
necessary approvals for the development of the respective sites and are expected
to occur by June 30, 1998. The Company has also been selected by the Battery
Park City Authority to be the developer and operator of a senior independent and
assisted living facility to be located in Battery Park City in New York, New
York. Construction on this project is expected to commence by late 1998.
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 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 any forward-looking
statements, including those regarding the intent, belief, or current
expectations of the Company or management, are not guarantees of future
performance, results or events and involve risks and uncertainties, and that
actual results and events may differ materially from those in the
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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.
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:
ACQUIRE 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 acquiring 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 acquire or lease will primarily consist of large facilities,
similar to the Company's
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current facilities that contain an average of approximately 216 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 2 to 3 facilities in each
of the next five 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 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
may pursue the development of additional skilled nursing facilities at its other
facilities in selected markets. 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, 1997, the Company's facilities were 96.4% occupied.
The Company believes that its marketing programs will improve the occupancy
rates of facilities that the Company acquires 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 three
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
Brookdale's business is not dependent on its national vendor contracts, such
contracts provide Brookdale 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 Brookdale 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 planning to expand its Hawthorn
Lakes facility located in Vernon Hills, Illinois with an additional 57 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
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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
state 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.
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. To date, the Company's ability to
increase its monthly service fees has not been adversely affected in any
material way by local rental ordinances. 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
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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 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. 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. Both agreements grant the
hospitals the right to lease space from the Company at the respective facilities
and provide that the hospitals will maintain centers in the facilities to make
services available to facility residents. Each hospital pays rent for its leased
space, and the Company compensates the hospitals for making the services they
render available at the facilities. The annual amounts paid by the hospitals
pursuant to the rental arrangements at the Hallmark and the Heritage facilities
are approximately equal to the annual amounts paid by such facilities to such
respective hospitals pursuant to the applicable compensation arrangements. The
agreement regarding the Heritage facility terminates in February 1999 and the
agreement regarding the Hallmark facility terminates in December 1999, but will
be automatically extended unless either the hospital or the Company gives notice
of termination. Although not subject to a written agreement, The Devonshire
facility has an affiliation with Good Samaritan Hospital on terms similar to the
agreements regarding The Hallmark and The Heritage facilities. The Company
intends to attempt to arrange hospital and health care network affiliations for
its other facilities and those that it acquires, develops or leases in the
future. 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.
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 acquire 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
216 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.
In March 1998, the Company entered into an operating lease transaction with
respect to The Harbor Village facility, a 272-unit senior independent and
assisted living facility located in Chicago, Illinois, pursuant to which the
Company leases and operates such facility. In February 1998, the Company entered
into an agreement to purchase The Atrium of San Jose, a 292-unit senior
independent and assisted living facility located in San Jose, California. The
Company expects to assign the purchase agreement for The Atrium of San Jose
facility to a third party which will acquire the facility and in turn enter into
an operating lease with the Company. The closing of a purchase and subsequent
operating lease transaction involving The Atrium of San Jose facility is
expected to occur prior to April 30, 1998. There can be no assurance that such
transaction will be consummated in a timely manner, if at all.
5
<PAGE>
DEVELOPMENT
It is the Company's development strategy to commence the development of 2 to
3 facilities per year. 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, 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 $30.0 million, or approximately
$135,000 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
community sources, including government officials of the local municipality and
members of the zoning board having jurisdiction over the site, and health care
providers, and demographic studies are conducted for each site.
The Company is presented with potential sites by independent brokers,
developers, health care organizations and financial institutions and through
internal site identification. If a site meets the Company's general market
criteria, then the Company will order a preliminary market study by an
independent third party. If the market study indicates that the site meets its
selection criteria, the Company will then conduct a more in-depth analysis of
the market to ensure there is a demonstrated need for senior independent and
assisted living services and that the site is appropriate in terms of
location, size and zoning. If the market and site meet all of the Company's
selection criteria, the property will be purchased for development.
The Company has acquired development sites located in Austin, Texas and
Southfield, Michigan for the construction of facilities with 209 and 219 units,
respectively, at each site and has commenced construction at these sites. In
addition, the Company has entered into agreements to acquire development sites
located in Raleigh, North Carolina and Glen Ellyn, Illinois for the construction
of facilities with 219 and 234 units, respectively, at each site, the closings
of which are contingent upon the receipt of all necessary approvals for the
development of the respective sites and are expected to occur by June 30, 1998.
The Company has also been selected by the Battery Park City Authority to be the
developer and operator of a senior independent and assisted living facility to
be located in Battery Park City in New York, New York. Construction on this
project is expected to commence by late 1998. The closings of the Company's
purchases or ground lease of the development sites is subject to certain
customary conditions, including zoning and other governmental approvals.
Although the Company expects the acquisitions or ground lease of the development
sites to be consummated, there can be no assurance that the conditions to
closing such acquisitions or ground lease will be satisfied in a timely manner,
if at all.
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
6
<PAGE>
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.
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, 1997, the Company
is paid for services it provides to 10 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.
7
<PAGE>
EMPLOYEES
As of December 31, 1997, the Company had approximately 1,060 employees, of
which 47 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 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 42 Chairman of the Board, Director
Mark J. Schulte 44 President and Chief Executive Officer, Director
Darryl W. Copeland, Jr. 38 Executive Vice President, Director
Craig G. Walczyk 38 Vice President - Chief Financial Officer
Robert J. Rudnik 43 General Counsel and Secretary
Matthew F. Whitlock 33 Vice President - Acquisitions
Mark J. Iuppenlatz 38 Vice President - Development
Stephan T. Beck 42 Vice President - Operations
Margaret B. Shontz 38 Vice President - Human Resources
Sheryl A. Wolf 35 Controller
</TABLE>
Michael W. Reschke has served as Chairman of the Board of Directors 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 16 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 of
Prime Retail, Inc. (NYSE:PRT), a publicly traded real estate investment trust
involved in the ownership, acquisition, development and management of upscale
factory outlet centers and the successor in interest to the former retail
division of PGI. In addition, Mr. Reschke is Chairman of the Board 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 Ambassador Apartments, Inc. (NYSE:AAH), a publicly traded real
estate investment trust involved in the ownership, acquisition, redevelopment
and management of multi-family residential projects and the successor in
interest to the former multi-family division of PGI. Mr. Reschke is licensed
to practice law in the State of Illinois and is a certified public accountant.
Mr. Reschke is a member of the Chairman's Roundtable and the Executive
Committee of the National Realty Committee, as well as a full member of the
Urban Land Institute. 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. From March 1997 to May 1997, Mr.
Copeland was a consultant to PGI's Senior Housing Division. 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.
Craig G. Walczyk has served as Vice President - Chief Financial Officer of
the Company since May 1997. From November 1992 to May 1997, Mr. Walczyk was
employed by PGI, most recently serving as Chief Financial Officer of its
Senior Housing Division. Prior to joining PGI, Mr. Walczyk was employed by
the accounting firm of Ernst & Young LLP from September 1982 to October 1992.
Mr. Walczyk is a certified public accountant and a member of the American
Institute of Certified Public Accountants and the Illinois CPA Society.
8
<PAGE>
Robert J. Rudnik has served as 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.
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.
Mark J. Iuppenlatz has served as Vice President - Development of the
Company since May 1997. From September 1996 to May 1997, Mr. Iuppenlatz was
employed by PGI in its Senior Housing Division as Director of Development.
Prior to joining PGI's Senior Housing Division, Mr. Iuppenlatz was employed by
Schlotzsky's, Inc. a publicly traded restaurant company, as Vice President -
Real Estate from January 1995 to August 1996. Mr. Iuppenlatz was employed by
PGI as Director of Marketing and Leasing from October 1991 to 1994 and as
Director of Leasing from January 1989 to September 1991.
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.
Margaret B. Shontz has served as Vice President - Human Resources of the
Company since May 1997. From February 1989 to May 1997, Ms. Shontz was
employed by PGI, most recently serving as Director of Human Resources of its
Senior Housing Division.
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 31,1997(1) STATUS(2)(3)
- -------- -------- ----- ------ ------------------- ------------
<S> <C> <C> <C> <C> <C>
The Hallmark.......................... Chicago, IL 341 1990 100% Leased
The Devonshire (4).................... Lisle, IL 321 1990 100% Owned
The Classic at West Palm Beach........ West Palm Beach, FL 309 1990 92% Leased
The Heritage.......................... Des Plaines, IL 254 1993 100% Owned
The Park Place........................ Spokane, WA 208 1992 88% Leased
Edina Park Plaza...................... Edina, MN 208 1987 96% Owned
The Island on Lake Travis............. Lago Vista, TX 207 1988 91% Managed
Hawthorn Lakes (4).................... Vernon Hills, IL 202 1987 100% Owned
The Springs of East Mesa.............. Mesa, AZ 185 1986 100% Leased
The Gables at Farmington.............. Farmington, CT 172 1984 99% Leased
The Kenwood........................... Minneapolis, MN 153 1987 100% Managed
The Brendenwood Retirement Community.. Voorhees, NJ 145 1987 88% Leased
The Gables at Brighton................ Brighton, NY 103 1988 95% Leased
--------
Total Units as of December 31, 1997 2,808(4)
========
Harbor Village (5) Chicago, IL 272 1954(6) 78% Leased
</TABLE>
(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 one to five years, (with five to
fourteen 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 planned 57-unit expansion at the Hawthorn
Lakes facility.
(5) The Company began leasing this facility on March 6, 1998.
(6) 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.
9
<PAGE>
The following table sets forth certain information regarding facilities
under development by the Company:
<TABLE>
<CAPTION>
ESTIMATED
LOCATION UNITS STATUS EXPECTED OPENING
- -------- --------- ------ ----------------
<S> <C> <C> <C>
Austin, TX.......................... 209 Under Construction First Quarter 1999
Southfield, MI...................... 219 Under Construction Second Quarter 1999
Glen Ellyn, IL...................... 234 In Development Third Quarter 1999
Raleigh, NC......................... 219 In Development Third Quarter 1999
New York (Battery Park City), NY.... 216 In Development 2000
-----
Total Estimated Units 1,097
=====
</TABLE>
CORPORATE OFFICE LEASE
On September 25, 1997, the Company entered into a five year lease (the
"Office Lease"), commencing 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, the publicly-traded real estate
investment trust which succeeded to the office and industrial properties owned
and operated by PGI. The Company's corporate office is located at 77 West
Wacker Drive, Suite 4800, Chicago, Illinois 60601. The office space is
approximately 13,500 square feet, 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 lease, the
Company received a $404,000 incentive from the Landlord.
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 to lease additional space, the Company received a $452,000 cash
payment from the Landlord.
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, 1997.
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>
CLOSING PRICE
PER SHARE
---------
HIGH LOW
<S> <C> <C>
Fiscal year ending December 31, 1997:
Second Quarter (1)................... $12.13 $11.50
Third Quarter........................ 19.00 11.88
Fourth Quarter....................... 20.63 16.50
</TABLE>
- ------------------------
(1) The common stock commenced trading on May 2, 1997.
On March 26, 1998, the closing price for the common stock, as reported by
Nasdaq was $22.125 per share. At such date, the Company had approximately 900
holders of record of common stock.
10
<PAGE>
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its common
stock and currently plans to retain future earnings, if any, to finance the
growth of the Company's business rather than to pay cash dividends. Payments
of any cash dividends in the future will depend on the financial condition,
results of operations and capital requirements of the Company as well as other
factors deemed to be relevant by the Board of Directors.
RECENT SALES OF UNREGISTERED SECURITIES
On May 7, 1997, simultaneously with the completion of the IPO, the Company
issued 1,703,043 shares of common stock to PGI in exchange for all of the common
stock of BLC Property, Inc., PGI's interest in The Heritage and The Devonshire
facilities and the operations of its senior independent and assisted living
division and 296,957 shares of common stock to Mark J. Schulte, President and
Chief Executive Officer of the Company, in exchange for his interests in PGI's
senior independent and assisted living division.
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, 1996 and 1997 and for
the years ended December 31, 1995, 1996 and 1997 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
at 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, 1993, 1994 and 1995 and for the years
ended December 31, 1993 and 1994 have been derived from the combined financial
statements of the Predecessor Properties to the Company 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 initial public offering of its common stock.
<TABLE>
<CAPTION>
PREDECESSOR PROPERTIES
---------------------------------------------------------------
YEARS ENDED DECEMBER 31, BROOKDALE LIVING
----------------------------------------------- COMMUNITIES, INC.
JANUARY 1, TO MAY 7, TO
1993(1) 1994(1) 1995(1) 1996(1) MAY 6, 1997 DECEMBER 31, 1997
-------- --------- --------- --------- ------------- -----------------
(In Thousands, Except Per Share and Operating Data)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenue:
Resident fees.............................. $ 6,629 $ 15,122 $ 21,848 $ 23,221 $ 10,473 $ 30,105
Management fees............................ -- -- -- -- -- 132
-------- --------- --------- --------- --------- ---------
Total revenue............................ 6,629 15,122 21,848 23,221 10,473 30,237
Facility operating expenses (3).............. (5,279) (11,270) (13,253) (12,805) (6,102) (15,892)
Lease expense................................ -- -- -- -- (3,042) (6,942)
General and administrative expenses (3)...... -- -- -- -- -- (2,187)
Depreciation and amortization................ (2,080) (4,029) (4,598) (3,527) (857) (2,967)
-------- --------- --------- --------- --------- ---------
Operating (loss) income...................... (730) (177) 3,997 6,889 472 2,249
Interest expense, net........................ (1,329) (3,227) (5,421) (4,524) (762) (2,326)
-------- --------- --------- --------- --------- ---------
(Loss) income before minority interest,
tax (provision)/deferred tax benefit and
extraordinary item......................... (2,059) (3,404) (1,424) 2,365 (290) (77)
Loss (income) allocated to minority
interest................................... 1,266 1,178 802 (756) (138) --
-------- --------- --------- --------- --------- ---------
(Loss) income before tax (provision)/
deferred tax benefit and extraordinary
item....................................... (793) (2,226) (622) 1,609 (428) (77)
Tax (provision)/deferred tax benefit......... -- -- -- -- (236) 558
Extraordinary item (net of deferred tax
benefit of $24 for 1997)................... -- -- 3,274 -- -- (36)
-------- --------- --------- --------- --------- ---------
Net (loss) income ........................... $ (793) $ (2,226) $ 2,652 $ 1,609 $ (664) $ 445
======== ========= ========= ========= ========= =========
Basic earnings per common share.............. -- -- -- -- -- $ 0.06
Diluted earnings per common share............ -- -- -- -- -- $ 0.06
Basic weighted average shares
outstanding................................ -- -- -- -- -- 7,208
Diluted weighted average shares
outstanding................................ -- -- -- -- -- 7,351
SELECTED OPERATING AND OTHER DATA(9):
Number of facilities (at end of period)...... 2 3 3 5 (9) 13
Total units operated (4)..................... 575 916 916 1,204 (9) 2,808
Occupancy rate (4)(6)........................ 79.9% 95.6% 98.1% 99.7% (9) 96.4%
Average monthly revenue per unit (5)(6)...... $ 1,454 $ 1,732 $ 2,015 $ 2,050 (9) $ 1,965
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................... $ 497 $ 4,127 $ 5,086 $ 4,230 $ 1,915 $ 13,292
Cash-restricted (7).......................... 8,457 2,047 1,733 1,089 2,269 5,920
Letter of credit deposit (7)................. -- -- -- -- -- 12,138
Lease security deposits (8).................. -- -- -- -- -- 18,542
Total assets................................. 65,149 102,579 100,325 57,836 55,982 183,169
Total long-term debt......................... 71,510 101,242 99,627 65,000 65,000 96,167
Total stockholders' equity and
predecessor (deficit) capital.............. (2,780) 1,852 3,597 (25,427) (28,685) 57,920
</TABLE>
(1) The historical financial and operating data for the years ended December
31, 1993, December 31, 1994, December 31, 1995 and December 31, 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 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.
(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.
(7) Cash-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 for the credit enhancement of
$65.0 million of tax-exempt bonds that are secured by The Heritage and
The Devonshire facilities. The Company earns interest income on both
cash-restricted and letter of credit deposit 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 net 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
The Company operates 13 senior independent and assisted living facilities
containing a total of 2,808 units as of December 31, 1997. Four of such
facilities are owned by the Company, seven facilities are leased by the
Company and two facilities (one of which is owned by PGI) are managed by
Brookdale pursuant to management contracts. The Company's senior independent
and assisted living facilities offer residents a supportive, "home-like"
setting as well as assistance with certain activities of daily living. By
providing residents a range of service options as their needs change, the
Company seeks to achieve greater continuity of care, enabling senior
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 revenues from both resident fees and management fees.
In the future, the Company expects to derive additional revenue from development
fees associated with developing senior independent and assisted living
facilities for third parties. Resident fees typically are paid monthly by
residents, their families or other responsible parties. As of December 31, 1997,
99.6% of the Company's revenue was derived from private pay sources. Management
services income consists of management fees which typically range from 3.0% to
5.0% of a managed facility's total gross revenues. Resident fees and management
fees are recognized as revenues when services are provided. The Company does not
receive management fees from facilities that it owns or leases.
The Company classifies its operating expenses into the following
categories: (i) facility operating expenses, which include labor, food,
marketing and other direct facility expenses and real estate taxes; (ii)
general and administrative expenses, which primarily include corporate
headquarters and other overhead costs; (iii) lease payments; and (iv)
depreciation and amortization.
12
<PAGE>
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 1- MAY 7-
DECEMBER 31, MAY 6 DECEMBER 31
------------ ---------- -----------
1995 1996 1997 1997
<S> <C> <C> <C> <C>
Total revenue...................................................... 100.0% 100.0% 100.0% 100.0%
Facility operating expenses (1).................................... (60.7) (55.1) (58.3) (52.6)
Lease expense...................................................... -- -- (29.0) (23.0)
General and administrative expenses (1)............................ -- -- -- (7.2)
Depreciation and amortization...................................... (21.0) (15.2) (8.2) (9.8)
------- ------- ------- -------
Operating income................................................... 18.3 29.7 4.5 7.4
Interest expense, net.............................................. (24.8) (19.5) (7.3) (7.7)
------- ------- ------- -------
(Loss) income before minority interest, tax (provision)/deferred
tax benefit and extraordinary item............................... (6.5) 10.2 (2.8) (0.3)
Loss (income) allocated to minority interest....................... 3.7 (3.3) (1.3) --
------- ------- ------- -------
(Loss) income before tax (provision)/deferred tax benefit and
extraordinary item............................................... (2.8) 6.9 (4.1) (0.3)
Tax (provision)/deferred tax benefit............................... -- -- (2.2) 1.8
Extraordinary item (net of tax benefit of 0.1% for 1997)........... 14.9 -- -- (0.1)
------- ------- ------- -------
Net income (loss).................................................. 12.1% 6.9% (6.3)% 1.4%
======= ======= ======= =======
Selected Operating and Other Data:
Number of facilities (at end of period) (2)(6)................ 3 5 -- 13
Total units operated (2)(3)(6)................................ 916 1,204 -- 2,808
Occupancy rate (3)(6)......................................... 98.1% 99.7% -- 96.4%
Average monthly revenue per unit (4)(5)(6).................... $2,015 $2,050 -- $1,965
</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.
(2) As of December 31, 1997, the Company operated 13 facilities with 2,808
units.
(3) 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.
(4) 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.
(5) For the year ended December 31, 1996, The Hallmark, The Heritage, The
Devonshire, The Springs of East Mesa and The Gables at Brighton facilities
(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.
(6) All Selected Operating and Other Data is as of and for the year ended
December 31, 1997.
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 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
13
<PAGE>
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.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
For these periods, results reflect operations of the Hallmark, Heritage and
Devonshire facilities.
Revenue. Resident fees revenue increased by approximately $1.4 million, or
6.3%, to $23.2 million for the year ended December 31, 1996 primarily due to a
6.4% increase in average monthly revenue per unit and a 1.1% increase in
occupancy percentage from the year ended December 31, 1995 to the year ended
December 31, 1996. The occupancy rate for the Predecessor Properties during the
year ended December 31, 1996 was 99.7% as compared to 98.1% during the year
ended December 31, 1995. The average monthly revenue per unit increased by $35
per unit to $2,050 per unit for the year ended December 31, 1996 as compared to
$2,015 per occupied unit for the year ended December 31, 1995.
Operating Expenses. Facility operating expenses decreased by approximately
$448,000, or 3.4%, to $12.8 million for the year ended December 31, 1996
primarily due to more efficient operations at the Predecessor Properties and
economies of scale created by the increase in occupancy and revenue. This was
evidenced by the decrease in these expenses as a percentage of revenue to 55.1%
for the year ended December 31, 1996 compared to 60.7% for the year ended
December 31, 1995. In addition, property management fees (such management fees,
which were paid to PGI, have not been paid since the IPO and will not be paid in
the future with respect to facilities owned or leased by the Company) decreased
approximately $141,000, or 13.2%, due primarily to a reduction of the Hallmark
facility's management fees, effective January 1, 1996, from 5.0% of operating
income to 3.0%.
Depreciation and amortization expense decreased by approximately $1.1
million, or 23.3%, to $3.5 million for the year ended December 31, 1996
primarily due to amortization of deferred marketing fees of approximately
$591,000 in 1995 related to The Devonshire and The Heritage facilities that
became fully amortized in 1995 and certain furniture and equipment of The
Devonshire facility that was fully depreciated in 1995, representing a
depreciation expense of approximately $215,000 in 1995, and was partially offset
by an increase in depreciable assets at each of the Predecessor Properties.
Interest expense, net decreased by approximately $897,000, or 16.5%, to $4.5
million for the year ended December 31, 1996 primarily due to the refinancing of
The Hallmark facility's mortgage payable at the end of 1995. This refinancing
resulted in savings of approximately $594,000 as interest accrued on the new
note bore a fixed rate of interest of 7.265% per annum whereas interest on the
old note accrued at a rate of LIBOR plus 2.5% per annum. For the year ended
December 31, 1995, the interest rate on the old note ranged from 8.75% to 9.0%.
In addition, The Devonshire and The Heritage facilities experienced lower
interest rates on their variable rate bonds during the year ended December 31,
1996 than during the year ended December 31, 1995, which resulted in additional
savings of approximately $292,000. Interest rates on these bonds (exclusive of
credit enhancement and other fees) averaged approximately 3.4% for the year
ended December 31, 1996 as compared to an average rate of approximately 3.9% for
the year ended December 31, 1995. These decreases in interest expense were
slightly offset by increased financing fees associated with The Devonshire and
The Heritage facilities' bonds for the year ended December 31, 1996.
Income (Loss) Before Minority Interest and Extraordinary Item and Net Income.
Income (loss) before minority interest increased by approximately $3.8 million
and net income decreased by approximately $1.0 million to approximately $2.4
million and $1.6 million, respectively, for the year
14
<PAGE>
ended December 31, 1996 compared to a loss before minority interest and
extraordinary item and net income of $1.4 million and $2.7 million,
respectively, for the year ended December 31, 1995 primarily due to an increase
in operating revenue and a decrease in operating expenses, offset as described
above, by an extraordinary gain on extinguishment of debt of $3.3 million on The
Hallmark facility in the year ended December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
On May 7, 1997, the Company completed the IPO of 4,500,000 shares of common
stock, $.01 par value per share, at $11.50 per share. The underwriters of the
IPO exercised their over-allotment option, and on June 3, 1997, the Company sold
an additional 675,000 shares of the Company's common stock at $11.50 per share.
The proceeds from the IPO (including the exercise of the underwriters' over-
allotment option), net of related underwriting discounts and commissions and
offering costs, totaled approximately $51.4 million. The Company used
approximately $40.1 million of the net proceeds from the IPO to fund (i) the
purchase prices for facilities purchased in connection with the IPO, (ii) cash
collateral deposits required with respect to financings assumed in connection
with the IPO and (iii) expenses incurred in connection with the IPO. The
remaining net proceeds were used to finance a portion of subsequent acquisitions
and developments of senior independent and assisted living facilities and
working capital and general corporate purposes.
On December 24, 1997, the Company completed a follow-on public offering of
2,000,000 shares of common stock, $.01 par value per share, at $16.6875 per
share. The underwriters of the offering exercised their over-allotment option,
and on January 21, 1998, the
15
<PAGE>
Company sold an additional 300,000 shares of the Company's common stock at
$16.6875 per share. The proceeds from such offering (including the exercise of
the underwriters' over-allotment option), net of related underwriting
discounts and commissions and offering costs, totaled approximately $35.6
million. The Company used approximately $20.0 million of such net proceeds to
repay outstanding indebtedness and $5.8 million to fund the deposit for the
Harbor Village facility and the balance of $9.8 million to fund lease security
deposits made in connection with the facility lease transactions consummated
subsequent to such offering. The remaining net proceeds will be used to finance
a portion of subsequent acquisitions and developments of senior independent and
assisted living facilities and working capital and general corporate purposes.
Cash and cash equivalents (which excludes cash-restricted of $5.9 million,
the letter of credit deposit of $12.1 million and lease security deposits of
$18.5 million) increased by $9.1 million to $13.3 million at December 31, 1997
compared to $4.2 million at December 31, 1996 primarily due to cash remaining
after the use of the proceeds generated from the follow-on public stock
offering.
Net cash provided by operating activities totaled approximately $4.4 million,
$6.5 million, and $1.5 million for the three years ended December 31, 1997, 1996
and 1995, respectively. The primary reasons for the net decrease in cash
provided by operating activities from 1996 to 1997 were the overall decrease in
net income and a decrease in prepaid rent liability. The primary reason for the
net increase in cash provided by operating activities from 1995 to 1996 is due
to improved operating results.
Net cash (used in) provided by investing activities totaled approximately
($61.6) million, $25.3 million, and ($703,000) for each of the years ended 1997,
1996 and 1995. Investing activities during 1997 included cash used in the
acquisition of the Hawthorn Lakes and Edina Park Plaza facilities and cash used
to acquire a third party's interest in The Heritage and The Devonshire
facilities (collectively, $47.6 million) and $8.3 million in property under
development, during 1996 proceeds from the sale of The Hallmark facility of
$24.1 million, and during 1995 an increase in restricted cash of $571,000.
Net cash provided by (used in) financing activities was approximately $66.2
million, ($31.8) million, and ($751,000) for the years ended December 31, 1997,
1996, and 1995. During 1997 the activity relates to proceeds received from the
IPO and follow-on offering and the exercise of the underwriters' over-allotment
option related to the IPO (collectively $82.2 million), partially offset
by cash deposits of $12.1 million required to secure the Company's obligations
related to the credit enhancement of the tax-exempt bonds for The Heritage and
The Devonshire facilities, during 1996 net distributions/advances to partners of
$30.7 million, and during 1995 proceeds from long term debt on The Hallmark
facility of $34.6 million partially offset by the repayment of long-term debt of
$33.0 million.
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
$30.0 million, or approximately $135,000 per unit. At March 26, 1998, the
Company had 5 sites under development for new senior independent and assisted
living facilities, 2 of which were under construction. Capital expenditures
related to the 2 sites under development have aggregate construction commitments
of $61.0 million, of which $51.0 million will be funded from the development
commitment described below. Capital expenditures related to the Company's
existing facilities are estimated to be approximately $3.0 million to $5.0
million in the aggregate in 1998. The Company anticipates that it will use a
combination of cash on hand, remaining net proceeds from the follow-on offering,
additional equity financing and debt financing, lease transactions and cash
generated from operations to fund its acquisition and development activities.
The Company currently estimates that the cash generated from operations,
remaining net proceeds from the follow-on offering, together with cash on hand,
existing debt facilities and commitments and anticipated financing, will be
sufficient to meet its liquidity needs for at least 12 months. Thereafter, in
order to achieve its growth plans, the Company will be required to obtain a
substantial amount of additional debt and equity financing and to generate
additional cash flow through the consummation of operating lease transactions.
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 The Capital Company of
America, Ltd. (formerly known as Nomura Asset Capital Corporation) for
development projects. There can be no assurance that the Company will be able to
obtain the financing necessary for its acquisition and development programs. A
lack of funds may require the Company to delay or eliminate all or some of its
development projects and acquisition plans and, therefore, could have a material
adverse effect on the Company's growth plans.
As of December 31, 1997, the Company had $65.0 million of long-term
indebtedness in tax-exempt bonds with floating rates. The interest rates
(exclusive of credit enhancement and other fees) on such debt averaged 3.7%,
3.4% and 3.9% during the years ended, and were 3.78%, 4.07% and 5.16% as of,
December 31, 1997, 1996 and 1995, respectively. Such tax-exempt bonds contain
covenants requiring the facilities to maintain a minimum number of units for
income qualified residents. The Company may obtain similar bond financing for
future facilities.
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
on its business, financial condition and results of operations.
16
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following is a summary of the quarterly results of operations for each
of the quarters since May 7, 1997:
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
1997 QUARTER ENDED:
-------------------------------------------------
JUNE 30 (1) SEPTEMBER 30 DECEMBER 31
----------- ------------ -----------
<S> <C> <C> <C>
Revenue $ 6,572 $ 11,241 $ 12,424
Expenses 6,789 11,058 12,467
-------- --------- ---------
(Loss) income before deferred tax
benefit and extraordinary item (217) 183 (43)
Deferred tax benefit 135 7 416
-------- --------- ---------
(Loss) income from continuing operations
before extraordinary item (82) 190 373
Extraordinary item (net of tax benefit of $24) - - (36)
-------- --------- ---------
Net (loss) income $ (82) $ 190 $ 337
======== ========= =========
Basic earnings per common share:
(Loss) income from continuing operations
before extraordinary item $ (0.01) $ 0.03 $ 0.05
Extraordinary item - - -
-------- --------- ---------
Net (loss) income $ (0.01) $ 0.03 $ 0.05
======== ========= =========
Weighted average shares used for computing
basic earnings per common share 6,844 7,175 7,458
======== ========= =========
Diluted earnings per common share:
(Loss) income from continuing operations
before extraordinary item $ (0.01) $ 0.03 $ 0.05
Extraordinary item - - (0.01)
-------- --------- ---------
Net (loss) income $ (0.01) $ 0.03 $ 0.04
======== ========= =========
Weighted average shares used for computing
diluted earnings per common share 6,844 7,318 7,671
======== ========= =========
</TABLE>
(1) The period includes operations from May 7, 1997 through June 30, 1997.
To date, Brookdale'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 Brookdale's
facilities due to the services provided for the monthly fees charged to its
residents. If Brookdale's facilities were subject to rent control ordinances, an
imposed limitation on the resident fees that Brookdale may charge at such a
facility could impair Brookdale'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 have terms of approximately one year and allow, at the time of
renewal, for adjustments in the monthly fees payable thereunder, thereby
enabling the Company to seek increases in monthly fees due to inflation or
other factors. Any such increase would be subject to market and competitive
conditions and could result in a decrease in occupancy at the Company's
facilities. The Company believes, however, that the short-term nature of its
resident agreements generally serves to reduce the risk to the Company of the
adverse effect of inflation. In addition, employee compensation expense is a
principal cost element of facility operations and is also dependent upon local
market conditions. There can be no assurance that resident fees will increase
or that costs will not increase due to inflation or other causes. In addition,
as of December 31, 1997, 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.
17
<PAGE>
READINESS FOR YEAR 2000
The Company is in the process of planning the nature and extent of the work
required to make its systems and infrastructure Year 2000 compliant. Based on
a recent assessment, the Company will have to modify or replace significant
portions of its hardware and software so that its systems will function
properly with respect to the Year 2000 and beyond. The Company believes that
with modifications to existing software and conversions to new software
applications, in addition to hardware upgrades on certain mechanical systems,
the Year 2000 issue will not pose significant operational problems. However,
if such modifications and conversions are not made, or are not completed in a
timely manner, the Year 2000 issue could have a material impact on the
operations of the Company.
The Company continues to evaluate the Year 2000 issue and will utilize both
internal and external resources in order to reprogram, or replace, systems
that are not in compliance with the Year 2000. The Company anticipates
completing the project no later than March 31, 1999. The cost to complete the
project has not yet been determined.
The project completion date is based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
ability of third parties to modify the Company's systems on a timely basis.
There can be no guarantee that the project will be completed in a timely
manner. Specific factors that might delay completion of the project include,
but are not limited to, the availability of qualified personnel, the ability
to locate and correct all relevant computer codes, and similar uncertainties.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth at the pages indicated
in Item 14(a) below.
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 definitive Proxy Statement filed April 20, 1998 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). 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 definitive Proxy Statement
filed April 20, 1998 under the Exchange Act.
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 definitive Proxy Statement filed April 20, 1998 under
the Exchange Act.
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 definitive Proxy
Statement filed April 20, 1998 under the Exchange Act.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. FINANCIAL STATEMENTS
18
<PAGE>
Consolidated Balance Sheet of Brookdale Living Communities, Inc. as
of December 31, 1997 and Combined Balance Sheet of Predecessor
Properties (predecessor to Brookdale Living Communities, Inc.) as of
December 31, 1996
Consolidated Statement of Operations of Brookdale Living
Communities, Inc. 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 the years
ended December 31, 1996 and 1995
Consolidated Statement of Stockholders' Equity of Brookdale Living
Communities Inc. for the period from May 7, 1997 through December
31, 1997
Combined Statements of Changes in Partners' Capital (Deficit) of
Predecessor Properties (predecessor to Brookdale Living Communities,
Inc.) for the period January 1, 1997 through May 6, 1997 and the
years ended December 31, 1996 and 1995
Consolidated Statement of Cash Flows of Brookdale Living
Communities, Inc. 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 the years
ended December 31, 1996 and 1995
Notes to Consolidated and Combined Financial Statements of Brookdale
Living Communities, Inc. and the Predecessor Properties (predecessor
to Brookdale Living Communities, Inc.)
(a) 2. FINANCIAL STATEMENT SCHEDULES
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.
19
<PAGE>
(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 Formation Agreement dated as of May 7, 1997 by and among the
Company, Brookdale Holdings, Inc., The Prime Group, Inc. ("PGI"),
Prime Group Limited Partnership and Mark J. Schulte, as filed with
the Securities and Exchange Commission on August 14, 1997 as
Exhibit 10.1 to the Company's Form 10-Q for the period ended June
30, 1997 (File No. 0-22253) and incorporated herein by reference
10.2 Space Sharing Agreement dated as of May 7, 1997 by and between the
Company and PGI, as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.2 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.3 Registration Rights Agreement dated as of May 7, 1997 by and
between the Company, PGI, Prime Group Limited Partnership, and
Prime Group VI, L.P, as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.3 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.4 Voting Agreement dated as of May 7, 1997 by and among the Company,
PGI, Prime Group Limited Partnership, and Prime Group VI, L.P., as
filed with the Securities and Exchange Commission on August 14,
1997 as Exhibit 10.4 to the Company's Form 10-Q for the period
ended June 30, 1997 (File No. 0-22253) and incorporated herein by
reference
10.5 Non-Compete Agreement dated as of May 7, 1997 by and among the
Company, PGI, Prime Group Limited Partnership and Michael W.
Reschke, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.5 to the Company's Form 10-Q for the
period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.6 Subscription Agreement dated September 4, 1996 by and between the
Company and Michael W. Reschke, as filed with the Securities and
Exchange Commission on September 18, 1996 as Exhibit 10.6 to the
Company's Registration Statement on Form S-1 (File No. 333-12259)
and incorporated herein by reference
10.7 Employment Agreement dated as of May 7, 1997 by and between the
Company and Michael W. Reschke, as filed with the Securities and
Exchange Commission on August 14, 1997 as Exhibit 10.6 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.8 Employment Agreement dated as of May 7, 1997 by and between the
Company and Mark J. Schulte, as filed with the Securities and
Exchange Commission on August 14, 1997 as Exhibit 10.7 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.9 Employment Agreement dated as of May 7, 1997 by and between the
Company and Darryl W. Copeland. Jr., as filed with the Securities
and Exchange Commission on August 14, 1997 as Exhibit 10.8 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.10 Employment Agreement dated as of May 7, 1997 by and between the
Company and Matthew F. Whitlock, as filed with the Securities and
Exchange Commission on August 14, 1997 as Exhibit 10.9 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
20
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.11 Employment Agreement dated as of May 7, 1997 by and between the
Company and Mark J. Iuppenlatz, as filed with the Securities and
Exchange Commission on August 14, 1997 as Exhibit 10.10 to the
Company's Form 10-Q for the period ended June 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.12 Management Agreement dated as of May 7, 1997 by and between
Brookdale Living Communities of Texas, Inc. and The Island on Lake
Travis, Ltd., as filed with the Securities and Exchange Commission
on August 14, 1997 as Exhibit 10.11 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.13 Submanagement Agreement dated as of July 1, 1997 by and between
Brookdale Living Communities of Minnesota-II, Inc. and Kenwood
Congregate Associates Limited Partnership and Active Life
Management Corporation, as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.12 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.14 Brookdale Living Communities, Inc. Stock Incentive Plan, as filed
with the Securities and Exchange Commission on December 15, 1997
as Exhibit 10.14 to Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-41191) and
incorporated herein by reference
10.15 Form of Indemnification Agreement, as filed with the Securities
and Exchange Commission on March 17, 1997 as Exhibit 10.15 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-12259) and incorporated herein by
reference
10.16 Amended and Restated Partnership Agreement of River Oaks Partners
dated as of May 7, 1997 by and between Brookdale Holdings, Inc.
and the Company, as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.14 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.17 Amended and Restated Agreement of Limited Partnership of The Ponds
of Pembroke Limited Partnership dated as of May 7, 1997 by and
between Brookdale Holdings, Inc. and the Company, as filed with
the Securities and Exchange Commission on August 14, 1997 as
Exhibit 10.15 to the Company's Form 10-Q for the period ended June
30, 1997 (File No. 0-22253) and incorporated herein by reference
10.18 Real Estate Purchase Agreement dated as of September 16, 1996 by
and between PGI and Gables at Brighton Associates, as filed with
the Securities and Exchange Commission on September 18, 1996 as
Exhibit 10.21 to the Company's Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by reference
10.19 Real Estate Purchase Agreement dated as of September 16, 1996 by
and between PGI and Edina Park Plaza Associates Limited
Partnership, as filed with the Securities and Exchange Commission
on September 18, 1996 as Exhibit 10.22 to the Company's
Registration Statement on Form S-1 (Registration No. 333-12259)
and incorporated herein by reference
10.20 Real Estate Purchase Agreement dated as of September 16, 1996 by
and between PGI and East Mesa Senior Living Limited Partnership,
as filed with the Securities and Exchange Commission on September
18, 1996 as Exhibit 10.23 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.21 Real Estate Purchase Agreement dated as of September 16, 1996 by
and between PGI and Hawthorn Lakes Associates, as filed with the
Securities and Exchange Commission on September 18, 1996 as
Exhibit 10.24 to the Company's Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by reference
10.22 Letter Agreement dated September 17, 1996 by and among PGI, KILICO
Realty Corporation and Kemper Investors Life Insurance Company, as
filed with the Securities and Exchange Commission on September 18,
1996 as Exhibit 10.25 to the Company's Registration Statement on
Form S-1 (Registration No. 333-12259) and incorporated herein by
reference
21
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.23 First Amendment dated December 20, 1996 to Letter Agreement dated
September 17, 1996 by and among PGI, KILICO Realty Corporation and
Kemper Investors Life Insurance Company, as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.24 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.24 Second Amendment dated April 3, 1997 to Letter Agreement dated
September 17, 1996 by and among PGI, KILICO Realty Corporation and
Kemper Investors Life Insurance Company, as filed with the
Securities and Exchange Commission on April 8, 1997 as Exhibit
10.35 to Amendment No. 5 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.25 Third Amendment dated April 9, 1997 to Letter Agreement dated
September 17, 1996 by and among PGI, KILICO Realty Corporation and
Kemper Investors Life Insurance Company, as filed with the
Securities and Exchange Commission on April 16, 1997 as Exhibit
10.36 to Amendment No. 6 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.26 Purchase and Sale Agreement dated as of February 20, 1997 by and
between the Company and Park Place General Partnership, as filed
with the Securities and Exchange Commission on March 4, 1997 as
Exhibit 10.25 to Amendment No. 3 to the Company's Registration
Statement on Form S-1 (Registration No. 333-12259) and
incorporated herein by reference
10.27 Purchase and Sale Agreement dated as of February 20, 1997 by and
between the Company and Park Place II, L.L.C., as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.26 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.28 Master Lease Agreement dated as of December 27, 1996 by and
between Health and Retirement Properties Trust, as landlord, and
BLC Property, Inc., as tenant, as filed with the Securities and
Exchange Commission on March 4, 1997 as Exhibit 10.27 to Amendment
No. 3 to the Company's Registration Statement on Form S-1
(Registration No. 333-12259) and incorporated herein by reference
10.29 Sublease Agreement dated as of December 27, 1996 by and between
BLC Property, Inc., as sublandlord, and Brookdale Living
Communities of Arizona, Inc., as subtenant, as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.28 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.30 Sublease Agreement dated as of December 27, 1996 by and between
BLC Property, Inc., as sublandlord, and Brookdale Living
Communities of New York, Inc., as subtenant, as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.29 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.31 Sublease Agreement dated as of December 27, 1996 by and between
BLC Property, Inc., as sublandlord, and Brookdale Living
Communities of Illinois, Inc., as subtenant, as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.31 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference
10.32 Real Estate Purchase Agreement dated as of February 24, 1997 by
and between PGI and Firstar DuPage Bank Trust No. 3612 dated
December 4, 1989, Firstar DuPage Bank Trust No. 3625 dated
February 22, 1990, West Suburban Bank Trust No. 1975 dated
December 13, 1978 and the direct and indirect beneficiaries
thereof, as filed with the Securities and Exchange Commission on
March 4, 1997 as Exhibit 10.32 to Amendment No. 3 to the Company's
Registration Statement on Form S-1 (Registration No. 333-12259)
and incorporated herein by reference
10.33 Real Estate Purchase Agreement dated as of February 14, 1997 by
and between PGI and AC Properties, L.L.C., as filed with the
Securities and Exchange Commission on March 4, 1997 as Exhibit
10.33 to Amendment No. 3 to the Company's Registration Statement
on Form S-1 (Registration No. 333-12259) and incorporated herein
by reference.
22
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.34 Contract for Sale dated as of February 21, 1997 by and between PGI
and VG Office Partnership '95, Ltd., as filed with the Securities
and Exchange Commission on March 4, 1997 as Exhibit 10.34 to
Amendment No. 3 to the Company's Registration Statement on Form
S-1 (Registration No. 333-12259) and incorporated herein by
reference
10.35 First Amendment dated as of February 21, 1997 to Contract for Sale
dated February 21, 1997 by and between PGI and VG Office
Partnership '95, Ltd., as filed with the Securities and Exchange
Commission on March 4, 1997 as Exhibit 10.35 to Amendment No. 3 to
the Company's Registration Statement on Form S-1 (Registration No.
333-12259) and incorporated herein by reference
10.36 Purchase and Sale Agreement dated as of June 11, 1997 by and
between Gables at Farmington Associates and the Company, as filed
with the Securities and Exchange Commission on August 14, 1997 as
Exhibit 10.34 to the Company's Form 10-Q for the period ended June
30, 1997 (File No. 0-22253) and incorporated herein by reference
10.37 First Amendment to Purchase and Sale Agreement dated as of July 3,
1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.35 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.38 Second Amendment to Purchase and Sale Agreement dated as of July
16, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.36 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.39 Third Amendment to Purchase and Sale Agreement dated as of July
23, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.37 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and
incorporated herein by reference
10.40 Fourth Amendment to Purchase and Sale Agreement dated as of July
30, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.38 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.41 Fifth Amendment to Purchase and Sale Agreement dated as of August
5, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.39 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.42 Sixth Amendment to Purchase and Sale Agreement dated as of August
8, 1997 by and between Gables at Farmington Associates and the
Company, as filed with the Securities and Exchange Commission on
August 14, 1997 as Exhibit 10.40 to the Company's Form 10-Q for
the period ended June 30, 1997 (File No. 0-22253) and incorporated
herein by reference
10.43 First Amendment to Master Lease Agreement and Incidental Documents
dated as of May 7, 1997 by and among Health and Retirement
Properties Trust, BLC Property, Inc., Brookdale Living Communities
of Washington, Inc., Brookdale Living Communities of Arizona,
Inc., Brookdale Living Communities of Illinois, Inc., Brookdale
Living Communities of New York, Inc., the Company, The Prime
Group, Inc., Prime International, Inc., PGLP, Inc., Prime Group
Limited Partnership and Prime Group II, as filed with the
Securities and Exchange Commission on August 14, 1997 as Exhibit
10.41 to the Company's Form 10-Q for the period ended June 30,
1997 (File No. 0-22253) and incorporated herein by reference
10.44 Stock Option and Deposit Agreement dated as of May 7, 1997 by and
between Darryl W. Copeland, Jr. and PGI, as filed with the
Securities and Exchange Commission on August 14, 1997 as Exhibit
10.42 to the Company's Form 10-Q for the period ended June 30,
1997 (File No. 0-22253) and incorporated herein by reference
23
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.45 Stock Purchase Agreement and Agreement Concerning Option Shares
dated as of May 7, 1997 by and among PGI, Prime Group VI, L.P. and
Darryl W. Copeland, Jr., as filed with the Securities and Exchange
Commission on August 14, 1997 as Exhibit 10.43 to the Company's
Form 10-Q for the period ended June 30, 1997 (File No. 0-22253)
and incorporated herein by reference
10.46 Real Estate Purchase and Sale Agreement dated as of July 29, 1997
by and between the Company and The Classic of West Palm Beach
Limited Partnership, as filed with the Securities and Exchange
Commission on November 14, 1997 as Exhibit 10.1 to the Company's
Form 10-Q for the period ended September 30, 1997 (File No.
0-22253) and incorporated herein by reference
10.47 First Amendment to Real Estate Purchase and Sale Agreement dated
as of November 18, 1997 by and between The Classic at West Palm
Beach Limited Partnership and the Company, as filed with the
Securities and Exchange Commission on December 15, 1997 as Exhibit
10.54 to Amendment No. 4 to the Company's Registration Statement
on Form S-1 (Registration No. 333-41191) and incorporated herein
by reference
10.48 Lease Agreement dated as of September 25, 1997 by and between the
Company and 77 West Wacker Limited Partnership, as filed with the
Securities and Exchange Commission on November 14, 1997 as Exhibit
10.2 to the Company's Form 10-Q for the period ended September 30,
1997 (File No. 0-22253) and incorporated herein by reference
10.49 Agreement for Purchase and Sale dated as of December 4, 1997 by
and between Lincoln Harbor Village, L.P. and the Company, as filed
with the Securities and Exchange Commission on December 15, 1997
as Exhibit 10.48 to Amendment No. 4 to the Company's Registration
Statement on Form S-1 (Registration No. 333-41191) and
incorporated herein by reference
10.50 Assignment and Assumption of Contract for Sale dated as of October
1, 1997 by and between the Company and Brookdale Living
Communities of Michigan, Inc., as filed with the Securities and
Exchange Commission on December 15, 1997 as Exhibit 10.49 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-41191) and incorporated herein by
reference
10.51 Assignment and Assumption of Contract for Sale dated as of
September 3, 1997 by and between the Company and BLC of Texas-II,
L.P., as filed with the Securities and Exchange Commission on
December 15, 1997 as Exhibit 10.50 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-41191) and incorporated herein by reference
10.52 Real Estate Purchase Agreement dated as of October 10, 1997 by and
between Anvil Investments, LLC and the Company, as filed with the
Securities and Exchange Commission on December 15, 1997 as Exhibit
10.51 to Amendment No. 4 to the Company's Registration Statement
on Form S-1 (Registration No. 333-41191) and incorporated herein
by reference
10.53 Real Estate Purchase and Sale Agreement dated as of October 1,
1997 between Brendenwood MRC Limited Partnership and the Company,
as filed with the Securities and Exchange Commission on December
15, 1997 as Exhibit 10.52 to Amendment No. 4 to the Company's
Registration Statement on Form S-1 (Registration No. 333-41191)
and incorporated herein by reference
10.54 First Amendment to Real Estate Purchase and Sale Agreement dated
as of November 22, 1997 by and between Brendenwood MRC Limited
Partnership and the Company, as filed with the Securities and
Exchange Commission on December 15, 1997 as Exhibit 10.53 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-41191) and incorporated herein by
reference
10.55 Loan Agreement dated as of October 22, 1997 by and between the
Company and LaSalle National Bank, as filed with the Securities
and Exchange Commission on December 15, 1997 as Exhibit 10.55 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-41191) and incorporated herein by
reference
10.56 First Amendment to Loan Agreement and Documents dated as of
December 1, 1997 by and between the Company and LaSalle National
Bank, as filed with the Securities and Exchange Commission on
December 15, 1997 as Exhibit 10.56 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-41191) and incorporated herein by reference
24
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.57 Second Amendment to Loan Agreement and Documents dated as of
December 11, 1997 by and between the Company and LaSalle National
Bank, as filed with the Securities and Exchange Commission on
December 15, 1997 as Exhibit 10.58 to Amendment No. 4 to the
Company's Registration Statement on Form S-1 (Registration No.
333-41191) and incorporated herein by reference
10.58 Lease dated as of November 21, 1997 by and between Brookdale
Living Communities of Connecticut, Inc., as lessee, and The Gables
Business Trust, as lessor
10.59 Lease dated as of December 17, 1997 by and between Brookdale
Living Communities of Florida, Inc., as lessee, and The Classic
Business Trust, as lessor, as filed with the Securities and
Exchange Commission on February 17, 1998 as Exhibit 10.1 to the
Company's Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.60 Loan Agreement dated as of December 18, 1997 by and among The
Classic Business Trust, Brookdale Living Communities of Florida,
Inc. and Nomura Asset Capital Corporation, as filed with the
Securities and Exchange Commission on February 17, 1998 as Exhibit
10.2 to the Company's Form 8-K dated December 17, 1997 (File No.
0-22253) and incorporated herein by reference
10.61 Certificate Pledge Agreement dated as of December 17, 1997 by
Brookdale Living Communities of Florida, Inc. in favor of The
Classic Business Trust, as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.3 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.62 Securities Pledge Agreement dated as of December 17, 1997 by
Brookdale Living Communities of Florida, Inc. in favor of The
Classic Business Trust and Wilmington Trust Company, as filed with
the Securities and Exchange Commission on February 17, 1998 as
Exhibit 10.4 to the Company's Form 8-K dated December 17, 1997
(File No. 0-22253) and incorporated herein by reference
10.63 Indemnity Agreement dated as of December 17, 1997 from Brookdale
Living Communities, Inc. in favor of Wilmington Trust Company and
FBTC Leasing Corp., as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.5 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.64 Guaranty and Suretyship Agreement dated as of December 18, 1997
from Brookdale Living Communities of Florida, Inc. in favor of
Nomura Asset Capital Corporation, as filed with the Securities and
Exchange Commission on February 17, 1998 as Exhibit 10.6 to the
Company's Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.65 Environmental Indemnity Agreement dated as of December 18, 1997
from Brookdale Living Communities, Inc. in favor of Nomura Asset
Capital Corporation, as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.7 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.66 Lease dated as of December 17, 1997 by and between Brookdale
Living Communities of New Jersey, Inc., as lessee, and The
Brendenwood Business Trust, as lessor, as filed with the
Securities and Exchange Commission on February 17, 1998 as Exhibit
10.8 to the Company's Form 8-K dated December 17, 1997 (File No.
0-22253) and incorporated herein by reference
10.67 Loan Agreement dated as of December 22, 1997 by and among The
Brendenwood Business Trust, Brookdale Living Communities of New
Jersey, Inc. and Nomura Asset Capital Corporation, as filed with
the Securities and Exchange Commission on February 17, 1998 as
Exhibit 10.9 to the Company's Form 8-K dated December 17, 1997
(File No. 0- 22253) and incorporated herein by reference
10.68 Certificate Pledge Agreement dated as of December 17, 1997 by
Brookdale Living Communities of New Jersey, Inc. in favor of The
Brendenwood Business Trust, as filed with the Securities and
Exchange Commission on February 17, 1998 as Exhibit 10.10 to the
Company's Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
25
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.69 Securities Pledge Agreement dated as of December 17, 1997 by
Brookdale Living Communities of New Jersey, Inc. in favor of The
Brendenwood Business Trust and Wilmington Trust Company, as filed
with the Securities and Exchange Commission on February 17, 1998
as Exhibit 10.11 to the Company's Form 8-K dated December 17, 1997
(File No. 0-22253) and incorporated herein by reference
10.70 Indemnity Agreement dated as of December 17, 1997 from Brookdale
Living Communities, Inc. in favor of Wilmington Trust Company and
FBTC Leasing Corp., as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.12 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.71 Guaranty and Suretyship Agreement dated as of December 22, 1997
from Brookdale Living Communities of New Jersey, Inc. in favor of
Nomura Asset Capital Corporation, as filed with the Securities and
Exchange Commission on February 17, 1998 as Exhibit 10.13 to the
Company's Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.72 Environmental Indemnity Agreement dated as of December 22, 1997
from Brookdale Living Communities, Inc. in favor of Nomura Asset
Capital Corporation, as filed with the Securities and Exchange
Commission on February 17, 1998 as Exhibit 10.14 to the Company's
Form 8-K dated December 17, 1997 (File No. 0-22253) and
incorporated herein by reference
10.73* Loan Agreement dated as of November 21, 1997 by and among The
Gables of Business Trust, Brookdale Living Communities of
Connecticut, Inc. and Nomura Asset Capital Corporation
10.74* Certificate Pledge Agreement dated as of November 21, 1997 by
Brookdale Living Communities of Connecticut, Inc. in favor of The
Gables Business Trust
10.75* Securities Pledge Agreement dated as of November 21, 1997 by
Brookdale Living Communities of Connecticut, Inc. in favor of The
Gables Business Trust and Wilmington Trust Company
10.76* Indemnity Agreement dated as of November 21, 1997 from the Company
in favor of Wilmington Trust Company and FBTC Leasing Corp.
10.77* Guaranty and Suretyship Agreement dated as of November 21, 1997
from Brookdale Living Communities of Connecticut, Inc. in favor of
Nomura Asset Capital Corporation
10.78* Environmental Indemnity Agreement dated as of November 21, 1997
from the Company in favor of Nomura Asset Capital Corporation
10.79* Amended and Restated Employment Agreement dated as of November 3,
1997 by and between the Company and Matthew F. Whitlock
21.1 Subsidiaries of the Company, as filed with the Securities and
Exchange Commission on December 15, 1997 as Exhibit 21.1 to
Amendment No. 4 to the Company's Registration Statement on Form
S-1 (Registration No. 333-41191) and incorporated herein by
reference
23.1 Consent of Ernst & Young LLP
27.1* Financial Data Schedule
- -----------------------------------
* Previously filed.
(b) REPORTS ON FORM 8-K
The Registrant filed no reports on Form 8-K during the quarter ended
December 31, 1997.
(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.
26
<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
- ----------------------------------
Bruce L. Gewertz, Director
- ----------------------------------
Darryl W. Hartley-Leonard, Director
- ----------------------------------
Daniel J. Hennessy, Director
27
<PAGE>
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS OF BROOKDALE LIVING
COMMUNITIES, INC. AND SUBSIDIARIES AND PREDECESSOR PROPERTIES
(PREDECESSOR TO BROOKDALE LIVING COMMUNITIES, INC.)
<TABLE>
<S> <C>
Report of Independent Auditors.............................. F-1
Consolidated Balance Sheet of Brookdale Living
Communities, Inc. as of December 31, 1997 and Combined
Balance Sheet of Predecessor Properties (predecessor to
Brookdale Living Communities, Inc.) as of December 31,
1996........................................................ F-2
Consolidated Statement of Operations of Brookdale Living
Communities, Inc. 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 the years ended December 31, 1996
and 1995.................................................... F-3
Consolidated Statement of Stockholders' Equity of
Brookdale Living Communities, Inc. for the period from May
7, 1997 through December 31, 1997........................... F-4
Combined Statements of Changes in Partners' Capital
(Deficit) of Predecessor Properties (predecessor to
Brookdale Living Communities, Inc.) for the period January
1, 1997 through May 6, 1997 and the years ended December
31, 1996 and 1995........................................... F-5
Consolidated Statement of Cash Flows of Brookdale Living
Communities, Inc. 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 the years ended December 31, 1996
and 1995.................................................... F-6
Notes to Consolidated and Combined Financial Statements of
Brookdale Living Communities, Inc. and the Predecessor
Properties (predecessor to Brookdale Living Communities,
Inc.)....................................................... F-8
</TABLE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
Brookdale Living Communities, Inc.
We have audited the accompanying consolidated balance sheet of Brookdale
Living Communities, Inc., a Delaware corporation, and subsidiaries (the
"Company") as of December 31, 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for the period from May 7,
1997 (date of formation) through December 31, 1997. We have also audited the
combined balance sheet of the Predecessor Properties (predecessor to Brookdale
Living Communities, Inc.) (the "Predecessor") as of December 31, 1996 and the
related combined statements of operations, changes in partners' capital
(deficit) and cash flows for the period from January 1, 1997 through May 6,
1997 and for each of the two years in the period 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, 1997 and the
consolidated results of their operations and their cash flows for the period
from May 7, 1997 through December 31, 1997 and the combined financial position
of the Predecessor Properties (predecessor to Brookdale Living Communities,
Inc.) as of December 31, 1996 and the combined results of their operations and
their cash flows for the period from January 1, 1997 through May 6, 1997 and
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 26, 1998
F-1
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED BALANCE SHEET OF THE COMPANY AND COMBINED
BALANCE SHEET OF THE PREDECESSOR
(In Thousands, Except Par Value Amount)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
December 31, 1997 December 31, 1996
ASSETS ----------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 13,292 $ 4,230
Accounts receivable 1,053 165
Prepaid rent - 1,251
Deferred tax asset 385 -
Other 2,103 84
-------- --------
Total current assets 16,833 5,730
Property, plant and equipment 113,294 58,387
Accumulated depreciation (2,164) (9,159)
-------- --------
Property, plant and equipment, net 111,130 49,228
Property under development 11,427 75
Cash-restricted 5,920 1,089
Letter of credit deposit 12,138 -
Lease security deposits 18,542 -
Deferred costs, net 2,980 1,714
Deferred tax asset 4,199 -
-------- --------
Total assets $183,169 $ 57,836
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY/PREDECESSOR DEFICIT
CURRENT LIABILITIES:
Current portion of long-term debt $ 286 $ -
Current portion of deferred gain on sale of property 806 806
Prepaid rent 108 616
Accrued interest payable 566 182
Accrued real estate taxes 1,284 1,031
Accounts payable and accrued expenses 2,972 813
Income taxes payable 236 -
Tenant entrance and security deposits 4,377 2,614
Due to affiliates, net - 710
-------- --------
Total current liabilities 10,635 6,772
Deferred lease liability 1,811 13
Long-term debt, less current portion 95,881 65,000
Deferred gain on sale of property,
less current portion 16,922 17,728
-------- --------
Total liabilities 125,249 89,513
Minority interest - (6,250)
Predecessor deficit - (25,427)
Common stock, $.01 par value, 75,000
shares authorized; 9,175 issued
and outstanding at December 31, 1997 92 -
Additional paid-in-capital 57,383 -
Accumulated earnings 445 -
-------- --------
Total stockholders'equity 57,920 -
-------- --------
Total liabilities and stockholders'equity/predecessor deficit $183,169 $ 57,836
======== ========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-2
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC., AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS OF THE COMPANY AND COMBINED
STATEMENTS OF OPERATIONS OF THE PREDECESSOR
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from Predecessor Properties
May 7,1997 January 1, 1997 Ended December 31,
through through Year ----------------------
December 31, 1997 May 6,1997 1996 1995
----------------- --------------- ----------------------
<S> <C> <C> <C> <C>
REVENUE
Resident fees $30,105 $10,473 $23,221 $21,948
Management fees 132 - - -
------- ------- ------- -------
Total revenue 30,237 10,473 23,221 21,848
EXPENSES
Facility operating 15,892 5,872 11,875 12,182
General and administrative 2,187 - - -
Lease expense 6,942 3,042 - -
Depreciation and amortization 2,967 857 3,527 4,598
Property management fees - 230 930 1,071
------- ------- ------- -------
Total operating expenses 27,988 10,001 16,332 17,851
------- ------- ------- -------
Income from operations 2,249 472 6,889 3,997
Interest income (694) (68) (216) (205)
Interest expense 3,020 830 4,740 5,626
------- ------- ------- -------
(Loss) income before minority
interest, deferred tax benefit/
tax (provision) and extraordinary
item (77) (290) 2,365 (1,424)
Minority interest - (138) (756) 802
Deferred tax benefit/tax (provision) 558 (236) - -
------- ------- ------- -------
Income (loss) from continuing
operations before extraordinary
item 481 (664) 1,609 (622)
Extraordinary item (net of deferred tax
benefit of $24 for 1997) (36) - - 3,274
------- ------- ------- -------
Net income (loss) $ 445 $ (664) $ 1,609 $ 2,652
======= ======= ======= =======
Basic and diluted earnings per common share:
Income from continuing operations
before extraordinary item $ 0.07
Extraordinary item (0.01)
-------
Net income $ 0.06
=======
Weighted average shares used for
computing basic earnings per share 7,208
=======
Weighted average shares used for
computing diluted earnings per
share 7,351
=======
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-3
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC., AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY OF THE COMPANY
FOR THE PERIOD MAY 7, 1997 THROUGH DECEMBER 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
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 -
Common stock offerings 9,175 92 82,066 -
Net income - - - 445
-------------------------------------------------
Balances at December 31, 1997 9,175 $ 92 $ 57,383 $ 445
=================================================
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-4
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
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 YEARS ENDED DECEMBER 31, 1996 AND 1995
(In Thousands)
<TABLE>
<S> <C>
Balances at January 1, 1995 $ 1,852
Contributions 55
Distributions (962)
Net income 2,652
----------
Balances at December 31, 1995 3,597
Contributions 51
Distributions (26,152)
Advances made to general partners (4,532)
Net income 1,609
----------
Balances at December 31, 1996 (25,427)
Contributions 813
Distributions (3,407)
Net loss (664)
----------
Balances at May 6, 1997 $ (28,685)
==========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-5
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY OF THE COMPANY AND
COMBINED STATEMENTS OF CASH FLOWS OF THE PREDECESSOR
(In Thousands)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from Predecessor Properties
May 7, 1997 January 1, 1997 Year Ended December 31,
through through -----------------------
December 31, 1997 May 6, 1997 1996 1995
----------------- --------------- -----------------------
<S> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss) $ 445 $ (664) $ 1,609 $ 2,652
Adjustments to reconcile net income (loss) to net cash
provided by operating activities
Depreciation and amortization 2,967 857 3,527 4,598
Miniority interest - 138 756 (802)
Extraordinary item 36 - - (3,274)
Increase in deferred lease liability 1,379 419 13 -
Deferred gain on sale of property (525) (281) - -
Increase in accounts receivable (827) (61) (4) (40)
Decrease (increase) in prepaid rent asset 396 855 (1,251) -
Change in due from/to affiliates, net 53 (763) 531 (1)
Increase in deferred tax assets (582) - - -
(Increase) decrease in other assets (1,367) (202) 75 43
(Decrease) increase in prepaid rent liability (2,101) 786 616 -
Increase (decrease) in accrued interest payable 273 111 (22) (680)
Increase (decrease) in accrued real estate taxes 199 54 38 (135)
Increase (decrease) in accounts payable and accrued expenses 1,786 377 223 (945)
Increase in entrance and tenant security deposits 374 35 354 112
Increase in income taxes payable - 236 - -
--------- --------- --------- ---------
Net cash provided by operating activities 2,506 1,897 6,465 1,528
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for lease security deposits and acquisitions (47,643) - - -
Cash paid for property under development (8,350) (2) (6) (33)
Proceeds from sale of property - - 24,152 -
Additions to property, plant and equipment (1,559) (149) (358) (99)
Increase in lease security deposits (62) - - -
(Increase) decrease in cash-restricted (2,614) (1,180) 1,529 (571)
--------- --------- --------- ---------
Net cash (used in) provided by investing activities (60,228) (1,331) 25,317 (703)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of long-term debt (178) - (306) (32,968)
Proceeds from long-term debt - - - 34,627
Increase in letter of credit deposit (12,138) - - -
Increase in deferred costs (743) (287) (814) (1,503)
Net proceeds from equity offerings 82,158 - - -
Net advances/distributions to partners - (2,594) (30,633) (907)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities 69,099 (2,881) (31,753) (751)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents 11,377 (2,315) 29 74
Cash and cash equivalents at beginning of period 1,915 4,230 4,201 4,127
--------- --------- --------- ---------
Cash and cash equivalent at end of period $ 13,292 $ 1,915 $ 4,230 $ 4,201
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-6
<PAGE>
BROOKDALE LIVING COMMUNITIES, INC. AND SUBSIDIARIES (THE "COMPANY") AND
PREDECESSOR PROPERTIES (THE "PREDECESSOR" TO THE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS OF THE COMPANY AND COMBINED
STATEMENT OF CASH FLOWS OF THE PREDECESSOR (CONTINUED)
(In Thousands)
<TABLE>
<CAPTION>
Brookdale Living Predecessor
Communities, Inc. Properties
period from period from
May 7, 1997 January 1, 1997 Predecessor Properties
through through Year Ended December 31,
December 31, 1997 May 6, 1997 1996 1995
----------------- --------------- -----------------------
<S> <C> <C> <C> <C>
Supplemental Disclosure of Cash
Flow Information:
Interest paid $ 3,338 $723 $4,762 $6,306
======= ==== ====== ======
Supplemental Schedule of Noncash
Investing and Financing Activities:
In connection with net lease transactions
and acquisitions, assets acquired and
liabilities assumed were as follows:
Fair value of assets acquired and
minority interest assumed $87,260 $ - $ - $ -
Less: Consideration given
Cash paid 47,643 - - -
------- ---- ------ ------
Liabilities and minority
interest assumed $39,617 $ - $ - $ -
======= ==== ====== ======
</TABLE>
The following assets and liabilities were contributed by the Predecessor to
the Company on May 7, 1997:
<TABLE>
<CAPTION>
<S> <C>
Cash $ 1,915
Cash-restricted 2,269
Accounts receivable 226
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 290
--------
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 entrance 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 interests (6,111)
--------
Predecessor owners' deficit contributed $(28,685)
========
</TABLE>
See accompanying notes to consolidated and combined financial statements.
F-7
<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. 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 an initial public offering (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, the Company completed a
follow-on public offering of 2,000 shares of its common stock at $16.6875 per
share. The Company received net proceeds of $30,851 from the sale of these
shares.
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 following table sets forth the properties owned, leased, managed
or under development by the Company (collectively, the "Properties").
<TABLE>
<CAPTION>
Entity Property Name Date Owned or Leased
- ------ ------------- --------------------
<S> <C> <C>
Owned Facilities:
- ----------------
River Oaks Partners The Heritage (1) May 7, 1997
The Ponds of Pembroke Limited Partnership The Devonshire (1) May 7, 1997
Brookdale Living Communities of Illinois-II, Inc. Hawthorn Lakes May 7, 1997
Brookdale Living Communities of Minnesota, Inc. Edina Park Plaza May 7, 1997
Leased Facilities:
- -----------------
Brookdale Living Communities of Illinois, Inc. The Hallmark (1) May 7, 1997
Brookdale Living Communities of Arizona, Inc. The Springs of East Mesa (1) May 7, 1997
Brookdale Living Communities of New York, Inc. The Gables at Brighton (1) May 7, 1997
Brookdale Living Communities of Washington, Inc. The Park Place May 7, 1997
Brookdale Living Communities of Connecticut, Inc. The Gables at Farmington November 24, 1997
Brookdale Living Communities of Florida, Inc. The Classic at West Palm Beach December 18, 1997
Brookdale Living Communities of New Jersey, Inc. The Brendenwood Retirement Community December 22, 1997
Managed Facilities:
- ------------------
Brookdale Living Communities of Texas, Inc. The Island on Lake Travis (2)
Brookdale Living Communities of Minnesota-II, Inc. The Kenwood (3)
Development Projects Under Construction:
- ---------------------------------------
BLC of Texas II, L.P. Austin, Texas
Brookdale Living Communities of Michigan, Inc. Southfield, Michigan
Projects In Development:
- -----------------------
Glen Ellyn, Illinois
Raleigh, North Carolina
New York (Battery Park City), New York
</TABLE>
(1) Collectively referred to as "the Predecessor Properties"
(2) Management services commenced May 7, 1997
(3) Management services commenced July 1, 1997
F-8
<PAGE>
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.
The consolidated financial statements include the financial statements of
Brookdale Living Communities, Inc. and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of the consolidated and combined financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the consolidated
and combined financial statements and accompanying notes. Actual results could
differ from those estimates.
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.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at depreciated cost.
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 their estimated useful
life.
Depreciation is calculated on a straight-line basis over the estimated
useful lives of assets, which are as follows:
<TABLE>
<S> <C>
Buildings and improvements 40-45 years
Leasehold improvements 5-23 years
Furniture and equipment 3-12 years
</TABLE>
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
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.
EARNINGS PER SHARE
In 1997, Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings per Share" which specifies the
method of computation, presentation, and disclosure for earnings per share
("EPS"). SFAS No. 128 requires the presentation of basic EPS and diluted EPS.
Basic EPS is calculated by dividing net income available to common shareholders
by the weighted average number of shares outstanding during the period. Diluted
EPS includes the potentially dilutive effect, if any, which would occur if
outstanding common stock options were exercised.
F-9
<PAGE>
STOCK BASED COMPENSATION
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25"). Under APB 25, 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.
RECLASSIFICATIONS
Certain 1996 and 1995 amounts have been reclassified to conform with the
current financial statement presentation.
3. CASH-RESTRICTED
Cash-restricted consists of:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Life Care escrow deposits $ 2,899 $ 1,089
Tenant security deposits 2,121 -
Real estate tax and insurance reserve 900 -
-------- --------
Total cash-restricted $ 5,920 $ 1,089
======== ========
</TABLE>
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.
Pursuant to the Internal Revenue Code, Section 148(f), The Heritage was
required to rebate to the United States government any interest earnings in
excess of the interest cost of the proceeds generated from the sale of bonds
which were not yet used for project costs. During 1995, the partnership paid
$806 from unused restricted bond proceeds to the United States government as a
final settlement of its arbitrage rebate payable. No amounts were due or paid
in 1997 or 1996.
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Land $ 9,988 $ 3,685
Buildings and improvements 98,849 52,418
Leasehold improvements 349 --
Furniture and equipment 4,108 2,284
--------- ---------
Property, plant and equipment 113,294 58,387
Less: Accumulated depreciation (2,164) (9,159)
--------- ---------
Net property, plant and equipment $ 111,130 $ 49,228
========= =========
</TABLE>
Effective May 7, 1997, the Company changed the estimated useful lives used
to compute depreciation for The Devonshire and The Heritage buildings and
improvements from 40 to 45 years. This change was made to better reflect the
estimated periods during which such assets will remain in service. The change
had the effect of reducing depreciation expense by approximately $94 and
increasing net income subsequent to May 7, 1997 by approximately $56 for the
period from May 7, 1997 to December 31, 1997. The change had the effect of
increasing net income per common share by $0.01 for the period from May 7,
1997 to December 31, 1997.
F-10
<PAGE>
5. DEFERRED COSTS
Deferred costs consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Bond credit enhancement and deferred financing costs $ 2,392 $ 3,876
Lease costs 787 444
------- -------
Deferred costs 3,179 4,320
Less: Accumulated amortization (199) (2,606)
------- -------
Net deferred costs $ 2,980 $ 1,714
======= =======
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
Fixed rate mortgage notes payable, issued by
local municipalities (a) $ 28,167 $ --
Note payable (b) 3,000 --
Variable rate tax-exempt bonds issued by state
and local governmental authorities (c) 65,000 65,000
-------- --------
Total debt 96,167 65,000
Less: Current portion 286 --
-------- --------
Total long-term debt $ 95,881 $ 65,000
======== ========
</TABLE>
(a) As part of the purchase of the Edina Park Plaza and Hawthorn Lakes
facilities, the Company assumed the notes ($31,345 as of May 7, 1997). The
notes bear interest at 8% ($14,934 at December 31, 1997) and 8.525%
($13,233 at December 31, 1997) with monthly principal and interest payments
through maturity in 2027. The notes are collateralized by the Edina Park
Plaza and Hawthorn Lakes facilities, respectively.
(b) The principal and accrued interest balance on the note is due on May 1,
1999. Interest accrues at 8%. The note requires interest to be paid on
delinquent payments at 12%. The principal balance and accrued interest
may be pre-paid without penalty.
(c) Permanent financing for The Devonshire and The Heritage has been provided
by $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 determined by the remarketing
agent of the Bonds. The rates ranged from 3.00% to 4.70% during 1997;
from 2.30% to 4.40% during 1996; and from 2.55% to 5.20% during 1995.
The rates at December 31, 1997 were 3.75% and 3.80%, respectively, and at
December 31, 1996 were 4.00% and 4.10%, 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 respective Partnership.
Beginning May 7, 1997, the Bonds became 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 $12,138 letter of credit
deposit with the financial institutions. The Company amortized letter of
credit and other credit enhancement fees of $549 during 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, $581 and $877 during the
period from January 1, 1997 through May 6, 1997 and for the years ended
December 31, 1996 and 1995, respectively.
Each bondholder may tender Bonds on any business day upon seven days'
notice and receive a price equal to the principal amount thereof, plus
accrued interest through the tender date. Upon tender, the remarketing
agent has agreed to immediately remarket the Bonds on a best-efforts
basis. In the event the remarketing agent fails to remarket any Bonds,
the bond trustee is required to draw on the letters of credit to pay the
purchase price of the Bonds, in which event, the Partnerships are
required to reimburse the issuers of the letters of credit.
The Company obtained an unsecured $20 million 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 rate of interest plus one percent per annum and was payable
monthly. The credit facility was repaid and terminated on December 24,
1997, which
F-11
<PAGE>
resulted in an extraordinary loss on extinguishment of debt, net of a $24
tax benefit, of $36. Otherwise, the maturity date was April 1998.
On December 27, 1996, The Hallmark 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. The Hallmark
repaid a previous note secured by the assets of the partnership on December 18,
1995 from proceeds of the above-mentioned mortgage note, which resulted in an
extraordinary gain of $3,274.
The annual aggregate scheduled maturities of debt obligations for the five
years subsequent to December 31, 1997 are as follows:
Year ended December 31,
1998 $ 286
1999 3,310
2000 336
2001 365
2002 396
Thereafter 91,474
--------
$ 96,167
========
Total interest incurred by the Company and the Predecessor Properties was
$3,211, $830, $4,740, and $5,626 for the period from May 7, 1997 to December
31, 1997, the period from January 1, 1997 to May 7, 1997 and for the years
ended December 31, 1996 and 1995, respectively. During the period from May 7,
1997 to December 31, 1997, the Company capitalized $191 of interest expense.
7. COMMON STOCK
In May 1997, the Company completed the IPO of 4,500 shares of common stock
at $11.50 per share. The proceeds from the IPO, net of related underwriting
discounts and commissions and offering costs, totaled approximately $44,097.
The underwriters of the IPO exercised their over-allotment option, and in June
1997, the Company sold an additional 675 shares of common stock at $11.50 per
share. The Company received net proceeds of approximately $7,210 from the sale
of these additional shares.
In December 1997, the Company completed a follow-on public offering of
2,000 shares of common stock at $16.6875 per share. The proceeds from the
offering, net of related underwriting discounts and commissions and offering
costs, totaled approximately $30,851.
8. STOCK BASED COMPENSATION PLAN
The Company has granted stock options to various employees and directors
under its 1997 Stock Incentive Plan. The Company accounts for this plan under
APB Opinion No. 25, under which no compensation cost has been recognized.
In November 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). SFAS 123 recommends changes in accounting for
employee stock-based compensation plans and requires certain disclosures with
respect to stock option plans. The statement's disclosures have been adopted
by the Company effective December 31, 1997.
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:
<TABLE>
<CAPTION>
Period from
May 7, 1997
through
December 31, 1997
-----------------
<S> <C>
Net income:
As reported $ 445
Pro forma $ 92
EPS:
As reported $ 0.06
Pro forma $ 0.01
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1997: risk free interest rate of 6.6 percent,
expected volatility of 43.5 percent; weighted average fair value of options of
$4.89; 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 of 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.
Under the provisions of the Company's non-qualified and incentive stock
option plan for officers and key employees, 830 shares of common stock were
reserved for issuance at May 7, 1997. The options become exercisable over a
three to four year period, commencing at the date of grant. All options
expire 10 years from the date of grant. The prices of all options granted
were less than or equal to the fair market value at the date of the grant.
F-12
<PAGE>
The table below summarizes the transactions in the Company's stock
incentive plan during 1997:
<TABLE>
<CAPTION>
1997
----
<S> <C>
Options outstanding at beginning of year -
Granted 762
Exercised -
Canceled -
---
Options outstanding at end of year $11.50 to $16.66 per share 762
---
Exercisable at end of year -
===
</TABLE>
The following table summarizes information about certain options in the
Company's stock incentive plan outstanding as of December 31, 1997 in
accordance with SFAS 123:
<TABLE>
<CAPTION>
Weighted Avg.
Number Remaining Weighted Avg.
Exercise Price Outstanding Contractual Life Exercise Price
-------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$11.50 695 9.35 years $11.500
$11.875 56 9.50 years $11.875
$16.6625 11 9.99 years $16.663
---
762
===
</TABLE>
9. INCOME TAXES
Deferred income taxes reflect the net effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amount used for income tax purposes. Prior to formation of
the Company on May 7, 1997 (see Note 1), 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 not paid in 1997. 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, 1997
are presented below (no deferred tax liabilities at May 7, 1997 or December 31,
1997).
<TABLE>
<CAPTION>
December 31, 1997 May 7, 1997
----------------- -----------
<S> <C> <C>
Property, plant and equipment $3,676 $4,002
Deferred lease costs 523 -
Operating loss carryforward 343 -
Deferred revenue 42 -
------ ------
Total deferred tax assets $4,584 $4,002
====== ======
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
income tax purposes of approximately $857 which expire in 2012.
The benefit (provision) for income taxes (including income taxes on
extraordinary item) is composed of the following:
<TABLE>
<CAPTION>
Period from Period from
May 7, 1997 January 1, 1997
through through
December 31, 1997 May 6, 1997
----------------- -----------
<S> <C> <C>
Federal:
Current $ - $ (195)
Deferred 509 -
------ -------
509 (195)
------ -------
State:
Current $ - $ (41)
Deferred 73 -
------ -------
73 (41)
------ -------
$ 582 $ (236)
====== =======
</TABLE>
F-13
<PAGE>
A reconciliation of the benefit (provision) for income taxes to the amount
computed at the federal statutory rate is as follows:
<TABLE>
<CAPTION>
Period from Period from
May 7, 1997 January 1, 1997
through through
December 31, 1997 May 6, 1997
----------------- -----------
<S> <C> <C>
Federal income tax at statutory rate $ 27 $ 150
State taxes, net of federal benefit 73 (41)
Income of non-taxable Predecessor Properties - (71)
Rental income taxable to the Predecessor 286 (242)
Deferred lease costs - (43)
Non-taxable amortization of deferred gain 184 -
Extraordinary item 21 -
Other (9) 11
------ -------
$ 582 $ (236)
====== =======
</TABLE>
10. 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
years ended December 31, 1996 and 1995, the Heritage received payments
totaling $576, $610 and $144, respectively. No payments were received during
the period from January 1, 1997 to May 6, 1997.
11. 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 contributes 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 $55, $15, $30
and $26 for the period from May 7, 1997 through December 31, 1997, the period
from January 1, 1997 through May 6, 1997 and for the years ended December 31,
1996 and 1995, respectively. Such amounts are included in facility operating
expense in the consolidated and combined statements of operations.
12. LEASES
The Company entered into lease agreements ("Lease Agreements") with various
financial institutions for the Leased Facilities. The Lease Agreement for the
Hallmark, Springs of East Mesa, Gables at Brighton and 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 Agreements for these four facilities also require 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 Classic at West Palm
Beach and Brendenwood Retirement Community facilities have initial terms of
five years with five options to extend for one year each, and Lease Agreement
for the Gables at Farmington facility has an initial lease term of one year
with fourteen options to extend for one year each. The Lease Agreements for
the Gables at Farmington, Classic at West Palm Beach and Brendenwood
Retirement Community facilities require annual payments ranging from $4,312 to
$4,722. The Company has the option to acquire the Leased Facilities at fair
market value prior to or at the end of such lease term. The Company
guarantees the lease payments on the Hallmark, Springs of East Mesa, Gables at
Brighton and Park Place facilities.
On September 25, 1997, the Company entered into a five year lease (the
"Office Lease"), commencing October 1, 1997, for its corporate office with an
affiliate of PGI (the "Landlord"), with base rents that escalate at each
anniversary of the commencement date by $0.75 per square foot per year. In
conjunction with the signing of the lease, the Company received a $404
incentive from the Landlord,
F-14
<PAGE>
which has been deferred and is being amortized using the straight-line method
over the life of the Office Lease. Office Lease expense is included in
General and Administrative expense.
The aggregate amount of all future minimum lease payments (includes $1,284
of payments to be made to the landlord for the Lease Agreements and the Office
Lease as of December 31, 1997 are as follows:
Year ended December 31,
1998 $ 14,877
1999 15,639
2000 16,184
2001 16,200
2002 16,142
Thereafter 224,409
---------
$ 303,451
=========
13. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share for the period from May 7, 1997 through December 31, 1997.
<TABLE>
<S> <C>
Numerator:
Income from continuing operations before extraordinary item $ 481
Extraordinary item (net of tax benefit of $24) (36)
--------
Numerator for basic and diluted earnings per common share 445
Denominator:
Denominator for basic earnings per share - weighted-average shares 7,208
Effect of dilutive securities:
Employee stock options 143
--------
Dilutive potential common shares 143
Denominator for diluted earnings per share-adjusted weighted
average shares and assumed conversions 7,351
========
Basic and diluted earnings per share $ 0.06
========
</TABLE>
Options to purchase 10,600 shares of common stock at $16.66 per share were
outstanding during the period from May 7, 1997 through December 31, 1997 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.
For additional disclosures regarding the employee stock options, see Note 8.
14. RELATED PARTY TRANSACTIONS
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 years ended December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
Period from Year Ended
January 1, 1997 December 31,
through ------------
May 6, 1997 1996 1995
----------- ---- ----
<S> <C> <C> <C>
Property management fee (a) $230 $930 $1,071
Administration fee (b) 130 372 372
</TABLE>
(a) PGI was entitled to a property management fee equal to 5% of
total operating income (3% management fee for The Hallmark
facility effective January 1, 1996 through December 26, 1996,
with no fee thereafter). The fee is included in property
management fees in the combined statements of operations of the
Predecessor.
(b) PGI was entitled to an annual administration fee of $186 per
facility for providing administrative services to The Devonshire
and The Heritage facilities. The fee is included in facility
operating expenses in the combined statements of operations of
the Predecessor.
F-15
<PAGE>
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 $132 in management
fee revenue during the period from May 7, 1997 through December 31, 1997.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents, cash-restricted and variable rate and fixed rate
debt are reflected in the accompanying consolidated and combined 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.
16. 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.
17. Pro Forma (Unaudited)
The following unaudited pro forma condensed, consolidated and combined
statements of operations of the Company for the years ended December 31, 1997
and December 31, 1996 are presented as if, at January 1, 1997 and January 1,
1996, (i) the Company had sold and issued 9,175 shares of its common stock,
purchased the Owned Facilities and leased the Leased Facilities and the Harbor
Village facility (see note 19) which was leased beginning March 6, 1998. If
the Harbor Village facility was not included in the pro forma operations,
revenue, net income and income per share would be $60,035, $1,234, and $0.13,
respectively, for 1997 and $55,641, $276, and $0.03, respectively, for 1996.
These unaudited pro forma condensed consolidated and combined statements of
operations are not necessarily indicative of what the actual results of
operations of the Company would have been assuming the IPO and follow-on
public offering had been consummated at the beginning of each period
presented, nor do they purport to represent the results of operations of the
Company for future periods.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Revenue $ 63,743 $ 59,462
Net income 1,474 479
Earnings per share 0.16 0.05
</TABLE>
18. SUBSEQUENT EVENTS
On January 21, 1998, the underwriters of the follow-on public offering
completed in December 1997 exercised their over-allotment option for an
additional 300 shares of common stock at $16.6875 per share. The Company
received net proceeds of approximately $4.7 million from the sale of these
additional shares.
On March 6, 1998, the Company entered into a lease agreement to lease the
Harbor Village facility, a 272 unit facility located in Chicago, Illinois. The
lease is an operating lease with an initial five-year term with seven one-year
option periods with annual payment amounts ranging from $1,256 to $1,481
through the initial lease term. The Company has an option to acquire this
facility at its fair market value at the end of the lease term.
On March 17, 1998, the Company and the Landlord amended the Office Lease,
pursuant to which the Company and Landlord agreed to increase the space
leased, to extend the term of the Office Lease until April 30, 2005 with base
rent under similar per square foot terms. In consideration for executing the
amendment of the Office Lease, the Company received an additional $452
incentive from the Landlord.
F-16
<PAGE>
Exhibit 10.58
================================================================================
LEASE
Dated as of November 21, 1997
between
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.
as the Lessee
and
THE GABLES BUSINESS TRUST
as the Lessor
================================================================================
Acquisition of Managed Residential Care Facility in Farmington, Connecticut
================================================================================
This Lease has been executed in several counterparts. To the extent, if any,
that this Lease constitutes chattel paper (as such term is defined in the
Uniform Commercial Code as in effect in any applicable jurisdiction), no lien on
this Lease may be created through the transfer or possession of any counterpart
other than the original counterpart containing the receipt therefor executed by
Nomura Asset Capital Corporation and its successors and assigns, as Lender.
<PAGE>
LEASE
THIS LEASE (together with the Lease Supplement (as defined in Appendix 1
----------
hereto), this "Lease"), dated as of November 21, 1997, between THE GABLES
-----
BUSINESS TRUST, a Delaware business trust, having its principal office at
Wilmington Trust Company, Rodney Square North, 1100 North Market Street,
Wilmington, Delaware 19890-0001, and BROOKDALE LIVING COMMUNITIES OF
CONNECTICUT, INC., a Delaware corporation, having its principal office at c/o
Brookdale Living Communities, Inc., 77 West Wacker Drive, Chicago, Illinois
60601.
W I T N E S S E T H:
-------------------
WHEREAS, the Lessor desires to lease to the Lessee, and the Lessee desires
to lease from the Lessor, the Property; and
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION
1.1 Definitions; Interpretation. Capitalized terms used but not
---------------------------
otherwise defined in this Lease have the respective meanings specified in
Appendix 1 to this Lease; and the rules of interpretation set forth in Appendix
- ---------- --------
1 to this Lease shall apply to this Lease; provided, however, that capitalized
- - -------- -------
terms used but not otherwise defined in this Lease and Appendix 1 to this Lease
----------
shall have the respective meanings specified in the Nomura Loan Agreement.
ARTICLE II
PURCHASE AND LEASE
I.1 Acceptance and Lease of Property. Subject to the terms and
--------------------------------
conditions of this Lease, on the Acquisition Date (i) the Seller shall convey to
the Lessor, and the Lessor shall accept delivery of, the Property pursuant to
the terms hereof (and subject to the conditions set forth herein) and (ii) the
Lessor shall demise and lease to the Lessee hereunder for the Term the Lessor's
interest in the Property, subject to the Loan Documents and the Lessee hereby
agrees, expressly for the direct benefit of the Lessor, to lease from the Lessor
for the Term, the Lessor's interest in the Property.
II.2 Acceptance Procedure. The Lessee hereby agrees that the execution
--------------------
and delivery by the Lessee on the Acquisition Date of an appropriately completed
Lease Supplement in the form of Exhibit B hereto covering the Property thereon
---------
shall, without further act, constitute the irrevocable acceptance by the Lessee
of the Property for all purposes of this Lease and the other Operative Documents
on the terms set
<PAGE>
forth therein and herein, and that the Property, shall be deemed to be included
in the leasehold estate of this Lease and shall be subject to the terms and
conditions of this Lease as of the Acquisition Date.
II.3 Lease Term. The term of this Lease (the "Term") shall consist of an
---------- ----
Interim Lease Term (the "Interim Lease Term") and a Base Lease Term (a "Base
------------------ ----
Lease Term"). The Interim Lease Term of this Lease shall commence on (and
- ----------
include) the Acquisition Date and end on February 11, 1999. Upon no less than
sixty (60) days' prior written notice to the Lessor and the payment of an
extension fee in the amount of one percent (1%) of the Principal Indebtedness,
if the payment of same by Lessor is required under the Nomura Loan Agreement,
the Lessee may extend the Interim Lease Term for a period not to exceed twelve
(12) months, but in all events to the eleventh day of a calendar month. The
Base Lease Term shall commence on (and include) the last day of the Interim
Lease Term (and any extensions thereto) and end on (but exclude) the Expiration
Date, as such Expiration Date may be extended from time to time in accordance
with Article XXIII.
-------------
II.4 Title. The Property is leased to the Lessee without any
-----
representation or warranty, express or implied, by the Lessor and subject to the
rights of parties in possession, the existing state of title (including, without
limitation, Permitted Liens other than Lessor Liens) and all applicable
Requirements of Law. The Lessee shall in no event have any recourse against the
Lessor for any defect in or exception to title to the Property other than to the
extent resulting from Lessor Liens.
ARTICLE III
FUNDING OF THE ADVANCE
III.1 Lessor Commitment. Subject to the conditions and terms hereof, the
-----------------
Lessor shall, upon the written request of the Lessee, make the Advance on the
Acquisition Date up to the amount of the Commitment for the purpose of financing
the acquisition of the Property.
III.2 Procedures for Advance.
----------------------
(a) The Lessee shall give the Lessor prior written notice not
later than 9:00 a.m., New York City time, five (5) Business Days prior to
the Acquisition Date, pursuant to a Funding Request substantially in the
form of Exhibit A (the "Funding Request"), specifying the proposed
--------- ---------------
Acquisition Date and the amount of Advance requested. Except as the parties
may otherwise agree in writing, the Advance shall be made solely to provide
the Lessee with funds with which to pay or reimburse itself for amounts
paid or payable to third parties as Property Cost and Transaction Expenses
paid or payable by the Lessee in connection with the preparation, execution
and delivery of the Operative Documents, and all fees paid or payable by
the Lessee to the Lessor in connection with the Operative Documents and any
amounts paid or payable by Lessee pursuant to Section 31.2 hereof.
------------
(b) The Advance shall be made on the Acquisition Date in
immediately available federal funds by wire transfer to the account
designated by the Lessee, except that a portion of the Advance shall be
made (in accordance with instructions to be included in the Funding
Request) by wire transfer directly to an account designated by Lessee to
pay the Seller and/or to reimburse the Lessee for Transaction Expenses.
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
IV.1 Documentation Date. The Documentation Date (the "Documentation
------------------ -------------
Date") shall occur on the earliest date on which the following conditions
precedent shall have been satisfied:
(a) Lease. This Lease shall have been duly authorized, executed
-----
and delivered by the parties thereto.
(b) FBTC Loan Agreement. The FBTC Loan Agreement shall have been
-------------------
duly authorized, executed and delivered by the parties thereto.
(c) Lessee's Resolutions and Incumbency Certificate. The Lessee
-----------------------------------------------
shall have delivered to the Lessor a certificate of its Secretary or an
Assistant Secretary attaching and certifying as to the incumbency and
signature of persons authorized to execute and deliver on its behalf the
Operative Documents to which it is a party.
(d) Opinion of Counsel to the Lessee. On or prior to the
--------------------------------
Documentation Date, the Lessor shall have received an opinion of internal
counsel for the Lessee in form and substance satisfactory to the Lessor.
(e) Certain Transaction Expenses. Counsel for the Lessor shall
----------------------------
have received, to the extent then invoiced, payment in full in cash of all
Transaction Expenses payable to such counsel pursuant to Section 31.1(a).
---------------
(f) FBTC Indemnity. The FBTC Indemnity shall have been duly
--------------
authorized, executed and delivered by the Parent.
(g) Opinion of Counsel to Lessor. On or prior to the Documentation
----------------------------
Date, the Lessee shall have received an opinion of counsel to the Lessor
in form and substance reasonably satisfactory to the Lessee.
IV.2 Acquisition Date. The closing date with respect to the acquisition
----------------
of Land (and the Improvements, if any, existing thereon) (the "Acquisition
-----------
Date") shall occur on the earliest date after the Documentation Date, on which
all the conditions precedent thereto set forth in Section 4.3 with respect to
-----------
such acquisition of the Property shall have been satisfied or waived by the
applicable parties as set forth therein. The Acquisition Date for the Property
shall be the date the Advance is made.
IV.3 Conditions Precedent to the Acquisition Date and the Advance. The
------------------------------------------------------------
occurrence of the Acquisition Date and the obligation of the Lessor to make the
Advance are subject to the satisfaction or waiver of the following conditions
precedent:
(a) Operative Documents; No Default. Each of the Operative
-------------------------------
Documents shall have been duly authorized, executed and delivered by the
parties thereto, in form and substance satisfactory to the parties hereto,
and shall be in full force and effect. No Default or Event of Default
shall
-3-
<PAGE>
exist under any of the Operative Documents (either before or after
giving effect to the transactions contemplated by the Operative
Documents), and the Lessor shall have received a fully executed copy of
each of such Operative Documents (other than this Lease, of which the
Lessor shall receive the original). The Operative Documents (or memoranda
thereof), any supplements thereto and any financing statements in
connection therewith required under the Uniform Commercial Code shall have
been recorded, registered and filed, if necessary, in such manner as to
enable counsel to render the opinions referred to in clause (c) below and
----------
to enable the title company to issue the title insurance policies referred
to in clause (j) below.
----------
(b) Taxes. All taxes, fees and other charges in connection with
-----
the execution, delivery, recording, filing and registration of the
Operative Documents shall have been paid or provisions for such payment
shall have been made to the satisfaction of the Lessor.
(c) Opinions of Counsel. Counsel to the Lessee (i) in the
-------------------
jurisdiction in which the Property is located shall have issued to the
Lessor their opinions, all in form and substance satisfactory to the
Lessor and (ii) shall have issued to the Lessor their opinions to the
effect that upon delivery to the Custodian of the Pledged Securities
pursuant to the Securities Pledge Agreement, a valid first priority
security interest in the Pledged Securities shall have been created and
granted to the Custodian in the Pledged Securities.
(d) Governmental Approvals. All necessary (or, in the reasonable
----------------------
opinion of the Lessor, advisable) Governmental Actions, in each case
required by any Requirement of Law, shall have been obtained or made and
be in full force and effect.
(e) Litigation. No action or proceeding shall have been insti-
----------
tuted, nor shall any action or proceeding be threatened, before any
Governmental Authority, nor shall any order, judgment or decree have been
issued or proposed to be issued by any Governmental Authority (i) to set
aside, restrain, enjoin or prevent the full performance of this Lease, any
other Operative Document or any transaction contemplated hereby or thereby
or (ii) which is reasonably likely to materially and adversely affect the
Lessee.
(f) Requirements of Law. The transactions contemplated by the
-------------------
Operative Documents do not and will not violate any Material Requirement
of Law and do not and will not subject the Lessor to any Material adverse
regulatory prohibitions or constraints.
(g) Responsible Employee's Certificates. The Lessor shall have
-----------------------------------
received a Responsible Employee's Certificate of the Lessee, in
substantially the form of Exhibit C, dated as of the Acquisition Date,
---------
stating that for the Lessee (i) each and every representation and warranty
of the Lessee contained in each Operative Document to which it is a party
is true and correct in all material respects on and as of the Acquisition
Date; (ii) no Default or Event of Default has occurred and is continuing
under any Operative Document with respect to the Lessee; (iii) each
Operative Document to which the Lessee is a party is in full force and
effect with respect to it; and (iv) the Lessee has duly performed and
complied in all material respects with all covenants, agreements and
conditions contained herein or in any Operative Document required to be
performed or complied with by it on or prior to the Acquisition Date.
-4-
<PAGE>
(h) Environmental Audit. The Lessor shall have received an
-------------------
Environmental Audit for the Property in form and substance acceptable to
the Lessor, provided, Lessor shall not deem an Environmental Audit
unacceptable solely because a Phase Two environmental site assessment is
called for.
(i) Appraisal. The Lessor shall have received an Appraisal of the
---------
Property.
(j) Survey and Title Insurance. The Lessee shall have delivered to
--------------------------
the Lessor an ALTA/1992 (Urban) Survey of the Property (other than the
Equipment located therein) prepared by a licensed surveyor and meeting the
Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys as
adopted by the American Land Title Association/American Society and
American Congress on Surveying and Mapping in 1992 certified to the Lessor
and the title company and otherwise in form reasonably acceptable to the
Lessor and an ALTA owner's insurance policy covering the Property (other
than any Equipment) in favor of the Lessor, and, at the option of Lessee,
a leasehold policy in favor of the Lessee evidencing the Lessee's
equitable ownership in the Property, each such policy to be dated as of
the Acquisition Date and in an amount not less than the Property Cost and
to be reasonably satisfactory to the Lessor with comprehensive, zoning and
mechanics liens' endorsements and such other endorsements reasonably
requested by the Lessor.
(k) Recordation. The Lessor shall have received evidence
-----------
reasonably satisfactory to it that each of the Deed and the Lease
Supplement shall have been delivered to the title company in escrow for
recordation with the appropriate Governmental Authorities (and the
issuance of the title insurance policies in clause (j) above shall be
----------
satisfactory evidence of the foregoing).
(l) Evidence of Property Insurance. The Lessor shall have received
------------------------------
evidence of insurance with respect to the Property required to be
maintained pursuant to this Lease, setting forth the respective coverages,
limits of liability, carrier, policy number and period of coverage, and
otherwise satisfying the requirements set forth in Article XVII.
------------
(m) Lease Supplement. On or prior to the Acquisition Date, the
----------------
Lessee shall have delivered to the Lessor the Lease Supplement executed by
the Lessee.
(n) Nomura Loan Agreement Conditions Precedent. The conditions
------------------------------------------
precedent set forth in Section 3.1 of the Nomura Loan Agreement shall have
-----------
been satisfied or waived; provided, however, that the conditions precedent
-------- -------
set forth in Sections 3.1(a)(A), (ix), (xi), (D)-(J) (but with respect to
------------------ ---- ---- -----------------------------
Section 3.1(a)(J) only to the extent same is made by the Lessee), (K),
---------------------------------------------------------------------
(M)-(T) and (V)-(W) of the Nomura Loan Agreement shall have been satisfied
--- --- -------
by the Lessee or waived.
(o) Funding Request. The Lessor shall have received no later than
---------------
five (5) Business Days prior to the Acquisition Date a fully executed
counterpart of the applicable Funding Request, executed by the Lessee.
(p) Delivery of Pledged Securities and Certificate A. The Lessee
------------------------------------------------
shall have delivered the Pledged Securities and the Certificate A to the
Custodian and the Lessor, respectively, in accordance with the Securities
Pledge Agreement and Certificate Pledge Agreement, respectively.
-5-
<PAGE>
All documents and instruments required to be delivered on the Acquisition Date
shall be delivered at the offices of Mayer, Brown & Platt, 1675 Broadway, New
York, New York 10019, or at such other location as may be determined by the
Lessor and the Lessee.
ARTICLE V
[INTENTIONALLY OMITTED]
ARTICLE VI
REPRESENTATIONS
VI.1 Representations of the Lessor. The Lessor represents and warrants
-----------------------------
to the Lessee that:
(a) ERISA. The Lessor is not and will not be funding the Advance
-----
hereunder, and is not performing its obligations under the Operative
Documents, with the assets of an "employee benefit plan" (as defined in
Section 3(3) of ERISA) which is subject to Title I of ERISA, or "plan" (as
------------
defined in Section 4975(e)(1) of the Code).
------------------
(b) Status. The Lessor is a duly organized and validly existing
------
Delaware business trust and has all requisite power and authority to own
its property and to conduct the business in which it is currently engaged.
(c) Corporate Power and Authority. The Lessor has the requisite
-----------------------------
power and authority to execute, deliver and carry out the terms and
provisions of the Operative Documents to which it is or will be a party
and has taken all necessary action to authorize the execution, delivery
and performance of the Operative Documents to which it is a party and has
duly executed and delivered each Operative Document required to be
executed and delivered by it and, assuming the due authorization,
execution and delivery thereof on the part of each other party thereto,
each such Operative Document constitutes a legal, valid and binding
obligation enforceable against it in accordance with its terms, except as
the same may be limited by insolvency, bankruptcy, reorganization or other
laws relating to or affecting the enforcement of creditors' rights
generally and by equitable principles whether enforcement is sought by
proceedings in equity or at law and except as the same may be limited by
certain circumstances under law or court decisions in respect of
provisions providing for indemnification of a party with respect to
liability where such indemnification is contrary to public policy.
(d) No Legal Bar. Neither the execution, delivery and performance
------------
by the Lessor of the Operative Documents to which it is or will be a party
nor compliance with the terms and provisions thereof, nor the consummation
by the Lessor of the transactions contemplated therein (i) will result in
a violation by the Lessor of any provision of any Applicable Law that
would Materially adversely affect (x) the validity or enforceability of
the Operative Documents to which the Lessor is a party, or the title to,
or value or condition of, the Property, or (y) the financial position,
business or results of operations of the Lessor or the ability of the
Lessor to perform its obligations under the Operative Documents (ii) will
conflict with or result in any breach which would constitute a default
under, or (other than pursuant to the Operative Documents) result in the
creation or imposition of (or the obligation to create or impose) any Lien
upon any of the property
-6-
<PAGE>
or assets of the Lessor pursuant to the terms of any indenture, loan
agreement or other agreement for borrowed money to which the Lessor is a
party or by which it or any of its property or assets is bound or to which
it may be subject (other than Permitted Liens), or (iii) will violate any
provision of the Trust Agreement.
(e) Litigation. There are no actions, suits or proceedings pending
----------
or, to the knowledge of the Lessor, threatened (i) against the Property,
(ii) that are reasonably likely to have a Materially adverse effect on the
ability of the Lessor to perform its obligations under the Operative
Documents or (iii) that question the validity of the Operative Documents
or the rights or remedies of the Lessor with respect to the Lessor or the
Property under the Operative Documents.
(f) Governmental Approvals. No Governmental Action by any
----------------------
Governmental Authority having jurisdiction over the Lessor which has not
been taken on or prior to the Acquisition Date is required to authorize or
is required in connection with (i) the execution, delivery and performance
by the Lessor of any Operative Document to which it is a party, or (ii)
the legality, validity, binding effect or enforceability against the
Lessor of any Operative Document to which it is a party.
(g) Investment Company Act. The Lessor is not an "investment
----------------------
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act.
(h) Public Utility Holding Company Act. The Lessor is not a
----------------------------------
"holding company" or a "subsidiary company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Company Act of 1935, as amended.
VI.2 Representations of Lessee. The Lessee represents and warrants to
-------------------------
the Lessor that:
(a) Corporate Status. The Lessee (i) is a duly organized and
----------------
validly existing corporation in good standing under the laws of the State
of Delaware and (ii) has the corporate power and authority to own its
properties and to conduct the business in which it is currently engaged.
(b) Corporate Power and Authority. The Lessee has the corporate
-----------------------------
power and authority to execute, deliver and carry out the terms and
provisions of the Operative Documents to which it is or will be a party
and has taken all necessary corporate action to authorize the execution,
delivery and performance of the Operative Documents to which it is a party
and has duly executed and delivered each Operative Document required to be
executed and delivered by it and, assuming the due authorization,
execution and delivery thereof on the part of each other party thereto,
each such Operative Document constitutes a legal, valid and binding
obligation enforceable against it in accordance with its terms, except as
the same may be limited by insolvency, bankruptcy, reorganization or other
laws relating to or affecting the enforcement of creditors' rights
generally and by equitable principles whether enforcement is sought by
proceedings in equity or at law and except as the same may be limited by
certain circumstances under law or court decisions in respect of
provisions providing for indemnification of a party with respect to
liability where such indemnification is contrary to public policy.
(c) No Legal Bar. Neither the execution, delivery and performance
------------
by the Lessee of the Operative Documents to which it is or will be a party
nor compliance with the terms and
-7-
<PAGE>
provisions thereof, nor the consummation by the Lessee of the transactions
contemplated therein (i) will result in a violation by the Lessee of any
provision of any Applicable Law that would Materially adversely affect (x)
the validity or enforceability of the Operative Documents to which the
Lessee is a party, or the title to, or value or condition of, the Property,
or (y) the consolidated financial position, business or consolidated
results of operations of the Lessee or the ability of the Lessee to perform
its obligations under the Operative Documents, (ii) will conflict with or
result in any breach which would constitute a default under, or (other than
pursuant to the Operative Documents) result in the creation or imposition
of (or the obligation to create or impose) any Lien upon any of the
property or assets of the Lessee pursuant to the terms of any indenture,
loan agreement or other agreement for borrowed money to which the Lessee is
a party or by which it or any of its property or assets is bound or to
which it may be subject (other than Permitted Liens), or (iii) will violate
any provision of the certificate of incorporation or by-laws of the Lessee.
(d) Litigation. There are no actions, suits or proceedings pending
----------
or, to the knowledge of the Lessee, threatened (i) against the Property,
(ii) that are reasonably likely to have a Materially adverse effect on the
ability of the Lessee to perform its obligations under the Operative
Documents or (iii) that question the validity of the Operative Documents or
the rights or remedies of the Lessor with respect to the Lessee or the
Property under the Operative Documents.
(e) Governmental Approvals. No Governmental Action by any
----------------------
Governmental Authority having jurisdiction over the Lessee or the Property
which has not been taken on or prior to the Acquisition Date is required to
authorize or is required in connection with (i) the execution, delivery and
performance by the Lessee of any Operative Document to which it is a party,
or (ii) the legality, validity, binding effect or enforceability against
the Lessee of any Operative Document to which it is a party.
(f) Investment Company Act. The Lessee is not an "investment
----------------------
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act.
(g) Public Utility Holding Company Act. The Lessee is not a "holding
----------------------------------
company" or a "subsidiary company", or an "affiliate" of a "holding
company" or of a "subsidiary company" of a "holding company", within the
meaning of the Public Utility Company Act of 1935, as amended.
(h) Offer of Securities, etc. Neither the Lessee nor any Person
------------------------
authorized to act on the Lessee's behalf has, directly or indirectly,
offered any interest in the Property or any other interest similar thereto
(the sale or offer of which would be integrated with the sale or offer of
such interest in the Property), for sale to, or solicited any offer to
acquire any of the same from, any Person other than the Lessor and other
"accredited investors" (as defined in Regulation D of the Securities and
Exchange Commission).
(i) Solvency. The Lessee's representations and warranties set forth
--------
in Section 4.1 (c)(I) are true and correct.
---
(j) Use of Property. The Property and the contemplated use thereof by
---------------
the Lessee and its agents, assignees, employees, lessees, licensees and
tenants will comply with all Material Requirements of Law (including,
without limitation, all zoning and land use laws and Environmental Laws)
and Material Insurance Requirements, except for such Requirements of Law
-8-
<PAGE>
as the Lessee shall be contesting in good faith by appropriate proceedings.
There is no action, suit or proceeding (including any proceeding in
condemnation or eminent domain or under any Environmental Law) pending or,
to the best of the Lessee's knowledge, threatened with respect to the
Lessee, its Affiliates or the Property which adversely Materially affects
the title to, or the use, operation or value of, the Property.
(k) Condition of Property. The Property has all utilities required to
---------------------
adequately service it for its intended use pursuant to adequate permits
(including any that may be required under applicable Environmental Laws).
No fire or other casualty with respect to the Property has occurred which
fire or other casualty has had a Material adverse effect on the Property.
The Property has available all Material services of public facilities and
other utilities necessary for use and operation of the Property as a
managed residential community with assisted living services, including
required public utilities and means of access between the Property and
public highways for pedestrians and motor vehicles. All utilities proposed
to serve the Property are located in, and vehicular access to the Property
is provided by, either public rights-of-way abutting the Property or
Appurtenant Rights.
(l) Title. The Deed will be in form and substance sufficient to
-----
convey good and marketable title to the Property in fee simple, subject
only to Permitted Liens. The Lessor will at all times during the Term have
good title to all Equipment located on the Property and in any
Improvements, subject only to Permitted Liens and Lessor Liens, if any.
(m) Insurance. The Lessee has obtained insurance coverage covering
---------
the Property or self insures in a manner which satisfies the terms of this
Lease, and any such coverage is in full force and effect. The Lessee
carries insurance with reputable insurers in respect of its Material
Assets, in such manner, in such amounts and against such risks as is
customarily maintained by other Persons of similar size engaged in similar
business.
(n) Flood Hazard Areas. Except as otherwise identified on the survey
------------------
delivered pursuant to Section 4.3(j), no portion of the Property is located
--------------
in an area identified as a special flood hazard area by the Federal
Emergency Management Agency or other applicable agency. With respect to
any portion of the Property located in an area identified as a special
flood hazard area by the Federal Emergency Management Agency or other
applicable agency, the Lessee is self-insured with respect to all risks
related thereto to the same extent as the Lessee self-insures its other
assets similarly situated, and otherwise in accordance with Section 17.2
------------
and in accordance with the National Flood Insurance Act of 1968, as
amended, or has provided adequate flood hazard insurance as required under
the Nomura Loan Agreement.
(o) Defaults. No Event of Default or similar event which with the
--------
lapse of time or notice or both would constitute an "Event of Default" or
similar event has occurred and is continuing hereunder or under any
Material bond, debenture, note or other evidence of indebtedness or
Material mortgage, deed of trust, indenture or loan agreement or other
instrument to which the Lessee is a party or is subject to or bound.
(p) Use of Advance. No part of the Advance will be used directly or
--------------
indirectly for the purpose of purchasing or carrying, or for payment in
full or in part of Debt that was incurred for the purposes of purchasing or
carrying, any margin security as such term is defined in Section
-------
-9-
<PAGE>
207.2 of Regulation G of the Board of Governors of the Federal Reserve
-----
System (12 C.F.R., Chapter II, Part 207).
VI.3 Representations of the Lessee with Respect to the Advance. The
---------------------------------------------------------
Lessee represents and warrants to the Lessor as of the Acquisition Date as
follows:
(a) Representations. The representations and warranties of the
---------------
Lessee set forth in the Operative Documents (including the representations
and warranties set forth in Section 6.2) are true and correct in all
-----------
material respects on and as of the Acquisition Date, except to the extent
such representations or warranties relate solely to an earlier date, in
which case such representations and warranties shall have been true and
correct in all material respects on and as of such earlier date. The
Lessee is in compliance in all material respects with its respective
obligations under the Operative Documents and there exists no Default or
Event of Default under this Lease or any other Operative Document to which
the Lessee is a party. No Default or Event of Default under this Lease or
any other Operative Document to which the Lessee is a party will occur as a
result of, or by giving effect to, the Advance requested by the Funding
Request on such date.
(b) Liens. The Lessee has not permitted Liens to be placed against
-----
the Property other than Permitted Liens.
(c) Advance. The Advance requested represents amounts owed by, or
-------
previously paid by, the Lessee to third parties in respect of Property
Cost. The conditions precedent to the Advance set forth in Article IV have
----------
been satisfied.
ARTICLE VII
PAYMENT OF RENT
VII.1 Rent.
----
(a) The Lessee shall pay FBTC Basic Rent and Lessor Basic Rent on
the Acquisition Date. Thereafter the Lessee shall pay Basic Rent (to the
extent such Basic Rent (or any component thereof) is then due and owing) on
(x) each Payment Date during the Term, (y) the date required under Section
-------
24.1(i) in connection with the Lessee's exercise of the Remarketing Option,
-------
and (z) any date on which this Lease shall terminate. The Lessee and Lessor
hereby agree that amounts which would otherwise be payable by Lessee to
Lessor hereunder as Lessor Basic Rent are payable as interest on the
Pledged Securities pursuant to the terms of the Securities Pledge Agreement
and such amounts shall not constitute Rent hereunder.
(b) Rent shall be due and payable in lawful money of the United
States and, after the occurrence and during the continuance of a Cash
Management Event, shall be paid by wire transfer of immediately available
funds on the due date therefor from the relevant Sub-Accounts of the Cash
Collateral Account, to the extent funds exist therein. With the exception
of the first payment on the Acquisition Date of FBTC Basic Rent and Lessor
Basic Rent, for which at least two (2) Business Days prior written notice
from the Lessor shall be provided, the Lessor shall provide written notice
of the amount of Basic Rent due at least five (5) Business Days prior to
each due date therefor; provided, however, that the failure of the Lessor
-------- -------
to provide such notice
-10-
<PAGE>
shall not affect Lessee's obligations hereunder or impose liability on
Lessor. Lessee shall deposit all security deposits received by it with
respect to the Property into the Security Deposit Account and shall cause
all relevant checks to be made payable to the name of the Security Deposit
Account.
(c) So long as a Cash Management Event is not continuing, Rent shall
be payable by wire transfer of immediately available funds on the due date
therefor as follows: (i) Lessor Basic Rent and FBTC Basic Rent and
Supplemental Rent to which the Lessor is entitled shall be payable to the
Lessor at the place of payment designated in writing by the Lessor and (ii)
the remainder of Basic Rent and Supplemental Rent to which the Lender is
entitled shall be payable to the Lender or Lender's designee or to an
account identified by Lender or Lender's designee as set forth in Section
-------
2.12 (b) of the Nomura Loan Agreement.
--------
(d) Neither the Lessee's inability or failure to take possession of
all or any portion of the Property when delivered by the Lessor, whether or
not attributable to any act or omission of the Lessee, or for any other
reason whatsoever, shall delay or otherwise affect the Lessee's obligation
to pay Rent for the Property in accordance with the terms of this Lease.
VII.2 Payment of Rent. Rent shall be paid absolutely net to the Lessor,
---------------
so that this Lease shall yield to the Lessor the full amount thereof, without
setoff, deduction or reduction.
VII.3 Supplemental Rent. The Lessee shall pay promptly as Supplemental
-----------------
Rent shall become due and payable (a) after the occurrence and during the
continuance of a Cash Management Event, to the Collection Account and (b) so
long as that a Cash Management Event is not continuing, any and all Supplemental
Rent payable pursuant to the Nomura Loan Agreement, to the Lender, Lender's
designee or to such parties as set forth in the Nomura Loan Agreement, and all
other Supplemental Rent to the Lessor. If the Lessee fails to pay any
Supplemental Rent, the Lessor shall have all rights, powers and remedies
provided for herein or by law or equity or otherwise in the case of nonpayment
of Basic Rent. The Lessee shall pay as Supplemental Rent, among other things,
with ten (10) days following demand (or such shorter period that such payment is
required to be made under the Loan Documents) to the extent permitted by
applicable Requirements of Law, interest at the applicable Overdue Rate on any
installment of Basic Rent not paid when due for the period for which the same
shall be overdue and on any payment of Supplemental Rent not paid when due or
demanded by the Lessor for the period from the due date or the date of any such
demand, as the case may be, until the same shall be paid. The expiration or
other termination of the Lessee's obligations to pay Basic Rent hereunder shall
not limit or modify the obligations of the Lessee with respect to Supplemental
Rent. Unless expressly provided otherwise in this Lease, in the event of any
failure on the part of the Lessee to pay and discharge any Supplemental Rent as
and when due, the Lessee shall also promptly pay and discharge any fine,
penalty, interest or cost which may be assessed or added under any agreement
with a third party for nonpayment or late payment of such Supplemental Rent, all
of which shall also constitute Supplemental Rent.
VII.4 Method of Payment. Except as otherwise set forth in the Nomura Loan
-----------------
Agreement, each payment of Rent or any other amount due hereunder shall be made
by the Lessee to the applicable party prior to 12:00 noon., New York City time
at the place of payment designated in writing by the Lessor or such applicable
party in funds consisting of lawful currency of the United States of America
which shall be in federal or other immediately available funds to an account
specified by Lender (with respect to payments to Lender) and, with respect to
all other payees, to such accounts as specified by such payees. If
-11-
<PAGE>
any payment is due on a date which is not a Business Day, such payment shall be
made on the next succeeding Business Day. Payments received after 12:00 noon,
New York City time on the date due shall for all purposes hereof be deemed to
have been paid on the next succeeding Business Day.
ARTICLE VII
QUIET ENJOYMENT; RIGHT TO INSPECT
VII.1 Quiet Enjoyment. Subject to Sections 2.4 and 8.2, and subject to
--------------- ------------ ---
the rights of the Lessor contained herein and the other terms of the Operative
Documents to which the Lessee is a party, the Lessee shall peaceably and quietly
have, hold and enjoy the Property for the Term, free of any claim or other
action by the Lessor or anyone claiming by, through or under the Lessor (other
than the Lessee) with respect to any matters arising from and after the
Acquisition Date. Such right of quiet enjoyment is independent of, and shall not
affect the Lessor's rights otherwise to initiate legal action to enforce, the
obligations of the Lessee under this Lease.
VIII.2 Right to Inspect. During the Term, the Lessee shall, upon
----------------
reasonable prior written notice from the Lessor (except that no notice shall be
required if an Event of Default under this Lease has occurred and is
continuing), and subject to the rights of permitted sublessees permit the Lessor
and its authorized representatives to inspect the Property during normal
business hours, provided that such inspections shall not unreasonably interfere
with the Lessee's business operations at the Property.
ARTICLE IX
NET LEASE, ETC.
IX.1 Net Lease. This Lease shall constitute a net lease. Any present or
---------
future law to the contrary notwithstanding, this Lease shall not terminate, nor
shall the Lessee be entitled to any abatement, suspension, deferment, reduction,
setoff, counterclaim, or defense with respect to the Rent, nor shall the
obligations of the Lessee hereunder be affected (except as expressly herein
permitted and by performance of the obligations in connection therewith) by
reason of: (i) any defect in the condition, merchantability, design,
construction, quality or fitness for use of the Property or any part thereof, or
the failure of the Property to comply with all Requirements of Law, including
any inability to occupy or use the Property by reason of such non-compliance;
(ii) any damage to, removal, abandonment, salvage, loss, contamination of or
Release from, scrapping or destruction of or any requisition or taking of the
Property or any part thereof; (iii) any restriction, prevention or curtailment
of or interference with any use of the Property or any part thereof including
eviction; (iv) any defect in title to or rights to the Property or any Lien on
such title or rights or on the Property (other than Lessor Liens); (v) any
change, waiver, extension, indulgence or other action or omission or breach in
respect of any obligation or liability of or by the Lessor; (vi) any bankruptcy,
insolvency, reorganization, composition, adjustment, dissolution, liquidation or
other like proceedings relating to the Lessee or any other Person, or any action
taken with respect to this Lease by any trustee or receiver of the Lessee or any
other Person, or by any court, in any such proceeding; (vii) any claim that the
Lessee has or might have against any Person, including without limitation the
Lessor and any vendor, manufacturer, contractor of or for any portion of the
Property; (viii) any failure on the part of the Lessor to perform or comply with
any of the terms of this Lease (other than performance by Lessor of its
obligations set forth in Section 2.1 hereof), of any other Operative Document or
-----------
of any other agreement; (ix) any invalidity or unenforceability or illegality or
disaffirmance of this Lease against or by the Lessee or any provision hereof or
any of the other Operative Documents or any provision of any
-12-
<PAGE>
thereof; (x) the impossibility or illegality of performance by the Lessee, the
Lessor or both; (xi) any action by any court, administrative agency or other
Governmental Authority; (xii) any restriction, prevention or curtailment of or
interference with the construction on or any use of the Property or any part
thereof; or (xiii) any other cause or circumstances, whether or not the Lessee
shall have notice or knowledge of any of the foregoing. The parties intend that
the obligations of the Lessee hereunder shall be covenants and agreements that
are separate and independent from any obligations of the Lessor hereunder or
under any other Operative Documents and the obligations of the Lessee shall
continue unaffected unless such obligations shall have been modified or
terminated in accordance with an express provision of this Lease. Nothing
contained herein is intended to obviate or otherwise diminish any right the
Lessee may have to bring an action, either at law or in equity, to remedy any
breach by the Lessor of the Lessor's obligations hereunder.
XI.2. No Termination or Abatement. The Lessee shall remain obligated
---------------------------
under this Lease in accordance with its terms and shall not take any action to
terminate, rescind or avoid this Lease, notwithstanding any action for
bankruptcy, insolvency, reorganization, liquidation, dissolution, or other
proceeding affecting the Lessor, or any action with respect to this Lease which
may be taken by any trustee, receiver or liquidator of the Lessor or by any
court with respect to the Lessor. The Lessee hereby waives all right (i) to
terminate or surrender this Lease (except as provided herein) or (ii) to avail
itself of any abatement, suspension, deferment, reduction, setoff, counterclaim
or defense with respect to any Rent. The Lessee shall remain obligated under
this Lease in accordance with its terms and the Lessee hereby waives any and all
rights now or hereafter conferred by statute or otherwise to modify or to avoid
strict compliance with its obligations under this Lease. Notwithstanding any
such statute or otherwise, the Lessee shall be bound by all of the terms and
conditions contained in this Lease. Notwithstanding anything contained in this
Article IX, this Lease may be terminated by Lessor pursuant to, inter alia,
- ---------- ----------
Sections 19.1 and 20.2 hereof.
- ------------- ----
ARTICLE X
SUBLEASES
X.1. Subletting. The Lessee may, without the consent of the Lessor,
----------
sublease the Property or any portion thereof to any Person. No sublease or
other relinquishment of possession of the Property shall in any way discharge or
diminish any of the Lessee's obligations to the Lessor hereunder, and the Lessee
shall remain directly and primarily liable under this Lease, even if assigned,
and as to the Property or portion thereof so sublet. Any sublease of the
Property shall have a term of not longer than one year or if such sublease has a
term of more than one year, such term shall not extend beyond the Base Lease
Term or any Renewal Period. The Lessor hereby expressly agrees that any
obligations or covenants under this Lease may be performed by any permitted
sublessee directly, and the Lessor agrees that any such performance will be
accepted in satisfaction of the obligations or covenants in this Lease.
ARTICLE XI
LESSEE ACKNOWLEDGMENTS
XI.1. Condition of the Property. THE LESSEE ACKNOWLEDGES AND AGREES THAT
-------------------------
IT IS LEASING THE PROPERTY "AS IS" WITHOUT REPRESENTATION, WARRANTY OR COVENANT
(EXPRESS OR IMPLIED) BY THE LESSOR AND SUBJECT TO (A) THE EXISTING
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STATE OF TITLE, (B) THE RIGHTS OF ANY PARTIES IN POSSESSION THEREOF, (C) ANY
STATE OF FACTS WHICH AN ACCURATE SURVEY OR PHYSICAL INSPECTION MIGHT SHOW, AND
(D) VIOLATIONS OF REQUIREMENTS OF LAW WHICH MAY EXIST ON THE DATE HEREOF OR ON
THE ACQUISITION DATE. THE LESSOR HAS NOT MADE AND SHALL NOT BE DEEMED TO HAVE
MADE ANY REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED) AND SHALL NOT
BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER AS TO THE TITLE (OTHER THAN FOR
LESSOR LIENS), VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION, OR
FITNESS FOR USE OF THE PROPERTY (OR ANY PART THEREOF), OR ANY OTHER
REPRESENTATION, WARRANTY OR COVENANT WHATSOEVER, EXPRESS OR IMPLIED, WITH
RESPECT TO THE PROPERTY (OR ANY PART THEREOF) AND THE LESSOR SHALL NOT BE LIABLE
FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREIN (OTHER THAN FOR LESSOR LIENS)
OR THE FAILURE OF THE PROPERTY, OR ANY PART THEREOF, TO COMPLY WITH ANY
REQUIREMENT OF LAW.
XI.2. Risk of Loss. During the Term the risk of loss of or decrease in
------------
the enjoyment and beneficial use of the Property as a result of the damage or
destruction thereof by fire, the elements, casualties, thefts, riots, wars or
otherwise is assumed by the Lessee, and the Lessor shall in no event be
answerable or accountable therefor.
ARTICLE XII
POSSESSION AND USE OF THE PROPERTY, ETC.
XII.1 Utility Charges. The Lessee shall pay or cause to be paid all
---------------
charges for electricity, power, gas, oil, water, telephone, sanitary sewer
service and all other rents and utilities used in or on the Property during the
Term. The Lessee shall be entitled to receive any credit or refund with respect
to any utility charge paid by the Lessee and the amount of any credit or refund
received by the Lessor on account of any utility charges paid by the Lessee, net
of the costs and expenses reasonably incurred by the Lessor in obtaining such
credit or refund, shall be promptly paid over to the Lessee.
XII.2. Possession and Use of the Property. The Property shall be used as a
----------------------------------
managed residential community with assisted living services in a manner
consistent with the standards applicable to properties of a similar nature in
the geographic area in which the Property is located and in any event not less
than the standards applied by Affiliates of the Lessee for other comparable
properties of the Lessee or such Affiliates in such geographic area. The Lessee
shall pay, or cause to be paid, all charges and costs required in connection
with the use of the Property as contemplated by this Lease. The Lessee shall not
intentionally commit or permit any waste of the Property or any part thereof.
XII.3. Compliance with Requirements of Law and Insurance Requirements.
--------------------------------------------------------------
Subject to the terms hereof relating to permitted contests, the Lessee, at its
sole cost and expense, shall (a) comply in all Material respects with all
Requirements of Law (including all Environmental Laws) and Insurance
Requirements relating to the Property, including the use, construction,
operation, maintenance, repair and restoration thereof and the remarketing
thereof pursuant to Article XXIV, whether or not compliance therewith shall
------------
require structural or extraordinary changes in the applicable Improvements or
interfere with the use and enjoyment of the Property, and (b) procure, maintain
and comply with all Material licenses, permits, orders, approvals, consents and
other authorizations required for the construction, use,
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maintenance and operation of the Property and for the use, operation,
maintenance, repair and restoration of the applicable Improvements.
XII.4. Assignment by Lessee. Subject to the terms of the Nomura Loan
--------------------
Agreement, the Lessee may, with the consent of the Lessor, assign its rights
hereunder, including the Purchase Option, to any other Person so long as the
Lessee remains fully liable for all of the obligations of the "Lessee" hereunder
and under the other Operative Documents.
ARTICLE XII
MAINTENANCE AND REPAIR; RETURN
XIII.1. Maintenance and Repair; Return.
------------------------------
(a) The Lessee, at its sole cost and expense, shall maintain the
Property in good condition (ordinary wear and tear excepted) and make all
necessary repairs thereto, of every kind and nature whatsoever, whether
interior or exterior, ordinary or extraordinary, structural or
nonstructural or foreseen or unforeseen, in each case as required by all
Requirements of Law and Insurance Requirements and on a basis consistent
with the operation and maintenance by the Lessee or its Affiliates of
properties of a similar nature owned or leased by the Lessee or any of its
Affiliates in the geographic area where the Property is located.
(b) The Lessor shall under no circumstances be required to build
any improvements on the Property, make any repairs, replacements,
alterations or renewals of any nature or description to the Property, make
any expenditure whatsoever in connection with this Lease or maintain the
Property in any way. The Lessor shall not be required to maintain, repair
or rebuild all or any part of the Property, and the Lessee waives any right
to (i) require the Lessor to maintain, repair, or rebuild all or any part
of the Property, or (ii) make repairs at the expense of the Lessor pursuant
to any Requirement of Law, Insurance Requirement, contract, agreement, or
covenant, condition or restriction in effect at any time during the Term.
(c) The Lessee shall, upon the expiration or earlier termination of
this Lease, vacate and surrender the Property to the Lessor in its then-
current, "AS IS" condition, subject to the Lessee's obligations under
Sections 12.3, 13.1(a), 14.1, 15.1, 18.1(e), 18.2 and 24.1, unless the
------------- ------- ---- ---- ------- ---- ----
Lessee has purchased the Property from the Lessor as provided herein.
ARTICLE XIV
MODIFICATIONS, ETC.
XIV.1. Modifications, Substitutions and Replacements. The Lessee, at its
---------------------------------------------
sole cost and expense, may at any time and from time to time make alterations,
renovations, improvements and additions to the Property or any part thereof and
substitutions and replacements therefor (collectively, "Modifications");
-------------
provided, however, that: (i) except for any Modification required to be made
- -------- -------
pursuant to a Requirement of Law (a "Required Modification"), no Modification
---------------------
shall impair the value, utility or useful life of the Property or any part
thereof from that which existed immediately prior to such Modification; (ii) the
Modification shall be done expeditiously and in a good and workmanlike manner;
(iii) the Lessee shall
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comply with all Requirements of Law (including all Environmental Laws) and
Insurance Requirements applicable to the Modification, including the obtaining
of all permits and certificates of occupancy, and the structural integrity of
the Property shall not be materially adversely affected; (iv) subject to the
terms of Article XVI relating to permitted contests, the Lessee shall pay all
costs and expenses and shall discharge (or cause to be insured or bonded over)
within sixty (60) days after the same shall be filed (or otherwise become
effective) any Liens arising with respect to the Modification; and (v) such
Modifications shall comply with Sections 12.3 and 13.1(a). All Modifications
shall remain part of the realty and shall be subject to this Lease and title
thereto shall immediately vest in the Lessor; provided, however, that
Modifications that meet each of the following conditions shall not be subject to
this Lease: (x) such Modifications are not Required Modifications, (y) such
Modifications were not financed by the Lessor and (z) such Modifications are
readily removable without impairing the value, utility or remaining useful life
of the Property. The Lessee may place upon the Property any trade fixtures,
machinery, equipment or other property belonging to the Lessee or third parties
and may remove the same at any time during the Term, subject, however, to the
terms of Section 13.1(a), and Lessor hereby waives any liens, to which it may be
entitled pursuant to any statutory or common law, in such trade fixtures,
machinery, equipment or other property; provided that such trade fixtures,
machinery, equipment or other property do not Materially impair the value,
utility or remaining useful life of the Property; provided, further, that the
Lessee shall keep and maintain at the Property and shall not, without the
Lessor's prior consent, remove from the Property any Equipment financed or
otherwise paid for (directly or indirectly) by the Lessor pursuant to this
Lease. Notwithstanding the forgoing, the Lessee shall comply with all
provisions of the Loan Documents with respect to Modifications as if the Lessee
were the Borrower thereunder, and to the extent the provisions hereof are
inconsistent with same, the provisions of the Loan Documents shall control.
ARTICLE XV
WARRANT OF TITLE; EASEMENTS
XV.1. Warrant of Title.
----------------
(a) The Lessee agrees that except as otherwise provided herein and
subject to the terms of Article XVI relating to permitted contests, the
Lessee shall not directly or indirectly create or allow to remain, and
shall promptly discharge at its sole cost and expense, any Lien, defect,
attachment, levy, title retention agreement or claim upon the Property or
any Modifications or any Lien, attachment, levy or claim with respect to
the Rent, other than Permitted Liens and Liens on machinery, equipment,
general intangibles and other personal property not financed by the
Advance.
(b) Nothing contained in this Lease shall be construed as
constituting the consent or request of the Lessor, expressed or implied, to
or for the performance by any contractor, mechanic, laborer, materialman,
supplier or vendor of any labor or services or for the furnishing of any
materials for any construction, alteration, addition, repair or demolition
of or to the Property or any part thereof. NOTICE IS HEREBY GIVEN THAT THE
LESSOR IS NOT AND SHALL NOT BE LIABLE FOR ANY LABOR, SERVICES OR MATERIALS
FURNISHED OR TO BE FURNISHED TO THE LESSEE, OR TO ANYONE HOLDING THE
PROPERTY OR ANY PART THEREOF THROUGH OR UNDER THE LESSEE, AND THAT NO
MECHANIC'S OR OTHER LIENS FOR ANY SUCH LABOR, SERVICES OR MATERIALS
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SHALL ATTACH TO OR AFFECT THE INTEREST OF THE LESSOR, IN AND TO THE
PROPERTY.
XV.2. Grants and Releases of Easements; Lessor's Waivers. (x) Provided
--------------------------------------------------
that no Event of Default shall have occurred and be continuing, (y) subject to
the rights of the Lessee under the provisions of Articles XII, XIII and XIV and
(z) provided that the following is consistent with the terms of the Loan
Documents, the Lessor hereby consents in each instance to the following actions
by the Lessee, in the name and stead of the Lessor, but at the Lessee's sole
cost and expense: (a) the granting of easements, licenses, rights-of-way and
other rights and privileges in the nature of easements reasonably necessary or
desirable for the use, repair, or maintenance of the Property as herein
provided; (b) the release of existing easements or other rights in the nature of
easements which are for the benefit of the Property; (c) if required by
applicable Governmental Authority for any purpose, including, but not limited
to, the dedication or transfer of unimproved portions of the Property for road,
highway or other public purposes; and (d) the execution of amendments to any
covenants and restrictions affecting the Property; provided, however, that in
each case (i) such grant, release, dedication, transfer or amendment does not
Materially impair the value, utility or remaining useful life of the Property,
(ii) such grant, release, dedication, transfer, annexation or amendment is
reasonably necessary in connection with the use, maintenance, alteration or
improvement of the Property, (iii) such grant, release, dedication, transfer,
annexation or amendment will not cause the Property or any portion thereof to
fail to comply in any Material respect with the provisions of this Lease or any
other Operative Documents and all Requirements of Law (including, without
limitation, all applicable zoning, planning, building and subdivision
ordinances, all applicable restrictive covenants and all applicable
architectural approval requirements); (iv) all governmental consents or
approvals required prior to such grant, release, dedication, transfer,
annexation or amendment have been obtained, and all filings required prior to
such action have been made; (v) such grant, release, dedication, transfer,
annexation or amendment will not result in any down-zoning of the Property or
any portion thereof or a material reduction in the maximum density or
development rights available to the Property under all Requirements of Law; (vi)
the Lessee shall remain obligated under this Lease and under any instrument
executed by the Lessee consenting to the assignment of the Lessor's interest in
this Lease as security for indebtedness, in each such case in accordance with
their terms, as though such grant, release, dedication, transfer, annexation or
amendment had not been effected and (vii) the Lessee shall pay and perform any
obligations of the Lessor under such grant, release, dedication, transfer,
annexation or amendment. The Lessor acknowledges the Lessee's right to finance
and to secure under the Uniform Commercial Code, inventory, furnishings,
furniture, equipment, machinery, leasehold improvements and other personal
property located at the Property other than Equipment which has been purchased
with funds provided by the Lessor, and Lessor hereby disclaims and waives any
interest therein and right thereto and the Lessor shall, upon the request of the
Lessee, and at the Lessee's sole cost and expense, execute and deliver any
instruments necessary or appropriate to confirm any such grant, release,
dedication, transfer, annexation, amendment, disclaimer or waiver to any Person
permitted under this Section 15.2 including landlord waivers with respect to any
of the foregoing.
ARTICLE XVI
PERMITTED CONTESTS
XVI.1. Permitted Contests in Respect of Applicable Law. Subject to the
-----------------------------------------------
terms of the Loan Documents, if, to the extent and for so long as (a) a test,
challenge, appeal or proceeding for review of any Applicable Law relating to the
Property shall be prosecuted diligently and in good faith in appropriate
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proceedings by the Lessee or (b) compliance with such Applicable Law shall have
been excused or exempted by a valid nonconforming use, variance permit, waiver,
extension or forbearance, the Lessee shall not be required to comply with such
Applicable Law but only if and so long as any such test, challenge, appeal,
proceeding, waiver, extension, forbearance or noncompliance shall not, in the
reasonable opinion of the Lessor, involve (A) any risk of criminal liability
being imposed on the Lessor or the Property, or (B) any risk of (1) foreclosure,
forfeiture or loss of the Property, or any Material part thereof, or (2) the
nonpayment of Rent or (C) any substantial danger of (1) the sale of, or the
creation of any Lien (other than a Permitted Lien) on, any part of the Property,
(2) civil liability being imposed on the Lessor, or the Property, or (3)
enjoinment of, or interference with, the use, possession or disposition of the
Property in any Material respect.
The Lessor will not be required to join in any proceedings pursuant to this
Section 16.1 unless a provision of any Applicable Law requires that such
proceedings be brought by or in the name of the Lessor; and in that event the
Lessor will join in the proceedings or permit them or any part thereof to be
brought in its name if and so long as (i) no Default has occurred and is
continuing and (ii) the Lessee pays all related expenses and indemnifies the
Lessor to its reasonable satisfaction.
ARTICLE XVI
INSURANCE
XVII.2. Public Liability and Workers' Compensation Insurance.
----------------------------------------------------
(a) During the Term the Lessee shall procure and carry, at the
Lessee's sole cost and expense, commercial general liability insurance for
claims for bodily injury or death sustained by persons or damage to
property while on the Property and such other public liability coverages as
are ordinarily procured by the Lessee or its Affiliates who own or operate
similar properties. Such insurance shall be on terms and in amounts that
are in accordance with normal industry practice. The policy shall be
endorsed to name the Lessor, the Trust Company and the Lender as additional
insured. The policy shall also specifically provide that the policy shall
be considered primary insurance which shall apply to any loss or claim
before any contribution by any insurance which the Lessor may have in
force.
(b) The Lessee shall, in the construction of any Improvements
(including in connection with any Modifications thereof) and the operation
of the Property, comply with, or cause the applicable contractor to comply
with, all applicable workers' compensation laws.
XVII.2 Hazard and Other Insurance. During the Term the Lessee shall keep,
--------------------------
or cause to be kept, the Property insured against loss or damage by fire, flood
and other risks on terms and in amounts that are no less favorable than
insurance covering other similar properties owned by the Lessee or its
Affiliates and that are in accordance with normal industry practice and as
required in the Loan Documents. During the construction of any Improvements the
Lessee shall also maintain or cause to be maintained builders' risk insurance.
XVII.3. Insurance Coverage.
------------------
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(a) The Lessee shall furnish the Lessor with certificates showing
the insurance required under Sections 17.1 and 17.2 to be in effect and
naming the Lessor as additional insured with respect to liability coverage
(excluding worker's compensation insurance), and naming the Lessor as loss
payee with respect to property coverage and showing the mortgagee
endorsement required by Section 17.3(c) with respect to such coverage. All
such insurance shall be at the cost and expense of the Lessee. Such
certificates shall include a provision for no less than thirty (30) days'
advance written notice by the insurer to the Lessor in the event of
cancellation or reduction of such insurance.
(b) The Lessee agrees that the insurance policy or policies
required by Section 17.2 shall include an appropriate clause pursuant to
which such policy shall provide that it will not be invalidated should the
Lessee waive, in writing, prior to a loss, any or all rights of recovery
against any party for losses covered by such policy, and that the insurance
in favor of the Lessor and its rights under and interests in said policies
shall not be invalidated or reduced by any act or omission or negligence of
the Lessee or any other Person having any interest in the Property. The
Lessee hereby waives any and all such rights against the Lessor to the
extent of payments made under such policies.
(c) All such insurance shall be written by reputable insurance
companies that are financially sound and solvent and otherwise reasonably
appropriate considering the amount and type of insurance being provided by
such companies. Any insurance company selected by the Lessee which is
rated in Best's Insurance Guide or any successor thereto (or if there be
none, an organization having a similar national reputation) shall have a
general policyholder rating of "A" and a financial rating of at least "12"
or be otherwise acceptable to the Lessor. All insurance policies required
by Section 17.2 shall include a standard form mortgagee endorsement in
favor of the Lender.
(d) The Lessor may carry separate liability insurance so long as
(i) the Lessee's insurance is designated as primary and in no event excess
or contributory to any insurance the Lessor may have in force which would
apply to a loss covered under the Lessee's policy and (ii) each such
insurance policy will not cause the Lessee's insurance required under this
Article XVII to be subject to a coinsurance exception of any kind.
(e) The Lessee shall pay as they become due all premiums for the
insurance required by Section 17.1 and Section 17.2, and shall renew or
replace each policy prior to the expiration date thereof. Throughout the
Term, at the time each of the Lessee's insurance policies is renewed (but
in no event less frequently than once each year), the Lessee shall deliver
to the Lessor certificates of insurance evidencing that all insurance
required by this Article XVII is being maintained by the Lessee and is in
effect.
XVII.4. Insurance Proceeds. All insurance proceeds in respect of any
------------------
loss or occurrence shall, to the extent permitted under the Loan Documents, be
paid to the Lender and, upon compliance with the terms of the Loan Documents,
the Lender shall pay same to the Lessee for application toward the
reconstruction, repair or refurbishment of the Property to the extent permitted
under the Loan Documents.
XVII.5. Insurance Requirements in Loan Documents. Notwithstanding the
----------------------------------------
provisions of Section 17.1, 17.2, 17.3 and 17.4, the Lessee shall comply with
all Insurance Requirements (as defined in the
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Nomura Loan Agreement) and to the extent the provisions hereof are inconsistent
with same, the provisions of the Loan Documents shall control. The Lessor
acknowledges that the Insurance Requirements are acceptable to it; provided,
however, that notwithstanding the foregoing, the Lessee must at all times during
the Term have liability insurance complying with Section 17.1.
ARTICLE XVI
CASUALTY AND CONDEMNATION;
ENVIRONMENTAL MATTERS
XVIII.1. Casualty and Condemnation.
-------------------------
(a) Subject to the provisions of this Article XVIII, if all or a
portion of the Property is damaged or destroyed in whole or in part by a
Casualty or if the use, access, occupancy, easement rights or title to the
Property or any part thereof, is the subject of a Condemnation, then the
Lessee shall (i) reconstruct, refurbish and repair the Property upon
submission to the Lessor of an architect's certificate as to the cost of
such restoration and to the effect that the Property can be fully restored
to the condition required under the Operative Documents and as to the cost
of such restoration or (ii) pay the Lease Balance.
(b) The Lessee may appear in any proceeding or action to
negotiate, prosecute, adjust or appeal any claim for any award,
compensation or insurance payment on account of any such Casualty or
Condemnation and shall pay all expenses thereof. At the Lessee's reasonable
request, and at the Lessee's sole cost and expense, the Lessor shall
participate in any such proceeding, action, negotiation, prosecution or
adjustment. The Lessor and the Lessee agree that this Lease shall control
the rights of the Lessor and the Lessee in and to any such award,
compensation or insurance payment.
(c) If the Lessor or the Lessee shall receive notice of a
Casualty or of an actual, pending or threatened Condemnation of the
Property or any interest therein, the Lessor or the Lessee, as the case may
be, shall give notice thereof to the other and the Lender promptly after
the receipt of such notice.
(d) If pursuant to this Section 18.1 and Section 19.1 this Lease
shall continue in full force and effect following a Casualty or
Condemnation with respect to the Property, the Lessee shall, at its sole
cost and expense (and, without limitation, if any award, compensation or
insurance payment is not sufficient to restore the Property in accordance
with this paragraph, the Lessee shall pay the shortfall), promptly and
diligently repair any damage to the Property caused by such Casualty or
Condemnation in conformity with the requirements of Sections 13.1 and 14.1
using the as-built plans and specifications for the Property (as modified
to give effect to any subsequent Modifications, any Condemnation affecting
the Property and all applicable Requirements of Law) so as to restore the
Property as near as possible to the condition, operation, function and
value as existed immediately prior to such Casualty or Condemnation with
such Modification as the Lessee may elect in accordance with Section 14.1.
In such event, title to the Property shall remain with the Lessor. Upon
completion of such restoration, the Lessee shall furnish the Lessor an
architect's certificate of substantial completion and a Responsible
Employee's Certificate confirming that such restoration has been completed
pursuant to this Lease.
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(e) In no event shall a Casualty or Condemnation affect the Lessee's
obligations to pay Rent pursuant to Section 7.1 or to perform its
obligations and pay any amounts due on the Expiration Date or pursuant to
Articles XXII and XXV.
(f) Any Excess Proceeds received by the Lessor in respect of a
Casualty or Condemnation shall be turned over to the Lessee.
(g) Notwithstanding the provisions of this Section 18.1, the Lessee
shall comply with and be entitled to the benefit of all provisions in the
Loan Documents regarding Casualty and Condemnation and to the extent the
provisions hereof are inconsistent with same, the provisions of the Loan
Documents shall control.
XVIII.2. Environmental Matters. Promptly upon the Lessee's knowledge of
---------------------
the existence of an Environmental Violation, the Lessee shall notify the Lessor
in writing of such Environmental Violation. If the Lessor elects not to
terminate this Lease pursuant to Section 19.1, at the Lessee's sole cost and
expense, the Lessee shall promptly and diligently commence any response, clean
up, remedial or other action necessary to remove, clean up or remediate the
Environmental Violation in accordance with the terms of Section 12.3. If the
Lessor does not deliver a Termination Notice pursuant to Section 19.1, the
Lessee shall, upon completion of remedial action by the Lessee, cause to be
prepared by an environmental consultant reasonably acceptable to the Lessor a
report describing the Environmental Violation and the actions taken by the
Lessee (or its agents) in response to such Environmental Violation, and a
statement by the consultant that the Environmental Violation has been remedied
in compliance in all material respects with applicable Environmental Law. Each
such Environmental Violation shall be remedied prior to the Expiration Date.
Nothing in this Article XVII I shall reduce or limit the Lessee's obligations
under the indemnity provisions hereof.
XVIII.3. Notice of Environmental Matters. Promptly, but in any event
-------------------------------
within sixty (60) Business Days from the date the Lessee has actual knowledge
thereof, the Lessee shall provide to the Lessor written notice of any pending or
threatened claim, action or proceeding involving any Environmental Violation on
or in connection with the Property. All such notices shall describe in
reasonable detail the nature of the claim, action or proceeding and the Lessee's
proposed response thereto. In addition, the Lessee shall provide to the Lessor,
within sixty (60) Business Days of receipt, copies of all written communications
with any Governmental Authority relating to any Environmental Law or any Release
in connection with the Property. The Lessee shall also promptly provide such
detailed reports of any such environmental claims as may reasonably be requested
by the Lessor. In the event that the Lessor receives written notice of any
pending or threatened claim, action or proceeding involving any Environmental
Violation on or in connection with the Property, the Lessor shall promptly give
notice thereof to the Lessee.
XVIII.4. Environmental Obligations of the Lessor Pursuant to the Nomura
--------------------------------------------------------------
Loan Agreement. The representations, warranties and covenants set forth in
- --------------
Section 4.1(d)(U) and Section 5.1(b)(D) through Section 5.1(b)(I) of the Nomura
Loan Agreement imposed upon Lessee pursuant thereto shall survive in perpetuity.
ARTICLE XIX
TERMINATION OF LEASE
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XIX.1. Termination upon Certain Events. With respect to the Property, if
-------------------------------
either:
(i) a Significant Condemnation occurs; or
(ii) an Environmental Violation occurs which (x) either causes
the Lender to accelerate the Principal Indebtedness or (y) is not being
addressed by the Lessee or the Parent as required hereby or by the FBTC
Environmental Guaranty;
and the Lessor or the Lessee shall have given written notice to the other party
that this Lease is to be terminated as a consequence of the occurrence of such
an event (a "Termination Notice"), then, the Lessee shall be obligated to
purchase all or a portion of the Lessor's interest in the Property on a Payment
Date prior to the date occurring one hundred eighty (180) days after the date of
the notice of termination (or if such Payment Date arises prior to the second
anniversary of the Start-Up Date, on the first Payment Date after such
anniversary) by paying the Lessor on such Payment Date an amount equal to (a)
the Equity Balance, in which case this Lease shall not terminate but the Lease
Balance shall be reduced by the amount of such payment of Equity Balance or (b)
the Lease Balance.
XIX.2. Termination Procedures. On the date of the payment by the Lessee
----------------------
of the Lease Balance in accordance with the Termination Notice or in accordance
with Section 19.1 (such date, the "Termination Date"), this Lease shall
terminate and, concurrent with the Lessor's receipt of such payment,
(a) the Lessor shall execute and deliver to the Lessee (or to the
Lessee's designee) at the Lessee's cost and expense a quitclaim deed with
respect to the Property, a quitclaim bill of sale with respect to the
applicable Equipment and an assignment of the Lessor's entire interest in
the Property (which shall include an assignment of all of the Lessor's
right, title and interest in and to any Net Proceeds not previously
received by the Lessor and existing subleases and security deposits
thereunder), in each case in recordable form and otherwise in conformity
with local custom and free and clear of any Lessor Liens attributable to
the Lessor;
(b) the Property shall be conveyed to such Person "AS IS" and in
its then present physical condition;
(c) in the case of a termination pursuant to clause (i) or (ii)
of Section 19.1, the Lessor shall convey to the Lessee any Net Proceeds
with respect to the Casualty or Condemnation giving rise to the partial
termination of this Lease theretofore received by the Lessor or at the
request of the Lessee, such amounts shall be applied against sums due
hereunder; and
(d) the Lessor shall execute and deliver to Lessee and the
Lessee's title insurance company an affidavit as to the absence of any
Lessor Liens and shall execute and deliver to the Lessee a statement of
termination of this Lease to the extent relating to the Property.
ARTICLE XX
EVENTS OF DEFAULT
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<PAGE>
XX.1. Events of Default. The occurrence of any one or more of the
-----------------
following events (whether such event shall be voluntary or involuntary or come
about or be effected by operation of law or pursuant to or in compliance with
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body) shall constitute an "Event of Default":
(a) the Lessee shall fail to make payment of any Basic Rent,
including amounts due pursuant to Section 19.1 or 22.1 or Article XXIV,
Equity Balance or Lease Balance when due; provided, however, that if a Cash
Management Event has not occurred, the failure to pay those portions of
Basic Rent consisting of FBTC Basic Rent, Lessor Basic Rent, the Required
Debt Service Payment due on such date, the Basic Carrying Costs Monthly
Installment due on such date or the Capital Reserve Monthly Installment due
on the due date therefor shall not constitute an Event of Default if Lessee
shall cure such failure within five (5) days after the due date therefor;
(b) the Lessee shall fail to make payment of any Supplemental Rent
(i) required to be made pursuant to the Nomura Loan Agreement on the due
date therefor and such failure is not remedied within any applicable grace
period set forth in the Loan Documents, and (ii) any other component of
Supplement Rent due and payable within five (5) Business Days after receipt
of notice thereof;
(c) the Lessee shall fail to maintain insurance as required by
Article XVII of this Lease;
(d) the Lessee shall fail in any Material respect to observe or
perform any term, covenant or condition of the Lessee under this Lease or
the Operative Documents to which it is party other than those described in
Section 20.1(a), (b), or (c) hereof, and such failure shall have continued
for thirty (30) days after the earlier of (i) delivery to the Lessee of
written notice thereof from the Lessor or (ii) a Responsible Employee of
the Lessee shall have knowledge of such failure; provided, however, that if
such failure is capable of cure but cannot be cured by payment of money or
cannot be cured by diligent efforts within such thirty (30) day period but
such diligent efforts shall be properly commenced within the cure period
and the Lessee is diligently pursuing, and shall continue to pursue
diligently, remedy of such failure, the cure period shall be extended for
an additional period of time as may be necessary to cure, not to exceed an
additional one hundred twenty (120) days or to extend beyond the Expiration
Date; provided further, that failure by the Lessee to fully comply with the
requirements of Section 24.1 hereof shall not be subject to any cure
period;
(e) to the extent the same causes an Event of Default under the
Nomura Loan Agreement, any representation or warranty made by the Lessee in
any of the Operative Documents to which it is a party shall prove to have
been inaccurate in any Material respect at the time made, and if such
inaccuracy can be cured, it shall not have been cured within forty-five
(45) days after the earlier of (i) delivery to the Lessee of written notice
thereof from the Lessor or (ii) a Responsible Employee of the Lessee shall
have knowledge of such inaccuracy;
(f) an "Event of Default" under the Nomura Loan Agreement shall
have occurred and be continuing;
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<PAGE>
(g) the Lessee or the Parent shall (i) admit in writing its inability
to pay its debts generally as they become due, (ii) file a petition under
the United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof, (iii) make a general assignment for the benefit of its creditors,
(iv) consent to the appointment of a receiver of itself or the whole or any
substantial part of its property, (v) fail to cause the discharge of any
custodian, trustee or receiver appointed for the Lessee or the Parent, as
applicable, or the whole or a substantial part of the Lessee's or the
Parent's property within ninety (90) days after such appointment, (vi) file
a petition or answer seeking or consenting to reorganization under the
United States bankruptcy laws or any other applicable insolvency law or
statute of the United States of America or any State or Commonwealth
thereof; or (vii) be adjudicated as bankrupt or insolvent;
(h) dissolution, liquidation or insolvency proceedings or a petition
under the United States bankruptcy laws or any other applicable insolvency
law or statute of the United States of America or any State or Commonwealth
thereof shall be filed against, consented to or acquiesced by the Lessee or
the Parent and not dismissed within ninety (90) days from the date of its
filing, or a court of competent jurisdiction shall enter an order or decree
appointing, without the consent of the Lessee or the Parent, as applicable,
a receiver, liquidator or trustee of the Lessee or the Parent or the whole
or a substantial part of any of the Lessee's or the Parent's property and
such order or decree shall not be vacated or set aside within ninety (90)
days from the date of the entry thereof;
(i) an event of default, as defined in any agreement, mortgage,
indenture or instrument under which there may be issued, or by which there
may be secured or evidenced, any indebtedness of the Lessee in a principal
amount in excess of $5,000,000, whether such indebtedness now exists or
shall hereafter be created, shall happen, if the effect of such default is
to accelerate the maturity of such indebtedness, unless the Lessee is
diligently and in good faith contesting such default in appropriate
proceedings;
(j) any Lien granted by the Lessee under any Operative Document
shall, in whole or in part, terminate, cease to be effective against, or
cease to be the legal, valid, binding and enforceable obligation of, the
Lessee;
(k) the Lessee shall directly or indirectly contest the validity of
any Operative Document in any manner in any court of competent jurisdiction
or any lien granted by the Lessee under any Operative Document;
(l) the Lessee shall fail to satisfy any of its obligations under the
Securities Pledge Agreement or Certificate Pledge Agreement, including,
without limitation, satisfying the Collateral Requirement (as defined in
the Securities Pledge Agreement) within the applicable grace period
provided therefor, for which the exclusive remedy for such Event of Default
is provided in Section 20.2(k); or
---------------
(m) the Lessor shall not have received all FBTC Basic Rent and Lessor
Basic Rent within five (5) days after any FBTC Payment Date.
XX.2. Remedies. Upon the occurrence of any Event of Default and at any
--------
time thereafter, the Lessor may, so long as such Event of Default is continuing,
do one or more of the following as the Lessor
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<PAGE>
in its sole discretion shall determine, without limiting any other right or
remedy the Lessor may have on account of such Event of Default:
(a) The Lessor may, by notice to the Lessee, rescind or terminate
this Lease as of the date specified in such notice; however, (i) no
reletting, reentry or taking of possession of the Property (or any portion
thereof) by the Lessor will be construed as an election on the Lessor's
part to terminate this Lease unless a written notice of such intention is
given to the Lessee, (ii) notwithstanding any reletting, reentry or taking
of possession, the Lessor may at any time thereafter elect to terminate
this Lease for a continuing Event of Default and (iii) no act or thing done
by the Lessor or any of its agents, representatives or employees and no
agreement accepting a surrender of the Property shall be valid unless the
same be made in writing and executed by the Lessor.
(b) The Lessor may (i) demand that the Lessee, and the Lessee shall
upon the written demand of the Lessor, return the Property promptly to the
Lessor in the manner and condition required by, and otherwise in accordance
with all of the provisions of, Articles XI and XIII and Section 12.3
----------- ---- ------------
hereof as if the Property were being returned at the end of the Term, and
the Lessor shall not be liable for the reimbursement of the Lessee for any
costs and expenses incurred by the Lessee in connection therewith and (ii)
without prejudice to any other remedy which the Lessor may have for
possession of the Property, and to the extent and in the manner permitted
by Applicable Law, enter upon the Property and take immediate possession of
(to the exclusion of the Lessee) the Property or any part thereof and expel
or remove the Lessee and any other Person who may be occupying the
Property, by summary proceedings or otherwise, all without liability to the
Lessee for or by reason of such entry or taking of possession, whether for
the restoration of damage to property caused by such taking or otherwise
and, in addition to the Lessor's other damages, the Lessee shall be
responsible for all costs and expenses incurred by the Lessor in connection
with any reletting, including, without limitation, reasonable brokers' fees
and all costs of any alterations or repairs made by the Lessor.
(c) The Lessor may (i) sell all or any part of the Property at public
sale free and clear of any rights of the Lessee and without any duty to
account to the Lessee with respect to such action or inaction or any
proceeds (except that Excess Proceeds are payable to and shall be paid to
the Lessee) with respect thereto (except to the extent required by clause
------
(ii) below if the Lessor shall elect to exercise its rights thereunder) in
----
which event the Lessee's obligation to pay Basic Rent hereunder for periods
commencing after the date of such sale shall be terminated or
proportionately reduced, as the case may be; and (ii) if the Lessor shall
so elect, demand that the Lessee pay to the Lessor, and the Lessee shall
pay to the Lessor, on the date of such sale, as liquidated damages for loss
of a bargain and not as a penalty (the parties agreeing that the Lessor's
actual damages would be difficult to predict, but the aforementioned
liquidated damages represent a reasonable approximation of such amount) (in
lieu of Basic Rent due for periods commencing on or after the Payment Date
coinciding with such date of sale (or, if the sale date is not a Payment
Date, the Payment Date next preceding the date of such sale)), an amount
equal to (A) the excess, if any, of (1) the Lease Balance calculated as of
such Payment Date (including all Rent due and unpaid to and including such
Payment Date and), over (2) the net proceeds of such sale (that is, after
deducting all costs and expenses incurred by the Lessor incident to such
conveyance, including, without limitation, repossession costs, brokerage
commissions, prorations, transfer taxes, fees and expenses for counsel,
title insurance fees, survey costs, recording fees, and any
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<PAGE>
repair costs); plus (B) interest at the Overdue Rate on the foregoing
amount from such Payment Date until the date of payment.
(d) The Lessor may, at its option, elect not to terminate this Lease
and continue to collect all Basic Rent, Supplemental Rent, and all other
amounts due the Lessor (together with all costs of collection) and enforce
the Lessee's obligations under this Lease as and when the same become due,
or are to be performed, and at the option of the Lessor, upon any
abandonment of the Property by the Lessee or re-entry of same by the
Lessor, the Lessor may, in its sole and absolute discretion, elect not to
terminate this Lease and may make the necessary repairs in order to relet
the Property, and relet the Property or any part thereof for such term or
terms (which may be for a long term extending beyond the Term of this
Lease) and at such rental or rentals and upon such other terms and
conditions as the Lessor in its reasonable discretion may deem advisable;
and upon each such reletting all rentals actually received by the Lessor
from such reletting shall be applied to the Lessee's obligations hereunder
and the other Operative Documents in such order, proportion and priority as
the Lessor may elect in the Lessor's sole and absolute discretion. If such
rentals received from such reletting during any period are less than the
Rent with respect to the Property to be paid during that period by the
Lessee hereunder, the Lessee shall pay any deficiency, as calculated by the
Lessor, to the Lessor on the next Payment Date.
(e) Unless the Property has been sold in its entirety, the Lessor
may, whether or not the Lessor shall have exercised or shall thereafter at
any time exercise any of its rights under paragraph (b), (c) or (d) of this
------------- --- ---
Section 20.2 with respect to the Property or portion thereof, demand, by
------------
written notice to the Lessee specifying a date (a "Termination Date") not
----------------
earlier than 10 days after the date of such notice, that the Lessee
purchase, on such Termination Date, the Property (or the remaining portion
thereof) in accordance with the provisions of Article XXII; provided,
------------ --------
however, that no such written notice shall be required upon the occurrence
-------
of any Event of Default in clause (g) or (h) of Section 20.1.
---------- --- ------------
(f) The Lessor may exercise any other right or remedy that may be
available to it under Applicable Law, or proceed by appropriate court
action (legal or equitable) to enforce the terms hereof or to recover
damages for the breach hereof. Separate suits may be brought to collect
any such damages for any period(s), and such suits shall not in any manner
prejudice the Lessor's right to collect any such damages for any subsequent
period(s), or the Lessor may defer any such suit until after the expiration
of the Term, in which event such suit shall be deemed not to have accrued
until the expiration of the Term.
(g) The Lessor may retain and apply against the Lessor's damages all
sums which the Lessor would, absent such Event of Default, be required to
pay to, or turn over to, the Lessee pursuant to the terms of this Lease.
(h) If an Event of Default shall have occurred and so long as same is
continuing, the Lessor, as a matter of right and without notice to the
Lessee, and without regard to the value of the Property or the solvency of
the Lessee, shall have the right to apply to any court having jurisdiction
to appoint a receiver or receivers of the Property, and the Lessee hereby
irrevocably consents to any such appointment. Any such receiver(s) shall
have all of the usual powers and duties of receivers in like or similar
cases and all of the powers and duties of the Lessor in case of
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<PAGE>
entry, and shall continue as such and exercise such powers until the date
of confirmation of the sale of the Property unless such receivership is
sooner terminated.
(i) To the maximum extent permitted by law, the Lessee hereby waives
the benefit of any appraisement, valuation, stay, extension, reinstatement
and redemption laws now or hereafter in force and all rights of marshaling
in the event of any sale of any or all of the Property or any interest
therein.
(j) The Lessor shall be entitled to enforce payment of the
indebtedness and performance of the obligations secured hereby and to
exercise all rights and powers under this instrument or under any of the
other Operative Documents or other agreement or any laws now or hereafter
in force, notwithstanding some or all of the obligations secured hereby may
now or hereafter be otherwise secured, whether by mortgage, security
agreement, pledge, lien, assignment or otherwise. Neither the acceptance
of this instrument nor its enforcement, shall prejudice or in any manner
affect the Lessor's right to realize upon or enforce any other security now
or hereafter held by the Lessor, it being agreed that the Lessor shall be
entitled to enforce this instrument and any other security now or hereafter
held by the Lessor in such order and manner as the Lessor may determine in
its absolute discretion. No remedy herein conferred upon or reserved to
the Lessor is intended to be exclusive of any other remedy herein or by law
provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing
at law or in equity or by statute. Every power or remedy given by any of
the Operative Documents to the Lessor or to which it may otherwise be
entitled, may be exercised, concurrently or independently, from time to
time and as often as may be deemed expedient by the Lessor.
(k) The Lessor may exercise any and all rights under (a) the
Certificate Pledge Agreement against Certificate A and/or (b) the
Securities Pledge Agreement against the Pledged Securities, and the
collateral represented thereby.
In no event shall the Lessor, in the exercise of the remedies provided in this
instrument (including, without limitation, in connection with the assignment of
rents to Lessor, or the appointment of a receiver and the entry of such receiver
on to all or any part of the Property), be deemed a "mortgagee in possession,"
and the Lessor shall not in any way be made liable for any act, either of
commission or omission, in connection with the exercise of such remedies.
If, pursuant to the exercise by the Lessor of its remedies pursuant to this
Section 20.2, the Lease Balance, all other amounts due and owing from the Lessee
- ------------
under this Lease and the other Operative Documents have been paid in full, then
the Lessor shall remit to the Lessee any excess amounts received by the Lessor.
XX.3. Waiver of Certain Rights. If this Lease shall be terminated pursuant
------------------------
to Section 20.2, the Lessee waives, to the fullest extent permitted by law, (a)
------------
any notice of re-entry or the institution of legal proceedings to obtain re-
entry or possession; (b) any right of redemption, re-entry or repossession; (c)
the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt or limiting the Lessor with respect to the
election of remedies; and (d) any other rights which might otherwise limit or
modify any of the Lessor's rights or remedies under this Article XX.
----------
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<PAGE>
ARTICLE XXI
LESSOR ASSIGNMENT
XXI.1. Assignment. The Lessee hereby consents to the Lessor's assignment
----------
of this Lease to the Lender and the Lender and the Lessee acknowledge that the
Lender is a third party beneficiary of this Lease.
ARTICLE XXI
PURCHASE PROVISIONS
XXII.1. Purchase Option. Provided that the Lessee shall not have given
---------------
notice of its intention to exercise the Remarketing Option, the Lessee shall
have the option on any Payment Date after the second anniversary of the Start-Up
Date (exercisable by giving the Lessor irrevocable written notice (the "Purchase
--------
Notice") of the Lessee's election to exercise such option) to (a) purchase all,
- ------
and not less than all, of the Property on the date specified in such Purchase
Notice at a price equal to the Lease Balance theretofore accruing or (b) pay the
Lessor the Equity Balance and reduce the amount of the Lease Balance by the
amount paid. The Lessee shall deliver the Purchase Notice to the Lessor not
less than thirty (30) days prior to such purchase or payment of the Equity
Balance. If the Lessee exercises its option to purchase the Property pursuant
to Section 22.1(a) (the "Purchase Option"), the Lessor shall transfer to the
--------------- ---------------
Lessee or its designee all of the Lessor's right, title and interest in and to
the Property as of the date specified in the Purchase Notice upon receipt of the
Lease Balance in accordance with Section 25.1. Subject to Section 12.4 and with
------------ ------------
the consent of the Lessor the Lessee may assign the Purchase Option to any
Person. The Lessee may designate, in a notice given to the Lessor not less than
five (5) Business Days prior to the closing of such purchase (time being of the
essence), the transferee or transferees to whom the conveyance shall be made (if
other than to the Lessee), in which case such conveyance shall (subject to the
terms and conditions set forth herein) be made to such designee; provided,
--------
however, that such designation of a transferee or transferees shall not cause
- -------
the Lessee to be released, fully or partially, from any of its obligations under
this Lease, including, without limitation, the obligation to pay the Lessor the
Lease Balance on the Expiration Date.
ARTICLE XXI
RENEWAL PROCEDURES
XXIII.1. Renewal. Subject to the conditions set forth herein, the
-------
Lessee and the Lessor may agree to renew the Base Lease Term for the Property
for up to eleven one-year terms (each, a "Renewal Term"), with each such Renewal
------------
Term to commence on the first day following the Expiration Date then in effect.
The effective extension of the Base Lease Term for the Property shall be subject
to the satisfaction of each of the following conditions:
(a) each renewal shall be automatic unless on or before one
hundred eighty (180) days prior to the Expiration Date the Lessee shall
have delivered written notice to the Lessor of the Lessee's determination
not to extend the Base Lease Term for the Property;
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<PAGE>
(b) on the Expiration Date then in effect prior to any renewal, no
Event of Default shall have occurred and be continuing; and
(c) the Lessee shall not have given notice of its intention to
exercise the Remarketing Option.
ARTICLE XXI
REMARKETING OPTION
XXIV.1. Option to Remarket. Subject to the fulfillment of each of the
------------------
conditions set forth in this Section 24.1, the Lessee shall have the option
------------
beginning on the second anniversary of the Start-Up Date (the "Remarketing
-----------
Option") to market and complete the sale of the Property for the Lessor.
- ------
The Lessee's effective exercise and consummation of the Remarketing Option
shall be subject to the due and timely fulfillment of each of the following
provisions as to the Property as of the dates set forth below.
(a) Not later than one hundred eighty (180) days prior to the
Expiration Date, the Lessee shall give to the Lessor written notice of the
Lessee's exercise of the Remarketing Option, which exercise shall be
irrevocable. If Lessee does not deliver a notice of its intention not to
renew this Lease as provided in Section 23.1 and fails to timely provide
the Remarketing Notice, then this Lease shall be renewed for a Renewal Term
as provided in Section 23.1. If Lessee delivers the notice of its
intention not to renew this Lease as provided in Section 23.1 and fails to
timely provide the Remarketing Notice, then Lessee shall be deemed to have
elected to exercise its Purchase Option under Section 22.1(i).
---------------
(b) Not later than one hundred twenty (120) days prior to the
Expiration Date, the Lessee shall deliver to the Lessor an Environmental
Audit for the Property. Such Environmental Audit shall be prepared by an
environmental consultant selected by the Lessor in the Lessor's reasonable
discretion and shall contain conclusions reasonably satisfactory to the
Lessor as to the environmental status of the Property. If any such
Environmental Audit indicates any exceptions with respect to which a Phase
Two environment assessment is recommended, the Lessee shall also deliver
(i) a Phase Two environmental assessment by such environmental consultant
within thirty (30) days prior to the Expiration Date and (ii) a certificate
of such environmental consultant prior to the Expiration Date showing the
completion of all remedial action in compliance with Applicable Law.
(c) On the date of the Lessee's notice to the Lessor of the Lessee's
exercise of the Remarketing Option, and on the Expiration Date, no Event of
Default shall exist.
(d) The Lessee shall have completed in all Material respects all
Modifications, restoration and rebuilding of the Property pursuant to
Sections 14.1 and 18.1 (as the case may be) and shall have fulfilled in all
------------- ----
Material respects all of the conditions and requirements in connection
therewith pursuant to said Sections, in each case by the date on which the
Lessor receives the Lessee's notice of the Lessee's exercise of the
Remarketing Option (time being of the essence), regardless of whether the
same shall be within the Lessee's control. The Lessee shall have also
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<PAGE>
paid the cost of all Modifications commenced prior to the Expiration Date.
The Lessee shall not have been excused pursuant to Section 16.1 from
------------
complying with any Applicable Law that involved the extension of the
ultimate imposition of such Applicable Law beyond the last day of the Term.
Any Permitted Liens (other than Lessor Liens) on the Property that were
contested by the Lessee shall have been removed.
(e) During the Marketing Period, the Lessee shall, as nonexclusive
agent for the Lessor, use best efforts to sell the Lessor's interest in the
Property and will attempt to obtain the highest purchase price therefor and
for not less than the Fair Market Sales Value of the Property. The Lessee
will be responsible for hiring brokers and making the Property available
for inspection by prospective purchasers. The Lessee shall promptly upon
request permit inspection of the Property and any maintenance records
relating to the Property by the Lessor and any potential purchasers, and
shall otherwise do all things reasonably necessary to sell and deliver
possession of the Property to any purchaser. All such marketing of the
Property shall be at the Lessee's sole expense. The Lessee shall allow the
Lessor and any potential qualified purchaser reasonable access to the
Property for the purpose of inspecting the same.
(f) The Lessee shall submit all bids to the Lessor, and the Lessor
will have the right to submit any one or more bids. The Lessee shall
deliver to the Lessor, not less than thirty (30) days prior to the
Expiration Date, binding written unconditional (except as set forth below),
irrevocable offer or offers by such purchaser or purchasers offering the
highest bid to purchase the Property. No such purchaser shall be the Lessee
or an Affiliate of the Lessee. The written offer must specify the
Expiration Date as the closing date unless the Lessor shall otherwise agree
in its reasonable discretion. Any sale by the Lessee shall be for the
highest cash bid submitted to the Lessor. The determination of the highest
bid shall be made by the Lessor prior to the end of the Marketing Period,
but in any event, the Lessor shall have no obligation to approve any bid
unless the aggregate amount of the highest bids for the Property equals or
exceeds an amount equal to the Lease Balance minus the Contingent Rental
-----
Adjustment determined as of the Expiration Date. All bids shall be on an
all-cash basis unless the Lessor shall otherwise agree in its sole
discretion.
(g) In connection with any such sale of the Property, the Lessee will
provide to each Purchaser all customary "seller's" indemnities,
representations and warranties regarding absence of Liens (other than
Lessor Liens and the condition of the Property. The Lessee shall have
obtained, at its cost and expense, all required governmental and regulatory
consents and approvals and shall have made all filings as required by
Applicable Law in order to carry out and complete the transfer of the
Property. As to the Lessor, any such sale shall be made on an "as is, with
all faults" basis without representation or warranty by the Lessor other
than the absence of Lessor Liens. Any agreement as to such sale shall be
made subject to the Lessor's rights hereunder.
(h) The Lessee shall pay directly, and not from the sale proceeds,
all prorations, credits, costs and expenses of the sale of the Property,
whether incurred by the Lessor or the Lessee, including without limitation,
the cost of all title insurance, surveys, environmental reports,
appraisals, transfer taxes, the Lessor's reasonable attorneys' fees, the
Lessee's attorneys' fees, commissions, escrow fees, recording fees, and all
applicable documentary and other transfer taxes.
(i) The Lessee shall pay to the Lessor on or prior to the Expiration
Date (or to such other Person as the Lessor shall notify the Lessee in
writing) an amount equal to the Contingent Rental
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<PAGE>
Adjustment for the Property plus all Basic Rent and all other amounts
----
hereunder which have accrued or will accrue prior to or as of the
Expiration Date or such other closing date approved by the parties, in the
type of funds specified in Section 7.4 hereof.
-----------
(j) The Lessee shall pay to the Lessor on or prior to the Expiration
Date the amounts, if any, required to be paid pursuant to Section 26.2
------------
hereof.
(k) If the Lessor approves any bid for the Property, the purchase of
the Property shall be consummated on or before the Expiration Date and the
gross proceeds (the "Gross Proceeds") of the sale of the Property, less the
--------------
documented expenses incurred by the Lessee under clause (h) shall be paid
----------
directly to the Lessor; provided, however, that if the sum of (x) the
-------- -------
remaining Gross Proceeds from such sale or sales plus (y) the Contingent
----
Rental Adjustment received by the Lessor pursuant to clause (i) plus (z)
---------- ----
amounts received by the Lessor pursuant to Section 26.2 hereof exceeds the
------------
Lease Balance as of such date, then the excess shall be paid to the Lessee
on the Expiration Date or such other closing date approved by the parties.
(l) All reconstruction, refurbishment and repair to the Property
resulting from a Casualty or Condemnation shall have been completed prior to the
end of the Marketing Period.
If one or more of the foregoing provisions shall not be fulfilled as of the
date set forth above with respect to the Property, then the Lessor shall declare
by written notice to the Lessee the Remarketing Option to be null and void
(whether or not it has been theretofore exercised by the Lessee), in which event
all of the Lessee's rights under this Section 24.1 shall immediately terminate
------------
and the Lessee shall be obligated to purchase the Property pursuant to Section
-------
22.1 on the Expiration Date.
- ----
If the Lessee effectively elects the Remarketing Option and no sale of the
Property is consummated prior to the end of the Marketing Period, the Lessee
shall, in addition to making the payment required pursuant to Section 24.1(i)
---------------
above, return the Property to the Lessor (or to any other Person specified by
the Lessor). In connection with any such return of the Property, the Lessee
shall, at its own cost and expense, do each of the following:
(i) the Lessee shall, on or prior to the Expiration Date, execute and
deliver to the Lessor (or to the Lessor's designee) (A) a deed with respect
to the Property containing representations and warranties of grantor to the
Lessor (or such other Person) regarding the absence of Liens (other than
Permitted Liens of the type described in clause (i), (iii), (vii), (viii),
---------- ----- ----- ------
(ix) or (x) of the definition of "Permitted Liens"), (B) a bill of sale
---- ---
with respect to any Equipment then located on the Property and (C) an
assignment of the Lessee's entire interest in the Property (which shall
include an assignment of all of the Lessee's right, title and interest in
and to any Net Proceeds with respect to the Property not previously
received by the Lessee and an assignment of leases of the Property), in
each case in recordable form and otherwise in conformity with local custom
and free and clear of any Liens attributable to the Lessee;
(ii) the Lessee shall execute and deliver to Lessor and the Lessor's
title insurance company an affidavit as to the absence of any Liens (other
than Permitted Liens of the type described in clause (i), (iii), (vii),
---------- ----- -----
(viii), (ix) or (x)), and shall execute and deliver to the Lessor a
------ ---- ---
statement of termination of this Lease to the extent relating to the
Property;
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(iii) the Lessee shall, on the Expiration Date, transfer possession
of the Property to the Lessor or any Person designated by the Lessor, by
surrendering the same into the possession of the Lessor or such Person, as
the case may be, in the condition required by this Section 24.1 and in
------------
compliance with Applicable Law;
(iv) the Lessee shall, for a period of up to one year after the
Expiration Date, cooperate reasonably with the Lessor and/or any Person
designated by the Lessor to receive the Property, which cooperation shall
include reasonable efforts with respect to the following, all of which the
Lessee shall do on or before the Expiration Date or as soon thereafter as
is reasonably practicable: providing copies of all books and records
regarding the maintenance and ownership of the Property and all know-how,
data and technical information relating thereto, granting or assigning all
licenses necessary for the operation and maintenance of the Property and
cooperating reasonably in seeking and obtaining all necessary Governmental
Action. The obligations of the Lessee under this paragraph shall survive
the expiration or termination of this Lease; and
(v) no subleases with respect to the Property or any portion
thereof shall be in effect on the Expiration Date.
Except as expressly set forth herein, the Lessee shall have no right, power
or authority to bind the Lessor in connection with any proposed sale or sales of
the Property.
XXV.2. Certain Obligations Continue. During the Marketing Period, the
----------------------------
obligation of the Lessee to pay Rent shall continue undiminished until payment
in full to the Lessor of the Contingent Rental Adjustment and all other amounts
due to the Lessor by Lessee under the Operative Documents to which the Lessee is
a party. The Lessor shall have the right, but shall be under no duty, to
solicit bids, to inquire into the efforts of the Lessee to obtain bids or
otherwise to take action in connection with any such sale, other than as
expressly provided in this Article XXIV.
------------
ARTICLE XXV
PROCEDURES RELATING TO PURCHASE OR REMARKETING
XXV.1. Provisions Relating to the Exercise of Purchase Option and
----------------------------------------------------------
Conveyance Upon Remarketing and Conveyance Upon Certain Other Events. In
- --------------------------------------------------------------------
connection with the Lessee's exercise of its Purchase Option, upon the
Expiration Date or the purchase of the Property under Article XIX or Section
----------- -------
20.2(e) hereof and upon tender by the Lessee of the amounts set forth in Article
- ------- -------
XIX, Section 20.2(e) or 22.1(a) hereof, as applicable:
- --- --------------- -------
(i) the Lessor shall execute and deliver to the Lessee (or to the
Lessee's designee) at the Lessee's cost and expense a limited warranty
deed (with covenants against grantor acts) with respect to the Property, a
limited warranty bill of sale (with covenants against grantor acts) with
respect to any Equipment and an assignment of the Lessor's entire interest
in the Property (which shall include an assignment of all of the Lessor's
right, title and interest in and to any Net Proceeds not previously
received by the Lessor, and an assignment of leases of the Property and
any security deposits collected by the Lessor), in each case in recordable
form and otherwise in conformity with local custom and free and clear of
any Lessor Liens attributable to the Lessor;
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(ii) the Property shall be conveyed to the Lessee "AS IS" and in its
then present physical condition;
(iii) the Lessor shall execute and deliver to Lessee and the Lessee's
title insurance company an affidavit as to the Lessor's title and the
absence of Lessor Liens; and
(iv) the Lessor shall execute such other documents reasonably
requested by the Lessee, or otherwise required under local law, to effect a
transfer of the Property and title thereto.
ARTICLE XXVI
INDEMNIFICATION
XXVI.1. General Indemnification. The Lessee agrees, whether or not any
-----------------------
of the transactions contemplated hereby shall be consummated, to assume
liability for, and to indemnify, protect, defend, save and keep harmless each
Indemnitee, on an After Tax Basis, from and against, any and all Claims that may
be imposed on, incurred by or asserted against such Indemnitee (whether because
of action or omission by such Indemnitee or otherwise), whether or not such
Indemnitee shall also be indemnified as to any such Claim by any other Person
and whether or not such Claim arises or accrues prior to the Documentation Date
or after the Expiration Date, in any way relating to or arising out of:
(a) any of the Operative Documents or any of the transactions
contemplated thereby, and any amendment, modification or waiver in respect
thereof;
(b) the Property or any part thereof or interest therein;
(c) the purchase, design, construction, preparation, installation,
inspection, delivery, non-delivery, acceptance, rejection, ownership,
management, possession, operation, rental, lease, sublease, repossession,
maintenance, repair, alteration, modification, addition or substitution,
storage, transfer of title, redelivery, use, financing, refinancing,
disposition, operation, condition, sale (including, without limitation, any
sale pursuant to any provision hereof), return or other disposition of all
or any part or any interest in the Property or the imposition of any Lien
other than a Lessor Lien (or incurring of any liability to refund or pay
over any amount as a result of any Lien other than a Lessor Lien) thereon,
including, without limitation: (1) Claims or penalties arising from any
violation of law or in tort (strict liability or otherwise), (2) latent or
other defects, whether or not discoverable, (3) any Claim based upon a
violation or alleged violation of the terms of any restriction, easement,
condition or covenant or other matter affecting title to the Property, (4)
the making of any Modifications in violation of any standards imposed by
any insurance policies required to be maintained by the Lessee pursuant to
this Lease which are in effect at any time with respect to the Property or
any part thereof, (5) any Claim for patent, trademark or copyright
infringement, and (6) Claims arising from any public improvements with
respect to the Property resulting in any change or special assessments
being levied against the Property or any plans to widen, modify or realign
any street or highway adjacent to the Property, or any Claim for utility
"tap-in" fees;
(d) the breach by the Lessee of any covenant, representation or
warranty made by it or deemed made by it in any Operative Document or any
certificate required to be delivered by any Operative Document;
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<PAGE>
(e) the retaining or employment of any broker, finder or financial
advisor by the Lessee to act on its behalf in connection with the
transactions contemplated hereby;
(f) the existence of any Lien on or with respect to the Property, any
Improvements, or Basic Rent or Supplemental Rent, title thereto, or any
interest therein including any Liens which arise out of the possession,
use, occupancy, construction, repair or rebuilding of the Property or by
reason of labor or materials furnished or claimed to have been furnished to
the Lessee, or any of its contractors or agents or by reason of the
financing of any personalty or equipment purchased or leased by the Lessee
or Modifications constructed by the Lessee, except with respect to any of
the foregoing Lessor Liens and Liens in favor of the Lessor; or
(g) subject to the accuracy of Lessor's representation set forth in
Section 6.1(a), the transactions contemplated by this Lease or by any other
--------------
Operative Document, in respect of the application of Parts 4 and 5 of
Subtitle B of Title I of ERISA and any prohibited transaction described in
Section 4975(c) of the Code;
---------------
provided, however, the Lessee shall not be required to indemnify any Indemnitee
- -------- -------
under this Section 26.1 for any of the following: (1) any Claim to the extent
------------
resulting from the willful misconduct or gross negligence of such Indemnitee (it
--
being understood that the Lessee shall be required to indemnify an Indemnitee
- ----------------
even if the ordinary (but not gross) negligence of such Indemnitee caused or
contributed to such Claim) or the breach of any representation, warranty or
covenant of such Indemnitee set forth in any Operative Document, (2) any Claim
resulting from Lessor Liens which the Lessor is responsible for discharging
under the Operative Documents, (3) any Claim to the extent attributable to acts
or events occurring after the expiration of the Term or the return or
remarketing of the Property so long as the Lessor is not exercising remedies
against the Lessee in respect of the Operative Documents, and (4) any Claim
arising from a breach or alleged breach by the Lessor of any agreement entered
into in connection with the assignment or participation of Rent. It is
expressly understood and agreed that the indemnity provided for herein shall
survive the expiration or termination of and shall be separate and independent
from any remedy under this Lease or any other Operative Document. Without
limiting the express rights of any Indemnitee under this Section 26.1, this
------------
Section 26.1 shall be construed as an indemnity only and not a guaranty of
- ------------
residual value of the Property.
XXVI.2. End of Term Indemnity.
---------------------
(a) If the Lessee elects the Remarketing Option and there would,
after giving effect, to the proposed remarketing transactions, be a
Shortfall Amount, then prior to the Expiration Date and as a condition to
the Lessee's right to complete the remarketing of the Property pursuant to
Section 24.1, the Lessee shall cause to be delivered to the Lessor at least
------------
thirty (30) days prior to the Expiration Date, at the Lessee's sole cost
and expense, a report from an appraiser selected by the Lessor and
reasonably satisfactory to the Lessee in form and substance satisfactory to
the Lessor (the "End of the Term Report") which shall state the appraiser's
----------------------
conclusions as to the reason for any decline in the Fair Market Sales Value
of the Property from that anticipated for such date in the Appraisal
delivered on the Acquisition Date.
(b) If the Lessee elects the Remarketing Option, then on or
prior to the Expiration Date, the Lessee shall pay to the Lessor an amount
(not to exceed the Shortfall Amount) equal to the
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<PAGE>
portion of the Shortfall Amount that the End of the Term Report
demonstrates was the result of a decline in the Fair Market Sales Value of
the Property due to
(i) extraordinary use, failure to maintain, to repair, to
restore, to rebuild or to replace, failure to comply with all
applicable laws, failure to use, workmanship, method of installation
or removal or maintenance, repair, rebuilding or replacement,
(excepting in each case ordinary wear and tear), or
(ii) with respect to the Property, any Modification made to, or
any rebuilding of, the Property or any part thereof by the Lessee, or
(iii) the existence of any Environmental Violations, or
(iv) any restoration or rebuilding carried out by the Lessee, or
(v) any use of the Property or any part thereof by the Lessee
other than as permitted under this Lease, or
(vi) any grant, release, dedication, transfer, annexation or
amendment made pursuant to Section 15.2, or
------------
(vii) the failure of the Lessor to have title to the Property
free and clear of all Liens (excluding Permitted Liens).
XXVI.3. Environmental Indemnity. Without limitation of the other
-----------------------
provisions of this Article XXVI, the Lessee hereby agrees to indemnify, hold
------------
harmless and defend each Indemnitee from and against any and all claims
(including without limitation third party claims for personal injury or real or
personal property damage), losses (including but not limited to, to the extent
the Lease Balance has not been fully paid, any loss of value of the Property),
damages, liabilities, fines, penalties, charges, administrative and judicial
proceedings (including informal proceedings) and orders, judgments, remedial
action, requirements, enforcement actions of any kind, and all reasonable and
documented costs and expenses incurred in connection therewith (including but
not limited to reasonable and documented attorneys' and/or paralegals' fees and
expenses), including, but not limited to, all costs incurred in connection with
any investigation or monitoring of site conditions or any clean-up, remedial,
removal or restoration work by any federal, state or local government agency,
arising in whole or in part, out of
(a) the presence on or under the Property of any Hazardous Substance
in violation of Environmental Law, or any releases or discharges of any
Hazardous Substance on, under, from or onto the Property in violation of
Environmental Law,
(b) any activity, including, without limitation, construction,
carried on or undertaken on or off the Property, and whether by the Lessee
or any predecessor in title or any employees, agents, contractors or
subcontractors of the Lessee or any predecessor in title, or any other
Persons (including such Indemnitee), in connection with the handling,
treatment, removal, storage, decontamination, clean-up, transport or
disposal of any Hazardous Substances in violation of Environmental Law that
at any time are located or present on or under or that at any time migrate,
flow, percolate, diffuse or in any way move onto or under the Property,
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<PAGE>
(c) loss of or damage to any property or the environment (including,
without limitation, clean-up costs, response costs, remediation and removal
costs, cost of corrective action, costs of financial assurance, fines and
penalties and natural resource damages), or death or injury to any Person,
and all expenses associated with the protection of wildlife, aquatic
species, vegetation, flora and fauna, and any mitigative action required by
or under Environmental Laws,
(d) any claim concerning lack of compliance with Environmental Laws,
or any act or omission causing an environmental condition that requires
remediation or would allow any Governmental Authority to record a Lien on
the land records, or
(e) any residual contamination on or under the Land, or affecting any
natural resources, and to any contamination of any property or natural
resources arising in connection with the generation, use, handling,
storage, transport or disposal of any such Hazardous Substances, and
irrespective of whether any of such activities were or will be undertaken
in accordance with applicable laws, regulations, codes and ordinances;
provided, however, the Lessee shall not be required to indemnify any Indemnitee
- -------- -------
under this Section 26.3 for (1) any Claim to the extent resulting from the
------------
willful misconduct or gross negligence of such Indemnitee (it being understood
-- ----- ----------
that, unless the applicable Indemnitee was in possession of the Property and
caused the Claim, the Lessee shall be required to indemnify an Indemnitee even
if the ordinary (but not gross) negligence of such Indemnitee caused or
contributed to such Claim) or (2) any Claim to the extent attributable to acts
or events occurring after the expiration of the Term or the return or
remarketing of the Property so long as the Lessor is not exercising remedies
against the Lessee in respect of the Operative Documents. It is expressly
understood and agreed that the indemnity provided for herein shall survive the
expiration or termination of and shall be separate and independent from any
remedy under this Lease or any other Operative Document.
XXVI.4. Proceedings in Respect of Claims. With respect to any amount
--------------------------------
that the Lessee is requested by an Indemnitee to pay by reason of Section 26.1
------------
or 26.3, such Indemnitee shall, if so requested by the Lessee and prior to any
----
payment, submit such additional information to the Lessee as the Lessee may
reasonably request and which is in the possession of such Indemnitee to
substantiate properly the requested payment.
In case any action, suit or proceeding shall be brought against any
Indemnitee, such Indemnitee shall promptly notify the Lessee of the commencement
thereof, and the Lessee shall be entitled, at its expense, to participate in,
and, to the extent that the Lessee desires to, assume and control the defense
thereof; provided, however, that the Lessee shall not have any increased
-------- -------
liability as a direct result of an Indemnitee's failure to provide such notice
promptly; provided, further, that the Lessee shall have acknowledged in writing
-------- -------
its obligation to fully indemnify such Indemnitee in respect of such action,
suit or proceeding, and, the Lessee shall keep such Indemnitee fully apprised of
the status of such action suit or proceeding and shall provide such Indemnitee
with all information with respect to such action suit or proceeding as such
Indemnitee shall reasonably request, and provided, further, that the Lessee
-------- -------
shall not be entitled to assume and control the defense of any such action, suit
or proceeding if and to the extent that, (A) in the reasonable opinion of such
Indemnitee, (x) such action, suit or proceeding involves any risk of imposition
of criminal liability or any risk of imposition of material civil liability on
such Indemnitee or will involve a material risk of the sale, forfeiture or loss
of, or the creation of any Lien (other than a Permitted Lien or Lessor Lien) on
the Property or any part thereof unless, in the case of civil liability, the
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Lessee shall have posted a bond or other security satisfactory to the relevant
Indemnitees in respect to such risk or (y) the control of such action, suit or
proceeding would involve an actual or potential conflict of interest, (B) such
proceeding involves Claims not fully indemnified by the Lessee which the Lessee
and the Indemnitee have been unable to sever from the indemnified claim(s), or
(C) an Event of Default has occurred and is continuing. The Indemnitee may
participate in a reasonable manner at its own expense and with its own counsel
in any proceeding conducted by the Lessee in accordance with the foregoing. The
Lessee shall not enter into any settlement or other compromise with respect to
any Claim which is entitled to be indemnified under Section 26.1 or 26.3 without
------------ ----
the prior written consent of the Indemnitee which consent shall not be
unreasonably withheld in the case of a money settlement not involving an
admission of liability of such Indemnitee; provided, however, that in the event
-------- -------
that such Indemnitee withholds consent to any settlement or other compromise,
the Lessee shall not be required to indemnify such Indemnitee under Section 26.1
------------
or 26.3 to the extent that the applicable Claim (x) is for legal fees and
----
expenses incurred after the date of the proposed settlement or (y) results in a
judgment in excess of such offered money settlement.
Each Indemnitee shall at the expense of the Lessee supply the Lessee with
such information and documents reasonably requested by the Lessee as are
necessary or advisable for the Lessee to participate in any action, suit or
proceeding to the extent permitted by Section 26.1 or 26.3. Unless an Event of
------------ ----
Default shall have occurred and be continuing, no Indemnitee shall enter into
any settlement or other compromise with respect to any Claim which is entitled
to be indemnified under Section 26.1 or 26.3 without the prior written consent
------------ ----
of the Lessee, which consent shall not be unreasonably withheld, unless such
Indemnitee waives its right to be indemnified under Section 26.1 or 26.3 with
------------ ----
respect to such Claim.
Upon payment in full of any Claim by the Lessee pursuant to Section 26.1 or
------------
26.3 to or on behalf of an Indemnitee, the Lessee, without any further action,
- ----
shall be subrogated to any and all claims that such Indemnitee may have relating
thereto (other than claims in respect of insurance policies maintained by such
Indemnitee at its own expense), and such Indemnitee shall execute such
instruments of assignment and conveyance, evidence of claims and payment and
such other documents, instruments and agreements as may be necessary to preserve
any such claims and otherwise cooperate with the Lessee and give such further
assurances as are necessary or advisable to enable the Lessee vigorously to
pursue such claims.
Any amount payable to an Indemnitee pursuant to Section 26.1 or 26.3 shall
------------ ----
be paid to such Indemnitee within ten (10) Business Days after receipt of a
written demand therefor from such Indemnitee, accompanied by a written statement
describing in reasonable detail the basis for such indemnity and the computation
of the amount so payable and, if requested by the Lessee, such determination
shall be verified by a nationally recognized independent accounting firm
mutually acceptable to the Lessee and the Indemnitee at the expense of the
Lessee; provided, however, that if the Lessee has assumed the defense of the
-------- -------
related Claim or is paying the costs of the Indemnitee's defense of the related
claim on an ongoing basis, the Lessee shall not be required to pay such amount
to the applicable Indemnitee until such time as a judgment is entered with
respect to such Claim, the enforcement of which is not stayed or which judgment
is not bonded over, or the Claim is otherwise settled or lost. To the extent
the Lessee suffers any losses or damages as a result of an Indemnitee's failure
to provide the Lessee with prompt notice of the commencement of any action, suit
or proceeding against any Indemnitee in accordance with the first sentence of
the second paragraph of this Section 26.4, the amounts of such losses or damages
------------
may be offset against the Lessee's indemnification obligation to such
Indemnitee.
XXVI.5. General Tax Indemnity.
---------------------
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(a) Indemnification. The Lessee shall pay and assume liability for,
---------------
and does hereby agree to indemnify, protect and defend the Property and all
Tax Indemnitees, and hold them harmless against, all Impositions on an
After Tax Basis.
(b) Contests. If any claim shall be made against any Tax Indemnitee
--------
or if any proceeding shall be commenced against any Tax Indemnitee
(including a written notice of such proceeding) for any Imposition as to
which the Lessee may have an indemnity obligation pursuant to this Section
-------
26.5, or if any Tax Indemnitee shall determine that any Imposition to which
----
the Lessee may have an indemnity obligation pursuant to this Section 26.5
------------
may be payable, such Tax Indemnitee shall promptly (and in any event,
within 30 days) notify the Lessee in writing (provided that failure to so
--------
notify the Lessee within 30 days shall not alter such Tax Indemnitee's
rights under this Section 26.5 except to the extent such failure precludes
------------
or materially adversely affects the ability to conduct a contest of any
indemnified Taxes) and shall not take any action with respect to such
claim, proceeding or Imposition without the written consent of the Lessee
(such consent not to be unreasonably withheld or unreasonably delayed) for
30 days after the receipt of such notice by the Lessee; provided, however,
-------- -------
that in the case of any such claim or proceeding, if such Tax Indemnitee
shall be required by law or regulation to take action prior to the end of
such 30-day period, such Tax Indemnitee shall in such notice to the Lessee,
so inform the Lessee, and such Tax Indemnitee shall not take any action
with respect to such claim, proceeding or Imposition without the consent of
the Lessee (such consent not to be unreasonably withheld or unreasonably
delayed) for 10 days after the receipt of such notice by the Lessee unless
the Tax Indemnitee shall be required by law or regulation to take action
prior to the end of such 10-day period.
The Lessee shall be entitled for a period of 30 days from receipt of
such notice from the Tax Indemnitee (or such shorter period as the Tax
Indemnitee has notified the Lessee is required by law or regulation for the
Tax Indemnitee to commence such contest), to request in writing that such
Tax Indemnitee contest the imposition of such Tax, at the Lessee's expense.
If (x) such contest can be pursued in the name of the Lessee and
independently from any other proceeding involving a Tax liability of such
Tax Indemnitee for which the Lessee has not agreed to indemnify such Tax
Indemnitee, (y) such contest must be pursued in the name of the Tax
Indemnitee, but can be pursued independently from any other proceeding
involving a Tax liability of such Tax Indemnitee for which the Lessee has
not agreed to indemnify such Tax Indemnitee or (z) the Tax Indemnitee so
requests, then the Lessee shall be permitted to control the contest of such
claim, provided that in the case of a contest described in clause (y), if
-------- ----------
the Tax Indemnitee determines in good faith that such contest by the Lessee
could have a material adverse impact on the business or operations of the
Tax Indemnitee and provides a written explanation to the Lessee of such
determination, the Tax Indemnitee may elect to control or reassert control
of the contest, and provided, that by taking control of the contest, Lessee
--------
acknowledges that it is responsible for the Imposition ultimately
determined to be due by reason of such claim, and provided, further, that
-------- -------
in determining the application of clauses (x) and (y) of the preceding
----------- ---
sentence, each Tax Indemnitee shall take any and all reasonable steps to
segregate claims for any Taxes for which the Lessee indemnifies hereunder
from Taxes for which the Lessee is not obligated to indemnify hereunder, so
that the Lessee can control the contest of the former. In all other claims
requested to be contested by the Lessee, the Tax Indemnitee shall control
the contest of such claim, acting through counsel reasonably acceptable to
the Lessee. In no event shall the Lessee be permitted to contest
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<PAGE>
(or the Tax Indemnitee required to contest) any claim, (A) if such Tax
Indemnitee provides the Lessee with a legal opinion of counsel reasonably
acceptable to the Lessee that such action, suit or proceeding involves a
risk of imposition of criminal liability or will involve a material risk of
the sale, forfeiture or loss of, or the creation of any Lien (other than a
Permitted Lien or Lessor Lien) on the Property or any part of any thereof
unless the Lessee shall have posted and maintained a bond or other security
reasonably satisfactory to the relevant Tax Indemnitee in respect to such
risk, (B) if an Event of Default has occurred and is continuing unless the
Lessee shall have posted and maintained a bond or other security reasonably
satisfactory to the relevant Tax Indemnitee in respect of the Taxes subject
to such claim and any and all expenses for which the Lessee is responsible
hereunder reasonably foreseeable in connection with the contest of such
claim, (C) unless the Lessee shall have agreed to pay and shall pay, to
such Tax Indemnitee within ten (10) Business Days after demand all
reasonable out-of-pocket costs, losses and expenses that such Tax
Indemnitee may incur in connection with contesting such Imposition
including all reasonable legal, accounting and investigatory fees and
disbursements, or (D) if such contest shall involve the payment of the Tax
prior to the contest, unless the Lessee shall provide to the Tax Indemnitee
an interest-free advance in an amount equal to the Imposition that the
Indemnitee is required to pay (with no additional net after-tax costs to
such Tax Indemnitee). In addition for Tax Indemnitee controlled contests
and claims contested in the name of the Tax Indemnitee in a public forum,
no contest shall be required: (A) unless the amount of the potential
indemnity (taking into account all similar or logically related claims that
have been or could be raised in any audit involving such Tax Indemnitee for
which the Lessee may be liable to pay an indemnity under this Section
-------
26.5(b)) exceeds $500,000 and (B) unless, if requested by the Tax
-------
Indemnitee, the Lessee shall have provided to the Tax Indemnitee an opinion
of counsel selected by the Lessee (which may be in-house counsel) (except,
in the case of income taxes indemnified hereunder which shall be an opinion
of independent tax counsel selected by the Tax Indemnitee and reasonably
acceptable to the Lessee) that a reasonable basis exists to contest such
claim. In no event shall a Tax Indemnitee be required to appeal an adverse
judicial determination to the United States Supreme Court.
The party conducting the contest shall consult in good faith with the
other party and its counsel with respect to the contest of such claim for
Taxes (or claim for refund) but the decisions regarding what actions to be
taken shall be made by the controlling party in its sole judgement,
provided, however, that if the Tax Indemnitee is the controlling party and
-------- -------
the Lessee recommends the acceptance of a settlement offer made by the
relevant Governmental Authority and such Tax Indemnitee rejects such
settlement offer then the amount for which the Lessee will be required to
indemnify such Tax Indemnitee with respect to the Taxes subject to such
offer shall not exceed the amount which it would have owed if such
settlement offer had been accepted. In addition, the controlling party
shall keep the noncontrolling party reasonably informed as to the progress
of the contest, and shall provide the noncontrolling party with a copy of
(or appropriate excerpts from) any reports or claims issued by the relevant
auditing agents or taxing authority to the controlling party thereof, in
connection with such claim or the contest thereof.
Each Tax Indemnitee shall at the Lessee's expense supply the Lessee
with such information and documents reasonably requested by the Lessee as
are necessary or advisable for the Lessee to participate in any action,
suit or proceeding to the extent permitted by this Section 26.5(b). No Tax
---------------
Indemnitee shall enter into any settlement or other compromise or fail to
appeal an adverse ruling with respect to any claim which is entitled to be
indemnified under this Section 26.5 (and with respect to which contest is
------------
required under this Section 26.5(b)) without the prior
---------------
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written consent of the Lessee, unless such Tax Indemnitee waives its right
to be indemnified under this Section 26.5 with respect to such claim.
------------
Notwithstanding anything contained herein to the contrary, a Tax
Indemnitee will not be required to contest (and the Lessee shall not be
permitted to contest) a claim with respect to the imposition of any Tax if
such Tax Indemnitee shall waive its right to indemnification under this
Section 26.5 with respect to such claim (and any claim with respect to such
------------
year or any other taxable year the contest of which is materially adversely
affected as a result of such waiver).
(c) Reimbursement for Tax Savings. If (x) a Tax Indemnitee or any
-----------------------------
Affiliate thereof realizes a deduction, offset, credit or refund of any
Taxes or any other savings or benefit as a result of any indemnity paid by
the Lessee pursuant to this Section 26.5 or (y) by reason of the incurrence
------------
or imposition of any Tax (or the circumstances or event giving rise
thereto) for which a Tax Indemnitee is indemnified hereunder or any payment
made to or for the account of such Tax Indemnitee by the Lessee pursuant to
this Section 26.5 or any payment made by a Tax Indemnitee to the Lessee by
------------
reason of this Section 26.5(c), such Tax Indemnitee at any time actually
---------------
realizes a reduction in any Taxes for which the Lessee is not required to
indemnify such Tax Indemnitee pursuant to this Section 26.5 which reduction
------------
in Taxes was not taken into account in computing such payment by the Lessee
to or for the account of such Tax Indemnitee or by the Tax Indemnitee to
the Lessee, then such Tax Indemnitee shall promptly pay to the Lessee (xx)
the amount of such deduction, offset, credit, refund, or other savings or
benefit together with the amount of any interest received by such Tax
Indemnitee on account of such deduction, offset, credit, refund or other
savings or benefit or (yy) an amount equal to such reduction in Taxes, as
the case may be, in either case together with an amount equal to any
reduced Taxes payable by such Tax Indemnitee as a result of such payment;
provided that no such payment shall be made so long as a Default or Event
--------
of Default shall have occurred and be continuing but shall be paid promptly
after cure of such Default or Event of Default. Each Tax Indemnitee agrees
to take such actions as the Lessee may reasonably request (provided in the
good faith judgment of the Tax Indemnitee, such actions would not result in
a material adverse effect on the Tax Indemnitee for which the Tax
Indemnitee is not entitled to indemnification from the Lessee) and to
otherwise act in good faith to claim such refunds and other available Tax
benefits, and take such other actions as may be reasonable to minimize any
payment due from the Lessee pursuant to this Section 26.5 and to maximize
------------
the amount of any Tax savings available to it. The disallowance or
reduction of any credit, refund or other tax savings with respect to which
a Tax Indemnitee has made a payment to the Lessee under this Section
-------
26.5(e) shall be treated as a Tax for which the Lessee is obligated to
-------
indemnify such Tax Indemnitee hereunder without regard to the exclusions
set forth in the definition of Impositions except the exclusions set forth
in (iv), (v), (vi), (vii), (ix), (x), (xi), (xiv) and (xvi).
(d) Payments. Any Imposition indemnifiable under this Section 26.5
-------- ------------
shall be paid directly when due to the applicable taxing authority if
direct payment is practicable and permitted. If direct payment to the
applicable taxing authority is not permitted or is otherwise not made, any
amount payable to a Tax Indemnitee pursuant to Section 26.5 shall be paid
------------
within thirty (30) days after receipt of a written demand therefor from
such Tax Indemnitee accompanied by a written statement describing in
reasonable detail the amount so payable, but not before two Business Days
prior to the date that the relevant Taxes are due. Any payments made
pursuant to this Section 26.5 shall be made directly to the Tax Indemnitee
------------
entitled thereto or the Lessee, as the case may be, in
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immediately available funds at such bank or to such account as specified by
the payee in written directions to the payor, or, if no such direction
shall have been given, by check of the payor payable to the order of the
payee by certified mail, postage prepaid at its address as set forth in
Schedule I hereto. Upon the request of any Tax Indemnitee with respect to a
----------
Tax that the Lessee is required to pay, the Lessee shall furnish to such
Tax Indemnitee the original or a certified copy of a receipt for the
Lessee's payment of such Tax or such other evidence of payment as is
reasonably acceptable to such Tax Indemnitee.
(e) Reports. In the case of any report, return or statement required
-------
to be filed with respect to any Taxes that are subject to indemnification
under this Section 26.5 and of which the Lessee has knowledge, the Lessee
------------
shall promptly notify the Tax Indemnitee of such requirement and, at the
Lessee's expense (i) if the Lessee is permitted (unless otherwise requested
by the Tax Indemnitee) by Applicable Law, timely file such report, return
or statement in its own name or (ii) if such report, return or statement is
required to be in the name of or filed by such Tax Indemnitee or the Tax
Indemnitee otherwise requests that such report, return or statement for
filing by such Tax Indemnitee in such manner as shall be satisfactory to
such Tax Indemnitee and send the same to the Tax Indemnitee for filing no
later than 15 days prior to the due date therefor. In any case in which the
Tax Indemnitee will file any such report, return or statement, the Lessee
shall, upon written request of such Tax Indemnitee, provide such Tax
Indemnitee with such information as is reasonably necessary to allow the
Tax Indemnitee to file such report, return or statement.
(f) Verification. At the Lessee's request, the amount of any
------------
indemnity payment by the Lessee or any payment by a Tax Indemnitee to the
Lessee pursuant to this Section 26.5 shall be verified and certified by an
------------
independent public accounting firm mutually acceptable to the Lessee and
the Tax Indemnitee. The costs of such verification shall be borne by the
Lessee unless such verification shall result in an adjustment in the
Lessee's favor of the lesser of (i) $10,000, and (ii) five (5%) percent of
the payment as computed by the Tax Indemnitee, in which case such fee shall
be paid by the Tax Indemnitee. In no event shall the Lessee have the right
to review the Tax Indemnitee's tax returns or receive any other
confidential information from the Tax Indemnitee in connection with such
verification. Any information provided to such accountants by any Person
shall be and remain the exclusive property of such Person and shall be
deemed by the parties to be (and the accountants will confirm in writing
that they will treat such information as) the private, proprietary and
confidential property of such Person, and no Person other than such Person
and the accountants shall be entitled thereto and all such materials shall
be returned to such Person. Such accounting firm shall be requested to
make its determination within 30 days of the Lessee's request for
verifications and the computations of the accounting firm shall be final,
binding and conclusive upon the Lessee and the Tax Indemnitee. The parties
agree that the sole responsibility of the independent public accounting
firm shall be to verify the amount of a payment pursuant to this Lease and
that matters of interpretation of this Lease are not within the scope of
the independent accounting firm's responsibilities.
(g) Tax Ownership. The Lessor represents and warrants that it will
-------------
not, prior to the termination of this Lease, claim ownership of (or any tax
benefits, including depreciation, with respect to) the Property for any
income tax purposes, it being understood that the Lessee is and will remain
the owner of the Property for such income tax purposes until the
termination of this Lease. If, notwithstanding the income tax intentions
of the parties as set forth herein, the Lessor actually receives any income
tax deductions, reductions in income tax or other income tax benefit
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as a result of any claim for, or recharacterization requiring such party to
take, any tax benefits attributable to ownership of the Property for income
tax purposes, the Lessor shall pay to the Lessee, together with an amount
equal to any reduced Taxes payable by such Tax Indemnitee as a result of
such payment, the amount of such income tax savings actually realized by
the Lessor (less the amount of any anticipated increase in income tax which
the Lessor determines is currently payable as a result of such claim or
recharacterization), provided that the Lessee shall agree to reimburse the
--------
Lessor for any subsequent increase in the Lessor's income taxes resulting
from such claim or recharacterization not taken into account in the payment
made to the Lessee, up to the amount paid to the Lessee by the Lessor. The
parties agree that this Section 26.5(g) is intended to require a payment to
---------------
the Lessee if and only if the Lessor shall have actually received an
unanticipated tax savings with respect to the Property that would not have
been received if the Lessor had advanced funds to the Lessee in the form of
a loan secured by the Property in an amount equal to the Lease Balance.
Nothing in this Section 26.5(g) shall be construed to require the Lessor to
---------------
take any affirmative action to realize any tax savings if in its good faith
judgment such action may have a material adverse affect on the Lessor.
XXVI.6. Funding Losses. If any payment of Rent or the Lease Balance,
--------------
including pursuant to the Lessee's exercise of the Purchase Option under Section
-------
22.1, is made on any day other than the last day of an Interest Period
- ----
applicable thereto, the Lessee shall reimburse the Lessor within fifteen (15)
days after demand for any actual resulting loss or expense incurred by it,
including any loss incurred in obtaining, liquidating or employing deposits from
third parties, swaps, hedges or similar transactions entered into in connection
with or in contemplation of transactions relating to the Property, but excluding
loss of margin for the period after any such payment or conversion or failure to
borrow or prepay, provided that the Lessor shall have delivered to the Lessee a
--------
certificate signed by an officer of the Lessor as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error,
and provided, further, that such loss shall in no event exceed the then
-------- -------
effective Lease Rate which would have been payable for the balance of such
Interest Period. The Lessor will, at the request of the Lessee, furnish such
additional information concerning the determination of such loss as the Lessee
may reasonably request.
XXVI.7. Regulation D Compensation. During the Term, for so long as the
-------------------------
Lessor (or FBTC) is required to maintain reserves against "Eurocurrency
Liabilities" (or any other category of liabilities which include deposits by
reference to which the Lease Rate is determined or any category of extensions of
credit or other assets which includes loans by a non-United States office of the
Lessor to United States residents), and, as a result, the cost to the Lessor (or
its Funding Office) of making or maintaining its Advances is increased, then the
Lessor may require the Lessee to pay, contemporaneously with each payment of
Rent, an additional amount at a rate per annum up to but not exceeding the
excess of (i) (A) the applicable Eurodollar Rate divided by (B) one minus the
-----
Eurocurrency Reserve Requirements and (ii) the applicable Eurodollar Rate. In
the event that the Lessor wishes to require payment of such additional amount,
the Lessor (x) shall so notify the Lessee, in which case such additional Rent
shall be payable to the Lessor at the place indicated in such notice with
respect to each Interest Period commencing at least three Business Days after
the giving of such notice and (y) shall furnish to the Lessee at least five
Business Days prior to each date on which Rent is payable a certificate setting
forth the amount to which it is then entitled under this Section (which shall be
consistent with its good faith estimate of the level at which the related
reserves are maintained by it). Each such certificate shall be accompanied by
such information as the Lessee may reasonably request as to the computation set
forth therein.
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XXVI.8. Deposits Unavailable. If on or prior to the first day of any
--------------------
Interest Period:
(a) deposits in dollars (in the applicable amounts) are not being
offered to the Lessor (or its Affiliates) in the relevant market for such
Interest Period, or
(b) the Lessor advises the Lessee that the Eurodollar Rate as
determined by the Lessor will not adequately and fairly reflect the cost to
the Lessor of funding Advances for such Interest Period,
the Lessor shall forthwith give notice thereof to the Lessee, whereupon until
the Lessor notifies the Lessee that the circumstances giving rise to such
suspension no longer exist, the Advance shall begin to bear interest at the
Alternate Base Rate on the last day of the then current Interest Period
applicable thereto. The Lessor shall provide to the Lessee a statement in
writing of the Alternate Base Rate as calculated hereunder.
XXVI.9. Illegality. If, on or after the date hereof, the adoption of any
----------
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Lessor (or its Funding Office) with any request or
directive (whether or not having the force of law) of any such authority,
central bank or comparable agency shall make it unlawful or impossible for the
Lessor (or its Funding Office) to make, maintain or fund the Advance, and the
Lessor shall so notify the Lessee, whereupon until the Lessor notifies the
Lessee that the circumstances giving rise to such suspension no longer exist,
the obligation to make the Advance shall be suspended. The Lessor, with the
consent of the Lessee (which consent shall not unreasonably be withheld), will
designate a different Funding Office if such designation will avoid the need for
giving such notice and will not, in the judgment of the Lessor, be otherwise
disadvantageous to the Lessor. If such notice is given (i) the Lessee shall be
entitled upon its request to a reasonable explanation of the factors underlying
such notice and (ii) the Advance shall begin to bear interest at the Alternate
Base Rate either (a) on the last day of the then current Interest Period
applicable thereto, if the Lessor may lawfully continue to maintain and fund the
Advance to such day or (b) immediately, if the Lessor shall determine that it
may not lawfully continue to maintain and fund the Advance to such day. The
Lessor shall provide to the Lessee a statement in writing of the Alternate Base
Rate as calculated hereunder.
XXVI.10. Increased Cost and Reduced Return.
---------------------------------
(a) In the event that the adoption of any applicable law, rule or
regulation, or any change therein or in the interpretation or application
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof or compliance by
the Lessor with any request or directive after the date hereof (whether or
not having the force of law) of any such authority, central bank or
comparable agency:
(i) does or shall subject the Lessor to any additional tax of
any kind whatsoever with respect to the Operative Documents or the
Advance made by it, or change the basis or the applicable rate of
taxation of payments to the Lessor of principal, interest or any other
amount payable hereunder (except for the imposition of or change in
any tax on or measured by the overall net income of the Lessor (other
than any such tax imposed by means of withholding));
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(ii) does or shall impose, modify or hold applicable any
reserve, special deposit, insurance assessment, compulsory loan or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office
of the Lessor which are not otherwise included in determination of the
rate of interest on the Advance; or
(iii) does or shall impose on the Lessor any other condition; and
the result of any of the foregoing is to increase the cost to the
Lessor of making or maintaining the Advance or to reduce any amount
receivable hereunder, then in any such case, the Lessee shall promptly
pay to the Lessor, upon demand, any additional amounts necessary to
compensate the Lessor for such increased cost or reduced amount
receivable which the Lessor deems to be material as determined by the
Lessor with respect to the Advance.
(b) If the Lessor shall have determined that, after the date hereof,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or
not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of
return on capital of the Lessor (or any entity directly or indirectly
controlling the Lessor) as a consequence of the Lessor's obligations under
the Operative Documents to a level below that which the Lessor (or any
entity directly or indirectly controlling the Lessor) could have achieved
but for such adoption, change, request or directive (taking into
consideration its policies with respect to capital adequacy) by an amount
deemed by the Lessor to be material, then from time to time, within fifteen
(15) days after demand by the Lessor, the Lessee shall pay to the Lessor
such additional amount or amounts as will compensate the Lessor for such
reduction.
(c) The Lessor will promptly notify the Lessee of any event of which
it has knowledge, occurring after the date hereof, which will entitle the
Lessor to compensation pursuant to this Section and will, if practicable,
with the consent of the Lessee (which consent shall not unreasonably be
withheld), designate a different Funding Office or take any other
reasonable action if such designation or action will avoid the need for, or
reduce the amount of, such compensation and will not, in the judgment of
the Lessor, be otherwise disadvantageous to the Lessor. A certificate
signed by an officer of the Lessor claiming compensation under this Section
and setting forth in reasonable detail its computation of the additional
amount or amounts to be paid to it hereunder shall be conclusive in the
absence of manifest error. In determining such amount, the Lessor may use
any reasonable averaging and attribution methods.
(d) Notwithstanding the foregoing clauses (a) and (b) of this Section
----------- --- -------
26.10, the Lessee shall only be obligated to compensate the Lessor for any
-----
amount arising or accruing both:
(i) during (A) any time or period commencing (x) in the case of
subsection (a), not earlier than the first day of any Interest Period
--------------
in effect on the date which, and (y) in the case of subsection (b),
--------------
not earlier than the date on which the Lessor notifies the Lessee that
it proposes to demand such compensation and identifies to the Lessee
the statute, regulation or other basis upon which the claimed
compensation is or will be based and (B) any time or period during
which, because of the retroactive application of such statute,
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regulation or other basis, the Lessor did not know that such amount
would arise or accrue; and
(ii) within six months prior to any demand therefor, accompanied
by a certificate of the Lessor claiming compensation and setting forth
in reasonable detail its computation of the additional amount or
amounts to be paid to it hereunder.
ARTICLE XXVII
ESTOPPEL CERTIFICATES
XXVII.1. Estoppel Certificates. At any time and from time to time upon
---------------------
not less than fifteen (15) days' prior request by the Lessor or the Lessee (the
"Requesting Party"), the other party (whichever party shall have received such
----------------
request, the "Certifying Party") shall furnish to the Requesting Party (but in
----------------
the case of the Lessor, as Certifying Party, not more than four times per year
unless required to satisfy the requirements of any subleases and only to the
extent that the required information has been provided to the Lessor by the
Lessee) a certificate signed by an individual having the office of vice
president or higher in the Certifying Party certifying that this Lease is in
full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications); the dates to which the Basic Rent
and Supplemental Rent have been paid; to the best knowledge of the signer of
such certificate, whether or not the Requesting Party is in default under any of
its obligations hereunder (and, if so, the nature of such alleged default); and
such other matters under this Lease as the Requesting Party may reasonably
request. Any such certificate furnished pursuant to this Article XXVII may be
-------------
relied upon by the Requesting Party, and any existing or prospective mortgagee,
purchaser or lender, and any accountant or auditor, of, from or to the
Requesting Party (or any Affiliate thereof).
ARTICLE XXVIII
ACCEPTANCE OF SURRENDER
XXVIII.1. Acceptance of Surrender. No surrender to the Lessor of this
-----------------------
Lease or of all or any portion of the Property or of any interest therein shall
be valid or effective unless agreed to and accepted in writing by the Lessor,
and no act by the Lessor or any representative or agent of the Lessor, other
than a written acceptance, shall constitute an acceptance of any such surrender.
ARTICLE XXIX
NO MERGER OF TITLE
XXIX.1. No Merger of Title. There shall be no merger of this Lease or of
------------------
the leasehold estate created hereby by reason of the fact that the same Person
may acquire, own or hold, directly or indirectly, in whole or in part, (a) this
Lease or the leasehold estate created hereby or any interest in this Lease or
such leasehold estate, (b) the fee or groundleasehold estate in the Property,
except as may expressly be stated in a written instrument duly executed and
delivered by the appropriate Person or (c) a beneficial interest in the Lessor.
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ARTICLE XXX
INTENT OF THE PARTIES
XXX.1. Ownership of the Property.
-------------------------
(a) It is the intent of the parties hereto that for financial
accounting purposes the Lease constitutes an "operating lease" pursuant to
Statement of Financial Accounting Standards No. 13, as amended, and for
purposes of commercial, real estate, bankruptcy and federal, state and
local income tax law, the transaction contemplated hereby is a financing
arrangement. The parties further intend that Lessee shall be treated as
owner of the Property for income tax purposes and shall be entitled to all
deductions for depreciation thereof. Lessor shall take no action
inconsistent with such treatment.
(b) It is the intent of the parties hereto that the obligations of
the Lessee under this Lease to pay Basic Rent and Supplemental Rent or
Lease Balance in connection with any purchase of the Property pursuant to
this Lease shall be treated as payments of interest on and principal of,
respectively, loans from the Lessor to the Lessee.
(c) Specifically, without limiting the generality of subsection (b)
--------------
of this Section 30.1, the Lessor and the Lessee intend and agree that with
------------
respect to the nature of the transactions evidenced by this Lease in the
context of the exercise of remedies under the Operative Documents,
including, without limitation, in the case of any insolvency or
receivership proceedings or a petition under the United States bankruptcy
laws or any other applicable insolvency laws or statute of the United
States of America or any State or Commonwealth thereof affecting the Lessee
and the Lessor, or any enforcement or collection actions, the transactions
evidenced by this Lease are loans made by the Lessor as unrelated third
party lender to the Lessee.
ARTICLE XXXI
PAYMENT OF CERTAIN EXPENSES
XXXI.1. Transaction Expenses.
--------------------
(a) The Lessee shall pay, or cause to be paid, from time to time all
Transaction Expenses in respect of the transactions taking place on the
Documentation Date and on Acquisition Date on such respected date;
provided, however, that, if the Lessee has not received written invoices
-------- -------
therefor prior to such date, such Transaction Expenses shall be paid within
ten (10) Business Days after the Lessee has received written invoices
therefor.
(b) The Lessee shall pay or cause to be paid (i) all Transaction
Expenses incurred by the Lessor in entering into any future amendments or
supplements with respect to any of the Operative Documents, whether or not
such amendments or supplements are ultimately entered into, or giving or
withholding of waivers of consents hereto or thereto, in each case which
have been requested by or approved by the Lessee, (ii) all Transaction
Expenses incurred by the Lessor in connection with any purchase of the
Property by the Lessee or other Person pursuant to this Lease and (iii) all
Transaction Expenses incurred by the Lessor in respect of enforcement of
any of its rights or remedies against the Lessee in respect of the
Operative Documents.
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XXXI.2. Brokers' Fees and Stamp Taxes. The Lessee shall pay or cause to
-----------------------------
be paid any brokers' fees and any and all stamp, transfer and other similar
taxes, fees and excises, if any, including any interest and penalties, which are
payable in connection with the transactions contemplated by this Lease and the
other Operative Documents.
ARTICLE XXXII
OTHER COVENANTS AND AGREEMENTS OF LESSEE
XXXII.1. Covenants. The Lessee hereby agrees that so long as this Lease
---------
is in effect:
(a) Information. The Lessee will deliver to the Lessor:
-----------
(i) promptly upon the request of the Lessor, the publicly
available consolidated and consolidating statements of financial
position of the Lessee and its consolidated subsidiaries as of the end
of each of the Lessee's fiscal years and the related consolidated and
consolidating statements of income and cash flows for such fiscal
year, setting forth in each case in comparative form the figures for
the previous fiscal year, with such consolidated financial statements
reported on by Ernst & Young or other independent public accountants
of nationally recognized standing reasonably acceptable to the Lessor;
and with respect to each of the first three quarters of each fiscal
year of the Lessee, the publicly available unaudited consolidated
statement of financial position of the Lessee as of the end of such
quarter and the related unaudited consolidated statements of income
and cash flows for such quarter and for the portion of the Lessee's
fiscal year ended at the end of such quarter;
(ii) as soon as possible and in any event within ten (10) days
after a Responsible Employee of the Lessee obtains knowledge of the
occurrence of each Event of Default or each event that, with the
giving of notice or time elapse, or both, would constitute an Event of
Default continuing on the date of such statement, a statement of the
authorized officer setting forth details of such Event of Default or
event and the action that the Lessee proposes to take with respect
thereto; provided that the Lessee shall not be obligated to give
notice of any Event of Default which is remedied within ten (10) days
after such Responsible Employee first obtains knowledge;
(iii) promptly upon becoming aware thereof, written notice of the
commencement or existence of any proceeding against the Lessee or any
Affiliate of the Lessee by or before any court or governmental agency
that might, in the reasonable judgment of the Lessee, result in a
Material adverse effect on the business, operations or financial
conditions of the Lessee or the ability of the Lessee to perform its
obligations under the Operative Documents;
(iv) as soon as possible and in any event within ten (10) days
after a Responsible Employee of the Lessee obtains knowledge of the
occurrence of any violation or alleged violation of an Environmental
Law by Lessee, a statement of an authorized officer setting forth the
details of such violation and the action which the Lessee proposes to
take with respect thereto; and
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(v) from time to time such additional information regarding the
business, properties, condition or operations, financial or otherwise,
of the Lessee, or regarding the Property or the status of any
construction thereon, if any, as the Lessor may reasonably request in
connection with the Property.
(b) Obligations under Loan Documents. Absent prior written notice
--------------------------------
from the Lessor to the contrary, the Lessee shall comply with (i) all
requirements in the Nomura Loan Agreement that the Lessor, as Borrower,
furnish the Lender with notices, documents, reports, budgets, data and all
other information relating to the Property, including, without limitation,
the requirements in connection with a defeasance of the Loan pursuant to
Section 2.11 of the Nomura Loan Agreement and (ii) all requirements and
------------
obligations of Operator set forth in the Mortgage.
(c) Compliance with Laws. The Lessee will comply in all Material
--------------------
respects with all applicable laws, ordinances, rules, regulations, and
requirements of governmental authorities (including, without limitation,
Environmental Laws and ERISA and the rules and regulations thereunder) with
respect to its Material Assets, including the Property, except where the
necessity of compliance therewith is contested in good faith by appropriate
proceedings.
(d) Further Assurances. The Lessee shall take or cause to be taken
------------------
from time to time all action necessary to assure that the intent of the
parties pursuant to the Operative Documents is given effect as contemplated
by this Lease. The Lessee shall execute and deliver, or cause to be
executed and delivered, to the Lessor from time to time, promptly upon
request therefor, any and all other and further instruments that may be
reasonably requested by the Lessor to cure any deficiency in the execution
and delivery of this Lease or any Operative Document to which it is a
party.
(e) Preservation of Existence, Etc. The Lessee will preserve and
------------------------------
maintain its existence and all rights, privileges and franchises necessary
and desirable in the normal conduct of its business and the performance of
its obligations hereunder and under the Operative Documents; provided that
the Lessee may consolidate with or merge with or into any other corporation
or convey or transfer its properties and assets substantially as an
entirety to any Person, if either the Lessee shall be the continuing
corporation, or the corporation (if other than the Lessee) formed by such
consolidation or into which the Lessee is merged or the Person which
acquires by conveyance or transfer the properties and assets of the Lessee
substantially as an entirety shall expressly assume, by an assumption
agreement executed and delivered to the Lessor, the performance of the
Lessee's obligations under each of the Operative Documents.
(f) Nonpetition Covenants. Lessee shall not during the Term of the
---------------------
Lease acquiesce, petition or otherwise invoke or cause the Lessor to invoke
the process of any court or government authority for the purpose of
commencing or sustaining a case against the Lessor under any federal or
state bankruptcy, insolvency or similar law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar
official of the Lessor or any substantial part of its property, or ordering
the winding up or liquidation of the affairs of the Lessor. Lessor shall
not during the Term of the Lease acquiesce, petition or otherwise invoke or
cause the Lessee to invoke the process of any court or government authority
for the purpose of commencing or sustaining a case against the Lessee under
any federal or state bankruptcy, insolvency or similar law or
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appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Lessee or any substantial
part of its property, or ordering the winding up or liquidation of the
affairs of the Lessee.
ARTICLE XXX
MISCELLANEOUS
XXXIII.1. Survival; Severability; Etc. Anything contained in this Lease
---------------------------
to the contrary notwithstanding, all claims against and liabilities of the
Lessee or the Lessor arising from events commencing prior to the expiration or
earlier termination of this Lease shall survive such expiration or earlier
termination for a period of one year except as to indemnification which shall
continue to survive. If any term or provision of this Lease or any application
thereof shall be declared invalid or unenforceable, the remainder of this Lease
and any other application of such term or provision shall not be affected
thereby. If any right or option of the Lessee provided in this Lease would, in
the absence of the limitation imposed by this sentence, be invalid or
unenforceable as being in violation of the rule against perpetuities or any
other rule of law relating to the vesting of an interest in or the suspension of
the power of alienation of property, then such right or option shall be
exercisable only during the period which shall end twenty-one (21) years after
the date of death of the last survivor of the descendants of Franklin D.
Roosevelt, the former President of the United States, Henry Ford, the deceased
automobile manufacturer, and John D. Rockefeller, the founder of the Standard
Oil Company, known to be alive on the date of the execution, acknowledgment and
delivery of this Lease.
XXXIII.2. Amendments and Modifications. Neither this Lease nor any
----------------------------
provision hereof may be amended, waived, discharged or terminated except by an
instrument in writing in recordable form signed by the Lessor and the Lessee.
XXXIII.3. No Waiver. No failure by the Lessor or the Lessee to insist upon
---------
the strict performance of any term hereof or to exercise any right, power or
remedy upon a default hereunder, and no acceptance of full or partial payment of
Rent during the continuance of any such default, shall constitute a waiver of
any such default or of any such term. To the fullest extent permitted by law, no
waiver of any default shall affect or alter this Lease, and this Lease shall
continue in full force and effect with respect to any other then existing or
subsequent default.
XXXIII.4. Notices. All notices, demands, requests, consents, approvals and
-------
other communications hereunder shall be in writing (including by facsimile), and
directed to the address of the appropriate party as set forth in Schedule I
----------
hereto.
XXXIII.5. Successors and Assigns. All the terms and provisions of this
----------------------
Lease shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
XXXIII.6. Headings and Table of Contents. The headings and table of
------------------------------
contents in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof.
XXXIII.7. Counterparts. This Lease may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same instrument.
-49-
<PAGE>
XXXIII.8. GOVERNING LAW. THIS LEASE SHALL BE GOVERNED BY, AND CONSTRUED
-------------
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CONNECTICUT.
WITHOUT LIMITING THE FOREGOING, IN THE EVENT THAT THIS LEASE IS DEEMED TO
CONSTITUTE A FINANCING, WHICH IS THE INTENTION OF THE PARTIES, THE LAWS OF THE
STATE OF CONNECTICUT, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, SHALL
GOVERN THE CREATION, TERMS AND PROVISIONS OF THE INDEBTEDNESS EVIDENCED HEREBY.
XXXIII.9. Original Lease. The single executed original of this Lease
--------------
marked "THIS COUNTERPART IS THE ORIGINAL EXECUTED COUNTERPART" on the signature
page thereof and containing the receipt of the Lessor therefor on or following
the signature page thereof shall be the Original Executed Counterpart of this
Lease (the "Original Executed Counterpart"). To the extent that this Lease
-----------------------------
constitutes chattel paper, as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction, no security interest in this
Lease may be created through the transfer or possession of any counterpart other
than the Original Executed Counterpart.
XXXIII.10. Waiver of Jury Trial. THE PARTIES HERETO HEREBY KNOWINGLY,
--------------------
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN
CONNECTION WITH, THIS LEASE AND/OR ANY OF THE OTHER OPERATIVE DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED THEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF SUCH PARTIES. THE PARTIES
HERETO ACKNOWLEDGE AND AGREE THAT THEY HAVE RECEIVED FULL AND SUFFICIENT
CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL
INDUCEMENT FOR THE PARTIES ENTERING INTO THE LEASE AND EACH SUCH OTHER OPERATIVE
DOCUMENT.
XXXIII.11. Compliance with Loan Documents. Lessor covenants and agrees
------------------------------
with Lessee that Lessor shall (a) not without the express written consent of the
Lessee, which consent shall not be unreasonably withheld, enter into any
amendments or modifications of the FBTC Loan Agreement, the Lessor Pledge
Agreement or any of the Loan Documents to which it is a party and (b) comply
with the terms of the FBTC Loan Agreement, the Lessor Pledge Agreement and the
Loan Documents to which it is a party.
XXXIII.12. Payment of Equity Balance; Transfer of Beneficial Interest in
-------------------------------------------------------------
Lessor. In the event the Lessee exercises its right to pay the Equity Balance to
- ------
he Lessor as set forth in this Lease, the Lessee shall not pay such Equity
Balance without complying with the provisions of the Nomura Loan Agreement. The
parties further agree that as soon as possible (time being of the essence) after
the payment by the Lessee to the Lessor of the Equity Balance or upon the
Lessor's exercise of all its rights under the Securities Pledge Agreement and
the Certificate Pledge Agreement, including, without limitation, its rights to
possess the Pledged Securities and the Certificate A, the Lessee shall accept a
transfer requested of it by the beneficial owner of the Lessor of its equity
interest in the Lessor. The Lessee and Lessor agree to execute all documents
reasonably necessary to effectuate such transfer. The acquisition by the Lessee
of the equity interest in the Lessor shall comply with the provisions of the
Nomura Loan Agreement.
-50-
<PAGE>
XXXIII.13. Concerning the Lessor. This Lease has been executed by
---------------------
Wilmington Trust Company solely in its capacity as Trustee under the Trust
Agreement and not in its individual capacity and in no case shall the Trust
Company (or any entity acting as successor or additional Trustee under the Trust
Agreement) be personally liable for or on account of any of the statements,
representations, warranties, covenants or obligations of the Trust, the Trustee
or the Lessor hereunder, any such liabilities being hereby waived by the other
parties hereto provided, that Wilmington Trust Company accepts the benefits of
--------
running to it hereunder and agrees that it shall be liable in its individual
capacity for its own gross negligence or willful misconduct. If a successor
Trustee is appointed in accordance with the terms of the Trust Agreement, such
successor Trustee shall, without any further act, succeed to all the rights,
duties, immunities and obligations of the Lessor hereunder and the predecessor
Trustee shall be released from all further duties and obligations hereunder
arising after such successor Trustee will have been appointed.
-51-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Lease be duly executed and
delivered as of the date first above written.
BROOKDALE LIVING COMMUNITIES OF
CONNECTICUT, INC.,
By
----------------------------------------------
Name:
Title:
S-1
<PAGE>
Commitment: THE GABLES BUSINESS TRUST
- ----------
By Wilmington Trust Company, not in its
individual capacity but as Trustee
$23,125,000
By
----------------------------------------------
Patricia A. Evans
Financial Services Officer
S-2
<PAGE>
THIS COUNTERPART IS NOT THE ORIGINAL EXECUTED COUNTERPART.
Receipt of this original counterpart of the foregoing Lease is hereby
acknowledged as of the date hereof.
NOMURA ASSET CAPITAL CORPORATION
By /s/ Raymond M. Anthony
---------------------------------
Raymond M. Anthony
Managing Director
S-3
<PAGE>
SCHEDULE I
NOTICE INFORMATION
Lessee
- ------
Brookdale Living Communities of Connecticut, Inc.
c/o Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Mark J. Schulte
Telephone No.:(312) 977-3690
Facsimile No.: (312) 977-3699
with copies delivered concurrently to:
Brookdale Living Communities of Connecticut, Inc.
c/o Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Darryl W. Copeland, Jr.
Telephone No.:(312) 977-3692
Facsimile No.: (312) 977-3699
Brookdale Living Communities of Connecticut, Inc.
c/o Brookdale Living Communities, Inc.
77 West Wacker Drive
Chicago, Illinois 60601
Attention: Robert J. Rudnik, Esquire
Telephone No.:(312) 977-3360
Facsimile No.: (312) 977-3701
Frank J. Saccomandi, III, Esquire
Murtha, Cullina, Richter and Pinney
185 Asylum Street - CityPlace I
Hartford, Connecticut 06103
Telephone Number: 860-240-6043
Facsimile Number: 860-240-6150
<PAGE>
Lessor
- ------
The Gables Business Trust
c/o Wilmington Trust Company
1100 North Market Street
Wilmington, Delaware 19890-0001
- ------------------------------
- ------------------------------
Attention: Corporate Trust Administration
Telephone No.: 302-651-8882
Facsimile No.: 302-651-1000
<PAGE>
EXHIBIT A
---------
FORM OF FUNDING REQUEST
TO: The Gables Business Trust
-----------------------
-----------------------
Reference is hereby made to the Lease dated as of November __, 1997, as it
may be amended from time to time (the "Lease"), between Brookdale Living
-----
Communities of Connecticut, Inc. (the "Company") and The Gables Business Trust.
-------
Capitalized terms not otherwise defined herein are used herein as defined in
Appendix 1 to the Lease.
- ----------
The Company hereby requests the making of an Advance in the amount of
$____________ on _____________, 199_ (the "Requested Funding Date").
----------------------
In connection with such requested Advance, the Company hereby represents
and warrants to you as follows:
(a) The Advance will be allocated as follows:
(i) ___________ of the Advance shall be used solely to provide
the Company with funds with which to pay or reimburse itself for
Property Cost.
(ii) $___________ of the Advance shall be used to pay or
reimburse the Company for Transaction Expenses paid or payable by the
Company in connection with the Operative Documents and fees paid or
payable by the Company to the Lessor in connection with the Operative
Documents and any amounts paid or payable by the Company pursuant to
Section 31.1 of the Lease, and
------------
(b) On and as of the Requested Funding Date the representations and
warranties of the Company contained in the Lease and in each of the other
Operative Documents are true and correct in all material respects as though
made on and as of such date, except to the extent such representations or
warranties relate solely to an earlier date, in which case such
representations and warranties were true and correct in all material
aspects on and as of such earlier date;
(c) On and as of the Requested Funding Date there are no actions,
suits or proceedings pending or, to the knowledge of the Company,
threatened (i) that are reasonably likely to have a Material adverse effect
on the Property or (ii) that question the validity of the Operative
Documents or the rights or remedies of the Lessor with respect to the
Company or the Property under the Operative Documents;
<PAGE>
(d) To the knowledge of the Company, there have been no Liens against
the Property since the recordation of the Deed other than Permitted Liens;
(e) On and as of the Requested Funding Date no Default or Event or
Default under the Lease has occurred and is continuing, and no Default or
Event of Default under the Lease will have occurred after giving effect to
the making of the Advance requested hereby; and
(f) All of the applicable conditions precedent to this Advance under
Article IV of the Lease have been satisfied.
Please wire transfer the proceeds of the Advance requested hereby (other
than proceeds described in paragraph (a)(iv) of this Funding Request) to
-----------------
____________.
The Company has caused this Funding Request to be executed and delivered by
its duly authorized Responsible Employee this */_______ day of __________,
199_.
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.,
By
--------------------------
Name:
Title:
- -------------------------
*/ Funding Request must be delivered not later than 9:00 A.M., New York City
time, five (5) Business Days prior to the Requested Funding Date.
<PAGE>
EXHIBIT C
---------
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.,
Responsible Employee's Certificate
Pursuant to Section 4.3(g) of the Lease
-----------------------
The undersigned certifies that he is the duly appointed and acting
[____________] of BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC., (the
"Company"), and is familiar with the terms and provisions of the Lease, dated as
- --------
of November __, 1997 (the "Lease"), among the Company, as the Lessee, The Gables
Business Trust, as the Lessor, and the transactions and documents contemplated
thereby. Capitalized terms used herein but not defined shall have the meanings
ascribed to them in Appendix 1 to the Lease.
----------
Pursuant to Section 4.3(g) of the Lease, the undersigned, as [____________]
--------------
of the Company, further certifies that: (i) each and every representation and
warranty of the Company contained in each Operative Document to which is a party
is true and correct in all material respects on and as of the Acquisition Date;
(ii) to the best of the undersigned's knowledge, no Default or Event of Default
has occurred and is continuing under any Operative Document to which the Company
is a party with respect to the Company; (iii) each Operative Document to which
the Company is a party is in full force and effect with respect to the Company;
and (iv) the Company has duly performed and complied in all material respects
with all covenants, agreements and conditions contained in the Lease or in any
other Operative Document required to be performed or complied with by it on or
prior to such Acquisition Closing Date.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
this ____ day of __________, 199__.
BROOKDALE LIVING COMMUNITIES OF CONNECTICUT, INC.,
-----------------------------
Name:
Title:
<PAGE>
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE I DEFINITIONS; INTERPRETATION
1.1. Definitions; Interpretation...................................... 1
ARTICLE II PURCHASE AND LEASE
2.1. Acceptance and Lease of Property................................. 1
2.2. Acceptance Procedure............................................. 1
2.3. Lease Term....................................................... 2
2.4. Title............................................................ 2
ARTICLE III FUNDING OF THE ADVANCE
3.1. Lessor Commitment................................................ 2
3.2. Procedures for Advance........................................... 2
ARTICLE IV CONDITIONS PRECEDENT
4.1. Documentation Date............................................... 3
4.2. Acquisition Date................................................. 3
4.3. Conditions Precedent to the Acquisition Date and the Advance..... 3
ARTICLE V [INTENTIONALLY OMITTED]
ARTICLE VI REPRESENTATIONS
6.1. Representations of the Lessor.................................... 6
6.2. Representations of Lessee........................................ 7
6.3. Representations of the Lessee with Respect to the Advance........10
ARTICLE VII PAYMENT OF RENT
7.1. Rent.............................................................10
7.2. Payment of Rent..................................................11
7.3. Supplemental Rent................................................11
7.4. Method of Payment................................................11
ARTICLE VIII QUIET ENJOYMENT; RIGHT TO INSPECT
8.1. Quiet Enjoyment..................................................12
8.2. Right to Inspect.................................................12
ARTICLE IX NET LEASE, ETC.
9.1. Net Lease........................................................12
9.2. No Termination or Abatement......................................13
ARTICLE X SUBLEASES
10.1. Subletting......................................................13
<PAGE>
ARTICLE XI LESSEE ACKNOWLEDGMENTS
11.1. Condition of the Property.......................................13
11.2. Risk of Loss....................................................14
ARTICLE XII POSSESSION AND USE OF THE PROPERTY, ETC.
12.1. Utility Charges.................................................14
12.2. Possession and Use of the Property..............................14
12.3. Compliance with Requirements of Law and Insurance Requirements..14
12.4. Assignment by Lessee............................................14
ARTICLE XIII MAINTENANCE AND REPAIR; RETURN
13.1. Maintenance and Repair; Return..................................15
ARTICLE XIV MODIFICATIONS, ETC.
14.1. Modifications, Substitutions and Replacements...................15
ARTICLE XV WARRANT OF TITLE; EASEMENTS
15.1. Warrant of Title................................................16
15.2. Grants and Releases of Easements; Lessor's Waivers..............16
ARTICLE XVI PERMITTED CONTESTS
16.1. Permitted Contests in Respect of Applicable Law.................17
ARTICLE XVII INSURANCE
17.1. Public Liability and Workers' Compensation Insurance............18
17.2. Hazard and Other Insurance......................................18
17.3. Insurance Coverage..............................................18
17.4. Insurance Proceeds..............................................19
17.5. Insurance Requirements in Loan Documents........................19
ARTICLE XVIII CASUALTY AND CONDEMNATION;ENVIRONMENTAL MATTERS
18.1. Casualty and Condemnation.......................................20
18.2. Environmental Matters...........................................21
18.3. Notice of Environmental Matters.................................21
18.4. Environmental Obligations of the Lessor Pursuant to the
Nomura Loan Agreement..........................................21
ARTICLE XIX TERMINATION OF LEASE
19.1. Termination upon Certain Events.................................21
19.2. Termination Procedures..........................................22
ARTICLE XX EVENTS OF DEFAULT
20.1. Events of Default...............................................22
20.2. Remedies........................................................24
20.3. Waiver of Certain Rights........................................27
ARTICLE XXI LESSOR ASSIGNMENT
<PAGE>
21.1. Assignment......................................................27
ARTICLE XXII PURCHASE PROVISIONS
22.1. Purchase Option.................................................28
ARTICLE XXIII RENEWAL PROCEDURES
23.1. Renewal.........................................................28
ARTICLE XXIV REMARKETING OPTION
24.1. Option to Remarket..............................................29
24.2. Certain Obligations Continue....................................32
ARTICLE XXV PROCEDURES RELATING TO PURCHASE OR REMARKETING
25.1. Provisions Relating to the Exercise of Purchase Option and
Conveyance Upon Remarketing and Conveyance Upon
Certain Other Events..............................................32
ARTICLE XXVI INDEMNIFICATION
26.1. General Indemnification.........................................33
26.2. End of Term Indemnity...........................................34
26.3. Environmental Indemnity.........................................35
26.4. Proceedings in Respect of Claims................................36
26.5. General Tax Indemnity...........................................37
26.6. Funding Losses..................................................42
26.7. Regulation D Compensation.......................................42
26.8. Deposits Unavailable............................................42
26.9. Illegality......................................................43
26.10. Increased Cost and Reduced Return..............................43
ARTICLE XXVII ESTOPPEL CERTIFICATES
27.1. Estoppel Certificates...........................................44
ARTICLE XXVIII ACCEPTANCE OF SURRENDER
28.1. Acceptance of Surrender.........................................45
ARTICLE XXIX NO MERGER OF TITLE
29.1. No Merger of Title..............................................45
ARTICLE XXX INTENT OF THE PARTIES
30.1. Ownership of the Property.......................................45
ARTICLE XXXI PAYMENT OF CERTAIN EXPENSES
31.1. Transaction Expenses............................................46
31.2. Brokers' Fees and Stamp Taxes...................................46
ARTICLE XXXII OTHER COVENANTS AND AGREEMENTS OF LESSEE
32.1. Covenants.......................................................47
<PAGE>
ARTICLE XXXIII MISCELLANEOUS
33.1. Survival; Severability; Etc.....................................49
33.2. Amendments and Modifications....................................49
33.3. No Waiver.......................................................49
33.4. Notices.........................................................49
33.5. Successors and Assigns..........................................49
33.6. Headings and Table of Contents..................................49
33.7. Counterparts....................................................49
33.8. GOVERNING LAW...................................................49
33.9. Original Lease..................................................50
33.10. Waiver of Jury Trial............................................50
33.11. Compliance with Loan Documents..................................50
33.12. Payment of Equity Balance; Transfer of Beneficial
Interest in Lessor..............................................50
33.13. Concerning the Lessor...........................................50
<PAGE>
Schedules
SCHEDULE I Notice Information
SCHEDULE II FBTC Basic Rent
Exhibits
EXHIBIT A Funding Request
EXHIBIT B Lease Supplement
EXHIBIT C Responsible Employee's Certificate
<PAGE>
APPENDIX 1
to
Lease
-----
DEFINITIONS AND INTERPRETATION
A. Interpretation. In each Operative Document, unless a clear contrary
--------------
intention appears:
(i) the singular number includes the plural number and vice versa;
---- -----
(ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are
permitted by the Operative Documents, and reference to a Person in a
particular capacity excludes such Person in any other capacity or
individually;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Operative Document),
document or instrument means such agreement, document or instrument as
amended or modified and in effect from time to time in accordance with the
terms thereof and, if applicable, the terms of the other Operative
Documents and reference to any promissory note includes any promissory note
which is an extension or renewal thereof or a substitute or replacement
therefor;
(v) reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, in whole or in part,
and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision of
any Applicable Law means that provision of such Applicable Law from time to
time in effect and constituting the substantive amendment, modification,
codification, replacement or reenactment of such section or other
provision;
(vi) reference in any Operative Document to any Article, Section,
Appendix, Schedule or Exhibit means such Article or Section thereof or
Appendix, Schedule or Exhibit thereto;
<PAGE>
(vii) "hereunder", "hereof", "hereto" and words of similar import
shall be deemed references to an Operative Document as a whole and not to
any particular Article, Section or other provision thereof;
(viii) "including" (and with correlative meaning "include") means
including without limiting the generality of any description preceding such
term;
(ix) relative to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding";
(x) terms used herein or in the Lease but not otherwise defined
therein shall have the meanings specified therefor in the Nomura Loan Agreement.
B. Accounting Terms. In each Operative Document, unless expressly
----------------
otherwise provided, accounting terms shall be construed and interpreted, and
accounting determinations and computations shall be made, in accordance with
GAAP.
C. Conflict in Operative Documents. If there is any conflict between any
-------------------------------
Operative Documents, such Operative Document shall be interpreted and construed,
if possible, so as to avoid or minimize such conflict but, to the extent (and
only to the extent) of such conflict, the Nomura Loan Agreement shall prevail
and control.
D. Legal Representation of the Parties. The Operative Documents were
-----------------------------------
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring the Operative Document to
be construed or interpreted against any party shall not apply to any
construction or interpretation hereof or thereof.
E. Defined Terms. Unless a clear contrary intention appears, terms
-------------
defined herein have the respective indicated meanings when used in each
Operative Document. Terms used herein and in the Lease but not defined herein
or in the Lease shall have the meanings ascribed to them in the Nomura Loan
Agreement.
"Acquisition Date" is defined in Section 4.2 of the Lease.
---------------- -----------
"Advance" means the advance of funds by the Lessor pursuant to Article III
------- -----------
of the Lease.
"After Tax Basis" means, with respect to any payment to be received, the
---------------
amount of such payment increased so that, after deduction of the amount of all
taxes required to be paid by the recipient (less any tax savings realized and
the present value of any tax savings projected to be realized by the recipient
as a result of the payment of the indemnified amount) with respect to the
receipt by the recipient of such amounts, such increased payment (as so reduced)
is equal to the payment otherwise required to be made.
<PAGE>
"Alternate Base Rate" means, for any period, an interest rate per annum
-------------------
equal to the sum of (i) the Federal Funds Effective Rate most recently
determined by the Lessor plus .50% and (ii) the Applicable Margin. If the
----
aforesaid rate changes from time to time after the date of the Lease, the
Alternate Base Rate shall be automatically increased or decreased, if
appropriate and as the case may be, without notice to the Lessee as of the
effective time of each change.
"Applicable Law" means all existing and future applicable laws, rules,
--------------
regulations (including Environmental Laws) statutes, treaties, codes,
ordinances, permits, certificates, orders and licenses of and interpretations
by, any Governmental Authority, and applicable judgments, decrees, injunctions,
writs, orders or like action of any court, arbitrator or other administrative,
judicial or quasi-judicial tribunal or agency of competent jurisdiction
(including those pertaining to health, safety or the environment (including,
without limitation, wetlands) and those pertaining to the construction, use or
occupancy of the Property) and any restrictive covenant or deed restriction or
easement of record affecting the Property or any other Material Assets.
"Applicable Margin" means at any time 0.50% per annum.
-----------------
"Appraisal" means an appraisal of the Property, which Appraisal complies in
---------
all material respects (as determined by the reasonable judgment of counsel for
the Lessor) with the requirements of the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, as amended, the rules and regulations adopted
pursuant thereto, and all other applicable Requirements of law, and will
appraise the Fair Market Sales Value of such Property, in form and substance
reasonably satisfactory to the Lessor, prepared by American Appraisal Associates
or another reputable appraiser selected by the Lessor.
"Appurtenant Rights" means (i) all agreements, easements, rights of way or
------------------
use, rights of ingress or egress, privileges, appurtenances, tenements,
hereditaments and other rights and benefits at any time belonging or pertaining
to the Land or the Improvements, including, without limitation, the use of any
streets, ways, alleys, vaults or strips of land adjoining, abutting, adjacent or
contiguous to the Land and (ii) all permits, licenses and rights, whether or not
of record, appurtenant to the Land.
"Architect" means, with respect to the Property, the architect acting in
---------
such capacity. Any requirement in any Operative Document that a certificate of
the Architect be delivered shall be satisfied by delivery of certificate(s) from
one or more of the foregoing so long as such certificates collectively satisfy
the requirements set forth in such Operative Documents.
"Base Lease Term" is defined in Section 2.3 of the Lease.
--------------- -----------
"Basic Rent" means Debt Service, Basic Carrying Costs Monthly Installments,
----------
Operating Expense Monthly Installments and Capital Reserve Monthly Installments,
each to the extent required to be paid under the Nomura Loan Agreement and FBTC
Basic Rent and Lessor Basic Rent.
-3-
<PAGE>
"Break Costs" means an amount equal to the amount, if any, required to
-----------
compensate the Lessor for any additional losses (including, any loss, cost or
expense incurred by reason of the liquidation or reemployment of deposits or
funds acquired by the Lessor to fund its obligations hereunder, swaps, hedges or
similar transactions entered into in connection with or in contemplation of
transactions relating to the Property) it may reasonably incur as a result of
(x) the Lessee's payment of Rent or Lease Balance other than on a Payment Date,
(y) the Advance not being made on the date specified therefore in the Funding
Request (other than as a result of a breach by the Lessor if its obligation
under Section 3.1 of the Lease to make the Advance), or (z) as a result of any
conversion of the Eurodollar Rate in accordance with Section 26.8 or 26.9 of the
Lease. A statement as to the amount of such loss, cost of expense, prepared in
good faith and in reasonable detail and submitted by the Lessor to the Lessee,
shall be conclusive and binding for all purposes absent manifest error.
"Board" means the Board of Governors of the Federal Reserve System of the
-----
United States (or any successor).
"CERCLA" means the Comprehensive Environmental Response, Compensation, and
------
Liability Act of 1980, 42 U.S.C. (S)(S) 9601 et seq., as amended by the
-- ---
Superfund Amendments and Reauthorization Act of 1986.
"Casualty" means any damage or destruction of all or any portion of the
--------
Property as a result of a fire or other casualty.
"Certificate A" means the accreting investment certificate, in the
-------------
principal amount of $3,931,250.00 issued by The Fuji Bank and Trust Company and
pledged to the Lessee pursuant to the Certificate Pledge Agreement.
"Certificate Pledge Agreement" means the Certificate Pledge Agreement,
----------------------------
dated as of November 21, 1997, between the Lessee and the Lessor pursuant to
which the Lessee pledged Certificate A to the Lessor.
"Certifying Party" is defined in Section 27.1 of the Lease.
---------------- ------------
"Claims" means any and all obligations, liabilities, losses, actions,
------
suits, judgments, penalties, fines, claims, demands, settlements, costs and
expenses (including, without limitation, reasonable legal fees and expenses) of
any nature whatsoever.
"Commitment" means the obligation of the Lessor to make the Advance to the
----------
Lessee in an aggregate principal amount not to exceed the amount set forth
opposite the Lessor's name on its signature page to the Lease.
-4-
<PAGE>
"Condemnation" means any condemnation, requisition, confiscation, seizure
------------
or other taking or sale of the use, access, occupancy, easement rights or title
to the Property or any part thereof, wholly or partially (temporarily or
permanently), by or on account of any actual or threatened eminent domain
proceeding or other taking of action by any Person having the power of eminent
domain, including an action by a Governmental Authority to change the grade of,
or widen the streets adjacent to, the Property or alter the pedestrian or
vehicular traffic flow to the Property so as to result in change in access to
the Property, or by or on account of an eviction by paramount title or any
transfer made in lieu of any such proceeding or action. A "Condemnation" shall
------------
be deemed to have occurred on the earliest of the dates that use, occupancy or
title vests in the condemning authority.
"Contingent Rental Adjustment" means the sum of (a) the maximum amount
----------------------------
(calculated as a percentage of the Fair Market Sales Value of the Property as
set forth in the Appraisal) that when present valued with the minimum Basic Rent
payments to be made during the Term permits the Lease to be characterized as an
"operating lease" in accordance with the Statement of Financial Accounting
Standards No. 13 as in effect on the Acquisition Date and permits recourse to
the Lessee , which in no event shall be less than all amounts due and owing
under the Nomura Loan Agreement and (b) any additional amount required to prepay
the Loan or defease the Loan in whole or in part pursuant to the Nomura Loan
Agreement, including, but not limited to, the Defeasance Deposit or the Yield
Maintenance Premium, as applicable , and all costs and fees payable in
connection therewith.
"Control" means (including the correlative meanings of the terms
-------
"controlled by" and "under common control with"), as used with respect to any
Person, the possession directly or indirectly, of the power to direct or cause
the direction of the management policies of such Person, whether through the
ownership of voting securities or other beneficial interests or by contract or
otherwise.
"Custodian" means Wilmington Trust company, as custodian under the
---------
Securities Pledge Agreement.
"Debt" means, for any Person, (i) all indebtedness of such Person for
----
borrowed money or for the deferred purchase price of property or services, (ii)
all obligations of such Person under any conditional sale or other title
retention agreement relating to property purchased by such Person, (iii) all
indebtedness for borrowed money or for the deferred purchase price of property
or services secured by (or for which the holder of such indebtedness has an
existing right, contingent or otherwise, to be secured by) any Lien on any
property owned by such Person, whether or not such indebtedness has been
assumed, and (iv) all obligations of such Person as lessee under leases that
have been or should be, in accordance with generally accepted accounting
principles, recorded as capital leases.
"Deed" means a limited warranty deed with respect to the real property
----
comprising the Property, in conformity with Applicable Law and appropriate for
recording with the applicable
-5-
<PAGE>
Governmental Authorities, conveying fee simple title to such real property to
the Lessor, subject only to Permitted Liens.
"Default" means any event or condition which, with the lapse of time or the
-------
giving of notice, or both, would constitute an Event of Default.
"Documentation Date" is defined in Section 4.1 of the Lease.
------------------ -----------
"Dollars" and "$" mean dollars in lawful currency of the United States of
------- -
America.
"End of the Term Report" is defined in Section 26.2(a) of the Lease.
---------------------- ---------------
"Environmental Audit" means a Phase One environmental site assessment (the
-------------------
scope and performance of which meets or exceeds ASTM Standard Practice E1527-93
Standard Practice for Environmental Site Assessments: Phase One Environmental
Site Assessment Process) of the Property, and, if called for by the Phase One
assessment, a Phase Two environmental site assessment.
"Environmental Law" means, whenever enacted or promulgated, any applicable
-----------------
Federal, state, county or local law, statute, ordinance, rule, regulation,
license, permit, authorization, approval, covenant, criteria, administrative or
court order, judgment, decree, injunction, code or requirement or any agreement
with a Governmental Authority:
(x) relating to pollution (or the cleanup, removal, remediation or
encapsulation thereof, or any other response thereto), or the regulation or
protection of human health, safety or the environment, including air,
water, vapor, surface water, groundwater, drinking water, land (including
surface or subsurface), plant, aquatic and animal life, or
(y) concerning exposure to, or the use, containment, storage,
recycling, treatment, generation, discharge, emission, Release or
threatened Release, transportation, processing, handling, labeling,
containment, production, disposal or remediation of any Hazardous
Substance.
in each case as amended and as now or hereafter in effect. Applicable laws
include, but are not limited to, CERCLA; the Resource Conservation and Recovery
Act of 1976, 42 U.S.C. (S) 6901 et seq.; the Federal Water Pollution Control
-- ---
Act, 33 U.S.C. (S) 1251 et seq.; the Clean Air Act, 42 U.S.C. (S)(S) 7401 et
-- --- --
seq.; the National Environmental Policy Act, 42 U.S.C. (S) 4321; the Refuse Act,
- ---
33 U.S.C. (S)(S) 401 et seq.; the Hazardous Materials Transportation Act of
-- ---
1975, 49 U.S.C. (S)(S) 1801-1812; the Toxic Substances Control Act, 15 U.S.C.
(S)(S) 2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide Act, 7
-- ---
U.S.C. (S)(S) 136 et seq.; the Safe Drinking Water Act, 42 U.S.C. (S)(S) 300f et
-- --- --
seq., each as amended and as now or hereafter in effect, and their state and
- ---
local counterparts or equivalents, including any regulations promulgated
thereunder.
-6-
<PAGE>
"Environmental Violation" means any activity, occurrence or condition that
-----------------------
violates or results in non-compliance with any Environmental Law in any Material
respect.
"Equipment" means all of Lessee's "equipment," as such term is defined in
---------
the UCC, and, to the extent not included in such definition, all fixtures,
appliances, machinery, furniture, furnishings, decorations, tools and supplies,
now owned or hereafter acquired by Lessee using the proceeds of the Advance or
other funds from the Lessor, including but not limited to, all beds, linens,
radios, televisions, carpeting, telephones, cash registers, computers, lamps,
glassware, restaurant and kitchen equipment, all medical, dental,
rehabilitation, therapeutic and paramedic equipment and supplies, any building
equipment, including but not limited to, all heating, lighting, incinerating,
waste removal and power equipment, engines, pipes, tanks, motors, conduits,
switchboards, security and alarm systems, plumbing, lifting, cleaning, fire
prevention, fire extinguishing, refrigeration, washing machines, dryers, stoves,
refrigerators, ventilating, and communications apparatus, air cooling and air
conditioning apparatus, escalators, elevators, ducts, and compressors, materials
and supplies, and all other machinery, apparatus, equipment, fixtures and
fittings now owned or hereafter acquired by Lessee using proceeds of the Advance
or other funds from the Lessor, wherever located, any portion thereof or any
appurtenances thereto, together with all additions, replacements, parts,
fittings, accessions, attachments, accessories, modifications and alterations of
any of the foregoing.
"Equity Balance" means an amount equal to the sum of (a) the aggregate
--------------
amount of the Certificate A, inclusive of principal and accrued interest thereon
in accordance with Schedule II to the Lease, (b) $693,750.00, (c) all due and
unpaid FBTC Basic Rent, Lessor Basic Rent and Supplemental Rent to which the
Lessor is entitled and (d) all accrued interest on the Pledged Securities that
has not been paid to the Lessor pursuant to the Securities Pledge Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time or any successor Federal statute.
"Eurocurrency Reserve Requirements" means, for any day as applied to a
---------------------------------
payment of Rent, the aggregate (without duplication) of the rates (expressed as
a decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.
"Eurodollar Lease Rate" means, during any Interest Period, the rate per
---------------------
annum equal to the sum of the Eurodollar Rate for such Interest Period plus the
Applicable Margin.
"Eurodollar Rate" means the rate per annum at which deposits in Dollars
---------------
appear with respect to such Interest Period on the Telerate Page 3750 (or any
successor page), in each case as of 11:00 a.m. (London time) two Business Days
prior to the beginning of such Interest
-7-
<PAGE>
Period, or if such rate is not available, then the average (rounded upward, if
necessary, to the nearest multiple of one-sixteenth of one percent) of the
offered rates per annum at which Dollars appear with respect to such Interest
Period on the Reuters Screen LIBO Page (or any successor).
"Event of Default" is defined in Section 20.1.
---------------- ------------
"Excess Proceeds" means the excess, if any, of the aggregate of all awards,
---------------
compensation or insurance proceeds payable in connection with a Casualty or
Condemnation over the sum of the Lease Balance paid by the Lessee pursuant to
Articles XVII and XIX of the Lease with respect to such Casualty or Condemnation
- ------------- ---
and all proceeds received by the Lessor in connection with any sale of the
Property pursuant to the Lessor's exercise of remedies under Section 20.2 of the
------------
Lease or the Lessee's exercise of the Remarketing Option under Article XXIV of
------------
the Lease.
"Expiration Date" means, unless the Lease shall have been earlier
---------------
terminated in accordance with the provisions of the Lease or the other Operative
Documents, November 11, 2002, or if the Base Lease Term has been extended in
accordance with Article XXIII of the Lease, the last day of the most recent
-------------
Renewal Term, provided, however, the Expiration Date for the final potential
-------- -------
Renewal Term under the Lease shall be November 11, 2013.
"Fair Market Sales Value" means the amounts, which in any event shall not
-----------------------
be less than zero, that would be paid in cash in an arm's-length transaction
between an informed and willing purchaser and an informed and willing seller,
neither of whom is under any compulsion to purchase or sell, respectively, for
the ownership of all of the Property. The Fair Market Sales Value of the
Property shall be determined based on the assumption that, except for purposes
of Article XX of the Lease and Section 26.2 of the Lease, the Property is in the
---------- ------------
condition and state of repair required under Section 13.1 of the Lease and the
------------
Lessee is in compliance with the other requirements of the Operative Documents.
"FBTC" means FBTC Leasing Corp., a New York corporation and its successors
----
and assigns.
"FBTC Basic Rent" means an amount payable quarterly in advance beginning on
---------------
the Acquisition Date in the amounts set forth next to the Acquisition Date and
the applicable Payment Date on Schedule II to the Lease.
"FBTC Indemnity" means the Indemnity Agreement dated as of November 21,
--------------
1997 from the Parent to the Borrower's Trustee and FBTC.
"FBTC Loan Agreement" means the Loan Agreement, dated as of November 21,
-------------------
1997, between The Gables Business Trust, as Borrower, and FBTC, as Lender.
-8-
<PAGE>
"Federal Funds Effective Rate" means, for any day, an interest rate per
-----------------------------
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day by the Federal Reserve Bank of New
York, or, if such rate is not so published for any day which is a Business Day,
the average of quotations for such day on such transaction received by the
Lessor from three Federal funds brokers of recognized standing selected by it.
"Fixtures" means all fixtures relating to the Improvements, including all
--------
components thereof, located in or on the Improvements, together with all
replacements, modifications, alterations and additions thereto.
"Funding Office" means the office of the Lessor identified on its signature
--------------
page to the Lease as its Funding Office.
"Funding Request" is defined in Section 3.2(a) of the Lease.
--------------- --------------
"GAAP" means United States generally accepted accounting principles in
----
effect from time to time.
"Governmental Action" means all permits, authorizations, registrations,
-------------------
consents, approvals, waivers, exceptions, variances, orders, judgments, written
interpretations, decrees, licenses, exemptions, publications, filings, notices
to and declarations of or with, or required by, any Governmental Authority, or
required by any Applicable Law, and shall include, without limitation, all
environmental and operating permits and licenses that are required for the full
use, occupancy, zoning and operation of the Property.
"Governmental Authority" means any nation or government, any state or other
----------------------
political subdivision thereof and any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government.
"Gross Proceeds" is defined in Section 24.1(k) of the Lease.
-------------- ---------------
"Impositions" means any and all liabilities, losses, expenses and costs of
-----------
any kind whatsoever for fees, taxes, levies, imposts, duties, charges,
assessments or withholdings of any nature whatsoever ("Taxes") (including,
-----
without limitation, (i) real and personal property taxes, including personal
property taxes on the Property covered by the Lease that is classified by
Governmental Authorities as personal property, and real estate or ad valorem
taxes in the nature of property taxes; (ii) sales taxes, use taxes and other
similar taxes (including rent taxes and intangibles taxes); (iii) any excise
taxes; (iv) real estate transfer taxes, conveyance taxes, mortgage taxes,
intangible taxes, stamp taxes and documentary recording taxes and fees; (v)
taxes that are or are in the nature of franchise, income, value added, gross
receipts, privilege and doing business taxes, license and registration fees; and
(vi) assessments on the Property, including all assessments for public
improvements or benefits, whether or not such
-9-
<PAGE>
improvements are commenced or completed within the Term, and in each case all
interest, additions to tax and penalties thereon, which at any time may be
levied, assessed or imposed by any Federal, state or local authority upon or
with respect to (a) any Tax Indemnitee, the Property or any part thereof or
interest therein, or the Lessee or any sublessee or user of the Property; (b)
the financing, refinancing, demolition, construction, substitution, subleasing,
assignment, control, condition, occupancy, servicing, maintenance, repair,
ownership, possession, purchase, rental, lease, activity conducted on, delivery,
insuring, use, operation, improvement, transfer, return or other disposition of
the Property or any part thereof or interest therein; (c) the rentals, receipts
or earnings arising from the Property or any part thereof or interest therein;
(d) the Operative Documents or any payment made or accrued pursuant thereto; (e)
the income or other proceeds received with respect to the Property or any part
thereof or interest therein upon the sale or disposition thereof; (f) any
contract relating to the construction, acquisition or delivery of the
Improvements or any part thereof or interest therein; or (g) otherwise in
connection with the transactions contemplated by the Operative Documents.
Notwithstanding anything in the first paragraph of this definition (except
as provided in the final paragraph of this definition) the term "Imposition"
----------
shall not mean or include:
(i) Taxes and impositions (other than Taxes that are, or are in the
nature of, sales, use, rental, transfer or property taxes) that are imposed
by any Governmental Authority and that are based upon or measured by the
gross or net income or gross or net receipts (including any minimum taxes,
withholding taxes or taxes on, measured by or in the nature of capital, net
worth, excess profits, items of tax preference, capital stock, franchise,
business privilege or doing business taxes); provided that this clause (i)
-------- ----------
shall not be interpreted to prevent a payment from being made on an After
Tax Basis if such payment is otherwise required to be so made;
(ii) any Tax or imposition to the extent, but only to such extent, it
relates to any act, event or omission that occurs, or relates to a period,
after the termination of the Lease (but not any Tax or imposition that
relates to any period prior to the termination of the Lease);
(iii) any Tax or imposition for so long as, but only for so long as,
it is being contested in accordance with the provisions of Section 26.5(b)
---------------
of the Lease, provided that the foregoing shall not limit the Lessee's
--------
obligation under Section 26.5(b) of the Lease to advance to such Tax
---------------
Indemnitee amounts with respect to Taxes that are being contested in
accordance with Section 26.5(b) of the Lease or any expenses incurred by
---------------
such Tax Indemnitee in connection with such contest;
(iv) any interest or penalties imposed on a Tax Indemnitee as a
result of a breach by such Tax Indemnitee of its obligations under Section
-------
26.5(e) of the Lease or otherwise as a result of a Tax Indemnitee's failure
to file any return or other documents timely and as prescribed by
applicable law; provided that this clause (iv) shall not apply (x) if such
-------- -----------
-10-
<PAGE>
interest or penalties arise as a result of a position taken (or requested
to be taken) by the Lessee in a contest controlled by the Lessee under
Section 26.5(b) of the Lease or (y) if such failure is attributable to a
---------------
failure by the Lessee to fulfill its obligations under the Lease with
respect to any such return;
(v) any Taxes or impositions imposed upon a Tax Indemnitee with
respect to any voluntary transfer, sale, financing or other voluntary
disposition of any interest in the Property or any part thereof, or any
interest therein or any interest or obligation under the Operative
Documents, or from any sale, assignment, transfer or other disposition of
any interest in a Tax Indemnitee or any Affiliate thereof, (other than any
transfer in connection with (1) the exercise by the Lessee of its Purchase
Option or any termination option or other purchase of the Property by the
Lessee, (2) the occurrence of an Event of Default, (3) a Casualty or
Condemnation affecting the Property, or (4) any sublease, modification or
addition to the Property by the Lessee);
(vi) any Taxes or impositions imposed on a Tax Indemnitee, to the
extent such Tax Indemnitee actually receives a credit (or otherwise has a
reduction in a liability for Taxes) in respect thereof against Taxes that
are not indemnified under the Lease (but only to the extent such credit is
not taken into account in calculating the indemnity payment on an After Tax
Basis);
(vii) Taxes imposed on or with respect to or payable by any Tax
Indemnitee based on, measured by or imposed with respect to any fees
received by such Tax Indemnitee;
(viii) any Taxes imposed against or payable by a Tax Indemnitee
resulting from, or that would not have been imposed but for, the gross
negligence or willful misconduct of such Tax Indemnitee;
(ix) Taxes imposed on or payable by a Tax Indemnitee to the extent
such Taxes would not have been imposed but for a breach by the Tax
Indemnitee or any Affiliate thereof of any representations, warranties or
covenants set forth in the Operative Documents (unless such breach is
caused by the Lessee's breach of its representations, warranties or
covenants set forth in the Operative Documents);
(x) Taxes to the extent resulting from such Tax Indemnitee's
failure to comply with the provisions of Section 26.5(b) of the Lease,
---------------
which failure precludes or materially adversely affects the ability to
conduct a contest pursuant to Section 26.5(b) of the Lease (unless such
---------------
failure is caused by the Lessee's breach of its obligations);
(xi) Taxes which are included in Property Cost if and to the extent
actually paid;
-11-
<PAGE>
(xii) Taxes that would have been imposed in the absence of the
transactions contemplated by the Operative Documents and Taxes imposed on
or with respect to or payable as a result of activities of a Tax Indemnitee
or Affiliate thereof unrelated to the transactions contemplated by the
Operative Documents;
(xiii) Taxes imposed on or with respect to or payable by a Tax
Indemnitee resulting from, or that would not have been imposed but for the
existence of, any Lessor Lien created by or through such Tax Indemnitee or
an Affiliate thereof and not caused by acts or omissions of the Lessee,
unless required to be removed by the Lessee;
(xiv) Any Tax imposed against or payable by a Tax Indemnitee to the
extent that the amount of such Tax exceeds the amount of such Tax that
would have been imposed against or payable by such Tax Indemnitee (or, if
less, that would have been subject to indemnification under Section 26.5 of
------------
the Lease) if such Tax Indemnitee were not a direct or indirect successor,
transferee or assign of one of the original Tax Indemnitees; provided,
--------
however, that this exclusion (xiv) shall not apply if such direct or
------- ---------------
indirect successor, transferee or assign acquired its interest as a result
of a transfer while an Event of Default shall have occurred and is
continuing;
(xv) Taxes imposed on or with respect to or payable by a Tax
Indemnitee that would not have been imposed but for an amendment,
supplement, modification, consent or waiver to any Operative Document not
initiated, requested or consented to by the Lessee unless such amendment,
supplement, modification, consent or waiver (A) arises due to, or in
connection with there having occurred, an Event of Default or (B) is
required by the terms of the Operative Documents or is executed in
connection with any amendment to the Operative Documents required by law;
(xvi) Taxes in the nature of intangibles, stamp, documentary or
similar Taxes;
(xvii) Taxes imposed on or with respect to or payable by a Tax
Indemnitee or any Affiliate because such Tax Indemnitee or any Affiliate
thereof is not a United States person within the meaning of Section
7701(a)(30) of the Code;
(xviii) Any tax imposed by its express terms in lieu of or in
substitution for a Tax not subject to indemnity pursuant to the provisions
of Section 26.5 of the Lease.
------------
Notwithstanding the foregoing, the exclusions from the definition of Impositions
set forth in clauses (i), (ii), (v), (vii), (xii), (xvi) and (xviii) (to the
----------- ---- --- ----- ----- ----- -------
extent that any such tax is imposed by its express terms in lieu of or in
substitution for a Tax set forth in clauses (i), (ii), (v), (vii), (xii) and
----------- ---- --- ----- -----
(xvi)) above shall not apply (but the other exclusions shall apply) to any Taxes
- -----
or any increase in Taxes imposed on a Tax Indemnitee net of any decrease in
taxes realized by such Tax Indemnitee, to the extent that such tax increase or
decrease would not have occurred if on the Funding Date the Lessor had advanced
funds to the Lessee in the form of a loan secured by the
-12-
<PAGE>
Property in an amount equal to the Property Cost funded on the Funding Date,
with debt service for such loan equal to the Basic Rent payable on each Payment
Date and a principal balance at the maturity of such loan in an amount equal to
the then outstanding amount of the Advance at the end of the term of the Lease.
"Improvements" means, with respect to the Property, all buildings,
------------
structures, Fixtures, Equipment, and other improvements of every kind existing
at any time and from time to time (including those purchased with amounts
advanced by the Lessor pursuant to the Lease) on or under the Land, together
with any and all appurtenances to such buildings, structures or improvements,
including sidewalks, utility pipes, conduits and lines, parking areas and
roadways, and including all Modifications and other additions to or changes in
the Improvements at any time and including all gas and electric fixtures,
radiators, heaters, washing machines, dryers, refrigerators, ovens, engines and
machinery, boilers, ranges, elevators and motors, plumbing and heating fixtures,
antennas, carpeting and other floor coverings, water heaters, awnings and storm
sashes, and cleaning apparatus which are or shall be attached to the Land or
said buildings, structures or improvements.
"Indemnitee" means the Lessor , the Trust Company and FBTC, and their
----------
successors, permitted assigns, directors, shareholders, partners, officers,
employees and agents.
"Institutional Lender" means an insurance company, bank, savings and loan
--------------------
association, trust company, commercial credit corporation, pension plan, pension
fund or pension fund advisory firm, mutual fund or other investment company, or
an institution substantially similar to any of the foregoing, in each case
having at least $250 million in capital/statutory surplus or shareholders'
equity and at least $1 billion in total assets, or any entity wholly owned by
any of the institutions meeting the foregoing criteria.
"Insurance Requirements" means all terms and conditions of any insurance
----------------------
policy either required by the Lease to be maintained by the Lessee, or required
by the Lender to be maintained pursuant to the Nomura Loan Agreement, and all
reasonable and appropriate requirements of the issuer of any such policy.
"Interest Period" shall have the meaning set forth in the Nomura Loan
---------------
Agreement for "Interest Accrual Period".
"Interim Lease Term" is defined in Section 2.3 of the Lease.
------------------ -----------
"Investment Company Act" means the Investment Company Act of 1940, as
----------------------
amended, together with the rules and regulations promulgated thereunder.
"Land" means the parcel of real property described on Annex 1 to the Lease
---- -------
Supplement and all Appurtenant Rights attached thereto.
-13-
<PAGE>
"Lease" means the Lease , dated as of the Documentation Date, between the
-----
Lessor and the Lessee.
"Lease Balance" means, as of any date of determination, the sum of (a) the
-------------
Equity Balance (if same has not been paid as of such date) (b) all other amounts
owing by the Lessor and Lessee under the Operative Documents (including all due
and unpaid Basic Rent and Supplemental Rent) and (c) all amounts (but not
duplicative of those described in clause (b) above) due and owing or otherwise
payable pursuant to the terms of the Nomura Loan Agreement, including, without
limitation, any additional amount required to prepay the Loan or defease the
Loan in whole or in part in accordance with the terms thereof, including,
without limitation, the Defeasance Deposit or Yield Maintenance Premium, as
applicable, and all costs and fees payable in connection therewith.
"Lease Supplement" means the Memorandum of Lease substantially in the form
----------------
of Exhibit B to the Lease, executed and delivered by the Lessee and dated as of
---------
the Acquisition Date for the Property.
"Lender" means Nomura Asset Capital Corporation, together with its
------
successor and assigns.
"Lessee" means Brookdale Living Communities of Connecticut, Inc., as
------
lessee, and its successors and assigns expressly permitted under the Operative
Documents.
"Lessor" means The Gables Business Trust, a Delaware business trust.
------
"Lessor Basic Rent" means an amount payable quarterly in advance beginning
-----------------
on the Acquisition Date in the amount of $9,800.42 and on each third Payment
Date and the Expiration Date in an amount equal to the amount that (a) the
product of the Eurodollar Lease Rate and $693,750.00, calculated for the number
days then elapsed since the previous payment of Lessor Basic Rent over a year of
360 days, exceeds (b) interest earned on the Pledged Securities since the
previous payment of Lessor Basic Rent.
"Lessor Lien" means any Lien, true lease or sublease or disposition of
-----------
title arising as a result of (a) any claim against the Lessor not resulting from
the transactions contemplated by the Operative Documents (all Liens created or
existing under the Loan Documents are expressly made part of the transactions
contemplated by the Operative Documents), (b) any act or omission of the Lessor
which is not required by the Operative Documents or is in violation of any of
the terms of the Operative Documents, (c) any claim against the Lessor with
respect to Taxes or Transaction Expenses against which Lessee is not required to
indemnify Lessor pursuant to the Lease or (d) any claim against the Lessor
arising out of any transfer by the Lessor of all or any portion of the interest
of the Lessor in the Property or the Operative Documents other than the transfer
of title to or possession of the Property by the Lessor pursuant to and in
accordance with the Lease or pursuant to the exercise of the remedies set forth
in Article XX of the Lease.
----------
-14-
<PAGE>
"Lessor Pledge Agreement" means the Pledge Agreement, dated as of the
-----------------------
Documentation Date, between the Lessor and FBTC, pursuant to which the Lessor
pledged to FBTC the Certificate A.
"Lien" means any mortgage, deed of trust, pledge, security interest,
----
encumbrance, lien, easement, servitude or charge of any kind, including, without
limitation, any irrevocable license, conditional sale or other title retention
agreement, any lease in the nature thereof, or any other right of or arrangement
with any creditor to have its claim satisfied out of any specified property or
asset with the proceeds therefrom prior to the satisfaction of the claims of the
general creditors of the owner thereof, whether or not filed or recorded, or the
filing of, or agreement to execute as "debtor", any financing or continuation
statement under the Uniform Commercial Code of any jurisdiction or any federal,
state or local lien imposed pursuant to any Environmental Law.
"Loan Documents" has the meaning specified therefor in the Nomura Loan
--------------
Agreement.
"Marketing Period" means the period commencing upon the Lessee's election
----------------
to exercise the Remarketing Option pursuant to Section 24.1(a) of the Lease and
---------------
ending on the Expiration Date.
"Material" and "Materially" mean material to (i) as to any Person, the
-------- ----------
consolidated financial position, business or consolidated results of operations
of such Person, (ii) as to any Person, the ability of such Person to perform in
any material respect its respective obligations under the Operative Documents to
which it is a party, or (iii) the value or condition of the Property.
"Material Assets" means with respect to any Person all material interests
---------------
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible.
"Modifications" is defined in Section 14.1(a) of the Lease.
------------- ---------------
"Net Proceeds" means all amounts paid in connection with any Casualty or
------------
Condemnation or any sale of the Property pursuant to Lessor's exercise of
remedies under Section 20.2 of the Lease or the Lessee's exercise of the
------------
Remarketing Option under Article XXIV of the Lease, and all interest earned
------------
thereon, less the expense of claiming and collecting such amounts, including all
costs and expenses in connection therewith for which the Lessor is entitled to
be reimbursed pursuant to the Lease.
"Nomura Loan Agreement" means the Loan Agreement, dated on or about
---------------------
November 24, 1997, by and among the Lessor, as Borrower, Nomura Asset Capital
Corporation, as Lender, and the Lessee, as Guarantor and Operator, together with
all amendments, modifications and supplements thereto.
"Operative Documents" means the following:
-------------------
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<PAGE>
(a) the Lease;
(b) the Deed;
(c) the Lease Supplement;
(d) the FBTC Loan Agreement and the note related thereto;
(e) the Loan Documents;
(f) the Certificate Pledge Agreement;
(g) the Securities Pledge Agreement;
(h) the Lessor Pledge Agreement;
(i) the FBTC Indemnity; and
(j) the Trust Agreement.
"Overdue Rate" shall have the meaning set forth in the Nomura Loan
------------
Agreement for "Default Rate."
"Parent" means Brookdale Living Communities, Inc.
------
"Permitted Liens" shall have the meaning set forth in the Nomura Loan
---------------
Agreement for "Permitted Encumbrances", and including Lessor Liens.
"Pledge Agreements" means the Securities Pledge Agreement, the Certificate
-----------------
Pledge Agreement and the Lessor Pledge Agreement.
"Pledged Securities" means the securities pledged to the Lessor by the
------------------
Lessee pursuant to the Securities Pledge Agreement and the proceeds thereof.
"Property" means (a) a fee interest in the Land and (b) all of the
--------
Improvements at any time located on or under the Land.
"Property Cost" means the amount of the Advance funded to the Lessee for
-------------
the purpose of acquiring the Property and paying Transaction Expenses relating
to such funding and acquisition, as such amount is set forth in the Funding
Request relating to the acquisition of the Property.
"Purchase Notice" is defined in Section 22.1 of the Lease.
--------------- ------------
"Purchase Option" is defined in Section 22.1 of the Lease.
--------------- ------------
"Release" means any release, pumping, pouring, emptying, injecting,
-------
escaping, leaching, dumping, seepage, spill, leak, flow, discharge, disposal or
emission of a Hazardous Substance in violation of Environmental Law.
"Remarketing Option" is defined in Section 24.1 of the Lease.
------------------ ------------
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<PAGE>
"Renewal Term" is defined in Section 23.1 of the Lease.
------------ ------------
"Rent" means, collectively, Basic Rent and Supplemental Rent, in each case
----
payable under the Lease.
"Requesting Party" is defined in Section 27.1 of the Lease.
---------------- ------------
"Required Modification" is defined in Section 14.1(a) of the Lease.
--------------------- ---------------
"Requirement of Law" means all Federal, state, county, municipal and other
------------------
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
decrees and injunctions affecting the Property, the Improvements or the
demolition, construction, use or alteration thereof, whether now or hereafter
enacted and in force, including any that require repairs, modifications or
alterations in or to the Property or in any way limit the use and enjoyment
thereof (including all building, zoning and fire codes and the Americans with
Disabilities Act of 1990, 42 U.S.C. (S)(S) 1201 et seq. and any other similar
-- ---
Federal, state or local laws or ordinances and the regulations promulgated
thereunder) and any that may relate to environmental requirements (including all
Environmental Laws), and all permits, certificates of occupancy, licenses,
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments which are either of
record or known to the Lessee affecting the Property, the Appurtenant Rights and
any easements, licenses or other agreements entered into pursuant to Section
-------
15.2 of the Lease.
- ----
"Responsible Employee" means, with respect to the Lessee, its Chairman,
--------------------
President, any of its corporate Vice Presidents, its corporate Controller, its
corporate Treasurer, its corporate Assistant Treasurers or others duly
authorized by such Person to execute documents pursuant to Section 4.3(g) of the
--------------
Lease.
"Responsible Employee's Certificate" means a certificate signed by any
----------------------------------
Responsible Employee, which certificate shall certify as true and correct the
subject matter being certified to in such certificate.
"Securities Pledge Agreement" means the Securities Pledge Agreement, dated
---------------------------
as of November 21, 1997, between the Lessee and the Lessor pursuant to which the
Lessee pledged the Pledged Securities to the Lessor.
"Seller" means the Person selling the Land to the Lessor.
------
"Shortfall Amount" means, as of the Expiration Date, an amount equal to (i)
----------------
the Lease Balance, minus (ii) the Contingent Rental Adjustment received by the
-----
Lessor from the Lessee pursuant to Section 24.1(i) of the Lease, minus (iii) the
--------------- -----
amount of the highest binding, written, unconditional, irrevocable offer to
purchase the Property obtained by the Lessee pursuant to Section 24.1(f) of the
---------------
Lease; provided, however, that if the sale of the Property to the Person
-------- -------
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<PAGE>
submitting such offer is not consummated on or prior to the Expiration Date,
then the term "Shortfall Amount" shall mean an amount equal to (i) the Lease
Balance, minus (ii) the Contingent Rental Adjustment received by the Lessor from
-----
the Lessee pursuant to Section 24.1(i) of the Lease.
---------------
"Significant Condemnation" means a Condemnation which causes the Lender to
------------------------
accelerate the Principal Indebtedness under the Nomura Loan Agreement.
"Subsidiary" of any Person means a corporation or other entity of which
----------
securities or other ownership interests having ordinary voting power (other than
securities or other ownership interests having such power by reason of the
happening of a contingency) to elect the majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person, by such Person and one or more of its
Subsidiaries or by one or more of such Person's Subsidiaries.
"Supplemental Rent" means all amounts, liabilities and obligations (other
-----------------
than Basic Rent) which Lessee assumes or agrees to pay to Lessor or any other
Person under the Lease or under any of the other Operative Documents, and all
amounts, liabilities and obligations (other than as described in the definition
of Basic Rent) payable by Lessor, as Borrower, under the Nomura Loan Agreement
or under any other Loan Document, including, without limitation, Break Costs,
payments of Excess Cash Flow, Initial Basic Carrying Costs Amount, Defeasance
Deposit, Impositions, the Initial Capital Reserve Amount and the Initial
Securitization Expense Amount, fees thereunder and any prepayment make whole
amounts.
"Tax Indemnitee" means the Lessor and FBTC Leasing Corp. and their
--------------
successors, permitted assigns, directors, shareholders, partners, officers,
employees and agents.
"Taxes" is defined in the definition of Impositions.
-----
"Term" means the period commencing on the Acquisition Date and ending on
----
the Expiration Date.
"Termination Date" is defined in Section 19.2 and 20.2(e) of the Lease.
---------------- ------------ -------
"Termination Notice" is defined in Section 19.1 of the Lease.
------------------ ------------
"Transaction Expenses" means all costs and expenses incurred in connection
--------------------
with the preparation, execution and delivery of the Operative Documents and the
transactions contemplated by the Operative Documents including without
limitation:
(a) the reasonable fees, out-of-pocket expenses and disbursements of
counsel for each of the Lessor and the Lessee in negotiating the terms of
the Operative Documents and the other transaction documents, preparing for
the closing under, and
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<PAGE>
rendering opinions in connection with, such transactions and in rendering
other services customary for counsel representing parties to transactions
of the types involved in the transactions contemplated by the Operative
Documents;
(b) the reasonable fees, out-of-pocket expenses and disbursements of
any law firm or other external counsel of the Lessor in connection with (1)
any amendment, supplement, waiver or consent with respect to any Operative
Documents requested or approved by the Lessee and (2) any enforcement of
any rights or remedies against the Lessee in respect of the Operative
Documents;
(c) any other reasonable fees, out-of-pocket expenses, disbursements
or cost of the Lessor to the Operative Documents or any of the other
transaction documents;
(d) any and all Taxes and fees incurred in recording, registering or
filing any Operative Document or any other transaction document, any deed,
declaration, mortgage, security agreement, notice or financing statement
with any public office, registry or governmental agency in connection with
the transactions contemplated by the Operative Documents;
(e) any title fees, premiums and escrow costs and other expenses
relating to title insurance and the closings contemplated by the Operative
Documents;
(f) all expenses relating to all Environmental Audits and other due
diligence and other costs and expenses incurred in connection with the
negotiation of the purchase of the Property and in connection with the
investigation and purchase of the Property;
(g) all Transaction Costs described in Section 8.24 of the Nomura Loan
------------
Agreement; and
(h) all fees, out-of-pocket expenses, disbursements or costs
(including counsel fees and expenses) of the Trustee and the Custodian
incurred in connection with the Operative Document.
"Trust Agreement" means the Trust Agreement, dated November 19, 1997,
---------------
between the Lessor and FBTC.
"Trust Company" means Wilmington Trust Company in its individual capacity.
-------------
"Uniform Commercial Code" and "UCC" mean the Uniform Commercial Code as in
----------------------- ---
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<PAGE>
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-8 No. 333-53969
Form S-8 No. 333-65843
<TABLE>
<CAPTION>
Financial Statements Date of Auditor's Report
- -------------------- ------------------------
<S> <C>
Consolidated balance sheet of Brookdale Living March 26, 1998
Communities, Inc. as of December 31, 1997 and
the consolidated statements of operations,
stockholders' equity and cash flows for the period
from May 7, 1997 through December 31, 1997 and the
combined balance sheet of the Predecessor Properties
as of December 31, 1996 and the combined statements
of operations, changes in partners' capital (deficit)
and cash flows for the period from January 1, 1997
through May 6, 1997 and for each of the two years
in the period ended December 31, 1996 included in
the Annual Report (Form 10-K/A) of Brookdale
Living Communities, Inc. for the year ended
December 31, 1997 dated March 31, 1999.
</TABLE>
/s/ Ernst & Young LLP
Chicago, Illinois
March 30, 1999
