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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
UNDER SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
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BROOKDALE LIVING COMMUNITIES, INC.
(NAME OF SUBJECT COMPANY)
BROOKDALE LIVING COMMUNITIES, INC.
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
112462 10 6
(CUSIP NUMBER OF CLASS OF SECURITIES)
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MARK J. SCHULTE
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
BROOKDALE LIVING COMMUNITIES, INC.
330 NORTH WABASH AVENUE, SUITE 1400
CHICAGO, ILLINOIS 60611
(312) 977-3700
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES AND
COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
Copy to:
BRIAN T. BLACK, ESQ.
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5600
[ ] Check the box if the filing relates solely to preliminary communications
made before the commencement of a tender offer.
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ITEM 1. SUBJECT COMPANY INFORMATION.
The name of the subject company to which this Solicitation/Recommendation
Statement on Schedule 14D-9 (this "Schedule 14D-9") relates is Brookdale Living
Communities, Inc., a Delaware corporation (together with its subsidiaries, where
applicable, the "Company"). The address of the principal executive offices of
the Company is 330 North Wabash Avenue, Suite 1400, Chicago, Illinois 60611. The
telephone number of the principal executive offices of the Company is (312)
977-3700. The title of the class of equity securities to which this Schedule
14D-9 relates is common stock, par value $0.01 per share, of the Company (the
"Company Common Stock"). As of July 31, 2000, there were 9,926,549 shares of the
Company Common Stock outstanding.
ITEM 2. IDENTITY AND BACKGROUND OF FILING PERSON.
(a) Name and Address. The name of the subject company, which is the person
filing this Schedule 14D-9, and the address and telephone number of its
principal executive offices, are set forth in Item 1 above.
(b) Tender Offer. This Schedule 14D-9 relates to the tender offer by
Fortress Brookdale Acquisition LLC, a Delaware limited liability company
("Purchaser") owned by Fortress Registered Investment Trust, a Delaware business
trust ("Fortress"), and Health Partners, a Bermuda exempted partnership ("Health
Partners"), disclosed in a Tender Offer Statement on Schedule TO, dated August
1, 2000 (as amended from time to time, the "Schedule TO"), to purchase all
outstanding shares of Company Common Stock not already owned by Fortress or
Purchaser (collectively, the "Shares") at a price of $15.25 per Share (the
"Offer Price"), net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated August 1, 2000 (the "Offer
to Purchase"), a copy of which is attached as Exhibit (a)(1) hereto, and the
related Letter of Transmittal (the "Letter of Transmittal"), a copy of which is
attached as Exhibit (a)(2) hereto (the Offer to Purchase and the Letter of
Transmittal, as the same may be amended from time to time, together constitute
the "Offer").
According to the Schedule TO, the address of the principal executive
offices of Purchaser is 1301 Avenue of the Americas, New York, New York 10019.
The Offer is being made pursuant to the Agreement and Plan of Merger, dated
as of July 26, 2000 (as the same may be amended or supplemented from time to
time, the "Merger Agreement"), by and among Fortress, Purchaser, FBZ Acquisition
Corp., a Delaware corporation ("Acquisition Sub"), and the Company. The Merger
Agreement provides that, among other things, as soon as practicable after the
completion of the Offer and the satisfaction or waiver (subject to applicable
law) of certain other conditions, and in accordance with the General Corporation
Law of the State of Delaware (the "DGCL"), Acquisition Sub will be merged with
and into the Company (the "Merger"), with the Company being the surviving
corporation. A copy of the Merger Agreement is attached as Exhibit (e)(1) hereto
and is incorporated by reference herein.
ITEM 3. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
For a description of certain contracts, agreements, arrangements or
understandings and any actual or potential conflicts of interest between the
Company or its affiliates and (1) the Company's executive officers, directors or
affiliates or (2) Fortress or Purchaser or their respective executive officers,
directors or affiliates, see "SPECIAL FACTORS -- The Merger Agreement; Interests
of Certain Persons in the Offer and the Merger" in the Offer to Purchase, which
is incorporated by reference herein, and the Information Statement which is
attached hereto as Annex A and which is attached as Exhibit (a)(5) hereto and
which is incorporated by reference herein).
A summary of the material provisions of the Merger Agreement is included in
"SPECIAL FACTORS -- The Merger Agreement" in the Offer to Purchase, which is
incorporated by reference herein. The summary of the Merger Agreement contained
in the Offer to Purchase is qualified in its entirety by reference to the Merger
Agreement, a copy of which is attached as Exhibit (e)(1) hereto and which is
incorporated by reference herein.
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Except as set forth in this Item 3, to the knowledge of the Company, as of
the date hereof, there are no material contracts, agreements, arrangements or
understandings and no actual or potential conflicts of interest between the
Company or its affiliates and (1) the Company's executive officers, directors or
affiliates or (2) Fortress or Purchaser or their respective executive officers,
directors or affiliates.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors. At a meeting held on June 30,
2000, the Board of Directors of the Company (the "Company Board"), after
receiving the unanimous recommendation of the Committee of Independent Directors
of the Company Board, consisting entirely of non-management directors (the
"Independent Committee"), approved the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, and determined that
the transactions contemplated by the Merger Agreement, including the Offer and
the Merger, are advisable, fair to and in the best interests of the Company's
stockholders (other than Fortress, Purchaser and their respective affiliates)
(the "Stockholders").
The Company Board recommends that the Stockholders accept the Offer and
tender their Shares pursuant to the Offer and approve and adopt the Merger
Agreement and the Merger.
A letter to the Stockholders communicating the Company Board's
recommendation is attached as Exhibit (a)(3) hereto and is incorporated herein
by reference. A press release announcing the commencement of the Offer is
attached as Exhibit (a)(4) hereto and is incorporated by reference herein.
(b) Background; Reasons for the Recommendation of the Company Board.
Since its May 1997 initial public offering, the Company has been
implementing its growth strategy by acquiring, leasing and developing new
facilities and maintaining its strong focus on operations. Although the Company
Common Stock enjoyed a trend of increases in its trading price until the third
quarter of 1998, by the end of 1998, the Company's management and the Company
Board had become concerned that the Company's operating performance was not
appropriately reflected in its stock price. Thereafter, the Company's management
and the Company Board have from time to time discussed strategies to maximize
stockholder value as a regular part of the Company's strategic planning
activities. In connection with these discussions, the Company's management
considered and analyzed, in varying degrees, the following alternatives: (i)
continuing as a publicly-held company and operating in accordance with its
existing long-term business plan, (ii) continuing as a publicly-held company,
but altering certain aspects of the Company's core business plan or capital
structure, (iii) pursuing large, multi-facility acquisitions and (iv) a possible
sale of the Company or a material portion of its assets.
In late January 2000, representatives of The Prime Group, Inc. ("Prime"),
including Michael W. Reschke ("Reschke"), Chairman of the Board, Chief Executive
Officer and President of Prime and then Chairman of the Board of the Company,
met with representatives of Fortress and certain other third parties regarding
such parties' possible interest in making an equity investment in Prime. Prime
is a privately held Illinois corporation with various direct and indirect real
estate development and management holdings which, in February 2000, included an
equity interest in the Company that represented, at that time, approximately
38.7% of the outstanding Company Common Stock. In connection with these
discussions and negotiations, Fortress and Prime executed a Confidentiality
Agreement, dated March 17, 2000, which provided, among other things, for the
confidential treatment of their discussions regarding the possibility of
Fortress making an equity investment in Prime and the exchange of certain
confidential information concerning Prime and its various holdings. In late
March 2000, Prime, Fortress and an unrelated third party abandoned their
discussions concerning a possible equity investment in Prime by Fortress and the
other third party.
Later on April 6, 2000, the Board received an unsolicited letter (the
"April 6 Letter") from Fortress in which Fortress expressed its interest in
acquiring all of the outstanding Company Common Stock for a price to be mutually
agreed upon after negotiations. As a condition to commencing negotiations,
Fortress proposed to enter a "No Sale Agreement" with Prime and Reschke pursuant
to which Reschke and Prime would agree not to sell their shares of Company
Common Stock (the "Prime Shares") prior to August 31, 2000. Fortress also
proposed to commence negotiations with Health Partners pursuant to which
Fortress would propose that
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Health Partners join Fortress in acquiring the Company. Fortress also requested
that the Company Board waive the applicable provisions of Section 203 of the
DGCL to the proposed transaction and waive the applicable standstill provisions
of the Stockholders Agreement, dated as of May 14, 1999, among the Company,
Prime, certain of Prime's affiliates and Health Partners (the "Health Partners
Stockholders Agreement"). Fortress indicated its intention to maintain the
confidentiality of the matters set forth in the April 6 Letter and stated that,
if such matters were made public, Fortress would have no interest in further
pursuing the proposed transaction.
On April 10, 2000, the Company Board met to discuss the April 6 Letter. The
Company Board determined that the April 6 Letter did not represent a formal
offer by Fortress to which a response from the Company was required.
Notwithstanding the Company Board's determination, Reschke expressed his
intention to pursue a possible sale of the Prime Shares to Fortress for $15.00
per share. Due to the substantial premium to the then market price of the
Company Common Stock that an offer of $15.00 per share represented, the Company
Board determined that the proposed sale of the Prime Shares to Fortress was in
the best interests of the Company's stockholders and, in an effort to maintain
an orderly trading market in the Company Common Stock, agreed to facilitate the
proposed sale subject to the certain conditions. In light of Reschke's position
as Chairman of the Board of the Company and Prime's significant equity interest
in the Company, the Company Board determined that the Independent Committee
should meet to further discuss the April 6 Letter and to take such actions as it
deemed necessary or appropriate in response to such letter and to address such
other matters regarding transactions involving Prime and/or Fortress as it
deemed appropriate. In addition, the Company Board authorized the Independent
Committee to retain a financial advisor to assist and advise the Independent
Committee. The Company Board also directed the Independent Committee to
condition any waiver of the application of Section 203 of the DGCL to the
proposed sale of the Prime Shares to Fortress upon the negotiation and execution
of a standstill agreement between the Company and Fortress with terms acceptable
to the Independent Committee.
On April 10 or 11, 2000, Reschke telephoned representatives of Fortress to
discuss the Company Board's reaction to the April 6 Letter and the possible sale
of the Prime Shares to Fortress for $15.00 per share.
On April 11, 2000, the Independent Committee met by telephone conference to
discuss the April 6 Letter. The Independent Committee elected Bruce L. Gewertz
as its Chairman, determined that it should retain a financial advisor and engage
legal counsel and concurred with the Company Board's determination that the
April 6 Letter did not represent a formal offer by Fortress to which a response
from the Company was required. As directed by the Company Board, the Independent
Committee determined that it would condition any waiver of the application of
Section 203 of the DGCL to the proposed sale of the Prime Shares to Fortress
upon the negotiation and execution of a standstill agreement between the Company
and Fortress with terms acceptable to the Independent Committee.
On April 11 or 12, 2000, Reschke had a telephone conference with
representatives of Fortress to discuss the possible sale of the Prime Shares to
Fortress during which Reschke agreed to sell the Prime Shares to Fortress for
$15.00 per share.
On April 12, 2000, during a telephone conversation among a member of the
Independent Committee and representatives of Prime and Fortress, the Independent
Committee member indicated that the Company was prepared to approve the sale of
the Prime Shares to Fortress, but that it was not prepared at that time to
permit Fortress to join with Health Partners or to negotiate the sale of the
entire Company. The Independent Committee Member indicated that the execution of
a satisfactory standstill agreement was a condition to any waiver of the
application of Section 203 of the DGCL to the proposed sale of the Prime Shares.
Also on April 12, 2000, the Independent Committee received a letter (the
"April 12 Letter") from Fortress in which Fortress acknowledged its
understanding that the Company Board had appointed the Independent Committee to
discuss the terms on which Fortress intended to acquire the Prime Shares and
that the Independent Committee intended to waive the application of Section 203
of the DGCL to the proposed acquisition of the Prime Shares provided that the
Company and Fortress enter into a standstill agreement with terms acceptable to
the Independent Committee. Fortress reiterated its interest in a possible
business combination involving the Company and set forth the terms of a proposed
standstill agreement between the
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Company and Fortress (the "Standstill Agreement") to be executed simultaneously
with the execution of a stock purchase agreement relating to the sale of the
Prime Shares to Purchaser (the "Fortress Stock Purchase Agreement"). Fortress
indicated its intention to maintain the confidentiality of the matters set forth
in the April 12 Letter and stated that, if such matters were made public,
Fortress would be disinclined to proceed with the proposed transaction.
On April 14, 2000, the Independent Committee met by telephone conference to
interview two firms to serve as legal counsel to the Independent Committee.
After considering the interviews, the Independent Committee engaged Gardner,
Carton & Douglas to serve as its legal counsel.
From April 14, 2000 to April 20, 2000, a member of the Independent
Committee, the Company's management, representatives of Fortress and their
respective legal counsel negotiated the terms of the Fortress Stock Purchase
Agreement and the Standstill Agreement.
On April 18, 2000, the Independent Committee and a representative of
Gardner, Carton & Douglas met by telephone conference to discuss the proposed
terms of the Fortress Stock Purchase Agreement and the Standstill Agreement.
On April 19, 2000, the Independent Committee adopted resolutions by
unanimous written consent pursuant to which it waived the application of Section
203 of the DGCL to the proposed sale of the Prime Shares to Fortress provided
that Fortress enter into the Standstill Agreement with the Company and
authorized the execution by the Company of the Fortress Stock Purchase Agreement
and the Standstill Agreement.
On April 20, 2000, the Company executed the Fortress Stock Purchase
Agreement and the Standstill Agreement, and, on April 21, 2000, the Company
filed a Current Report on Form 8-K pursuant to which it disclosed the execution
of the Fortress Stock Purchase Agreement and the Standstill Agreement.
On April 25, 2000, a member of the Independent Committee met with
representatives of Fortress, at which point the Fortress representatives
reiterated Fortress's interest in acquiring all of the remaining outstanding
shares of Company Common Stock.
On May 10, 2000, after prior meetings with and the review of presentations
and proposals from four investment banks, including Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), the Independent Committee
determined to retain Merrill Lynch to act as its financial advisor in connection
with any proposed business combination involving the Company and another party.
On May 12, 2000, representatives of Merrill Lynch met with the Company's
management to present a request for due diligence information and to discuss the
background of Fortress's pending purchase of the Prime Shares. Immediately after
this meeting, representatives of Merrill Lynch met with a member of the
Independent Committee, at which point they agreed that representatives of
Merrill Lynch should meet with representatives of Fortress in order to evaluate
Fortress's goals regarding a potential tender offer.
On May 15, 2000, representatives of Merrill Lynch met with representatives
of Fortress. The Fortress representatives explained how Fortress came to its
decision to purchase an equity interest in the Company and reiterated Fortress's
desire to acquire all of the remaining outstanding shares of Company Common
Stock. The Fortress representatives questioned how long such a process would
take. The Merrill Lynch representatives responded that they would work with the
Independent Committee to try to accomplish this goal within several weeks.
On May 17, 2000, representatives of Merrill Lynch met with a representative
of Health Partners to discuss Health Partner's objectives as the holder of the
$100,000,000 5 1/2%, Convertible Subordinated Note due 2009 issued by the
Company, which is convertible into 5,479,452 shares of Company Common Stock (the
"Convertible Note"), in the context of a potential tender offer by Fortress.
On May 18, 2000, Purchaser purchased the Prime Shares, representing
4,004,350 shares, or approximately 40.3%, of the outstanding Company Common
Stock, at $15.00 per share pursuant to the Fortress Stock Purchase Agreement. In
connection with and pursuant to the terms of the purchase, Reschke resigned from
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the Company Board and from his executive office of the Company, and Wesley R.
Edens, Chief Executive Officer of Fortress, and William B. Doniger, a member of
the Operating Committee of Fortress, were appointed to the Company Board.
On May 19, 2000, representatives of Merrill Lynch met with the Independent
Committee to present an outline of the operational, financial and public market
performance of the companies in the assisted living industry.
On May 23, 2000, representatives of Merrill Lynch met with the Company's
management to review the Company's operations, business strategy and marketing
positioning, as well as to specifically discuss the Company's facility
portfolio.
On June 1, 2000, the Independent Committee received a letter from Purchaser
in which Purchaser reiterated its intention to acquire all of the remaining
outstanding shares of Company Common Stock for $15.00 per share. Purchaser
expressed its desire to proceed immediately with the proposed transaction and
attached an initial draft of an agreement and plan of merger for the transaction
(the "Merger Agreement"). Purchaser indicated that it would like to offer Health
Partners the opportunity to own an equity interest in the Company following the
proposed acquisition and requested that the Independent Committee waive the
application of the Standstill Agreement so that Purchaser could initiate formal
discussions with Health Partners regarding the specific terms of its investment.
On June 5, 2000, representatives of Merrill Lynch met with the Independent
Committee to present Merrill Lynch's preliminary valuation conclusions and
recommendations regarding further Purchaser negotiations with Purchaser.
Pursuant to an engagement letter, dated June 7, 2000 (the "Engagement
Letter"), the Independent Committee formalized its engagement of Merrill Lynch
as its financial advisor.
On June 7, 2000, the Independent Committee adopted resolutions by unanimous
written consent pursuant to which it consented to formal discussions between
Purchaser and Health Partners regarding the specific terms of Health Partners'
possible investment in the Company following the consummation of Purchaser's
proposed acquisition.
On June 19, 2000, the Independent Committee received a letter (the "June 19
Letter") from Purchaser indicating that Purchaser and Health Partners had
reached a formal agreement regarding the specific terms of Health Partners'
investment in the Company following or contemporaneously with the consummation
of Purchaser's proposed acquisition of Company Common Stock pursuant to the
proposed tender offer. Health Partners agreed to contribute to Purchaser the
Convertible Note. Purchaser reiterated its original offer to purchase the
remaining outstanding shares of Company Common Stock for $15.00 per share. Later
that day, the Independent Committee and representatives of Merrill Lynch met by
telephone conference to discuss the June 19 Letter. The Merrill Lynch
representatives suggested that the offer be increased to $16.00 per share. The
Independent Committee authorized a representative of Merrill Lynch to make such
a request on behalf of the Independent Committee.
On June 20, 2000, a representative of Merrill Lynch called representatives
of Fortress and Health Partners and stated that the offer of $15.00 per share
was insufficient and conveyed the Independent Committee's request that the offer
be increased to $16.00 per share. Later that day, the Independent Committee
received a letter from Purchaser indicating that it was unable to increase its
offer above $15.00 per share. Purchaser did, however, propose two modifications
to the Merger Agreement: (i) in lieu of the typical break-up fee of 3% to 5% of
the total equity capitalization of the Company, it proposed a cost reimbursement
arrangement of $750,000; and (ii) deletion from the Merger Agreement of the "no
shop" provisions.
On June 22, 2000, a Merrill Lynch representative and a Fortress
representative held a meeting during which the Fortress representative agreed to
increase the offer to $15.25 per share.
Between June 22, 2000 and July 26, 2000, a member of the Independent
Committee, the Company's management, representatives of Purchaser and their
respective outside legal counsel negotiated the Merger Agreement.
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On June 30, 2000, the Company Board held a special meeting to discuss the
proposed transaction with Purchaser and the status of the Merger Agreement. A
representative of the Company's outside legal counsel summarized the status of
the Merger Agreement and certain outstanding issues with respect to the Merger
Agreement. At this point, the meeting was adjourned so that the Independent
Committee could meet. Representatives of Merrill Lynch made a detailed financial
presentation to the Independent Committee and orally delivered its opinion
(which opinion was confirmed by delivery of a written opinion dated July 26,
2000, the date that the Merger Agreement was signed) to the effect that, as of
that date and based upon and subject to the matters described therein, the
consideration to be received by the Stockholders pursuant to the Offer and the
Merger is fair from a financial point of view to such Stockholders. Following
Merrill Lynch's presentation, the Independent Committee unanimously voted to
recommend to the Company Board that the Merger Agreement and the transactions
contemplated thereby be approved, subject to certain conditions. After the
meeting of the Independent Committee adjourned, the Company Board reconvened and
voted (with Messrs. Edens, Doniger, Warren and Tabak abstaining) to approve the
Merger Agreement and the transactions contemplated thereby.
Between June 30 and July 26, 2000, the Company negotiated with an affiliate
of Senior Housing Properties Trust from which affiliates of the Company lease
four properties pursuant to a master lease agreement that provides, in part,
that the change of control that would occur as a result of the completion of the
transactions contemplated by the Merger Agreement would constitute an event of
default thereunder. On July 26, 2000, the Company signed a definitive agreement
to purchase the four facilities that are subject to such master lease for
$123,000,000 (the "SHPT Purchase Agreement"). The facilities to be purchased are
The Hallmark, located in Chicago, Illinois, The Springs of East Mesa, located in
Mesa, Arizona, The Gables at Brighton, located in Brighton, New York, and Park
Place, located in Spokane, Washington, and in the aggregate contain 837 units.
In accordance with the SHPT Purchase Agreement, the Company made a $12,300,000
earnest money escrow deposit, creditable against the purchase price, and the
purchase must be completed by October 31, 2000.
On July 26, 2000, the Company received a written agreement from affiliates
of Banc One to cancel warrants to purchase Company Common Stock, which
cancellation is a condition to the consummation of the Merger.
On July 26, 2000, the legal representatives of the Company and Purchaser
finalized the Merger Agreement. Later that day, the Company, Fortress, Purchaser
and Acquisition Sub executed and delivered the Merger Agreement and issued a
joint press release announcing the transaction.
On August 1, 2000, Purchaser commenced the Offer.
REASONS FOR THE RECOMMENDATION OF THE COMPANY BOARD
Independent Committee. In evaluating the Merger Agreement, the Offer and
the Merger, the Independent Committee relied upon its knowledge of the business,
financial condition and prospects of the Company as well as the advice of its
financial and legal advisors. In determining that the Independent Committee
would recommend the Merger Agreement and the transactions contemplated thereby,
including the Offer and the Merger, to the Company Board, the Independent
Committee considered a number of factors, including the following:
(1) Financial and Business Projections. The Independent Committee
considered the information with regard to the financial condition, results
of operations, competitive position, business and prospects of the Company
(as reflected in the Company's projections), current economic and market
conditions (including current conditions in the industry in which the
Company is engaged) and the estimated break-up value of the Company.
(2) Market Price and Premium. The Independent Committee considered the
historical market prices and recent trading activity of the Company Common
Stock with a particular emphasis on the relationship between the $15.25 per
Share amount and the trading history of the Company Common Stock. In
particular, the Independent Committee noted that the $15.25 per Share
amount represents a
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premium of approximately 41.9% over the $10.75 per Share closing price on
the Nasdaq National Market on April 19, 2000, the last trading day before
the Company announced the sale of the Prime Shares.
(3) Alternatives to the Merger. The Independent Committee considered
the possible alternatives to the Offer and the Merger, including continuing
to operate the Company as a publicly-held entity and the risks associated
therewith. The Independent Committee discussed the significant capital
requirements of acquiring, leasing and developing new facilities and the
effect of such costs on the Company's financial condition and stock price.
(4) Arm's-Length Negotiations. The Independent Committee considered
the fact that the Merger Agreement and the transactions contemplated
thereby were the product of arms-length negotiations between Purchaser and
the Independent Committee (and their respective advisors), none of whose
members were employed by or affiliated with the Company (except in their
capacities as directors) or would have any equity interest in the Company
following the Merger.
(5) Offer Price and Merger Consideration. The Independent Committee
concluded, based on its negotiations with Purchaser, that the Offer Price
represented the highest price that Purchaser would be willing to pay to
acquire the Shares. This determination was the result of the Independent
Committee's participation in the negotiations with Purchaser, as well as
the advice of its advisors, in an attempt to obtain the highest possible
price.
(6) Fairness Opinion. The Independent Committee considered the
financial presentation of Merrill Lynch and Merrill Lynch's oral opinion
delivered at the June 30, 2000 meeting of the Independent Committee
(subsequently confirmed by delivery of a written opinion dated July 26,
2000, the date that the Merger Agreement was signed) that, as of the date
of such opinion and based upon and subject to the assumptions, factors and
limitations set forth therein, the per Share amount was fair, from a
financial point of view, to the Stockholders. A COPY OF MERRILL LYNCH'S
WRITTEN OPINION SETTING FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY MERRILL LYNCH IS ATTACHED AS ANNEX
B TO THIS SCHEDULE 14D-9 AND IS INCORPORATED BY REFERENCE HEREIN.
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ THE OPINION OF MERRILL LYNCH
CAREFULLY AND IN ITS ENTIRETY (SEE "ANNEX B -- OPINION OF MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED").
(7) Transaction Structure. The Independent Committee evaluated the
benefits of the transaction being structured as an immediate cash tender
offer for all of the Shares, thereby enabling the public stockholders of
the Company the opportunity to obtain cash for all of their Shares at the
earliest possible time and the fact that the per Share consideration to be
paid in the Offer and the Merger is the same.
(8) Recent Discussions Regarding a Sale of the Company. The
Independent Committee considered the discussions that the Company has had
with potential financial and other strategic acquirors regarding a possible
sale of the Company. The Independent Committee noted the recent efforts of
management of the Company to find a potential purchaser who would be
interested in a transaction that would result in a premium to the
stockholders similar to that offered by the proposed transaction.
(9) Ability to Consider Alternative Transactions. The Independent
Committee considered the terms of the Merger Agreement, including (A) the
absence of standard "no-shop" provisions, (B) the ability of the Company
Board, in the exercise of its fiduciary duties, to terminate the Merger
Agreement in order to permit the Company to enter into an alternative
transaction with a third party and (C) a cost reimbursement arrangement of
$750,000 in lieu of a typical break-up fee.
(10) Historical and Projected Financial Performance and Related Risk
and Uncertainties. The Independent Committee considered the various
financial projections prepared by the Company's management. The Independent
Committee noted that $15.25 per Share was above analysts' expected stock
price for the Company for the next twelve months.
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(11) Possible Decline in Market Price of Company Common Stock. The
Independent Committee considered that if a merger transaction with
Purchaser were not negotiated and the Company remained as a publicly-held
corporation, it is possible that, because of a decline in the market price
of the Company Common Stock or the stock market in general, the price that
might be received by the holders of the Shares in the open market or in a
future transaction might be less than the $15.25 per Share price to be
received by the Stockholders in connection with Offer and the Merger.
Company Board. In reaching its determination to approve the Merger
Agreement and the transactions contemplated thereby, the Company Board
independently considered each of the factors enumerated above and considered and
relied upon the conclusions and unanimous recommendation of the Independent
Committee that the Company Board approve the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger, and the
considerations referred to above as having been taken into account by the
Independent Committee, as well as the Company Board's own familiarity with the
Company's business, financial condition, results of operations and prospects and
the nature of the industry in which the Company operates.
In light of the number and variety of factors that the Independent
Committee and the Company Board considered in connection with their evaluation
of the Offer and the Merger, neither the Independent Committee nor the Company
Board found it practicable to quantify or otherwise assign relative weights to
the foregoing factors, and, accordingly, neither the Independent Committee nor
the Company Board did so. In addition, individual members of the Independent
Committee and the Company Board may have given different weights to different
factors. Rather, the Independent Committee and the Company Board viewed their
positions and recommendations as being based on the totality of the information
presented to and considered by them.
THE COMPANY BOARD, AFTER RECEIVING THE UNANIMOUS RECOMMENDATION OF THE
INDEPENDENT COMMITTEE, (1) HAS APPROVED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, (2) HAS
DETERMINED THAT THE OFFER AND THE MERGER ARE ADVISABLE, FAIR TO AND IN THE BEST
INTERESTS OF THE COMPANY'S STOCKHOLDERS AND (3) RECOMMENDS THAT THE COMPANY'S
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
OPINION OF MERRILL LYNCH
Merrill Lynch was engaged by the Company to render a fairness opinion to
assist the Independent Committee in evaluating the consideration to be received
by the Stockholders pursuant to the Offer.
On July 26, 2000, Merrill Lynch delivered its written opinion to the
Company Board stating that, as of July 26, 2000, and based upon the assumptions
made, matters considered and limits of review set forth therein, the
consideration to be received by the Stockholders pursuant to the Offer is fair
from a financial point of view to such Stockholders.
THE FULL TEXT OF THE OPINION, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED TO THIS SCHEDULE
14D-9 AS ANNEX B AND IS INCORPORATED BY REFERENCE HEREIN. THE DESCRIPTION OF THE
OPINION BELOW SETS FORTH THE MATERIAL TERMS OF THE OPINION. STOCKHOLDERS ARE
URGED TO READ THE OPINION IN ITS ENTIRETY. IN THE COMPANY'S OPINION, NO EVENTS
OR SIGNIFICANT CHANGES IN INFORMATION HAVE OCCURRED THAT WOULD ALTER THE OPINION
OF MERRILL LYNCH. HOWEVER, IF SUCH AN EVENT OR CHANGE DOES OCCUR, INCLUDING,
WITHOUT LIMITATION, AN AMENDMENT TO THE MERGER AGREEMENT WHICH MATERIALLY
AFFECTS THE FINANCIAL TERMS, THE COMPANY MAY REQUEST A REVISED OPINION.
The opinion is addressed to the Independent Committee and the Company Board
and addresses only the fairness, from a financial point of view, of the
consideration to be received by the Stockholders pursuant to the Offer. The
opinion does not address the merits of the Company's underlying decision to
engage in the Offer and/or Merger. The opinion does not constitute, nor should
it be construed as, a recommendation to any stockholder as to how he or she
should vote at a stockholders' meeting, if any. The consideration to be received
9
<PAGE> 10
by the Stockholders was determined on the basis of negotiations between the
Independent Committee and Purchaser and was approved by the Independent
Committee.
In connection with the preparation of the opinion, Merrill Lynch, among
other things:
- reviewed publicly available business and financial information relating
to the Company and Fortress which it deemed to be relevant;
- reviewed information, including financial forecasts, relating to the
business, earnings, cash flow, assets, liabilities and prospects of the
Company, furnished to it by the Company;
- conducted discussions with members of senior management and
representatives of the Company concerning the matters described in the
two clauses immediately above, as well as the Company's business and
prospects before and after giving effect to the Offer and Merger;
- reviewed the market prices and valuation multiples for the Company Common
Stock and compared them with those of some publicly traded companies that
it deemed to be relevant;
- reviewed the historical and projected results of operations of the
Company;
- compared the proposed financial terms of the Offer and Merger with the
financial terms of some other transactions which it deemed to be
relevant;
- reviewed the Merger Agreement; and
- reviewed such other financial studies and analyses and took into account
such other matters as it deemed necessary, including its assessment of
general economic, market and monetary conditions.
In preparing the opinion, Merrill Lynch has assumed and relied on the
accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly available,
and has further relied on the assurances of the Company's management that they
are not aware of any facts that would make such information inaccurate or
misleading. Merrill Lynch has not been authorized by the Company or the Company
Board to solicit, nor has Merrill Lynch solicited third-party indications of
interest for the acquisition of the Company. Merrill Lynch has not assumed any
responsibility for independently verifying such information or undertaken an
independent appraisal of any of the assets or liabilities of the Company. In
addition, Merrill Lynch has not assumed any obligation to conduct any physical
inspection of the properties or facilities of the Company. With respect to the
financial forecast information furnished to or discussed with Merrill Lynch by
the Company, Merrill Lynch has assumed that they have been reasonably prepared
and reflect the best currently available estimates and judgment of the Company's
management as to the expected future financial performance of the Company.
Merrill Lynch expresses no opinion as to such financial forecast information or
the assumptions on which they were based.
The opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated, and on the information made available to
Merrill Lynch as of, the date of the opinion. Merrill Lynch has assumed that the
representations and warranties of each party to the Merger Agreement and all
related documents or instruments contained therein are true and correct, that
each party to such documents will perform all covenants and agreements required
to be performed by such party under the documents and that all conditions to the
consummation of the Offer and Merger will be satisfied without waiver thereof.
Merrill Lynch has also assumed that all governmental, regulatory or other
consents and approvals (contractual or otherwise), if any, will be obtained and
that in the course of obtaining any such consents or approvals, no restrictions
will be imposed or amendments or modifications made that would have a material
adverse effect on the contemplated benefits of the Offer and Merger to the
Company.
At the meeting of the Independent Committee held on June 30, 2000, Merrill
Lynch presented some financial analyses accompanied by written materials in
connection with the delivery of the opinion. The following is a summary of the
material financial and comparative analyses performed by Merrill Lynch in
arriving at the opinion.
10
<PAGE> 11
VALUATION OF THE COMPANY
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information and estimates of future financial results published by
Wall Street equity research and taken from Merrill Lynch Equity Research,
Merrill Lynch compared certain financial and operating information and ratios
for the Company with the corresponding financial and operating information for a
group of publicly traded companies engaged primarily in the assisted living
industry which Merrill Lynch deemed to be reasonably comparable to the Company.
For the purpose of its analyses, the following companies were used as comparable
companies to the Company: Alterra Healthcare Corporation, American Retirement
Corporation, ARV Assisted Living, Inc., Capital Senior Living Corporation,
Emeritus Corporation, and Sunrise Assisted Living, Inc. (collectively, the
"Comparable Companies").
Merrill Lynch's calculations resulted in the following relevant ranges for
the Comparable Companies and for the Company as of June 27, 2000: a range of
market value as a multiple of estimated 2001 price to earnings of 7.6x to 25.4x,
with a mean of 16.6x (as compared to the Company at 8.4x); a range of market
value as a multiple of estimated 2000 EBITDAR of 5.0x to 14.1x, with a mean of
11.3x (as compared to the Company at 11.0x); a range of market value as a
multiple of estimated 2000 adjusted EBITDAR of 6.2x to 16.1x, with a mean of
13.0x (as compared to the Company at 12.7x); and a range of market value as a
multiple of estimated 2000 EBITDA of 5.0x to 20.6x, with a mean of 13.9x (as
compared to the Company at 11.9x ). Based upon the Comparable Companies, Merrill
Lynch determined that an appropriate range of valuation for the Company was
$11.00 per share to $18.00 per share.
None of the Comparable Companies is, of course, identical to the Company.
Accordingly, a complete analysis of the results of the foregoing calculations
cannot be limited to a quantitative review of such results and involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the Comparable Companies, and other factors that could affect
the public trading volume of the Comparable Companies, as well as that of the
Company. In addition, the multiples of market value to estimated 2000 and 2001
price to earnings, EBITDAR, adjusted EBITDAR and EBITDA multiples for the
Comparable Companies are based on projections prepared by research analysts
using only publicly available information. Accordingly, such estimates may or
may not prove to be accurate.
Comparable Transactions Analysis. Merrill Lynch compared some financial
ratios of the Offer with those of other selected offers involving the assisted
living industry which Merrill Lynch deemed to be relevant. These transactions
were Capital Senior Living's proposed offer for ILM Senior Living, Alterra
Healthcare's proposed offer for HCR Manor Care, Sunrise Assisted Living's
proposed offer for Karrington Health, Kapson Senior Quarters' proposed offer for
Atria Communities, Prometheus Assisted Living's proposed offer for Kapson Senior
Quarters, Alternative Living Services' proposed offer for Sterling House and
Whitehall Street Real Estate's proposed offer for Integrated Living Communities.
Using publicly available information and estimates of financial results as
published by Wall Street equity research (except for ILM Senior Living, which is
based on projections used by Cohen & Steers Capital Advisors), Merrill Lynch
calculated the premium of the implied offer value per share relative to the
acquired company's stock price on the day before announcement of the respective
transaction and the implied offer value per share for the acquired company, as
of the day before the announcement of the respective transaction, as a multiple
of the estimated EBITDAR and EBITDA per share for such company for the current
year, if the deal was announced in the first half of the year, or for the next
year, if the deal was announced in the second half of the year. This analysis
yielded a range of premiums/ (discounts) of (0.9%) to 43.4% with a mean of
20.5%; a range of transaction forward EBITDAR multiples of 9.4x to 17.6x with a
mean of 11.9x; and forward EBITDA multiples of 11.1x to 16.2x with a mean of
13.5x. These calculations indicated a per share valuation range for the Company
of $13.00 to $17.00.
Discounted Cash Flow Analysis. Merrill Lynch performed discounted cash flow
analyses (i.e., analyses of the present value of the projected levered cash
flows for the periods using the discount rates indicated) of the Company based
upon projections provided by the Company's management of its stabilized assets
for the years 2000 through 2004, inclusive, using discount rates reflecting an
equity cost of capital ranging from 12.0% to 14.0% and terminal value multiples
of calendar year 2004 ranging from 10.0x to 11.0x; and based upon
11
<PAGE> 12
projections provided by the Company's management of its development assets for
the years 2000 through 2004, inclusive, using discount rates reflecting an
equity cost of capital of 25.0% for the pre-stabilization period and 15.0% for
the post-stabilization period and terminal value multiples for each development
asset based on Merrill Lynch's judgment and expertise of calendar year 2004.
These calculations indicated a per share valuation range for the Company of
$12.75 to $18.50.
Net Asset Valuation Analysis. Merrill Lynch performed a net asset valuation
for the Company based upon an asset-by-asset real estate valuation of the
Company's properties, an estimation of the current values for the Company's
other assets and liabilities, and an estimation of the Company's debt balances
as of March 31, 2000. The real estate valuation utilized property specific
projections prepared by the Company's management for the calendar year 2000. For
the operating portfolio of the Company, the valuation utilized the direct
capitalization method on 2000 property net operating income and a range of
capitalization rates of 8.50% to 11.25%. For the development assets Merrill
Lynch utilized three distinct approaches (1) cost of development plus 10%, (2)
cost of development plus 20%, and (3) the valuation of the development assets
determined by the discounted cash flow analysis described above. These
calculations indicated a per share net asset valuation range for the Company of
$9.00 to $15.50.
Premiums Paid Analysis. Merrill Lynch performed a premiums paid analysis
for the Company based upon the review and analysis of the range of premiums paid
in minority squeeze-out transactions between $100.0 million and $2.0 billion in
enterprise value for the period between May 1, 1997 through June 21, 2000. The
range of premiums paid to the target company's stock price one month prior to
announcement of the sale of the Prime Shares to Purchaser (the "Prime Shares
Sale") and one day prior to announcement of the Prime Shares Sale were (17.9%)
to 176.2% with a mean of 34.4%, and 2.5% to 132.0% with a mean of 30.1%,
respectively. Based on the foregoing, Merrill Lynch noted that the premium to be
paid in the Offer one month prior to announcement of the Prime Shares Sale of
19.6% was below the mean of the premiums paid in such minority squeeze-out
transactions, and the premium paid in the Offer one day prior to announcement of
the Prime Shares Sale of 41.9% was higher than the mean premium paid in such
minority squeeze-out transactions.
Financial Sponsor Internal Rate of Return Analysis. Merrill Lynch performed
a financial sponsor internal rate of return valuation for the Company based upon
various per share acquisition prices and under the same margin and operating
scenarios as were used in estimating an equity value range for the Company. The
investment return calculations assumed the Convertible Note was converted to
equity. Based upon projections provided by the Company's management, a proposed
purchase price of $15.25 per share was calculated to yield an investment return
to the financial sponsor of approximately 25.0%. Merrill Lynch deemed that such
a return was reasonable.
(c) Intent to Tender: To the best knowledge of the Company after reasonable
inquiry, all of its executive officers and directors currently intend to tender
pursuant to the Offer all Shares held of record or beneficially owned by such
persons, subject to and consistent with any fiduciary obligations of such
persons.
ITEM 5. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
Pursuant to the terms of the Engagement Letter, the Company engaged Merrill
Lynch to act as financial advisor to the Independent Committee in connection
with various possible transactions, including transactions contemplated by the
Merger Agreement (a "Business Combination"). As part of its role as financial
advisor, Merrill Lynch delivered a fairness opinion to the Independent Committee
and the Company Board on July 26, 2000, the day the Merger Agreement was signed.
Pursuant to the terms of the Engagement Letter, the Company has agreed to
pay Merrill Lynch (1) a fee of $250,000, payable in cash upon the signing of the
Engagement Letter, and (2) an additional fee of (a) $1,000,000 contingent upon
and payable in cash upon the earlier of (i) the rendering of a fairness opinion
or (ii) in the event that Merrill Lynch informs the Independent Committee that
it is prepared to render a fairness opinion with respect to a proposed
transaction, the date that the Independent Committee informs Merrill Lynch that
it will not request that the opinion be rendered or (b) $500,000 contingent upon
and payable in cash in the event the Company has received a proposal of a
Business Combination but the
12
<PAGE> 13
conditions for payment under clause (a) above have not been met, the date that
is the earlier of (i) May 12, 2001 or (ii) the earlier termination of Merrill
Lynch's engagement hereunder by the Independent Committee. In addition, in
connection with the consummation of a Business Combination (including
Purchaser's acquisition of the Company pursuant to the Merger Agreement) that
occurs or with respect to which the Company enters into an agreement, in each
case during Merrill Lynch's engagement pursuant to the Engagement Letter or
within 12 months after the termination of such engagement, the Company has
agreed to pay a fee in an amount equal to $1,000,000 payable in cash upon the
completion of such Business Combination, or, in the case of a tender offer, upon
the first purchase of shares pursuant to such tender offer.
The aggregate fee payable by the Company to Merrill Lynch if the Offer and
the Merger are completed will equal approximately $2,250,000.
The Company has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including the reasonable fees and disbursements of its
attorneys, and to indemnify Merrill Lynch and related parties against certain
liabilities arising out of or in connection with or as a result of Merrill
Lynch's engagement as financial advisor to the Independent Committee, including
liabilities under the federal securities laws.
Neither the Company nor any person acting on its behalf has employed or
retained or will compensate any other person to make solicitations or
recommendations to the Stockholders on behalf of the Company with respect to the
Offer or the Merger.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
During the past 60 days, no transactions in shares of Company Common Stock
have been effected by the Company or its subsidiaries or, to the Company's
knowledge, by any of its executive officers, directors or affiliates.
ITEM 7. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS.
(a) Except as indicated in this Schedule 14D-9, no negotiations are being
undertaken or are underway by the Company in response to the Offer which relate
to a tender offer or other acquisition of the Company's securities by the
Company, any subsidiary of the Company or any other person.
(b) Except as indicated in this Schedule 14D-9, no negotiations are being
undertaken or are underway by the Company in response to the Offer which relate
to or would result in: (i) an extraordinary transaction, such as a merger,
reorganization or liquidation, involving the Company or any subsidiary of the
Company; (ii) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary of the Company; or (iii) any material change in the
present dividend rate or policy, or indebtedness or capitalization of the
Company.
(c) Except as indicated in this Schedule 14D-9, there are no transactions,
Company Board resolutions, agreements in principle or signed contracts entered
into in response to the Offer that relate to or would result in one or more of
the events referred to in this Item 7.
SHPT Purchase Agreement. Between June 30 and July 26, 2000, the Company
negotiated with an affiliate of Senior Housing Properties Trust from which
affiliates of the Company lease four properties pursuant to a master lease
agreement that provides, in part, that the change of control that would occur as
a result of the completion of the transactions contemplated by the Merger
Agreement would constitute an event of default thereunder. On July 26, 2000, the
Company signed the SHPT Purchase Agreement to purchase the four facilities that
are subject to such master lease for $123,000,000 (the "SHPT Purchase
Agreement"). The facilities to be purchased are The Hallmark, located in
Chicago, Illinois, The Springs of East Mesa, located in Mesa, Arizona, The
Gables at Brighton, located in Brighton, New York, and Park Place, located in
Spokane, Washington, and in the aggregate contain 837 units. In accordance with
the SHPT Purchase Agreement, the Company was required to make a $12,300,000
earnest money escrow deposit, creditable against the purchase price, and the
purchase must be completed by October 31, 2000.
13
<PAGE> 14
ITEM 8. ADDITIONAL INFORMATION.
(a) Section 14(f) Information Statement
The Information Statement attached as Annex A hereto is being furnished in
connection with the possible designation by Purchaser pursuant to the Merger
Agreement of certain persons to be appointed to the Company Board other than at
a meeting of the Company's stockholders, and such information is incorporated by
reference herein.
(b) Additional Information Contained in the Exhibits
The information contained in all of the Exhibits referred to in Item 9
below is incorporated by reference herein.
ITEM 9. EXHIBITS.
The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
(a)(1) -- Offer to Purchase, dated August 1, 2000.(1)(2)
(a)(2) -- Letter of Transmittal.(1)(2)
(a)(3) -- Form of Letter to Stockholders, dated August 1, 2000.(2)
(a)(4) -- Press Release, dated July 26, 2000 (incorporated by
reference to Exhibit 99.1 to the Company's Current Report
on Form 8-K filed with the Securities and Exchange
Commission (the "SEC") on July 28, 2000).
(a)(5) -- Information Statement pursuant to Section 14(f) of the
Securities Exchange Act of 1934, as amended, and Rule
14f-1 thereunder.(3)
(e)(1) -- Agreement and Plan of Merger, dated as of July 26, 2000,
by and among Fortress, Purchaser, Acquisition Sub and the
Company (incorporated by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K filed with the SEC
on July 28, 2000).
(e)(2) -- Opinion of Merrill Lynch, Pierce, Fenner & Smith
Incorporated to the Independent Committee and the Company
Board, dated July 26, 2000.(4)
(g) -- Not applicable.
</TABLE>
---------------
(1) Filed as an exhibit to the Tender Offer Statement on Schedule TO, dated
August 1, 2000, of Purchaser and incorporated by reference.
(2) Included in copy mailed to stockholders.
(3) Filed herewith as Annex A to this Schedule 14D-9.
(4) Filed herewith as Annex B to this Schedule 14D-9.
14
<PAGE> 15
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
BROOKDALE LIVING COMMUNITIES, INC.
By: /s/ ROBERT J. RUDNIK
----------------------------------
Name: Robert J. Rudnik
Title: Executive Vice President,
General Counsel
and Secretary
Date: August 1, 2000
15
<PAGE> 16
ANNEX A
BROOKDALE LIVING COMMUNITIES, INC.
330 NORTH WABASH AVENUE, SUITE 1400
CHICAGO, ILLINOIS 60611
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14F-1 THEREUNDER
---------------------
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS REQUIRED IN CONNECTION
WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED AND YOU ARE
REQUESTED NOT TO SEND THE COMPANY A PROXY.
---------------------
This Information Statement is being mailed on or about August 1, 2000, as a
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 of the
Company to the holders of record of Shares. You are receiving this Information
Statement in connection with the possible election of persons designated by
Purchaser to a majority of the seats on the Company Board. Capitalized terms
used herein and not otherwise defined herein shall have the meanings set forth
in the Schedule 14D-9.
On July 26, 2000, Fortress, Purchaser, Acquisition Sub and the Company
entered into the Merger Agreement. Purchaser has agreed to commence the Offer to
purchase for cash any and all of the Shares, at a price of $15.25 per Share, net
to the seller in cash, without interest, less any amounts required by law to be
withheld and paid to governmental entities, upon the terms and subject to the
conditions of the Merger Agreement. The Offer is scheduled to expire at 12:00
Midnight, New York City time, on Tuesday, September 5, 2000, unless the Offer is
extended.
The Merger Agreement requires the Company to cause the directors designated
by Purchaser to be elected to the Company Board under the circumstances
described therein following consummation of the Offer.
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time.
The information contained in this Information Statement (including
information incorporated by reference) concerning Purchaser and the Purchaser
Designees has been furnished to the Company by Purchaser, and the Company
assumes no responsibility for the accuracy or completeness of such information.
GENERAL INFORMATION REGARDING THE COMPANY
The shares of Company Common Stock are the only class of voting securities
of the Company outstanding. As of July 31, 2000, there were 9,926,549 shares of
Company Common Stock outstanding. The Company Board currently consists of nine
members and is divided into three classes serving staggered three-year terms.
Each share of Company Common Stock is entitled to one vote. The officers of the
Company serve at the discretion of the Company Board.
PURCHASER DESIGNEES
Promptly upon the purchase of and payment for Shares by Purchaser pursuant
to the Offer which, when taken together with the shares of Company Common Stock
otherwise owned by Purchaser, represent at least a majority of the outstanding
shares of Company Common Stock, Purchaser shall be entitled to designate such
number of directors, rounded up to the next whole number, on the Company Board
equal to the product of the total number of directors on the Company Board
(giving effect to the directors designated by Purchaser
A-1
<PAGE> 17
pursuant to this sentence) multiplied by the percentage that the aggregate
number of shares of Company Common Stock beneficially owned by Purchaser bears
to the total number of shares of Company Common Stock then outstanding minus
four (4) (to give effect to the four seats on the Company Board presently
occupied by Wesley R. Edens, William B. Doniger, Paul H. Warren and Mark H.
Tabak, each of whom is an affiliate of Purchaser). The Company shall, upon
request of Purchaser, use its reasonable best efforts promptly either to
increase the size of the Company Board (which, pursuant to the Company's
Restated Certificate of Incorporation, has a maximum number of 11 directors) or,
at the Company's election, secure the resignations of such number of its
incumbent directors, or both, as is necessary to enable Purchaser's designees to
be so elected to the Company Board, and shall use its reasonable best efforts to
cause Purchaser's designees to be so elected.
The Company's obligation to appoint Purchaser's designees to the Company
Board shall be subject to Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder. The Company shall promptly take all actions, as Section
14(f) and Rule 14f-1 require, in order to fulfill its obligations under the
Merger Agreement. Purchaser has supplied to the Company in writing information
with respect to itself and its designees, officers, directors and affiliates
required by Section 14(f) and Rule 14f-1.
In the event that Purchaser's designees are elected to the Company Board
prior to the effective time of the Merger (the "Effective Time") and
notwithstanding anything in the Merger Agreement to the contrary, until the
Effective Time, the Company shall retain as members of the Company Board at
least three (3) directors who are directors of the Company on the date hereof
(the "Company Designees"); provided that, in such event, if the number of
Company Designees shall be reduced below three (3) for any reason whatsoever,
any remaining Company Designees (or Company Designee, if there be only one
remaining) shall be entitled to =designate persons to fill such vacancies who
shall be deemed to be Company Designees for purposes of the Merger Agreement or,
if no Company Designee then remains, the other directors shall designate three
(3) persons to fill such vacancies who shall not be stockholders, affiliates or
associates of Fortress or Purchaser, and such persons shall be deemed to be
Company Designees for purposes of the Merger Agreement.
Notwithstanding anything in the Merger Agreement to the contrary, in the
event that Purchaser's designees are elected to the Company Board prior to the
Effective Time, the affirmative vote of a majority of the Company Designees
shall be required for the Company to (i) amend or terminate the Merger Agreement
or agree or consent to any amendment or termination of the Merger Agreement,
(ii) exercise or waive any of the Company's rights, benefits or remedies
thereunder, (iii) extend the time for performance of Fortress and Purchaser's
respective obligations thereunder or (iv) take any other action by the Company
Board under or in connection with the Merger Agreement other than the actions
provided for in the Merger Agreement which shall not require the approval of the
Company Designees. The initial Company Designees shall be Wayne D. Boberg, Dr.
Bruce L. Gewertz and Darryl W. Hartley-Leonard.
Purchaser has informed the Company that it will choose the Purchaser
designees from the persons listed below. Purchaser has informed the Company that
each of the Purchaser designees has consented to act as a director, if so
designated. The business address of each designee, unless otherwise indicated,
is c/o Fortress
A-2
<PAGE> 18
Investment Group, LLC, 1301 Avenue of the Americas, 42nd Floor, New York, New
York 10019. Biographical information concerning each of the Purchaser designees
is presented below.
<TABLE>
<CAPTION>
POSITION WITH PURCHASER OR
NAME AND ADDRESS AGE AFFILIATE; 5-YEAR EMPLOYMENT HISTORY
---------------- --- ------------------------------------
<S> <C> <C>
WESLEY R. EDENS............. 38 Mr. Edens has served as Chairman of Purchaser and a
member of the Operating Committee and Chief Executive
Officer and a director of Acquisition Sub since July,
2000. Mr. Edens has also served as Chief Executive
Officer of Fortress since December 1, 1999; Chief
Executive Officer and Chairman of Fortress Investment
Group LLC (the "Manager") since April 1998 and Fortress
Investment Corp. ("Fortress Investment") since June
1998; and Chairman of the Board of Directors of Fortress
since June 1998. He co-founded the Manager in April 1998
with Mr. Robert I. Kauffman, Mr. Randal, A. Nardone, and
Mr. Erik P. Nygaard, having previously been head of the
Global Principle Finance Group ("GPF") of UBS
Securities, LLC ("UBS"), as well as a Managing Director
of UBS. Prior to joining GPF in 1997, he was a partner
and Managing Director of BlackRock Financial Management,
Inc. ("BFM") and the Chief Operating Officer of
BlackRock Asset Investors ("BAI"). In addition, Mr.
Edens has been a director of the Company since May 2000.
PAUL H. WARREN.............. 44 Mr. Warren has served as President of Purchaser and a
54 THOMPSON STREET member of the Operating Committee and President of
NEW YORK, NY 10012 Acquisition Sub since July, 2000. Mr. Warren co-founded
Capital Z Partners in 1998. From 1994 to 1998, he was a
partner in Insurance Partners, L.P. He serves as a
director of Healthextras, LLC, Corporate Health
Dimensions, Provincia Salud, Provincia A.R.T., Digital
Insurance and United Payors & United Providers, Inc. Mr.
Warren has also been a director of the Company since May
1999.
RANDAL A. NARDONE........... 45 Mr. Nardone has served as Secretary of Purchaser and
member of the Operating Committee and Secretary and a
director of Acquisition Sub since July, 2000. Mr.
Nardone has also served as the Chief Operating Officer
and Secretary of Fortress since December 1, 1999; Chief
Operating Officer and Secretary of the Manager since
[April 1998] and Fortress Investment Group LLC since
[June 1998]. He was previously the head of the
structured finance and contract finance departments of
GPF as well as a Managing Director of UBS. Prior to
joining UBS in 1997, he was a principal of BFM and
Managing Director of BAI. Prior to joining BlackRock, he
was a partner and a member of the executive committee at
the law firm of Thacher Proffitt & Wood.
WILLIAM B. DONIGER.......... 34 Mr. Doniger has served as Vice President of Purchaser
and member of the Operating Committee and Vice President
and a director of Acquisition Sub since July 2000 and
director of the Company since May 2000. Mr. Doniger has
also been a Managing Director of the Manager since 1998.
He worked for BCF from January 1996 through December
1997 and prior to that he worked in the structured
finance group at Thacher Proffitt & Wood.
</TABLE>
A-3
<PAGE> 19
<TABLE>
<CAPTION>
POSITION WITH PURCHASER OR
NAME AND ADDRESS AGE AFFILIATE; 5-YEAR EMPLOYMENT HISTORY
---------------- --- ------------------------------------
<S> <C> <C>
GREGORY F. HUGHES........... 37 Mr. Hughes has served as Chief Financial Officer of
Purchaser and Vice President of Acquisition Sub since
July 2000. He has served as Chief Financial Officer of
the Manager since August 1999. He served as Chief
Financial Officer for Wellsford Real Properties, Inc., a
real estate merchant banking firm which acquires,
finances, develops and operates real properties and
organized and invests in private and public real estate
companies, from 1997 to 1999; prior to assuming that
position, Mr. Hughes was the Chief Financial Officer for
Wellsford Residential Property Trust, a real estate
investment trust.
</TABLE>
Except as maybe disclosed herein or in the Schedule 14D-9, Purchaser has
advised the Company that all of the Purchaser designees are citizens of the
United States. Purchaser has also advised the Company that none of the Purchaser
designees (i) has, during the last five years, been convicted in a criminal
proceeding (excluding traffic violations and similar misdemeanors) or was a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was, or is, subject to a
judgment, decree or final order enjoining future violations of, or prohibiting
activities subject to, federal or state securities laws or finding any violation
of such laws, (ii) is currently a director of, or holds any position with, the
Company, (iii) beneficially owns any securities (or rights to acquire any
securities) of the Company or (iv) has been involved in any transaction with the
Company or any of its directors, executive officers or affiliates which is
required to be disclosed pursuant to the rules and regulations of the SEC.
COMPANY BOARD AND EXECUTIVE OFFICERS
Biographical information concerning the Company's current directors and
executive officers, as of July 31, 2000, is as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark J. Schulte....................... 46 Chairman of the Board, President and
Chief Executive Officer, Director
Robert J. Rudnik...................... 46 Executive Vice President, General
Counsel and Secretary, Director
Wayne D. Boberg....................... 47 Director
William B. Doniger.................... 34 Director
Wesley R. Edens....................... 38 Director
Bruce L. Gewertz...................... 50 Director
Darryl Hartley-Leonard................ 55 Director
Mark H. Tabak......................... 50 Director
Paul H. Warren........................ 44 Director
R. Stanley Young...................... 48 Executive Vice President, Chief
Financial Officer and Treasurer
David J. Schaus....................... 45 Senior Vice President -- Sales and
Marketing
Stephan T. Beck....................... 44 Senior Vice President -- Operations
Matthew F. Whitlock................... 36 Vice President -- Acquisitions
Sheryl A. Wolf........................ 37 Vice President -- Controller
Katherine P. Erickson................. 39 Vice President -- Marketing Services
John H. Mertz, Jr. ................... 42 Vice President -- Project Finance
Paul N. Nigro......................... 30 Vice President -- Information
Technology
</TABLE>
Mark J. Schulte. Mark J. Schulte has served as Chairman of the Board of the
Company since June 2000 and as President and Chief Executive Officer and a
director of the Company since May 1997. From January
A-4
<PAGE> 20
1991 to May 1997, Mr. Schulte was employed by Prime in its Senior Housing
Division, most recently serving as Executive Vice President, with primary
responsibility for overseeing all aspects of Prime's Senior Housing Division.
Prior to joining Prime, Mr. Schulte had 13 years of experience in the
development and operation of multi-family housing, senior housing, senior and
assisted living and health care facilities. Mr. Schulte is licensed to practice
law in the State of New York. Mr. Schulte serves as Chairman of the American
Seniors Housing Association, an industry trade group based in Washington, D.C.
Robert J. Rudnik. Robert J. Rudnik has served as Executive Vice President,
General Counsel and Secretary of the Company since July 1997 and as a director
of the Company since December 1999. Mr. Rudnik also serves as Executive Vice
President, General Counsel and Secretary of Prime. Mr. Rudnik has served in such
capacity for Prime 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.
Wayne D. Boberg. Wayne D. Boberg has served as a director of the Company
since May 1997. Mr. Boberg is licensed to practice law in the State of Illinois
and has been a partner of the law firm of Winston & Strawn since 1985,
specializing in the representation of corporate clients in connection with
capital transactions and acquisitions.
William B. Doniger. William B. Doniger has served as Vice President of
Purchaser and member of the Operating Committee and Vice President and a
director of Acquisition Sub since July 2000 and director of the Company since
May 2000. Mr. Doniger has also been a Managing Director of the Manager since
1998. He worked for BCF from January 1996 through December 1997 and prior to
that he worked in the structured finance group at Thacher Proffitt & Wood.
Wesley R. Edens. Wesley R. Edens has served as a director of the Company
since May 2000. He has served as Chief Executive Officer of the Manager since
April 1998 and Fortress since December 1, 1999; Chairman of the Board of
Directors of Fortress since June, 1998. He co-founded the Manager in April 1998
with Messrs. Kauffman, Nardone and Nygaard, having previously been head of the
Global Principle Finance Group ("GPF") of UBS Securities, LLC ("UBS"), as well
as a Managing Director of UBS. Prior to joining GPF in 1997, he was a partner
and Managing Director of BlackRock Financial Management, Inc. ("BFM") and the
Chief Operating Officer of BlackRock Asser Investors ("BAI"). In addition, he
was formerly a partner and Managing Director of Lehman Brothers.
Dr. Bruce L. Gewertz. Dr. Bruce L. Gewertz has served as a director of the
Company since May 1997. Dr. Gewertz has served as The Dallas B. Phemister
Professor and Chairman, Department of Surgery since 1992, and served as the
first Faculty Dean of Medical Education from 1989 to 1992, at the University of
Chicago Pritzker School of Medicine. Dr. Gewertz is Editor of the Journal of
Surgical Research and serves on the Editorial Board of Annals of Vascular
Surgery.
Darryl W. Hartley-Leonard. Darryl W. Hartley-Leonard has served as a
director of the Company since May 1997. Mr. Hartley-Leonard is Chairman of the
Board and Chief Executive Officer of Production Group International, Inc., an
event production agency, Chairman of the Board and Partner of Metropolitan Hotel
Corporation, a hotel company in the long term stay/suite hotel business directed
at the upscale market, a founding partner of H-LK Partners, a hotel development
and management company, and Chairman of the Board and Partner of Cohabaco Cigar
Co., a nationwide cigar distribution company. Mr. Hartley-Leonard retired as
Chairman of the Board of Hyatt Hotels Corporation in 1996 after a 32-year career
with Hyatt and its diversified affiliates. Mr. Hartley-Leonard also serves on
the Board of Directors of LaSalle Partners, The United States Committee for
UNICEF and Evanston Northwestern Healthcare.
Mark H. Tabak. Mark H. Tabak has served as a director of the Company since
May 1999. Mr. Tabak is the Managing Partner of Healthcare Capital Partners and
President and Chief Executive Officer of International Managed Care Advisors,
Inc. From September 1993 to July 1996, Mr. Tabak was the President of AIG
Managed Care Inc., a subsidiary of American International Group ("AIG"). Prior
to joining AIG, he served as President and Chief Executive Officer of Group
Health Plan, and he was President of Health America Development Corporation. Mr.
Tabak also founded Clinical Pharmaceuticals, Inc. Mr. Tabak is a member of the
Board of Directors of Ceres Group, Inc., an insurance holding company, ESC
Medical
A-5
<PAGE> 21
Systems, Ltd., a medical equipment manufacturer, and United Payors & United
Providers, Inc., a health care provider network.
Paul H. Warren. Paul H. Warren has served as a director of the Company
since May 1999. Mr. Warren co-founded Capital Z Partners in August 1998. From
April 1994 to August 1998, Mr. Warren was a partner in Insurance Partners, L.P.,
a limited partnership organized in 1994 to make investments in property and
casualty insurers, life and health insurers, healthcare services firms and
related insurance businesses. In addition, Mr. Warren serves as a director of
Healthextras, LLC, Corporate Health Dimensions, Provincia Salud, Provincia
A.R.T. and United Payors & United Providers, Inc.
R. Stanley Young. R. Stanley Young has served as Executive Vice President,
Chief Financial Officer and Treasurer of the Company since December 1999. From
August 1998 to December 1999, Mr. Young was Senior Vice President-Finance and
Treasurer of the Company. From 1987 to 1998, Mr. Young was a partner of KPMG
LLP. Mr. Young is a certified public accountant.
David J. Schaus. David J. Schaus has served as Senior Vice
President -- Sales and Marketing of the Company since April 2000. From August
1998 to April 2000, Mr. Schaus served as Senior Vice President -- Human Services
of the Company. From January 1997 to August 1998, Mr. Schaus was a principal in
the firm of Workplace Dynamics, Inc., a human resources consulting firm, and
from August 1989 to January 1997, served as Senior Vice President and Managing
Director of Dain Rauscher, a financial services broker-dealer. Prior to joining
the Company, Mr. Schaus had over 20 years of management experience.
Stephan T. Beck. Stephan T. Beck has served as Senior Vice
President -- Operations of the Company since May 1999 and Vice
President -- Operations of the Company from May 1997 to May 1999. From January
1993 to May 1997, Mr. Beck was employed by Prime, most recently serving as
Corporate Director of Operations of its Senior Housing Division. Prior to
joining Prime, Mr. Beck was employed by Classic Residence by Hyatt as Executive
Director of the Company's Hallmark facility, which was then managed by Classic
Residence by Hyatt, from August 1990 to December 1992.
Matthew F. Whitlock. 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 Prime in its Senior Housing Division as
Director of Acquisitions. Prior to joining Prime, 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.
Sheryl A. Wolf. Sheryl A. Wolf has served as Vice President -- Controller
of the Company since May 1999 and Controller of the Company from May 1997 to May
1999. From September 1991 to May 1997, Ms. Wolf was employed by Prime, most
recently serving as Corporate Director of Finance of its Senior Housing
Division.
Katherine P. Erickson. Katherine P. Erickson has served as Vice
President -- Marketing Services of the Company since March 1999. From 1995 to
March 1999, Ms. Erickson was employed by Alterra Healthcare Corporation as their
Corporate Director of Marketing and was later promoted to Vice President of
Marketing. From 1988 to 1995, Ms. Erickson was employed by Prime as a marketing
counselor in its Senior Housing division and later was promoted to Vice
President of Marketing.
John H. Mertz, Jr. John H. Mertz, Jr. has served as Vice
President -- Project Finance of the Company since April 1999. From 1985 to 1995,
and again from 1998 to March 1999, Mr. Mertz served as Vice President in the
Commercial Real Estate Services Group of Bank of America (formerly Continental
Bank). From 1995 to 1998, Mr. Mertz was an independent futures trader at the
Chicago Board of Trade.
Paul N. Nigro. Paul N. Nigro has served as Vice President - Information
Technology of the Company since June 2000. From August 1997 to May 2000, Mr.
Nigro served as Director - Information Technology of the Company. Prior to
joining the Company, Mr. Nigro was employed by Motels of America, Inc., a real
estate development and management company ("MAI"). From June 1992 to August
1996, Mr. Nigro served
A-6
<PAGE> 22
as Manager - MIS of MAI and, from August 1996 to August 1997, as Director -
Information Technology of MAI. Mr. Nigro is a certified public accountant.
COMPANY BOARD MEETINGS AND COMMITTEES
The Company Board has established an Audit Committee, an Executive
Committee, a Compensation Committee and a Committee of Independent Directors.
Audit Committee. The members of the Audit Committee consist of Dr. Gewertz
and Messrs. Boberg, Hartley-Leonard, Tabak and Doniger. The Audit Committee,
among other things, makes recommendations concerning the engagement of
independent auditors, reviews the results and scope of the annual audit and
other services provided by the Company's independent auditors and reviews the
adequacy of the Company's internal accounting controls.
Executive Committee. The members of the Executive Committee consist of
Messrs. Schulte, Warren, and Edens. The Executive Committee has been granted
certain authority to acquire and dispose of real property and the power to
authorize, on behalf of the Company Board, the execution of certain contracts
and agreements, including those related to certain borrowings by the Company.
The Executive Committee generally meets monthly (or more frequently if
necessary) and all actions by the committee are reported at the next meeting of
the Company Board.
Compensation Committee. The members of the Compensation Committee consist
of Dr. Gewertz and Messrs. Hartley-Leonard, Warren and Edens. The Compensation
Committee makes recommendations to the Company Board concerning salary and bonus
compensation and benefits for executive officers of the Company. In addition,
the Compensation Committee has the power and authority to implement and
administer the Brookdale Living Communities, Inc. Stock Incentive Plan (the
"1997 Stock Incentive Plan"), the 1998 Brookdale Living Communities, Inc. Stock
Incentive Plan (the "1998 Stock Incentive Plan") and the 1999 Brookdale Living
Communities, Inc. Stock Incentive Plan, as amended (together with the 1997 Stock
Incentive Plan and the 1998 Stock Incentive Plan, the "Stock Incentive Plans").
Independent Committee. The members of the Independent Committee consist of
Dr. Gewertz and Messrs. Boberg and Hartley-Leonard. The Independent Committee
was established to consider and approve or reject, on behalf of the Company
Board, any proposed transactions between the Company and any of its affiliates,
stockholders, directors, officers or employees.
During the fiscal year ended December 31, 1999, the Audit Committee held
two meetings, the Compensation Committee held three meetings, the Independent
Committee held no meetings and the Company Board held six meetings, and each
member of the Company Board and applicable committees thereof participated in at
least 75% of all Company Board and applicable committee meetings held during the
period for which he was a director.
COMPENSATION OF DIRECTORS
The Company pays its directors who are not employees of the Company a fee
for their services as directors. Such persons receive annual compensation of
$12,000 plus a fee of $1,000 for attendance at each meeting of the Company Board
and $500 for attendance at each committee meeting. The members of the Company
Board receive reimbursement of all travel and lodging expenses related to their
attendance at both Company Board and committee meetings. In addition, beginning
on April 10, 2000, the compensation of the directors serving on the Independent
Committee was increased to $10,000 each per month (pro rated at $7,500 each in
April 2000) until the proposed transaction with Fortress is completed or the
related exploration of strategic alternatives is completed.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company Board, which is composed entirely
of non-employee directors, is charged with determining compensation for the
Company's executive officers. Dr. Bruce L.
A-7
<PAGE> 23
Gewertz and Messrs. Darryl W. Hartley-Leonard, Paul H. Warren and Wesley R.
Edens currently serve on the Compensation Committee.
During the year ended December 31, 1999, no executive officer of the
Company served as a member of (i) the compensation committee of another entity,
one of whose executive officers served on the Company's Compensation Committee,
(ii) the Board of Directors of another entity, one of whose executive officers
served on the Company's Compensation Committee, or (iii) the compensation
committee of another entity, one of whose executive officers served as a member
of the Company Board.
A-8
<PAGE> 24
PRINCIPAL SECURITY HOLDERS OF THE COMPANY
The following table sets forth certain information with respect to
beneficial ownership of the Company Common Stock as of June 30, 2000 (i) by each
director of the Company; (ii) by the Chairman of the Board, President and Chief
Executive Officer and each of the five other persons who were the most highly
compensated executive officers of the Company in 1999 (the "named executive
officers"); and (iii) by all directors and executive officers of the Company as
a group, in each case based on reports filed by such persons with the SEC, and
by persons believed by the Company to be the beneficial owners of more than 5%
of the Company Common Stock.
<TABLE>
<CAPTION>
COMPANY COMMON STOCK
-------------------------
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) CLASS
--------------------------------------- ------------ ----------
<S> <C> <C>
Fortress Brookdale Acquisition LLC(3)....................... 9,483,802 58.6%
Health Partners(4).......................................... 5,479,452 33.9
Goldman Sachs Asset Management(5)........................... 1,117,100 11.3
Delaware Management Holdings, Inc.(6)....................... 952,500 9.6
Becker Capital Management, Inc.(7).......................... 783,450 7.9
Commonwealth of Pennsylvania, Public School Employees
Retirement System(8)...................................... 629,600 6.3
Mark J. Schulte(9).......................................... 454,958 4.5
Darryl W. Copeland, Jr.(10)................................. 209,500 2.1
Wayne D. Boberg(11)......................................... 8,250 *
Dr. Bruce L. Gewertz(12).................................... 4,950 *
Darryl W. Hartley-Leonard(13)............................... 7,750 *
Robert J. Rudnik(14)........................................ 167,284 1.7
Mark H. Tabak............................................... -- --
Paul H. Warren.............................................. -- --
Stephan T. Beck(15)......................................... 19,500 *
Matthew F. Whitlock(16)..................................... 20,525 *
R. Stanley Young(17)........................................ 12,750 *
Executive officers and directors as a group (17
persons)(18).............................................. 734,417 7.2
</TABLE>
---------------
* Less than 1%.
(1) All of the directors and executive officers of the Company may be contacted
c/o Brookdale Living Communities, Inc., 330 North Wabash Avenue, Suite
1400, Chicago, Illinois 60611.
(2) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or
indirectly, through any contract, arrangement, undertaking, relationship or
otherwise has or shares voting power and/or investment power and as to
which such person has the right to acquire such voting and/or investment
power within 60 days. Percentage of beneficial ownership as to any person
(which includes shares as to which such person has the right to acquire
voting and/or investment power within 60 days) as of a particular date is
calculated by dividing the number of shares beneficially owned by such
person by the sum of the number of shares outstanding as of such date and
the number of shares as to which such person has the right to acquire
voting and/or investment power within 60 days.
(3) Based in part on a Schedule 13D filed with the SEC on May 22, 2000 by
Fortress. The Schedule 13D indicates that Fortress beneficially owns
4,004,350 shares of Company Common Stock solely in its capacity as the sole
member of Fortress Brookdale Acquisition LLC. The address of Fortress is
1301 Avenue of the Americas, New York, New York 10019. Also includes shares
of Company Common Stock issuable upon conversion of the Convertible Note.
(4) Health Partners is the holder of the $100,000,000 5 1/2% Convertible
Subordinated Note due 2009 issued by the Company, which is convertible into
5,479,452 shares of Company Common Stock. The address of Health Partners is
54 Thompson Street, New York, New York 10012.
A-9
<PAGE> 25
(5) Based on a Schedule 13G/A filed with the SEC on June 12, 2000 by Goldman
Sachs Asset Management, a separate operating division of Goldman Sachs &
Co. ("GSAM"). The Schedule 13G/A indicates that GSAM (i) is an investment
advisor and (ii) beneficially owns 1,117,100 shares of Company Common
Stock. GSAM disclaims beneficial ownership of the shares of Company Common
Stock beneficially owned by (i) any client accounts with respect to which
it or its employees have voting or investment discretion, or both, and (ii)
certain investment entities, of which its affiliate is the general partner,
managing general partner or other manager, to the extent interests in such
entities are held by persons other than GSAM. The address of GSAM is 1 New
York Plaza, New York, New York 10004.
(6) Based on a Schedule 13G/A filed with the SEC on February 10, 2000 by
Delaware Management Holdings, Inc. and certain of its affiliates ("DMHI").
The Schedule 13G/A indicates that DMHI beneficially owns 952,500 shares of
Company Common Stock. The address of DMHI is 2005 Market Street,
Philadelphia, Pennsylvania 19103.
(7) Based on a Schedule 13G filed with the SEC on February 2, 2000 by Becker
Capital Management, Inc. ("BCMI"). The Schedule 13G indicates that BCMI
beneficially owns 783,450 shares of Company Common Stock. The Schedule 13G
indicates that the Company Common Stock is owned by advisory clients of
BCMI, and BCMI disclaims beneficial ownership of the Company Common Stock.
The address of BCMI is 1211 SW Fifth Avenue, Suite 2185, Portland, Oregon
97204.
(8) Based on a Schedule 13G filed with the SEC on February 15, 2000 by the
Commonwealth of Pennsylvania, Public School Employees Retirement System
("CoP"). The Schedule 13G indicates that CoP beneficially owns 629,600
shares of Company Common Stock. The address of CoP is 5 North 5th Street,
Harrisburg, Pennsylvania 17101.
(9) Includes 311,707 shares of Company Common Stock held directly by Mr.
Schulte and 143,251 shares issuable upon the exercise of stock options held
by Mr. Schulte that are exercisable as of or within 60 days of June 30,
2000.
(10) Includes 12,000 shares of Company Common Stock held directly by Mr.
Copeland and 197,500 shares issuable upon the exercise of stock options
held by Mr. Copeland that are exercisable as of or within 60 days of June
30, 2000. On December 6, 1999, Mr. Copeland resigned from the Company. Mr.
Copeland is included herein as a "named executive officer" pursuant to SEC
Regulation S-K, Item 402(a)(3)(iii).
(11) Includes 2,500 shares of Company Common Stock held directly by Mr. Boberg
and 5,750 shares issuable upon the exercise of stock options held by Mr.
Boberg that are exercisable as of or within 60 days of June 30, 2000.
(12) Includes 866 shares of Company Common Stock held directly by Dr. Gewertz
and 4,084 shares issuable upon the exercise of stock options held by Dr.
Gewertz that are exercisable as of or within 60 days of June 30, 2000.
(13) Includes 2,000 shares of Company Common Stock held directly by Mr.
Hartley-Leonard and 5,750 shares issuable upon the exercise of stock
options held by Mr. Hartley-Leonard that are exercisable as of or within 60
days of June 30, 2000.
(14) Includes 127,284 shares of Company Common Stock held directly by Mr. Rudnik
and 40,000 shares issuable upon the exercise of stock options held by Mr.
Rudnik that are exercisable as of or within 60 days of June 30, 2000.
(15) Includes 19,500 shares of Company Common Stock issuable upon the exercise
of stock options held by Mr. Beck that are exercisable as of or within 60
days of June 30, 2000.
(16) Includes 1,025 shares of Company Common Stock held directly by Mr. Whitlock
and 19,500 shares issuable upon the exercise of stock options held by Mr.
Whitlock that are exercisable as of or within 60 days of June 30, 2000.
(17) Includes 12,750 shares of Company Common Stock issuable upon the exercise
of stock options held by Mr. Young that are exercisable as of or within 60
days of June 30, 2000.
A-10
<PAGE> 26
(18) Includes 447,082 shares of Company Common Stock held directly or indirectly
by executive officers and directors as a group and 287,335 shares issuable
upon the exercise of stock options held by executive officers and directors
as a group that are exercisable as of or within 60 days of June 30, 2000.
COMPENSATION OF EXECUTIVE OFFICERS
Prior to the completion of its initial public offering on May 7, 1997, the
Company did not pay any compensation to its officers. The following table sets
forth the compensation earned for the period from May 7, 1997 to December 31,
1997 and for the years ended December 31, 1998 and December 31, 1999 with
respect to the named executive officers.
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ ------------ OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
--------------------------- ---- ---------- ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Mark J. Schulte...................... 1999 $266,667 $ 93,135(2) 10,000(3) $2,500
President and 1998 275,000 -- 49,500(4)(5) 2,500
Chief Executive Officer 1997 173,937 203 175,000(3) --
Darryl W. Copeland, Jr.(6)........... 1999 282,917 84,668(2) 10,000(4) 2,500
Executive Vice President and 1998 250,000 -- 45,000(4) 2,500
Chief Financial Officer 1997 159,134 150,100(7) 250,000(3) 2,375
Stephan T. Beck...................... 1999 158,334 49,851 1,000(4) 2,500
Senior Vice 1998 116,667 52,302 1,000(4) 2,112
President -- Operations 1997 63,252 12,150 25,000(4) 491
Robert J. Rudnik..................... 1999 179,167 30,239(2) -- --
Executive Vice President, 1998 141,667 25,000 35,000(4) --
General Counsel and Secretary 1997 50,903(8) 217 30,000(3) --
Matthew F. Whitlock.................. 1999 191,250 84,550 1,000(4) 2,500
Vice President -- Acquisitions 1998 95,000 260,340 1,000(4) 2,500
1997 60,087 116,651 25,000(3) 2,142
R. Stanley Young..................... 1999 214,167 14,167(2) 1,000(4) 2,500
Executive Vice President, 1998 101,846(9) -- 25,000(3) --
Chief Financial Officer and
Treasurer
</TABLE>
---------------
(1) Consists of annual Company matching contributions to the Brookdale Living
Communities, Inc. Retirement Savings Plan.
(2) Consists of amounts of principal and interest forgiven on promissory notes
issued in lieu of bonuses.
(3) Granted pursuant to the 1997 Stock Incentive Plan.
(4) Granted pursuant to the 1998 Stock Incentive Plan.
(5) Granted in lieu of a bonus to which the executive officer was entitled
pursuant to his Employment Agreement.
(6) On December 6, 1999, Mr. Copeland resigned from the Company.
(7) Mr. Copeland received a signing bonus of $150,000 from the Company in May
1997.
(8) Mr. Rudnik joined the Company in July 1997.
(9) Mr. Young joined the Company in August 1998.
A-11
<PAGE> 27
OPTION GRANTS IN 1999
The following table shows all options to purchase Company Common Stock
granted to each of the named executive officers of the Company in 1999. The
table also shows the potential value of such grants if the Company Common Stock
appreciates at compounded annual rates of 5% and 10% over the remaining term of
the option from the grant date stock price. The 5% and 10% rates of appreciation
based on the grant date stock price are required to be disclosed by the rules of
the SEC and are not intended to forecast potential future appreciation, if any,
in the price of the Company Common Stock. The Company did not use an alternative
present value formula permitted by the rules of the SEC because, in the
Company's view, potential future unknown or volatile factors result in there
being no such formula that can determine with reasonable accuracy the present
value of such option grants.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS ANNUAL RATES OF STOCK
-------------------------------------------------------- PRICE APPRECIATION
% OF TOTAL FOR OPTION TERM
OPTIONS/ SARS BASED ON GRANT
GRANTED TO EXERCISE OR DATE STOCK PRICE
OPTIONS/ SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH)(1) DATE 5%($) 10%($)
---- ------------- ------------- ----------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Mark J. Schulte.......... 10,000(2) 9.39% $14.28 05/20/09 $89,806 $227,586
Darryl W. Copeland,
Jr. ................... 10,000(3) 9.39 14.28 05/20/09 89,806 227,586
Stephan T. Beck.......... 1,000(2) 0.94 14.28 05/20/09 8,981 22,759
Robert J. Rudnik......... -- -- -- -- -- --
Matthew F. Whitlock...... 1,000(2) 0.94 14.28 05/20/09 8,981 22,759
R. Stanley Young......... 1,000(2) 0.94 14.28 05/20/09 8,981 22,759
</TABLE>
---------------
(1) Based on the average closing stock price for the five business days
preceding the grant date. The exercise price for the options is generally
payable in cash or, in certain circumstances, by the surrender, at fair
market value on the date on which the option is exercised, of shares of
Company Common Stock.
(2) Options vest, subject to certain conditions being met, at the rate of 25%
per year over four years following the grant date, commencing on the first
anniversary of the grant date.
(3) As a result of the termination of Mr. Copeland's employment with the Company
on December 6, 1999, all 10,000 options to purchase shares of Company Common
Stock were forfeited prior to such options becoming exercisable.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of Messrs.
Schulte and Whitlock. The agreements with Messrs. Schulte and Whitlock (the
"Employment Agreements") generally provide that each shall devote substantially
all of their business time to the operation of the Company. The term of the
Employment Agreement for Mr. Schulte has been automatically renewed to May 7,
2001, while the Employment Agreement for Mr. Whitlock provides for a term
expiring on January 31, 2001. The terms of the Employment Agreements are
automatically extended for one-year terms unless either the Company or the
executive officer provides the other with at least 30 days' prior written notice
that such term shall not be extended.
The Employment Agreement with Mr. Schulte provides for an annual bonus of
up to 100% of the base salary based on certain performance criteria. The
Employment Agreement with Mr. Whitlock provides for annual bonuses based on
certain performance criteria. If either of such Employment Agreements is
terminated by the Company "without cause" or, with respect to Mr. Schulte, due
to disability, the executive so terminated will be entitled to a lump sum
payment. With regard to Mr. Whitlock, such lump sum payment will be an amount
equal to six months' base salary. With regard to Mr. Schulte, he will receive a
lump sum payment equal to the base salary for one year plus a pro rata portion
of the annual bonus payable under his Employment Agreement. Mr. Schulte may
terminate his Employment Agreement and be entitled to approximately two times
his annual compensation and bonus in the event of a "change in control" of the
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<PAGE> 28
Company and, in connection therewith, a material diminution of his duties and
responsibilities or compensation. In the event Mr. Schulte voluntarily
terminates his employment with the Company "without good reason" or in the event
the Company terminates his employment "with cause," he will be subject to a non-
compete covenant that has a term of two years.
The Employment Agreements provide for base salaries of $350,000 for Mr.
Schulte and $200,000 for Mr. Whitlock.
COMPENSATION COMMITTEE REPORT
The Compensation Committee makes recommendations to the Company Board
concerning salary and bonus compensation and benefits for executive officers of
the Company. In addition, the Compensation Committee has the power and authority
to implement and administer the Company's Stock Incentive Plans. The current
members of the Compensation Committee are Dr. Gewertz and Messrs.
Hartley-Leonard, Warren and Edens.
The purpose of the Company's executive compensation programs is to attract
and retain highly qualified individuals while providing the economic incentive
necessary to achieve the Company's performance goals. The Company intends to
maintain executive compensation policies, plans and programs that will reward
executive officers, provide incentives for the achievement of the Company's
operating and financial objectives and, consequently, maximize stockholder
value. The Compensation Committee believes that, through their ownership of
equity interests in the Company (through ownership of Company Common Stock and
options), the financial interests of the Company's executive officers are
closely aligned with the financial interests of the Company's stockholders.
While the Compensation Committee will continue to evaluate the executive
compensation practices of the Company's industry peer group as an important
factor in determining executive compensation, the Company's achievement of its
performance goals and the contribution of executive officers to such achievement
will greatly influence whether the Company's compensation programs remain at or
exceed the median of its peer group. The peer group of companies identified by
the Compensation Committee is further described in the Performance Graph
presented below in this Proxy Statement.
The Company's executive compensation programs consist of the following
components:
(a) employment agreements with certain of its most senior executive
officers setting base salaries at fixed levels, subject to discretionary
increases determined by the Compensation Committee, and containing such
other provisions sufficient to attract and retain executive officers
capable of contributing to the Company's performance objectives;
(b) annual performance bonuses based on certain performance criteria;
(c) stock options with scheduled vesting periods to align the
interests of the executive officers with those of the Company's
stockholders; and
(d) participation in other benefit programs generally available to
Company employees.
BASE SALARIES
The Company has entered into Employment Agreements with Messrs. Schulte,
the Chairman of the Board, President and Chief Executive Officer of the Company,
and Whitlock, the Vice President-Acquisitions of the Company. Pursuant to his
Employment Agreement, Mr. Schulte's base salaries for the periods from January
1, 1999 to April 24, 1999 and from April 25, 1999 to December 31, 1999 were
$275,000 and $350,000 respectively. Pursuant to his Employment Agreement, Mr.
Whitlock's base salaries for the periods from January 1, 1999 to January 31,
1999 and from February 1, 1999 to December 31, 1999 were $95,000 and $200,000,
respectively. See "Employment Agreements." The Employment Agreement for Mr.
Copeland was terminated as of December 6, 1999. As provided in the Employment
Agreements, annual base salary increases may be made at the discretion of the
Compensation Committee based on individual performance reviews.
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<PAGE> 29
Other elements of the Employment Agreements that serve to retain such
senior executive officers include non-competition provisions that under certain
circumstances extend for a specified time beyond the term of employment. The
Employment Agreement of Mr. Schulte generally prohibits Mr. Schulte from
directly or indirectly competing with the business of the Company during the
term of employment and for a two-year period after termination "with cause" by
the Company or termination "without good reason" by Mr. Schulte. See "Employment
Agreements".
PERFORMANCE BONUSES
Performance bonuses for certain senior executive officers are contained in
their respective Employment Agreements. Mr. Schulte receives bonuses based on
the achievement of the Company's annual business plan as reflected in the
Company's audited financial statements. These bonuses may be no greater than
100% of his base salary. In addition, Mr. Schulte is eligible for discretionary
bonuses of no more than 20% of his base salary based on corporate or individual
performance goals that may be established by the Company Board or the
Compensation Committee from time to time. Mr. Whitlock is entitled to receive a
performance bonus based upon property acquisitions of the Company. Certain other
executive officers are eligible for performance bonuses based on the achievement
of certain performance goals. Pursuant to these bonus plans, Messrs. Beck and
Whitlock received performance bonuses of $49,851 and $84,550, respectively, in
1999. In lieu of the amounts due to Messrs. Schulte, Copeland, Rudnik and Young
as bonuses, the Company made loans to each in the amounts of $154,000, $140,000,
$50,000 and $23,425, respectively. As of December 31, 1999, interest and
principal payments in amounts equal to $93,135, $92,360, $30,239 and $14,167
were forgiven by the Company for each of Messrs. Schulte, Copeland, Rudnik and
Young, respectively.
STOCK OPTIONS
On May 20, 1999, the Company granted stock options to each of Messrs.
Schulte, Beck, Whitlock and Young, the other executive officers of the Company
and certain other key employees. Messrs. Schulte, Beck, Whitlock and Young were
granted options to purchase 10,000, 1,000, 1,000 and 1,000 shares of Company
Common Stock, respectively, under the 1997 Stock Incentive Plan and the 1998
Stock Incentive Plan. The options vest at the rate of 25% per year over four
years following the grant date, commencing on the first anniversary of the grant
date. The Compensation Committee believes the options granted under the Stock
Incentive Plans will continue to align the interests of the Company's executive
officers with those of the Company's stockholders by emphasizing long-term stock
ownership and increases in stockholder value.
OTHER BENEFITS
The Company has established the Brookdale Living Communities, Inc.
Retirement Savings Plan (the "401(k) Plan") for all employees of the Company
that meet minimum employment criteria. The 401(k) Plan provides that
participants may defer up to 15% of their eligible compensation on a pre-tax
basis subject to certain maximum amounts. The Company makes matching
contributions of 25% of the employees' contributions to the 401(k) Plan.
Employees' contributions vest immediately, while the Company's contributions
vest over five years.
COMPENSATION DEDUCTIBILITY POLICY
The Internal Revenue Code of 1986, as amended (the "Code"), limits the
ability of a publicly-held corporation such as the Company to deduct
compensation in excess of $1,000,000 per individual, other than certain
performance-based compensation. It is the Company's policy to take this rule
into account in setting the compensation of its affected executives. The Company
does not expect to be denied any deduction under Section 162(m) of the Code for
compensation paid during its taxable year ended December 31, 1999. The Stock
Incentive Plans were structured with the intention that compensation
attributable to options granted thereunder would not be subject to the Section
162(m) limitation. Based upon Department of Treasury regulations, bonuses
payable to the Company's executives under their present employment agreements
and compensation attributable to options granted under the Stock Incentive Plans
may be considered as compensation subject to the Section 162(m) limitation.
Accordingly, it is possible that in some future year
A-14
<PAGE> 30
some portion of the compensation to a Company executive will not be tax
deductible under Section 162(m). This will depend upon the market price of the
Company's shares on the date options are exercised and the number of options
exercised in any one taxable year.
COMPENSATION COMMITTEE
DR. BRUCE L. GEWERTZ
DARRYL W. HARTLEY-LEONARD
PAUL H. WARREN
WESLEY R. EDENS
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company Common Stock from May 2, 1997, the date the Company Common Stock began
trading on the Nasdaq National Market, through December 31, 1999, with the
cumulative total return of the S&P Composite--500 Stock Index, the Nasdaq
Composite Index, the Russell 2000 Index and the Company's Peer Group (as defined
below*). The stock price performance assumes an initial investment of $100.00 on
May 2, 1997 and the reinvestment of any dividends.
COMPARISON OF CUMULATIVE TOTAL RETURN
MAY 2, 1997 TO DECEMBER 31, 1999
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
DECEMBER 31,
MAY 2, ---------------------------
1997 1997 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Brookdale Living Communities, Inc. .................... $100.00 $150.00 $169.56 $107.60
Company's Peer Group................................... 100.00 139.14 138.89 37.47
S&P 500................................................ 100.00 122.56 157.59 190.74
Russell 2000 Index..................................... 100.00 128.56 125.29 151.92
NASDAQ Composite Index................................. 100.00 124.95 176.07 318.08
</TABLE>
---------------
* The Company's Peer Group is composed of selected assisted living companies.
These companies are Alterra Healthcare Corporation, American Retirement
Corporation, Assisted Living Concepts, Inc., ARV Assisted Living, Inc.,
Balanced Care Corporation, Carematrix Corporation, Capital Senior Living
Corporation, Emeritus Corporation, Grand Court Lifestyles, Inc., Greenbriar
Corporation, Regent Assisted Living, Inc. and Sunrise Assisted Living, Inc.
A-15
<PAGE> 31
OTHER INFORMATION
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of the ownership and changes in the
ownership (Forms 3, 4 and 5) with the SEC. Officers, directors and beneficial
owners of more than 10% of the Company's stock are required by SEC regulation to
furnish the Company with copies of all such forms that they file.
Based solely on the Company's review of the copies of Forms 3, 4 and 5 and
the amendments thereto received by it for the period ended December 31, 1999, or
written representations from certain reporting persons that no Forms 5 were
required to be filed by those persons, the Company believes that during the
period ended December 31, 1999, no reportable transactions were reported late
except that (a) Darryl W. Copeland, Jr. reported (i) the sale to the Company of
Mr. Copeland's option to purchase 100,000 shares of Company Common Stock from
Prime and (ii) the sale to the Company by Mr. Copeland of his option to purchase
25,000 shares of Company Common Stock from Prime Group, III, L.P. on December 7,
1999 on a Form 4 filed on February 14, 2000 and (b) Michael W. Reschke reported
the transfer from Prime Group Limited Partnership of 90,035 shares of Company
Common Stock to an affiliate, Prime Group II, L.P., on January 26, 1999 on a
Form 4 filed on May 10, 1999. With the following exceptions, based solely on the
Company's review of the copies of reports on Form 3, 4 or 5 and the amendments
thereto received by it for the period ended December 31, 1999, no reports on
Form 3, 4 or 5 required to be filed for such period were late other than one
Form 4 filed by each of Michael W. Reschke and Darryl W. Copeland, Jr. and one
Form 3 filed by each of John H. Mertz Jr., Katherine P. Erickson, Mark H. Tabak
and Paul H. Warren.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement
On May 7, 1997, the Company entered into a management agreement with an
affiliate of Prime ("Owner") with respect to the Island on Lake Travis facility.
The term of the management agreement has been automatically renewed to April 30,
2001 and automatically renews on an annual basis unless and until terminated.
The Company is paid a monthly fee of 5.0% of the gross revenues of such facility
for each month and reimbursement of expenses. The management agreement may be
terminated by Owner only for cause as set forth in the management agreement
during its initial term and upon 60 days' advance written notice at any time
after the expiration of the initial term or any renewal term. The Company may
terminate the management agreement at any time upon 60 days' advance notice.
Office Lease
On September 25, 1997, the Company entered into a five-year lease (the
"Office Lease"), which commenced October 1, 1997, for its corporate office with
77 West Wacker Limited Partnership (the "Landlord"), a partnership which is
currently owned by Prime Group Realty Trust, the publicly traded successor of
the office and industrial divisions of Prime. The original Office Lease provided
for the lease by the Company of approximately 13,500 square feet of office space
on the 48th floor, with base rent of $18.50 per square foot escalating at $0.75
per square foot at each anniversary of the commencement date. On October 2,
1997, in connection with the signing of the Office Lease, the Company received a
$404,000 cash payment from the Landlord for tenant improvements which are
amortized over the term of the Office Lease.
On March 17, 1998, the Company and the Landlord amended the Office Lease,
pursuant to which the Company and the Landlord agreed (i) to relocate the
Company's corporate office from the 48th floor to the 44th floor effective April
24, 1998, (ii) to increase the space leased by the Company to approximately
22,600 square feet and (iii) to extend the term of the Office Lease until April
30, 2005. The base rent under the amended Office Lease continued 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
A-16
<PAGE> 32
Lease, the Company received a $452,000 cash payment from the Landlord for tenant
improvements which are amortized over the term of the amended Office Lease.
On September 30, 1999, the Office Lease was amended, and the Office Lease
was terminated effective February 29, 2000. Also on September 30, 1999, the
Company entered into a ten-year office lease for approximately 30,000 square
feet of new corporate office space in a building owned by a partnership
controlled by Prime Group Realty Trust. The operating lease provides for the
payment of approximately $2,100,000 to the Company to pay certain tenant
improvement costs and requires the payment of base rent at $16.50 per square
foot, escalating $0.75 per square foot on each March 1 of the term commencing
March 1, 2000, plus operating expenses (as defined in the office lease). As of
March 1, 2000, the Company's corporate office is located at 330 North Wabash
Avenue, Suite 1400, Chicago, Illinois 60611 (and was formerly located at 77 West
Wacker Drive, Suite 4400, Chicago, Illinois 60601).
Insurance Brokerage and Risk Management Services with Thilman & Filippini, LLC
The Company has an ongoing business relationship with respect to insurance
brokerage and risk management services with Thilman & Filippini, LLC, a limited
liability company in which Thomas W. Filippini is an indirect member. Mr.
Filippini is the brother-in-law of Robert J. Rudnik, a Company Board member and
Executive Vice President, General Counsel and Secretary of the Company. Thilman
& Filippini, LLC receives commissions and fees in connection with the payment by
the Company of premiums on certain of its insurance policies arranged on behalf
of the Company and in connection with providing certain risk management services
for the Company.
Convertible Subordinated Note due 2009
On May 14, 1999, the Company closed the sale of the Convertible Note in a
private placement pursuant to a Note Purchase Agreement, dated as of April 27,
1999, between the Company and Health Partners, an investment vehicle sponsored
by Capital Z Financial Services Fund II, L.P. ("Cap Z"). The Convertible Note is
convertible at any time into shares of Company Common Stock at an initial
conversion price of $18.25 per share.
Pursuant to the Health Partners Stockholders Agreement entered into in
connection with the private placement of the Convertible Note, the Company
appointed to the Company Board Paul H. Warren, a partner of Cap Z, as a Class I
director, and Mark H. Tabak, a partner of Health Partners, as a Class II
director.
Fortress Stock Purchase Agreement
On May 18, 2000 Fortress completed the purchase of the Prime Shares,
covering 4,004,350 shares, or approximately 40.3% of the outstanding Company
Common Stock, at $15.00 per share pursuant to the Fortress Stock Purchase
Agreement. In connection with the Stock Purchase Agreement, the Health Partners
Stockholders Agreement was amended to provide, among other things, that
Purchaser be subject to the provisions thereof.
Mr. Reschke resigned from the Company Board and from his executive office
of the Company, and the Company appointed Wesley R. Edens, the Chief Executive
Officer of Fortress, as a Class III director of the Company Board, and William
B. Doniger, a member of the Operating Committee of Fortress, as a Class I
director of the Company Board.
Other Transactions
Wayne D. Boberg, a director of the Company, is a partner of the law firm of
Winston & Strawn, which has provided, and continues to provide, legal services
to the Company. As of the date of this Proxy Statement, Mr. Boberg owns 2,500
shares of Company Common Stock and has options to acquire an additional 8,000
shares of Company Common Stock.
Transactions between the Company and its officers, directors, stockholders
and their affiliates require the approval of the Committee of Independent
Directors of the Company Board.
A-17
<PAGE> 33
ANNEX B
Investment Banking
Corporate and Institutional
Client Group
World Financial Center
North Tower
New York, New York
10281-1330
[Merrill Lynch Logo] 212 449 1000
July 26, 2000
Committee of Independent Directors
Board of Directors
Brookdale Living Communities, Inc.
330 North Wabash Avenue
Suite 1400
Chicago, IL 60611
Gentlemen:
Brookdale Living Communities, Inc., a Delaware corporation (the "Company"),
Fortress Registered Investment Trust, a Delaware business trust (the
"Fortress"), Fortress Brookdale Acquisition LLC, a Delaware limited liability
company (the "Purchaser") owned by Fortress, Health Partner, a Bermuda exempted
partnership and certain of their respective affiliates, and FBZ Acquisition
Corp., a Delaware corporation and wholly owned subsidiary of the Purchaser (the
"Acquisition Sub"), propose to enter into an agreement (the "Agreement")
pursuant to which the Purchaser will make a tender offer (the "Offer") for any
and all shares of the Company's common stock, par value $0.01 per share, not
already owned by Purchaser (the "Shares"), at $15.25 per Share, net to the
seller in cash. The Offer is expected to commence on August 1, 2000. The
Agreement also provides that, following consummation of the Offer, the
Acquisition Sub will be merged with and into the Company in a transaction (the
"Merger") in which each remaining Share will be converted into the right to
receive $15.25, net in cash.
You have asked us whether, in our opinion, the proposed all cash
consideration to be received by the Company's stockholders (other than the
Purchaser and its affiliates) in the Offer and the Merger, taken as a whole, is
fair to such stockholders from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed certain publicly available business and financial
information relating to the Company that we deemed to be relevant;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets, liabilities and
prospects of the Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management and
representatives of the Company concerning the matters described in clauses
(1) and (2) above, as well as the Company's business and prospects before
and after giving effect to the Offer and Merger;
(4) Reviewed the market prices and valuation multiples for the common
stock of the Company and compared them with those of certain publicly
traded companies that we deemed to be relevant;
(5) Reviewed the historical and projected results of operations of the
Company;
(6) Compared the proposed financial terms of the Offer and Merger with
the financial terms of certain other transactions which we deemed to be
relevant;
(7) Reviewed the merger agreement, dated July 26, 2000, among the
Company, the Purchaser, the Acquiror and the Acquisition Sub (the "Merger
Agreement"); and
(8) Reviewed such other financial studies and analyses and took into
account such other matters as we deemed necessary, including our assessment
of general economic, market and monetary conditions.
B-1
<PAGE> 34
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available and have further
relied on the assurances of management of the Company that they are not aware of
any facts that would make such information inaccurate or misleading. In
connection with the preparation of this opinion, we have not been authorized by
the Company, the Board of Directors or its Committee of Independent Directors
(the "Independent Committee") to solicit, nor have we solicited third-party
indications of interest for the acquisition of the Company. We have not assumed
any responsibility for independently verifying such information or undertaken an
independent evaluation or appraisal of any of the liabilities of the Company or
been furnished with any such evaluation or appraisal. In addition, we have not
assumed any obligation to conduct any physical inspection of the properties or
facilities of the Company. With respect to the financial forecast information
furnished to or discussed with us by the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company. We express no opinion as to such financial forecast
information or the assumptions on which they were based.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on, and on the information made available to
us as of, the date hereof. We have assumed that the representations and
warranties of each party to the Merger Agreement and all related documents or
instruments contemplated thereby (collectively, the "Documents") are true and
correct, that each party to the Documents will perform all covenants and
agreements required to be performed by such party under the Documents and that
all conditions to the consummation of the Offer and Merger will be satisfied
without waiver thereof. We have also assumed that all necessary governmental,
regulatory or other consents and approvals (contractual or otherwise), if any,
will be obtained and that in the course of obtaining any such consents or
approvals, no restrictions will be imposed or amendments or modifications made
that would have a material adverse effect on the contemplated benefits of the
Offer and Merger to the Company.
We are acting as financial advisor to the Independent Committee in
connection with the Offer and Merger and will receive a fee from the Company for
our services, a portion of which fee is contingent upon the consummation of the
Offer and Merger. In addition, the Company has agreed to indemnify us for
certain liabilities arising out of our engagement. We have, in the past,
provided financial advisory and financial services to the Company and may
continue to do so and have received, and may receive, fees for the rendering of
such services. In addition, in the ordinary course of our business, we may
actively trade the shares of the Company's common stock for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in such securities.
This opinion is solely for the use and benefit of the Independent Committee
and the Board of Directors of the Company in its evaluation of the Offer and
Merger and shall not be used for any other purpose. Our opinion does not address
the merits of the underlying decision by the Company or the Purchaser to engage
in the Offer and Merger and we are not expressing any opinion herein as to the
prices at which any class of the Company's stock will trade following the
announcement or consummation of the Offer and Merger.
This opinion is not intended to be relied upon or confer any rights or
remedies upon any employee, creditor, stockholder or other equity holder of the
Company, or any other party. This opinion shall not be reproduced, disseminated,
quoted, summarized or referred to at any time, in any manner or for any purpose,
nor shall any public references to Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") or any of its affiliates be made by the Company,
the Purchaser or any of their affiliates, without the prior written consent of
Merrill Lynch.
B-2
<PAGE> 35
On the basis of and subject to the foregoing, we are of the opinion that,
as of the date hereof, the proposed all cash consideration to be received by the
Company's stockholders (other than the Purchaser and its affiliates), the Offer
and Merger, taken as a whole, is fair from a financial point of view to the
stockholders of the Company, other than Purchaser and its affiliates.
Very truly yours,
/s/ Merrill Lynch, Pierce,
Fenner & Smith Incorporated
B-3
