<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 20, 1998
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934
---------
LTC HEALTHCARE, INC.
(Exact Name of Registrant as Specified in its Charter)
NEVADA 91-1895305
(State of Incorporation or Organization) (I.R.S. Employer Identification No.)
300 ESPLANADE DRIVE, SUITE 1860
OXNARD, CALIFORNIA 93030
(Address, Including Zip Code, of Principal Executive Offices)
(805) 981-8655
(Registrant's Telephone Number, Including Area Code)
Common Stock, par value $.01 per share
(Title of Class)
---------
Securities to be registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Securities to be registered pursuant to Section 12(g) of the Act: None
- -------------------------------------------------------------------------------
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM ITEM CAPTION LOCATION IN INFORMATION STATEMENT
NO.
<C> <S> <C>
1. Business..................... "SUMMARY OF INFORMATION"; "THE
DISTRIBUTION-Background and Reasons
for the Distribution"; "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS";
"THE COMPANY" and "BUSINESS AND
PROPERTIES."
2. Financial Information........ "SUMMARY OF INFORMATION"; "RISK
FACTORS"; "PRO FORMA COMBINED
CAPITALIZATION"; "UNAUDITED PRO FORMA
FINANCIAL INFORMATION"; "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS"
and "FINANCIAL STATEMENTS."
3. Properties................... "BUSINESS AND PROPERTIES."
4. Security Ownership of
Certain Beneficial
Owners and Management....... "MANAGEMENT" and "SECURITIES OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
5. Directors and Executive
Officers.................... "SUMMARY OF INFORMATION"; "RISK
FACTORS"; "THE COMPANY" and
"MANAGEMENT."
6. Executive Compensation....... "MANAGEMENT-Executive Officer Compensation."
7. Certain Relationships
and Related Transactions.... "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS."
8. Legal Proceedings............ "BUSINESS AND PROPERTIES-Legal Proceedings."
9. Market Price of and
Dividends on the
Registrant's Common
Equity and Related
Stockholder Matters......... "SUMMARY OF INFORMATION"; "RISK
FACTORS-Dividend Policy" and "THE
DISTRIBUTION-Listing and Trading of
Company Common Stock; Dividend Policy."
10. Recent Sales of
Unregistered Securities..... None.
11. Description of
Registrant's Securities
to be Registered............ "HEALTHCARE ARTICLES OF INCORPORATION
AND BYLAWS" and "DESCRIPTION OF THE
COMPANY'S CAPITAL STOCK."
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ITEM ITEM CAPTION LOCATION IN INFORMATION STATEMENT
NO.
<C> <S> <C>
12. Indemnification of
Directors and Officers...... "MANAGEMENT-Indemnification
Agreements"; "HEALTHCARE ARTICLES OF
INCORPORATION AND
BYLAWS-Indemnification and Advancement
of Expenses" and "LIABILITY AND
INDEMNIFICATION OF OFFICERS AND
DIRECTORS OF THE COMPANY."
13. Financial Statements and
Supplementary Data.......... "SUMMARY OF INFORMATION"; "PRO FORMA
COMBINED CAPITALIZATION"; "UNAUDITED
PRO FORMA FINANCIAL INFORMATION";
"MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" and "FINANCIAL STATEMENTS."
14. Changes in and
Disagreements with
Accountants on
Accounting and Financial
Disclosure.................. None.
15. Financial Statements and
Exhibits....................
(a) Financial Statements and
Schedules................
(1) Financial Statements: "FINANCIAL STATEMENTS."
(b) Exhibits:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<C> <S>
3.1 Form of Amended and Restated Articles of
Incorporation of LTC Healthcare, Inc.
(included as Annex I to Information Sheet).
3.2 Form of Amended and Restated Bylaws of LTC
Healthcare, Inc. (included as Annex II to
Information Statement).
4.1* Form of Common Stock Certificate.
10.1 Form of 1998 Equity Participation Plan of
LTC Healthcare, Inc. (included as Annex III
to Information Statement).
10.2 Form of Intercompany Agreement.
10.3 Form of Distribution Agreement.
10.4 Form of Administrative Services Agreement.
10.5 Form of Tax Sharing Agreement.
10.6 Form of Indemnity Agreement.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
NUMBER
<C> <S>
10.7* Line of Credit with LTC Properties, Inc.
21.1 Subsidiaries of LTC Healthcare, Inc.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
- ------------------------------
</TABLE>
* To be filed by amendment.
3
<PAGE>
[LTC Letterhead and Logo]
___________, 1998
Dear Stockholder:
The Board of Directors of LTC Properties, Inc. ("LTC") has approved the
distribution (the "Distribution") to holders of LTC common stock, through a
special dividend, of the common stock of LTC Healthcare, Inc. ("Healthcare").
Healthcare was recently organized to pursue opportunities that are available
to those investors that are not restricted by the tax laws governing REITs or
influenced by public market perception.
The Board of Directors of LTC believes that the Distribution is in the
best interests of LTC stockholders. The completion of the Distribution will
permit LTC to concentrate on its core business. The Board of Directors of LTC
believes that the Distribution also will allow financial markets to better
understand and recognize the merits of the two businesses. The common stock
of LTC will continue to be listed on the New York Stock Exchange. Healthcare
initially intends to apply to have the shares of Healthcare common stock
approved for listing and trading on the Pacific Exchange.
If you are a holder of LTC common stock of record at the close of
business on _________, 1998, you will receive as a dividend 1/10 of a share
of Healthcare common stock for each share of LTC common stock you hold. Only
whole shares of Healthcare common stock will be issued. Stockholders who
would have otherwise received a fractional share of Healthcare common stock
will receive cash in lieu thereof. The Distribution will be a taxable
transaction to the stockholders of LTC. The Distribution is scheduled to
occur on or about _________, 1998. We expect to mail the Healthcare common
stock certificates and checks for cash in lieu of fractional shares shortly
thereafter. Stockholders of LTC on the record date should retain their LTC
share certificates which will continue to represent shares of LTC common
stock.
The enclosed Information Statement contains information about the
Distribution and about Healthcare. We urge you to read it carefully. Holders
of LTC common stock are not required to take any action to participate in the
Distribution. A stockholder vote is not required in connection with this
matter and, accordingly, your proxy is not being sought.
We are optimistic about the prospects for LTC and Healthcare and
appreciate your continued support.
Sincerely,
Andre C. Dimitriadis
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
LTC PROPERTIES, INC.
<PAGE>
INFORMATION STATEMENT
LTC HEALTHCARE, INC.
COMMON STOCK
This Information Statement (the "Information Statement") is being
furnished in connection with the distribution (the "Distribution") to holders
of common stock, par value $.01 per share ("LTC Common Stock"), of LTC
Properties, Inc., a Maryland corporation ("LTC"), of all of the outstanding
shares of common stock, par value $.01 per share ("Company Common Stock"), of
LTC Healthcare, Inc., a Nevada corporation ("Healthcare" or the "Company"),
that are held by LTC (approximately 99% of all outstanding shares of Company
Common Stock) pursuant to the terms of a Distribution Agreement to be entered
into between LTC and Healthcare (the "Distribution Agreement"). Healthcare
was organized to pursue opportunities that are available to those investors
that are not restricted by the tax laws governing REITs or influenced by
public market perception. See "RISK FACTORS"; "THE COMPANY" and "BUSINESS AND
PROPERTIES."
Shares of Company Common Stock will be distributed to holders of record
of LTC Common Stock as of the close of business on , 1998 (the "Record
Date"). Each such holder will receive 1/10 of a share of Company Common Stock
for each share of LTC Common Stock held on the Record Date. Only whole shares
of Healthcare common stock will be issued. Stockholders who would have
otherwise received a fractional share of Healthcare common stock will receive
cash in lieu thereof. The Distribution will be a taxable event to the
stockholders of LTC. See "THE DISTRIBUTION-Material Federal Income Tax
Consequences of the Distribution." The Distribution is scheduled to occur on
or about , 1998 (the "Distribution Date"). No consideration will be paid by
holders of LTC Common Stock for shares of Company Common Stock. See "THE
DISTRIBUTION-Manner of Effecting the Distribution."
There is no current trading market for the Company Common Stock,
although a "when issued" market may develop prior to the Distribution Date.
The Company initially intends to apply to have the shares of Company Common
Stock approved for listing and trading on the Pacific Exchange under the
symbol " ." See "THE DISTRIBUTION-Listing and Trading of Company Common
Stock; Dividend Policy."
------------------
NO STOCKHOLDER APPROVAL OF THE DISTRIBUTION IS REQUIRED OR SOUGHT.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED
NOT TO SEND US A PROXY.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS INFORMATION STATEMENT.
------------------
THIS INFORMATION STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
------------------
Stockholders of LTC with inquiries related to the Distribution
should contact Pamela J. Privett, Esq., Senior Vice President, General
Counsel and Secretary, LTC Properties, Inc., 300 Esplanade Drive, Suite 1860,
Oxnard, California 93030, telephone: (805) 981-3611; or LTC's stock transfer
agent, Harris Trust and Savings Bank, 311 West Monroe Street, Chicago,
Illinois 60606, telephone: (312) 360-8655. Harris Trust and Savings Bank is
also acting as distribution agent for the Distribution.
THE DATE OF THIS INFORMATION STATEMENT IS MAY 20, 1998.
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION ......................................................... 1
SUMMARY OF INFORMATION ........................................................ 2
RISK FACTORS .................................................................. 10
Recently Formed Entity; Lack of Independent Operating History ............... 10
Possible Conflicts with LTC After the Distribution .......................... 10
Failure of LTC to Qualify as a REIT Would Allow LTC to Compete with the
Company .................................................................... 11
Reliance on Major Operators ................................................. 11
Tax Consequences of the Distribution ........................................ 11
Dilution .................................................................... 12
Absence of Prior Trading Market for Company Common Stock; Potential
Volatility .................................................................. 12
Shares Eligible for Future Sale ............................................. 13
Potential Adverse Effects on LTC Common Stock of the Distribution ........... 13
Difficulty of Locating Suitable Investments; Competition .................... 13
Acquisition, Development, Construction and Renovation Activities ............ 14
Acquired Properties May Fail to Perform as Expected and Capital
Expenditures May Exceed Estimates ......................................... 14
Uncertainty of Cash Flow from Development, Construction and Renovation
Activities ................................................................ 14
Operating Risks ............................................................. 14
Potential Increases in Operating Costs ..................................... 14
Dependence on Rental Income from Real Property .............................. 14
Potential Adverse Consequences of Debt Financing ............................ 15
Use of Leverage Could Adversely Affect the Company ........................ 15
Inability to Repay or Refinance Indebtedness at Maturity; Foreclosures..... 15
Rising Interest Rates Could Increase the Company's Interest Expense ....... 15
Restrictive Covenants Could Adversely Affect the Company's Borrowings ..... 15
No Limitation on Debt ..................................................... 15
Equity Investments in and with Third Parties ................................ 16
Dependence on Third Parties ............................................... 16
Potential Lack of Control of Management ................................... 16
Potential Conflicts and Increased Bankruptcy, Liability and Other Risks.... 16
Illiquidity of Real Estate Investments ...................................... 16
Disadvantages of Investments in Debt Instruments ............................ 16
Dependence on Borrowers to Preserve Value of Collateral; Possibility of
Nonpayment ............................................................... 16
Unrated Debt Instruments .................................................. 17
Limited Remedies Upon Default of Mortgage Loans ............................. 17
Disadvantages of Investments in Commercial Mortgage-Backed Securities ....... 17
Investments in Commercial Mortgage-Backed Securities Subject to Real Estate
Risks Applicable to Underlying Properties ................................ 17
Credit Support for Commercial Mortgage-Backed Securities May Prove
Inadequate ............................................................... 17
Subordinated Securities May Not be Repaid Upon Default .................... 18
Limitations on Remedies Upon Default ........................................ 18
Third-Party Bankruptcy Risks ................................................ 18
Costs of Compliance with the Investment Company Act ......................... 18
Uninsured Losses ............................................................ 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Potential Environmental Liability Related to the Properties ................. 19
Hedging Policies/Risks ...................................................... 19
Dividend Policy ............................................................. 20
Certain Anti-Takeover Features Affecting a Change in Control of the Company.. 20
Dependence on Key Personnel ................................................. 20
THE DISTRIBUTION .............................................................. 21
Background and Reasons for the Distribution ................................. 21
Distribution Agent .......................................................... 22
Manner of Effecting the Distribution ........................................ 22
Results of the Distribution ................................................. 23
Material Federal Income Tax Consequences of the Distribution ................ 23
Listing and Trading of Company Common Stock; Dividend Policy ................ 28
Conditions; Termination ..................................................... 29
Reasons for Furnishing the Information Statement ............................ 29
RELATIONSHIP BETWEEN HEALTHCARE AND LTC AFTER THE DISTRIBUTION ................ 31
Distribution Agreement ...................................................... 31
Administrative Services Agreement ........................................... 31
Tax Sharing Agreement ....................................................... 32
Intercompany Agreement ...................................................... 32
Policies and Procedures for Addressing Conflicts ............................ 32
REGULATORY APPROVALS .......................................................... 33
PRO FORMA COMBINED CAPITALIZATION ............................................. 34
LTC HEALTHCARE, INC. UNAUDITED PRO FORMA FINANCIAL INFORMATION ................ 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS .................................................................. 39
Nature of Business .......................................................... 39
Liquidity and Capital Resources ............................................. 39
Operating Results ........................................................... 39
Statement Regarding Forward Looking Disclosure .............................. 40
THE COMPANY ................................................................... 41
General ..................................................................... 41
Intercompany Agreement ...................................................... 43
BUSINESS AND PROPERTIES ....................................................... 44
Initial Investments ......................................................... 44
Properties to Be Transferred to Healthcare Prior to the Distribution ........ 45
Equity Investments .......................................................... 54
Environmental Matters ....................................................... 54
Employees ................................................................... 55
Corporate Headquarters ...................................................... 55
Legal Proceedings ........................................................... 55
MANAGEMENT .................................................................... 56
Board of Directors .......................................................... 56
Committees of the Board of Directors ........................................ 56
Compensation of the Board of Directors ...................................... 57
Executive Officers .......................................................... 57
Executive Officer Compensation .............................................. 57
Healthcare 1998 Plan ........................................................ 58
Indemnification Agreements .................................................. 62
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ................................ 64
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT .............. 65
HEALTHCARE ARTICLES OF INCORPORATION AND BYLAWS ............................... 67
Authorized Stock ............................................................ 67
Directors ................................................................... 67
Liability for Monetary Damages .............................................. 67
Anti-Takeover Effect of Authorized But Undesignated Preferred Stock ......... 68
Indemnification and Advancement of Expenses ................................. 68
Amendment of the Company Articles and Bylaws ................................ 70
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK .................................... 71
General ..................................................................... 71
Common Stock ................................................................ 71
Preferred Stock ............................................................. 72
Nevada Anti-Takeover Legislation ............................................ 72
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY ........ 74
Indemnification for Director's and Officer's Liability ...................... 74
Restrictions on Interested Transactions ..................................... 75
INDEX TO FINANCIAL STATEMENTS ................................................. F-1
</TABLE>
ANNEX I - AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF LTC HEALTHCARE, INC.
ANNEX II - AMENDED AND RESTATED BYLAWS OF LTC HEALTHCARE, INC.
ANNEX III - THE 1998 EQUITY PARTICIPATION PLAN OF LTC HEALTHCARE, INC.
iii
<PAGE>
AVAILABLE INFORMATION
Healthcare has filed a Registration Statement on Form 10 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to the Company Common Stock. This Information
Statement does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information, reference is made hereby to the Registration Statement and such
exhibits and schedules. Statements contained herein concerning any documents
are not necessarily complete and, in each instance, reference is made to the
copies of such documents filed as exhibits to the Registration Statement.
Each such statement is qualified in its entirety by such reference. Copies of
these documents may be inspected without charge at the principal office of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Regional Offices of the Commission at Seven World Trade Center, Suite 1300,
New York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661, and copies of all or any part thereof may be obtained from
the Commission upon payment of the charges prescribed by the Commission.
Copies of this material also should be available through the Internet by
using "Quick Forms Lookup" at the SEC EDGAR Archive, the address of which is
http://www.sec.gov.
Following the Distribution, the Company will be required to comply with
the reporting requirements of the Exchange Act and will file annual,
quarterly and other reports with the Commission. The Company also will be
subject to the proxy solicitation requirements of the Exchange Act and,
accordingly, will furnish audited financial statements to its stockholders in
connection with its annual meetings of stockholders.
NO PERSON IS AUTHORIZED BY LTC OR THE COMPANY TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS INFORMATION
STATEMENT, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
1
<PAGE>
SUMMARY OF INFORMATION
THIS SUMMARY IS QUALIFIED BY THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS SET FORTH ELSEWHERE IN THIS INFORMATION STATEMENT. CAPITALIZED
TERMS USED BUT NOT DEFINED IN THIS SUMMARY ARE DEFINED ELSEWHERE IN THIS
INFORMATION STATEMENT. UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES IN
THIS INFORMATION STATEMENT TO THE COMPANY OR HEALTHCARE PRIOR TO CONSUMMATION
OF THE DISTRIBUTION INCLUDE THE ASSETS TO BE TRANSFERRED TO HEALTHCARE
PURSUANT TO THE DISTRIBUTION AGREEMENT, AND REFERENCES IN THIS INFORMATION
STATEMENT TO LTC INCLUDE ITS CONSOLIDATED SUBSIDIARIES.
THE DISTRIBUTION
Distributing Company ............... LTC Properties, Inc., a Maryland
corporation ("LTC"). Prior to the
Distribution, LTC will transfer to the
Company certain equity investments,
real properties and related assets and
liabilities currently held by LTC.
See "BUSINESS AND PROPERTIES."
Distributed Company ................ LTC Healthcare, Inc., a
recently-formed Nevada corporation
("Healthcare" or the "Company"). See
"THE COMPANY" and "BUSINESS AND
PROPERTIES."
Distribution Ratio ................. 1/10 of a share of Company
Common Stock for each share of LTC
Common Stock held on the Record Date,
plus cash in lieu of fractional
shares, if any.
Shares to be Outstanding
Following the Distribution......... Based on _________ shares of LTC Common
Stock outstanding on the Record Date,
approximately _________ shares of Company
Common Stock.
Record Date ........................ __________, 1998 (5:00 p.m. Eastern
Daylight Time).
Distribution Date .................. __________, 1998.
Mailing Date ....................... Certificates representing the shares
of Company Common Stock to be
distributed pursuant to the
Distribution will be delivered to the
Distribution Agent on the Distribution
Date. The Distribution Agent will
mail certificates representing the
shares of Company Common Stock to
holders of LTC Common Stock as soon as
practicable thereafter. Holders of LTC
Common Stock should not send stock
certificates to LTC, the Company or
the Distribution Agent. See "THE
DISTRIBUTION--Manner of Effecting the
Distribution."
Conditions to the Distribution ..... The Distribution is conditioned upon,
among other things, declaration of the
special dividend by the Board of
Directors of LTC (the "LTC Board").
The LTC Board has reserved the right
to waive any conditions to the
Distribution or, even if the
conditions to the Distribution are
satisfied, to abandon, defer or modify
the Distribution at any time prior to
the Distribution Date. See "THE
DISTRIBUTION--Conditions; Termination."
Reasons for the Distribution ....... LTC is a self-administered, self-managed
real estate investment trust ("REIT").
Because investors are seeking a
consistent and
2
<PAGE>
growing income stream from their REIT
investments, REITs are encouraged to
(i) grow recurring cash flow, known as
funds from operations ("FFO"), an
indicator of performance in the REIT
industry, (ii) maintain a low leverage
ratio (debt to total capitalization is
one measure used to determine the
relative risk of that cash flow
stream, as rising interest rates can
diminish FFO and impact dividends) and
(iii) make conservative investments as
evidenced by positive debt service
coverages or low per bed or per unit
investments in health care facilities.
As a result, REITs have generally
been hesitant to participate in
long-term, higher-risk projects or to
bring their leverage ratios to above
40.0%. In addition, the tax laws
governing REITs include limitations on
(i) the types of assets that REITs may
own and the time period that real
estate may be held, restricting REITs
from investing in operating companies,
equity securities, debt securities and
participating in short-term trading
opportunities, and (ii) the ability of
REITs to retain earnings, requiring
REITs to distribute 95.0% of net
taxable income, excluding capital
gains, each year. Further, because
gains on the sales of real estate are
not included in the calculation of
FFO, REITs are not given value for
buying properties that have
substantial long-term appreciation.
The LTC Board believes that
significant opportunities are
available to those investors that are
not restricted by the tax laws
governing REITs or influenced by
public market perception. Thus, the
LTC Board determined that it is in the
best interests of LTC and its
stockholders to organize the Company
to pursue such opportunities, to
transfer to the Company certain equity
investments, real properties and
related assets and liabilities
currently held by LTC, and to spin-off
the Company to the LTC stockholders.
The Distribution will enable investors
who own both LTC Common Stock and
Company Common Stock to participate in
the benefits of the REIT operations of
LTC and the non-REIT operations of the
Company. See "THE
DISTRIBUTION--Background and Reasons
for the Distribution."
The Company and LTC will enter into
the Intercompany Agreement as defined
below) on or prior to the Distribution
Date to provide each other with rights
to participate in certain
transactions. See "RISK
FACTORS--Possible Conflicts with LTC
After the Distribution"; "RELATIONSHIP
BETWEEN HEALTHCARE AND LTC AFTER THE
DISTRIBUTION--Policies and Procedures
for Addressing Conflicts" and "THE
COMPANY--Intercompany Agreement."
3
<PAGE>
Assets to be Transferred to
the Company ....................... The Company's investments as of the
date of this Information Statement
consist of convertible subordinated
debentures of Regent Assisted Living,
Inc. ("Regent") and shares of LTC
Common Stock. Prior to the
Distribution Date, LTC will transfer
to the Company a total of 12
properties and certain equity
investments. The properties to be
transferred to the Company represent
an aggregate of 1,187 beds in skilled
nursing facilities, an aggregate of
160 assisted living facility units and
20 units in an Alzheimer facility.
Based on leases in effect as of the
date of this Information Statement,
the Company presently expects that the
properties will generate approximately
$5.8 million in annual base rental
income for the next 12 months. Each
of these properties is subject to a
long-term, triple net lease, the
earliest of which expires in 2001. The
aggregate principal amount of Regent
debentures owned by the Company totals
$5 million, and the aggregate fair
market value of equity investments
owned by the Company or to be
transferred to the Company by LTC
prior to the Distribution Date totaled
approximately $1.6 million on April
30, 1998. Based on leases in effect
as of the date of this Information
Statement, the Company presently
expects that Karrington Health, Inc.,
Sun Healthcare Group, Inc. and
Integrated Health Services, Inc. will
be the Company's largest operators for
next 12 months, representing
approximately 44%, 36% and 15%,
respectively, of the Company's total
expected annual lease revenue for the
next 12 months. See "BUSINESS AND
PROPERTIES." See "THE
COMPANY--Business Strategy."
Federal Income Tax Consequences to
LTC Stockholders .................. The Distribution will be a taxable
event to LTC's stockholders for
Federal income tax purposes. The
amount of the Distribution received by
each LTC stockholder will be treated
as a dividend (i.e., as ordinary
income unless designated as a capital
gain dividend) to such stockholder to
the extent of such stockholder's pro
rata share of LTC's current and
accumulated earnings and profits. The
amount of the Distribution received by
each LTC stockholder that is not
treated as a dividend will first be
treated as a nontaxable return of
capital to the extent of such
stockholder's basis in his LTC Common
Stock, and then generally as a capital
gain. The amount of the Distribution
received by each LTC stockholder for
Federal income tax purposes will be
the fair market value of the Company
Common Stock received by such
stockholder as of the Distribution
Date. LTC will make a determination
of the fair market value of the
Company Common Stock as of the
Distribution Date. LTC will report the
amount of the Distribution received by
each stockholder to such stockholder
and to the Internal Revenue Service
(the "IRS") on IRS Form 1099-DIV.
There can be no
4
<PAGE>
assurance that the IRS or the courts
will agree with the amount determined
by LTC. LTC stockholders are urged to
consult their own tax advisors as to
the specific tax consequences to them
of the Distribution. See "THE
DISTRIBUTION--Material Federal Income
Tax Consequences of the Distribution."
Federal Income Tax
Consequences to LTC ............... LTC will recognize taxable gain as a
result of the transfer of certain
properties and assets to the Company
in exchange for additional shares of
Company Common Stock. Such gain will
be in an amount equal to the excess of
the fair market value of such Company
Common Stock plus any liabilities
assumed by the Company in the exchange
(as well as liabilities to which any
transferred assets are subject) over
LTC's adjusted tax basis in the
properties and assets transferred.
LTC will recognize gain upon the
Distribution equal to the excess, if
any, of the fair market value of the
Company Common Stock on the
Distribution Date over LTC's tax basis
in such stock (which will be equal to
the fair market value of the Company
Common Stock received on the transfer
of properties and assets described
above). See "THE
DISTRIBUTION--Material Federal Income
Tax Consequences of the Distribution."
Qualification of LTC as a REIT ..... LTC has made an election to be treated
as a REIT under Sections 856 through
860 of the Internal Revenue Code of
1986, as amended (the "Code"),
commencing with its taxable year ended
December 31, 1992. If LTC qualifies as
a REIT, under the Code it will
generally not be subject to federal
income tax on income distributed to
shareholders provided it distributes
at least 95% of its REIT taxable
income annually and satisfies other
organizational and operational
requirements. If LTC fails to qualify
as a REIT in any taxable year, LTC
will be subject to federal income tax
(including any applicable alternative
minimum tax) on its taxable income at
prevailing corporate rates, which
effectively would impose on LTC's
stockholders the "double taxation"
generally applicable to investment in
a corporation. LTC believes that it
was organized and has operated in such
a manner so as to qualify as a REIT,
and LTC intends to continue to operate
in such a manner, but no assurance can
be given that it has operated in a
manner so as to qualify, or will
operate in a manner so as to continue
to qualify, as a REIT.
Trading Market ..................... There is currently no public market
for the Company Common Stock. The
Company initially intends to apply to
have the Company Common Stock approved
for listing and trading on the Pacific
Exchange under the symbol " ____." See
"RISK FACTORS--Absence of Prior Trading
Market for Company Common Stock;
Potential Volatility" and "THE
DISTRIBUTION--Listing and Trading of
the Company Common Stock; Dividend
Policy."
5
<PAGE>
Distribution Agent and
Transfer Agent for the
Company Common Stock .............. Harris Trust and Savings Bank
Dividends .......................... The Company's dividend policy will be
established by the Board of Directors
of the Company (the "Company Board")
from time to time based on the results
of operations and financial condition
of the Company and such other business
considerations as the Company Board
considers relevant. The Company
presently intends to retain future
earnings to finance the growth and
development of its business; and,
therefore, the Company does not
currently anticipate paying any cash
dividends. Any future determination
relating to dividend policy will be
made at the discretion of the Company
Board. See "RISK FACTORS--Dividend
Policy" and "THE DISTRIBUTION--Listing
and Trading of Company Common Stock;
Dividend Policy."
Anti-Takeover Provisions ........... The Amended and Restated Articles of
Incorporation of the Company (the
"Company Articles") and the Amended
and Restated Bylaws of the Company
(the "Company Bylaws"), as well as
Nevada statutory law, contain
provisions that may have the effect of
discouraging an acquisition of control
of the Company not approved by the
Company Board. Such provisions include
Article II of the Company Articles
which authorizes the Company Board to
issue shares of preferred stock of the
Company, in one or more series,
without further action by Company
stockholders, and to establish the
rights and preferences (including the
convertibility of such shares of
preferred stock into Company Common
Stock) of any series of preferred
stock so issued. The Company's
stockholders have no right to take
action by written consent and, except
as otherwise required by law, are not
permitted to call special meetings of
stockholders. Any amendment of the
Company Bylaws by the stockholders or
certain provisions of the Company
Articles requires the affirmative vote
of at least 66 2/3% of the shares of
voting stock then outstanding. These
provisions have been designed to
enable the Company to develop its
business and foster its long-term
growth without disruptions caused by
the threat of a takeover not deemed by
the Company Board to be in the best
interests of the Company and its
stockholders. Such provisions also may
inhibit fluctuations in the market
price of the Company Common Stock that
could result from takeover attempts
and may also have the effect of
discouraging third parties from making
proposals involving an acquisition or
change of control of the Company,
although such proposals, if made,
might be considered desirable by a
majority of the Company's
stockholders. Such provisions could
further have the effect of making it
more difficult for third parties to
cause the replacement of the current
management of the Company without the
concurrence of the Company Board. See
"RISK FACTORS--Certain Anti-Takeover
Features Affecting a Change in Control
of the Company"; "HEALTHCARE ARTICLES
OF INCORPORATION AND
6
<PAGE>
BYLAWS" and "DESCRIPTION OF THE
COMPANY'S CAPITAL STOCK."
Risk Factors ....................... See "RISK FACTORS" for a discussion of
factors that should be considered in
connection with the Company Common
Stock received in the Distribution.
Relationship with LTC after
the Distribution .................. LTC will have no stock ownership in
the Company upon consummation of the
Distribution. For purposes of
governing certain ongoing
relationships between the Company and
LTC after the Distribution and to
provide for an orderly transition, the
Company and LTC have entered into or
will enter into certain agreements.
Such agreements include: (i) the
Distribution Agreement providing for,
among other things, the Distribution
and the division between the Company
and LTC of certain assets and
liabilities; (ii) an Administrative
Services Agreement, providing for
certain allocations of
responsibilities with respect to
employee compensation, benefits and
labor matters; (iii) a Tax Sharing
Agreement pursuant to which the
Company and LTC will agree to allocate
tax liabilities that relate to periods
prior to the Distribution Date; and
(iv) an Intercompany Agreement
providing the Company and LTC with
rights to participate in certain
transactions. See "RELATIONSHIP
BETWEEN HEALTHCARE AND LTC AFTER THE
DISTRIBUTION."
Policies and Procedures for
Addressing Conflicts .............. The Company and LTC intend to pursue
separate and distinct business
strategies to minimize potential
conflicts of interest between the two
companies. Nonetheless, the on-going
relationships between the Company and
LTC may present conflict situations
for certain officers and directors.
Certain persons will serve as officers
and/or directors of both the Company
and LTC, and also will own (or have
options or other rights to acquire) a
significant number of shares of common
stock in both companies. The Company
and LTC will adopt appropriate
policies and procedures on or prior to
the Distribution Date to be followed
by the Board of Directors of each
company to address potential
conflicts. Such procedures include
requiring the persons serving as
directors of both companies to abstain
from voting as directors with respect
to matters that present a significant
conflict of interest between the
companies. In addition, the
Intercompany Agreement to be entered
into by and between the Company and
LTC immediately prior to the
Distribution Date, will prohibit the
Company from engaging in certain
activities or making certain
investments unless LTC was first
offered the opportunity and declined
to pursue such activities or
investments. See "RISK
FACTORS-Possible Conflicts with LTC
After the Distribution"; "RELATIONSHIP
BETWEEN HEALTHCARE AND LTC
7
<PAGE>
AFTER THE DISTRIBUTION-Policies and
Procedures for Addressing Conflicts"
and "THE COMPANY-Intercompany
Agreement."
Interests of Certain Persons
in the Distribution ............... As of the Distribution Date, the
Company Board will consist of Andre C.
Dimitriadis, who is currently Chairman
of the Board and Chief Executive
Officer of LTC and who currently
serves in the same positions with the
Company, James J. Pieczynski, who is
currently President and Chief
Financial Officer of LTC and currently
serves as President, Chief Financial
Officer and Treasurer of the Company,
and Steven Stuart and Bary G. Bailey,
who are not affiliated with LTC. As
of the Distribution Date, the
executive officers of the Company will
include Mr. Dimitriadis, Mr.
Pieczynski, Christopher T. Ishikawa,
who is currently Senior Vice President
and Chief Investment Officer of LTC
and currently serves in the same
positions with the Company and Pamela
J. Privett, who is currently Senior
Vice President, General Counsel and
Secretary of LTC and currently serves
in the same positions with the
Company. See "MANAGEMENT."
Based solely on their ownership of LTC
Common Stock and options to acquire
LTC Common Stock as of March 31, 1998,
the executive officers and directors
of the Company will beneficially own
an aggregate of 102,781 shares, or
approximately 3.8% of the outstanding
Company Common Stock immediately
following the Distribution. In
addition, the executive officers and
directors of the Company will be
granted options to acquire 140,000
shares of Company Common Stock under
the 1998 Equity Participation Plan of
LTC Healthcare, Inc. (the "Healthcare
1998 Plan") upon consummation of the
Distribution. See "RISK
FACTORS-Control by Executive Officers
and Directors"; "MANAGEMENT-Healthcare
1998 Plan"; and "SECURITIES OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
8
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth selected financial data for the planned
real estate assets to be transferred from LTC to Healthcare (the "Healthcare
Asset Group") and should be read in conjunction with the Combined Financial
Statements of the Healthcare Asset Group included elsewhere in this document.
The financial data of the Healthcare Asset Group as of and for the three
months ended March 31, 1998 and 1997, in the opinion of management, includes
all normal recurring adjustments for a fair statement of the results for the
interim periods. The financial data for the each of the three years ended
December 31, 1997, 1996 and 1995 and as of December 31, 1997 and 1996 is
derived from the Healthcare Asset Group's financial statements for similar
periods, which are included elsewhere in this Information Statement and have
been audited by Ernst & Young LLP. All of the other financial data is
unaudited.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------
1998 1997 1997 1996 1995
------------ --------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues ........................ $ 749,800 $727,400 $ 2,887,800 $ 2,835,500 $2,829,200
Interest expense .......... 427,300 432,200 1,721,500 1,449,200 --
Depreciation .............. 195,800 195,800 783,000 783,000 783,000
Other expenses ............ 100 2,300 8,100 2,900 --
------------ -------- ------------ ----------- ----------
Total expenses ................... 623,200 630,300 2,512,600 2,235,100 783,000
Income before taxes .............. 126,600 97,100 375,200 600,400 2,046,200
Income taxes ..................... 49,200 38,500 145,700 233,200 794,600
Net income ....................... $ 77,400 $ 58,600 $ 229,500 $ 367,200 $1,251,600
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of depreciation . $ 18,316,400 N/A $ 18,458,500 $19,241,500 N/A
Total assets ..................... 18,581,800 N/A 18,662,100 19,479,900 N/A
Mortgage loans payable ........... 27,377,100 N/A 18,508,400 18,725,100 N/A
Total liabilities ................ 28,062,700 N/A 19,162,000 19,326,700 N/A
Investment by LTC Properties, Inc. $ (9,480,900) N/A $ (499,900) $ 153,200 N/A
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------
1998 1997 1997 1996 1995
------------ -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
PRO FORMA OPERATING DATA:
Revenues ....................... $ 1,705,700 N/A $ 6,710,700 N/A N/A
Interest expense ...... 1,117,500 N/A 4,482,400 N/A N/A
Depreciation .......... 433,800 N/A 1,735,000 N/A N/A
Other expenses ........ 310,900 N/A 1,251,300 N/A N/A
------------ -----------
Total expenses ................. 1,862,200 N/A 7,875,100 N/A N/A
Income before taxes ............ (156,500) N/A (758,000) N/A N/A
Income taxes ................... -- N/A -- N/A N/A
Net income ..................... $ (156,500) N/A $ (758,000) N/A N/A
PRO FORMA BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of depreciation $ 49,105,200 N/A N/A N/A N/A
Total assets ................... 66,408,000 N/A N/A N/A N/A
Mortgage loans payable ......... 51,079,400 N/A N/A N/A N/A
Total liabilities .............. 51,307,600 N/A N/A N/A N/A
Minority interest .............. 3,432,000 N/A N/A N/A N/A
Stockholders' equity ........... $ 11,668,400 N/A N/A N/A N/A
</TABLE>
9
<PAGE>
RISK FACTORS
This Information Statement contains forward-looking statements within the
meaning of the Securities Act of 1933, as amended (the "Securities Act").
Discussions containing such forward-looking statements may be found throughout
this Information Statement, including without limitation in the materials set
forth under "SUMMARY OF INFORMATION"; "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS"; "THE COMPANY" and "BUSINESS AND
PROPERTIES." Actual events or results may differ materially from those discussed
in the forward-looking statements as a result of various factors, including
without limitation the risk factors set forth below and the matters set forth in
this Information Statement generally.
RECENTLY FORMED ENTITY; LACK OF INDEPENDENT OPERATING HISTORY
The Company is a recently-formed entity with no prior operating history.
There can be no assurance that the Company will not encounter financial,
managerial or other difficulties as a result of its lack of operating history or
inability to rely on the financial and other resources of LTC. Currently the
Company has no external source of financing and the Company has not received any
commitment with respect to any funds needed in the future. The Company expects
to be able to access capital markets or to seek other financing, but there can
be no assurance that it will be able to do so at all or in amounts or on terms
acceptable to the Company.
POSSIBLE CONFLICTS WITH LTC AFTER THE DISTRIBUTION
As of the Distribution Date, the Company Board will consist of Andre C.
Dimitriadis, who is currently Chairman and Chief Executive Officer of LTC and
who serves in the same positions with the Company, James J. Pieczynski, who is
currently President and Chief Financial Officer of LTC and who serves in the
same positions with the Company, and Steven Stuart and Bary G. Bailey, who are
not affiliated with LTC. As of the Distribution Date, the executive officers of
the Company will include Mr. Dimitriadis, Mr. Pieczynski, Christopher T.
Ishikawa, who is currently Senior Vice President and Chief Investment Officer of
LTC and currently serves in the same positions with the Company and Pamela J.
Privett, who is currently Senior Vice President, General Counsel and Secretary
of LTC and currently serves in the same positions with the Company. See
"MANAGEMENT." None of the members of management of the Company is committed to
spending a particular amount of time on the Company's affairs, nor will any of
them devote his or her full time to the Company.
The Company and LTC have entered into certain agreements providing for
(i) the orderly separation of the Company and LTC and the making of the
Distribution, (ii) the sharing of certain facilities and services, and (iii) the
allocation of certain tax and other liabilities. Because the management of both
the Company and LTC will be largely the same following the Distribution,
conflicts may arise with respect to the operation and effect of these agreements
and relationships which could have an adverse effect on the Company if not
properly resolved. More specifically, members of the Board and senior
management of the Company and LTC may be presented with conflicts of interest
with respect to certain matters affecting the Company and LTC, such as the
determination of which company may take advantage of potential business
opportunities, decisions concerning the business focus of each company
(including decisions concerning the types of properties and geographic locations
in which such companies make investments), potential competition between the
business activities conducted, or sought to be conducted, by such companies
(including competition for properties and tenants), possible corporate
transactions (such as acquisitions), and other strategic decisions affecting the
future of such companies. Conflicts also may arise with respect to the
restriction on the Company's right to engage in certain activities or make
certain investments unless LTC was first offered the opportunity and declined
10
<PAGE>
to pursue such activities or investments (as described below). In this
regard, the Company and LTC will adopt appropriate policies and procedures on
or prior to the Distribution Date to be followed by the Board of Directors of
each company to address potential conflicts. Such procedures include
requiring the persons serving as directors of both companies to abstain from
voting as directors with respect to matters that present a significant
conflict of interest between the companies. The Intercompany Agreement
prohibits the Company from engaging in certain activities or making certain
investments unless LTC was first offered the opportunity and declined to
pursue such activities or investments. The Intercompany Agreement also
prohibits the Company from prepaying or causing to be prepaid any of its
mortgage loans provided by LTC which are securitized in REMIC transactions.
See "RELATIONSHIP BETWEEN HEALTHCARE AND LTC AFTER THE DISTRIBUTION--Policies
and Procedures for Addressing Conflicts" and "THE COMPANY--Intercompany
Agreement."
FAILURE OF LTC TO QUALIFY AS A REIT WOULD ALLOW LTC TO COMPETE WITH THE COMPANY
The Company and LTC will enter into the Intercompany Agreement on or
prior to the Distribution Date to provide each other with rights to
participate in certain transactions. See "THE COMPANY--Intercompany
Agreement." The Intercompany Agreement prohibits the Company from engaging in
certain activities or making certain investments unless LTC was first offered
the opportunity and declined to pursue such activities and investments. As a
REIT, LTC is required to focus principally on investment in certain real
estate assets and is prevented from owning certain assets and conducting
certain activities that would be inconsistent with its status as a REIT. If
LTC in the future should fail to qualify as a REIT, it would thereafter have
the ability to participate in a broader range of investments and activities
that are presented to it by the Company under the Intercompany Agreement. As
a result, LTC's ability to engage in non-REIT activities could (i)
significantly restrict the opportunities the Company may pursue, and/or (ii)
allow LTC to compete with the Company for non-REIT investments. Accordingly,
if LTC should fail to qualify as a REIT, that failure could have a material
adverse effect on the Company.
RELIANCE ON MAJOR OPERATORS
Based on leases in effect as of the date of this Information Statement, the
Company presently expects that Karrington Health, Inc., Sun Healthcare Group,
Inc. and Integrated Health Services, Inc. will be the Company's largest
operators for the year ended December 31, 1998, representing approximately 44%,
36% and 15%, respectively, of the Company's total expected annual lease revenue
for such period. See "BUSINESS AND PROPERTIES." The financial position of the
Company may be adversely affected by financial difficulties experienced by any
of such operators, or any other major operator of the Company, including a
bankruptcy, insolvency or general downturn in the business of any such operator,
or in the event any such operator does not renew its leases as they expire.
TAX CONSEQUENCES OF THE DISTRIBUTION
LTC will recognize gain for Federal income tax purposes as a result of the
transfer of certain properties and assets to the Company in exchange for
additional shares of Company Common Stock. Such gain will be in an amount equal
to the excess of the fair market value of the Company Common Stock received in
the exchange plus the amount of the liabilities assumed by Healthcare in the
exchange (as well as the liabilities to which any of the transferred assets are
subject) over LTC's tax basis in the properties and assets immediately prior to
the exchange. LTC's tax basis in the Company Common Stock received in such
exchange will be equal to the fair market value thereof at the time of such
exchange. LTC will recognize gain upon the Distribution equal to the excess, if
any, of the fair market value of the Company Common Stock on the Distribution
Date over LTC's adjusted tax basis in such
11
<PAGE>
stock. Because of the factual nature of the issue of the value of the Company
Common Stock received by LTC as a result of the transfer of assets and then
distributed by LTC, Latham & Watkins, tax counsel to the Company and LTC ("Tax
Counsel") is unable to render an opinion on the amount of gain recognized as a
result of these transactions. For a more detailed explanation, see "THE
DISTRIBUTION--Material Federal Income Tax Consequences of the Distribution."
The Distribution will be treated as a distribution, the amount of which
equals the value of the Company Common Stock distributed plus any cash in lieu
of fractional shares, and LTC stockholders will receive a basis in Company
Common Stock equal to the value thereof at the time of the Distribution. Because
of the factual nature of the issue of the value of the Company Common Stock
distributed, Tax Counsel is unable to render an opinion on it. The Distribution
will be taxable to LTC stockholders to the same extent as any other distribution
made by LTC to its stockholders. As long as LTC qualifies as a REIT,
distributions (including the Distribution) made to LTC's taxable U.S.
stockholders out of LTC's current or accumulated earnings and profits (and not
designated as capital gain dividends) will be taxable as ordinary income and,
for corporate stockholders, will not be eligible for the dividends received
deduction. Distributions in excess of current and accumulated earnings and
profits will not be taxable to LTC's taxable U.S. stockholders to the extent
they do not exceed the adjusted tax basis of the stockholder's shares of LTC
Common Stock, but rather will reduce the adjusted tax basis of such shares. To
the extent that distributions in excess of current and accumulated earnings and
profits exceed the adjusted tax basis of the stockholder's shares of LTC Common
Stock, such distributions generally will be taxable as capital gain. LTC will
make a determination of the fair market value of the Company Common Stock as of
the Distribution Date. LTC will report the amount of the Distribution received
by each stockholder to such stockholder and to the IRS on IRS Form 1099-DIV.
There can be no assurance that the IRS or the courts will agree with the amount
determined by LTC. For a more detailed explanation, see "THE
DISTRIBUTION--Material Federal Income Tax Consequences of the Distribution."
DILUTION
The Company may from time to time raise additional capital from the
issuance and sale of equity securities. Any such issuances may significantly
dilute the interests of the existing holders of Company securities, including
the Company Common Stock.
ABSENCE OF PRIOR TRADING MARKET FOR COMPANY COMMON STOCK; POTENTIAL VOLATILITY
There is no existing market for the Company Common Stock. Although the
Company initially intends to apply for listing and trading of the Company
Common Stock on the Pacific Exchange, no assurance can be given that an
active trading market for the Company Common Stock will develop following the
Distribution or, if developed, that any such market will be sustained. In
the absence of a public trading market, an investor may be unable to
liquidate his investment in the Company. Prices at which the Company Common
Stock may trade cannot be predicted. Nothing herein should be construed to
suggest that the trading price of LTC Common Stock at any point in time may
be used as a substitute for the trading price of Company Common Stock. The
prices at which the Company Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others,
the success of the Company's business, the depth and liquidity of the market
for the Company Common Stock, investor perception of the Company and its
assets, the Company's dividend policy, and general economic and market
conditions. The depth and liquidity of the market for the Company Common
Stock may be affected by the aggregate beneficial ownership by executive
officers and directors of the Company of approximately 8.3% of the Company
Common Stock immediately following the Distribution. See "--Control by
Executive Officers and Directors." The prices at which the Company
12
<PAGE>
Common Stock trades also may be affected by certain provisions of the Company
Articles and the Company Bylaws, as each will be in effect following the
Distribution, which may have an anti-takeover effect. See "--Certain
Anti-Takeover Features Affecting a Change in Control of the Company."
SHARES ELIGIBLE FOR FUTURE SALE
The approximately ________ shares of Company Common Stock distributed to
LTC stockholders in the Distribution will be freely transferable, except for
the shares distributed to persons who may be deemed to be "affiliates" of the
Company under the Securities Act. Such affiliates will be permitted to sell
their shares of Company Common Stock pursuant to Rule 144 under the
Securities Act beginning 90 days after the Distribution, subject to certain
volume limitations, manner of sale limitations, notice requirements and the
availability of current public information about the Company. In addition,
immediately following the Distribution, options to purchase 120,000 shares of
Company Common Stock will be granted to the Company's executive officers
under the Healthcare 1998 Plan. See "MANAGEMENT--Healthcare 1998 Plan."
Shares issued pursuant to the exercise of options granted under the
Healthcare 1998 Plan will be freely transferable without restriction,
subject, in the case of sales by affiliates, to compliance with Rule 144.
The Company is unable to estimate the number of shares that may be sold in
the future by its stockholders or the effect, if any, that sales of shares by
such stockholders will have on the market price of the Company Common Stock
prevailing from time to time. Sales of substantial amounts of Company Common
Stock, or the prospect of such sales, could adversely affect the market price of
the Company Common Stock.
POTENTIAL ADVERSE EFFECTS ON LTC COMMON STOCK OF THE DISTRIBUTION
After the Distribution, the LTC Common Stock will continue to be traded on
the New York Stock Exchange. As a result of the Distribution, the trading price
of LTC Common Stock is expected to be lower than the trading price of LTC Common
Stock prior to the Distribution to reflect the value of the assets transferred
to the Company. The combined trading prices of LTC Common Stock and Company
Common Stock after the Distribution may be less than, equal to or greater than
the trading prices of LTC Common Stock prior to the Distribution. In addition,
until the market has fully analyzed the operations of LTC without the Company's
assets, the price at which the LTC Common Stock trades may fluctuate
significantly.
DIFFICULTY OF LOCATING SUITABLE INVESTMENTS; COMPETITION
The Company was recently organized and has not, to date, began to seek
investments. Identifying, completing and acquiring real estate investments has
from time to time been highly competitive, and involves a high degree of
uncertainty. After the Distribution, the Company will be competing for
investments with many public and private real estate investment vehicles,
including financial institutions (such as mortgage banks, pension funds and
REITs) and other institutional investors, as well as individuals. There can be
no assurance that the Company will be able to locate and complete investments
which satisfy the Company's rate of return objective or realize upon their value
or that it will be able to fully invest its available capital.
Many of those with whom the Company will compete for investments are far
larger than the Company, may have greater financial resources than the Company
and may have management personnel with more experience than the officers of the
Company.
13
<PAGE>
ACQUISITION, DEVELOPMENT, CONSTRUCTION AND RENOVATION ACTIVITIES
ACQUIRED PROPERTIES MAY FAIL TO PERFORM AS EXPECTED AND CAPITAL
EXPENDITURES MAY EXCEED ESTIMATES. Acquisitions of properties entail general
investment risks associated with any real estate investment, including the risk
that investments will fail to perform as expected, that estimates of the cost of
improvements to bring an acquired property up to standards established for the
intended market position may prove inaccurate and the occupancy rates and rents
achieved may be less than anticipated.
UNCERTAINTY OF CASH FLOW FROM DEVELOPMENT, CONSTRUCTION AND RENOVATION
ACTIVITIES. Risks associated with the Company's development, construction and
renovation activities include the risks that: the Company may abandon
development opportunities after expending resources to determine feasibility;
construction and renovation costs of a project may exceed original estimates;
occupancy rates and rents at a newly completed property may not be sufficient to
make the property profitable; and development, construction, renovation and
lease-up may not be completed on schedule (including risks beyond the control of
the Company, such as weather or labor conditions or material shortages)
resulting in increased debt service expense and construction costs.
Development, construction and renovation activities also are subject to risks
relating to the inability to obtain, or delays in obtaining, all necessary
zoning, land-use, building, occupancy and other required governmental permits
and authorizations. These risks could result in substantial unanticipated
delays or expenses and, under certain circumstances, could prevent completion of
development, construction and renovation activities once undertaken, any of
which could adversely affect the financial condition and results of operations
of the Company. Properties under development or acquired for development may
generate little or no cash flow from the date of acquisition through the date of
completion of development and may experience operating deficits after the date
of completion. In addition, new development and renovation activities,
regardless of whether or not they are ultimately successful, typically require a
substantial portion of management's time and attention.
Any properties developed and renovated by the Company will be subject to
the risks associated with the ownership and operation of real estate described
elsewhere in this section entitled "RISK FACTORS."
OPERATING RISKS
POTENTIAL INCREASES IN OPERATING COSTS. If the properties of the Company,
the properties of those entities in which it invests or the properties of those
entities to which it will lend (collectively, the "Properties") do not generate
revenue sufficient to meet operating expenses, including debt service and
capital expenditures, the financial condition and results of operations of the
Company may be adversely affected. The Properties are subject to operating
risks common to the particular property type, any and all of which may adversely
affect occupancy or rental rates.
DEPENDENCE ON RENTAL INCOME FROM REAL PROPERTY
The Company's cash flow, results of operations and value of its assets
would be adversely affected if a significant number of operators of the
Properties failed to meet their lease obligations. The bankruptcy or insolvency
of a major operator may have an adverse effect on a property. At any time, an
operator also may seek protection under the bankruptcy laws, which could result
in rejection and termination of such operator's lease and thereby cause a
reduction in the cash flow of the property. If an operator rejects its lease,
the owner's claim for breach of the lease would (absent collateral securing the
claim) be treated as a general unsecured claim. Generally, the amount of the
claim would be capped at the amount owed for unpaid pre-petition lease payments
unrelated to the rejection, plus the greater of one year's lease payments or
15.0% of the remaining lease payments payable under the lease (but not to
14
<PAGE>
exceed the amount of three years' lease payments). No assurance can be given
that the Properties will not experience significant operator defaults in the
future.
POTENTIAL ADVERSE CONSEQUENCES OF DEBT FINANCING
USE OF LEVERAGE COULD ADVERSELY AFFECT THE COMPANY. Some of the Company's
real estate equity investments may utilize a leveraged capital structure, in
which case a third party lender would be entitled to cash flow generated by such
investments prior to the Company receiving a return. As a result of such
leverage, the Company would be subject to the risks normally associated with
debt financing, including the risk that cash flow from operations and
investments will be insufficient to meet required payments of principal and
interest, the risk that existing debt (which in most cases will not have been
fully amortized at maturity) will not be able to be refinanced or that the terms
of such refinancings will not be as favorable to the Company, and the risk that
necessary capital expenditures for such purposes as renovations and other
improvements will not be able to be financed on favorable terms or at all.
While such leverage may increase returns or the funds available for investment
by the Company, it also will increase the risk of loss on a leveraged
investment. If the Company defaults on secured indebtedness, the lender may
foreclose and the Company could lose its entire investment in the security for
such loan. Because the Company may engage in portfolio financings where several
investments are cross-collateralized, multiple investments may be subject to the
risk of loss. As a result, the Company could lose its interests in performing
investments in the event such investments are cross-collateralized with poorly
performing or nonperforming investments. In addition, recourse debt, which the
Company reserves the right to obtain, may subject other assets of the Company to
risk of loss.
INABILITY TO REPAY OR REFINANCE INDEBTEDNESS AT MATURITY; FORECLOSURES.
The Company anticipates that only a portion of the principal of the Company's
indebtedness outstanding from time to time will be repaid prior to maturity.
However, the Company may not have sufficient funds to repay such indebtedness at
maturity; it may therefore be necessary for the Company to refinance debt
through additional debt financing or equity offerings. If the Company is unable
to refinance this indebtedness on acceptable terms, the Company may be forced to
dispose of properties or other assets upon disadvantageous terms, which could
result in losses to the Company and adversely affect the amount of cash
available for further investment.
RISING INTEREST RATES COULD INCREASE THE COMPANY'S INTEREST EXPENSE. The
Company may incur indebtedness in the future that bears interest at a variable
rate or may be required to refinance its debt at higher rates. Accordingly,
increases in interest rates could increase the Company's interest expense and
adversely affect the financial condition and results of operations of the
Company.
RESTRICTIVE COVENANTS COULD ADVERSELY AFFECT THE COMPANY'S BORROWINGS.
Various credit facilities or other debt obligations may require the Company to
comply with a number of financial and other covenants on an ongoing basis.
Failure to comply with such covenants may limit the Company's ability to borrow
funds or may cause a default under its then-existing indebtedness.
NO LIMITATION ON DEBT. The organizational documents of the Company do not
contain any limitation on the amount of indebtedness the Company may incur. The
Company also has the ability to use a more highly leveraged business strategy
than typically used by REITs. Accordingly, the Company could become highly
leveraged, resulting in an increase in debt service that could increase the risk
of default on the Company's indebtedness.
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EQUITY INVESTMENTS IN AND WITH THIRD PARTIES
DEPENDENCE ON THIRD PARTIES. The Company may invest in shares of REITs,
health care companies or other entities that invest in real estate or health
care assets, including debt instruments and equity interests. In such cases,
the Company will be relying on the assets, investments and management of the
REIT or other entity in which it is investing. Such entities and their
properties will be subject to the other risks affecting the ownership and
operation of real estate and investment in debt set forth in this section
entitled "RISK FACTORS."
POTENTIAL LACK OF CONTROL OF MANAGEMENT. The Company also may co-invest
with third parties through partnerships, joint ventures or other entities,
acquiring non-controlling interests in or sharing responsibility for managing
the affairs of a property, partnership, joint venture or other entity and,
therefore, will not be in a position to exercise sole decision-making authority
regarding the property, partnership, joint venture or other entity.
POTENTIAL CONFLICTS AND INCREASED BANKRUPTCY, LIABILITY AND OTHER RISKS.
Investments in partnerships, joint ventures or other entities may, under certain
circumstances, involve risks not present were a third party not involved,
including the possibility that the Company's partners or co-venturers might
become bankrupt or otherwise fail to fund their share of required capital
contributions, that such partners or co-venturers might at any time have
economic or other business interests or goals which are inconsistent with the
business interests or goals of the Company, and that such partners or
co-venturers may be in a position to take action contrary to the instructions or
the requests of the Company and contrary to the Company's policies or
objectives. Such investments also may have the potential risk of impasse on
decisions, such as a sale, because neither the Company nor the partner or
co-venturer would have full control over the partnership or joint venture.
Consequently, actions by such partner or co-venturer might result in subjecting
properties owned by the partnership or joint venture to additional risk. In
addition, the Company may in certain circumstances be liable for the actions of
its third-party partners or co-venturers.
ILLIQUIDITY OF REAL ESTATE INVESTMENTS
Equity and debt investments in real estate may be relatively illiquid.
Such illiquidity limits the ability of the Company to modify its portfolio in
response to changes in economic or other conditions and may have a material
adverse effect on the Company. Illiquidity may result from the absence of an
established market for the investments as well as legal or contractual
restrictions on their resale by the Company.
DISADVANTAGES OF INVESTMENTS IN DEBT INSTRUMENTS
DEPENDENCE ON BORROWERS TO PRESERVE VALUE OF COLLATERAL; POSSIBILITY OF
NONPAYMENT. The Company may originate debt investments and may acquire
performing or nonperforming debt investments. In general, debt instruments
carry the risk that borrowers may not be able to make debt service payments or
to pay principal when due, the risk that the value of any collateral may be less
than the amounts owed, the risk that interest rates payable on the debt
instruments may be lower than the Company's cost of funds, and the risk that the
collateral may be mismanaged or otherwise decline in value during periods in
which the Company is seeking to obtain control of the underlying real estate.
The Company is also dependent on the ability of the borrowers to operate
successfully their properties. Such borrowers and their properties will be
subject to the other risks affecting the ownership and operation of real estate
set forth in this section entitled "RISK FACTORS." Some of the loans may be
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structured so that all or a substantial portion of the principal will not be
paid until maturity, which increases the risk of default at that time.
UNRATED DEBT INSTRUMENTS. It is anticipated that a substantial portion of
the debt in which the Company invests will not be rated by any
nationally-recognized rating agency. Generally, the value of unrated classes is
more subject to fluctuation due to economic conditions than rated classes. The
Company's acquisition of credit supported classes of securitizations (which
generally are expected to be first loss classes) which are unrated at the time
of acquisition and which have lower ratings may increase the risk of nonpayment
or of a significant delay in payments on these classes. Should rated assets be
downgraded, it may adversely affect their value and the Company.
LIMITED REMEDIES UPON DEFAULT OF MORTGAGE LOANS
To the extent the Company invests in mortgage loans, such mortgage loans
may or may not be recourse obligations of the borrower and generally will not be
insured or guaranteed by governmental agencies or otherwise. In the event of a
default under such obligations, the Company may have to foreclose its mortgage
or protect its interest by acquiring title to a property and thereafter making
substantial improvements or repairs in order to maximize the property's
investment potential. Borrowers may contest enforcement of foreclosure or other
remedies, seek bankruptcy protection against such enforcement and/or bring
claims for lender liability in response to actions to enforce mortgage
obligations. Relatively high "loan-to-value" ratios and declines in the value
of the property may prevent the Company from realizing an amount equal to its
mortgage loan upon foreclosure.
The Company may participate in loans originated by other financing
institutions. As a participant, the Company may not have the sole authority to
declare a default under the mortgage or to control the property or any
foreclosure.
Any investments in junior mortgage loans which are subordinate to liens of
senior mortgages would involve additional risks, including the lack of control
over the collateral and any related foreclosure proceeding. In the event of a
default on a senior mortgage, the Company may make payments to prevent
foreclosure on the senior mortgage without necessarily improving the Company's
position with respect to the subject real property. In such event, the Company
would be entitled to share in the proceeds only after satisfaction of the
amounts due to the holder of the senior mortgage.
DISADVANTAGES OF INVESTMENTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES
INVESTMENTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES SUBJECT TO REAL ESTATE
RISKS APPLICABLE TO UNDERLYING PROPERTIES. The Company may seek to invest in
real estate-related debt instruments, which may include commercial
mortgage-backed securities. Many of the risks of investing in commercial
mortgage-backed securities reflect the risks of investing directly in the real
estate securing the underlying mortgage loans. This may be especially true in
the case of commercial mortgage securities secured by, or evidencing an interest
in, a single commercial mortgage loan or a relatively small or less diverse pool
of commercial mortgage loans. See "--Disadvantages of Investments in Mortgage
Loans."
CREDIT SUPPORT FOR COMMERCIAL MORTGAGE-BACKED SECURITIES MAY PROVE
INADEQUATE. The risks of investing in commercial mortgage-backed securities
include risks that the existing credit support will prove to be inadequate,
either because of unanticipated levels of losses or, if such credit support is
provided by a third party, because of difficulties experienced by such provider.
Delays or difficulties encountered in servicing commercial mortgage-backed
securities may cause greater losses and, therefore,
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greater resort to credit support than was originally anticipated, and may cause
a rating agency to downgrade a security.
SUBORDINATED SECURITIES MAY NOT BE REPAID UPON DEFAULT. The Company may
acquire subordinated tranches of commercial mortgage-backed securities
issuances. In general, subordinated tranches of commercial mortgage-backed
securities are entitled to receive repayment of principal only after all
principal payments have been made on more senior tranches and also have
subordinated rights as to receipt of interest distributions. In addition, an
active secondary market for such subordinated securities is not as well
developed as the market for certain other mortgage-backed securities.
Accordingly, such subordinated commercial mortgage-backed securities may have
limited marketability and there can be no assurance that a more efficient
secondary market will develop.
LIMITATIONS ON REMEDIES UPON DEFAULT
Although the Company will have certain contractual remedies upon the
default by borrowers under certain debt instruments, such as foreclosing on the
underlying real estate or collecting rents generated therefrom, certain legal
requirements (including the risks of lender liability) may limit the ability of
the Company to effectively exercise such remedies.
The right of a mortgage lender to convert its loan position into an equity
interest may be limited or prevented by certain common law or statutory
provisions.
THIRD-PARTY BANKRUPTCY RISKS
Investments made in assets operating in workout modes or under Chapter 11
of the Bankruptcy Code could be subordinated or disallowed, and the Company
could be liable to third parties in such circumstances. Furthermore,
distributions made to the Company in respect of such investments could be
recovered if any such distribution is found to be a fraudulent conveyance or
preferential payment. Bankruptcy laws, including the automatic stay imposed
upon the filing of a bankruptcy petition, may delay the ability of the Company
to realize on collateral for loan positions held by it or may adversely affect
the priority of such loans through doctrines such as equitable subordination or
may result in a restructure of the debt through principles such as the
"cramdown" provisions of the bankruptcy laws.
COSTS OF COMPLIANCE WITH THE INVESTMENT COMPANY ACT
The Company is currently not registered as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"), since
management believes that the Company either is not within the definition of
"investment company" thereunder or, alternatively, is excluded from regulation
under the Investment Company Act by one or more exemptions. In the future, the
Company will seek to continue to conduct its operations so as to avoid
registration under the Investment Company Act. Therefore, the assets that the
Company may acquire or sell may be limited by the provisions of the Investment
Company Act. If the Company were to become an investment company under the
Investment Company Act and if it failed to qualify for an exemption thereunder,
it would be unable to conduct its business as presently conducted which could
have a material adverse effect on the Company and the market price for the
Company Common Stock.
UNINSURED LOSSES
The Company will carry comprehensive liability, fire, extended coverage and
rental loss insurance with respect to all of the properties that it owns, with
policy specifications, insured limits and
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deductibles customarily carried for similar properties. There are, however,
certain types of losses (such as losses arising from acts of war or relating to
pollution) that are not generally insured because they are either uninsurable or
not economically insurable. Should an uninsured loss or a loss in excess of
insured limits occur, the Company could lose its capital invested in a property,
as well as the anticipated future revenue from such property and would continue
to be obligated on any mortgage indebtedness or other obligations related to the
property. Any such loss would adversely affect the financial condition and
results of operations of the Company.
With respect to those properties in which the Company holds an interest
through a mortgage, as well as those properties owned by entities to whom the
Company makes unsecured loans, the borrowers will most likely be obligated to
maintain insurance on such properties and to arrange for the Company to be
covered as a named insured on such policies. The face amount and scope of such
insurance coverage may be less comprehensive than the Company would carry if it
held the fee interest in such property. Accordingly in such circumstances, or
in the event that the borrowers fail to maintain required coverage, uninsured or
underinsured losses may occur, which could have an adverse impact on the
Company's cash flow or financial condition.
POTENTIAL ENVIRONMENTAL LIABILITY RELATED TO THE PROPERTIES
Under various Federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
These laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's
liability therefor as to any property is generally not limited under such
enactments and could exceed the value of the property and/or the aggregate
assets of the owner. The presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
sell or rent such property or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at a disposal or treatment facility, whether or not such facility is
owned or operated by such persons. Certain environmental laws govern the
removal, encapsulation or disturbance of asbestos-containing materials ("ACMs")
when such materials are in poor condition, or in the event of renovation or
demolition. Such laws impose liability for release of ACMs into the air and
third parties may seek recovery from owners or operators of real properties for
personal injury associated with ACMs. The operation and subsequent removal of
certain underground storage tanks also are regulated by Federal and state laws.
In connection with the ownership (direct or indirect), operation, management and
development of real properties, the Company may be considered an owner or
operator of such properties or as having arranged for the disposal or treatment
of hazardous or toxic substances, and, therefore, potentially liable for removal
or remediation costs, as well as certain other related costs, including
governmental fines and injuries to persons and property. See "BUSINESS AND
PROPERTIES-Environmental Matters."
HEDGING POLICIES/RISKS
In connection with the financing of certain real estate investments, the
Company may employ hedging techniques designed to protect the Company against
adverse movements in currency and/or interest rates. While such transactions
may reduce certain risks, such transactions themselves may entail certain other
risks. Thus, while the Company may benefit from the use of these hedging
mechanisms generally, unanticipated changes in interest rates, securities
prices, or currency exchange rates may result in a poorer overall performance
for the Company than if it had not entered into such hedging transactions. See
"THE COMPANY-Financing Policies."
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DIVIDEND POLICY
The future payment of dividends by the Company will depend on decisions
that will be made by the Company Board from time to time based on the results of
operations and financial condition of the Company and such other business
considerations as the Company Board considers relevant. The Company presently
anticipates that it will retain all available funds for use in the operation and
expansion of its business and does not anticipate paying any dividends in the
foreseeable future. See "THE DISTRIBUTION-Listing and Trading of Company Common
Stock; Dividend Policy."
In addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many companies and which
have at times been unrelated to the operating performance of the specific
companies whose stock is traded. Broad market fluctuations and general economic
conditions may adversely affect the market price of the Company Common Stock.
CERTAIN ANTI-TAKEOVER FEATURES AFFECTING A CHANGE IN CONTROL OF THE COMPANY
Upon consummation of the Distribution, certain provisions of the Company
Articles and the Company Bylaws, along with certain provisions of Nevada
statutory law, could discourage potential acquisition proposals and could delay
or prevent a change in control of the Company. Such provisions include Article
II of the Company Articles which authorizes the Company Board to issue shares of
preferred stock of the Company, in one or more series, and to establish the
rights and preferences (including the convertibility of such shares of preferred
stock into shares of Company Common Stock) of any series of preferred stock so
issued. The Company's stockholders have no right to take action by written
consent and are, except as otherwise required by law, not permitted to call
special meetings of stockholders. Any amendment of the Company Bylaws by the
stockholders or certain provisions of the Company Articles requires the
affirmative vote of at least 66 2/3% of the shares of voting stock then
outstanding. Such provisions could diminish the opportunities for a stockholder
to participate in tender offers, including tender offers at a price above the
then current market value of the Company Common Stock. Such provisions also may
inhibit fluctuations in the market price of the Company Common Stock that could
result from takeover attempts and could discourage an acquisition attempt or
other transaction that some or a majority of stockholders might believe to be in
their best interests. Such provisions could further have the effect of making
it more difficult for third parties to cause the replacement of the current
management of the Company without the concurrence of the Company Board. See
"HEALTHCARE ARTICLES OF INCORPORATION AND BYLAWS."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent on the efforts of its executive officers and other
key personnel. While the Company believes that it could find replacements for
these persons, the loss of their services could have a temporary adverse effect
on the operations of the Company. None of the Company's executive officers or
other key personnel has an employment agreement with the Company. There can be
no assurance that the Company will be able to retain these persons or to attract
suitable replacements or additional personnel if required. The Company has not
obtained key-man insurance for any of its executive officers or other key
personnel.
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THE DISTRIBUTION
BACKGROUND AND REASONS FOR THE DISTRIBUTION
LTC is a self-administered, self-managed REIT which invests in long-term
care facilities through mortgage loans, facility lease transactions and other
investments. To a large extent, public REITs, including LTC, manage their
property portfolios with consideration to both public market perceptions and tax
laws. Because investors are seeking a consistent and growing income stream from
their REIT investments, REITs are encouraged to (i) grow FFO, (ii) maintain a
low leverage ratio (debt to total capitalization is one measure used to
determine the relative risk of that cash flow stream, as rising interest rates
can diminish FFO and impact dividends) and (iii) make conservative investments
as evidenced by positive debt service coverages or low per bed or per unit
investments in health care facilities. As a result, REITs have generally been
hesitant to participate in long-term, higher-risk projects or to bring their
leverage ratios to above 40.0%. In addition, the tax laws governing REITs
include limitations on (i) the types of assets that REITs may own and the time
period that real estate may be held, restricting REITs from investing in
operating companies, equity securities, debt securities and participating in
short-term trading opportunities, and (ii) the ability of REITs to retain
earnings, requiring REITs to distribute 95.0% of net taxable income, excluding
capital gains, each year. Further, because gains on the sales of real estate
are not included in the calculation of FFO, REITs are not given value for buying
properties that have substantial long-term appreciation. Thus, the LTC Board
determined that it is in the best interests of LTC and its stockholders to
organize the Company to pursue opportunities available to those investors that
are not restricted by the Federal income tax laws governing REITs or influenced
by public market perception with regard to REIT securities, to transfer to the
company certain equity investments, real properties and related assets and
liabilities currently held by LTC, and to spin-off the Company to the LTC
stockholders. The Distribution will enable investors who own both LTC Common
Stock and Company Common Stock to participate in the benefits of the REIT
operations of LTC and the non-REIT operations of the Company.
All of the properties to be transferred to the Company by LTC are subject
to long-term leases. Ownership of these properties by LTC is consistent with
the limitations on REITs described above however, LTC believes it is in the best
interests of LTC and its stockholders to transfer these properties to the
Company for the following reasons. As described above, REITs are encouraged to
increase FFO. Significant leverage on properties in the Healthcare Asset Group
and the LTC Partners IX, LP ("Partners IX") properties results in such
properties generating minimal FFO. As of March 31, 1998, the total pro forma
mortgages payable on these properties was $33,679,400. Expected FFO and use of
cash for the next twelve months, based on annual base rent and debt service
pursuant to leases and mortgages in effect on the Distribution Date, is
approximately $284,300 and $66,700, respectively, for the properties in the
Healthcare Asset Group and the LTC Partners IX properties. LTC's investment
strategy has been to make conservative, low cost per unit/bed investments. As
of March 31, 1998, LTC's average investment in owned assisted living facilities
was approximately $60,000 per unit. The properties acquired from Karrington
Health, Inc. were acquired for approximately $125,000 per unit and LTC has the
opportunity to finance 75% of the purchase price of these properties with
non-recourse mortgage financing, and the remaining 25% of the purchase price
with equity. Because the leveraged returns are attractive, LTC felt this was a
more appropriate investment for Healthcare. See "LTC HEALTHCARE, INC. UNAUDITED
PRO FORMA FINANCIAL INFORMATION" AND "BUSINESS AND PROPERTIES-LTC Partners IX
Properties, -Karrington on the Scioto, -Karrington of Bexley, -Karrington at
Tucker Creek and -Karrington Place."
The LTC Board recognized in its planning that the Distribution would result
in a transaction taxable to LTC stockholders and to LTC. Due to the nature of
the assets to be transferred to the
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Company and the amount and duration of LTC's holdings thereof, LTC and the
Company are not positioned to effect the Distribution on a tax-free basis. The
LTC Board has considered that LTC's substantial tax basis in the Company Common
Stock (and prior to their transfer to the Company, in the assets to be
transferred) would reduce taxable gains, if any, to LTC that would otherwise be
recognized. Upon review of this and other relevant factors, the LTC Board
concluded that the benefits of the Distribution would more than offset any
negative tax consequences of the Distribution. See "--Material Federal Income
Tax Consequences of the Distribution."
DISTRIBUTION AGENT
The Distribution Agent is Harris Trust and Savings Bank, 311 West Monroe
Street, Chicago, Illinois 60606, telephone: (312) 360-5294.
MANNER OF EFFECTING THE DISTRIBUTION
The general terms and conditions relating to the Distribution are set forth
in the Distribution Agreement (the "Distribution Agreement") that will be
executed on or prior to the Distribution Date by and between LTC and the
Company.
LTC will effect the Distribution on the Distribution Date by delivering all
outstanding shares of Company Common Stock to the Distribution Agent for
distribution to the holders of record of LTC Common Stock as of the close of
business on the Record Date. The Distribution will be made on the basis of 1/10
share of Company Common Stock for each share of LTC Common Stock held as of the
close of business on the Record Date. Only whole shares of Company Common Stock
will be issued. Stockholders who would have otherwise received a fractional
share of Healthcare common stock will receive cash in lieu thereof. LTC shall
instruct the Distribution Agent to aggregate all fractional shares of Company
Common Stock into whole shares and sell the whole shares obtained thereby in the
open market as soon as practicable following the Distribution Date at then
prevailing prices on behalf of holders who otherwise would be entitled to
receive fractional share interests and to distribute to each such holder such
holder's ratable share of the proceeds of such sale as soon as practicable after
the Distribution Date. LTC shall bear the costs of commissions incurred in
connection with such sales. Based on __________ shares of LTC Common Stock on
the Record Date, approximately ___________ shares of Company Common Stock will
be distributed to LTC stockholders. The shares of Company Common Stock will be
fully paid and nonassessable, and the holders thereof will not be entitled to
preemptive rights. See "DESCRIPTION OF THE COMPANY'S CAPITAL STOCK." It is
expected that certificates representing shares of the Company Common Stock and
checks for cash in lieu of fractional shares will be mailed to holders of LTC
Common Stock as soon as practicable after the Distribution Date.
HOLDERS OF LTC COMMON STOCK SHOULD NOT SEND CERTIFICATES TO THE COMPANY,
LTC OR THE DISTRIBUTION AGENT. THE DISTRIBUTION AGENT WILL MAIL THE STOCK
CERTIFICATES REPRESENTING SHARES OF COMPANY COMMON STOCK AS SOON AS PRACTICABLE
AFTER THE DISTRIBUTION DATE. LTC STOCK CERTIFICATES WILL CONTINUE TO REPRESENT
SHARES OF LTC COMMON STOCK AFTER THE DISTRIBUTION IN THE SAME AMOUNT SHOWN ON
THE CERTIFICATES.
No holder of LTC Common Stock will be required to pay any cash or other
consideration for the shares of Company Common Stock to be received in the
Distribution or to surrender or exchange shares of LTC Common Stock or to take
any other action in order to receive the Company Common Stock pursuant to the
Distribution.
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RESULTS OF THE DISTRIBUTION
After the Distribution, the Company will be a separate public company which
will own certain equity investments, real properties, debentures and related
assets and liabilities. See "THE COMPANY" and "BUSINESS AND PROPERTIES." The
number and identity of the holders of Company Common Stock immediately after the
Distribution will be substantially the same as the number and identity of the
holders of LTC Common Stock on the Record Date. Immediately after the
Distribution, the Company expects to have approximately holders of record
of the Company Common Stock and approximately shares of the Company
Common Stock outstanding based on the number of LTC stockholders of record on
the Record Date, the outstanding shares of LTC Common Stock on the Record Date
and the distribution ratio of 1/10 share of Company Common Stock for each share
of LTC Common Stock.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
INTRODUCTION. The following is a summary of certain material Federal
income tax considerations associated with the Distribution. This discussion is
based upon the laws, regulations and reported rulings and decisions in effect
as of the date of this Information Statement, all of which are subject to
change, retroactively or prospectively, and to possibly differing
interpretations. This discussion does not purport to deal with the Federal
income or other tax consequences applicable to all stockholders in light of
their particular investment circumstances or to all categories of stockholders,
some of whom may be subject to special rules (including, for example, insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign corporations and persons who are not citizens or residents of the United
States). No ruling on the Federal, state or local tax considerations relevant
to the operations of LTC or the Company or to the Distribution is being
requested from the IRS or from any other tax authority.
TAXATION OF LTC IN GENERAL. LTC has made an election to be treated as a
REIT under Sections 856 through 860 of the Code, commencing with its
organization on May 12, 1992. LTC believes that it was organized and has
operated in such a manner so as to qualify as a REIT, and LTC intends to
continue to operate in such a manner, but no assurance can be given that it has
operated in a manner so as to qualify, or will operate in a manner so as to
continue to qualify, as a REIT.
The sections of the Code relating to qualifications and operation as a REIT
are highly technical and complex. LTC believes that, with respect to its
taxable years ending on or after December 31, 1992, it has been organized in
conformity with the requirements for qualification as a REIT, and its proposed
manner of operation will enable it to meet the requirements for qualification as
a REIT. Continued qualification as a REIT will depend upon LTC's ability to
meet, through actual annual operating results, the distribution levels, stock
ownership requirements and the various qualification tests and other
requirements imposed under the Code. Accordingly, no assurance can be given
that the actual stock ownership of LTC, the mix of its assets, or the results of
its operations for any particular taxable year will satisfy such requirements.
TAXABLE INCOME RECOGNITION BY LTC AS A RESULT OF THE DISTRIBUTION.
Immediately prior to the Distribution, LTC will transfer to the Company certain
equity investments, real properties and related assets and liabilities held by
LTC in exchange for additional shares of Company Common Stock which the Company
will issue to LTC (the "Contribution"). See "BUSINESS AND PROPERTIES." LTC
will generally recognize gain for Federal income tax purposes as a result of the
Contribution in an amount equal to the excess of the fair market value of the
Company Common Stock received in the exchange plus any liabilities assumed by
the Company (as well as any liabilities to which any transferred assets are
subject) over LTC's adjusted tax basis in the properties and assets immediately
prior to the exchange.
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See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS-Interests Relating to LTC."
LTC's tax basis in the Company Common Stock received in exchange for the
contributed assets will be equal to the fair market value of the Company Common
Stock received in the exchange.
TRANSFER OF LTC GP VI, INC. STOCK. As discussed below in "BUSINESS AND
PROPERTIES -- LTC Partners IX Properties," LTC holds indirect interests in
several real properties through the ownership of a general partnership interest
in Partners IX. This general partnership interest is held by LTC GP VI, Inc.
("LTC GP VI"), a wholly owned subsidiary corporation of LTC that qualifies for
Federal income tax purposes as a "qualified REIT subsidiary." For purposes of
the Code, a corporation is a qualified REIT subsidiary if 100% of its stock is
owned by a REIT. A qualified REIT subsidiary's status as a separate taxable
entity is disregarded, and its assets, liabilities, and items of income, loss,
deduction and credit are treated as assets, liabilities, and items of income,
loss, deduction and credit of the parent REIT.
LTC will transfer its LTC GP VI stock to the Company in the Contribution.
For Federal income tax purposes, such transfer will terminate LTC GP VI's status
as a qualified REIT subsidiary, and will further be treated as if (i)
immediately prior to the transfer, LTC Contributed the assets of LTC GP VI to a
new corporation in exchange for that new corporation's stock, and then (ii) LTC
transferred the stock of such new corporation to the Company in exchange for
additional shares of Company Common Stock. With respect to the deemed transfer
described in (i), LTC will recognize gain equal to the excess, if any, of the
fair market value of the stock of the new corporation received in the deemed
exchange plus any liabilities deemed to be assumed by the new corporation in the
deemed exchange and any liabilities to which the assets deemed transferred are
subject over the adjusted tax basis of LTC GP VI's share of partnership assets
immediately before the deemed transfer. Subject to the risk of being
characterized as gain from a prohibited transaction, as described below, any
such gain should be qualifying income for purposes of the 95% and 75% tests
described below. LTC will further recognize gain, if any, on its transfer of
the LTC GP VI stock to the Company in the Contribution to the extent that the
fair market value of the Company Common Stock received in exchange for the LTC
GP VI stock exceeds LTC's adjusted tax basis in such stock immediately prior to
the Contribution. Such gain will constitute qualifying income for purposes of
the 95% gross income test described below, but will not be qualifying income for
purposes of the 75% gross income test described below.
INCOME ON REVOLVING NOTE. In connection with the Contribution, the Company
will issue to LTC a revolving note in the principal amount of approximately $20
million. Such note will bear interest at the rate of 10% per annum, mature on
March 31, 2008 and be a full recourse unsecured obligation. See "RELATIONSHIP
BETWEEN HEALTHCARE AND LTC AFTER THE DISTRIBUTION." Interest income with
respect to the line of credit will be qualifying income for purposes of the 95%
gross income test described below. However, because the line of credit is not
an obligation secured by real property, the interest income will not be
qualifying income for purposes of the 75% gross income test described below.
Further, the note will not qualify under certain asset tests applicable to
REITs.
INCOME FROM ADMINISTRATIVE SERVICES AGREEMENT. In connection with the
Distribution, LTC and Healthcare will enter into an Administrative Services
Agreement, pursuant to which LTC will provide certain management and
administrative services to the Company. See "RELATIONSHIP BETWEEN HEALTHCARE
AND LTC AFTER THE DISTRIBUTION--Administrative Services Agreement." Gross
income under the Administrative Services Agreement will not be qualifying
income under either the 95% or 75% gross income tests described below.
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GAIN TO LTC ON THE DISTRIBUTION. LTC's taxable gain on the Distribution,
if any, will be measured by the extent to which, at the time of the
Distribution, the fair market value of the company common stock Distributed by
LTC Exceeds LTC's adjusted tax basis in such stock.
Because of the factual nature of the issue of the value of the Company
Common Stock received by LTC As a result of the Contribution and then
distributed by LTC, Tax Counsel is unable to render an opinion on the amount of
gain recognized by LTC As a result of these transactions. The amount of gain,
if any, will increase LTC's current or accumulated earnings and profits, and
thereby increase the portion of LTC's distributions that are treated as made out
of earnings and profits, and thus are dividends for Federal income tax purposes.
CHARACTERIZATION OF GAIN RECOGNIZED FOR PURPOSES OF REIT INCOME TESTS. The
gain recognized by LTC in the Contribution and the Distribution will, depending
upon the nature of the assets transferred, be qualifying or non-qualifying
income for purposes of the REIT income tests. In order to maintain
qualification as a REIT, LTC annually must satisfy two gross income
requirements. First, at least 75% of LTC's gross income (excluding gross income
from prohibited transactions) for each taxable year must be derived directly or
indirectly from investments relating to real property or mortgages on real
property (including "rents from real property," certain interest, and gains from
the sale or other disposition of real property) or from certain types of
temporary investments. Second, at least 95% of LTC's gross income (excluding
gross income from prohibited transactions) for each taxable year must be derived
from investments the income from which satisfies the 75% gross income test or
from dividends, interest and gain from the sale or other disposition of stock or
securities (or from any combination of the foregoing). To the extent that the
gain LTC Will recognize on either the Contribution or the Distribution
constitutes gain from the sale or other disposition of real property that is not
a prohibited transaction, as described below, such gain will be qualifying
income for purposes of both the 75% and 95% gross income tests. However, to the
extent that such gain constitutes gain from the sale or other disposition of
stock or securities or other non-real estate assets (which, for example, will be
the case with respect to the contribution of the common stock of Assisted Living
Concepts, Inc. And Regent, and the stock of LTC GP VI In the Contribution, and
the distribution of Company Common Stock in the Distribution), such gain will be
qualifying income for purposes of the 95% gross income test, but will not be
qualifying income for purposes of the 75% gross income test.
FAILURE TO SATISFY 75% GROSS INCOME TEST. Because of the uncertainty of
the value of the Company Common Stock, as discussed above, the amount of gain
recognized by LTC on the Distribution could cause LTC To fail to satisfy the 75%
gross income test for its current taxable year. However, if LTC fails to
satisfy the 75% gross income test, it will nonetheless be deemed to satisfy such
test (and therefore will continue to qualify as a REIT for such taxable year) if
certain disclosure requirements are met and the failure to meet such test is due
to reasonable cause and not willful neglect. LTC Has engaged [ ] to render
an opinion as to the value of the Company Common Stock to be distributed in the
Distribution, and believes that its reliance on such opinion will constitute
reasonable cause for purposes of the relief provisions discussed herein. LTC
has knowledge of no facts which would cause it to believe that it will realize
gain upon the contribution.
Even if the relief provisions discussed in the preceding paragraph apply, a
tax would be imposed on an amount equal to (a) the gross income attributable to
the greater of the amount by which LTC failed the 75% test or 95% test
multiplied by (b) a fraction intended to reflect LTC's profitability.
If the relief provisions discussed above do not apply, LTC's REIT status
would terminate in the taxable year of the Distribution.
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GAIN FROM PROHIBITED TRANSACTION. Because, among other things, LTC Will
have held some of the assets to be transferred to the Company for a relatively
short period of time prior to the Contribution, there is a risk that any gain
recognized on the deemed contribution would be characterized as gain from the
sale or other disposition of property held for sale in the ordinary course of
business. If this result occurs, such gain would further constitute gain from a
"prohibited transaction," as such term is defined in Section 857(b)(6) of the
Code. Any such gain would be subject to a 100% tax on the net income derived
from such prohibited transaction. LTC Believes that, on the date of the
contribution, the deemed contribution of such assets will not result in the
recognition of any gain.
TAXATION OF TAXABLE DOMESTIC STOCKHOLDERS OF LTC AS A RESULT OF THE
DISTRIBUTION. The Distribution will be treated as a distribution, the amount of
which equals the value of the Company Common Stock distributed plus any cash in
lieu of fractional shares, and LTC stockholders will receive a tax basis in
Company Common Stock equal to the fair market value thereof at the time of the
Distribution. Because of the factual nature of the issue of the fair market
value of the Company Common Stock distributed, Tax Counsel is unable to render
an opinion on it. As long as LTC qualifies as a REIT, distributions (including
the Distribution) made to LTC's taxable U.S. stockholders out of LTC's current
or accumulated earnings and profits (and not designated as capital gain
dividends) will be taken into account by such U.S. stockholders as ordinary
income and, for corporate stockholders, will not be eligible for the dividends
received deduction. Distributions in excess of current and accumulated earnings
and profits will not be taxable to a stockholder to the extent that they do not
exceed the adjusted tax basis of the stockholder's shares of LTC Common Stock,
but rather will reduce the adjusted tax basis of such shares. To the extent
that distributions in excess of current and accumulated earnings and profits
exceed the adjusted tax basis of a stockholder's shares of LTC Common Stock,
such distributions will be capital gain if the shares are a capital asset in the
hands of the stockholder. For certain non-corporate stockholders (including
individuals), such capital gain will be subject to a reduced rate if the
stockholder has held the shares for more than one year, and will be eligible for
a further reduced rate if the stockholder has held the shares for more than 18
months. In addition, any distribution declared by LTC in October, November or
December of any year payable to a stockholder of record on a specified date in
any such month shall be treated as both paid by LTC and received by the
stockholder on December 31 of such year, provided that the distribution is
actually paid by LTC during January of the following calendar year.
Stockholders may not include any net operating losses or capital losses of LTC
in their respective income tax returns. In general, any loss upon a sale or
exchange of shares by a stockholder who has held such shares for six months or
less (after applying certain holding period rules) will be treated as a
long-term capital loss to the extent of distributions from LTC required to be
treated by such stockholder as long-term capital gain.
TAXATION OF TAX-EXEMPT STOCKHOLDERS OF LTC AS A RESULT OF THE DISTRIBUTION.
Most tax-exempt employees' pension trusts are not subject to Federal income tax
except to the extent of their receipt of "unrelated business taxable income" as
defined in Section 512(a) of the code ("UBTI"). The Distribution to a
stockholder that is a Tax-Exempt entity should not constitute UBTI, provided
that the Tax-Exempt entity has not financed the acquisition of its shares of LTC
Common Stock with "acquisition indebtedness" within the meaning of the Code and
such shares are not otherwise used in an unrelated trade or business of the
Tax-Exempt entity. In addition, certain pension trusts that own more than 10%
of a "pension-held REIT" must report a portion of the dividends that they
receive from such a REIT as UBTI. LTC has not been and does not expect to be
treated as a pension-held REIT for purposes of this rule.
TAXATION OF FOREIGN STOCKHOLDERS OF LTC AS A RESULT OF THE DISTRIBUTION.
The rules governing United States Federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no
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attempt will be made in this Information Statement to provide more than a
summary of such rules. Non-U.S. Stockholders should consult with their own tax
advisors to determine the impact of Federal, state and local tax laws with
regard to the Distribution, including any reporting requirements. In general,
as is the case with domestic taxable stockholders of LTC, the Distribution is
treated as a distribution whose amount equals the value of the Company Common
Stock distributed plus any cash in lieu of fractional shares, and LTC
stockholders will receive a basis in Company Common Stock equal to the fair
market value thereof at the time of the Distribution.
Distributions that are not attributable to gain from sales or exchanges by
LTC of United States real property interests and not designated by LTC as
capital gain dividends will be treated as dividends of ordinary income to the
extent that they are made out of current and accumulated earnings and profits of
LTC. Such distributions ordinarily will be subject to a withholding tax equal
to 30% of the gross amount of the distribution, unless an applicable tax treaty
reduces or eliminates that tax. LTC expects to withhold U.S. income tax at the
rate of 30% on the gross amount of any such distribution made to a Non-U.S.
Stockholder unless (i) a lower treaty rate applies and the Non-U.S. Stockholder
has filed the required IRS Form 1001 with LTC (or, as discussed below, such
other certifications as shall be required under the Final Treasury Regulations
to establish that the Non-U.S. Stockholder is entitled to claim the benefits of
such reduced treaty rate), or (ii) the Non-U.S. Stockholder files an IRS Form
4224 with LTC claiming that the distribution is effectively connected with the
Non-U.S. Stockholder's conduct of a U.S. Trade or business. Distributions in
excess of LTC's current and accumulated earnings and profits will not be taxable
to a stockholder to the extent that such distributions do not exceed the
adjusted tax basis of the stockholder's shares of LTC Common Stock, but rather
will reduce the adjusted tax basis of such shares. To the extent that
distributions in excess of current and accumulated earnings and profits exceed
the adjusted tax basis of a Non-U.S. Stockholder's shares, such distributions
will give rise to tax liability if the Non-U.S. Stockholder would otherwise be
subject to tax on any gain from the sale or disposition of the LTC Common Stock.
Any portion of the Distribution which is treated as a capital gain dividend and
is not attributable to a disposition by LTC of a United States real property
interest shall also be subject to rules similar to those applicable to gain from
the sale or disposition of the LTC Common Stock. Provided that LTC Is a
"domestically controlled REIT" for Federal income tax purposes, a Non-U.S.
stockholder would be subject to taxation on gain from a sale or disposition of
LTC Common Stock only if (i) the investment in the LTC Common Stock were treated
as effectively connected with such Non-U.S. Stockholder's U.S. trade or
business, in which case the Non-U.S. Stockholder would be subject to the same
treatment as U.S. Stockholders with respect to such gain (plus the 30% branch
profits tax in the case of foreign corporations unless reduced or except under
the applicable treaty), or (ii) the Non-U.S. Stockholder is a nonresident alien
individual who was present in the United States for 183 days or more during the
taxable year of the sale or disposition and either the individual has a "tax
home" in the United States or the gain is attributable to an office or other
fixed place of business maintained by the individual in the United States, in
which case the gain will be subject to a 30% tax. The Company believes that LTC
is and currently expects to continue to be a "domestically controlled REIT" For
Federal income tax purposes.
If it cannot be determined at the time a distribution is made whether or
not such distribution will be in excess of current and accumulated earnings and
profits, the distributions would be subject to withholding at the same rate as
dividends. However, a Non-U.S. Stockholder may seek a refund of such amounts
from the IRS if it is subsequently determined that such distribution was, in
fact, in excess of LTC's current and accumulated earnings and profits.
The Company anticipates that a portion of the Distribution will be treated
as attributable to LTC's disposition of a United States real property interest.
To the extent that a portion of the Distribution were to be treated as
attributable to the disposition of a United States real property interest, a
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Non-U.S. Stockholder would be subject to tax on such portion as though it were
gain that was effectively connected with a United States trade or business of
such non-U.S. Stockholder. Thus, non-U.S. Stockholders would be generally
entitled to offset such portions of the Distribution by allowable deductions and
would pay tax on the resulting net taxable income at the same rates applicable
to U.S. Stockholders (plus the 30% branch profits tax in the case of foreign
corporations unless reduced or except under the applicable treaty). LTC is
required under applicable treasury regulations to withhold 35% of a portion of
the distribution attributable to LTC's disposition of a United States real
property interest. The amount so withheld is creditable against the Non-U.S.
Stockholder's U.S. tax liability.
Amounts required to be withheld from payments to Non-U.S. Stockholders will
be collected by converting a portion of the Company Common Stock to be
distributed into cash.
REPORTING OF THE DISTRIBUTION. LTC will make a determination of the fair
market value of the Company Common Stock as of the Distribution date. Based
upon such determination, LTC will report the amount of the distribution received
by each stockholder to such stockholder and to the IRS on IRS Form 1099-DIV.
There can be no assurance that the IRS or the courts will agree with the amount
determined by LTC.
ALL LTC STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES OF THE DISTRIBUTION TO THEM, INCLUDING THE
APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.
LISTING AND TRADING OF COMPANY COMMON STOCK; DIVIDEND POLICY
There is not currently a public market for the Company Common Stock.
Prices at which the Company Common Stock may trade prior to the Distribution on
a "when-issued" basis or after the Distribution cannot be predicted. Until the
Company Common Stock is fully distributed and an orderly market develops, the
prices at which trading in such stock occurs may fluctuate significantly. The
prices at which the Company Common Stock trades will be determined by the
marketplace and may be influenced by many factors, including, among others, the
success of the Company's business, the depth and liquidity of the market for the
Company Common Stock, investor perception of the Company and its assets, the
Company's dividend policy, and general economic and market conditions. Such
prices also may be affected by certain provisions of the Company Articles and
the Company Bylaws, as each will be in effect following the Distribution, which
may have an anti-takeover effect. See "RISK FACTORS-Absence of Prior Trading
Market for Company Common Stock; Potential Volatility" and "HEALTHCARE ARTICLES
OF INCORPORATION AND BYLAWS."
The Company initially intends to apply to have the Company Common Stock
approved for listing and trading on the Pacific Exchange. Immediately after the
Distribution, the Company expects to have approximately _____ stockholders of
record based upon the number of stockholders of record of LTC on the Record
Date. For certain information regarding options to purchase the Company Common
Stock that will be outstanding after the Distribution, see
"MANAGEMENT-Healthcare 1998 Plan."
The Company presently intends to retain future earnings to finance the
growth and development of its business; and, therefore, the Company does not
currently anticipate paying any cash dividends. Any future determination
relating to dividend policy will be made at the discretion of the Company Board.
Such determinations will depend on a number of factors, including the future
earnings, capital requirements, financial condition and prospects of the
Company, possible loan or financing covenant restrictions, and such other
factors as the Company Board may deem relevant. See "RISK FACTORS-Dividend
Policy."
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The Company initially will consist of certain equity investments, real
properties, debentures and related assets and liabilities, as described in
"BUSINESS AND PROPERTIES." Nothing herein should be construed to suggest that
the trading price of LTC Common Stock at any point in time may be used as a
substitute for the trading price of Company Common Stock. No assurance can be
given that the Company Common Stock will trade at a price per share reflecting
the earnings per share or other multiple, or other attributes, of LTC. See
"RISK FACTORS-Absence of Prior Trading Market for Company Common Stock;
Potential Volatility."
It is the Company's belief that the Company Common Stock distributed to
LTC's stockholders in the Distribution will be freely transferable, except for
securities received by persons who may be deemed to be "affiliates" of LTC
within the meaning of Rule 144 under the Securities Act, in which case such
persons may not publicly offer or sell the Company Common Stock received in
connection with the Distribution except pursuant to a registration statement
under the Securities Act or pursuant to Rule 144. There can be no assurance that
the Commission will not take a contrary view, and no ruling from the Commission
has been or will be sought. See "RISK FACTORS-Shares Eligible for Future Sale."
CONDITIONS; TERMINATION
The LTC Board has conditioned the Distribution upon, among other things,
(i) the transfers of assets and liabilities to occur prior to consummation of
the Distribution having been consummated in all material respects; (ii) the
Company Board, comprised as contemplated in the Distribution Agreement, having
been elected, and the Company Articles and Company Bylaws, having been adopted
and in effect; (iii) LTC and Healthcare having obtained all third party
consents or approvals necessary or desirable in connection with the transactions
comprising the Distribution, the failure of which to obtain would not, in the
sole judgment of the LTC Board, have a material adverse effect on LTC or
Healthcare; (iv) the Registration Statement on Form 10 under the Exchange Act
filed by Healthcare having been declared effective by the Commission; (v) the
Healthcare Common Stock having been approved for listing and trading on the
Pacific Exchange subject to official notice of issuance; and (vi) LTC and
Healthcare having entered into all of the agreements, instruments,
understandings, assignments or other arrangements which are entered into in
connection with the transactions contemplated by the Distribution and which are
set forth in a writing, including, without limitation (a) conveyancing and
assumption instruments, (b) the Administrative Services Agreement, (c) the Tax
Sharing Agreement and (d) the Intercompany Agreement. The Company believes that
there are no third-party consents which if not obtained would have a material
adverse effect on the Company, LTC or the Distribution. Any of the conditions
to the Distribution may be waived in the discretion of the LTC Board. Even if
all of the above conditions are satisfied, the LTC Board has reserved the right
to abandon, defer or modify the Distribution or the other elements of the
Distribution at any time prior to the Distribution Date; however, the LTC Board
will not waive any of the conditions to the Distribution or make any changes in
the terms of the Distribution unless the LTC Board determines that such changes
would not be materially adverse to the LTC stockholders. See "RELATIONSHIP
BETWEEN HEALTHCARE AND LTC AFTER THE DISTRIBUTION-Distribution Agreement."
REASONS FOR FURNISHING THE INFORMATION STATEMENT
This information statement is being furnished by LTC solely to provide
information to LTC stockholders who will receive Company Common Stock in the
Distribution. It is not, and is not to be construed as, an inducement or
encouragement to buy or sell any securities of LTC or the Company. The
information contained in this Information Statement is believed by LTC and the
Company to be accurate as of the date set forth on the cover of this Information
Statement. Changes may occur after that date, and neither the Company nor LTC
will update the information except in the normal course of their respective
public disclosure practices.
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RELATIONSHIP BETWEEN HEALTHCARE AND LTC
AFTER THE DISTRIBUTION
For the purpose of governing certain of the ongoing relationships
between the Company and LTC after the Distribution and to provide mechanisms
for an orderly transition, the Company and LTC have entered or will enter
into various agreements, and will adopt policies, as described in this
section.
DISTRIBUTION AGREEMENT
Prior to the Distribution Date, the Company and LTC will enter into the
Distribution Agreement, which provides for, among other things, (i) the division
between the Company and LTC of certain assets and liabilities, (ii) the
Distribution, and (iii) certain other agreements governing the relationship
between the Company and LTC following the Distribution. Pursuant to the
Distribution Agreement, as consideration for the asset transfers, the Company
will issue to LTC a sufficient number of shares of Company Common Stock to
effect the Distribution. See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
Subject to certain exceptions, the Distribution Agreement provides for,
among other things, assumptions of liabilities and cross-indemnities designed to
allocate to the Company, effective as of the Distribution Date, financial
responsibility for the liabilities arising out of or in connection with the
assets to be transferred to the Company pursuant to the Distribution Agreement.
The agreements to be executed in connection with the Distribution Agreement set
forth certain specific allocations of liabilities between the Company and LTC.
See "-Administrative Services Agreement" and "-Tax Sharing Agreement."
The Distribution Agreement also provides that by the Distribution Date, the
Company Articles and the Company Bylaws shall be in the forms attached hereto as
Annexes I and II, respectively, and that the Company and LTC will take all
actions which may be required to elect or otherwise appoint, as directors of the
Company, the persons indicated herein. See "MANAGEMENT" and "HEALTHCARE
ARTICLES OF INCORPORATION AND BYLAWS."
The Distribution Agreement also provides that each of the Company and LTC
will be granted access to certain records and information in the possession of
the others, and requires the retention by each of the Company and LTC for a
period of ten years following the Distribution of all such information in its
possession, and thereafter requires that each party give the others prior notice
of its intention to dispose of such information. In addition, the Distribution
Agreement provides for the allocation of shared privileges with respect to
certain information and requires each of the Company and LTC to obtain the
consent of the others prior to waiving any shared privilege.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be charged to the party for whose benefit the expenses are
incurred, with any expenses that cannot be allocated on such basis to be split
equally between the parties.
ADMINISTRATIVE SERVICES AGREEMENT
The Distribution Agreement calls for LTC and the Company to enter into
an Administrative Services Agreement (the "Administrative Services
Agreement") containing a number of provisions relating to employees of LTC
and the Company. The Administrative Services Agreement generally provides
that, after the Distribution, LTC will provide rental space and management
and administrative services to the Company, including the ability to use the
services of LTC's employees in connection with the
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Company's business. In exchange for those services, the Company is required
to pay LTC on a monthly basis 25% of (1) the aggregate amount of all wages,
salaries and bonuses paid during each month to LTC employees and (2) the
aggregate amount of rent paid by LTC for rental of its principal corporate
offices during each month. Under the Administrative Services Agreement, LTC
will be responsible for continuing to provide employee benefits (other than
those provided under the Healthcare 1998 Plan) to LTC employees. The
Administrative Services Agreement has a term of ten years but may be
terminated either by LTC or the Company at any time upon 30 days' prior
written notice to the other party. In addition, the Administrative Services
Agreement may be terminated upon a change of control of LTC. Any individuals
independently hired by the Company after the Distribution as separate
employees of the Company will not be subject to the Administrative Services
Agreement. The income LTC receives under the Administrative Services
Agreement will not be qualifying income for purposes of the 75.0% REIT income
test or the 95.0% REIT income test. Moreover, the Company, at its option,
may choose to pay bonuses to LTC's employees based on their performance in
connection with the Company's business.
TAX SHARING AGREEMENT
LTC and the Company will enter into a Tax Sharing Agreement defining the
parties' rights and obligations with respect to tax returns and tax liabilities,
including, in particular, Federal and state income tax returns and liabilities,
for taxable years and other taxable periods ending on or before the Distribution
Date. In general, LTC will be responsible for (i) filing all Federal and state
income tax returns of LTC, the Company and any of their subsidiaries for all
taxable years ending on or before the Distribution Date, and (ii) paying the
taxes relating to such returns (including any deficiencies proposed by
applicable taxing authorities). For post-Distribution periods, LTC and the
Company will each be responsible for filing its own returns and paying its own
taxes relating to such returns (including any deficiencies proposed by
applicable taxing authorities). LTC and the Company will cooperate with each
other and share information in preparing income tax returns and in dealing with
other tax matters.
INTERCOMPANY AGREEMENT
The Company and LTC will enter into the Intercompany Agreement on or prior
to the Distribution Date to provide each other with rights to participate in
certain transactions. See "THE COMPANY-Intercompany Agreement."
POLICIES AND PROCEDURES FOR ADDRESSING CONFLICTS
As of the Distribution Date, the Company Board will consist of Andre C.
Dimitriadis, who is currently Chairman and Chief Executive Officer of LTC and
who serves in the same positions with the Company, James J. Pieczynski, who is
currently President and Chief Financial Officer of LTC and who serves in the
same positions with the Company, and Steven Stuart and Bary G. Bailey, who are
not affiliated with LTC. As of the Distribution Date, the executive officers
of the Company will include Mr. Dimitriadis, Mr. Pieczynski, Christopher T.
Ishikawa, who is currently Senior Vice President and Chief Investment Officer of
LTC and currently serves in the same positions with the Company and Pamela J.
Privett, who is currently Senior Vice President, General Counsel and Secretary
of LTC and currently serves in the same positions with the Company. See
"MANAGEMENT."
Based solely on their ownership of LTC Common Stock and options to acquire
LTC Common Stock on March 31, 1998, the executive officers and directors of the
Company will beneficially own an aggregate of 102,781 shares, or approximately
3.8% of the outstanding Company Common Stock immediately following the
Distribution. In addition, certain officers of the Company will be granted
options to acquire 140,000 shares of Company Common Stock under the Healthcare
1998 Plan upon consummation of the Distribution. See "RISK FACTORS-Control by
Executive Officers and
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Directors"; "MANAGEMENT-Healthcare 1998 Plan"; "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" and "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT."
The Company and LTC intend to pursue separate and distinct business
strategies to minimize potential conflicts of interest between the two
companies. Nonetheless, the on-going relationships between the Company and LTC
may present conflict situations for the persons who will serve as officers
and/or directors of both the Company and LTC, and who will own (or have options
or other rights to acquire) a significant number of shares of common stock in
both companies. Such persons may be presented with conflicts of interest with
respect to certain matters affecting the Company and LTC, such as the
determination of which company may take advantage of potential business
opportunities, decisions concerning the business focus of each company
(including decisions concerning the types of properties and geographic locations
in which such companies make investments), potential competition between the
business activities conducted, or sought to be conducted, by such companies
(including competition for properties and tenants), possible corporate
transactions (such as acquisitions), and other strategic decisions affecting the
future of such companies. Conflicts also may arise with respect to the
restriction on the Company's right to engage in certain activities or make
certain investments unless LTC is first offered the opportunity and declined to
pursue such activities or investments (as described below).
The Company and LTC will adopt appropriate policies and procedures on or
prior to the Distribution Date to be followed by the Board of Directors of each
company to limit the involvement of such officers and directors in conflict
situations. Such procedures include requiring the persons serving as directors
of both companies to abstain from voting as directors with respect to matters
that present a significant conflict of interest between the companies. Whether
or not a significant conflict of interest situation exists will be determined on
a case-by-case basis depending on such factors as the dollar value of the
matter, the degree of personal interest of any officers or directors in the
matter and the likelihood that resolution of the matter has significant
strategic, operational or financial implications for the business of the Company
and/or LTC. The Intercompany Agreement will prohibit the Company from engaging
in certain activities or making certain investments unless LTC is first offered
the opportunity and declined to pursue such activities or investments. The
Intercompany Agreement also prohibits the Company from prepaying or causing to
be prepaid any of its mortgage loans provided by LTC which are securitized in
REMIC transactions. See "RISK FACTORS-Possible Conflicts with LTC After the
Distribution" and "THE COMPANY-Intercompany Agreement."
REGULATORY APPROVALS
The Company does not believe that any material Federal or state regulatory
approvals will be necessary in connection with the Distribution.
32
<PAGE>
PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 and the pro forma capitalization of the Company at such date.
The table should be read in conjunction with the historical and pro forma
combined financial statements and the notes thereto contained elsewhere herein.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
------------------------------
ACTUAL AS ADJUSTED
---------- ---------------
<S> <C> <C>
Mortgages payable. . . . . . . . . . . $ - $51,079,400
Minority interest. . . . . . . . . . . - 3,432,000
Stockholders' equity . . . . . . . . . 2,000 11,668,400
------- -----------
Total Capitalization . . . . . . . . . $2,000 $66,179,800
------- -----------
------- -----------
</TABLE>
33
<PAGE>
LTC HEALTHCARE, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma balance sheet of LTC Healthcare, Inc. as of
March 31, 1998 and unaudited pro forma condensed combined statements of
operations for the three months ended March 31, 1998 and the year ended December
31, 1997 have been prepared to reflect the results of the Distribution and
acquisition of assets and assumption of liabilities by the Company. The
unaudited pro forma balance sheet has been prepared as if the transactions had
occurred on March 31, 1998. The unaudited pro forma statements of operations
have been prepared as if the transactions had occurred at the beginning of the
year ended December 31, 1997. The unaudited pro forma financial information is
not necessarily indicative of the results that actually would have occurred if
the Distribution and capitalization had been consummated as of March 31, 1998.
PRO FORMA BALANCE SHEET - UNAUDITED
AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
TRANSFER OF ASSETS BY LTC
------------------------------------------------------
HEALTHCARE
HEALTHCARE ASSET GROUP
HISTORICAL AUDITED OTHER ASSETS
(A) (B) (C)
ASSETS ---------- ----------- --------------
<S> <C> <C> <C>
Real estate:
Buildings and improvements . . . . . . . . . . . $ - $20,682,200 $ 7,261,400 (1)
22,330,000 (4)
Land . . . . . . . . . . . . . . . . . . . . . . - 1,373,800 300,000 (1)
920,000 (4)
Accumulated depreciation . . . . . . . . . . . . - (3,739,600) (22,600)(1)
------- ----------- ------------
Real estate investments, net . . . . . . . . . . . - 18,316,400 30,788,800
Convertible subordinated debentures. . . . . . . . - - -
Rent receivable. . . . . . . . . . . . . . . . . . - 265,400 -
Other assets . . . . . . . . . . . . . . . . . . . - - 20,400 (1)
632,400 (2)
318,500 (3)
Cash . . . . . . . . . . . . . . . . . . . . . . . 2,000 - 6,300 (1)
------- ----------- ------------
Total Assets . . . . . . . . . . . . . . . . . . . $2,000 $18,581,800 $31,766,400
------- ----------- ------------
------- ----------- ------------
LIABILITIES AND
STOCKHOLDERS EQUITY
Mortgage loans payable . . . . . . . . . . . . . . $ - $27,377,100 $ 6,302,300 (1)
17,400,000 (4)
Note payable - LTC . . . . . . . . . . . . . . . . - - -
Deferred tax liability . . . . . . . . . . . . . . - 500,000 -
Interest payable . . . . . . . . . . . . . . . . . - 142,400 11,300 (1)
Other liabilities. . . . . . . . . . . . . . . . . - 43,200 31,300 (1)
------- ----------- ------------
Total Liabilities. . . . . . . . . . . . . . . . . - 28,062,700 23,744,900
Minority interest. . . . . . . . . . . . . . . . . - - 3,432,000 (1)
Stockholders' equity:
Non-voting common stock. . . . . . . . . . . . . - - -
Voting common stock. . . . . . . . . . . . . . . - - -
Paid-in capital. . . . . . . . . . . . . . . . . 2,000 (9,480,900) (2,211,400)(1)
632,400 (2)
318,500 (3)
5,850,000 (4)
------- ----------- ------------
Total Stockholders' Equity . . . . . . . . . . . . 2,000 (9,480,900) 4,589,500
------- ----------- ------------
Total Liabilities and Stockholders' Equity . . . . $2,000 $18,581,800 $31,766,400
------- ----------- ------------
------- ----------- ------------
ASSETS
PURCHASED BY PRO FORMA PRO FORMA
HEALTHCARE ADJUSTMENTS CONSOLIDATED
(D) (E)
ASSETS ------------- ------------ -------------
<S> <C> <C> <C>
Real estate:
Buildings and improvements. . . . . . . . . . . . $ - $ - $50,273,600
Land. . . . . . . . . . . . . . . . . . . . . . . - - 2,593,800
Accumulated depreciation . . . . . . . . . . . . - - (3,762,200)
---------- ----------- -----------
Real estate investments, net . . . . . . . . . . . - - 49,105,200
Convertible subordinated debentures. . . . . . . . 5,000,000 5,000,000 (2) 10,000,000
Rent receivable. . . . . . . . . . . . . . . . . . - - 265,400
Other assets . . . . . . . . . . . . . . . . . . . 435,700 - 1,407,000
Cash . . . . . . . . . . . . . . . . . . . . . . . - 10,622,100 (1) 5,630,400
(5,000,000)(2)
---------- ----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . $5,435,700 $10,622,100 $66,408,000
---------- ----------- -----------
---------- ----------- -----------
LIABILITIES AND
STOCKHOLDERS EQUITY
Mortgage loans payable . . . . . . . . . . . . . . $ - $ - $51,079,400
Note payable - LTC . . . . . . . . . . . . . . . . 3,435,700 (3,435,700)(1) -
Deferred tax liability . . . . . . . . . . . . . . - (3,687,400)(3) -
Interest payable . . . . . . . . . . . . . . . . . - 3,187,400 (3) 153,700
Other liabilities. . . . . . . . . . . . . . . . . - - 74,500
---------- ----------- -----------
Total Liabilities. . . . . . . . . . . . . . . . . 3,435,700 (3,935,700) 51,307,600
Minority interest. . . . . . . . . . . . . . . . . - - 3,432,000
Stockholders' equity:. . . . . . . . . . . . . . .
Non-voting common stock . . . . . . . . . . . . . - - -
Voting common stock . . . . . . . . . . . . . . . - - -
Paid-in capital . . . . . . . . . . . . . . . . . 2,000,000 14,057,800 (1) 11,668,400
3,687,400 (3)
(3,187,400)(3)
---------- ----------- -----------
Total Stockholders' Equity . . . . . . . . . . . . 2,000,000 14,557,800 11,668,400
---------- ----------- -----------
Total Liabilities and Stockholders' Equity . . . . $5,435,700 $10,622,100 $66,408,000
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
34
<PAGE>
NOTES TO PRO FORMA BALANCE SHEET
(A) Reflects the audited historical balance sheet of the Company as of March
25, 1998. As of March 25, 1998, LTC owned all of the outstanding
non-voting common stock of the Company (then representing approximately 50%
of all outstanding shares of Company Common Stock) and Christopher T.
Ishikawa, Senior Vice President and Chief Investment Officer of LTC
Properties, Inc., owned all of the outstanding voting common stock of the
Company (then representing approximately 50% of all outstanding shares of
Company Common Stock).
(B) Reflects the transfer at historical cost of the assets and liabilities held
by LTC at December 31, 1997 to the Company for non-voting common stock.
See Combined Balance Sheet of Healthcare Asset Group at F-6. The
Healthcare Asset Group includes five skilled nursing facilities which are
encumbered by mortgage loans.
(C) In addition to the assets described in footnote (B) above, LTC intends to
transfer the following assets: (1) a general partner interest in a limited
partnership that owns three skilled nursing facilities with a book value of
approximately $7.5 million that are encumbered by mortgages payable of
approximately $6.3 million and a minority interest of approximately $3.4
million along with cash of $6,300, other assets of $20,400, interest
payable of $11,300 and other liabilities of $31,300; (2) 30,847 shares of
Assisted Living Concepts, Inc. common stock with a book value of
approximately $632,400; (3) 69,000 shares of Regent common stock with a
book value of approximately $318,500; and (4) four assisted living
facilities with a book value of approximately $23.25 million and encumbered
by mortgage loans of approximately $17.4 million.
(D) Subsequent to the formation of the Company, the Company issued 4,000
non-voting shares of Company Common Stock to LTC for $2.0 million and
obtained a $20 million unsecured line of credit bearing interest at 10% and
maturing in March 2008 from LTC. The Company utilized the proceeds of $2.0
million from the issuance of non-voting common stock and borrowings of
approximately $3.4 million to purchase 23,400 shares of LTC Common Stock
for approximately $435,700 and $5 million par value of 7.5% convertible
subordinated debentures of Regent.
(E) Represents the following pro forma adjustments as numbered on the
accompanying pro forma balance sheet: (1) additional capitalization of
approximately $14.1 million by LTC of which approximately $3.4 million was
used to repay the outstanding principal on the unsecured line of credit
provided by LTC; (2) the purchase of an additional $5 million face amount
of 7.5% convertible subordinated debentures of Regent, and (3) for federal
and state income tax purposes, the Company will record the assets
transferred at fair market value, estimated to be approximately $9.5
million over their current book value, which would result in a deferred tax
asset of approximately $3.7 million which will be offset by the $500,000
deferred tax liability transferred from the Healthcare Asset Group.
Sufficient taxable income must be generated in future years in order to
realize tax benefits associated with the net deferred tax asset. The
Company believes there is a risk that future taxable income may not be
sufficient to realize such tax benefits and accordingly, a valuation
allowance of approximately $3.2 million has been established.
35
<PAGE>
LTC HEALTHCARE, INC.
PRO FORMA STATEMENTS OF OPERATIONS-UNAUDITED
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TRANSFER OF ASSETS BY LTC
---------------------------------------
HEALTHCARE ASSETS
HEALTHCARE ASSET GROUP PURCHASED BY PRO FORMA PRO FORMA
HISTORICAL AUDITED OTHER ASSETS HEALTHCARE ADJUSTMENTS CONSOLIDATED
(A) (B) (C) (D) (E)
---------- ----------- ------------ ------------ --------------- ------------
THREE MONTHS ENDED MARCH 31, 1998
Revenues:
<S> <C> <C> <C> <C> <C> <C>
Rental income........................... $ - $ 749,800 $ 759,800 $ - $ - $1,509,600
Interest and other income............... - - - 102,300 93,800 (4) 196,100
------ ---------- ----------- --------- ----------- ----------
Total Revenues............................ - 749,800 759,800 102,300 93,800 1,705,700
------ ---------- ----------- --------- ----------- ----------
Expenses:
Interest................................ - 427,300 511,700 85,900 178,500 (1) 1,117,500
(85,900)(2)
Depreciation............................ - 195,800 238,000 - - 433,800
Minority interest ...................... - - 85,800 - - 85,800
Other .................................. - 100 - - 225,000 (3) 225,100
------ ---------- ----------- --------- ----------- ----------
Total Expenses ........................... - 623,200 835,500 85,900 317,600 1,862,200
------ ---------- ----------- --------- ----------- ----------
Income Before Taxes ...................... - 126,600 (75,700) 16,400 (223,800) (156,500)
Provision (Benefit) for Income Taxes...... - 49,200 - - (49,200)(5) -
------ ---------- ----------- --------- ----------- ----------
Net Income (Loss)........................ $ - $ 77,400 $ (75,700) $ 16,400 $ (174,600) $ (156,500)
------ ---------- ----------- --------- ----------- ----------
Net income (loss) per share:
Basic................................... $
Diluted................................. $
YEAR ENDED DECEMBER 31, 1997
Revenues:
Rental income........................... $ - $2,887,800 $3,039,300 $ - $ - $5,927,100
Interest and other income............... - - - 408,600 375,000 (4) 783,600
------ ---------- ----------- --------- ----------- ----------
Total Revenues............................ - 2,887,800 3,039,300 408,600 375,000 6,710,700
------ ---------- ----------- --------- ----------- ----------
Expenses:
Interest................................ - 1,721,500 2,046,800 343,600 714,100 (1) 4,482,400
(343,600)(2)
Depreciation............................ - 783,000 952,000 - - 1,735,000
Minority interest....................... - - 343,200 - - 343,200
Other................................... - 8,100 - - 900,000 (3) 908,100
------ ---------- ----------- --------- ----------- ----------
Total Expenses............................ - 2,512,600 3,342,000 343,600 1,270,500 7,468,700
------ ---------- ----------- --------- ----------- ----------
Income Before Taxes....................... - 375,200 (302,700) 65,000 (895,500) (758,000)
Provision (Benefit) for Income Taxes - 145,700 - - (145,700)(5) -
------ ---------- ----------- --------- ----------- ----------
Net Income (Loss)........................ $ - $ 229,500 $ (302,700) $ 65,000 $ (749,800) $(758,000)
------ ---------- ----------- --------- ----------- ----------
------ ---------- ----------- --------- ----------- ----------
Net income (loss) per share:
Basic................................... $
Diluted................................. $
</TABLE>
36
<PAGE>
NOTES TO PRO FORMA STATEMENTS OF OPERATIONS
(A) The Company had no operations prior to March 31, 1998.
(B) Reflects the historical revenue and expenses associated with the transfer
of the Healthcare Asset Group assets held by LTC. See Combined
Statements of Income of the Healthcare Asset Group at page F-7.
(C) The rental income, interest expense, depreciation and minority interest
represents the estimated revenues and expenses from the three skilled
nursing facilities and four assisted living facilities purchased by LTC
which will be transferred to the Company.
(D) Interest and other income represents interest income on $5 million of 7.5%
convertible subordinated debentures of Regent and dividends on 23,400
shares of LTC Common Stock. Interest expense represents interest at 10% on
the outstanding principal of approximately $3.4 million under the unsecured
line of credit provided by LTC.
(E) Represents the following pro forma adjustments as numbered on the
accompanying pro forma statements of operations: (1) interest expense at
8% on approximately $8.9 million of mortgage loans placed on two properties
in the Healthcare Asset Group on March 31, 1998; (2) reduction of interest
expense related to the repayment of approximately$3.4 million outstanding
principal under the unsecured line of credit provided by LTC; (3) estimated
general and administrative costs of forming and operating the Company; (4)
interest income on $5 million of 7.5% convertible subordinated debentures
of Regent, and (5) the elimination of the tax provision previously
recorded. No additional tax benefit was recorded because the realization
of tax benefits associated with net operating loss carryforwards is
dependent upon generating sufficient taxable income prior to their
expiration. There is a risk that a portion or all of the net operating
loss carryforwards may expire unused. As such, a valuation allowance has
been established against them.
37
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
NATURE OF BUSINESS
The Company was recently formed and has no operating history. The Company
was organized to engage in the following activities: (i) ownership of leveraged
properties leased to third parties; (ii) ownership of secured high yield
mortgage loans; (iii) operation of long-term care facilities; (iv) development
of long-term care properties; and (v) ownership of equity investments in
long-term care companies. The Company may pursue other business opportunities
in addition to the foregoing activities after the Distribution. The Company
intends to provide investors with return opportunities that are not generally
available to publicly traded REITs due to investment limitations and leverage
expectations imposed by the public markets and Federal income tax laws
applicable to REITs.
LIQUIDITY AND CAPITAL RESOURCES
In connection with the formation and capitalization of the Company, the
Company will have $20 million available under an unsecured line of credit
provided by LTC. Any borrowings under this line of credit bear interest at 10%
and are due in March 2008.
The Company anticipates that cash flow from operations will be adequate to
meet its short-term liquidity requirements. The Company expects to meet its
long term liquidity requirements such as property acquisitions and development,
the granting of high yield loans, the purchase of equity investments and
mortgage debt maturities through the most advantageous sources of capital
available to the Company at that time. This may include, but not be limited to,
the sale of common stock, preferred stock or debt securities through public
offerings or private placements, the incurrence of indebtedness through secured
or unsecured borrowings and the reinvestment of proceeds from the disposition of
assets.
Following the distribution, the Company will own approximately $49.1
million in real estate that will be encumbered with mortgages totaling
approximately $51.1 million. The Company will also own unencumbered assets
consisting of $10 million of 7.5% convertible subordinated debentures and
approximately $1.4 million in marketable equity securities.
As of the date of this Information Statement, the Company has no
commitments to purchase any additional assets. The Company intends to operate
its business as described herein, and may purchase additional assets from time
to time in the future. The purchase of additional assets will be contingent
upon securing adequate funding on terms acceptable to the Company. The Company
is not aware of any material unfavorable trends in either capital resources or
the outlook for long-term cash generation; nor, does it expect any material
changes in the availability and relative cost of such capital resources.
There are currently no material changes being considered in the objectives
and policies of the Company as set forth in this Information Statement.
OPERATING RESULTS
The results of operations for the Healthcare Asset Group are set forth
below.
38
<PAGE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Rental income for the year ended December 31, 1997 increased by $52,300 (or
approximately 1.8%) to $2,887,800 from $2,835,500. The increase in rental
income resulted primarily from an increase in contingent rent based on
incremental revenues generated by the facilities.
Interest expense increased approximately 18.8% to $1,721,500 for the year
ended December 31, 1997 from $1,449,200 for the year ended December 31, 1996.
During February 1996, two properties in Arizona and one property in Montana were
encumbered with mortgage loans totaling $18,875,000 bearing interest at 9.25%.
The increase in interest expense is the result of a full year of interest during
1997 compared to ten months of interest during 1996. Partially offsetting the
increase in interest expense was a decrease resulting from scheduled principal
payments on mortgage loans.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Rental income for the year ended December 31, 1996 increased by $6,300 as a
result of increased contingent rents based on incremental revenues generated by
the facilities.
Interest expense increased to $1,449,200 for the year ended December 31,
1996 from $0 for the year ended December 31, 1995. During February 1996, two
properties in Arizona and one property in Montana were encumbered with mortgage
loans totaling $18,875,000 bearing interest at 9.25%. Interest expense for the
year ended December 31, 1996 represents ten months of interest.
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Rental income for the three months ended March 31, 1998 increased by
$22,400 (or approximately 3.1%) to $749,800 from $727,400 for the three months
ended March 31, 1997. The increase in rental income is due to the renewal of
the lease on Coronado Care Center which resulted in an increase in the rent
recorded under the straight-line method of accounting for the facility.
Somewhat mitigating this increase in rent was a decrease in contingent rent
based on incremental revenues generated by the facilities.
The slight decrease in interest expense for the three months ended March
31, 1998 compared to the same period in 1997 was the result of scheduled
principal payments on mortgage loans.
STATEMENT REGARDING FORWARD LOOKING DISCLOSURE
Certain information contained in this report includes forward looking
statements, which can be identified by the use of forward looking terminology
such as "may", "will", "expect", "should" or comparable terms or negatives
thereof. These statements involve risks and uncertainties that could cause
actual results to differ materially from those described in the statements.
These risks and uncertainties include (without limitation) the following: the
effect of economic and market conditions and changes in interest rates,
government policy relating to the health care industry including changes in
reimbursement levels under the Medicare and Medicaid programs, changes in
reimbursement by other third party payors, the financial strength of the
operators of the Company's facilities as it affects the continuing ability of
such operators to meet their obligations to the Company under the terms of the
Company's agreements with its borrowers and operators, the amount and the timing
of additional investments and access to capital markets.
39
<PAGE>
THE COMPANY
GENERAL
The Company was organized to create and realize value by identifying and
making opportunistic real estate and health care investments through the direct
acquisition, development, financing and operation of real properties and/or
participation in these activities through the purchase of debt instruments or
equity interests of entities engaged in the health care or real estate
businesses. The Company intends to provide investors with return opportunities
that are not generally available to publicly traded REITs due to investment
limitations and leverage expectations imposed by the public markets and Federal
income tax laws applicable to REITs.
To a large extent, public REITs, including LTC, manage their property
portfolios with consideration to both public market perceptions and tax laws.
Because investors are seeking a consistent and growing income stream from their
REIT investments, REITs are encouraged to (i) grow FFO, an indicator of
performance in the REIT industry, (ii) maintain a low leverage ratio (debt to
total capitalization is one measure used to determine the relative risk of that
cash flow stream, as rising interest rates can diminish FFO and impact
dividends) and (iii) make conservative investments as evidenced by positive debt
service coverages or low per bed or per unit investments in health care
facilities. As a result, REITs have generally been hesitant to participate in
long-term, higher-risk development projects or to bring their leverage ratios
above 40.0%. In addition, the tax laws governing REITs include limitations on
(i) the types of assets that REITs may own and the time period that real estate
may be held, restricting REITs from investing in operating companies, equity
securities, debt securities and participating in short-term trading
opportunities, and (ii) the ability of REITs to retain earnings, requiring REITs
to distribute 95.0% of net taxable income, excluding capital gains, each year.
Further, because gains on the sales of real estate are not included in the
calculation of FFO, REITs are dissuaded from buying distressed assets which may
have substantial long-term appreciation potential but lack immediate cash flow.
In such an environment, the Company believes that significant opportunities
are available to those investors that are not restricted by the Federal income
tax laws governing REITs or influenced by public market perception with regard
to REIT securities. All of the properties to be transferred to the Company by
LTC are subject to long-term leases. Ownership of these properties by LTC is
consistent with the limitations on REITs described above however, LTC believes
it is in the best interests of LTC and its stockholders to transfer these
properties to the Company for the following reasons. As described above, REITs
are encouraged to increase FFO. Significant leverage on properties in the
Healthcare Asset Group and the LTC Partners IX, LP ("Partners IX") properties
results in such properties generating minimal FFO. As of March 31, 1998, the
total pro forma mortgages payable on these properties was $33,679,400. Expected
FFO and use of cash for the next twelve months, based on annual base rent and
debt service pursuant to leases and mortgages in effect on the Distribution
Date, is approximately $284,300 and $66,700, respectively, for the properties in
the Healthcare Asset Group and the LTC Partners IX properties. LTC's investment
strategy has been to make conservative, low cost per unit/bed investments. As
of March 31, 1998, LTC's average investment in owned assisted living facilities
was approximately $60,000 per unit. The properties acquired from Karrington
Health, Inc. were acquired for approximately $125,000 per unit and LTC has the
opportunity to finance 75% of the purchase price of these properties with
non-recourse mortgage financing, and the remaining 25% of the purchase price
with equity. Because the leveraged returns are attractive, LTC felt this was a
more appropriate investment for Healthcare.
40
<PAGE>
In addition to the properties it will own immediately following the
Distribution, the Company intends to invest in a variety of real estate related
assets such as (i) development opportunities that provide substantial value
appreciation rather than immediate cash flow, (ii) properties with long-term
leases enabling the Company to utilize a substantial amount of leverage,
(iii) properties requiring substantial repositioning or restructuring in order
to create significant value, and (iv) public and private debt and equity
securities of real estate and health care-related entities. Although such real
estate related assets are not subject to the limitations applicable to REITs
described above, there are some risks associated with investments in these types
of assets. See "RISK FACTORS-Disadvantages of Investments in Debt Instruments";
"-Limited Remedies Upon Default of Mortgage Loans"; "-Disadvantages of
Investments in Commercial Mortgage-Backed Securities" and "-Limitations on
Remedies Upon Default." Further, the Company will be able to manage the timing
of asset dispositions without regard to the minimum hold periods required of
REITs while also acquiring properties using substantial, yet prudent, leverage,
to increase returns on what otherwise might be less attractive investments. As
opportunities emerge, the Company may in the future expand its real estate
related businesses and activities beyond the areas listed above.
The Company and LTC will enter into the Intercompany Agreement on or prior
to the Distribution Date to provide each other with rights to participate in
certain transactions. See "RISK FACTORS-Possible Conflicts with LTC After the
Distribution"; "RELATIONSHIP BETWEEN HEALTHCARE AND LTC AFTER THE
DISTRIBUTION-Policies and Procedures for Addressing Conflicts" and
"-Intercompany Agreement."
The Company currently does not intend to qualify as a REIT under the Code.
Consequently, the Company has the flexibility to respond quickly to
opportunities without the structural limitations inherent in REITs and to
operate, when deemed advantageous by management, on a more highly leveraged
basis than most REITs. By not qualifying as a REIT under the Code (which would
require the Company to distribute each year at least 95.0% of its net taxable
income, excluding capital gains), the Company has the ability and currently
intends to retain for reinvestment its cash flow generated from operations and
to sell properties without the substantial income tax penalties which may be
imposed on REITs in such transactions. In addition, the Company differs from
real estate opportunity funds that are typically structured as private
partnerships. In that regard, the business of the Company is conducted without
the payment of acquisition, disposition or management fees to general partners
which should result in additional cash flow being available for reinvestment.
In addition, unlike investors in opportunity funds, the Company's stockholders
will have voting rights and are expected to have enhanced liquidity through
their ability to sell or margin their stock. The Company also hopes to attract
a broader range of investors because there will be no stipulated investment
minimum. However, unlike REITs and opportunity funds, the Company is subject to
corporate level taxation.
In pursuing the real estate related opportunities described above, the
Company expects to compete for real estate investments with many public and
private real estate investment vehicles, including financial institutions (such
as mortgage banks, pension funds and REITs) and other institutional investors,
as well as individuals. The real estate industry and the process of
identifying, completing and acquiring real estate investments has from time to
time been highly competitive. In addition, many of those with whom the Company
will compete for investments are far larger than the Company, may have greater
financial resources than the Company and may have management personnel with more
experience than the officers of the Company. See "RISK FACTORS-Difficulty of
Locating Suitable Investments; Competition."
41
<PAGE>
The Company was incorporated under the laws of Nevada on March 20, 1998.
The Company's executive offices are located at 300 Esplanade Drive, Suite 1860,
Oxnard, California 93030, and its telephone number is (805) 981-8655.
INTERCOMPANY AGREEMENT
The Company and LTC will enter into the Intercompany Agreement on or
prior to the Distribution Date to provide each other with rights to
participate in certain transactions. Pursuant to the Intercompany Agreement,
during the term thereof, the Company will agree not to engage in activities
or make investments that involve real estate, unless it has first provided
written notice to LTC of the material terms and conditions of such activities
or investments, and LTC has determined not to pursue such activities or
investments either by providing written notice to the Company rejecting the
opportunity within ten days following the date of receipt of notice of the
opportunity or by allowing such ten-day period to lapse.
Pursuant to the Intercompany Agreement, during the term thereof, the
Company and LTC also will agree to notify each other of, and make available to
each other, investment opportunities which they develop or of which they become
aware but are unable or unwilling to pursue. The Company also agrees not to
prepay or cause to be prepaid any of its mortgage loans provided by LTC which
are securitized in REMIC transactions. The Intercompany Agreement has a term of
ten years but may be terminated earlier upon a change of control of LTC. See
"RISK FACTORS-Possible Conflicts with LTC After the Distribution" and
"RELATIONSHIP BETWEEN HEALTHCARE AND LTC AFTER THE DISTRIBUTION-Policies and
Procedures for Addressing Conflicts."
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BUSINESS AND PROPERTIES
INITIAL INVESTMENTS
Healthcare was formed in March 1998 and immediately began making
investments. Healthcare's first investment was the purchase of convertible
subordinated debentures from Regent. Healthcare's second investment was the
purchase of shares of LTC Common Stock. The details of these investments are
further described below.
CONVERTIBLE SUBORDINATED DEBENTURES OF REGENT
In March 1998, pursuant to the terms of a Convertible Subordinated
Debenture Purchase Agreement (the "Regent Purchase Agreement"), Healthcare
agreed to invest $10.0 million in Regent in the form of Convertible Subordinated
Debentures due 2008 (the "Regent Debentures"). Regent is a publicly traded
(NASDAQ:RGNT) owner, operator and developer of high quality assisted living
communities. Assisted living is part of a spectrum of long-term care services
that provide a combination of housing, personal services and health care
designed to respond to elderly individuals who require assistance with
activities of daily living in a manner that promotes maximum independence.
Regent caters to private pay residents and provides graduated levels of care
within their communities. As of March 31, 1998 Regent's operating capacity
totaled 2,004 beds in 17 assisted living communities located in seven states.
As of April 30, 1998, LTC has provided $19.8 million of sale/leaseback financing
to Regent on three assisted living communities with 257 units in California, New
Mexico and Oregon. In addition, LTC has commitments to Regent of approximately
$53.9 million to be funded over the next seven months. Based upon public
reports filed by Regent with the Commission, Regent reported a net operating
loss and net loss of approximately $4.1 million and $3.9 million, respectively,
for the year ended December 31, 1997 and total assets and shareholders' equity
of approximately $75.7 million and $15.9 million, respectively, at December 31,
1997.
On March 30, 1998, pursuant to the terms of the Regent Purchase Agreement,
Healthcare purchased $4.0 million aggregate principal amount of Regent
Debentures, and on April 22, 1998, Healthcare purchased an additional $1.0
million aggregate principal amount of Regent Debentures. Additionally, pursuant
to the Purchase Agreement, Healthcare must purchase up to an additional $5.0
million principal amount of Regent Debentures on or prior to March 31, 2000.
The Regent Debentures bear interest at 7.5% and are convertible, at any time in
whole or in part at Healthcare's option, into Regent common stock at a price of
$7.50 per share, subject to adjustment. Regent can require conversion of the
Regent Debentures at such time as the Regent common stock trades at $12 per
share or more for thirty consecutive days. Assuming that Healthcare has
purchased all additional Regent Debentures required to be purchased under the
Regent Purchase Agreement, and assuming that all such additional debentures are
converted, Healthcare would hold approximately 1.3 million shares of Regent
common stock.
Healthcare also entered into a Registration Rights Agreement with Regent
pursuant to which Healthcare has, among other things, the right, under certain
circumstances and subject to certain conditions and exceptions, to require
Regent to register all or any portion of the shares of Regent common stock
issued to it upon conversion of all or any portion of the Regent Debentures.
LTC COMMON STOCK
In April 1998, the Company purchased for investment purposes, 23,400 shares
of LTC Common Stock. The shares were purchased at a weighted average price of
$18.62 per share for a total investment
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amount of approximately $435,700. As of April 30, 1998, the fair market value
of such shares of LTC Common Stock was $459,200 or $19.625 per share (based on
the closing sales price of such common stock on the New York Stock Exchange on
such date). The Company classifies its investment in LTC Common Stock as
available-for-sale. Changes in LTC Common Stock's fair market value are
reported as a separate component of equity on Healthcare's balance sheet. LTC
reported total revenues and net income of approximately $73.4 million and $35.8
million, respectively, for the year ended December 31, 1997, and total assets
and stockholders' equity of $656.7 million and $386.1 million, respectively, at
December 31, 1997.
PROPERTIES TO BE TRANSFERRED TO HEALTHCARE PRIOR TO THE DISTRIBUTION
Pursuant to the terms of the Distribution Agreement, prior to the
Distribution, LTC will transfer all outstanding shares of capital stock of
several wholly owned subsidiaries to Healthcare. As a result of such transfer,
such subsidiaries will become wholly owned subsidiaries of Healthcare. Such
subsidiaries currently operate (and, after such contribution, Healthcare intends
to operate through such subsidiaries) the properties described below.
CORONADO CARE CENTER
In May 1994, LTC acquired Coronado Care Center, a 193 bed skilled nursing
facility located in Phoenix, Arizona. Coronado Care Center is a 38,400
square-foot single-story building situated on approximately 2.9 acres of land
located in a stable multi-family and business area. The facility was
constructed in 1985 with an addition of a 64-bed Alzheimer's wing in 1992.
Coronado Care Center provides a wide range of skilled nursing, subacute
medical and subacute rehabilitation services, including ancillary therapies, as
well as specialized Alzheimer's care. The facility is operated by Sunrise
Healthcare Corporation ("Sunrise"), a wholly owned subsidiary of the Sun
Healthcare Group, Inc. ("Sun"), a public company and a leading provider of
long-term health care services. The facility receives significant referrals
from local area hospitals and has maintained occupancy rates in excess of 95%
over the past three years. The facility competes with two other skilled nursing
facilities located within a two-mile radius; however, both competitors have
occupancy rates in excess of 90%. The facility has generated gross operating
cash flows (defined as cash flow before rent, non-cash charges, and management
fees) of approximately $2.0 million for each of the years ended December 31,
1995, 1996 and 1997.
LTC acquired Coronado Care Center for approximately $7.2 million or $37,300
per bed. LTC's current book value associated with such property is
approximately $6.2 million. The facility is leased to Sunrise on a "triple-net"
basis. Under the terms of the lease, the current annual rent is approximately
$810,000 with annual increases of 3%. Sunrise exercised its first lease renewal
option in January 1998, which expires in December 2002. Sunrise has the option
to extend the lease for an additional five-year term at that time. In addition,
Sunrise has a right of first refusal to purchase the facility upon an acceptable
bona fide offer to buy from a third party or if the facility is offered for
sale.
In March 1996, the ownership of the facility was transferred to Coronado
Corporation, a Delaware corporation ("Coronado Corp."), a wholly owned
subsidiary of LTC. Concurrently with the transfer, a non-recourse mortgage loan
of approximately $7.8 million was placed on the facility by LTC. The loan bears
interest at rate of 9.25% per annum with monthly scheduled principal and
interest payments based on a 25-year amortization period. The current balance
of the loan is approximately $7.7 million with an annual debt service
requirement of approximately $808,000. The mortgage has a 10-year maturity with
a scheduled balloon payment of approximately $6.6 million due in March 2006.
The
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mortgage is prepayable in whole or in part at any time without penalty.
However, pursuant to the Intercompany Agreement, Healthcare has agreed not to
prepay or cause to be prepaid any of its mortgage loans provided by LTC which
are securitized in REMIC transactions. The mortgage was subsequently sold by
LTC through a REMIC securitization completed in March 1996.
MISSOURI RIVER MANOR
In December 1992, LTC acquired Missouri River Manor, a 278-bed skilled
nursing facility located in Great Falls, Montana. Missouri River Manor is a
101,200 square-foot single-story building situated on approximately 15.6 acres
of land located in a stable rural area. The facility was constructed in 1960
with an 18,600 square-foot addition completed in 1990.
Missouri River Manor provides a wide range of skilled nursing services. In
addition, ancillary services such as physical, speech and other therapies are
provided as contracted services. Through September 1997 the facility was
operated by Horizon/CMS Healthcare Corporation ("Horizon"), a public company and
leading provider of long-term health care services. In October 1997, Integrated
Health Services, Inc. ("Integrated"), another large public operator of long-term
care facilities acquired the operations of Horizon and is now the facility's
operator. Over the past three years the facility has maintained occupancy rates
above 85%. The facility competes with two other skilled nursing facilities;
however, both competitors are located several miles from the facility. The
facility has generated gross operating cash flows (defined as cash flow before
rent, non-cash charges, and management fees) ranging between approximately $1.7
and $2.0 million for each of the years ended December 31, 1995, 1996 and 1997.
LTC acquired Missouri River Manor for approximately $3.9 million or $14,000
per bed. LTC's current book value associated with such property is
approximately $3.0 million. The lease with Horizon (which was assumed by
Integrated) was provided on a "triple-net" basis. The current annual base rent
is approximately $420,000, which is fixed; however, incremental rents are due
based upon 4% of incremental revenues over base year 1993 revenues. Incremental
rents were approximately $117,200 for the year ended December 31, 1997. The
initial lease term expires January 1, 2003; however, Integrated has the option
to extend the lease for an additional six five-year terms. The lease does not
contain a right of first refusal or purchase option.
In March 1996, the ownership of the facility was transferred to Missouri
River Corporation, a Delaware corporation ("Missouri River Corp."), a wholly
owned subsidiary of LTC. Concurrently with the transfer, a non-recourse
mortgage loan of approximately $4.4 million was placed on the facility by LTC.
The loan bears interest at rate of 9.25% per annum with monthly scheduled
principal and interest payments based on a 25-year amortization period. The
current balance of the loan is approximately $4.3 million with an annual debt
service requirement of approximately $449,000. The mortgage has a 10-year
maturity with a scheduled balloon payment of approximately $3.6 million due in
March 2006. The mortgage is prepayable in whole or in part at any time without
penalty. However, pursuant to the Intercompany Agreement, Healthcare has agreed
not to prepay or cause to be prepaid any of its mortgage loans provided by LTC
which are securitized in REMIC transactions. The mortgage was subsequently sold
by LTC through a REMIC securitization completed in March 1996.
PARK VILLA CONVALESCENT CENTER
In March 1993, LTC acquired Park Villa Convalescent Center ("Park Villa"),
a 200-bed skilled nursing facility located in Tucson, Arizona. Park Villa is a
64,100 square-foot two-story building
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situated on approximately 2.3 acres of land located in a stable residential and
multi-family area and is approximately one mile north of the University of
Arizona. The facility was constructed in 1985.
Park Villa provides a wide range of skilled nursing, subacute medical and
subacute rehabilitation services, including ancillary therapies. Park Villa
also offers Alzheimer's care. The facility is operated by Sunrise. The
facility competes with four other skilled nursing facilities; however, their
proximity ranges from 4 to 10 miles. Occupancy for the facility in 1997 was
approximately 80%. The facility has generated gross operating cash flows
(defined as cash flow before rent, non-cash charges, and management fees) in
excess of $1.2 million for each of the years ended December 31, 1995, 1996 and
1997.
LTC acquired Park Villa for approximately $4.1 million or $20,500 per bed.
LTC's current book value associated with such property is approximately $3.4
million. The facility is leased to Sunrise on a "triple-net" basis. Under the
terms of the lease, the current annual rent is approximately $739,000 with
scheduled annual increases of 3%. The initial term of the lease expires April
1, 2003. Sunrise has the option to extend the lease for three additional
five-year terms. The lease does not contain a right of first refusal or purchase
option.
In March 1996, the ownership of the facility was transferred to Park Villa
Corporation, a Delaware corporation ("Park Villa Corp."), a wholly owned
subsidiary of LTC. Concurrently with the transfer, a non-recourse mortgage loan
of approximately $6.6 million was placed on the facility by LTC. The loan
bears interest at rate of 9.25% per annum with monthly scheduled principal and
interest payments based on a 25-year amortization period. The current balance of
the loan is approximately $6.5 million with an annual debt service requirement
of approximately $683,000. The mortgage has a 10-year maturity with a scheduled
balloon payment of approximately $5.5 million due in March 2006. The mortgage
is prepayable in whole or in part at any time without penalty. However, pursuant
to the Intercompany Agreement, Healthcare has agreed not to prepay or cause to
be prepaid any of its mortgage loans provided by LTC which are securitized in
REMIC transactions. The mortgage was subsequently sold by LTC through a REMIC
securitization completed in March 1996.
CASA MARIA NURSING HOME
In November 1992, LTC acquired Casa Maria Nursing Home ("Casa Maria"), a
116-bed skilled nursing facility located in Roswell, New Mexico. Casa Maria is
a 47,800 square-foot single-story building situated on approximately 6.4 acres
of land located in a stable residential and multi-family area. The facility was
constructed in 1979 with an addition completed in 1990. The facility is located
immediately south of Eastern New Mexico Medical Center.
Casa Maria provides a wide range of skilled nursing services. In addition,
ancillary services such as physical, speech and other therapies are provided as
contracted services. Through September 1997 the facility was operated by
Horizon. In October 1997, Integrated acquired the operations of Horizon and is
now the facility's operator. Over the past three years, the facility has
maintained occupancy rates in excess of 95%. The facility competes with two
other skilled nursing facilities; however, both competitors are located several
miles from the facility. The facility has generated gross operating cash flows
(defined as cash flow before rent, non-cash charges, and management fees)
ranging from approximately $0.8 million to $1.0 million for each of the years
ended December 31, 1995, 1996 and 1997.
LTC acquired Casa Maria for approximately $3.0 million or $25,800 per bed.
LTC's current book value associated with such property is approximately $2.4
million. The lease with Horizon (which
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was assumed by Integrated) was provided on a "triple-net" basis. The current
annual base rent is approximately $360,000, which is fixed; however, incremental
rents are due based upon 4% of incremental revenues over lease year 1994
revenues. Incremental rents were approximately $14,000 for the year ended
December 31, 1997. The initial lease term expires November 2002; however,
Integrated has the option to extend the lease for an additional six five-year
terms. The lease does not contain a right of first refusal or purchase option.
In March 1998, the ownership of the facility was transferred to LTC-New
Mexico, Inc. ("New Mexico Corp."), a wholly owned subsidiary of LTC.
Concurrently with the transfer, a non-recourse mortgage loan of approximately
$4.1 million was placed on the facility by LTC. The loan bears interest at rate
of 8.00% per annum and is fully amortizing over 30 years. Interest and principal
is payable monthly with an annual debt service requirement of approximately
$360,000. The mortgage is prepayable in whole or in part at any time subject to
a yield maintenance penalty. However, pursuant to the Intercompany Agreement,
Healthcare has agreed not to prepay or cause to be prepaid any of its mortgage
loans provided by LTC which are securitized in REMIC transactions. The mortgage
was subsequently sold in a REMIC securitization that was completed in May 1998.
CASA ARENA BLANCA
In March 1993, LTC acquired Casa Arena Blanca Nursing Home ("Casa Arena"),
a 120-bed skilled nursing facility located in Alamogordo, New Mexico.
Alamogordo is located approximately 90 miles north of El Paso Texas. Casa Arena
is a 43,000 square-foot single-story building situated on approximately 7.8
acres of land located in a stable multi-family area. The facility was
constructed in 1985.
Casa Arena provides a wide range of skilled nursing services. In addition,
ancillary services such as physical, speech and other therapies are provided as
contracted services. Through September 1997 the facility was operated by
Horizon. In October 1997, Integrated acquired the operations of Horizon and is
now the facility's operator. Over the past three years, the facility has
maintained occupancy rates above 90%. The facility competes with one other
skilled nursing facility which is located approximately 1.5 miles from the
facility. The facility has generated gross operating cash flows (defined as
cash flow before rent, non-cash charges, and management fees) ranging between
approximately $1.0 million and $1.5 million for each of the years ended December
31, 1995, 1996 and 1997.
LTC acquired Casa Arena for approximately $3.9 million or $32,300 per bed.
LTC's current book value associated with such property is approximately $3.2
million. The lease with Horizon (which was assumed by Integrated) was provided
on a "triple-net" basis. The current annual base rent is approximately $426,000
which is fixed; however, incremental rents are due based upon 4% of incremental
revenues over lease year 1994 revenues. Incremental rents were approximately
$20,300 for the year ended December 31, 1997. The initial lease term expires
March 2003; however, Integrated has the option to extend the lease for an
additional six five-year terms. The lease does not contain a right of first
refusal or purchase option.
In March 1998, the ownership of the facility was transferred to New Mexico
Corp. Concurrently with the transfer, a non-recourse mortgage loan of
approximately $4.8 million was placed on the facility by LTC. The loan bears
interest at rate of 8.00% per annum and is fully amortizing over 30 years.
Interest and principal is payable monthly with an annual debt service
requirement of approximately $426,000. The mortgage is prepayable in whole or in
part at any time subject to a yield maintenance penalty. However, pursuant to
the Intercompany Agreement, Healthcare has agreed not to prepay or cause to be
prepaid any of its mortgage loans provided by LTC which are securitized in REMIC
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transactions. The mortgage was subsequently sold in a REMIC securitization that
was completed in May 1998.
LTC PARTNERS IX PROPERTIES
In February 1998, LTC acquired three skilled nursing facilities through the
formation of a limited partnership, Partners IX. The transaction was effected
through the contribution of a 100% undivided interest in the three properties by
the previous general partners. In exchange for the contribution of such
properties, the contributing general partners became limited partners of
Partners IX and received 201,882 partnership units. A wholly owned subsidiary
of LTC, LTC GP VI, Inc., is currently the general partner of Partners IX.
Two of the facilities were contributed subject to mortgage debt that was
financed by LTC in August 1992. These two mortgages were subsequently sold by
LTC in a REMIC securitization in July 1993. Additionally, subsequent to the
acquisition of the properties by the partnership, LTC provided $2.9 million of
mortgage financing on the third facility. The financing was used to repay
approximately $689,000 of outstanding debt on the facility and the remaining
proceeds of approximately $2.2 million were distributed to the general partner,
and then subsequently transferred to LTC.
Under the terms of the partnership agreement, the limited partners receive
a 10% preferred return on their partnership units. The limited partnership
units are convertible into LTC Common Stock at any time at a price of $17 per
share. In addition, the limited partners receive 10% of any excess cash flow
generated by the partnership.
SUNRISE GOLDEN AGE CARE & REHABILITATION
In February 1998, LTC acquired an interest in SunRise Golden Age Care &
Rehabilitation ("Golden Age") in the above described Partners IX transaction.
Golden Age is an 82-bed skilled nursing facility located in Clovis, New Mexico.
Golden Age is a 28,150 square-foot one-story building situated on approximately
2.3 acres of land located in a rural residential area. The facility was
constructed in 1969, with an addition of a 28 bed wing in 1995.
Golden Age provides a wide range of skilled nursing, subacute medical and
subacute rehabilitation services, including ancillary therapies. The facility is
currently operated by Sunrise. The facility competes with three other skilled
nursing facilities (including High Plains described below) within three to five
miles. Two of these facilities have occupancy rates of approximately 98%. For
the year ended December 31, 1997, the facility generated gross operating cash
flows (defined as cash flow before rent, non-cash charges, and management fees)
of approximately $1.3 million and had an occupancy rate of 99%.
Partners IX acquired the Golden Age facility for approximately $2.0 million
or $24,300 per bed. The facility is leased to Sunrise on a "triple-net" basis.
Under the terms of the lease, the current annual rent is $261,000, which is
fixed. The initial term of the lease expires July 31, 2001. Sunrise has the
option to extend the lease for two additional six-year terms. The lease does not
contain a right of first refusal or purchase option.
Subsequent to the acquisition of the facility, LTC placed a non-recourse
mortgage loan of $2.9 million on the facility. The loan bears interest at rate
of 8.50% per annum with monthly scheduled principal and interest payments based
on a 30-year amortization period. The current balance of the loan is
approximately $2.9 million with an annual debt service requirement of
approximately $267,500. The
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mortgage has a 15-year maturity with a scheduled balloon payment of
approximately $2.3 million due in March 2013. The mortgage is not prepayable in
whole or in part at any time without consent of the lender. In addition, upon a
sale of any portion of the borrower's interest in the mortgaged property, the
borrower is required to prepay the entire loan with a yield maintenance penalty.
Moreover, pursuant to the Intercompany Agreement, Healthcare has agreed not to
prepay or cause to be prepaid any of its mortgage loans provided by LTC which
are securitized in REMIC transactions. The mortgage was subsequently sold in a
REMIC securitization that was completed in May 1998.
SUNRISE HIGH PLAINS CARE & REHABILITATION
In February 1998, LTC acquired an interest in SunRise High Plains Care &
Rehabilitation ("High Plains") in the above described Partners IX transaction.
High Plains is a 76-bed skilled nursing facility located in Clovis, New Mexico.
The facility is a 21,500 square-foot one-story building situated on
approximately 2.0 acres of land located in a stable commercial area. The
facility was constructed in 1968.
High Plains provides a wide range of skilled nursing, subacute medical and
subacute rehabilitation services, including ancillary therapies. The facility
is currently operated by Sunrise. The facility competes with another skilled
nursing facility located approximately one-mile away, which has a 98% occupancy
rate. Golden Age (described above) is also a competitor. During the three prior
years, the facility's occupancy rates have been in excess of 90% with an
occupancy rate of approximately 97% in 1997. The facility has generated gross
operating cash flows (defined as cash flow before rent, non-cash charges, and
management fees) in excess of $750,000 for each of the years ended December 31,
1995, 1996 and 1997.
Partners IX acquired the High Plains facility for approximately $2.6
million or $34,200 per bed, subject to an existing mortgage loan of
approximately $1.7 million. The facility is leased to Sunrise on a "triple-net"
basis. Under the terms of the lease, the current annual rent is $342,000, which
is fixed. The initial term of the lease expires July 31, 2001. Sunrise has the
option to extend the lease for two additional six-year terms. The lease does not
contain a right of first refusal or purchase option.
As indicated above, the facility was acquired subject a non-recourse
mortgage loan of approximately $1.7 million. The mortgage was originated by LTC
in August 1992. In July 1993, LTC sold the mortgage in a REMIC securitization.
Currently, the loan bears interest at rate of 12% per annum with monthly
scheduled principal and interest payments based on a 25-year amortization
period. The current balance of the loan is approximately $1.7 million and the
current annual debt service is approximately $210,000. The mortgage has a
10-year maturity with a scheduled balloon payment of approximately $1.6 million
due in September 2002. The mortgage is not prepayable unless the facility is
sold. However, in the event of a sale, the borrower is required to substitute
another similar skilled nursing facility such that the original terms of the
note will be satisfied. Moreover, pursuant to the Intercompany Agreement,
Healthcare has agreed not to prepay or cause to be prepaid any of its mortgage
loans provided by LTC which are securitized in REMIC transactions.
BOULEVARD MANOR
In February 1998, LTC acquired an interest in Boulevard Manor in the above
described Partners IX transaction. Boulevard Manor is a 122-bed skilled nursing
facility located in Richland Hills, Texas. The facility is a 32,000 square-foot
one-story building situated on approximately 2.4 acres of land located in a
stable mixed area. The facility was originally constructed around in 1964;
however, an addition and major renovations were completed in 1976.
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Boulevard Manor provides a wide range of skilled nursing services,
including ancillary therapies. The facility is operated by Sensitive Care, Inc.
("Sensitive Care"), a regional nursing home operator in Texas. The facility
competes with four other skilled nursing facilities in the area. During the
three prior years, the facility's occupancy rates have been in excess of 85%.
The facility has generated gross operating cash flows (defined as cash flow
before rent, non-cash charges, and management fees) of approximately $550,000
for each of the years ended December 31, 1995, 1996 and interim 1997.
Partners IX acquired the Boulevard Manor facility for approximately $2.9
million or $23,800 per bed, which approximated its fair value, subject to an
existing mortgage loan of approximately $1.8 million. The facility is leased to
Sensitive Care on a "triple-net" basis. Under the terms of the lease, the
current annual rent is $344,000, with annual increases of 3%. The initial term
of the lease expires in September 2003. Sensitive Care has the option to extend
the lease at the end of the initial term on a year-to-year basis. The lease does
not contain a right of first refusal or purchase option.
As indicated above, the facility was acquired subject a non-recourse
mortgage loan of approximately $1.8 million. The mortgage was originated by LTC
in August 1992. In July 1993, LTC sold the mortgage in a REMIC securitization.
Currently, the loan bears interest at rate of 12% per annum with monthly
scheduled principal and interest payments based on a 25-year amortization
period. The current loan balance is approximately $1.8 million and the annual
debt service is approximately $222,000. The mortgage has a 10-year maturity
with a scheduled balloon payment of approximately $1.7 million due in September
2002. The mortgage is not prepayable unless the facility is sold. However, in
the event of a sale, the borrower is required to substitute another similar
skilled nursing facility such that the original terms of the note will be
satisfied. Moreover, pursuant to the Intercompany Agreement, Healthcare has
agreed not to prepay or cause to be prepaid any of its mortgage loans provided
by LTC which are securitized in REMIC transactions.
KARRINGTON PROPERTIES
In April 1998, LTC-Ohio, Inc., a wholly-owned subsidiary of LTC, doing
business in the State of Ohio as LTC Properties-Ohio, Inc. ("Ohio Corp.")
acquired three assisted living facilities and one Alzheimers facility from
Karrington Health Inc. ("Karrington") pursuant to a sale-leaseback transaction.
The facilities were purchased for a total of $23,250,000 or approximately
$125,000 per unit. Under the terms of the lease, the current annual rent is
$2,092,500; however, annual rents are increased by 150% of the change in the CPI
for the year, but in no event will the annual increase be greater than 2%. All
of the facilities are located in the suburbs of Columbus, Ohio.
The facilities are operated by Karrington Operating Company, Inc. ("KOC"),
a wholly-owned subsidiary of Karrington, which is a publicly traded company
based in Columbus, Ohio. Karrington owns and operates private pay assisted
living facilities for physically frail and cognitively impaired seniors.
In connection with these assets, Ohio Corp. is currently negotiating the
terms of a $17.4 million non-recourse loan with a third-party lender. The loan
is expected to bear interest at 8% per annum with monthly scheduled principal
and interest payments based on a 25-year amortization period. The initial loan
balance will be $17.4 million and the annualized debt service will be
approximately $1,612,000. The mortgage will have a 10-year maturity with a
scheduled balloon payment of approximately $14.5 million due at maturity. The
mortgage will not be pre-payable; however, at any time after three years the
mortgage allows for defeasance.
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KARRINGTON ON THE SCIOTO
In April 1998, Ohio Corp. acquired Karrington on the Scioto, a 53 unit
assisted living facility located in Upper Arlington, Ohio which is a suburb of
Columbus. Karrington on the Scioto is a 34,000 square foot three-story building
situated on approximately 1.7 acres of land located in a residential area across
the street from the Scioto River. The facility was constructed in 1993.
Karrington on the Scioto provides a wide range of assisted living as well
as specialized Alzheimer's care to its residents. In addition, the facility
provides a high level of amenities to its residents, which allows the facility
to have a "home-like" atmosphere. The facility is operated by KOC and receives
significant referrals from the medical community and has maintained occupancy
rates in excess of 95% since 1996. The facility competes with four other
assisted living facilities within a five mile radius with an average occupancy
of 87%. The facility has generated gross operating cash flows (defined as cash
flow before rent, non-cash charges, and management fees) of approximately
$850,000 for each of the years ended 1996 and 1997.
Ohio Corp. acquired Karrington on the Scioto for approximately $6.6 million
or $125,000 per unit. Under the terms of the lease, the current annual rent is
approximately $596,250; however, annual rents are increased by 150% of the
change in the CPI for the year, but in no event will the annual increase be
greater than 2%. The initial lease terms expire in April 2018; however, KOC
will have two consecutive ten-year options to extend the leases so long as it
extends the leases for all of the properties. There is no right of first
refusal or purchase option in any of the leases.
KARRINGTON OF BEXLEY
In April 1998, Ohio Corp. acquired Karrington of Bexley, a 53 unit assisted
living facility located in Bexley, Ohio which is a suburb of Columbus.
Karrington of Bexley is a 32,000 square foot three-story building situated on
approximately one acre of land. The facility was constructed in 1992.
Karrington of Bexley provides a wide range of assisted living as well as
specialized Alzheimer's care to its residents. In addition, the facility
provides a high level of amenities to its residents, which allows the facility
to have a "home-like" atmosphere. The facility is operated by KOC and receives
significant referrals from the medical community. This facility has maintained
occupancy rates in excess of 88% since 1996. The facility competes with two
other assisted living facilities within a five mile radius with average
occupancies of 83%. The facility has generated gross operating cash flows
(defined as cash flow before rent, non-cash charges, and management fees) of
approximately $750,000 for each of the years ended 1996 and 1997.
Ohio Corp. acquired Karrington of Bexley for approximately $6.6 million or
$125,000 per unit. Under the terms of the lease, the current annual rent is
approximately $596,250; however, annual rents are increased by 150% of the
change in the CPI for the year, but in no event will the annual increase be
greater than 2%. The initial lease term expires in April 2018; however, KOC will
have two consecutive ten-year options to extend the lease so long as it extends
the leases for Karrington on the Scioto, Karrington at Tucker Creek and
Karrington Place. There is no right of first refusal or purchase option in the
lease.
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KARRINGTON AT TUCKER CREEK
In April 1998, Ohio Corp. LTC acquired Karrington at Tucker Creek, a 54
unit assisted living facility located in Worthington, Ohio which is a suburb of
Columbus, Ohio. Karrington at Tucker Creek is a 35,500 square foot three-story
building situated on approximately 2.1 acres of land.
Karrington at Tucker Creek provides a wide range of assisted living as well
as specialized Alzheimer's care to its residents. In addition, the facility
provides a high level of amenities to its residents, which allows the facility
to have a "home-like" atmosphere. The facility is operated by KOC and receives
significant referrals from the medical community. This facility has maintained
occupancy rates in excess of 93% since 1996. The facility competes with one
other assisted living facility within a five mile radius with an occupancy of
1000%. The facility has generated gross operating cash flows (defined as cash
flow before rent, non-cash charges, and management fees) of approximately
$800,000 for each of the years ended 1996 and 1997.
Ohio Corp. acquired Karrington at Tucker Creek for approximately $6.8
million or $125,000 per unit. Under the terms of the lease, the current annual
rent is approximately $607,500; however, annual rents are increased by 150% of
the change in the CPI for the year, but in no event will the annual increase be
greater than 2%. The initial lease term expires in April 2018; however, KOC will
have two consecutive ten-year options to extend the lease so long as it extends
the leases for Karrington on the Scioto, Karrington of Bexley and Karrington
Place. There is no right of first refusal or purchase option in the lease.
KARRINGTON PLACE
In April 1998, Ohio Corp. acquired Karrington Place, a 26-unit Alzheimer's
facility located in Worthington, Ohio which is a suburb of Columbus, Ohio.
Karrington Place is a 18,000 square foot three-story building situated on
approximately 0.6 acre of land.
Karrington Place is a stand-alone facility that provides a wide range of
services to Alzheimer's residents. The facility is operated by KOC and receives
significant referrals from the medical community. This facility has maintained
occupancy rates in excess of 85% in its first full year since opening in
February of 1996. The facility competes with three other Alzheimer facilities
within a five mile radius with an average occupancy of 96%. The facility has
generated gross operating cash flows (defined as cash flow before rent, non-cash
charges, and management fees) of approximately $400,000 for the year 1997.
Ohio Corp. acquired Karrington Place for approximately $3.3 million or
$125,000 per unit. Under the terms of the lease, the current annual rent is
approximately $292,500; however, annual rents are increased by 150% of the
change in the CPI for the year, but in no event will the annual increase be
greater than 2%. The initial lease term expires in April 2018; however, KOC will
have two consecutive ten year options to extend the lease so long as it extends
the leases for Karrington on the Scioto, Karrington of Bexley and Karrington at
Tucker Creek. There is no right of first refusal or purchase option in the
lease.
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EQUITY INVESTMENTS
ASSISTED LIVING CONCEPTS, INC. COMMON STOCK
In September 1997, LTC received 30,847 shares of common stock of Assisted
Living Concepts, Inc. ("ALC") in exchange for LTC's 9.9% ownership interest in a
private assisted living company. ALC is a publicly traded (AMEX:ALF), national
owner, operator and developer of assisted living residences for older adults who
need assistance with activities of daily living such as bathing and dressing.
In addition to housing, ALC provides personal care, support services and makes
nursing services available according to the individual needs of its residents.
As of December 31, 1997, ALC operated 109 assisted living residences with 4,888
units in eight states. At April 30, 1998, the fair market value of the ALC
common stock was $564,900 or $18.3125 per share (based on the closing sales
price of such common stock on the American Stock Exchange on such date). The
Company classifies its investment in the ALC common stock as available-for-sale.
Changes in ALC common stock's fair market value are reported as a separate
component of equity in the balance sheet. Based upon public reports filed by
ALC with the Commission, ALC reported net operating income and net income of
approximately $2.8 million and $4.2 million, respectively, for the year ended
December 31, 1997, and total assets and stockholders' equity of approximately
$298.3 million and $141.0 million, respectively, at December 31, 1997.
REGENT COMMON STOCK
As of April 30, 1998, the Company holds 69,000 shares of Regent common
stock, which was acquired through open market purchases by LTC, and subsequently
contributed to the Company. The weighted average purchase price of the Regent
common stock was $4.56 per share, and as of April 30, 1998 the fair market value
of the stock was $552,000 or $8.00 per share (based on the closing sales price
of such common stock on the Nasdaq National Market on such date). The Company
classifies its investment in the Regent common stock as available-for-sale.
Changes in Regent common stock's fair market value are reported as a separate
component of equity in the balance sheet.
ENVIRONMENTAL MATTERS
Pursuant to the Distribution Agreement, LTC will agree to indemnify the
Company for all liabilities arising out of LTC's prior ownership of the
properties and equity investments described above. LTC's ownership of such
properties and equity investments and LTC's agreement to indemnify the Company
could subject it to certain environmental liabilities.
Under various Federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
These laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's
liability therefor as to any property is generally not limited under such
enactments and could exceed the value of the property and/or the aggregate
assets of the owner. The presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability to
sell or rent such property or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at a disposal or treatment facility, whether or not such facility is
owned or operated by such persons. Certain environmental laws govern the
removal, encapsulation or disturbance of ACMs when such materials are in poor
condition, or in the event of renovation or demolition. Such laws impose
liability for release of ACMs into the air and third parties may seek recovery
from owners or operators of real properties for personal injury associated with
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ACMs. The operation and subsequent removal of certain underground storage tanks
also are regulated by Federal and state laws.
Each of the properties being transferred to the Company prior to the
Distribution has undergone a Phase I assessment (involving investigation without
soil sampling or groundwater analysis) by environmental consultants in the past.
However, neither LTC nor the Company intends to conduct any additional Phase I
assessments on any of such properties prior to or after their transfer to the
Company. The Company is unaware of any environmental liability or noncompliance
with applicable environmental laws or regulations arising out of such properties
that the Company believes would have a material adverse effect on its business,
assets or results of operations. Nonetheless, there can be no assurance that
the Company's knowledge is complete with regard to, or that the Phase I
assessments have identified, all material environmental liabilities. See "RISK
FACTORS-Potential Environmental Liability Related to the Properties."
EMPLOYEES
Following the Distribution, the Company will have no employees. However,
pursuant to an Administrative Services Agreement, LTC is obligated to provide
the Company with the services of its employees. These employees will be
compensated by both the Company and LTC. The Company will pay 25% of the
aggregate amount of such employees' wages, salaries and bonuses to LTC and LTC
will pay the remaining 75% of such amount. See "RELATIONSHIP BETWEEN HEALTHCARE
AND LTC AFTER THE DISTRIBUTION-Administrative Services Agreement." The Company
believes that its future prospects will depend, in part, on its ability to
continue to attract and retain skilled management personnel.
CORPORATE HEADQUARTERS
LTC has agreed to make available to the Company, at LTC's principal office
located at 300 Esplanade Drive, Suite 1860, Oxnard, California 93030, space for
the Company's principal corporate office. The Company will pay to LTC 25% of
the aggregate rent paid by LTC for such rental space. The Company believes that
these facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available on commercially reasonable
terms as needed.
LEGAL PROCEEDINGS
The Company is a newly-formed corporation and, as such, is not a party to
any legal proceedings.
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MANAGEMENT
BOARD OF DIRECTORS
Upon consummation of the Distribution, the Company's Board of Directors is
expected to be comprised of four directors: Andre C. Dimitriadis, James J.
Pieczynski, Steven Stuart and Bary G. Bailey. Such directors will serve until
the next Annual Meeting of Stockholders of the Company and until their
respective successors have been duly elected and qualified.
The table below indicates the name, position with the Company and age of
each nominee for director.
<TABLE>
<CAPTION>
NAME POSITION WITH HEALTHCARE AGE
---- ------------------------ ---
<S> <C> <C>
Andre C. Dimitriadis.. Chairman of the Board and Chief Executive 57
Officer
James J. Pieczynski... Director, President and Chief Financial Officer 35
Steven Stuart......... Director 34
Bary G. Bailey........ Director 39
</TABLE>
ANDRE C. DIMITRIADIS founded LTC and was employed by Beverly Enterprises,
Inc., an owner/operator of long-term care facilities, retirement living
facilities and pharmacies, from October 1989 to May 1992, where he served as
Executive Vice President and Chief Financial Officer. Prior to that, he was
employed by American Medical International, Inc., an owner/operator of
hospitals, from 1985 to 1989, where he served as Executive Vice
President-Finance, Chief Financial Officer and director. Mr. Dimitriadis is a
member of the board of directors of Magellan Health Services.
JAMES J. PIECZYNSKI has served as President and Director of LTC since
September 8, 1997 and Chief Financial Officer since May 1994. From May 1994 to
September 1997, he also served as Senior Vice President of LTC. He joined LTC
in December 1993 as Vice President and Treasurer. Prior to joining LTC, he was
employed by American Medical International, Inc., an owner/operator of
hospitals, from May 1990 to December 1993, where he served as Assistant
Controller and Director of Development.
STEVEN STUART has been employed as a Director in the real estate finance
group of Deutsche Morgan Grenfell (a subsidiary of Deutsche Bank), an investment
banking firm, since January 1997. From 1986 to 1997, Mr. Stuart was a Vice
President of Goldman, Sachs & Co. where he focused on capital markets activities
relating to real estate including several transactions involving long-term care
and assisted living facilities.
BARY G. BAILEY currently serves as Executive Vice President, Finance of
Premier, Inc. (formerly American Healthcare Systems). Prior to joining American
Healthcare Systems in July 1995, Mr. Bailey was Vice President of Finance and
Controller of American Medical International, Inc., an owner/operator of
hospitals, from 1987 to 1995.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. The Audit Committee will consist of Steven Stuart and
Bary Bailey. The Audit Committee will review the annual audits of the Company's
independent public accountants, review and evaluate internal accounting
controls, recommend the selection of the Company's independent public
accountants, review and pass upon (or ratify) related party transactions, and
conduct such reviews and
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examinations as it deems necessary with respect to the practices and policies
of, and the relationship between, the Company and its independent public
accountants.
COMPENSATION COMMITTEE. The Compensation Committee will consist of Steven
Stuart and Bary Bailey. The Compensation Committee will review salaries,
bonuses and stock options of senior officers of the Company, and administer the
Company's executive compensation policies and stock option plans.
COMPENSATION OF THE BOARD OF DIRECTORS
Each non-employee director of the Company will receive $10,000 per year for
serving on the Company Board and will not receive any additional compensation
for attendance at board or committee meetings. Directors also will receive
reimbursement for travel expenses incurred in connection with their duties as
directors. Each director is eligible to receive stock options pursuant to the
Healthcare 1998 Plan.
EXECUTIVE OFFICERS
Set forth below are the names, positions and ages of the individuals who
are executive officers of the Company:
<TABLE>
<CAPTION>
NAME POSITION WITH HEALTHCARE AGE
---- ------------------------ ---
<S> <C> <C>
Andre C. Dimitriadis....... Chairman of the Board and Chief Executive Officer 57
James J. Pieczynski........ Director, President and Chief Financial Officer 35
Christopher T. Ishikawa.... Senior Vice President and Chief Investment Officer 34
Pamela J. Privett.......... Senior Vice President, General Counsel and Secretary 40
</TABLE>
In addition to the description above under the caption "--Board of
Directors" regarding Mr. Dimitriadis and Mr. Pieczynski:
CHRISTOPHER T. ISHIKAWA has served as Senior Vice President and Chief
Investment Officer of LTC since September 8, 1997. Prior to that, he served as
the Vice President and Treasurer of LTC beginning in April 1995. Prior to
joining LTC, he was employed by Metrobank from December 1991 to March 1995,
where he served as First Vice President and Controller.
PAMELA J. PRIVETT has held the position of Senior Vice President and
General Counsel of LTC since September 8, 1997. Prior to that, Ms. Privett was
the sole owner, officer and director of Pamela J. Privett, A Professional Law
Corporation, which served as outside General Counsel to LTC beginning in August
1994. Ms. Privett was a stockholder in the Santa Monica, California law firm of
Stern, Neubauer, Greenwald & Pauly from 1990 to August 1994.
EXECUTIVE OFFICER COMPENSATION
The Company was recently formed. None of the Company's executive officers
has received compensation from or on behalf of the Company since its formation.
The Company has no employment agreements with any person and does not presently
anticipate paying a salary or other compensation to any executive officer for
his services in such capacity, although options will be granted to the executive
officers. See "-Healthcare 1998 Plan."
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The following table provides certain information concerning the stock
options which the Company expects to grant to its executive officers as of the
Distribution Date. The Company does not expect to grant any stock appreciation
rights as of such date.
<TABLE>
<CAPTION>
OPTION GRANTS
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------------------------------------- AT ASSUMED ANNUAL RATES OF
NUMBER OF STOCK PRICE APPRECIATION FOR
SECURITIES % OF TOTAL OPTION
UNDERLYING OPTIONS EXERCISE OR TERM(1)
OPTIONS GRANTED TO BASE PRICE EXPIRATION ----------------------------
NAME GRANTED EMPLOYEES PER SHARE DATE 5% 10%
- ----------------------------------- ---------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Andre C. Dimitriadis............ 40,000 24.2%
James J. Pieczynski............. 35,000 21.2%
Christopher T. Ishikawa......... 22,500 13.6%
Pamela J. Privett............... 22,500 13.6%
</TABLE>
- ------------------
(1) These amounts represent assumed rates of appreciation in the price of
the Company Common Stock during the terms of the options in accordance with
rates specified in applicable federal securities regulations (assuming the per
share market value as of the date of grant equals the estimated book value per
share of $ ). Actual gains, if any, on stock option exercises will depend on
the future price of the Company Common Stock and overall stock market
conditions. There is no representation that the rates of appreciation reflected
in this table will be achieved.
HEALTHCARE 1998 PLAN
Prior to the Distribution Date, the Company will adopt (which adoption will
be approved by Christopher Ishikawa, as sole voting stockholder of the Company)
the Healthcare 1998 Plan. The principal purposes of the Healthcare 1998 Plan
are to provide incentives for officers, employees, non-employee directors and
consultants of the Company and its subsidiaries through granting of options,
restricted stock and other awards ("Awards"), thereby stimulating their personal
and active interest in the Company's development and financial success and
inducing them to remain in the Company's employ. In addition to Awards made to
officers, employees or consultants, the Healthcare 1998 Plan permits the
granting of options ("Director Options") to the Company's independent
non-employee directors.
Under the Healthcare 1998 Plan, not more than 250,000 shares of Company
Common Stock (or the equivalent in other equity securities) are authorized for
issuance upon exercise of options, stock appreciation rights ("SARs") and other
Awards, or upon vesting of restricted or deferred stock awards. Furthermore,
the maximum number of shares which may be subject to Awards granted under the
Healthcare 1998 Plan to any individual in any calendar year may not exceed
75,000 shares.
Upon consummation of the Distribution, the Company will issue options to
acquire an aggregate of 120,000 shares of Company Common Stock to its executive
officers under the Healthcare 1998 Plan. The options will have an exercise
price equal to the value of the Company Common Stock on the Distribution Date
(i.e., the value used to calculate tax basis in the Company Common Stock at the
time of the Distribution). The options will vest in three equal installments on
each of the first, second and third anniversary of the date of grant and shall
expire on the earlier of the seventh anniversary of the date of vesting or one
year following an executive officer ceasing to be an executive officer for any
reason: provided that no option shall vest more than one year following an
executive officer's ceasing to be an executive officer.
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The principal features of the Healthcare 1998 Plan are summarized below,
but the summary is qualified in its entirety by reference to the Healthcare 1998
Plan, which is attached hereto as Annex III.
ADMINISTRATION. - The Compensation Committee of the Company Board or
another committee thereof (the "Plan Committee") will administer the Healthcare
1998 Plan with respect to grants to employees or consultants of the Company and
the full Company Board will administer the Healthcare 1998 Plan with respect to
grants to non-employee directors ("Independent Directors") Options. The Plan
Committee will consist of at least two members of the Company Board, each of
whom is a "non-employee director" for purposes of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended ("Rule 16b-3") and, an "outside
director" for the purposes of Section 162(m) of the Code ("Section 162(m)").
Subject to the terms and conditions of the Healthcare 1998 Plan, the Company
Board or Plan Committee has the authority to select the persons to whom Awards
are to be made, to determine the number of shares to be subject thereto and the
terms and conditions thereof and to make all other determinations and to take
all other actions necessary or advisable for the administration of the
Healthcare 1998 Plan. Similarly, the Company Board has discretion to determine
the terms and conditions of grants to Independent Directors Options and to
interpret and administer the Healthcare 1998 Plan with respect to grants to
Independent Director Options. The Plan Committee (and the Company Board) are
also authorized to adopt, amend and rescind rules relating to the administration
of the Healthcare 1998 Plan.
ELIGIBILITY. - Options, SARs, restricted stock and other Awards under the
Healthcare 1998 Plan may be granted to individuals who are then officers or
other employees of the Company or any of its present or future subsidiaries.
Such Awards also may be granted to consultants of the Company selected by the
Company Board or Plan Committee for participation in the Healthcare 1998 Plan.
Non-employee Independent Directors of the Company may be granted NQSOs (as
defined below herein) and other Awards by the Board. The Healthcare 1998 Plan
will authorize the Plan Committee and the Company Board to, and it is expected
that the Plan Committee and the Company Board will, adopt procedures pursuant to
which employees, consultants and Independent Directors will be permitted to
elect to receive bonuses or directors' fees, which would otherwise be payable to
them in cash, in the form of NQSOs, restricted stock and/or other Awards.
GRANT OF AWARDS. - The Healthcare 1998 Plan provides that the Plan
Committee (or the Company Board, with respect to Independent Directors) may
grant or issue stock options, SARs, restricted stock, deferred stock, dividend
equivalents, performance awards, stock payments and other stock related
benefits, or any combination thereof. Each Award will be set forth in a
separate agreement or certificate with the person receiving the Award and will
indicate the type, terms and conditions of the Award.
NONQUALIFIED STOCK OPTIONS ("NQSOs") will provide for the right to purchase
Company Common Stock at a specified price which, except with respect to NQSOs
intended to qualify as performance-based compensation under Section 162(m), may
be less than fair market value on the date of grant (but not less than par
value) and usually will become exercisable (in the discretion of the Company
Board or Plan Committee) in one or more installments after the grant date,
subject to the participant's continued provision of services to employment with
the Company and/or subject to the satisfaction of individual or Company
performance targets established by the Company Board or Plan Committee. NQSOs
may be granted for any term specified by the Company Board or Plan Committee.
INCENTIVE STOCK OPTIONS ("ISOs"), will be designed to comply with the
provisions of the Code and will be subject to certain restrictions contained in
the Code. Among such restrictions, ISOs must have an exercise price not less
than the fair market value of a share of Company Common Stock on the date of
grant, may only be granted to employees, must expire within a specified period
of time following
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the Optionee's termination of employment and must be exercised within the ten
years after the date of grant; but, subject to the consent of the optionee, may
be subsequently modified to disqualify them from treatment as ISOs
RESTRICTED STOCK may be sold to participants at various prices or may be
granted for no cash consideration and, in either case, may be made subject to
such restrictions as may be determined by the Company Board or Plan Committee.
Restricted stock may be repurchased by the Company at the original purchase
price if the conditions or restrictions associated with such restricted stock
are not met, or if no cash consideration was paid in connection with its sale or
grant, may be canceled if such conditions or restrictions are not met. In
general, restricted stock may not be sold, or otherwise transferred or
hypothecated, until restrictions are removed or expire. Purchasers of
restricted stock, unlike recipients of options, will have voting rights and will
receive dividends prior to the time when the restrictions lapse.
DEFERRED STOCK may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Company Board or Plan Committee.
Like restricted stock, deferred stock may not be sold, or otherwise transferred
or hypothecated, until vesting conditions are removed or expire. Unlike
restricted stock, deferred stock will not be issued until the deferred stock
award has vested and recipients of deferred stock generally will have no voting
or dividend rights prior to the time when vesting conditions are satisfied.
STOCK APPRECIATION RIGHTS may be granted in connection with stock options
or other Awards, or separately. SARs granted by the Company Board or Plan
Committee in connection with stock options or other awards typically will
provide for payments to the holder based upon increases in the price of the
Company Common Stock over the exercise price of the related option or other
Awards, but alternatively may be based upon criteria such as book value. Except
as required by Section 162(m) with respect to an SAR intended to qualify as
performance-based compensation as described in Section 162(m), there are no
restrictions specified in the Healthcare 1998 Plan on the exercise of SARs or
the amount of gain realizable therefrom, although restrictions may be imposed by
the Company Board or Plan Committee in the SAR agreements. The Company Board or
Plan Committee may elect to pay SARs in cash or in Company Common Stock or in a
combination of both.
DIVIDEND EQUIVALENTS are rights to receive the equivalent value (in cash or
Company Common Stock) of dividends paid on common stock that is covered by a
stock option, SAR or other Award held by the participant.
PERFORMANCE AWARDS may be granted by the Company Board or Plan Committee on
an individual or group basis. Generally, these Awards will be based upon
specific performance targets and may be paid in cash or in Company Common Stock
or in a combination of both. Performance Awards may include "phantom" stock
Awards that provide for payments based upon increases in the price of the
Company Common Stock over a predetermined period. Performance Awards may also
include bonuses which may be granted by the Company Board or Plan Committee on
an individual or group basis and which may be payable in cash or in Company
Common Stock or in a combination of both.
STOCK PAYMENTS may be authorized by the Company Board or Plan Committee in
the form of shares of Company Common Stock or an option or other right to
purchase Company Common Stock as part of a deferred compensation arrangement in
lieu of all or any part of compensation, including bonuses, that would otherwise
be payable in cash to the key employee or consultant.
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INDEPENDENT DIRECTOR OPTIONS to purchase covering 10,000 shares of Company
Common Stock will be granted to each person who is initially elected to the
Company Board on or after the date of the effectiveness of the Healthcare 1998
Plan and who is an Independent Director non-employee Director ("Independent
Director") at the time of such initial election. Each Independent Director
Option shall vest with respect to 3,333 shares on each of the first, second and
third anniversary of the date of grant and shall expire on the earlier of the
seventh anniversary of the date of vesting or one year following an Independent
Director ceasing to be a Director for any reason: provided that no option shall
vest more than one year following an Independent Director's ceasing to be a
Director. The Company Board may from time to time, in its absolute discretion,
and subject to applicable limitations of the Healthcare 1998 Plan determine (i)
which Independent Directors, if any, should in its opinion, be granted
Non-Qualified Stock Options, (ii) the number of shares subject to such options,
and (iii) the terms and conditions of such options. Members of the Company
Board who are employees of the Company who subsequently retire from the Company
and remain on the Company Board will not receive an initial option grant
pursuant to the first sentence of this paragraph.
SECURITIES LAWS AND FEDERAL INCOME TAXES
SECURITIES LAWS. The Healthcare 1998 Plan is intended to conform to the
extent necessary with all provisions of the Exchange Act and any and all
regulations and rules promulgated by the Commission thereunder, including
without limitation Rule 16b-3. The Healthcare 1998 Plan will be administered
and Awards will be granted and may be exercised, only in such a manner as to
conform to such laws, rules and regulations. To the extent permitted by
applicable law, the Healthcare 1998 Plan and Awards granted thereunder shall
be deemed amended to the extent necessary to conform to such laws, rules and
regulations.
GENERAL FEDERAL TAX CONSEQUENCES. Under current federal laws, in general,
recipients of awards and grants of nonqualified stock options, stock
appreciation rights, restricted stock, deferred stock, dividend equivalents,
performance awards and stock payments under the Healthcare 1998 Plan are taxable
under Section 83 of the Code upon the receipt of Company Common Stock or cash
with respect to such awards or grants and, subject to Section 162(m), the
Company will be entitled to an income tax deduction with respect to the amounts
taxable to such recipients. Under Sections 421 and 422 of the Code, recipients
of ISOs are generally not taxable on their receipt of Company Common Stock upon
their exercises of ISOs if the ISOs and option stock are held for certain
minimum holding periods and, in such event, the Company is not entitled to
income tax deductions with respect to such exercises. Participants in the
Healthcare 1998 Plan will be provided with detailed information regarding the
tax consequences relating to the various types of awards and grants under the
plan.
SECTION 162(m) LIMITATION. In general, under Section 162(m), income tax
deductions of publicly-held corporations may be limited to the extent total
compensation (including base salary, annual bonus, stock option exercises and
non-qualified benefits paid) for certain executive officers exceeds $1 million
(less the amount of any "excess parachute payments" as defined in Section 280G
of the Code) per officer in any one year. However, under Section 162(m), the
deduction limit does not apply to certain "performance-based compensation."
Under Section 162(m), stock options and SARs will satisfy the "performance-based
compensation" exception if the awards are made by a qualifying compensation
committee, the plan sets the maximum number of shares that can be granted to any
person within a specified period and the compensation is based solely on an
increase in the stock price after the grant date (i.e. the option or SAR
exercise price is equal to or greater than the fair market value of the stock
subject to the award on the grant date). Other types of awards may only qualify
as "performance-based compensation" if such awards are only granted or payable
to the recipients based upon the attainment of objectively determinable and
pre-established objective performance goals which are established by a
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qualifying compensation committee and which relate to performance criteria which
are approved by the corporation's stockholders.
The Healthcare 1998 Plan has been designed in order to permit the Plan
Committee to grant stock options and SARs which will qualify as
"performance-based compensation." In addition, in order to permit Awards other
than stock options and SARs to qualify as "performance-based compensation," the
Healthcare 1998 Plan provides that the Plan Committee may designate as "Section
162(m) Participants" certain employees whose compensation for a given fiscal
year may be subject to the limit on deductible compensation imposed by Section
162(m). The Plan Committee may grant Awards to Section 162(m) Participants that
vest or become exercisable upon the attainment of performance criteria which are
related to one or more of the following performance goals: (i) net income, (ii)
investments, (iii) cash flow, (iv) earnings per share, (v) return on equity,
(vi) return on invested capital or assets, (vii) cost reductions or savings,
(viii) funds from operations, (ix) appreciation in the fair market value of
Common Stock and (x) earnings before any one or more of the following items:
interest, depreciation or amortization.
REGISTRATION STATEMENT ON FORM S-8. The Company intends to file a
registration statement on Form S-8 under the Securities Act to register the
shares of Company Common Stock reserved for issuance under the Healthcare 1998
Plan.
INDEMNIFICATION AGREEMENTS
The Company will enter into indemnification agreements with its directors
and certain executive officers (each, an "Indemnitee"). An Indemnitee is
specifically indemnified and held harmless under such agreements for costs and
expenses, including without limitation, attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with a
threatened, pending or completed claim, action, suit or proceeding (the
"Expenses") by reason of the fact that (i) he or she is or was a director,
officer, employee or agent of the Company, or (ii) he or she is or was serving
as a director, officer, employee, or agent of another corporation or entity at
the request of the Company. The Company will indemnify the Indemnitee against
any and all Expenses unless to the extent that the Indemnitee gives the Company
prompt written notice of any claim, unless (a) the Indemnitee has already
received payment pursuant to collectible insurance policies; (b) a judgment is
rendered against the Indemnitee for an accounting of profits made from the
purchase or sale of securities pursuant to Section 16(b) of the Exchange Act;
(c) the amounts paid to the Indemnitee shall be determined by a final judgment
or other final adjudication to be in violation of the law or public policy; (d)
the Indemnitee's conduct is finally adjudged to have been (or the Indemnitee has
admitted facts sufficient to conclude his or her conduct was): (i) an act or
omission that was not in good faith and which the Indemnitee did not reasonably
believe to be in the best interests of the Company, (ii) with respect to any
criminal action or proceeding, conduct which the Indemnitee had reasonable cause
to believe was unlawful, (iii) an act or omission involving intentional
misconduct, fraud or a knowing violation of law (except with respect to the
advancement of expenses pursuant to the terms of the indemnification agreement
or indemnification ordered by a court of competent jurisdiction, (iv) a
transaction from which the Indemnitee derived an improper personal benefit, or
(v) the payment of distributions in violation of Nevada Revised Statutes 78.300;
or (e) the Expenses relate to any income taxes, or any interest and penalties
thereto with respect to any compensation received by the Indemnitee for services
as a director or officer of the Company.
Under such indemnification agreements, the Company will advance costs
and expenses incurred by the Indemnitee in advance of the final disposition
of an action, suit or proceeding if he or she undertakes to repay the amounts
advanced if it is ultimately determined by a court of competent jurisdiction
that he or she
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is not entitled to be indemnified by the Company. If the Company advances costs
and expenses of any action, suit or proceeding, the Company reserves the right
to assume the defense of such action, suit or proceeding upon written notice to
the Indemnitee of its intention to do so. After delivery of such notice, the
Company shall be obligated to defend the claim in good faith and in a manner
consistent with the best interests of the Indemnitee; and provided the Company
defends the claim in good faith and no conflict of interest develops between the
Company and the Indemnitee with respect to such claim, the Company shall not be
liable for any costs or expenses incurred by the Indemnitee in connection with
defending or otherwise contesting the claim after the Indemnitee has received
such notice. The indemnification provisions and provisions for advancing
expenses in such agreements are expressly not exclusive of any other rights of
indemnification or advancement of expenses pursuant to any statute, the Company
Articles, the Company Bylaws, agreement, vote of stockholders or directors or
otherwise.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
LTC owns a 99% non-voting common stock interest in the Company as of the
date of this Information Statement. Prior to the Distribution, LTC will
transfer to the Company certain equity investments, real properties and related
assets and liabilities currently held by LTC. As consideration for such asset
transfers, the Company will issue to LTC a sufficient number of shares of
Company Common Stock to effect the Distribution. See "RELATIONSHIP BETWEEN
HEALTHCARE AND LTC AFTER THE DISTRIBUTION."
The Intercompany Agreement between the Company and LTC will set forth the
basis on which the Company and LTC will provide each other with rights to
participate in certain transactions. See "THE COMPANY--Intercompany Agreement."
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Based on the number of outstanding shares of LTC Common Stock on March 31,
1998, the following table sets forth the number of shares of Company Common
Stock and the approximate percent expected to be beneficially owned immediately
following the Distribution by (i) the executive officers and directors of the
Company, (ii) all of the Company's executive officers and directors as a group,
and (iii) all other stockholders expected to beneficially own more than 5.0% of
the Company Common Stock, based upon the beneficial ownership by such persons of
LTC Common Stock as of the Record Date.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMPANY PERCENT
COMMON STOCK BENEFICIALLY OWNED BENEFICIALLY OWNED
NAME (1) (1)
- --------------------------------------- --------------------------------- --------------------
<S> <C> <C>
FMR Corporation
82 Devonshire Street
Boston, MA 02109.................... 204,640 (3) 7.7%
Brinson Partners, Inc.
209 South LaSalle Street
Chicago, IL 60604................... 142,320 (4) 5.3%
Franklin Resources, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404................. 133,182 5.0%
Waddell & Reed, Inc.
6300 Lamar Avenue
Overland, KS 66202.................. 103,800 (2) 3.9%
Palisade Capital Management, LLC
1 Bridge Plaza, Suite 695
Fort Lee, NJ 07024.................. 76,100 (2) 2.8%
Andre C. Dimitriadis.................. 71,918 2.7%
James J. Pieczynski................... 13,998 *
Christopher T. Ishikawa............... 7,525 *
Pamela J. Privett..................... 9,340 *
Steven Stuart......................... 0 *
Bary G. Bailey........................ 0 *
Officers and Directors as a group
(6 persons)......................... 102,781 3.8%
</TABLE>
- --------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Shares of Company Common Stock subject to options and warrants
which are currently exercisable, or will become exercisable within 60 days of
the Distribution Date, are deemed outstanding for computing the percentage of
the person or entity holding such securities but are not outstanding for
computing the percentage of any other person or entity. Except as otherwise
indicated by footnote, and subject to the community property laws where
applicable, to the
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knowledge of the Company each individual named in the table above has a business
address of 300 Esplanade Drive, Suite 1860, Oxnard, California 93030, and is
expected to have sole investment and voting power with respect to the securities
shown.
(2) The number of shares assumes that the beneficial owner does not exercise
its right to acquire additional shares of LTC Common Stock pursuant to certain
conversion rights.
(3) FMR Corporation is expected to have sole voting power with respect to 110
shares and sole dispositive power with respect to 204,640 shares.
(4) Brinson Partners, Inc. is expected to have shared voting power and shared
dispositive power with respect to 142,320 shares.
(5) Excludes the following options for the purchase of Company Common Stock:
(a) Mr. Dimitriadis - 40,000; (b) Mr. Pieczynski - 35,000; (c) Mr. Ishikawa -
22,500; and (d) Ms. Privett - 22,500. Such options are not currently
exercisable and become exercisable in three equal installments on each of the
first, second and third anniversary of the date of grant.
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HEALTHCARE ARTICLES OF INCORPORATION AND BYLAWS
Prior to the Distribution Date, the Company's Articles of Incorporation and
Bylaws will be amended by the Company Board. The following is a summary of such
Amended and Restated Articles of Incorporation (the "Company Articles") and such
Amended and Restated Bylaws (the "Company Bylaws") and is qualified in its
entirety by reference to the complete text of the Company Articles as set forth
in Annex I hereto, and the Company Bylaws as set forth in Annex II hereto.
AUTHORIZED STOCK
The Company Articles will provide that the Company is authorized to issue
50,000,000 shares of stock, consisting of 40,000,000 shares of Company Common
Stock and 10,000,000 shares of preferred stock (the "Company Preferred Stock"
and, together with the Company Common Stock, the "Company Stock"), with all of
such shares having a par value of $.01 per share. Shares of the Company
Preferred Stock may be issued from time to time, in one or more series, each of
which series shall have such voting powers designations, preferences and rights,
and the qualifications, limitations or restrictions relating thereto, as shall
be authorized by the Company Board. See "DESCRIPTION OF THE COMPANY'S CAPITAL
STOCK."
DIRECTORS
The Company Articles will provide that the governing board of the Company
shall be styled as directors. The Company Articles will provide that the
Company Board shall consist of at least one individual to be elected in the
manner provided by the Company Bylaws and that the number of directors may be
changed from time to time in such manner as provided by the Company Bylaws.
The Company Bylaws will provide that the board of directors shall consist
of one or more members, the exact number of which shall be fixed by the Company
Board from time to time by resolution. Initially, the Company Board will have
four members. The Company Bylaws will provide that a quorum of the Company
Board for the transaction of company business shall consist of a majority of the
entire Board of Directors. The act of a majority of directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors.
The Company Articles and the Company Bylaws will not provide for a classified
board or for cumulative voting in the election of directors to the Company
Board. The Company Bylaws will provide that vacancies and any newly-created
directorships resulting from an increase in the authorized number of directors
may be filled by a majority of the directors then in office, though less than a
quorum, or by a sole remaining director, except as otherwise fixed by resolution
of the Company Board pursuant to the Company Articles relating to the
authorization of the Company Board to provide by resolution for the issuance of
Company Preferred Stock and to determine the rights of the holders of such
Company Preferred Stock to elect directors.
LIABILITY FOR MONETARY DAMAGES
The Company Articles will provide that no director or officer of the
Company will be personally liable to the Company or its stockholders for damages
for breach of fiduciary duty as a director or officer, other than liability for
acts or omissions which involve intentional misconduct, fraud or a knowing
violation of law and for payment of distributions in violation of Nevada Revised
Statutes ("NRS") Section 78.300. Any repeal or modification of such provision
by the stockholders of the Company will be prospective only. Such provision
will control in the event of any conflict between such provision and any other
provision of the Company Articles.
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ANTI-TAKEOVER EFFECT OF AUTHORIZED BUT UNDESIGNATED PREFERRED STOCK
As described above, the Company Board will be authorized to provide for the
issuance of shares of Company Preferred Stock, in one or more series, and fix by
resolution to the extent permitted by the NRS, the terms and conditions of such
series. The Company believes that the availability of Company Preferred Stock
will provide the Company with increased flexibility in structuring future
financings and acquisitions and in meeting other corporate needs which might
arise from time to time. Authorized but unissued shares of Company Preferred
Stock, as well as authorized but unissued shares of Company Common Stock, will
be available for issuance without further action by Company stockholders, unless
such action is required by applicable law or the rules of any stock exchange or
automated quotation system on which any class of Company Stock may then be
listed for trading.
Although the Company has no present intention of doing so (other than as
described in the section entitled "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS"), it will be able to issue a series of Company Preferred Stock
that could, depending on its terms, either impede or facilitate the completion
of a merger, tender offer or other takeover attempt. For instance, such new
shares might impede a business combination by including class voting rights
which would enable the holder to block such transaction or facilitate a business
combination by including voting rights which would provide a required percentage
vote of stockholders. The Company Board will make any determination to issue
such shares based on its judgment as to the best interests of the Company and
its then existing stockholders. The Company Board, in so acting, will be able
to issue Company Preferred Stock having terms which would discourage an
acquisition attempt or other transaction that some or a majority of the
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then market price
of such stock. Such provisions may further have the effect of making it more
difficult for third parties to cause the replacement of the current management
of the Company without the concurrence of the Company Board and may inhibit
fluctuations in the market price of the Company Common Stock that could result
from takeover attempts.
INDEMNIFICATION AND ADVANCEMENT OF EXPENSES
The Company Bylaws will provide for the indemnification (the
"Indemnification Provisions") of present and former directors and officers of
the Company and persons serving as a director, officer, employee, agent,
partner, or fiduciary of another corporation or partnership, joint venture,
trust, or other enterprise at the request of the Company (each, an "Indemnitee")
to the fullest extent permitted by Nevada law. The Indemnification Provisions
will continue as to an Indemnitee who has ceased to be a director or officer and
shall inure to the benefit of his or her heirs, executors and administrators,
and the Company may, by action of the Company Board and to the extent provided
in such action, indemnify employees and other persons as though they were
Indemnitees.
Indemnitees are specifically indemnified in the Indemnification Provisions
against all expense, liability and loss (including without limitation attorneys'
fees, judgments, fines, taxes, penalties, and amounts paid or to be paid in
settlement) reasonably incurred or suffered by the Indemnitee in connection with
any threatened, pending, or completed action, or suit (including without
limitation an action, suit or proceeding by or in the right of the Company),
whether civil, criminal, administrative, or investigative. The Indemnification
Provisions will provide that the Company may purchase and maintain insurance or
make other financial arrangements on behalf of any Indemnitee for any liability
asserted against him or her and expenses incurred by him or her in his or her
capacity as a director, officer, employee or agent, or arising out of his or her
status as such, whether or not the Company has the authority to indemnify him or
her against such liability and expenses. The other financial arrangements which
may be made by the Company may include the following: (i) the creation of a
trust fund; (ii) the establishment of a program
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of self-insurance; (iii) the securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the corporation;
and/or (iv) the establishment of a letter of credit, guarantee or surety. No
financial arrangement made pursuant to the Indemnification Provisions may
provide protection for a person adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable for intentional
misconduct, fraud, or a knowing violation of law, except with respect to
advancement of expenses or indemnification ordered by a court. Any insurance or
other financial arrangement made on behalf of a person pursuant to such section
may be provided by the Company or any other person approved by the Company
Board, even if all or part of the other person's stock or other securities is
owned by the Company. In the absence of fraud: (i) the decision of the Company
Board as to the propriety of the terms and conditions of any insurance or other
financial arrangement made pursuant to such section and the choice of the person
to provide the insurance or other financial arrangement is conclusive; and (ii)
the insurance or other financial arrangement: (A) is not void or voidable; and
(B) does not subject any director approving it to personal liability for his
action, even if a director approving the insurance or other financial
arrangement is a beneficiary of the insurance or other financial arrangement.
The Indemnification Provisions shall constitute a contract between the Company
and each of its directors and officers which may be modified as to any director
or officer only with that person's consent or as specifically provided in the
Indemnification Provisions. Any repeal or amendment of the Indemnification
Provisions which is adverse to any director or officer shall apply to such
director or officer only on a prospective basis, and shall not limit the rights
of an Indemnitee to indemnification with respect to any action or failure to act
occurring prior to the time of such repeal or amendment. No repeal or amendment
of the Company Bylaws shall affect any or all of the Indemnification Provisions
so as to limit or reduce the indemnification in any manner unless adopted by (a)
the unanimous vote of the directors of the Company then serving, or (b) by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
combined voting power of all the then outstanding shares of the Company Stock
entitled to vote; provided that no such amendment shall have a retroactive
effect inconsistent with the preceding sentence.
The Company Articles will provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding,
involving alleged acts or omissions of such officer or director in his or her
capacity as an officer or director of the Company, must be paid by the Company
or through insurance purchased and maintained by the Company or through other
financial arrangements made by the Company, as they are incurred and in advance
of the final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the officer or director to repay the amount if
its ultimately determined by a court of competent jurisdiction that he or she is
not entitled to be indemnified by the Company. Any repeal or modification of
such provision by the stockholders of the Company will be prospective only.
Such provision will control in the event of any conflict between such provision
and any other provision of the Company Articles.
The Indemnification Provisions will be expressly not exclusive of any other
rights of indemnification or advancement of expenses pursuant any statute,
provision of the Company Bylaws or the Company Articles, agreement, vote of
stockholders or directors, or otherwise. The provisions for advancing expenses
in the Company Articles will be in addition to any other rights of
indemnification permitted by Nevada law as may be provided for in the Company
Bylaws or by agreement. Any references in the Company Bylaws to Nevada law or
to any provision thereof shall be to such law as it existed on the date the
Company Bylaws are adopted or as such law thereafter may be changed; provided
that (a) in the case of any change which expands the liability of directors or
officers or limits the indemnification rights or the rights to advancement of
expenses which the Company may provide, the rights to limited liability, to
indemnification and to the advancement of expenses provided in the Company
Articles and/or the Company Bylaws shall continue to the extent permitted by
law; and (b) if such change permits the Company, without the requirement of any
further action by stockholders or
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directors, to limit further the liability of directors (or limit the liability
of officers) or to provide broader indemnification rights or rights to the
advancement of expenses than the Company was permitted to provide prior to such
change, then liability thereupon shall be so limited and the rights to
indemnification and the advancement of expenses shall be so broadened to the
extent permitted by law.
In addition, the Company will enter into indemnification agreements with
its directors and certain of its executive officers pursuant to which such
persons are indemnified for costs and expenses actually and reasonably incurred
by such persons in connection with a threatened, pending or completed claim
arising out of service as a director, officer, employee, trustee and/or agent of
the Company or another entity at the request of the Company. See "MANAGEMENT--
Indemnification Agreements."
AMENDMENT OF THE COMPANY ARTICLES AND BYLAWS
The Company reserves the right to amend, alter, change or repeal any
provision contained in the Company Articles in the manner now or hereafter
prescribed by the NRS, and all rights granted to stockholders in the Company
Articles are subject to this reservation; PROVIDED, HOWEVER, that no amendment,
alteration, change or repeal may be made to the provisions regarding actions
taken by the stockholders or voting on certain transactions without the
affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding voting stock of the Company, voting together as a
single class. A bylaw may be repealed, altered, amended or rescinded by (i) the
Company Board or (ii) the affirmative vote of the holders of at least sixty-six
and two-thirds percent (66-2/3%) of the outstanding voting stock of the Company,
voting together as a single class. Additional bylaws may be adopted only by the
Company Board.
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DESCRIPTION OF THE COMPANY'S CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of (i) 4,900,000 shares of
Class A (voting) Company Common Stock, par value $.01 per share, of which two
shares are issued and outstanding and are owned by Christopher T. Ishikawa and
(ii) 100,000 shares of Class B (non-voting) Company Stock, par value $.01 per
share, of which 4,002 shares are issued and outstanding and owned by LTC. Under
the Company Articles which will be adopted by the Company Board prior to the
Distribution Date in substantially the form set forth in Annex I to this
Information Statement, the total number of shares of all classes of stock that
the Company will have authority to issue will be 50,000,000 of which 40,000,000
will be shares of Company Common Stock and 10,000,000 will be shares of Company
Preferred Stock, with all of such shares having a par value of $.01 per share.
Based on the number of shares of LTC Common Stock outstanding on the Record
Date, approximately __________________ shares of Company Common Stock,
constituting approximately __________________ percent (____%) of the authorized
Company Common Stock, will be issued and distributed to stockholders of LTC in
the Distribution. All of the shares of Company Common Stock issued in the
Distribution will be validly issued, fully paid and non-assessable.
COMMON STOCK
Each holder of Company Common Stock will be entitled to one vote for each
share registered in his or her name on the books of the Company on all matters
submitted to a vote of stockholders. Except as otherwise provided by law, the
holders of the Company Common Stock will vote as one class. The shares of
Company Common Stock will not have cumulative voting rights. As a result,
subject to the voting rights, if any, of the holders of any shares of Company
Preferred Stock which may at the time be outstanding, the holders of the Company
Common Stock entitled to exercise more than 50% of the voting rights in an
election of directors will be able to elect 100% of the directors to be elected
if they choose to do so. In such event, the holders of the remaining shares of
Company Common Stock voting for the election of directors will not be able to
elect any persons to the Company Board. The Company Articles and the Company
Bylaws contain certain provisions that could have an anti-takeover effect. See
"HEALTHCARE ARTICLES OF INCORPORATION AND BYLAWS."
The Company Common Stock will bear no preemptive rights and is not subject
to redemption or conversion provisions. The shares of Company Stock, when
issued and paid for, will be fully paid and non-assessable.
Holders of the Company Common Stock will be entitled to dividends when, as
and if declared by the Company Board out of assets legally available therefor,
subject to the dividend rights of any Company Preferred Stock which may at the
time be outstanding (and subject to any dividend restriction contained in any
credit facility which the Company may enter into in the future) and distributed
pro rata in accordance with the number of shares of Company Common Stock held by
each stockholder. Because portions of the operations of the Company may be
conducted through wholly-owned subsidiaries, the Company's cash flow and
consequent ability to pay dividends on the Company Common Stock may be dependent
to some degree upon the earnings of such subsidiaries and on dividends and other
payments therefrom. See "RISK FACTORS--Dividend Policy."
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Subject to the prior rights of Company Preferred Stock which may at the
time be outstanding, holders of the Company Common Stock are entitled in the
event of liquidation, dissolution or winding up to share pro rata in the
distribution of all remaining assets.
The transfer agent and registrar for the Company Common Stock will be
Harris Trust and Savings Bank.
PREFERRED STOCK
The Company Articles will provide that the Company Board is authorized to
provide for the issuance of shares of Company Preferred Stock, from time to
time, in one or more series. Prior to the issuance of shares in each series,
the Company Board is required by the Company Articles and the NRS to adopt
resolutions and file a Certificate of Designations, Preferences and Relative,
Participating, Optional and Other Special Rights of Preferred Stock and
Qualifications, Limitations and Restrictions Thereof with the Secretary of State
of Nevada, fixing for each such series the designations, preferences and
relative, participating, optional or other special rights applicable to the
shares to be included in any such series and any qualifications, limitations or
restrictions thereon, including, but not limited to, dividend rights, dividend
rate or rates, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price or prices, and the
liquidation preferences as are permitted by Nevada law.
The Company believes that the availability of Company Preferred Stock will
provide the Company with increased flexibility in structuring future financings
and acquisitions and in meeting other corporate needs which might arise from
time to time. Authorized but unissued shares of Company Preferred Stock, as
well as authorized but unissued shares of Company Common Stock, will be
available for issuance without further action by Company stockholders, unless
such action is required by applicable law or the rules of any stock exchange or
automated quotation system on which any class of Company Stock may then be
listed for trading.
Although the Company has no present intention of doing so (other than as
described in the section entitled "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS"), it will be able to issue a series of Company Preferred Stock
that could, depending on its terms, either impede or facilitate the completion
of a merger, tender offer or other takeover attempt. For instance, such new
shares might impede a business combination by including class voting rights
which would enable the holder to block such transaction or facilitate a business
combination by including voting rights which would provide a required percentage
vote of stockholders. The Company Board will make any determination to issue
such shares based on its judgment as to the best interests of the Company and
its then existing stockholders. The Company Board, in so acting, will be able
to issue Company Preferred Stock having terms which would discourage an
acquisition attempt or other transaction that some or a majority of the
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then market price
of such stock.
NEVADA ANTI-TAKEOVER LEGISLATION
Nevada's Combinations with Interested Stockholders statute (NRS Sections
78.411-78.444), which applies to Nevada corporations having at least 200
stockholders, prevents an "interested stockholder" and an applicable Nevada
corporation from entering into a "combination" unless certain conditions are
met. A "combination" means any merger or consolidation with an "interested
stockholder," or any sale, lease exchange, mortgage, pledge, transfer or other
disposition, in one transaction or a series of transactions, with an "interested
stockholder" having: (i) an aggregate market value equal to 5% or more of the
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aggregate market value of the assets of the corporation, (ii) an aggregate
market value equal to 5% or more of the aggregate market value of all
outstanding shares of the corporation, or (iii) 10% or more of the earning power
or net income of the corporation. An "interested stockholder" means a person
who, together with affiliates and associates, beneficially owns (or within the
prior three years, did beneficially own) 10% or more of the voting power of the
corporation. A corporation to which this statute applies may not engage in a
"combination" within three years after the interested stockholder acquired its
shares unless the combination or purchase is approved by the board of directors
before the interested stockholder acquired such shares. If this approval is not
obtained, then, after the expiration of the three-year period, the business
combination may be consummated with the approval of the board of directors or a
majority of the voting power held by disinterested stockholders, or if the
consideration to be paid by the interested stockholder is at least equal to the
highest of: (i) the highest price per share paid by the interested stockholder
within the three years immediately preceding the date of the announcement of the
combination or in the transaction in which it became an interested stockholder,
whichever is higher; (ii) the market value per share of common stock on the date
of announcement of the combination and the date the interested stockholder
acquired the shares, whichever is higher; or (iii) for holders of preferred
stock, the highest liquidation value of the preferred stock, if it is higher.
Nevada's Acquisition of Controlling Interest statute (NRS Sections
78.378-78.3793) applies only to Nevada corporations with at least 200
stockholders, including at least 100 stockholders of record who are Nevada
residents, and which conduct business directly or indirectly in Nevada. As of
the date of this Information Statement, the Company does not have 100
stockholders of record who are residents of Nevada, although there can be no
assurance that in the future the Acquisition of Controlling Interest statute
will not apply to the Company.
The Acquisition of Controlling Interest statute prohibits an acquirer,
under certain circumstances, from voting its shares of a target corporation's
stock after crossing certain ownership threshold percentages, unless the
acquirer obtains approval of the target corporation's disinterested
stockholders. The statute specifies three thresholds: one-fifth or more but
less than one-third, one-third but less than a majority, and a majority or more,
of the outstanding voting power. Once an acquirer crosses one of the above
thresholds, those shares in an offer or acquisition and acquired within 90 days
thereof become "Control Shares" and such Control Shares are deprived of the
right to vote until disinterested stockholders restore the right. The
Acquisition of Controlling Interest statute also provides that in the event
Control Shares are accorded full voting rights and the acquiring person has
acquired a majority or more of all voting power, all other stockholders who do
not vote in favor of authorizing voting rights to the Control Shares are
entitled to demand payment for the fair value of their shares in accordance with
statutory procedures established for dissenters' rights.
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LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS OF THE COMPANY
INDEMNIFICATION FOR DIRECTOR'S AND OFFICER'S LIABILITY
The Company Articles provide that no officer or director will be personally
liable to the Company or any stockholder for damages for breach of fiduciary
duty as a director or officer, except for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of the law, or (ii) the
payment of distributions in violation of NRS Section 78.300.
Additionally, the Company Bylaws limit the liability of its directors and
officers (and, by action of the Company Board, its employees and other persons)
to the fullest extent permitted by Nevada law. If the Nevada law is
subsequently amended to permit further limitation of personal liability of
directors and officers, the liability of the Company's directors and officers
will be eliminated or limited to the fullest extent permitted by Nevada law, as
amended. Nevada law permits corporations to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (except in an action by or in the right of the Company) by reason
of the fact that he is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he acted in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. This
same permissible indemnification is not allowed as to any action or suit by or
in the right of the Company if the person has been adjudged by a court (after
exhaustion of all appeals) to be liable to the Company or for amounts paid in
settlement to the Company, unless and only to the extent that a court determines
upon application that in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses, as the court
deems proper. To the extent that a director, officer, employee or agent of the
Company has been successful on the merits or otherwise in defense of any action,
suit or proceeding described above, or in the defense of any claim, issue or
matter therein, Nevada law requires that he must be indemnified by the Company
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with that defense.
The Company Bylaws further provide that the Company may purchase and
maintain insurance or make other financial arrangements for such indemnification
and that such indemnification shall continue as to any indemnitee who has ceased
to be a director or officer and shall inure to the benefit of his heirs,
executors and administrators. See "HEALTHCARE ARTICLES OF INCORPORATION AND
BYLAWS--Indemnification and Advancement of Expenses."
The inclusion of the permissive indemnification provision in the Company
Bylaws may have the effect of reducing the likelihood of derivative litigation
against directors and may discourage or
73
<PAGE>
deter stockholders or management from bringing a lawsuit against directors for
breach of their duty of care, even though such an action, if successful, might
otherwise have benefited the Company and its stockholders.
RESTRICTIONS ON INTERESTED TRANSACTIONS
Pursuant to Nevada law, each director and officer is subject to
restrictions relating to the misappropriation of corporate opportunities by such
director or officer or such director's or officer's affiliates. Nevada law
requires that a transaction with the Company in which a director or officer of
the Company has a direct or indirect interest is not voidable by the Company
solely because of the director's or officer's interest in the transaction if:
(i) the material facts of the transaction and the director's or officer's
interest therein are disclosed to or known by the directors or a committee noted
in the minutes, and the transaction is approved, authorized, or ratified by the
disinterested directors, (ii) the material facts of the transaction and the
director's or officer's interest therein are disclosed to or known by the
stockholders entitled to vote and the transaction is approved or ratified by the
stockholders, (iii) the material facts are not disclosed or known to the
director or officer at the time the transaction is brought before the directors
for action, or (iv) the transaction is established to have been fair to the
Company at the time it was authorized or approved.
74
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
LTC HEALTHCARE, INC.
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheet as of March 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Note to Balance Sheet as of March 25, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
LTC HEALTHCARE, INC. ASSET GROUP
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Combined Balance Sheets as of December 31, 1996 and 1997
and March 31, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Combined Statements of Income for the years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1997 and 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Combined Statements of Changes in LTC Properties, Inc. Net Asset (Deficit) for the
years ended December 31, 1995, 1996 and 1997 and the three months
ended March 31, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Combined Statements of Cash Flows for the years ended December 31, 1995,
1996 and 1997 and the three months ended March 31, 1997 and 1998
(unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
of LTC Healthcare, Inc.
We have audited the accompanying balance sheet of LTC Healthcare, Inc. (the
"Company") as of March 25, 1998. This balance sheet is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of LTC Healthcare, Inc. at March 25,
1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
May 6, 1998
F-2
<PAGE>
LTC HEALTHCARE, INC.
BALANCE SHEET
MARCH 25, 1998
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000
STOCKHOLDERS' EQUITY
Non-voting common stock, $0.01 par value, 4,900,000 shares authorized,
2 shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ -
Voting common stock, $0.01 par value, 100,000 shares authorized,
2 shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
----------
$ 2,000
----------
----------
</TABLE>
See accompanying note
F-3
<PAGE>
LTC HEALTHCARE, INC.
NOTE TO BALANCE SHEET
FORMATION OF THE COMPANY
LTC Healthcare, Inc. (the "Company"), a Nevada corporation, was
incorporated on March 20, 1998 to engage in the following activities: (i)
ownership of leveraged properties leased to third parties; (ii) ownership of
secured high yield mortgage loans; (iii) operation of long-term care facilities;
(iv) development of long-term care properties, and (v) ownership of equity
investments in long-term care companies. In connection with the formation of
the Company, on March 25, 1998, LTC Properties, Inc. ("LTC") acquired 2 shares
of non-voting common stock for $1,000 and Christopher T. Ishikawa, Senior Vice
President and Chief Investment Officer of LTC, acquired 2 shares of voting
common stock for $1,000.
Subsequent to the formation of the Company, the Company issued 4,000
non-voting shares of common stock to LTC for $2,000,000 and obtained an
$8,000,000 unsecured line of credit from LTC. The line of credit bears interest
at 10% and matures in March 2008. As of May 6, 1998, borrowings of $3,435,700
were outstanding under the line of credit. Proceeds from the issuance of
non-voting common stock and borrowings under the line of credit were used to
purchase 23,400 shares of LTC common stock for approximately $435,700 and
$5,000,000 of convertible subordinated debentures of Regent Assisted Living,
Inc. ("Regent"). The convertible subordinated debentures mature on March 31,
2008, bear interest at 7.5% and are convertible into Regent common stock at
$7.50 per share. The Company has agreed to purchase an additional $5,000,000
principal amount of 7.5% convertible subordinated debentures from Regent prior
to March 31, 2000.
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
of LTC Healthcare, Inc.
We have audited the accompanying combined balance sheets of LTC Healthcare,
Inc. Asset Group (the "Portfolio") as of December 31, 1997 and 1996 and the
related combined statements of income, changes in LTC Properties, Inc. net asset
(deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of LTC Healthcare,
Inc. Asset Group at December 31, 1997 and 1996, and the combined results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
May 6, 1998
F-5
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------- ------------
1996 1997 1998
------------ ------------ ------------
(unaudited)
ASSETS
<S> <C> <C> <C>
Real Estate:
Buildings and improvements . . . . . . . . . . . . . . . . $ 20,628,500 $ 20,628,500 $ 20,682,200
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,373,800 1,373,800 1,373,800
Accumulated depreciation . . . . . . . . . . . . . . . . . (2,760,800) (3,543,800) (3,739,600)
------------ ------------ ------------
Real Estate Investments, net . . . . . . . . . . . . . . . . 19,241,500 18,458,500 18,316,400
Rent receivable. . . . . . . . . . . . . . . . . . . . . . . 238,400 203,600 265,400
------------ ------------ ------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . $ 19,479,900 $ 18,662,100 $ 18,581,800
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND LTC PROPERTIES, INC. NET ASSET
(DEFICIT)
Mortgage loans payable . . . . . . . . . . . . . . . . . . $ 18,725,100 $ 18,508,400 $ 18,451,100
Mortgage loans payable to LTC Properties, Inc. . . . . . . - - 8,926,000
Deferred tax liability . . . . . . . . . . . . . . . . . . 449,500 483,200 500,000
Interest payable . . . . . . . . . . . . . . . . . . . . . 144,400 142,700 142,400
Other liabilities. . . . . . . . . . . . . . . . . . . . . 7,700 27,700 43,200
------------ ------------ ------------
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 19,326,700 19,162,000 28,062,700
LTC Properties, Inc. net asset (deficit) . . . . . . . . . . 153,200 (499,900) (9,480,900)
------------ ------------ ------------
Total Liabilities and LTC Properties, Inc. net asset (deficit) $ 19,479,900 $ 18,662,100 $ 18,581,800
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See accompanying notes
F-6
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------- -------------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- --------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental income. . . . . . . . . . . . . . $2,829,200 $2,835,500 $2,887,800 $ 727,400 $ 749,800
EXPENSES:
Interest . . . . . . . . . . . . . . . . - 1,449,200 1,721,500 432,200 427,300
Depreciation . . . . . . . . . . . . . . 783,000 783,000 783,000 195,800 195,800
Other expenses . . . . . . . . . . . . . - 2,900 8,100 2,300 100
---------- ---------- ---------- --------- ---------
Total Expenses . . . . . . . . . . . . 783,000 2,235,100 2,512,600 630,300 623,200
---------- ---------- ---------- --------- ---------
INCOME BEFORE TAXES. . . . . . . . . . . . 2,046,200 600,400 375,200 97,100 126,600
Income taxes . . . . . . . . . . . . . . 794,600 233,200 145,700 38,500 49,200
---------- ---------- ---------- --------- ---------
NET INCOME . . . . . . . . . . . . . . . . $1,251,600 $ 367,200 $ 229,500 $ 58,600 $ 77,400
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
</TABLE>
See accompanying notes
F-7
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
COMBINED STATEMENTS OF CHANGES IN
LTC PROPERTIES, INC. NET ASSET (DEFICIT)
<TABLE>
<CAPTION>
<S> <C>
LTC Properties, Inc. at December 31, 1994. . . . . . . . . . . . . . . . . $20,563,200
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,251,600
Net return to LTC Properties, Inc. . . . . . . . . . . . . . . . . . . . (1,985,000)
------------
LTC Properties, Inc. net asset (deficit) at December 31, 1995. . . . . . . 19,829,800
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367,200
Net return to LTC Properties, Inc. . . . . . . . . . . . . . . . . . . . (20,043,800)
------------
LTC Properties, Inc. net asset (deficit) at December 31, 1996. . . . . . . 153,200
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,500
Net return to LTC Properties, Inc. . . . . . . . . . . . . . . . . . . . (882,600)
------------
LTC Properties, Inc. net asset (deficit) at December 31, 1997. . . . . . . (499,900)
Net income (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . 77,400
Net return to LTC Properties, Inc. (unaudited) . . . . . . . . . . . . . (9,058,400)
------------
LTC Properties, Inc. net asset (deficit) at March 31, 1998 (unaudited) . . $(9,480,900)
------------
------------
</TABLE>
See accompanying notes
F-8
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- --------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . $1,251,600 $ 367,200 $ 229,500 $ 58,600 $ 77,400
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . 783,000 783,000 783,000 195,800 195,800
(Increase) decrease in rent receivable . . (130,100) (86,400) 34,800 38,700 (61,800)
Increase in deferred tax liability . . . . 80,500 102,900 33,700 10,000 16,800
Increase (decrease) in interest payable. . - 144,300 (1,700) (400) (300)
Increase in other liabilities. . . . . . . - 7,700 20,000 15,500 15,500
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities . . . . . . . . . . . . . . 1,985,000 1,318,700 1,099,300 318,200 243,400
INVESTING ACTIVITIES:
Investment in real estate. . . . . . . . . - - - - (53,700)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities . . . . . . . . . . . . . . - - - - (53,700)
FINANCING ACTIVITIES:
Proceeds from mortgage loans . . . . . . . - 18,875,000 - - 8,926,000
Principal payments on mortgage loans . . . - (149,900) (216,700) (52,300) (57,300)
Net return to LTC Properties, Inc. . . . . (1,985,000) (20,043,800) (882,600) (265,900) (9,058,400)
----------- ----------- ----------- ----------- -----------
Net cash used in financing activities. (1,985,000) (1,318,700) (1,099,300) (318,200) (189,700)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . - - - - -
Cash and cash equivalents, beginning
of year. . . . . . . . . . . . . . . . . . - - - - -
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of year . . $ - $ - $ - $ - $ -
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Interest paid. . . . . . . . . . . . . . . $ - $1,304,900 $1,723,200 $ 432,600 $ 427,600
</TABLE>
See accompanying notes
F-9
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
1. THE COMPANY
LTC Healthcare, Inc. ("Healthcare"), a Nevada corporation, was incorporated
on March 20, 1998 to engage in the following activities: (i) ownership of
leveraged properties leased to third parties; (ii) ownership of secured high
yield mortgage loans; (iii) operation of long-term care facilities;
(iv) development of long-term care properties, and (v) ownership of equity
investments in long-term care companies. LTC owns all of the outstanding
non-voting common stock and Christopher T. Ishikawa, Senior Vice President and
Chief Investment Officer of LTC, owns all of the outstanding voting common stock
of Healthcare. LTC Properties, Inc. ("LTC") intends to transfer certain real
estate assets and certain related liabilities (the "LTC Healthcare, Inc. Asset
Group" or the "Portfolio") to Healthcare. The LTC Healthcare, Inc. Asset Group
consists of five skilled nursing facilities that are leased to third parties
under triple net leases with a book value of $18,316,400 and encumbered by
mortgages of $27,377,100 as of March 31, 1998.
In May 1998, LTC's Board of Directors approved in principle, a plan for the
distribution (the "Distribution") of Healthcare stock to holders of LTC common
stock. As of March 31, 1998, Healthcare has 4,900,000 shares of $0.01 par value
voting common stock and 100,000 shares of $0.01 par value non-voting common
stock authorized. Healthcare's authorized stock will be increased to provide
for the shares to be issued in connection with the Distribution.
The Portfolio's real estate investments utilize a leveraged capital
structure. As a result of such leverage, the Portfolio is subject to the risks
normally associated with debt financing, including the risk that cash flow from
operations will be insufficient to meet required payments of principal and
interest and the risk that existing debt will not be able to be refinanced or
that the terms of such refinancings will not be as favorable to the Portfolio.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying financial statements present the
financial position, results of operations and cash flows of the Portfolio as if
it were a separate entity of LTC for all periods presented. The assets and
liabilities in the accompanying financial statements are reflected at LTC's
historical basis. Changes in the investment by LTC represent the net income
(loss) of the Portfolio plus the net change in cash and non-cash items
transferred between the Portfolio and LTC. The accompanying financial
statements as of March 31, 1998 and for the three months ended March 31, 1998
and 1997 are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which Healthcare considers necessary for a fair
presentation of the financial position, results of operations and cash flows for
such periods. Interim results are not necessarily indicative of results for the
entire year or future periods.
USE OF ESTIMATES. The preparation of the combined financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the combined
financial statements and accompanying notes. Actual results could differ from
those estimates.
REAL ESTATE. Land and buildings and improvements are recorded at cost.
Effective January 1, 1996, the Portfolio adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "ACCOUNTING FOR THE IMPAIRMENT OF
LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF". Accordingly,
impairment
F-10
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
losses are recorded when events or changes in circumstances indicate the asset
is impaired and the undiscounted cash flows estimated to be generated by the
real estate are less than the carrying amount. Management assesses the
recoverability of the carrying value of its assets on a property by property
basis. Depreciation is provided on a straight-line basis over the estimated
useful lives of 7 years for equipment and 35 years for buildings.
REVENUE RECOGNITION. Base rental revenue is recognized using the
straight-line method by averaging annual minimum rents over the terms of the
leases. Contingent rental income, which is generated by a percentage of
increased revenue over a specified base period revenue of the long-term care
facilities, is recognized as earned.
GENERAL AND ADMINISTRATIVE EXPENSES. LTC provides various administrative
services to the Portfolio including, but not limited to, legal and accounting
assistance. Identifiable costs have been charged to the Portfolio and are
reflected in the accompanying statements of operations. Indirect costs are
diminutive and accordingly have not been charged to the Portfolio.
INCOME TAXES. The Portfolio's income tax provision is determined as if the
Portfolio had paid income tax on taxable income on a separate company basis.
Current income taxes are charged directly against the investment by LTC.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases and book bases of assets and liabilities at
each year end based on enacted laws and statutory tax rates applicable to the
years in which the differences are expected to affect taxable income.
CONCENTRATION OF CREDIT RISKS. As of March 31, 1998, Integrated Health
Services, Inc. ("IHS") leased three facilities and a wholly-owned subsidiary of
Sun Healthcare Group, Inc. ("Sun") leased two facilities representing 42% and
58%, respectively, of the Portfolio's base rental revenue. The financial
position of the Portfolio may be adversely affected by financial difficulties
experienced by IHS or Sun, including bankruptcy, insolvency or general downturn
in business, or in the event IHS or Sun does not renew and/or extend its lease
with the Portfolio as it expires. IHS and Sun are publicly-traded companies and
as such, have financial and other information on file with the Commission.
NEW ACCOUNTING PRONOUNCEMENTS. During 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "EARNINGS PER SHARE", SFAS No. 129,
"DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE", SFAS No. 130, "REPORTING
COMPREHENSIVE INCOME" and SFAS No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION". SFAS No. 128 and SFAS No. 129 are
effective for fiscal years ending after December 15, 1997 and SFAS No. 130 and
SFAS No. 131 are effective for fiscal years beginning after December 15, 1997.
Adoption of SFAS No. 128, SFAS No. 129, SFAS No. 130 and SFAS No. 131 would not
have a material impact on the Portfolio's financial statements or related
disclosures.
3. REAL ESTATE
As of March 31, 1998, the Portfolio consisted of two skilled nursing
facilities with 236 beds in New Mexico, two skilled nursing facilities with 393
beds in Arizona and one skilled nursing facility with 278 beds in Montana.
F-11
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
All of the Portfolio's leases are triple net leases that require the
payment of all taxes, insurance, maintenance and other costs of the facilities
by the lessee. All of the leases contain renewal options and none of the leases
contain an option to purchase the facility; however, one of the leases contains
a right of first refusal. The leases provide for a fixed minimum base rent
during the initial and renewal periods. Two of the leases provide for annual
fixed rent increases and three of the leases provide for additional rent through
participation in incremental revenues generated by the facilities, over a
defined base period, effective at various times during the term of the lease.
Contingent rent income for the years ended December 31, 1995, 1996 and 1997
was $97,700, $104,000 and $151,600, respectively. Contingent rent income for
the three months ended March 31, 1997 and 1998 was $44,600 and $33,500,
respectively. Non-cash rental income recognized as a result of accounting under
the straight-line method for the years ended December 31, 1995, 1996 and 1997
was $94,000, $51,000 and $25,100, respectively. Non-cash rental income
recognized as a result of accounting under the straight-line method for the
three months ended March 31, 1997 and 1998 was $10,000 and $33,600,
respectively. As of December 31, 1996 and 1997 and March 31, 1998 straight-line
rent receivable was $145,000, $170,100 and $198,400, respectively. As of
December 31, 1996 and 1997 and March 31, 1998 contingent rent receivable was
$93,400, $33,500 and $67,000, respectively.
Future minimum base rents receivable under the remaining non-cancelable
terms of operating leases are: $2,076,000 for the remaining nine months of 1998
and $2,789,000, $2,829,400, $2,871,000, $2,853,800 and $5,018,000 for the years
ending December 31, 1999, 2000, 2001, 2002 and thereafter.
4. MORTGAGE LOANS PAYABLE
All of the Portfolio's facilities are encumbered by non-recourse mortgage
loans that are secured by first mortgages on the facilities. Mortgage loans on
three facilities have an aggregate outstanding principal balance of $18,451,100
at March 31, 1998, bear interest at 9.25% and mature in March 2006. The
remaining two facilities were encumbered by mortgage loans on March 31, 1998
that are payable to LTC, have an aggregate outstanding principal balance of
$8,926,000 at March 31, 1998, bear interest at 8.0% and mature in March 2028.
Total annual debt service on the mortgage loans is approximately $2,726,000.
The $18,451,100 of 9.25% mortgage loans due 2006 may be prepaid, in whole or in
part, at anytime without prepayment penalty. The $8,926,000 of 8.0% mortgage
loans due 2028 may be prepaid, in whole or in part, at any time subject to a
yield maintenance penalty.
Aggregate scheduled principal payments are: $229,300 for the remaining nine
months of 1998 and $339,100, $370,800, $405,500, $443,300 and $25,589,100 for
the years ending December 31, 1999, 2000, 2001, 2002 and thereafter.
F-12
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------- ----------------------------
1995 1996 1997 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 587,600 $ 101,100 $ 92,400 $ 23,600 $ 25,000
State 126,500 29,200 19,600 4,900 7,400
--------- --------- --------- --------- ---------
Total current 714,100 130,300 112,000 28,500 32,400
--------- --------- --------- --------- ---------
Deferred:
Federal 57,200 88,000 25,800 7,800 14,900
State 23,300 14,900 7,900 2,200 1,900
--------- --------- --------- --------- ---------
Total deferred 80,500 102,900 33,700 10,000 16,800
--------- --------- --------- --------- ---------
$ 794,600 $ 233,200 $ 145,700 $ 38,500 $ 49,200
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The reconciliation of income tax attributable continuing operations computed at
the U.S. Federal statutory tax rates to income tax expense is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------
1995 1996 1997
------------------------ ------------------------ -------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------------------------ ------------------------ -------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax at U.S. statutory rates $695,700 34.0% $204,100 34.0% $127,600 34.0%
State income taxes net of
federal tax benefits 98,900 4.8% 29,100 4.8% 18,100 4.8%
------------------------ ------------------------ -------------------------
$794,600 38.8% $233,200 38.8% $145,700 38.8%
------------------------ ------------------------ -------------------------
------------------------ ------------------------ -------------------------
<CAPTION>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------------
1997 1998
------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT
------------------------ ------------------------
<S> <C> <C> <C> <C>
Tax and U.S. statutory rates $ 33,000 34.0% $ 43,100 34.0%
State income taxes net of
federal tax benefits 5,500 5.7% 6,100 4.8%
------------------------ ------------------------
$38,500 39.7% $49,200 38.8%
------------------------ ------------------------
------------------------ ------------------------
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Portfolio's deferred tax liabilities and assets for the following years
are as follows:
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
------------------------ AS OF MARCH 31,
1996 1997 1998
--------- --------- ----------------
<S> <C> <C> <C>
Deferred Liabilities:
Straight Line Rent $ 59,900 $ 70,300 $ 84,100
Depreciation 438,400 472,500 469,400
--------- --------- ----------------
Total Deferred Tax
Liabilities 498,300 542,800 553,500
--------- --------- ----------------
Deferred Tax Assets:
State Tax 10,000 6,700 7,500
Tax Credit - AMT 8,800 20,200 12,600
Other 30,000 32,700 33,400
--------- --------- ----------------
Total Deferred Tax Assets 48,800 59,600 53,500
--------- --------- ----------------
Net Deferred Tax
Liabilities $ 449,500 $ 483,200 $ 500,000
--------- --------- ----------------
--------- --------- ----------------
</TABLE>
F-13
<PAGE>
ANNEX I
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LTC HEALTHCARE, INC.
Pursuant to the provisions of Nevada Revised Statutes ("NRS") Section
78.403, the Articles of Incorporation of the above-referenced corporation are
hereby amended and restated as follows:
ARTICLE I
NAME
The name of the corporation shall be LTC Healthcare, Inc. (the
"Corporation").
ARTICLE II
CAPITAL STOCK
Section 1. AUTHORIZED SHARES. The total number of shares of stock
which the Corporation shall have authority to issue is fifty million
(50,000,000) shares, consisting of two classes to be designated, respectively,
"Common Stock" and "Preferred Stock," with all of such shares having a par value
of $.01 per share. The total number of shares of Common Stock which the
Corporation shall have authority to issue is forty million (40,000,000) shares.
The total number of shares of Preferred Stock which the Corporation shall have
authority to issue is ten million (10,000,000) shares. The Preferred Stock may
be issued in one or more series, each series to be appropriately designated by a
distinguishing letter or title, prior to the issue of any shares thereof. The
voting powers, designations, preferences, limitations, restrictions, and
relative, participating, optional and other rights, and the qualifications,
limitations, or restrictions thereof, of the Preferred Stock shall hereinafter
be prescribed by resolution of the Board of Directors pursuant to Section 3 of
this Article II.
Section 2. COMMON STOCK.
(a) DIVIDEND RATE. Subject to the rights of holders of any
Preferred Stock having preference as to dividends, the holders of Common Stock
shall be entitled to receive dividends when, as and if declared by the Board of
Directors out of assets legally available therefor.
(b) VOTING RIGHTS. The holders of the issued and
outstanding shares of Common Stock shall be entitled to one vote for each share
of Common Stock.
(c) LIQUIDATION RIGHTS. In the event of liquidation,
dissolution, or winding up of the affairs of the Corporation, whether voluntary
or involuntary, subject to the prior rights of holders of Preferred Stock to
share ratably in the Corporation's assets, the Common Stock and any shares of
Preferred Stock which are not entitled to any preference in liquidation shall
share equally and ratably in the Corporation's assets available for distribution
after giving effect to any liquidation preference of any shares of Preferred
Stock.
I-1
<PAGE>
(d) NO CUMULATIVE VOTING, CONVERSION, REDEMPTION, OR
PREEMPTIVE RIGHTS. The holders of Common Stock shall not have any cumulative
voting, conversion, redemption, or preemptive rights.
(e) CONSIDERATION FOR SHARES. The Common Stock authorized
by this Article shall be issued for such consideration as shall be fixed, from
time to time, by the Board of Directors.
Section 3. PREFERRED STOCK.
(a) CONSIDERATION. The Board of Directors is hereby vested
with the authority from time to time to provide by resolution for the issuance
of shares of Preferred Stock in one or more series not exceeding the aggregate
number of shares of Preferred Stock authorized by these Amended and Restated
Articles of Incorporation, as amended from time to time (hereinafter, the
"Articles"), and to determine with respect to each such series the voting
powers, if any (which voting powers if granted may be full or limited),
designations, preferences, and relative, participating, optional, or other
special rights, and the qualifications, limitations, or restrictions relating
thereto, including without limiting the generality of the foregoing, the voting
rights relating to shares of Preferred Stock of any series (which may vary over
time and which may be applicable generally only upon the happening and
continuance of stated facts or events or ascertained outside the Articles), the
rate of dividend to which holders of Preferred Stock of any series may be
entitled (which may be cumulative or noncumulative), the rights of holders of
Preferred Stock of any series in the event of liquidation, dissolution, or
winding up of the affairs of the Corporation, the rights, if any, of holders of
Preferred Stock of any series to convert or exchange such shares of Preferred
Stock of such series for shares of any other class or series of capital stock or
for any other securities, property, or assets of the Corporation or any
subsidiary (including the determination of the price or prices or the rate or
rates applicable to such rights to convert or exchange and the adjustment
thereof, the time or times during which the right to convert or exchange shall
be applicable, and the time or times during which a particular price or rate
shall be applicable).
(b) CERTIFICATE. Before the Corporation shall issue any
shares of Preferred Stock of any series, a certificate setting forth a copy of
the resolution or resolutions of the Board of Directors, fixing the voting
powers, designations, preferences, the relative, participating, optional, or
other rights, if any, and the qualifications, limitations, and restrictions, if
any, relating to the shares of Preferred Stock of such series, and the number of
shares of Preferred Stock of such series authorized by the Board of Directors to
be issued shall be made and signed by, acknowledged and filed in the manner
prescribed by the NRS. The Board of Directors is further authorized to increase
or decrease (but not below the number of such shares of such series then
outstanding) the number of shares of any series subsequent to the issuance of
shares of that series.
Section 4. NON-ASSESSMENT OF STOCK. The capital stock of the
Corporation, after the amount of the subscription price has been paid in money,
property or services, as the directors shall determine, shall not be subject to
assessment to pay the debts of the Corporation, nor for any other purpose, and
no stock issued as fully paid shall ever be assessable or assessed, and the
Articles shall not be amended in this particular. No stockholder of the
Corporation is individually liable for the debts or liabilities of the
Corporation.
I-2
<PAGE>
ARTICLE III
STOCKHOLDERS
Section 1. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of
stockholders of the Corporation for any purpose or purposes may be called only
in the manner provided in the Bylaws.
Section 2. ACTION OF STOCKHOLDERS. No action shall be taken by
the stockholders except at a duly called annual or special meeting of
stockholders. The stockholders may not take action by written consent.
ARTICLE IV
DIRECTORS AND OFFICERS
Section 1. NUMBER OF DIRECTORS. The members of the governing
board of the Corporation are styled as directors. The Board of Directors of the
Corporation shall consist of at least one (1) individual who shall be elected in
such manner as shall be provided in the Bylaws of the Corporation. The number
of directors may be changed from time to time in such manner as shall be
provided in the Bylaws of the Corporation.
Section 2. CURRENT DIRECTORS. The names and post office boxes or
street addresses of each of the four (4) directors constituting the current
Board of Directors are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Andre C. Dimitriadis 300 Esplanade Drive, Suite 1860
Oxnard, CA 93030
James J. Pieczynski 300 Esplanade Drive, Suite 1860
Oxnard, CA 93030
Steven Stuart 31 West 52nd Street
New York, NY 10019
Bary G. Bailey 12225 El Camino Real
San Diego, CA 92130
</TABLE>
Section 3. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES. Advance
notice of nominations for the election of directors, other than by the Board of
Directors or a duly authorized committee thereof or any authorized officer of
the Corporation to whom the Board of Directors or such committee shall have
delegated such authority, and information concerning nominees, shall be given in
the manner provided in the Bylaws.
Section 4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as
otherwise fixed pursuant to the provisions of Article II hereof relating to the
rights of the holders of Preferred Stock, newly created directorships resulting
from any increase in the authorized number of directors and any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by a
majority vote of the directors then in office, and directors so chosen shall
hold office for a term expiring at the next annual meeting of stockholders at
which the term of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
I-3
<PAGE>
Section 5. LIMITATION OF PERSONAL LIABILITY. No director or
officer of the Corporation shall be personally liable to the Corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer;
PROVIDED, HOWEVER, that the foregoing provision does not eliminate or limit the
liability of a director or officer of the Corporation for:
(a) Acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law; or
(b) The payment of distributions in violation of NRS 78.300.
Section 6. PAYMENT OF EXPENSES. In addition to any other rights
of indemnification permitted by the laws of the State of Nevada as may be
provided for by the Corporation in its Bylaws or by agreement, the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding, involving alleged acts or omissions of such officer or director in
his or her capacity as an officer or director of the Corporation, must be paid
by the Corporation or through insurance purchased and maintained by the
Corporation or through other financial arrangements made by the Corporation, as
they are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he or she is not entitled to be indemnified by the
Corporation.
Section 7. REPEAL AND CONFLICTS. Any repeal or modification of
Sections 5 or 6 above approved by the stockholders of the Corporation shall be
prospective only. In the event of any conflict between Sections 5 or 6 of this
Article and any other Article of the Articles, the terms and provisions of
Sections 5 or 6 of this Article shall control.
ARTICLE V
VOTING ON CERTAIN TRANSACTIONS
Section 1. MERGER, SALE. The affirmative vote of the holders of
sixty-six and two-thirds percent (66-2/3%) of the outstanding stock of the
Corporation entitled to vote shall be required for:
(a) Any merger, exchange or consolidation to which the
Corporation is a party and which requires stockholder approval under the NRS;
and
(b) Any sale or other disposition by the Corporation of all or
substantially all of its assets.
Section 2. AMENDMENT OF ARTICLES. The Corporation reserves the
right to amend, alter, change or repeal any provision contained in the Articles,
in the manner now or hereafter prescribed by the NRS, and all rights conferred
on stockholders herein are granted subject to this reservation; PROVIDED,
HOWEVER, that no amendment, alteration, change or repeal may be made to: (i)
Section 2 of Article III or (ii) this Article V without the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66-2/3%) of the
outstanding voting stock of the Corporation, voting together as a single class.
I-4
<PAGE>
Section 3. AMENDMENT OF BYLAWS.
(a) BOARD OF DIRECTORS. In furtherance and not in limitation of
the powers conferred by statute, the Board of Directors is expressly authorized
to adopt, repeal, alter, amend and rescind the Bylaws of the Corporation.
(b) STOCKHOLDERS. Notwithstanding Section 3(a) of this Article
V, the Bylaws may be rescinded, altered, amended or repealed in any respect by
the affirmative vote of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the outstanding voting stock of the Corporation, voting together as
a single class.
I-5
<PAGE>
ANNEX II
AMENDED AND RESTATED BYLAWS
OF
LTC HEALTHCARE, INC.
ARTICLE I
OFFICES
SECTION 1.01 REGISTERED OFFICE. The registered office of the corporation
shall be in the City of Las Vegas, County of Clark, State of Nevada. The
corporation may, from time to time, in the manner provided by law, change the
registered office within the State of Nevada.
SECTION 1.02 OTHER OFFICES. The corporation may also maintain an office
or offices at such other places within or without the State of Nevada as the
Board of Directors may form time to time determine or the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.01 ANNUAL MEETING. The annual meeting of stockholders shall be
held each year on a date and time designated by the Board of Directors. Any
previously scheduled annual meeting of the stockholders may be postponed by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such annual meeting of the stockholders.
SECTION 2.02 SPECIAL MEETINGS.
(a) Except as otherwise required by law and subject to the rights of
the holders of Preferred Stock, special meetings of stockholders may be called
only by the Board of Directors pursuant to a resolution approved by a majority
of the entire Board of Directors, the chairman of the board, chief executive
officer, or president. Each special meeting shall be held at such date, time
and place either within or without the State of Nevada as shall be designated by
the Board of Directors at least ten (10) days prior to such meeting.
(b) No business shall be acted upon at a special meeting except as
set forth in the notice calling the meeting, unless one of the conditions for
the holding of a meeting without notice set forth in Section 2.05 shall be
satisfied, in which case any business (except as noted in Section 2.12
immediately below) may be transacted and the meeting shall be valid for all
purposes.
SECTION 2.03 PLACE OF MEETINGS. Any meeting of the stockholders of the
corporation may be held at its registered office in the State of Nevada or at
such other place in or out of the United States as the Board of Directors may
designate. A waiver of notice signed by stockholders entitled to vote may
designate any place for the holding of such meeting.
II-1
<PAGE>
SECTION 2.04 NOTICE OF MEETINGS.
(a) The president, a vice president, the secretary, an assistant
secretary or any other individual designated by the Board of Directors shall
sign and deliver written notice of any meeting at least ten (10) days, but not
more than sixty (60) days, before the date of such meeting. The notice shall
state the place, date and time of the meeting and the purpose or purposes for
which the meeting is called.
(b) In the case of an annual meeting, subject to Section 2.12, any
proper business may be presented for action, except that action on any of the
following items shall be taken only if the general nature of the proposal is
stated in the notice:
(1) Action with respect to any contract or transaction between
the corporation and one or more of its directors or officers or between the
corporation and any corporation, firm or association in which one or more of the
corporation's directors or officers is a director or officer or is financially
interested;
(2) Adoption of amendments to the Articles of Incorporation; or
(3) Action with respect to a merger, share exchange,
reorganization, partial or complete liquidation, or dissolution of the
corporation.
(c) A copy of the notice shall be personally delivered or mailed
postage prepaid to each stockholder of record entitled to vote at the meeting at
the address appearing on the records of the corporation, and the notice shall be
deemed delivered the date the same is deposited in the United States mail for
transmission to such stockholder. If the address of any stockholder does not
appear upon the records of the corporation, it will be sufficient to address any
notice to such stockholder at the registered office of the corporation.
(d) The written certificate of the individual signing a notice of
meeting, setting forth the substance of the notice or having a copy thereof
attached, the date the notice was mailed or personally delivered to the
stockholders and the addresses to which the notice was mailed, shall be prima
facie evidence of the manner and fact of giving such notice.
(e) Any stockholder may waive notice of any meeting by a signed
writing, either before or after the meeting.
SECTION 2.05 MEETING WITHOUT NOTICE.
(a) Whenever all persons entitled to vote at any meeting consent,
either by:
(1) A writing on the records of the meeting or filed with the
secretary; or
(2) Presence at such meeting and oral consent entered on the
minutes; or
(3) Taking part in the deliberations at such meeting without
objection; The doings of such meeting shall be as valid as if had at a meeting
regularly called and noticed.
(b) At such meeting any business may be transacted which is not
excepted from the written consent or to the consideration of which no objection
for want of notice is made at the time.
II-2
<PAGE>
(c) If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of the
meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting.
(d) Such consent or approval may be by proxy or power of attorney,
but all such proxies and powers of attorney must be in writing.
SECTION 2.06 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) For the purpose of determining the stockholders entitled to
notice of and to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion,
or exchange of stock or for the purpose of any other lawful action, the
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days before the date of such meeting, nor more
than sixty (60) days prior to any other action.
(b) If no record date is fixed, the record date for determining
stockholders: (i) entitled to notice of and to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held and (ii) for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 2.07 QUORUM; ADJOURNED MEETINGS.
(a) Unless the Articles of Incorporation provide for a different
proportion, stockholders holding at least a majority of the voting power of the
corporation's stock, represented in person or by proxy, are necessary to
constitute a quorum for the transaction of business at any meeting. If, on any
issue, voting by classes is required by the laws of the State of Nevada, the
Articles of Incorporation or these Bylaws, at least a majority of the voting
power within each such class is necessary to constitute a quorum of each such
class.
(b) If a quorum is not represented, a majority of the voting power so
represented may adjourn the meeting from time to time until holders of the
voting power required to constitute a quorum shall be represented. At any such
adjourned meeting at which a quorum shall be represented, any business may be
transacted which might have been transacted as originally called. When a
stockholders' meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The stockholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum of the voting power.
II-3
<PAGE>
SECTION 2.08 VOTING.
(a) Unless otherwise provided in the Articles of Incorporation, or in
the resolution providing for the issuance of the stock adopted by the Board of
Directors pursuant to authority expressly vested in it by the provisions of the
Articles of Incorporation, each stockholder of record, or such stockholder's
duly authorized proxy or attorney-in-fact, shall be entitled to one (1) vote for
each share of voting stock standing registered in such stockholder's name on the
record date. No stockholder of the corporation shall be entitled to cumulative
voting for the election of directors.
(b) Except as otherwise provided herein, all votes with respect to
shares standing in the name of an individual on the record date (included
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy, attorney-in-fact, or voting trustee(s) pursuant to a voting
trust. With respect to shares held by a representative of the estate of a
deceased stockholder, guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the shares do not stand
in the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though the
shares do not stand in the name of the receiver; provided, that the order of the
court of competent jurisdiction which appoints the receiver contains the
authority to cast votes carried by such shares. If shares stand in the name of
a minor, votes may be cast only by the duly appointed guardian of the estate of
such minor if such guardian has provided the corporation with written proof of
such appointment.
(c) With respect to shares standing in the name of another
corporation, partnership, limited liability company or other legal entity on the
record date, votes may be cast: (i) in the case of a corporation, by such
individual as the bylaws of such other corporation prescribe, by such individual
as may be appointed by resolution of the board of directors of such other
corporation or by such individual (including the officer making the
authorization) authorized in writing to do so by the chairman of the board of
directors, president or any vice-president of such corporation and (ii) in the
case of a partnership, limited liability company or other legal entity, by an
individual representing such stockholder upon presentation to the corporation of
satisfactory evidence of his authority to do so.
(d) Notwithstanding anything to the contrary herein contained, no
votes may be cast for shares owned by this corporation or its subsidiaries, if
any. If shares are held by this corporation or its subsidiaries, if any, in a
fiduciary capacity, no votes shall be cast with respect thereto on any matter
except to the extent that the beneficial owner thereof possesses and exercises
either a right to vote or to give the corporation holding the same binding
instructions on how to vote.
(e) Any holder of shares entitled to vote on any matter may cast a
portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
(f) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship in respect to the same shares, votes may
be cast in the following manner:
(1) If only one person votes, the vote of such person binds all.
II-4
<PAGE>
(2) If more than one person casts votes, the act of the majority
so voting binds all.
(3) If more than one person casts votes, but the vote is evenly
split on a particular matter, the votes shall be deemed cast proportionately, as
split.
(g) If a quorum is present, unless the Articles of Incorporation
provide for a different proportion, the affirmative vote of holders of at least
a majority of the voting power represented at the meeting and entitled to vote
on any matter shall be the act of the stockholders, unless voting by classes is
required for any action of the stockholders by the laws of the State of Nevada,
the Articles of Incorporation or these Bylaws, in which case the affirmative
vote of holders of a least a majority of the voting power of each such class
shall be required.
SECTION 2.09 PROXIES. At any meeting of stockholders, any holder of
shares entitled to vote may designate, in a manner permitted by the laws of the
State of Nevada, another person or persons to act as a proxy or proxies. No
proxy is valid after the expiration of six (6) months from the date of its
creation, unless it is coupled with an interest or unless otherwise specified in
the proxy. In no event shall the term of a proxy exceed seven (7) years from
the date of its creation. Every proxy shall continue in full force and effect
until its expiration or revocation in a manner permitted by the laws of the
State of Nevada.
SECTION 2.10 ORDER OF BUSINESS. At the annual stockholder's meeting, the
regular order of business shall be as follows:
1. Determination of stockholders present and existence of quorum, in
person or by proxy;
2. Reading and approval of the minutes of the previous meeting or
meetings;
3. Reports of the Board of Directors, and, if any, the president,
treasurer and secretary of the corporation;
4. Reports of committees;
5. Election of directors;
6. Unfinished business;
7. New business;
8. Adjournment.
SECTION 2.11 ABSENTEES' CONSENT TO MEETINGS. Transactions of any meeting
of the stockholders are as valid as though had at a meeting duly held after
regular call and notice if a quorum is represented, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not represented in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the
II-5
<PAGE>
notice which are legally required to be included therein), signs a written
waiver of notice and/or consent to the holding of the meeting or an approval of
the minutes thereof. All such waivers, consents, and approvals shall be filed
with the corporate records and made a part of the minutes of the meeting.
Attendance of a person at a meeting shall constitute a waiver of notice of such
meeting, except when the person objects at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters not properly included in the notice if
such objection is expressly made at the time any such matters are presented at
the meeting. Neither the business to be transacted at nor the purpose of any
regular or special meeting of stockholders need be specified in any written
waiver of notice or consent, except as otherwise provided in Section 2.04(a) and
(b) or Section 2.12 (if applicable) of these Bylaws.
SECTION 2.12 BUSINESS TO BE CONDUCTED AT MEETING. At an annual or
special meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before a meeting, business must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of Directors,
(b) brought before the meeting by or at the direction of the Board of Directors,
(c) properly brought before an annual meeting by a stockholder, or (d) if, and
only if, the notice of a special meeting provides for business to be brought
before the meeting by stockholders, properly brought before the meeting by a
stockholder who is a stockholder of record at the time of serving of the notice
pursuant to Section 2.04, who shall be entitled to vote at such meeting and who
complies with the notice procedures set forth in this Section 2.12. For
business to be properly brought before a meeting by a stockholder pursuant to
the preceding clauses (c) or (d), the stockholder must have given timely notice
thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to, or mailed and received by, the
secretary at the principal executive office of the corporation not less than
thirty-five (35) days prior to the meeting; PROVIDED, HOWEVER, that in the event
less than forty-five (45) days notice or public disclosure of the date of the
meeting is given or made to the stockholders, notice by the stockholder to be
timely must be so received not later than the fifth (5th) day following the day
on which such notice of the date of the meeting was mailed or such disclosure
was made. In no event shall the public disclosure of an adjournment of an
annual or special meeting commence a new time period for the giving of
stockholder's notice as described above. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, and the name and address of the beneficial
owner, if any, on whose behalf the proposal is made, (c) the class and number of
shares of the corporation which are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any, on whose behalf the
proposal is made, and (d) any material interest of such stockholder of record
and the beneficial owner, if any, on whose behalf the proposal is made in such
business. Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 2.12. The presiding officer at the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
brought in accordance with this Section 2.12, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. Notwithstanding the foregoing
provisions of this Section 2.12, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder with respect to the
matters set forth herein. As used herein, "public disclosure" shall mean
disclosure in a press release reported by the Dow Jones News Association, the
Associated Press, or comparable news service or in a document publicly filed
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
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SECTION 2.13 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Stockholders may take action only at a regular or special meeting of
stockholders.
ARTICLE III
DIRECTORS
SECTION 3.01 NUMBER, ELECTION, TENURE, AND QUALIFICATIONS. Except as
otherwise fixed by resolution of the Board of Directors pursuant to the Articles
of Incorporation relating to the authorization of the Board of Directors to
provide by resolution for the issuance of Preferred Stock and to determine the
rights of the holders of such Preferred Stock to elect directors, the Board of
Directors shall consist of at least one (1) individual who shall be elected at
the annual meeting of the stockholders of the corporation and who shall hold
office for one (1) year or until his or her successor is elected and qualify. A
director need not be a stockholder of the corporation.
SECTION 3.02 CHANGE IN NUMBER. Subject to any limitation in the laws of
the State of Nevada, the Articles of Incorporation or these Bylaws, the number
of directors may be changed from time to time by resolution adopted by the Board
of Directors.
SECTION 3.03 REDUCTION IN NUMBER. No reduction in the number of
directors shall have the effect of removing any director prior to the expiration
of his term in office.
SECTION 3.04 NOMINATION OF DIRECTORS. Except as otherwise fixed by
resolution of the Board of Directors pursuant to the Articles of Incorporation
relating to the authorization of the Board of Directors to provide by resolution
for the issuance of Preferred Stock and to determine the rights of the holders
of such Preferred Stock to elect directors, nominations for the election of
directors may be made by the Board of Directors, by a committee appointed by the
board of directors, or by any stockholder of record at the time of giving of
notice provided for herein. However, any stockholder entitled to vote in the
election of directors as provided herein may nominate one or more persons for
election as directors at a meeting only if written notice of such stockholder's
intent to make such nomination or nominations has been delivered to or mailed
and received by the secretary of the corporation not later than, (a) with
respect to an election to be held at an annual meeting of stockholders, 120
calendar days in advance of the first anniversary of the date the corporation's
proxy statement was released to security holders in connection with the
preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that the
date of the annual meeting is changed by more than thirty (30) days from such
anniversary date, notice by the stockholder to be timely must be received not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure was made, and (b) with respect to an election to be held at a special
meeting of stockholders for the election of directors, not earlier than the
close of business on the 90th day prior to such special meeting and not later
than the close of business on the later of the 60th day prior to such special
meeting or the tenth (10th) day following the day on which public disclosure is
first made of the date of the special meeting and the nominees proposed by the
board of directors to be elected at such a meeting. Notwithstanding any of the
foregoing to the contrary, in the event that the number of directors to be
elected by the Board of Directors of the corporation is increased and there is
no public disclosure by the corporation naming the nominees for director or
specifying the size of the increased Board of Directors at least seventy (70)
days prior to the first anniversary of the date of the preceding year's annual
meeting, a stockholder's notice required hereunder shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the secretary at the principal executive
office of the corporation not later than the close of business on the tenth
(10th) day
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following the earlier of day on which notice of the meeting is mailed or such
public disclosure is first made by the corporation. In no event shall the
public announcement of an adjournment of an annual or special meeting commence a
new time period for the giving of a stockholder's notice as describe above.
Each such notice shall set forth: (a) the name and address of the stockholder
who intends to make the nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) the class and number of shares of the corporation which are
beneficially owned by such stockholder and also which are owned of record by
such stockholder; (d) as to the beneficial owner, if any, on whose behalf the
nomination is made, (i) the name and address of such person and (ii) the class
and number of shares of the corporation which are beneficially owned by such
person; (e) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (f) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had such
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (g) the written consent of each nominee to being named as nominee in the
proxy statement and to serving as a director of the corporation if so elected.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the secretary of the
corporation, that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. The presiding officer of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure. As used herein, "public disclosure"
shall have the meaning set forth in Section 2.12. No person shall be eligible
to serve as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section 3.04. The presiding officer at the
meeting shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by this
Section 3.04, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions hereof, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth herein.
SECTION 3.05 VACANCIES; NEWLY CREATED DIRECTORSHIPS. Except as otherwise
fixed by resolution of the Board of Directors pursuant to the Articles of
Incorporation relating to the authorization of the Board of Directors to provide
by resolution for the issuance of Preferred Stock and to determine the rights of
the holders of such Preferred Stock to elect directors, any vacancies on the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office, or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by a majority vote of the directors then in office, though
less than a quorum, or by a sole remaining director, and the director(s) so
chosen shall hold office (i) in the case of the replacement of a director,
during the remainder of the term of office of the replaced director and (ii) in
the case of an increase in the number of directors, until the next annual
meeting of stockholders at which directors are elected, unless sooner displaced.
SECTION 3.06. REMOVAL OF DIRECTORS. Subject to any rights of the holders
of Preferred Stock, any director may be removed from office by the affirmative
vote of the holders of at least two-thirds (2/3rds) of the voting power of all
shares of the corporation entitled to vote generally in the election of
directors (voting as a single class).
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SECTION 3.07 ANNUAL AND REGULAR MEETINGS. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the stockholders at which directors are elected other than pursuant to Section
3.06 of this Article, the Board of Directors, including directors newly elected,
shall hold its annual meeting without notice, other than this provision, to
elect officers and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date,
and hour for holding regular meetings between annual meetings.
SECTION 3.08 SPECIAL MEETINGS. Except as otherwise required by law, and
subject to the rights, if any, of the holders of Preferred Stock, special
meetings of the Board of Directors may be called by the chairman, or if there be
no chairman, by the president or secretary and shall be called by the chairman,
the president or the secretary upon the request of any two (2) directors. If
the chairman, or if there be no chairman both the president and secretary,
refuses or neglects to call such special meeting, a special meeting may be
called by notice signed by any two (2) directors.
SECTION 3.09 PLACE OF MEETINGS. Any regular or special meeting of the
directors of the corporation may be held at such place as the Board of
Directors, or in the absence of such designation, as the notice calling such
meeting, may designate. A waiver of notice signed by directors may designate
any place for the holding of such meeting.
SECTION 3.10 NOTICE OF MEETINGS. Except as otherwise provided in Section
3.07, there shall be delivered to all directors, at least forty-eight (48) hours
before the time of such meeting, a copy of a written notice of any meeting by
delivery of such notice personally by mailing such notice postage prepaid or by
telegram. Such notice shall be addressed in the manner provided for notice to
stockholders in Section 2.04(c). If mailed, the notice shall be deemed
delivered two (2) business days following the date the same is deposited in the
United States mail, postage prepaid. Any director may waive notice of any
meeting, and the attendance of a director at a meeting and oral consent entered
on the minutes of the meeting or taking part in deliberations of the meeting
without objection shall constitute a waiver of notice of such meeting.
Attendance for the express purpose of objecting to the transaction of business
thereat because the meeting is not properly called or convened shall not
constitute presence nor a waiver of notice for purposes hereof.
SECTION 3.11 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the directors in office, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of business.
(b) At any meeting of the Board of Directors where a quorum is not
present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
SECTION 3.12 BOARD OF DIRECTORS' DECISIONS. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is present is
the act of the Board of Directors.
SECTION 3.13 TELEPHONIC MEETINGS. Members of the Board of Directors or
of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or committee by means of a telephone
conference or similar method of communication by which all persons participating
in such meeting can hear each other. Participation in a meeting pursuant to
this Section 3.13 constitutes presence in person at the meeting.
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SECTION 3.14 ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of the Board of Directors or of a committee thereof may be
taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the Board of Directors or committee.
SECTION 3.15 POWERS AND DUTIES.
(a) Except as otherwise restricted in the laws of the State of Nevada
or the Articles of Incorporation, the Board of Directors has full control over
the affairs of the corporation. The Board of Directors may delegate any of its
authority to manage, control or conduct the business of the corporation to any
standing or special committee, as more fully set forth in Article V of these
Bylaws, or to any officer or agent and to appoint any persons to be agents of
the corporation with such powers, including the power to subdelegate, and upon
such terms as may be deemed fit.
(b) The Board of Directors may present to the stockholders at annual
meetings of the stockholders, and when called for by a majority vote of the
stockholders at an annual meeting or, subject to Section 2.12, a special meeting
of the stockholders shall so present, a full and clear report of the condition
of the corporation.
(c) The Board of Directors, in its discretion, or the officer of the
corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot and
may submit any contract or act for approval or ratification at any annual
meeting of the stockholders or any special meeting properly called for the
purpose of considering any such contract or act, provided a quorum is present.
SECTION 3.16. COMPENSATION. The directors shall be paid their expenses of
attendance at each meeting of the board of directors and any applicable
committee and may be paid a fixed fee for attendance at each meeting of the
board of directors and any applicable committee or a stated salary as director
and member of an applicable committee. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 3.17 BOARD OF DIRECTORS' OFFICERS.
(a) At its annual meeting, the Board of Directors shall elect, from
among its members, a chairman who shall preside at meetings of the Board of
Directors and the stockholders. The Board of Directors may also elect such
other officers of the Board of Directors and for such term as it may, from time
to time, determine advisable.
(b) Any vacancy in any office of the Board of Directors because of
death, resignation, removal or otherwise may be filled by the Board of Directors
for the unexpired portion of the term of such office.
SECTION 3.18 ORDER OF BUSINESS. The order of business at any meeting of
the Board of Directors shall be as follows:
1. Determination of members present and existence of quorum;
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2. Reading and approval of the minutes of any previous meeting or
meetings;
3. Reports of officers and committeemen;
4. Election of officers (annual meeting);
5. Unfinished business;
6. New business;
7. Adjournment.
ARTICLE IV
COMMITTEES
SECTION 4.01 STANDING COMMITTEES. The Board of Directors shall designate
an audit committee and a compensation committee, each committee to consist of
two or more directors to serve at the pleasure of the Board. The Board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required
(a) AUDIT COMMITTEE. The audit committee will review the annual
audits of the corporation's independent public accountants, review and evaluate
internal accounting controls, recommend the selection of the corporation's
independent public accountants, review and pass upon (or ratify) related party
transactions, and conduct such reviews and examinations as it deems necessary
with respect to the practices and policies of, and the relationship between, the
corporation and its independent public accountants.
(b) COMPENSATION COMMITTEE. The Compensation Committee will review
salaries, bonuses and stock options of senior officers of the corporation and
administer the corporation's executive compensation policies and stock option
plan.
SECTION 4.02 SPECIAL COMMITTEES. In addition to the standing committees
provided in Section 4.01 above, the Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more special committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required. Subject to
applicable law and to the extent provided in the resolution of the Board of
Directors, any committee designated hereunder shall have and may exercise all
the powers of the Board of Directors, except with
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respect to: (i) the approval of any action which, under Chapter 78 of the
Nevada Revised Statutes, also requires the approval of the full Board of
Directors, or the stockholders of the outstanding shares; (ii) the filling of
vacancies on the Board of Directors or in any committee; (iii) the amendment or
repeal of bylaws or the adoption of new bylaws; (iv) the amendment or repeal of
any resolution of the Board of Directors which by its express terms is not so
amendable or repealable; (v) a distribution to the stockholders of the
corporation, except at a rate or in a periodic amount or within a price range
determined by the Board of Directors; or (vi) the appointment of any other
committees of the Board of Directors or the members thereof.
SECTION 4.03 MEETINGS AND ACTIONS OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with Sections
3.07 (annual and regular meetings), 3.08 (special meetings), 3.09 (place of
meetings). 3.10 (notice of meetings), 3.11 (quorum and adjourned meetings), 3.13
(telephonic meetings), and 3.13 (action without a meeting) of these Bylaws, with
such changes in the context of those bylaws as are necessary to substitute the
committee and its members for the Board of Directors, and notice of special
meetings of committees shall also be given to all alternate members, who shall
have the right to attend all meetings of the committee. The Board of Directors
may adopt rules for the government of any committee not inconsistent with the
provisions of these Bylaws.
ARTICLE V
OFFICERS
SECTION 5.01 ELECTION. The Board of Directors, at its annual meeting,
shall elect a president, a secretary and a treasurer to hold office for a term
of one (1) year or until their successors are chosen and qualify. Any
individual may hold two or more offices. The Board of Directors may, from time
to time, by resolution, elect one or more vice-presidents, assistant
secretaries, assistant treasurers or other officers, and appoint agents of the
corporation, prescribe their duties and fix their compensation.
SECTION 5.02 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the corporation. Any
such removal or resignation shall be subject to the rights, if any, of the
respective parties under any contract between the corporation and such officer
or agent.
SECTION 5.03 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
SECTION 5.04 CHAIRMAN OF THE BOARD. The chairman shall be the chief
executive officer of the corporation and shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and affairs of the corporation and shall preside at meetings of the
stockholders and the Board of Directors.
SECTION 5.05 PRESIDENT.
(a) The president shall be the chief operations officer of the
corporation, subject to the supervision and control of the Board of Directors,
and shall direct the corporate affairs, with full power to execute all
resolutions and orders of the Board of Directors not expressly delegated to some
other officer or agent of the corporation. If the chairman of the Board of
Directors elects not to preside or is absent, the president shall preside at
meetings of the stockholders and Board of Directors and perform such other
duties as shall be prescribed by the Board of Directors.
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(b) The president shall have full power and authority on behalf of
the corporation to attend and to act and to vote, or designate such other
officer or agent of the corporation to attend and to act and to vote, at any
meetings of the stockholders of any corporation in which the corporation may
hold stock and, at any such meetings, shall possess and may exercise any and all
rights and powers incident to the ownership of such stock. The Board of
Directors, by resolution from time to time, may confer like powers on any person
or persons in place of the president to exercise such powers for these purposes.
SECTION 5.06 VICE-PRESIDENTS. The Board of Directors may elect one or
more vice-presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act and
such other duties as shall be prescribed by the Board of Directors or the
president.
SECTION 5.07 SECRETARY. The secretary shall keep, or cause to be kept,
the minutes of proceedings of the stockholders and the Board of Directors in
books provided for that purpose. The secretary shall attend to the giving and
service of all notices of the corporation, may sign with the president in the
name of the corporation all contracts in which the corporation is authorized to
enter, shall have the custody or designate control of the corporate seal, shall
affix the corporate seal to all certificates of stock duly issued by the
corporation, shall have charge or designate control of stock certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors or appropriate committee may direct, and shall, in general, perform
all duties incident to the office of the secretary.
SECTION 5.08 ASSISTANT SECRETARIES. The Board of Directors may appoint
one or more assistant secretaries who shall have such powers and perform such
duties as may be prescribed by the Board of Directors or the secretary.
SECTION 5.09 TREASURER. The treasurer shall be subject to the
supervision and control of the Board of Directors, and shall have custody of all
the funds and securities of the corporation. When necessary or proper, the
treasurer shall endorse on behalf of the corporation for collection checks,
notes, and other obligations, and shall deposit all moneys to the credit of the
corporation in such bank or banks or other depository as the Board of Directors
may designate, and shall sign all receipts and vouchers for payments made by the
corporation. Unless otherwise specified by the Board of Directors, the
treasurer may sign with the president all bills of exchange and promissory notes
of the corporation, shall also have the care and custody of the stocks, bonds,
certificates, vouchers, evidence of debts, securities, and such other property
belonging to the corporation as the Board of Directors shall designate, and
shall sign all papers required by law, by these Bylaws, or by the Board of
Directors to be signed by the treasurer. The treasurer shall enter, or cause to
be entered, regularly in the financial records of the corporation, to be kept
for that purpose, full and accurate accounts of all moneys received and paid on
account of the corporation and, whenever required by the Board of Directors, the
treasurer shall render a statement of any or all accounts. The treasurer shall
at all reasonable times exhibit the books of account to any director of the
corporation and shall perform all acts incident to the position of treasurer
subject to the control of the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond to
the corporation in such sum and with such security as shall be approved by the
Board of Directors for the faithful performance of all the duties of treasurer
and for restoration to the corporation, in the event of the treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
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SECTION 5.10 ASSISTANT TREASURERS. The Board of Directors may appoint
one or more assistant treasurers who shall have such powers and perform such
duties as may be prescribed by the Board of Directors or the treasurer. The
Board of Directors may require an assistant treasurer to give a bond to the
corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of assistant treasurer, and for restoration
to the corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the assistant treasurer's custody or
control and belonging to the corporation. The expense of such bond shall be
borne by the corporation.
ARTICLE VI
CAPITAL STOCK
SECTION 6.01 ISSUANCE. Shares of the corporation's authorized stock
shall, subject to any provisions or limitations of the laws of the State of
Nevada, the Articles of Incorporation or any contracts or agreements to which
the corporation may be a party, be issued in such manner, at such times, upon
such conditions and for such consideration as shall be prescribed by the Board
of Directors.
SECTION 6.02 CERTIFICATES. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the corporation
and shall be manually signed by the president or a vice-president and also by
the secretary or an assistant secretary; provided, however, whenever any
certificate is countersigned or otherwise authenticated by a transfer agent or
transfer clerk, and by a registrar, then a facsimile of the signatures of said
officers may be printed or lithographed upon the certificate in lieu of the
actual signatures. If the Corporation uses facsimile signatures of its officers
on its stock certificates, it shall not act as registrar of its own stock, but
its transfer agent and registrar may be identical if the institution acting in
those dual capacities countersigns any stock certificates in both capacities.
Each certificate shall contain the name of the record holder, the number,
designation, if any, class or series of shares represented, a statement or
summary of any applicable rights, preferences, privileges or restrictions
thereon, and a statement, if applicable, that the shares are assessable. All
certificates shall be consecutively numbered. If provided by the stockholder,
the name, address and federal tax identification number of the stockholder, the
number of shares, and the date of issue shall be entered in the stock transfer
records of the corporation.
SECTION 6.03 SURRENDERED; LOST OR DESTROYED CERTIFICATES. All
certificates surrendered to the corporation, except those representing shares of
treasury stock, shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares shall have been canceled,
except that in case of a lost, stolen, destroyed or mutilated certificate, a new
one may be issued therefor. However, any stockholder applying for the issuance
of a stock certificate in lieu of one alleged to have been lost, stolen,
destroyed or mutilated shall, prior to the issuance of a replacement, provide
the corporation with his, her or its affidavit of the facts surrounding the
loss, theft, destruction or mutilation and, if required by the Board of
Directors, an indemnity bond in an amount not less than twice the current market
value of the stock, and upon such terms as the treasurer or the Board of
Directors shall require which shall indemnify the corporation against any loss,
damage, cost or inconvenience arising as a consequence of the issuance of a
replacement certificate.
SECTION 6.04 REPLACEMENT CERTIFICATE. When the Articles of Incorporation
are amended in any way affecting the statements contained in the certificates
for outstanding shares of capital stock of the corporation or it becomes
desirable for any reason, in the discretion of the Board of Directors,
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including, without limitation, the merger of the corporation with another
corporation or the reorganization of the corporation, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors.
The order may provide that a holder of any certificate(s) ordered to be
surrendered shall not be entitled to vote, receive distributions or exercise any
other rights of stockholders of record until the holder has complied with the
order, but the order operates to suspend such rights only after notice and until
compliance.
SECTION 6.05 TRANSFER OF SHARES. Upon surrender to the corporation, or
the transfer agent of the corporation, of a certificate or shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and the record the
transaction upon its books.
SECTION 6.06 TRANSFER AGENT; REGISTRARS. The Board of Directors may
appoint one or more transfer agents, transfer clerk and registrars of transfer
and may require all certificates for shares of stock to bear the signature of
such transfer agent, transfer clerk and/or registrar of transfer.
SECTION 6.07 STOCK TRANSFER RECORDS. The stock transfer records shall be
closed for a period of at least ten (10) days prior to all meetings of the
stockholders and shall be closed for the payment of distributions as provided in
Article VII hereof and during such periods as, from time to time, may be fixed
by the Board of Directors, and, during such periods, no stock shall be
transferable for purposes of Article VII and no voting rights shall be deemed
transferred during such periods. Subject to the forgoing limitations, nothing
contained herein shall cause transfers during such periods to be void or
voidable.
SECTION 6.08 MISCELLANEOUS. The Board of Directors shall have the power
and authority to make such rules and regulations not inconsistent herewith as it
may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the corporation's stock.
ARTICLE VII
DISTRIBUTIONS
SECTION 7.01 Distributions may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of
Directors may fix in advance a record date, as provided in Section 2.06, prior
to the distribution for the purpose of determining stockholders entitled to
receive any distribution. The Board of Directors may close the stock transfer
books for such purpose for a period of not more than ten (10) days prior to the
date of such distribution.
ARTICLE VIII
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
SECTION 8.01 RECORDS. All original records of the corporation, shall be
kept by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
SECTION 8.02 DIRECTORS' AND OFFICERS' RIGHT OF INSPECTION. Every
director and officer shall have the absolute right at any reasonable time for a
purpose reasonably related to the exercise of such
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individual's duties to inspect and copy all of the corporation's books, records,
and documents of every kind and to inspect the physical properties of the
corporation and/or its subsidiary corporations. Such inspection may be made in
person or by agent or attorney.
SECTION 8.03 CORPORATE SEAL. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
SECTION 8.04 FISCAL YEAR-END. The fiscal year-end of the corporation
shall be such date as may be fixed from time to time by resolution of the Board
of Directors.
SECTION 8.05 RESERVES. The Board of Directors may create, by resolution,
such reserves as the directors may, from time to time, in their discretion,
think proper to provide for contingencies, or to equalize distributions or to
repair or maintain any property of the corporation, or for such other purpose as
the Board of Directors may deem beneficial to the corporation, and the directors
may modify or abolish any such reserves in the manner in which they were
created.
ARTICLE IX
INDEMNIFICATION
SECTION 9.01 INDEMNIFICATION AND INSURANCE.
(a) INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(i) For purposes of this Article, (A) "Indemnitee" shall mean
each director or officer who was or is a party to, or is threatened to be made a
party to, or is otherwise involved in, any Proceeding (as hereinafter defined),
by reason of the fact that he or she is or was a director or officer of the
corporation or is or was serving in any capacity at the request of the
corporation as a director, officer, employee, agent, partner, or fiduciary of,
or in any other capacity for, another corporation or any partnership, joint
venture, trust, or other enterprise; and (B) "Proceeding" shall mean any
threatened, pending, or completed action, or suit (including without limitation
an action, suit or proceeding by or in the right of the corporation), whether
civil, criminal, administrative, or investigative.
(ii) Each Indemnitee shall be indemnified and held harmless by
the corporation for all actions taken by him or her and for all omissions
(regardless of the date of any such action or omission), to the fullest extent
permitted by Nevada law, against all expense, liability and loss (including
without limitation attorneys' fees, judgments, fines, taxes, penalties, and
amounts paid or to be paid in settlement) reasonably incurred or suffered by the
Indemnitee in connection with any Proceeding.
(iii) Indemnification pursuant to this Section shall continue
as to an Indemnitee who has ceased to be a director or officer and shall inure
to the benefit of his or her heirs, executors and administrators.
(b) INDEMNIFICATION OF EMPLOYEES AND OTHER PERSONS.
The corporation may, by action of its Board of Directors and to
the extent provided in such action, indemnify employees and other persons as
though they were Indemnitees.
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(c) NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification provided in this Article shall not
be exclusive of any other rights that any person may have or hereafter acquire
under any statute, provision of the corporation's Articles of Incorporation or
Bylaws, agreement, vote of stockholders or directors, or otherwise.
(d) INSURANCE.
The corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise for any
liability asserted against him or her and liability and expenses incurred by him
or her in his or her capacity as a director, officer, employee or agent, or
arising out of his or her status as such, whether or not the corporation has the
authority to indemnify him or her against such liability and expenses.
(e) OTHER FINANCIAL ARRANGEMENTS.
The other financial arrangements which may be made by the
corporation may include the following (i) the creation of a trust fund; (ii) the
establishment of a program of self-insurance; (iii) the securing of its
obligation of indemnification by granting a security interest or other lien on
any assets of the corporation; (iv) the establishment of a letter of credit,
guarantee or surety. No financial arrangement made pursuant to this subsection
may provide protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable for
intentional misconduct, fraud, or a knowing violation of law, except with
respect to advancement of expenses or indemnification ordered by a court.
(f) OTHER MATTERS RELATING TO INSURANCE OR FINANCIAL ARRANGEMENTS.
Any insurance or other financial arrangement made on behalf of a
person pursuant to this section may be provided by the corporation or any other
person approved by the Board of Directors, even if all or part of the other
person's stock or other securities is owned by the corporation. In the absence
of fraud:
(i) the decision of the Board of Directors as to the
propriety of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section and the choice of the person to
provide the insurance or other financial arrangement is conclusive; and
(ii) the insurance or other financial arrangement:
(A) is not void or voidable; and
(B) does not subject any director approving it to
personal liability for his action,
even if a director approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
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SECTION 9.02 AMENDMENT. The provisions of this Article IX relating to
indemnification shall constitute a contract between the corporation and each of
its directors and officers which may be modified as to any director or officer
only with that person's consent or as specifically provided in this Section.
Notwithstanding any other provision of these Bylaws relating to their amendment
generally (including, without limitation, Article X below), any repeal or
amendment of this Article IX which is adverse to any director or officer shall
apply to such director or officer only on a prospective basis, and shall not
limit the rights of an Indemnitee to indemnification with respect to any action
or failure to act occurring prior to the time of such repeal or amendment.
Notwithstanding any other provision of these Bylaws, no repeal or amendment of
these Bylaws shall affect any or all of this Article IX so as to limit or reduce
the indemnification in any manner unless adopted by (a) the unanimous vote of
the directors of the corporation then serving, or (b) by the stockholders as set
forth in Article X hereof; provided that no such amendment shall have a
retroactive effect inconsistent with the preceding sentence.
ARTICLE X
AMENDMENT OR REPEAL
SECTION 10.01. AMENDMENT OF BYLAWS. These Bylaws or any provision hereof
may be amended, altered, or repealed (a) by the Board of Directors at an annual
meeting thereof without prior notice or at any special meeting thereof if notice
of such proposed amendment, alteration or repeal is contained in the notice of
such special meeting or (b) by the affirmative vote of at least sixty-six and
two thirds percent (66-2/3%) of the voting power of all the then outstanding
shares of capital stock entitled to vote at any meeting of the stockholders at
which a quorum is present, if notice of such proposed amendment, alteration or
repeal is contained in the notice of such meeting.
SECTION 10.02. ADDITIONAL BYLAWS. Additional bylaws not inconsistent
herewith may be adopted by the Board of Directors. Any bylaws so adopted shall
be subject to alteration, amendment or repeal by the stockholders in accordance
with Section 10.01 of these Bylaws.
ARTICLE XI
CHANGES IN NEVADA LAW
SECTION 11.01 CHANGES IN NEVADA LAW. References in these Bylaws to
Nevada law or to any provision thereof shall be to such law as it existed on the
date these Bylaws were adopted or as such law thereafter may be changed;
provided that (a) in the case of any change which expands the liability of
directors or officers or limits the indemnification rights or the rights to
advancement of expenses which the corporation may provide in Article IX hereof,
the rights to limited liability, to indemnification and to the advancement of
expenses provided in the corporation's Articles of Incorporation and/or these
Bylaws shall continue as theretofore to the extent permitted by law; and (b) if
such change permits the corporation, without the requirement of any further
action by stockholders or directors, to limit further the liability of directors
or officers or to provide broader indemnification rights or rights to the
advancement of expenses than the corporation was permitted to provide prior to
such change, then liability thereupon shall be so limited and the rights to
indemnification and the advancement of expenses shall be so broadened to the
extent permitted by law.
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ANNEX III
THE 1998 EQUITY PARTICIPATION PLAN
OF
LTC HEALTHCARE, INC.
LTC Healthcare, Inc., a Nevada corporation, has adopted The 1998 Equity
Participation Plan of LTC Healthcare, Inc. (the "Plan"), effective
______________, 1998, for the benefit of its eligible employees, consultants and
directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, key Employees (as
such term is defined below) and consultants to further the growth, development
and financial success of the Company by personally benefiting through the
ownership of Company stock and/or rights which recognize such growth,
development and financial success.
(2) To enable the Company to obtain and retain the services of directors,
key Employees and consultants considered essential to the long range success of
the Company by offering them an opportunity to own stock in the Company and/or
rights which will reflect the growth, development and financial success of the
Company.
ARTICLE I
DEFINITIONS
Wherever the following terms are used in the Plan they shall have the
meanings specified below, unless the context clearly indicates otherwise.
"ADMINISTRATOR" shall mean the entity that conducts the general
administration of the Plan as provided in Article X. With reference to the
administration of the Plan with respect to Options granted to Independent
Directors, the term "Administrator" shall refer to the Board. With reference to
the administration of the Plan with respect to any other Award, the term
"Administrator" shall refer to the Committee unless the Board has assumed the
authority for administration of the Plan generally as provided in Section 10.2.
"AWARD" shall mean an Option, a Restricted Stock award, a Performance
Award, a Dividend Equivalents award, a Deferred Stock award, a Stock Payment
award or a Stock Appreciation Right which may be awarded or granted under the
Plan (collectively, "Awards").
"AWARD AGREEMENT" shall mean a written agreement executed by an authorized
officer of the Company and the Holder which shall contain such terms and
conditions with respect to an Award as the Administrator shall determine,
consistent with the Plan.
"AWARD LIMIT" shall mean seventy-five thousand (75,000) shares of Common
Stock, as adjusted pursuant to Section 11.3 of the Plan.
"BOARD" shall mean the Board of Directors of the Company.
"CHANGE IN CONTROL" shall mean a change in ownership or control of the
Company effected through any of the following transactions:
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(a) any person or related group of persons (other than the Company or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Company) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 under the Exchange
Act) of securities of the Company representing forty percent (40%) or more
of the total combined voting power of the Company's then outstanding
securities; or
(b) the stockholders of the Company approve a merger or consolidation
of the Company with any other corporation (or other entity), other than a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 66-2/3% of the combined
voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation;
PROVIDED, HOWEVER, that a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 40% of the combined voting power of the Company's then
outstanding securities shall not constitute a Change in Control; or
(c) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale of disposition by
the Company of all or substantially all of the Company's assets, or
(d) a majority of the members of the Board cease to be, as of any
date of determination, members of the Board who were members of the Board
as of the date the Plan was approved by the stockholders of the Company or
was nominated for election or elected to the Board with the approval of a
majority of the members of the Board at the time of such nomination or
election.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall mean the Compensation Committee of the Board, or another
committee or subcommittee of the Board, appointed as provided in Section 10.1.
"COMMON STOCK" shall mean the common stock of the Company, par value $.01
per share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any preferred stock and any warrants,
options or other rights to purchase Common Stock. Debt securities of the
Company convertible into Common Stock shall be deemed equity securities of the
Company.
"COMPANY" shall mean LTC Healthcare, Inc., a Nevada corporation.
"CORPORATE TRANSACTION" shall mean any of the following
stockholder-approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction the principal purpose of which
is to change the State in which the Company is incorporated, form a holding
company or effect a similar reorganization as to form whereupon the Plan
and all Options are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions
to clause (a), above; or
(c) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than forty percent (40%) of the
total combined voting power of the
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Company's outstanding securities are transferred or issued to a person or
persons different from those who held such securities immediately prior to
such merger.
"CSAR" shall mean a Coupled Stock Appreciation Right.
"DEFERRED STOCK" shall mean Common Stock awarded under Article VIII of the
Plan.
"DIRECTOR" shall mean a member of the Board.
"DIVIDEND EQUIVALENT" shall mean a right to receive the equivalent value
(in cash or Common Stock) of dividends paid on Common Stock, awarded under
Article VIII of the Plan.
"EMPLOYEE" shall mean any officer or other employee (as defined in
accordance with Section 3401(c) of the Code) of the Company, or of any
corporation which is a Subsidiary.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" of a share of Common Stock as of a given date shall be
(i) the closing price of a share of Common Stock on the principal exchange on
which shares of Common Stock are then trading, if any (or as reported on any
composite index which includes such principal exchange), on the trading day
previous to such date, or if shares were not traded on the trading day previous
to such date, then on the next preceding date on which a trade occurred, or (ii)
if Common Stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, the mean between the closing representative bid and
asked prices for the Common Stock on the trading day previous to such date as
reported by NASDAQ or such successor quotation system; or (iii) if Common Stock
is not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the Fair Market Value of a share of Common Stock as
established by the Administrator acting in good faith.
"GRANTEE" shall mean an Employee, Independent Director or consultant
granted a Performance Award, Dividend Equivalent, Stock Payment or Stock
Appreciation Right, or an award of Deferred Stock, under the Plan.
"HOLDER" shall mean a person who has been granted or awarded an Award.
"INCENTIVE STOCK OPTION" shall mean an option which conforms to the
applicable provisions of Section 422 of the Code and which is designated as an
Incentive Stock Option by the Committee.
"INDEPENDENT DIRECTOR" shall mean a member of the Board who is not an
Employee of the Company.
"ISAR" shall mean an independent stock appreciation right.
"NON-QUALIFIED STOCK OPTION" shall mean an Option which is not designated
as an Incentive Stock Option by the Committee.
"OPTION" shall mean a stock option granted under Article IV of the Plan.
An Option granted under the Plan shall, as determined by the Committee, be
either a Non-Qualified Stock Option or an Incentive Stock Option; PROVIDED,
HOWEVER, that Options granted to Independent Directors and consultants shall be
Non-Qualified Stock Options.
"OPTIONEE" shall mean an Employee, consultant or Independent Director
granted an Option under the Plan.
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"PERFORMANCE AWARD" shall mean a cash bonus, stock bonus or other
performance or incentive award that is paid in cash, Common Stock or a
combination of both, awarded under Article VIII of the Plan.
"PERFORMANCE CRITERIA" shall mean the following business criteria with
respect to the Company or any Subsidiary: (i) net income, (ii) investments,
(iii) cash flow, (iv) earnings per share, (v) return on equity, (vi) return on
invested capital or assets, (vii) cost reductions or savings, (viii) funds from
operations, (ix) appreciation in the fair market value of Common Stock and (x)
earnings before any one or more of the following items: interest, depreciation
or amortization.
"PLAN" shall mean The 1998 Equity Participation Plan of LTC Healthcare,
Inc.
"QDRO" shall mean a qualified domestic relations order as defined by the
Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
"RESTRICTED STOCK" shall mean Common Stock awarded under Article VII of the
Plan.
"RESTRICTED STOCKHOLDER" shall mean an Employee, Independent Director or
consultant granted an award of Restricted Stock under Article VII of the Plan.
"RULE 16B-3" shall mean that certain Rule 16b-3 under the Exchange Act, as
such Rule may be amended from time to time.
"SECTION 162(m) PARTICIPANT" shall mean any key Employee designated by the
Committee as a key Employee whose compensation for the fiscal year in which the
key Employee is so designated or a future fiscal year may be subject to the
limit on deductible compensation imposed by Section 162(m) of the Code.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"STOCK APPRECIATION RIGHT" shall mean a stock appreciation right granted
under Article IX of the Plan.
"STOCK PAYMENT" shall mean (i) a payment in the form of shares of Common
Stock, or (ii) an option or other right to purchase shares of Common Stock, as
part of a deferred compensation arrangement, made in lieu of all or any portion
of the compensation, including without limitation, salary, bonuses and
commissions, that would otherwise become payable to a key Employee or consultant
in cash or director fees that would otherwise be paid to an Independent Director
in cash, awarded under Article VIII of the Plan.
"SUBSIDIARY" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one of the other corporations in such chain.
"TERMINATION OF CONSULTANCY" shall mean the time when the engagement of a
Holder as a consultant to the Company or a Subsidiary is terminated for any
reason, with or without cause and with or without notice, including, but not by
way of limitation, by resignation, discharge, death or retirement; but excluding
terminations where there is a simultaneous commencement of employment with the
Company or any Subsidiary. The Committee, in its absolute discretion, shall
determine the effect of all matters and questions relating to Termination of
Consultancy, including, but not by way of limitation, the question of whether a
Termination of Consultancy resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of the Plan, the Company or
any Subsidiary has an absolute and unrestricted right to terminate a
consultant's service at any time for any reason whatsoever, with or without
cause and with or without notice, except to the extent expressly provided
otherwise in writing.
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"TERMINATION OF DIRECTORSHIP" shall mean the time when a Holder who is an
Independent Director ceases to be a Director for any reason, including, but not
by way of limitation, a termination by resignation, failure to be elected, death
or retirement. The Board, in its sole and absolute discretion, shall determine
the effect of all matters and questions relating to Termination of Directorship
with respect to Independent Directors.
"TERMINATION OF EMPLOYMENT" shall mean the time when the employee-employer
relationship between a Holder and the Company or any Subsidiary is terminated
for any reason, with or without cause and with or without notice, including, but
not by way of limitation, a termination by resignation, discharge, death,
disability or retirement; but excluding (i) terminations where there is a
simultaneous reemployment or continuing employment of a Holder by the Company or
any Subsidiary, (ii) at the discretion of the Committee, terminations which
result in a temporary severance of the employee-employer relationship, and (iii)
at the discretion of the Committee, terminations which are followed by the
simultaneous establishment of a consulting relationship by the Company or a
Subsidiary with the former employee. The Committee, in its absolute discretion,
shall determine the effect of all matters and questions relating to Termination
of Employment, including, but not by way of limitation, the question of whether
a Termination of Employment resulted from a discharge for good cause, and all
questions of whether a particular leave of absence constitutes a Termination of
Employment; PROVIDED, HOWEVER, that, with respect to Incentive Stock Options,
unless otherwise determined by the Committee in its discretion, a leave of
absence, change in status from an employee to an independent contractor or other
change in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate an Employee's
employment at any time for any reason whatsoever, with or without cause and with
or without notice, except to the extent expressly provided otherwise in writing.
ARTICLE II
SHARES SUBJECT TO PLAN
2.1 SHARES SUBJECT TO PLAN.
(a) The shares of stock subject to Awards shall be Common Stock,
initially shares of the Company's Common Stock, par value $.01 per share.
The aggregate number of such shares which may be issued upon exercise of
such Options or rights or upon any such awards under the Plan shall not
exceed Two Hundred Fifty Thousand (250,000). The shares of Common Stock
issuable upon exercise of such Options or rights or upon any such awards
may be either previously authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Awards,
granted under the Plan to any individual in any calendar year shall not
exceed the Award Limit. To the extent required by Section 162(m) of the
Code, shares subject to Options which are canceled continue to be counted
against the Award Limit and if, after grant of an Option, the price of
shares subject to such Option is reduced, the transaction is treated as a
cancellation of the Option and a grant of a new Option and both the Option
deemed to be canceled and the Option deemed to be granted are counted
against the Award Limit. Furthermore, to the extent required by Section
162(m) of the Code, if, after grant of a Stock Appreciation Right, the base
amount on which stock appreciation is calculated is reduced to reflect a
reduction in the Fair Market Value of the Common Stock, the transaction is
treated as a cancellation of the Stock Appreciation Right and a grant of a
new Stock Appreciation Right and both the Stock
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Appreciation Right deemed to be canceled and the Stock Appreciation Right
deemed to be granted are counted against the Award Limit.
2.2 ADD-BACK OF OPTIONS AND OTHER RIGHTS. If any Option, or other right
to acquire shares of Common Stock under any other Award under the Plan, expires
or is canceled without having been fully exercised, or is exercised in whole or
in part for cash as permitted by the Plan, the number of shares subject to such
Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 11.3 and become exercisable with respect to shares of stock of another
corporation shall be considered canceled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any share of Restricted Stock is
forfeited by the Holder or repurchased by the Company pursuant to Section 7.5
hereof, such share may again be optioned, granted or awarded hereunder, subject
to the limitations of Section 2.1. Notwithstanding the provisions of this
Section 2.2, no shares of Common Stock may again be optioned, granted or awarded
if such action would cause an Incentive Stock Option to fail to qualify as an
incentive stock option under Section 422 of the Code.
ARTICLE III
GRANTING OF AWARDS
3.1 AWARD AGREEMENT. Each Award shall be evidenced by an Award
Agreement. Award Agreements evidencing Awards intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. Award Agreements
evidencing Incentive Stock Options shall contain such terms and conditions as
may be necessary to meet the applicable provisions of Section 422 of the Code.
3.2 PROVISIONS APPLICABLE TO SECTION 162(m) PARTICIPANTS.
(a) The Committee, in its discretion, may determine whether an Award
is to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any Award to a Section 162(m) Participant, including
Restricted Stock the restrictions with respect to which lapse upon the
attainment of performance goals which are related to one or more of the
Performance Criteria and any performance or incentive award described in
Article VIII that vests or becomes exercisable or payable upon the
attainment of performance goals which are related to one or more of the
Performance Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect
to any Award granted under Articles VII and VIII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall,
in writing, (i) designate one or more Section 162(m) Participants, (ii)
select the Performance Criteria applicable to the fiscal year or other
designated fiscal period or period of service, (iii) establish the various
performance targets, in terms of an objective formula or standard,
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and amounts of Restricted Stock or bonus amounts, as applicable, which may
be earned for such fiscal year or other designated fiscal period or period
of service and (iv) specify the relationship between Performance Criteria
and the performance targets and the amounts of Restricted Stock or bonus
amounts, as applicable, to be earned by each Section 162(m) Participant for
such fiscal year or other designated fiscal period or period of service.
Following the completion of each fiscal year or other designated fiscal
period or period of service, the Committee shall certify in writing whether
the applicable performance targets have been achieved for such fiscal year
or other designated fiscal period or period of service. In determining the
amount earned by a Section 162(m) Participant, the Committee shall have the
right to reduce (but not to increase) the amount payable at a given level
of performance to take into account additional factors that the Committee
may deem relevant to the assessment of individual or corporate performance
for the fiscal year or other designated fiscal period or period of service.
3.3 CONSIDERATION. In consideration of the granting of an Award under the
Plan, the Holder shall agree, in the Award Agreement, to remain in the employ of
(or to consult for or to serve as an Independent Director of, as applicable) the
Company or any Subsidiary for a period of at least one year (or such shorter
period as may be fixed in the Award Agreement or by action of the Administrator
following grant of the Award) after the Award is granted (or, in the case of an
Independent Director, until the next annual meeting of stockholders of the
Company).
3.4 AT-WILL EMPLOYMENT. Nothing in the Plan or in any Award Agreement
hereunder shall confer upon any Holder any right to continue in the employ of,
or as a consultant for, the Company or any Subsidiary, or as a director of the
Company, or shall interfere with or restrict in any way the rights of the
Company and any Subsidiary, which are hereby expressly reserved, to discharge
any Holder at any time for any reason whatsoever, with or without cause and with
or without notice, except to the extent expressly provided otherwise in a
written employment agreement between the Holder and the Company and any
Subsidiary.
ARTICLE IV
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. ELIGIBILITY. Any Employee or consultant selected by the Committee
pursuant to Section 4.4(a)(i) shall be eligible to be granted an Option. Each
Independent Director of the Company shall be eligible to be granted Options at
the times and in the manner set forth in Sections 4.5 and 4.6.
4.2. DISQUALIFICATION FOR STOCK OWNERSHIP. No person may be granted an
Incentive Stock Option under the Plan if such person, at the time the Incentive
Stock Option is granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company or any
then existing Subsidiary or parent corporation (within the meaning of Section
422 of the Code) unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
4.3. QUALIFICATION OF INCENTIVE STOCK OPTIONS. No Incentive Stock Option
shall be granted to any person who is not an Employee.
4.4. GRANTING OF OPTIONS TO EMPLOYEES AND CONSULTANTS.
(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:
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(i) Determine which Employees are key Employees and select from among
the key Employees or consultants (including Employees or consultants who
have previously received Awards under the Plan) such of them as in its
opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to the selected key Employees or
consultants;
(iii) Subject to Section 4.3, determine whether such Options are to be
Incentive Stock Options or Non-Qualified Stock Options and whether such
Options are to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent
with the Plan; PROVIDED, HOWEVER, that the terms and conditions of Options
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall include, but not be limited to, such
terms and conditions as may be necessary to meet the applicable provisions
of Section 162(m) of the Code.
(b) Upon the selection of a key Employee or consultant to be granted
an Option, the Committee shall instruct the Secretary of the Company to issue
the Option and may impose such conditions on the grant of the Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee or consultant
that the Employee or consultant surrender for cancellation some or all of the
unexercised Options, any other Award or other rights which have been previously
granted to him/her under the Plan or otherwise. An Option, the grant of which
is conditioned upon such surrender, may have an Option price lower (or higher)
than the exercise price of such surrendered Option or other award, may cover the
same (or a lesser or greater) number of shares as such surrendered Option or
other award, may contain such other terms as the Committee deems appropriate,
and shall be exercisable in accordance with its terms, without regard to the
number of shares, price, exercise period or any other term or condition of such
surrendered Option or other award.
(c) Any Incentive Stock Option granted under the Plan may be modified
by the Committee, with the consent of the Optionee, to disqualify such Option
from treatment as an "incentive stock option" under Section 422 of the Code.
4.5. GRANTING OF OPTIONS TO INDEPENDENT DIRECTORS.
(a) During the term of the Plan, a person who is initially elected to
the Board and who is an Independent Director at the time of such initial
election automatically shall be granted an Option to purchase _____________
(________) shares of Common Stock (subject to adjustment as provided in Section
11.3) on the date of such initial election. Members of the Board who are
employees of the Company who subsequently retire from the Company and remain on
the Board will not receive an initial Option grant pursuant to the preceding
sentence.
(b) The Board shall from time to time, in its absolute discretion,
and subject to applicable limitations of the Plan determine (i) which
Independent Directors, if any, should, in its opinion, be granted Non-Qualified
Stock Options, (ii) subject to the Award Limit, determine the number of number
of shares to be subject to such Options, and (iii) the terms and conditions of
such Options, consistent with the Plan.
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4.6. OPTIONS IN LIEU OF CASH COMPENSATION. Options may be granted under
the Plan to Employees and consultants in lieu of cash bonuses which would
otherwise be payable to such Employees and consultants and to Independent
Directors in lieu of directors' fees which would otherwise be payable to such
Independent Directors, pursuant to such policies which may be adopted by the
Administrator from time to time.
ARTICLE V
TERMS OF OPTIONS
5.1 OPTION PRICE. The price per share of the shares subject to each
Option granted to Employees and consultants shall be set by the Committee;
PROVIDED, HOWEVER, that such price shall be no less than the par value of a
share of Common Stock, unless otherwise permitted by applicable state law, and
(i) in the case of Options intended to qualify as performance-based compensation
as described in Section 162(m)(4)(C) of the Code, such price shall not be less
than 100% of the Fair Market Value of a share of Common Stock on the date the
Option is granted; (ii) in the case of Incentive Stock Options such price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on the
date the Option is granted (or the date the Option is modified, extended or
renewed for purposes of Section 424(h) of the Code); and (iii) in the case of
Incentive Stock Options granted to an individual then owning (within the meaning
of Section 424(d) of the Code) more than 10% of the total combined voting power
of all classes of stock of the Company or any Subsidiary or parent corporation
thereof (within the meaning of Section 422 of the Code), such price shall not be
less than 110% of the Fair Market Value of a share of Common Stock on the date
the Option is granted (or the date the Option is modified, extended or renewed
for purposes of Section 424(h) of the Code).
5.2 OPTION TERM. The term of an Option granted to an Employee or
consultant shall be set by the Committee in its discretion; PROVIDED, HOWEVER,
that, in the case of Incentive Stock Options, the term shall not be more than
ten (10) years from the date the Incentive Stock Option is granted, or five (5)
years from such date if the Incentive Stock Option is granted to an individual
then owning (within the meaning of Section 424(d) of the Code) more than 10% of
the total combined voting power of all classes of stock of the Company or any
Subsidiary or parent corporation thereof (within the meaning of Section 422 of
the Code). Except as limited by requirements of Section 422 of the Code and
regulations and rulings thereunder applicable to Incentive Stock Options, the
Committee may extend the term of any outstanding Option in connection with any
Termination of Employment or Termination of Consultancy of the Optionee, or
amend any other term or condition of such Option relating to such a termination.
5.3 OPTION VESTING.
(a) The period during which the right to exercise, in whole or in
part, an Option granted to an Employee or a consultant vests in the
Optionee shall be set by the Committee in its sole and absolute discretion
and the Committee may determine that an Option may not be exercised in
whole or in part for a specified period after it is granted; PROVIDED,
HOWEVER, that, unless the Committee otherwise provides in the terms of the
Award Agreement or otherwise, no Option shall be exercisable by any
Optionee who is then subject to Section 16 of the Exchange Act within the
period ending six months and one day after the date the Option is granted.
At any time after grant of an Option, the Committee may, in its sole and
absolute discretion and subject to whatever terms and conditions it
selects, accelerate the period during which an Option granted to an
Employee or consultant vests.
(b) No portion of an Option granted to an Employee or consultant
which is unexercisable at Termination of Employment or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except as
may be otherwise provided by the Committee either in the Award Agreement or
by action of the Committee following the grant of the Option.
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(c) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section
422 of the Code, but without regard to Section 422(d) of the Code) are
exercisable for the first time by an Optionee during any calendar year
(under the Plan and all other incentive stock option plans of the Company
and any parent or subsidiary corporation (within the meaning of Section 422
of the Code) of the Company) exceeds $100,000, such Options shall be
treated as Non-Qualified Options to the extent required by Section 422 of
the Code. The rule set forth in the preceding sentence shall be applied by
taking Options into account in the order in which they were granted. For
purposes of this Section 5.3(c), the Fair Market Value of stock shall be
determined as of the time the Option with respect to such stock is granted.
5.4 TERMS OF OPTIONS GRANTED TO INDEPENDENT DIRECTORS. The price per
share of the shares subject to each Option granted to an Independent Director
shall equal 100% of the Fair Market Value of a share of Common Stock on the date
the Option is granted. Subject to Section 6.6, each Option granted to an
Independent Director pursuant to Section 4.5 shall become exercisable in
cumulative annual installments of 33-1/3% on each of the first, second and third
anniversaries of the date of grant and shall expire on the earlier of the
seventh anniversary of the date of vesting or one year following an Independent
Director's Termination of Directorship for any reason; PROVIDED that no Option
shall vest more than one year following an Independent Director's Termination of
Directorship.
ARTICLE VI
EXERCISE OF OPTIONS
6.1 PARTIAL EXERCISE. An exercisable Option may be exercised in whole or
in part. However, an Option shall not be exercisable with respect to fractional
shares and the Administrator may require that, by the terms of the Option, a
partial exercise be with respect to a minimum number of shares.
6.2 MANNER OF EXERCISE. All or a portion of an exercisable Option
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his/her office:
(a) A written notice complying with the applicable rules established
by the Administrator stating that the Option, or a portion thereof, is
exercised. The notice shall be signed by the Optionee or other person then
entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in its
absolute discretion, deems necessary or advisable to effect compliance with
all applicable provisions of the Securities Act and any other federal or
state securities laws or regulations. The Administrator may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section 11.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the shares
with respect to which the Option, or portion thereof, is exercised.
However, the Administrator, may in its discretion (i) allow a delay in
payment up to thirty (30) days from the date the Option, or portion
thereof, is exercised; (ii) allow payment, in whole or in part, through the
delivery of shares of Common Stock owned by the Optionee, duly endorsed for
transfer to the Company with a Fair Market Value on the date of delivery
equal to the aggregate exercise price of the Option or exercised portion
thereof;
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(iii) allow payment, in whole or in part, through the surrender of shares
of Common Stock then issuable upon exercise of the Option having a Fair
Market Value on the date of Option exercise equal to the aggregate exercise
price of the Option or exercised portion thereof; (iv) allow payment, in
whole or in part, through the delivery of property of any kind which
constitutes good and valuable consideration; (v) allow payment, in whole or
in part, through the delivery of a full recourse promissory note bearing
interest (at no less than such rate as shall then preclude the imputation
of interest under the Code) and payable upon such terms as may be
prescribed by the Committee or the Board; (vi) allow payment, in whole or
in part, through the delivery of a notice that the Optionee has placed a
market sell order with a broker with respect to shares of Common Stock then
issuable upon exercise of the Option, and that the broker has been directed
to pay a sufficient portion of the net proceeds of the sale to the Company
in satisfaction of the Option exercise price; or (vii) allow payment
through any combination of the consideration provided in the foregoing
subparagraphs (ii), (iii), (iv), (v) and (vi). In the case of a promissory
note, the Administrator may also prescribe the form of such note and the
security to be given for such note. The Option may not be exercised,
however, by delivery of a promissory note or by a loan from the Company
when or where such loan or other extension of credit is prohibited by law.
6.3 CONDITIONS TO ISSUANCE OF STOCK CERTIFICATES. The Company shall
not be required to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed;
(b) The completion of any registration or other qualification of such
shares under any state or federal law, or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body which the Administrator shall, in its absolute discretion,
deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Committee (or Board, in the case of Options
granted to Independent Directors) may establish from time to time for
reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the
discretion of the Committee or the Board may be in the form of
consideration used by the Optionee to pay for such shares under Section
6.2(d).
6.4 RIGHTS AS STOCKHOLDERS/ DIVIDEND EQUIVALENTS. Optionees shall not
be, nor have any of the rights or privileges of, stockholders of the Company in
respect of any shares purchasable upon the exercise of any part of an Option
unless and until certificates representing such shares have been issued by the
Company to such Optionees. Notwithstanding the foregoing, any Optionee may be
granted Dividend Equivalents based on the dividends declared on Common Stock, to
be credited as of dividend payment dates, during the period between the date an
Option is granted, and the date such Option is exercised, vests or expires, as
determined by the Committee (or the Board, with respect to Independent
Directors). Such Dividend Equivalents shall be converted to cash or additional
shares of Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Committee (or the Board, with respect to
Independent Directors). With respect to Dividend Equivalents granted with
respect to Options intended to be qualified performance-based compensation for
purposes of Section 162(m) of the Code, such Dividend
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Equivalents shall be payable as of dividend payment dates regardless of whether
such Option is exercised.
6.5 OWNERSHIP AND TRANSFER RESTRICTIONS. The Administrator, in its
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Committee may require the Employee to give the Company prompt
notice of any disposition of shares of Common Stock acquired by exercise of an
Incentive Stock Option within (i) two years from the date of granting (including
the date the Option is modified, extended or renewed for purposes of Section
424(h) of the Code) such Option to such Employee or (ii) one year after the
transfer of such shares to such Employee. The Committee may direct that the
certificates evidencing shares acquired by exercise of any such Option refer to
such requirement to give prompt notice of disposition.
6.6 ADDITIONAL LIMITATIONS ON EXERCISE OF OPTIONS. Optionees may be
required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.
ARTICLE VII
AWARD OF RESTRICTED STOCK
7.1 ELIGIBILITY. Subject to the Award Limit, Restricted Stock may be
awarded to any Employee who the Committee determines is a key Employee, any
consultant who the Committee determines should receive such an Award or any
Independent Director who the Board determines should receive such an Award.
7.2 AWARD OF RESTRICTED STOCK.
(a) The Committee (or the Board, with respect to Independent
Directors) may from time to time, in its absolute discretion:
(i) Determine which Employees are key Employees and select from
among the key Employees, Independent Directors or consultants
(including Employees, Independent Directors or consultants who have
previously received other awards under the Plan) such of them as in
its opinion should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms and
conditions applicable to such Restricted Stock, consistent with the
Plan.
(b) The Committee (or the Board, with respect to Independent
Directors) shall establish the purchase price, if any, and form of payment
for Restricted Stock.
(c) Upon the selection of a key Employee, Independent Director or
consultant to be awarded Restricted Stock, the Committee (or the Board,
with respect to Independent Directors) shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on
the issuance of such Restricted Stock as it deems appropriate.
7.3 RIGHTS AS STOCKHOLDERS. Subject to Section 7.4, upon delivery of
the shares of Restricted Stock to the escrow holder pursuant to Section 7.6, the
Restricted Stockholder shall have, unless otherwise provided by the Committee
(or the Board, with respect to Independent Directors), all the rights of a
stockholder with respect to said shares, subject to the restrictions in his/her
Award Agreement, including the
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right to receive all dividends and other distributions paid or made with respect
to the shares; PROVIDED, HOWEVER, that in the discretion of the Committee (or
the Board, with respect to Independent Directors), any extraordinary
distributions with respect to the Common Stock shall be subject to the
restrictions set forth in Section 7.4.
7.4 RESTRICTION. All shares of Restricted Stock issued under the Plan
(including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee (or the Board, with respect to
Independent Directors) shall provide, which restrictions may include, without
limitation, restrictions concerning voting rights and transferability and
restrictions based on duration of employment with the Company, Company
performance and individual performance; PROVIDED, HOWEVER, that, except with
respect to shares of Restricted Stock granted to Section 162(m) Participants, by
action taken after the Restricted Stock is issued, the Committee may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Award Agreement. Restricted Stock
may not be sold or encumbered until all restrictions are terminated or expire.
If no consideration was paid by the Restricted Stockholder upon issuance, a
Restricted Stockholder's rights in unvested Restricted Stock shall lapse upon
Termination of Employment or, if applicable, upon Termination of Consultancy or
Termination of Directorship with the Company; PROVIDED, HOWEVER, that the
Committee in its sole and absolute discretion may provide that such rights shall
not lapse in the event of a Termination of Employment following a "change of
ownership control" (within the meaning of Treasury Regulation Section
1.62-27(e)(2)(v) or any successor regulation thereto) of the Company or because
of the Restricted Stockholder's death or disability; PROVIDED, FURTHER, except
with respect to shares of Restricted Stock granted to Section 162(m)
Participants, the Committee in its sole and absolute discretion may provide that
no such right of repurchase shall exist in the event of a Termination of
Employment, or a Termination of Consultancy, without cause or following any
Change in Control of the Company or because of the Restricted Stockholder's
retirement, or otherwise.
7.5 REPURCHASE OF RESTRICTED STOCK. The Committee (or the Board, with
respect to Independent Directors) shall provide in the terms of each individual
Award Agreement that the Company shall have the right to repurchase from the
Restricted Stockholder the Restricted Stock then subject to restrictions under
the Award Agreement immediately upon a Termination of Employment or, if
applicable, upon a Termination of Consultancy between the Restricted Stockholder
and the Company, at a cash price per share equal to the price paid by the
Restricted Stockholder for such Restricted Stock; PROVIDED, HOWEVER, that the
Committee in its sole and absolute discretion may provide that no such right of
repurchase shall exist in the event of a Termination of Employment following a
"change of ownership or control" (within the meaning of Treasury Regulation
Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the Company or
because of the Restricted Stockholder's death or disability; PROVIDED, FURTHER,
that, except with respect to shares of Restricted Stock granted to Section
162(m) Participants, the Committee in its sole and absolute discretion may
provide that no such right of repurchase shall exist in the event of a
Termination of Employment or a Termination of Consultancy without cause or
following any Change in Control of the Company or because of the Restricted
Stockholder's retirement, or otherwise.
7.6 ESCROW. The Secretary of the Company or such other escrow holder as
the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.
7.7 LEGEND. In order to enforce the restrictions imposed upon shares of
Restricted Stock hereunder, the Committee (or the Board, with respect to
Independent Directors) shall cause a legend or legends to be placed on
certificates representing all shares of Restricted Stock that are still subject
to restrictions under Award Agreements, which legend or legends shall make
appropriate reference to the conditions imposed
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thereby.
7.8 SECTION 83(b) ELECTION. If a Restricted Stockholder makes an
election under Section 83(b) of the Code, or any successor section thereto, to
be taxed with respect to the Restricted Stock as of the date of transfer of the
Restricted Stock rather than as of the date or dates upon which the Restricted
Stockholder would otherwise be taxable under Section 83(a) of the Code, the
Restricted Stockholder shall deliver a copy of such election to the Company
immediately after filing such election with the Internal Revenue Service.
7.9 RESTRICTED STOCK IN LIEU OF CASH COMPENSATION. Restricted Stock may
be awarded under the Plan to Employees and consultants in lieu of cash bonuses
which would otherwise be payable to such Employees and consultants and to
Independent Directors in lieu of directors' fees which would otherwise be
payable to such Independent Directors, pursuant to such policies which may be
adopted by the Administrator from time to time.
ARTICLE VIII
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK,
STOCK PAYMENTS
8.1 ELIGIBILITY. Subject to the Award Limit, one or more Performance
Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock Payments
may be granted to any Employee who the Committee determines is a key Employee,
any consultant who the Committee determines should receive such an Award or any
Independent Director who the Board determines should receive such an Award.
8.2 PERFORMANCE AWARDS. Any key Employee or consultant selected by the
Committee or any Independent Director selected by the Board may be granted one
or more Performance Awards. The value of such Performance Awards may be linked
to any one or more of the Performance Criteria or other specific performance
criteria determined appropriate by the Committee (or the Board, with respect to
Independent Directors), in each case on a specified date or dates or over any
period or periods determined by the Committee (or the Board, with respect to
Independent Directors). In making such determinations, the Committee (or the
Board, with respect to Independent Directors) shall consider (among such other
factors as it deems relevant in light of the specific type of award) the
contributions, responsibilities and other compensation of the particular key
Employee, Independent Director or consultant.
8.3 DIVIDEND EQUIVALENTS. Any key Employee or consultant selected by
the Committee or any Independent Director selected by the Board may be granted
Dividend Equivalents based on the dividends declared on Common Stock, to be
credited as of dividend payment dates, during the period between the date a
Stock Appreciation Right, Deferred Stock or Performance Award is granted, and
the date such Stock Appreciation Right, Deferred Stock or Performance Award is
exercised, vests or expires, as determined by the Committee (or the Board, with
respect to Independent Directors). Such Dividend Equivalents shall be converted
to cash or additional shares of Common Stock by such formula and at such time
and subject to such limitations as may be determined by the Committee (or the
Board, with respect to Independent Directors).
8.4 STOCK PAYMENTS. Any key Employee or consultant selected by the
Committee or any Independent Director selected by the Board may receive Stock
Payments in the manner determined from time to time by the Committee (or the
Board, with respect to Independent Directors). The number of shares shall be
determined by the Committee (or the Board, with respect to Independent
Directors) and may be based upon the Performance Criteria or other specific
performance criteria determined appropriate by the Committee (or the Board, with
respect to Independent Directors), determined on the date such Stock Payment is
made or on any date thereafter.
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8.5 DEFERRED STOCK. Any key Employee or consultant selected by the
Committee or any Independent Director selected by the Board may be granted an
award of Deferred Stock in the manner determined from time to time by the
Committee (or the Board, with respect to Independent Directors). The number of
shares of Deferred Stock shall be determined by the Committee (or the Board,
with respect to Independent Directors) and may be linked to the Performance
Criteria or other specific performance criteria determined to be appropriate by
the Committee (or the Board, with respect to Independent Directors), in each
case on a specified date or dates or over any period or periods determined by
the Committee (or the Board, with respect to Independent Directors). Common
Stock underlying a Deferred Stock award will not be issued until the Deferred
Stock award has vested, pursuant to a vesting schedule or performance criteria
set by the Committee (or the Board, with respect to Independent Directors).
Unless otherwise provided by the Committee (or the Board, with respect to
Independent Directors), a Holder of Deferred Stock shall have no rights as a
Company stockholder with respect to such Deferred Stock until such time as the
Award has vested and the Common Stock underlying the Award has been issued.
8.6 TERM. The term of a Performance Award, Dividend Equivalent, award
of Deferred Stock and/or Stock Payment shall be set by the Committee (or the
Board, with respect to Independent Directors) in its discretion.
8.7 EXERCISE OR PURCHASE PRICE. The Committee (or the Board, with
respect to Independent Directors) may establish the exercise or purchase price
of a Performance Award, shares of Deferred Stock, or shares received as a Stock
Payment.
8.8 EXERCISE UPON TERMINATION OF EMPLOYMENT, TERMINATION OF DIRECTORSHIP
OR TERMINATION OF CONSULTANCY. A Performance Award, Dividend Equivalent,
award of Deferred Stock and/or Stock Payment is exercisable or payable only
while the Holder is an Employee, Independent Director or consultant; PROVIDED,
HOWEVER, that the Committee in its sole and absolute discretion may provide that
the Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment may be exercised or paid subsequent to a Termination of Employment
following a "change of control or ownership" (within the meaning of Section
1.162-27(e)(2)(v) or any successor regulation thereto) of the Company; PROVIDED,
FURTHER, that except with respect to Performance Awards granted to Section
162(m) Participants, the Committee in its sole and absolute discretion may
provide that the Performance Awards may be exercised or paid following a
Termination of Employment or a Termination of Consultancy without cause, or
following a Change in Control of the Company, or because of the Grantee's
retirement, death or disability, or otherwise.
8.9 PAYMENT ON EXERCISE. Payment of the amount determined under
Section 8.1 or 8.2 above shall be in cash, in Common Stock or a combination of
both, as determined by the Committee (or the Board, with respect to Independent
Directors). To the extent any payment under this Article VIII is effected in
Common Stock, it shall be made subject to satisfaction of all provisions of
Section 6.3.
8.10 PERFORMANCE AWARD, DIVIDEND EQUIVALENT, DEFERRED STOCK AND/OR STOCK
PAYMENT IN LIEU OF CASH COMPENSATION. Performance Awards, Dividend
Equivalents, Deferred Stock and/or Stock Payments may be awarded under the Plan
to Employees and consultants in lieu of cash bonuses which would otherwise be
payable to such Employees and consultants and to Independent Directors in lieu
of directors' fees which would otherwise be payable to such Independent
Directors, pursuant to such policies which may be adopted by the Administrator
from time to time.
ARTICLE IX
STOCK APPRECIATION RIGHTS
9.1 GRANT OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right may
be granted to any
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key Employee or consultant selected by the Committee or any Independent Director
selected by the Board. A Stock Appreciation Right may be granted (i) in
connection and simultaneously with the grant of an Option, (ii) with respect to
a previously granted Option, or (iii) independent of an Option. A Stock
Appreciation Right shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee (or the Board, with respect to
Independent Directors) shall impose and shall be evidenced by an Award
Agreement. Without limiting the generality of the foregoing, the Committee (or
the Board, with respect to Independent Directors) may, in its discretion and on
such terms as it deems appropriate, require as a condition of the grant of a
Stock Appreciation Right to an Employee, Independent Director or consultant that
the Employee, Independent Director or consultant surrender for cancellation some
or all of the unexercised Options, awards of Restricted Stock or Deferred Stock,
Performance Awards, Stock Appreciation Rights, Dividend Equivalents or Stock
Payments, or other rights which have been previously granted to him/her under
the Plan or otherwise. A Stock Appreciation Right, the grant of which is
conditioned upon such surrender, may have an exercise price lower (or higher)
than the exercise price of the surrendered Option or other award, may cover the
same (or a lesser or greater) number of shares as such surrendered Option or
other award, may contain such other terms as the Committee (or the Board, with
respect to Independent Directors) deems appropriate, and shall be exercisable in
accordance with its terms, without regard to the number of shares, price,
exercise period or any other term or condition of such surrendered Option or
other award.
9.2 COUPLED STOCK APPRECIATION RIGHTS.
(a) A CSAR shall be related to a particular Option and shall be
exercisable only when and to the extent the related Option is exercisable.
(b) A CSAR may be granted to the Grantee for no more than the number
of shares subject to the simultaneously or previously granted Option to
which it is coupled.
(c) A CSAR shall entitle the Grantee (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Common Stock on the date of exercise of the CSAR
by the number of shares of Common Stock with respect to which the CSAR
shall have been exercised, subject to any limitations the Committee (or the
Board, with respect to Independent Directors) may impose.
9.3 INDEPENDENT STOCK APPRECIATION RIGHTS.
(a) An ISAR shall be unrelated to any Option and shall have a term
set by the Committee (or the Board, with respect to Independent Directors).
An ISAR shall be exercisable in such installments as the Committee (or the
Board, with respect to Independent Directors) may determine. An ISAR shall
cover such number of shares of Common Stock as the Committee (or the Board,
with respect to Independent Directors) may determine. The exercise price
per share of Common Stock subject to each ISAR shall be set by the
Committee (or the Board, with respect to Independent Directors). An ISAR
is exercisable only while the Grantee is an Employee, Independent Director
or consultant; provided that the Committee (or the Board, with respect to
Independent Directors) may determine that the ISAR may be exercised
subsequent to Termination of Employment, Termination of Directorship or
Termination of Consultancy without cause, or following a Change in Control
of the Company, or because of the Grantee's retirement, death or
disability, or otherwise.
(b) An ISAR shall entitle the Grantee (or other person entitled to
exercise the ISAR pursuant to the Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable
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pursuant to its terms) and to receive from the Company an amount determined
by multiplying the difference obtained by subtracting the exercise price
per share of the ISAR from the Fair Market Value of a share of Common Stock
on the date of exercise of the ISAR by the number of shares of Common Stock
with respect to which the ISAR shall have been exercised, subject to any
limitations the Committee (or the Board, with respect to Independent
Directors) may impose.
9.4 PAYMENT AND LIMITATIONS ON EXERCISE.
(a) Payment of the amount determined under Section 9.2(c) and 9.3(b)
above shall be in cash, in Common Stock (based on its Fair Market Value as
of the date the Stock Appreciation Right is exercised) or a combination of
both, as determined by the Committee (or the Board, with respect to
Independent Directors). To the extent such payment is effected in Common
Stock it shall be made subject to satisfaction of all provisions of Section
6.3 above pertaining to Options.
(b) Grantees of Stock Appreciation Rights may be required to comply
with any timing or other restrictions with respect to the settlement or
exercise of a Stock Appreciation Right, including a window-period
limitation, as may be imposed in the discretion of the Committee (or the
Board, with respect to Independent Directors).
ARTICLE X
ADMINISTRATION
10.1 COMPENSATION COMMITTEE. The Compensation Committee (or another
committee or a subcommittee of the Board assuming the functions of the Committee
under the Plan) shall consist solely of two or more Independent Directors
appointed by and holding office at the pleasure of the Board, each of whom is
both a "non-employee director" as defined by Rule 16b-3 and an "outside
director" for purposes of Section 162(m) of the Code. Appointment of Committee
members shall be effective upon acceptance of appointment. Committee members
may resign at any time by delivering written notice to the Board. Vacancies in
the Committee may be filled by the Board.
10.2 DUTIES AND POWERS OF COMMITTEE. It shall be the duty of the
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and
the agreements pursuant to which Awards are granted or awarded, and to adopt
such rules for the administration, interpretation, and application of the Plan
as are consistent therewith and to interpret, amend or revoke any such rules.
Notwithstanding the foregoing, the full Board, acting by a majority of its
members in office, shall conduct the general administration of the Plan with
respect to Options granted to Independent Directors. Any such grant or award
under the Plan need not be the same with respect to each Holder. Any such
interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole discretion of
the Committee.
10.3 MAJORITY RULE; UNANIMOUS WRITTEN CONSENT. The Committee shall act
by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
10.4 COMPENSATION; PROFESSIONAL ASSISTANCE; GOOD FAITH ACTIONS.
Members of the Committee shall receive such compensation for their services as
may be determined by the Board. All expenses and liabilities which members of
the Committee incur in connection with the administration of the
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Plan shall be borne by the Company. The Committee may, with the approval of the
Board, employ attorneys, consultants, accountants, appraisers, brokers, or other
persons. The Committee, the Company and the Company's officers and Directors
shall be entitled to rely upon the advice, opinions or valuations of any such
persons. All actions taken and all interpretations and determinations made by
the Committee or the Board in good faith shall be final and binding upon all
Holders, the Company and all other interested persons. No members of the
Committee or Board shall be personally liable for any action, determination or
interpretation made in good faith with respect to the Plan or Awards, and all
members of the Committee and the Board shall be fully protected by the Company
in respect of any such action, determination or interpretation.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 NOT TRANSFERABLE. No Award under the Plan may be sold, pledged,
assigned or transferred in any manner other than by will or the laws of descent
and distribution or, subject to the consent of the Administrator, pursuant to a
QDRO, unless and until such Award has been exercised, or the shares underlying
such Award have been issued, and all restrictions applicable to such shares have
lapsed. No Option, Restricted Stock award, Deferred Stock award, Performance
Award, Stock Appreciation Right, Dividend Equivalent or Stock Payment or
interest or right therein shall be liable for the debts, contracts or
engagements of the Holder or his/her successors in interest or shall be subject
to disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment, garnishment or
any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Holder, only he may exercise an Option or other
Award (or any portion thereof) granted to him/her under the Plan, unless it has
been disposed of pursuant to a QDRO. After the death of the Holder, any
exercisable portion of an Option or other Award may, prior to the time when such
portion becomes unexercisable under the Plan or the applicable Award Agreement,
be exercised by his/her personal representative or by any person empowered to do
so under the deceased Holder's will or under the then applicable laws of descent
and distribution.
11.2 AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN. Except as
otherwise provided in this Section 11.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Board or the Committee. However, without approval of the
Company's stockholders given within twelve months before or after the action by
the Board or the Committee, no action of the Board or the Committee may, except
as provided in Section 11.3, increase the limits imposed in Section 2.1 on the
maximum number of shares which may be issued under the Plan. No amendment,
suspension or termination of the Plan shall, without the consent of the Holder
alter or impair any rights or obligations under any Award theretofore granted or
awarded, unless the Award itself otherwise expressly so provides. No Awards may
be granted or awarded during any period of suspension or after termination of
the Plan, and in no event may any Incentive Stock Option be granted under the
Plan after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is
adopted by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 11.4.
In addition, if the Board determines that Awards other than Options or
Stock Appreciation Rights which may be granted to Section 162(m) Participants
should continue to be eligible to qualify as performance-based compensation
under Section 162(m)(4)(C) of the Code, the Performance Criteria must be
disclosed to
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and approved by the Company's stockholders no later than the first stockholder
meeting that occurs in the fifth year following the year in which the Company's
stockholders previously approved the Performance Criteria.
11.3 CHANGES IN COMMON STOCK OR ASSETS OF THE COMPANY, ACQUISITION OR
LIQUIDATION OF THE COMPANY, CHANGE IN CONTROL AND OTHER CORPORATE EVENTS.
(a) Subject to Section 11.3(d), in the event that the Administrator
determines that any dividend or other distribution (whether in the form of
cash, Common Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company (including, but not limited
to, a Corporate Transaction), or exchange of Common Stock or other
securities of the Company, issuance of warrants or other rights to purchase
Common Stock or other securities of the Company, or other similar corporate
transaction or event, in the Administrator's opinion, affects the Common
Stock such that an adjustment is determined by the Administrator to be
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with
respect to an Award, then the Administrator shall, in such manner as it may
deem equitable, adjust any or all of:
(i) the number and kind of shares of Common Stock (or other
securities or property) with respect to which Awards may be granted or
awarded (including, but not limited to, adjustments of the limitations
in Section 2.1 on the maximum number and kind of shares which may be
issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or other
securities or property) subject to outstanding Options, Performance
Awards, Stock Appreciation Rights, Dividend Equivalents, or Stock
Payments, and in the number and kind of shares of outstanding
Restricted Stock or Deferred Stock, and
(iii) the grant or exercise price with respect to any Award.
(b) Subject to Sections 11.3(b)(vii) and 11.3(d), in the event of any
Corporate Transaction or other transaction or event described in Section
11.3(a) or any unusual or nonrecurring transactions or events affecting the
Company, any affiliate of the Company, or the financial statements of the
Company or any affiliate, or of changes in applicable laws, regulations, or
accounting principles, the Administrator, in its sole and absolute
discretion, and on such terms and conditions as it deems appropriate,
either by the terms of the Award or by action taken prior to the occurrence
of such transaction or event and either automatically or upon the Holder's
request, is hereby authorized to take any one or more of the following
actions whenever the Administrator determines that such action is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with
respect to any Award under the Plan, to facilitate such transactions or
events or to give effect to such changes in laws, regulations or
principles:
(i) To provide for either the purchase of any such Award for an
amount of cash equal to the amount that could have been attained upon
the exercise of such Award or realization of the Holder's rights had
such Award been currently exercisable or payable or fully vested or
the replacement of such Award with other rights or property selected
by the Administrator in its sole discretion;
(ii) To provide that the Award cannot vest, be exercised or
become payable after such event;
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(iii) To provide that such Award shall be exercisable as to all
shares covered thereby, notwithstanding anything to the contrary in
(i) Section 5.3 or 5.4 or (ii) the provisions of such Award;
(iv) To provide that such Award be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the
stock of the successor or survivor corporation, or a parent or
subsidiary thereof, with appropriate adjustments as to the number and
kind of shares and prices;
(v) To make adjustments in the number and type of shares of
Common Stock (or other securities or property) subject to outstanding
Awards, and in the number and kind of outstanding Restricted Stock or
Deferred Stock and/or in the terms and conditions of (including the
grant or exercise price), and the criteria included in, outstanding
options, rights and awards and options, rights and awards which may be
granted in the future.;
(vi) To provide that, for a specified period of time prior to
such event, the restrictions imposed under an Award Agreement upon
some or all shares of Restricted Stock or Deferred Stock may be
terminated, and, in the case of Restricted Stock, some or all shares
of such Restricted Stock may cease to be subject to repurchase under
Section 7.5 or forfeiture under Section 7.4 after such event; and
(vii) None of the foregoing discretionary actions taken under this
Section 11.3(b) shall be permitted with respect to Options granted
under Section 4.5 to Independent Directors to the extent that such
discretion would be inconsistent with the applicable exemptive
conditions of Rule 16b-3. In the event of a Change in Control or a
Corporate Transaction, to the extent that the Board does not have the
ability under Rule 16b-3 to take or to refrain from taking the
discretionary actions set forth in Section 11.3(b)(iii) above, each
Option granted to an Independent Director shall be exercisable as to
all shares covered thereby upon such Change in Control or during the
five days immediately preceding the consummation of such Corporate
Transaction and subject to such consummation, notwithstanding anything
to the contrary in Section 5.4 or the vesting schedule of such
Options. In the event of a Corporate Transaction, to the extent that
the Board does not have the ability under Rule 16b-3 to take or to
refrain from taking the discretionary actions set forth in Section
11.3(b)(ii) above, no Option granted to an Independent Director may be
exercised following such Corporate Transaction unless such Option is,
in connection with such Corporate Transaction, either assumed by the
successor or survivor corporation (or parent or subsidiary thereof) or
replaced with a comparable right with respect to shares of the capital
stock of the successor or survivor corporation (or parent or
subsidiary thereof).
(c) Subject to Section 11.3(d) and 11.8, the Administrator may, in
its discretion, include such further provisions and limitations in any
Award, agreement or certificate, as it may deem equitable and in the best
interests of the Company.
(d) With respect to Awards described in Article VII or VIII which are
granted to Section 162(m) Participants and are intended to qualify as
performance-based compensation under Section 162(m)(4)(C), no adjustment or
action described in this Section 11.3 or in any other provision of the Plan
shall be authorized to the extent that such adjustment or action would
cause such Award to fail to so qualify under Section 162(m)(4)(C), or any
successor provisions thereto. No adjustment or
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action described in this Section 11.3 or in any other provision of the Plan
shall be authorized to the extent that such adjustment or action would
cause the Plan to violate Section 422(b)(1) of the Code. Furthermore, no
such adjustment or action shall be authorized to the extent such adjustment
or action would result in short-swing profits liability under Section 16 or
violate the exemptive conditions of Rule 16b-3 unless the Administrator
determines that the Award is not to comply with such exemptive conditions.
The number of shares of Common Stock subject to any Award shall always be
rounded to the next whole number.
11.4 APPROVAL OF PLAN BY STOCKHOLDERS. The Plan will be submitted for
the approval of the Company's stockholders within twelve months after the date
of the Board's initial adoption of the Plan. Awards may be granted or awarded
prior to such stockholder approval; PROVIDED that such Awards shall not be
exercisable nor shall such Awards vest prior to the time when the Plan is
approved by the stockholders; and PROVIDED FURTHER, that if such approval has
not been obtained at the end of said twelve-month period, all Awards previously
granted or awarded under the Plan shall thereupon be canceled and become null
and void.
11.5 TAX WITHHOLDING. The Company shall be entitled to require payment
in cash or deduction from other compensation payable to each Holder of any sums
required by federal, state or local tax law to be withheld with respect to the
issuance, vesting, exercise or payment of any Award. The Administrator may in
its discretion and in satisfaction of the foregoing requirement allow such
Holder to elect to have the Company withhold shares of Common Stock otherwise
issuable under such Award (or allow the return of shares of Common Stock) having
a Fair Market Value equal to the sums required to be withheld.
11.6 LOANS. The Committee may, in its discretion, extend one or more
loans to key Employees, Independent Directors or Consultants in connection with
the exercise or receipt of an Award granted or awarded under the Plan, or the
issuance of Restricted Stock or Deferred Stock awarded under the Plan. The
terms and conditions of any such loan shall be set by the Committee.
11.7 FORFEITURE PROVISIONS. Pursuant to its general authority to
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right (to the extent consistent with the applicable
exemptive conditions of Rule 16b-3) to provide, in the terms of Awards made
under the Plan, or to require a Holder to agree by separate written instrument,
that (i) any proceeds, gains or other economic benefit actually or
constructively received by the Holder upon any receipt or exercise of the Award,
or upon the receipt or resale of any Common Stock underlying the Award, must be
paid to the Company, and (ii) the Award shall terminate and any unexercised
portion of the Award (whether or not vested) shall be forfeited, if (a) a
Termination of Employment, Termination of Consultancy or Termination of
Directorship occurs prior to a specified date, or within a specified time period
following receipt or exercise of the Award, or (b) the Holder at any time, or
during a specified time period, engages in any activity in competition with the
Company, or which is inimical, contrary or harmful to the interests of the
Company, as further defined by the Committee (or the Board, as applicable) or
the Holder incurs a Termination of Employment, Termination of Consultancy or
Termination of Directorship for cause.
11.8 LIMITATIONS APPLICABLE TO SECTION 16 PERSONS AND PERFORMANCE-BASED
COMPENSATION. Notwithstanding any other provision of the Plan, the Plan, and
any Award granted or awarded to any individual who is then subject to Section 16
of the Exchange Act, shall be subject to any additional limitations set forth in
any applicable exemptive rule under Section 16 of the Exchange Act (including
any amendment to Rule 16b-3 of the Exchange Act) that are requirements for the
application of such exemptive rule. To the extent permitted by applicable law,
the Plan and Awards granted or awarded hereunder shall be deemed amended to the
extent necessary to conform to such applicable exemptive rule. Furthermore,
notwithstanding any other provision of the Plan or any Award described in
Article VII or VIII which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional limitations
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set forth in Section 162(m) of the Code (including any amendment to Section
162(m) of the Code) or any regulations or rulings issued thereunder that are
requirements for qualification as performance-based compensation as described in
Section 162(m)(4)(C) of the Code, and the Plan shall be deemed amended to the
extent necessary to conform to such requirements.
11.9 EFFECT OF PLAN UPON OPTIONS AND COMPENSATION PLANS. The adoption of
the Plan shall not affect any other compensation or incentive plans in effect
for the Company or any Subsidiary. Nothing in the Plan shall be construed to
limit the right of the Company (i) to establish any other forms of incentives or
compensation for Employees, Independent Directors or consultants of the Company
or any Subsidiary or (ii) to grant or assume options or other rights or awards
otherwise than under the Plan in connection with any proper corporate purpose
including but not by way of limitation, the grant or assumption of options in
connection with the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation, partnership,
limited liability company, firm or association.
11.10 COMPLIANCE WITH LAWS. The Plan, the granting and vesting of
Awards under the Plan and the issuance and delivery of shares of Common Stock
and the payment of money under the Plan or under Awards granted or awarded
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
law and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Company, be necessary or advisable in connection therewith. Any securities
delivered under the Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company, provide such
assurances and representations to the Company as the Company may deem necessary
or desirable to assure compliance with all applicable legal requirements. To
the extent permitted by applicable law, the Plan and Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
11.11 TITLES. Titles are provided herein for convenience only and are
not to serve as a basis for interpretation or construction of the Plan.
11.12 GOVERNING LAW. The Plan and any agreements hereunder shall
be administered, interpreted and enforced under the internal laws of the State
of Nevada without regard to conflicts of laws thereof.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this Form 10 to be signed on its behalf
by the undersigned, thereunto duly authorized.
LTC HEALTHCARE, INC.
Dated: May 20 , 1998 By: /s/ Andre C. Dimitriadis
---------------------------------------
Andre C. Dimitriadis
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
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FORM OF INTERCOMPANY AGREEMENT
This INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into as
of the ____ day of ______, 1998, by and between LTC Properties, Inc., a Maryland
corporation ("LTC"), and LTC Healthcare, Inc., a Nevada corporation
("Healthcare").
W I T N E S E T H:
WHEREAS, subject to certain conditions, LTC intends to spin-off certain
businesses and assets by distributing to LTC stockholders 1/10 of a share of
common stock, $.01 par value per share, of Healthcare for each share of
common stock, $.01 par value per share, of LTC held as of the close of
business on the Record Date (the "Distribution");
WHEREAS, in connection with the Distribution, LTC and Healthcare have
entered into a Distribution Agreement of even date herewith (the "Distribution
Agreement");
WHEREAS, LTC may in certain circumstances determine that it is precluded
from pursuing, or is limited in the manner in which it pursues, various business
opportunities due to its status as a real estate investment trust ("REIT") under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the
"Code");
WHEREAS, Healthcare is a newly-formed corporation which was organized by
LTC for the purpose of identifying and making opportunistic real estate
investments that are not generally available to REITs; and
WHEREAS, in light of the purpose for which Healthcare was formed, LTC and
Healthcare desire to enter into this Agreement in order to provide to each other
a right of first opportunity and notification right with respect to certain
investment opportunities.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained in this Agreement, the parties hereby agree as follows:
1. Definitions. Except as otherwise may be expressly provided herein,
the following terms shall have the meanings set forth below:
(a) "Affiliate" with respect to any specified Person, any other
Person directly or indirectly controlling or controlled by, or under direct
or indirect common control with, such specified Person. For purposes of this
definition, "control," when used with respect to any Person, means the power
to direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" shall have meanings correlative
to the foregoing. Notwithstanding the foregoing, (i) the Affiliates of LTC
shall not include Healthcare or any other Person which would be an Affiliate
of LTC by reason of LTC's ownership of the capital stock of Healthcare prior
to the Distribution or the fact that any officer or director of Healthcare
shall also serve as an officer or director of LTC, and (ii) the Affiliates of
Healthcare shall not include LTC or any other Person which would be an
Affiliate of Healthcare by reason of LTC's ownership of
<PAGE>
the capital stock of Healthcare prior to the Distribution or the fact that any
officer or director of Healthcare shall also serve as an officer or director of
LTC.
(b) "Agreement" shall have the meaning set forth in the introductory
paragraph hereof.
(c) "Change in Control" shall mean a change in ownership or control
of a party effected through either of the following transactions:
(i) any person or related group of persons (other than such
party or a Affiliate of such party) directly or indirectly acquires beneficial
ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of
1934, as amended) of securities possessing more than fifty percent (50%) of the
total combined voting power of such party's outstanding securities; or
(ii) there is a change in the composition of such party's board
of directors over a period of thirty-six (36) consecutive months (or less) such
that a majority of the board members (rounded up to the nearest whole number)
ceases, by reason of one or more proxy contests for the election of board
members, to be comprised of individuals who either (A) have been board members
continuously since the beginning of such period or (B) have been elected or
nominated for election as board members during such period by at least a
majority of the board members described in clause (A) who were still in office
at the time such election or nomination was approved by the board; or
(iii) there is a change in the composition of such party's
senior executive management such that both Andre C. Dimitriadis and James J.
Pieczynski cease to be employed by such party.
(d) "Code" shall have the meaning set forth in the recitals hereof.
(e) "Distribution" shall have the meaning set forth in the first
recital of this Agreement.
(f) "Distribution Agreement" -- the agreement described in the
second recital of this Agreement.
(g) "Healthcare" shall have the meaning set forth in the introductory
paragraph hereof.
(h) "LTC" shall have the meaning set forth in the introductory
paragraph hereof.
(i) "Notice" shall have the meaning set forth in Section 2(a)(i)
hereof.
(j) "Person" shall mean any individual, corporation, partnership,
association, trust, estate or other entity or organization, including any
governmental entity or authority.
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(k) "REIT" shall have the meaning set forth in the recitals hereof.
(l) "REIT Opportunity" shall mean a direct or indirect opportunity
to invest in real estate through mortgage loans, facility lease transactions
and other investments. LTC shall have the right from time to time to provide
written notice to Healthcare specifying certain criteria for a REIT
Opportunity in addition to the criteria specified above in this definition of
REIT Opportunity. Any such written notice from LTC may be modified or
canceled by written notice given by LTC at any time. This definition of REIT
Opportunity shall be modified as appropriate from time to time in accordance
with any such written notices sent by LTC.
(m) "Ten-Day Period" shall have the meaning set forth in Section
2(a)(i) hereof.
(n) "Withdrawal Date" shall have the meaning set forth in Section
2(a)(ii) hereof.
2. RIGHT OF FIRST OPPORTUNITY; NOTIFICATION RIGHT.
(a) RIGHT OF FIRST OPPORTUNITY.
(i) During the term of this Agreement, if Healthcare develops
a REIT Opportunity, or if any REIT Opportunity otherwise becomes available to
Healthcare, Healthcare shall first offer such REIT Opportunity to LTC. The
offer shall be made by written notice (the "Notice") from Healthcare to LTC,
which Notice shall contain a detailed description of the material terms and
conditions of the REIT Opportunity. LTC shall have ten days (the "Ten-Day
Period") from the date of receipt of the Notice to notify Healthcare in writing
that it has accepted or rejected the REIT Opportunity. If LTC does not respond
by the end of the Ten-Day Period, LTC shall be deemed to have rejected the REIT
Opportunity. If LTC accepts a REIT Opportunity, but subsequently decides not to
pursue such opportunity or for any other reason fails to consummate such
opportunity, LTC shall immediately provide written notice that it is no longer
pursuing such REIT Opportunity to Healthcare.
(ii) If LTC rejects a REIT Opportunity, or accepts such REIT
Opportunity but thereafter provides, or is required by the provisions hereof to
provide, written notice to Healthcare that it is no longer pursuing such REIT
Opportunity, Healthcare shall, for a period of one year after the Withdrawal
Date (as hereinafter defined), be entitled to acquire the REIT Opportunity (A)
at a price, and on terms and conditions, that are not more favorable to
Healthcare in any material respect than the price and terms and conditions set
forth in the Notice relating to such REIT Opportunity or (B) if LTC, at any time
after the Notice, negotiated a different price, terms or conditions with the
party providing such REIT Opportunity, then at a price, and on terms and
conditions, that are not more favorable to Healthcare in any material respect
than the price and terms and conditions negotiated by LTC with such party. If
Healthcare does not enter into a binding agreement to acquire the REIT
Opportunity within such one-year period, or if the price and terms and
conditions are more favorable to Healthcare in any material respect than the
price and terms and conditions set forth in the Notice (or, if applicable, than
the
3
<PAGE>
price and terms and conditions negotiated by LTC with the seller subsequent to
the Notice), Healthcare shall again be required to comply with the procedures
set forth above in Section 2(a)(i) if it desires to acquire such REIT
Opportunity. The "Withdrawal Date" means any one of the following dates, as
applicable: (A) the date that LTC notifies Healthcare that it has rejected the
REIT Opportunity, (B) if LTC does not respond to Healthcare regarding the REIT
Opportunity, the expiration date of the Ten-Day Period, or (C) if LTC accepts
the REIT Opportunity but subsequently ceases to pursue the opportunity, the
earlier of (1) thirty (30) days after the date on which LTC ceases to pursue the
REIT Opportunity or (2) the date of receipt by Healthcare of written notice from
LTC that it is no longer pursuing the REIT Opportunity.
(b) NOTIFICATION RIGHT. In the event that either party hereto
develops or becomes aware of any investment opportunity during the term of this
Agreement (other than a REIT Opportunity), and such party is not interested in
pursuing such opportunity, or the opportunity is otherwise unavailable to such
party, such party shall immediately notify the other party of such opportunity
and provide to the other party a copy of all written information, and a
description of all material terms not set forth in writing, available to such
party concerning such opportunity.
3. GENERAL TERMS AND CONDITIONS FOR FIRST OPPORTUNITY/NOTIFICATION
RIGHTS.
(a) Unless waived or unless agreed to as part of an investment, each
party hereto shall bear its own expenses with respect to any opportunity to
which this Agreement is applicable, and each party agrees that it shall not be
entitled to any compensation from the other party with respect to any such
opportunity.
(b) A party shall not be required to comply with the right of first
opportunity and notification requirements set forth in this Agreement during any
period in which the other party or any Affiliate of such other party is in
default of this Agreement or any other agreement entered into by the parties
hereto or any of their Affiliates, if such default is material and remains
uncured for fifteen (15) days after receipt of notice thereof.
(c) Any opportunity which is offered to and accepted by LTC under
this Agreement may be entered into by or on behalf of LTC or by any designee
which is a Affiliate of LTC. Any opportunity which is offered to and accepted
by Healthcare under this Agreement may be entered into by or on behalf of
Healthcare or by any designee which is a Affiliate of Healthcare.
(d) All first opportunity and notification rights set forth in this
Agreement shall be subordinated to any consent and confidentiality requirements
of any party providing a REIT Opportunity; no party shall be required to comply
with the first opportunity and notification rights set forth in this Agreement
to the extent such compliance would violate any consent or confidentiality
requirements of the party providing such a REIT Opportunity.
(e) While it is the intention of the parties to align their
businesses in accordance with the terms of this Agreement, each party shall act
independently in its own best
4
<PAGE>
interests, and neither party shall be considered a partner or agent of the other
party or owe any fiduciary or other common law duties to the other party.
4. NO PREPAYMENTS. Healthcare hereby agrees that it shall not prepay
or cause to be prepaid any of its mortgage loans provided by LTC which are
securitized in REMIC transactions.
5. SPECIFIC PERFORMANCE. Each party hereto hereby acknowledges that the
obligations undertaken by it pursuant to this Agreement are unique and that the
other party would likely have no adequate remedy at law if such party shall fail
to perform its obligations hereunder, and such party therefore confirms that the
other party's right to specific performance of the terms of this Agreement is
essential to protect the rights and interests of the other party. Accordingly,
in addition to any other remedies that a party hereto may have at law or in
equity, such party shall have the right to have all obligations, covenants,
agreements and other provisions of this Agreement specifically performed by the
other party hereto and the right to obtain a temporary restraining order or a
temporary or permanent injunction to secure specific performance and to prevent
a breach or threatened breach of this Agreement by the other party.
6. TERM. The term of this Agreement shall commence as of the date of
this Agreement and shall terminate upon the earlier of (a) the tenth (10th)
anniversary of the date of this Agreement, or (b) a Change in Control of LTC.
Notwithstanding the foregoing, a party hereto may terminate this Agreement if
the other party or any Affiliate of such other party is in default of this
Agreement or any other agreement entered into by the parties hereto or any of
their Affiliates, if such default is material and remains uncured for fifteen
(15) days after receipt of notice thereof.
7. MISCELLANEOUS.
(a) NOTICES. Notices shall be sent to the parties at the following
addresses:
LTC Properties, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attn: James J. Pieczynski
Facsimile: (805) 981-8663
LTC Healthcare, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attn: James J. Pieczynski
Facsimile: (805) 981-8663
Notices may be hand-delivered or sent by certified mail, return
receipt requested, Federal Express or comparable overnight delivery service, or
facsimile. Notice shall be deemed received at the time delivered by hand, on
the fourth business day following deposit in the U.S. mail, and on the first
business day following deposit with Federal Express or other delivery
5
<PAGE>
service, or transmission by facsimile. Any party to this Agreement may change
its address for notice by giving written notice to the other party at the
address and in accordance with the procedures provided above.
(b) REASONABLE AND NECESSARY RESTRICTIONS. Each of the parties
hereto hereby acknowledges and agrees that the restrictions, prohibitions and
other provisions of this Agreement are reasonable, fair and equitable in scope,
term and duration, and are necessary to protect the legitimate business
interests of the parties hereto. Each party covenants that it will not sue to
challenge the enforceability of this Agreement or raise any equitable defense to
its enforcement.
(c) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement shall not be assigned without the
express written consent of each of the parties hereto.
(d) AMENDMENTS; WAIVERS. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless such change or waiver is specifically set forth
in a writing signed by the party or parties to be bound thereby. The waiver of
any right or remedy with respect to any occurrence on one occasion shall not be
deemed a waiver of such right or remedy with respect to such occurrence on any
other occasion.
(e) GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder shall be governed by the laws of the State of California,
without regard to the principles of choice of law thereof, except with respect
to matters of law concerning the internal corporate affairs of any corporate
entity which is a party to or subject of this Agreement, and as to those matters
the law of the jurisdiction under which the respective entity derives its powers
shall govern.
(f) SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
(g) ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement
(i) constitutes the entire agreement and supersedes all prior agreements,
understandings, negotiations and discussions, whether written or oral, between
the parties hereto with respect to the subject matter hereof, so that no such
external or separate agreement relating to the subject matter of this Agreement
shall have any effect or be binding, unless the same is referred to
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<PAGE>
specifically in this Agreement or is executed by the parties after the date
hereof; and (ii) is solely for the benefit of the parties hereto and shall not
be deemed to confer upon third parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without this Agreement.
(h) TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
(j) DISPUTE RESOLUTION. Any dispute arising under this Agreement
shall be resolved by binding arbitration in the manner contemplated by Section
9.13 of the Distribution Agreement, including the attorneys fees provisions
referred to therein.
(k) EXPENSES. Except as otherwise set forth in this Agreement, all
costs and expenses in connection with the preparation, execution, delivery and
implementation of this Agreement and with the consummation of the transactions
contemplated by this Agreement shall be charged to the party for whose benefit
the expenses are incurred, with any expenses which cannot be allocated on such
basis to be split equally between the parties.
(l) RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship set forth herein.
(m) FURTHER ACTION. Healthcare and LTC each shall cooperate in good
faith and take such steps and execute such papers as may be reasonably requested
by the other party to implement the terms and provisions of this Agreement.
(n) LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any party hereto, each party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the parties
hereunder shall be specifically enforceable.
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<PAGE>
(o) PREDECESSORS AND SUCCESSORS. To the extent necessary to give
effect to the purposes of this Agreement, any reference to any corporation shall
also include any predecessor or successor thereto, by operation of law or
otherwise.
(SIGNATURE PAGE FOLLOWS)
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by one of its duly authorized officers, as of the date
first written above.
LTC PROPERTIES, INC.
By: ____________________________
Name: ____________________________
Title: ____________________________
LTC HEALTHCARE, INC.
By: ____________________________
Name: ____________________________
Title: ____________________________
S-1
<PAGE>
FORM OF DISTRIBUTION AGREEMENT
BY AND BETWEEN
LTC PROPERTIES, INC.
AND
LTC HEALTHCARE, INC.
DATED AS OF
___________, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. TRANSFER OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.01. Transfer of Assets to Healthcare . . . . . . . . . . . . . . . . 6
Section 2.02. Consideration for Asset Transfers. . . . . . . . . . . . . . . . 7
Section 2.04. Cooperation Re: Assets. . . . . . . . . . . . . . . . . . . . . 7
Section 2.05. No Representations or Warranties; Consents . . . . . . . . . . . 8
Section 2.06. Conveyancing and Assumption Instruments. . . . . . . . . . . . . 8
ARTICLE III. ASSUMPTION AND SATISFACTION OF LIABILITIES . . . . . . . . . . . . . 9
Section 3.01. Assumption and Satisfaction of Liabilities . . . . . . . . . . . 9
ARTICLE IV. THE DISTRIBUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.01. Cooperation Prior to the Distribution. . . . . . . . . . . . . . 10
Section 4.03. The Distribution . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4.04. Cash in Lieu of Fractional Shares. . . . . . . . . . . . . . . . 11
ARTICLE V. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 5.01. Indemnification by LTC . . . . . . . . . . . . . . . . . . . . . 11
Section 5.03. Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5.04. Procedure for Indemnification. . . . . . . . . . . . . . . . . . 12
Section 5.05. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.06. Survival of Indemnities. . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VI. CERTAIN ADDITIONAL MATTERS. . . . . . . . . . . . . . . . . . . . . . 15
Section 6.01. Healthcare Board . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII. ACCESS TO INFORMATION AND SERVICES . . . . . . . . . . . . . . . . . 16
Section 7.01. Provision of Corporate Records . . . . . . . . . . . . . . . . . 16
Section 7.02. Access to Information. . . . . . . . . . . . . . . . . . . . . . 16
Section 7.03. Production of Witnesses. . . . . . . . . . . . . . . . . . . . . 17
Section 7.04. Reimbursement. . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7.06. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 7.07. Privileged Matters . . . . . . . . . . . . . . . . . . . . . . . 18
i
<PAGE>
ARTICLE VIII. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 8.01. Policies and Rights Included Within the Healthcare Assets. . . . 19
Section 8.02. Post-Distribution Date Claims. . . . . . . . . . . . . . . . . . 20
Section 8.03. Administration and Reserves. . . . . . . . . . . . . . . . . . . 20
Section 8.04. Agreement for Waiver of Conflict and Shared Defense. . . . . . . 21
ARTICLE IX. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.01. Complete Agreement; Construction . . . . . . . . . . . . . . . . 21
Section 9.02. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 9.03. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.04. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 9.06. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 22
Section 9.07. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.08. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.09. No Third-Party Beneficiaries . . . . . . . . . . . . . . . . . . 23
Section 9.10. Titles and Headings. . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.11. Exhibits and Schedules . . . . . . . . . . . . . . . . . . . . . 23
Section 9.12. Legal Enforceability . . . . . . . . . . . . . . . . . . . . . . 23
Section 9.13. Arbitration of Disputes. . . . . . . . . . . . . . . . . . . . . 23
Section 9.14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 9.15. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.16. Relationship of Parties. . . . . . . . . . . . . . . . . . . . . 25
Section 9.17. Further Action . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 9.18. Predecessors and Successors. . . . . . . . . . . . . . . . . . . 25
</TABLE>
EXHIBITS
Exhibit A: Administrative Services Agreement
Exhibit B: Healthcare Bylaws
Exhibit C: Healthcare Articles
Exhibit D: Healthcare Employees
Exhibit E: Tax Sharing Agreement
<PAGE>
FORM OF DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this ___
day of _______, 1998 by and between LTC Properties, Inc., a Maryland corporation
("LTC"), and LTC Healthcare, Inc., a Nevada corporation ("Healthcare").
RECITALS
WHEREAS, the Board of Directors of LTC has determined that it is in
the best interests of its stockholders to transfer to Healthcare certain equity
investments, real properties and related assets and liabilities currently held
by LTC (the "Asset Transfers"), and thereafter to distribute all of the
outstanding shares of Healthcare Common Stock that are held by LTC
(approximately 99% of all outstanding shares of Healthcare Common Stock) to the
holders of LTC common stock (the "Distribution");
WHEREAS, in connection with the Distribution, LTC and Healthcare have
determined that it is necessary and desirable to set forth the principal
corporate transactions required to effect the Asset Transfers and the
Distribution, and to set forth the agreements that will govern certain matters
following the Distribution.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained in this Agreement, the parties hereby agree as follows:
ARTICLE I.
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
ACTION: Any action, claim, suit, arbitration, inquiry, proceeding or
investigation by or before any court, any governmental or other regulatory or
administrative agency or commission or any arbitration tribunal.
ADMINISTRATIVE SERVICES AGREEMENT: The Administrative Services
Agreement between LTC and Healthcare, which agreement shall be entered into on
or prior to the Distribution Date in substantially the form of Exhibit A
attached hereto.
AFFILIATE: With respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of LTC shall not include
Healthcare or any other Person which would be an Affiliate of LTC by reason of
LTC's ownership of the capital stock of
<PAGE>
Healthcare prior to the Distribution or the fact that any officer or director of
Healthcare shall also serve as an officer or director of LTC, and (ii) the
Affiliates of Healthcare shall not include LTC or any other Person which would
be an Affiliate of Healthcare by reason of LTC's ownership of the capital stock
of Healthcare prior to the Distribution or the fact that any officer or director
of Healthcare shall also serve as an officer or director of LTC.
AGENT: The distribution agent appointed by LTC to distribute the
Healthcare Common Stock pursuant to the Distribution.
ASSET TRANSFERS: shall have the meaning set forth in the recitals
hereof.
COMMISSION: The Securities and Exchange Commission.
CONSENTS: shall have the meaning set forth in Section 4.01(c) hereof.
CONVEYANCING AND ASSUMPTION INSTRUMENTS: Collectively, the various
agreements, instruments and other documents to be entered into to effect the
Asset Transfers and the assumption of Liabilities in the manner contemplated by
this Agreement and the Related Agreements.
DISTRIBUTION: shall have the meaning set forth in the recitals
hereof.
DISTRIBUTION DATE: The date determined by the LTC Board as the date
on which the Distribution shall be effected, which Distribution Date is
contemplated by the LTC Board to occur on or about _________, 1998.
DISTRIBUTION RECORD DATE: The date established by the LTC Board as
the date for taking a record of the Holders of LTC Common Stock entitled to
participate in the Distribution, which Distribution Record Date has been
established as _________, 1998, subject to the fulfillment on or before
_________, 1998 of certain conditions to the Distribution as provided in Section
4.02.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
FINANCING OBLIGATIONS: All (i) indebtedness for borrowed money,
(ii) obligations evidenced by bonds, notes, debentures or similar instruments,
(iii) obligations under capitalized leases and deferred purchase arrangements,
(iv) reimbursement or other obligations relating to letters of credit or similar
arrangements, and (v) obligations to guarantee, directly or indirectly, any of
the foregoing types of obligations on behalf of others.
HEALTHCARE: shall have the meaning set forth in the recitals hereof.
HEALTHCARE ARTICLES: The Amended and Restated Articles of
Incorporation of Healthcare, substantially in the form of Exhibit C, to be in
effect at the Distribution Date.
HEALTHCARE ASSETS: shall have the meaning set forth in Section
2.01(b) hereof.
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<PAGE>
HEALTHCARE BOARD: The Board of Directors of Healthcare.
HEALTHCARE BOOKS AND RECORDS: The books and records (including
computerized records) of Healthcare and all books and records owned by LTC which
relate to the Healthcare Business or are necessary to operate the Healthcare
Business, including, without limitation, all such books and records relating to
Healthcare Employees, all files relating to any Action being assumed by
Healthcare as part of the Healthcare Liabilities, original corporate minute
books, stock ledgers and certificates and corporate seals, and all licenses,
leases, agreements and filings, relating to Healthcare or the Healthcare
Business (but not including the LTC Books and Records, provided that Healthcare
shall have access to, and have the right to obtain duplicate copies of, the LTC
Books and Records in accordance with the provisions of Article VII).
HEALTHCARE BUSINESS: The business conducted by Healthcare pursuant to
or utilizing the Healthcare Assets, including without limitation, the
acquisition, development and operation of real estate and health care assets.
HEALTHCARE BYLAWS: The Amended and Restated Bylaws of Healthcare,
substantially in the form of Exhibit B, to be in effect at the Distribution
Date.
HEALTHCARE COMMON STOCK: The common stock, par value $.01 per share,
of Healthcare.
HEALTHCARE EMPLOYEES: All of the Healthcare employees at the time of
the Distribution, as identified on Exhibit D.
HEALTHCARE INDEMNITEES: shall have the meaning set forth in Section
5.01 hereof.
HEALTHCARE INDEMNIFIABLE LOSSES: shall have the meaning set forth in
Section 5.01 hereof.
HEALTHCARE LIABILITIES: (i) All of the Liabilities of Healthcare
under, or to be retained or assumed by Healthcare pursuant to, this Agreement or
any of the Related Agreements, including those set forth on Schedule 1.01(c),
(ii) all Liabilities for payment of outstanding drafts of LTC attributable to
the Healthcare Business existing as of the Distribution Date, and (iii) all
Liabilities arising out of or in connection with any of the Healthcare Assets or
the Healthcare Business.
HEALTHCARE POLICIES: All Policies, current or past, which are owned
or maintained by or on behalf of LTC or any of its Affiliates or predecessors,
which relate to the Healthcare Business but do not relate to the LTC Retained
Business, and which Policies are either maintained by Healthcare or assignable
to Healthcare.
HOLDERS: The holders of record of LTC Common Stock as of the
Distribution Record Date.
INDEMNIFIABLE LOSSES: shall have the meaning set forth in Section
5.02 hereof.
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<PAGE>
INDEMNIFYING PARTY: shall have the meaning set forth in Section 5.03
hereof.
INDEMNITEE: shall have the meaning set forth in Section 5.03 hereof.
INFORMATION: shall have the meaning set forth in Section 7.02 hereof.
INSURANCE PROCEEDS: Those moneys (i) received by an insured from an
insurance carrier or (ii) paid by an insurance carrier on behalf of the insured,
in either case net of any applicable premium adjustment, retrospectively-rated
premium, deductible, retention, cost or reserve paid or held by or for the
benefit of such insured.
INSURED CLAIMS: Those Liabilities that, individually or in the
aggregate, are covered within the terms and conditions of any of the Policies,
whether or not subject to deductibles, co-insurance, uncollectability or
retrospectively-rated premium adjustments, but only to the extent that such
Liabilities are within applicable Policy limits, including aggregates.
LIABILITIES: Any and all debts, liabilities and obligations, absolute
or contingent, matured or unmatured, liquidated or unliquidated, accrued or
unaccrued, known or unknown, whenever arising, including all costs and expenses
relating thereto, and including, without limitation, those debts, liabilities
and obligations arising under any law, rule, regulation, Action, threatened
Action, order or consent decree of any governmental entity or any award of any
arbitrator of any kind, and those arising under any contract, commitment or
undertaking.
LTC: shall have the meaning set forth in the recitals hereof.
LTC BOARD: The Board of Directors of LTC.
LTC BOOKS AND RECORDS: The books and records (including computerized
records) of LTC and all books and records owned by Healthcare which relate to
the LTC Retained Business or are necessary to operate the LTC Retained Business,
or are required by law to be retained by LTC, including without limitation, all
files relating to any Action pertaining to the LTC Retained Liabilities,
original corporate minute books, stock ledgers and certificates and corporate
seals, and all licenses, leases, agreements and filings, relating to LTC or the
LTC Retained Business (but not including the Healthcare Books and Records,
provided that LTC shall have access to, and shall have the right to obtain
duplicate copies of, the Healthcare Books and Records in accordance with the
provisions of Article VII).
LTC COMMON STOCK: The common stock, par value $.01 per share, of LTC.
LTC INDEMNITEES: shall have the meaning set forth in Section 5.02
hereof.
LTC INDEMNIFIABLE LOSSES: shall have the meaning set forth in Section
5.02 hereof.
LTC REAL ESTATE ASSETS: The real estate assets listed on Schedule
1.01(b).
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LTC RETAINED ASSETS: The assets of LTC other than the Healthcare
Assets transferred to Healthcare by LTC, including without limitation (i) assets
relating to the LTC Retained Business, (iii) all of the assets expressly
allocated to LTC under this Agreement or the Related Agreements, and (iv) any
other assets of LTC and its Affiliates relating to the LTC Retained Business.
LTC RETAINED BUSINESS: The businesses conducted by LTC pursuant to or
utilizing the LTC Retained Assets, including without limitation, the investment
in long-term care and other health-care related facilities through mortgage
loans, facility lease transactions and other investments.
LTC RETAINED LIABILITIES: (i) All of the Liabilities arising out of
or in connection with the LTC Retained Assets or the LTC Retained Business,
(ii) all Liabilities arising out of or in connection with any lawsuits relating
to the Distribution (other than those Liabilities relating to employee claims
which shall be allocated pursuant to the Administrative Services Agreement),
(iii) all of the Liabilities of LTC under, or to be retained or assumed by LTC
pursuant to, this Agreement or any of the Related Agreements, (iv) any Financing
Obligations not constituting Healthcare Liabilities, (v) all Liabilities for the
payment of outstanding drafts of LTC attributable to the LTC Retained Business
existing as of the Distribution Date, (vi) all Liabilities arising out of LTC's
prior ownership of the LTC Real Estate Assets and the LTC Shares, and (vii) all
other Liabilities of LTC not constituting Healthcare Liabilities.
LTC RETAINED POLICIES: All Policies, current or past, which are owned
or maintained by or on behalf of LTC (or any of its predecessors) which relate
to the LTC Retained Business but do not relate to the Healthcare Business.
LTC SHARES: The shares of stock listed on Schedule 1.01(a).
PENDING ACTION: shall have the meaning set forth in Section 5.04(h)
hereof.
PERSON: Any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
POLICIES: Insurance policies and insurance contracts of any kind
relating to the Healthcare Business or the LTC Retained Business as conducted
prior to the Distribution Date, including without limitation primary and excess
policies, comprehensive general liability policies, automobile and workers'
compensation insurance policies, and self-insurance and captive insurance
company arrangements, together with the rights, benefits and privileges
thereunder.
PRIVILEGES: All privileges that may be asserted under applicable law,
including, without limitation, privileges arising under or relating to the
attorney-client relationship (including but not limited to the attorney-client
and work product privileges), the accountant-client privilege, and privileges
relating to internal evaluative processes.
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PRIVILEGED INFORMATION: All Information as to which LTC, Healthcare
or any of their Subsidiaries are entitled to assert the protection of a
Privilege.
RELATED AGREEMENTS: All of the agreements, instruments,
understandings, assignments or other arrangements which are entered into in
connection with the transactions contemplated hereby and which are set forth in
a writing, including, without limitation (i) the Conveyancing and Assumption
Instruments, (ii) the Administrative Services Agreement and (iii) the Tax
Sharing Agreement.
SHARED POLICIES: All Policies, current or past, which are owned or
maintained by or on behalf of LTC or its predecessors which relate to both the
LTC Retained Business and the Healthcare Business, and all other Policies not
constituting Healthcare Policies or LTC Retained Policies.
SUBSIDIARY: With respect to any Person, (a) any corporation of which
at least a majority in interest of the outstanding voting stock (having by the
terms thereof voting power under ordinary circumstances to elect a majority of
the directors of such corporation, irrespective of whether or not at the time
stock of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time,
directly or indirectly, owned or controlled by such Person, by one or more
Subsidiaries of such Person, or by such Person and one or more of its
Subsidiaries, or (b) any non-corporate entity in which such Person, one or more
Subsidiaries of such Person, or such Person and one or more Subsidiaries of such
Person, directly or indirectly, at the date of determination thereof, has at
least majority ownership interest.
TAX SHARING AGREEMENT: The Tax Sharing Agreement between Healthcare
and LTC, which agreement shall be entered into on or prior to the Distribution
Date in substantially the form of Exhibit E attached hereto.
THIRD-PARTY CLAIM: shall have the meaning set forth in Section
5.04(a) hereof.
ARTICLE II.
TRANSFER OF ASSETS
Section 2.01. TRANSFER OF ASSETS TO HEALTHCARE (a) Prior to the
Distribution Date, LTC shall take or cause to be taken all actions necessary to
cause the transfer, assignment, delivery and conveyance to Healthcare of all of
LTC's right, title and interest in the following assets:
(i) the LTC Real Estate Assets;
(ii) the LTC Shares;
(iii) the Healthcare Books and Records;
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(iii) all of the other assets to be assigned to Healthcare by
LTC under this Agreement or the Related Agreements; and
(iv) all other assets relating to the Healthcare Business held
by LTC.
(b) The "Healthcare Assets" shall consist of the assets transferred
to Healthcare by LTC pursuant to this Section 2.01.
Section 2.02. CONSIDERATION FOR ASSET TRANSFERS
As consideration for the foregoing asset transfers on or prior to the
Distribution Date, LTC shall receive from Healthcare a sufficient number of
shares of Healthcare Common Stock to effect the Distribution to the Holders of
LTC Common Stock.
Section 2.03. TRANSFERS NOT EFFECTED PRIOR TO THE DISTRIBUTION
To the extent that any transfers contemplated by this Article II shall
not have been fully effected on the Distribution Date, the parties shall
cooperate to effect such transfers as promptly as shall be practicable following
the Distribution Date. Nothing herein shall be deemed to require the transfer
of any assets or the assumption of any Liabilities which by their terms or
operation of law cannot be transferred or assumed; PROVIDED, HOWEVER, that LTC
and Healthcare and their respective Subsidiaries and Affiliates shall cooperate
in seeking to obtain any necessary consents or approvals for the transfer of all
assets and Liabilities contemplated to be transferred pursuant to this Article
II. In the event that any such transfer of assets or Liabilities has not been
consummated effective as of the Distribution Date, the party retaining such
asset or Liability shall thereafter hold such asset in trust for the use and
benefit of the party entitled thereto (at the expense of the party entitled
thereto) and retain such Liability for the account of the party by whom such
Liability is to be assumed pursuant hereto, and take such other actions as may
be reasonably required in order to place the parties, insofar as reasonably
possible, in the same position as would have existed had such asset been
transferred or such Liability been assumed as contemplated hereby. As and when
any such asset or Liability becomes transferable, such transfer and assumption
shall be effected forthwith. The parties agree that, except as set forth in
this Section 2.03, as of the Distribution Date, each party hereto shall be
deemed to have acquired complete and sole beneficial ownership over all of the
assets, together with all rights, powers and privileges incidental thereto, and
shall be deemed to have assumed in accordance with the terms of this Agreement
all of the Liabilities, and all duties, obligations and responsibilities
incidental thereto, which such party is entitled to acquire or required to
assume pursuant to the terms of this Agreement.
Section 2.04. COOPERATION RE: ASSETS
In the case that at any time after the Distribution Date, Healthcare
reasonably determines that any of the LTC Retained Assets are essential for the
conduct of the Healthcare Business, or LTC reasonably determines that any of the
Healthcare Assets are essential for the conduct of the LTC Retained Business,
and the nature of such assets makes it impracticable for Healthcare or LTC, as
the case may be, to obtain substitute assets or to make alternative
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arrangements on commercially reasonable terms to conduct their respective
businesses, and reasonable provisions for the use thereof are not already
included in the Related Agreements, then Healthcare (with respect to the
Healthcare Assets) and LTC (with respect to the LTC Retained Assets) shall
cooperate to make such assets available to the appropriate party on commercially
reasonable terms, as may be reasonably required for such party to maintain
normal business operations (provided that such assets shall be required to be
made available only until such time as the other party may reasonably obtain
substitute assets or make alternative arrangements on commercially reasonable
terms to permit it to maintain normal business operations).
Section 2.05. NO REPRESENTATIONS OR WARRANTIES; CONSENTS
Each of the parties hereto understands and agrees that no party hereto
is, in this Agreement or in any other agreement or document contemplated by this
Agreement or otherwise, representing or warranting in any way (i) as to the
value or freedom from encumbrance of, or any other matter concerning, any assets
of such party or (ii) as to the legal sufficiency to convey title to any asset
transferred pursuant to this Agreement or any Related Agreement, including,
without limitation, any Conveyancing and Assumption Instruments. It is also
agreed and understood that there are no warranties, express or implied, as to
the merchantability or fitness of any of the assets either transferred to or
retained by the parties, as the case may be, and all such assets shall be "as
is, where is" and "with all faults" (provided, however, that the absence of
warranties shall have no effect upon the allocation of liabilities under this
Agreement). Similarly, each party hereto understands and agrees that no party
hereto is, in this Agreement or in any other agreement or document contemplated
by this Agreement or otherwise, representing or warranting in any way that the
obtaining of any consents or approvals, the execution and delivery of any
amendatory agreements and the making of any filings or applications contemplated
by this Agreement will satisfy the provisions of any or all applicable laws or
judgments or other instruments or agreements relating to such assets.
Notwithstanding the foregoing, the parties shall use their good faith efforts to
obtain all consents and approvals, to enter into all reasonable amendatory
agreements and to make all filings and applications which may be reasonably
required for the consummation of the transactions contemplated by this
Agreement, and shall take all such further reasonable actions as shall be
reasonably necessary to preserve for each of LTC and Healthcare, to the greatest
extent feasible, the economic and operational benefits of the allocation of
assets and liabilities provided for in this Agreement. In case at any time
after the Distribution Date any further action is necessary or desirable to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall take all such necessary or desirable action.
Section 2.06. CONVEYANCING AND ASSUMPTION INSTRUMENTS
In connection with the Asset Transfers and the assumptions of
Liabilities contemplated by this Agreement, the parties shall execute or cause
to be executed by the appropriate entities the Conveyancing and Assumption
Instruments in such forms as the parties shall reasonably agree, including the
transfer of real property with deeds as may be appropriate, and the assignment
of trademarks and other intellectual property rights. The transfer of capital
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stock shall be effected by means of delivery of stock certificates and executed
stock powers and notation on the stock record books of the corporation or other
legal entities involved and, to the extent required by applicable law, by
notation on public registries.
Section 2.07. CASH MANAGEMENT
(a) CASH MANAGEMENT AFTER THE DISTRIBUTION DATE. Healthcare shall
establish and maintain a separate cash management system and accounting records
with respect to the Healthcare Business effective as of 12:01 a.m. on the day
following the Distribution Date; thereafter, (i) any payments by LTC on behalf
of Healthcare in connection with the Healthcare Business (including, without
limitation, any such payments in respect of Liabilities or other obligations of
Healthcare under the Administrative Services Agreement) shall be recorded in the
accounts of Healthcare as a payable to LTC; (ii) any payments by Healthcare on
behalf of LTC in connection with the LTC Retained Business (including, without
limitation, any such payments in respect of Liabilities or other obligations of
LTC under the Administrative Services Agreement), shall be recorded in the
accounts of LTC, as a payable to Healthcare; (iii) any cash payments received by
LTC relating to the Healthcare Business or the Healthcare Assets shall be
recorded in the accounts of LTC, as a payable to Healthcare; (iv) any cash
payments received by Healthcare relating to the LTC Retained Business or the LTC
Retained Assets shall be recorded in the accounts of Healthcare as a payable to
LTC; (v) LTC and Healthcare shall make adjustments for late deposits, checks
returned for not sufficient funds and other post-Distribution Date transactions
as shall be reasonable under the circumstances consistent with the purpose and
intent of this Agreement; and (vi) the net balance due to LTC or Healthcare, as
the case may be, in respect of the aggregate amounts of clauses (i), (ii),
(iii), (iv) and (v) shall be paid by LTC or Healthcare, as appropriate, as
promptly as practicable. For purposes of this Section 2.07(a), the parties
contemplate that the LTC Retained Business and the Healthcare Business,
including but not limited to the administration of accounts payable and accounts
receivable, will be conducted in the normal course.
(b) All transactions contemplated in this Section 2.07 shall be
subject to audit by the parties, and any dispute thereunder shall be resolved by
Ernst & Young LLP (or, if Ernst & Young LLP is not available, by such other
independent firm of certified public accountants mutually acceptable to LTC and
Healthcare), whose decision shall be final and unappealable.
ARTICLE III.
ASSUMPTION AND SATISFACTION OF LIABILITIES
Section 3.01. ASSUMPTION AND SATISFACTION OF LIABILITIES
Except as set forth in the Administrative Services Agreement, the Tax
Sharing Agreement or the other Related Agreements, effective as of and after the
Distribution Date, (a) Healthcare shall assume, pay, perform and discharge in
due course all of the Healthcare Liabilities, and (b) LTC shall pay, perform and
discharge in due course all of the LTC Retained Liabilities.
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ARTICLE IV.
THE DISTRIBUTION
Section 4.01. COOPERATION PRIOR TO THE DISTRIBUTION
(a) LTC and Healthcare shall cooperate in preparing, filing with the
Commission and causing to become effective any registration statements or
amendments thereof which are appropriate to reflect the establishment of, or
amendments to, any employee benefit plans and other plans contemplated by the
Administrative Services Agreement.
(b) LTC and Healthcare shall take all such action as may be necessary
or appropriate under the securities or blue sky laws of states or other
political subdivisions of the United States in connection with the transactions
contemplated by this Agreement and the Related Agreements.
(c) LTC and Healthcare shall use all reasonable efforts to obtain any
third-party consents or approvals necessary or desirable in connection with the
transactions contemplated hereby ("Consents").
(d) LTC and Healthcare will use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary or desirable under applicable law, to consummate the transactions
contemplated under this Agreement and the Related Agreements.
Section 4.02. LTC BOARD ACTION; CONDITIONS PRECEDENT TO THE
DISTRIBUTION
The LTC Board shall, in its discretion, establish any appropriate
procedures in connection with the Distribution. In no event shall the
Distribution occur unless the following conditions shall have been satisfied:
(a) the transactions contemplated by Sections 2.01 and 2.02 shall
have been consummated in all material respects;
(b) the Healthcare Board, comprised as contemplated by Section 6.01,
shall have been elected, and the Healthcare Articles and Healthcare Bylaws shall
have been adopted and shall be in effect;
(c) LTC and Healthcare shall have obtained all Consents, the failure
of which to obtain would not, in the sole judgment of the LTC Board, have a
material adverse effect on LTC or Healthcare;
(d) the Registration Statement on Form 10 under the Exchange Act
filed by Healthcare shall have been declared effective by the Commission;
(e) the Healthcare Common Stock shall have been approved for
quotation and trading on the Pacific Exchange subject to official notice of
issuance; and
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(f) LTC and Healthcare shall have entered into the Related Agreements
to which they are a party;
PROVIDED, HOWEVER, that (i) any such condition may be waived by the LTC Board in
its sole discretion, and (ii) the satisfaction of such conditions shall not
create any obligation on the part of LTC or any other party hereto to effect the
Distribution or in any way limit LTC's power of termination set forth in Section
9.07 or alter the consequences of any such termination from those specified in
such Section.
Section 4.03. THE DISTRIBUTION
On the Distribution Date, subject to the conditions and rights of
termination set forth in this Agreement, LTC shall deliver to the Agent a share
certificate representing all of the then outstanding shares of Healthcare Common
Stock owned by LTC and shall instruct the Agent to distribute, on or as soon as
practicable following the Distribution Date, such Healthcare Common Stock to the
Holders. Healthcare agrees to provide all share certificates that the Agent
shall require in order to effect the Distribution.
Section 4.04. CASH IN LIEU OF FRACTIONAL SHARES
No certificate or scrip representing fractional shares of Healthcare
Common Stock shall be issued as part of the Distribution and in lieu thereof,
each holder of LTC Common Stock who would otherwise be entitled to receive a
fractional share of Healthcare Common Stock will receive cash for such
fractional share. LTC shall instruct the Agent to determine the number of whole
shares and fractional shares of Healthcare Common Stock allocable to each holder
of record of LTC Common Stock as of the Distribution Record Date. LTC shall
instruct the Agent to aggregate all such fractional shares into whole shares and
sell the whole shares obtained thereby in the open market as soon as practicable
following the Distribution Date at then prevailing prices on behalf of Holders
who otherwise would be entitled to receive fractional share interests and to
distribute to each such Holder such Holder's ratable share of the proceeds of
such sale as soon as practicable after the Distribution Date. LTC shall bear
the costs of commissions incurred in connection with such sales.
ARTICLE V.
INDEMNIFICATION
Section 5.01. INDEMNIFICATION BY LTC
Except as otherwise expressly set forth in a Related Agreement, LTC
shall indemnify, defend and hold harmless Healthcare and its directors,
officers, employees, agents and Affiliates and each of the heirs, executors,
successors and assigns of any of the foregoing (the "Healthcare Indemnitees")
from and against the LTC Retained Liabilities and any and all losses,
Liabilities, damages, including, without limitation, the costs and expenses of
any and all Actions, threatened Actions, demands, assessments, judgments,
settlements and compromises relating to the LTC Retained Liabilities and
attorneys' fees and any and all expenses whatsoever
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reasonably incurred in investigating, preparing or defending against any such
Actions or threatened Actions (collectively, "Healthcare Indemnifiable Losses"
and, individually, a "Healthcare Indemnifiable Loss") of the Healthcare
Indemnitees arising out of or due to the failure or alleged failure of LTC or
any of its Affiliates (i) prior to or after the Distribution Date to pay,
perform or otherwise discharge in due course any of the LTC Retained
Liabilities, or (ii) comply with the provisions of Section 6.04.
Section 5.02. INDEMNIFICATION BY HEALTHCARE
Except as otherwise expressly set forth in a Related Agreement,
Healthcare shall indemnify, defend and hold harmless LTC and each of its
respective directors, officers, employees, agents and Affiliates and each of the
heirs, executors, successors and assigns of any of the foregoing (the "LTC
Indemnitees") from and against the Healthcare Liabilities and any and all
losses, Liabilities, damages, including, without limitation, the costs and
expenses of any and all Actions, threatened Actions, demands, assessments,
judgments, settlements and compromises relating to the Healthcare Liabilities
and attorneys' fees and any and all expenses whatsoever reasonably incurred in
investigating, preparing or defending against any such Actions or threatened
Actions (collectively, "LTC Indemnifiable Losses" and, individually, an "LTC
Indemnifiable Loss") of the LTC Indemnitees arising out of or due to the failure
or alleged failure of Healthcare or any of its Affiliates (i) prior to or after
the Distribution Date to pay, perform or otherwise discharge in due course any
of the Healthcare Liabilities or (ii) comply with the provisions of
Section 6.04. The "Healthcare Indemnifiable Losses," and the "LTC Indemnifiable
Losses" are collectively referred to as the "Indemnifiable Losses."
Section 5.03. INSURANCE PROCEEDS
The amount which any party (an "Indemnifying Party") is or may be
required to pay to any other Person (an "Indemnitee") pursuant to Section 5.01
or Section 5.02 shall be reduced (including, without limitation, retroactively)
by any Insurance Proceeds or other amounts actually recovered by or on behalf of
such Indemnitee in reduction of the related Indemnifiable Loss. If an
Indemnitee shall have received the payment required by this Agreement from an
Indemnifying Party in respect of an Indemnifiable Loss and shall subsequently
actually receive Insurance Proceeds, or other amounts in respect of such
Indemnifiable Loss as specified above, then such Indemnitee shall pay to such
Indemnifying Party a sum equal to the amount of such Insurance Proceeds or other
amounts actually received.
Section 5.04. PROCEDURE FOR INDEMNIFICATION
(a) Except as may be set forth in a Related Agreement, if an
Indemnitee shall receive notice or otherwise learn of the assertion by a Person
(including, without limitation, any governmental entity) who is not a party to
this Agreement or to any of the Related Agreements of any claim or of the
commencement by any such Person of any Action (a "Third-Party Claim") with
respect to which an Indemnifying Party may be obligated to provide
indemnification pursuant to this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming aware of such
Third-Party Claim; provided that the failure of any Indemnitee to give notice as
required by this Section 5.04 shall not relieve the Indemnifying
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Party of its obligations under this Article V, except to the extent that such
Indemnifying Party is prejudiced by such failure to give notice. Such notice
shall describe the Third-Party Claim in reasonable detail, and shall indicate
the amount (estimated if necessary) of the Indemnifiable Loss that has been or
may be sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to settle or
compromise, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any Third-Party Claim, provided that the Indemnifying Party
must confirm in writing that it agrees that the Indemnitee is entitled to
indemnification hereunder in respect of such Third-Party Claim. Within 30 days
of the receipt of notice from an Indemnitee in accordance with Section 5.04(a)
(or sooner, if the nature of such Third-Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee of its election whether to assume
responsibility for such Third-Party Claim (provided that if the Indemnifying
Party does not so notify the Indemnitee of its election within 30 days after
receipt of such notice from the Indemnitee, the Indemnifying Party shall be
deemed to have elected not to assume responsibility for such Third-Party Claim),
and such Indemnitee shall cooperate in the defense or settlement or compromise
of such Third-Party Claim. After notice from an Indemnifying Party to an
Indemnitee of its election to assume responsibility for a Third-Party Claim,
such Indemnifying Party shall not be liable to such Indemnitee under this
Article V for any legal or other expenses (except expenses approved in advance
by the Indemnifying Party) subsequently incurred by such Indemnitee in
connection with the defense thereof; provided that if the defendants in any such
claim include both the Indemnifying Party and one or more Indemnitees and in
such Indemnitees' reasonable judgment a conflict of interest between such
Indemnitees and such Indemnifying Party exists in respect of such claim, such
Indemnitees shall have the right to employ separate counsel and in that event
the reasonable fees and expenses of such separate counsel (but not more than one
separate counsel reasonably satisfactory to the Indemnifying Party) shall be
paid by such Indemnifying Party. If an Indemnifying Party elects not to assume
responsibility for a Third-Party Claim (which election may be made only in the
event of a good faith dispute that a claim was inappropriately tendered under
Section 5.01 or 5.02, as the case may be) such Indemnitee may defend or (subject
to the following sentence) seek to compromise or settle such Third-Party Claim.
Notwithstanding the foregoing, an Indemnitee may not settle or compromise any
claim without prior written notice to the Indemnifying Party, which shall have
the option within ten days following the receipt of such notice (i) to
disapprove the settlement and assume all past and future responsibility for the
claim, including reimbursing the Indemnitee for prior expenditures in connection
with the claim, or (ii) to disapprove the settlement and continue to refrain
from participation in the defense of the claim, in which event the Indemnifying
Party shall have no further right to contest the amount or reasonableness of the
settlement if the Indemnitee elects to proceed therewith, or (iii) to approve
the amount of the settlement, reserving the Indemnifying Party's right to
contest the Indemnitee's right to indemnity, or (iv) to approve and agree to pay
the settlement. In the event the Indemnifying Party makes no response to such
written notice from the Indemnitee, the Indemnifying Party shall be deemed to
have elected option (ii).
(c) If an Indemnifying Party chooses to defend or to seek to
compromise any Third-Party Claim, the Indemnitee shall make available to such
Indemnifying Party any
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personnel and any books, records or other documents within its control or which
it otherwise has the ability to make available that are necessary or appropriate
for such defense.
(d) Notwithstanding anything else in this Section 5.04 to the
contrary, an Indemnifying Party shall not settle or compromise any Third-Party
Claim unless such settlement or compromise contemplates as an unconditional term
thereof the giving by such claimant or plaintiff to the Indemnitee of a written
release from all liability in respect of such Third-Party Claim (and provided
further that such settlement may not provide for any non-monetary relief by
Indemnitee without the written consent of Indemnitee). In the event the
Indemnitee shall notify the Indemnifying Party in writing that such Indemnitee
declines to accept any such settlement or compromise, such Indemnitee may
continue to contest such Third-Party Claim, free of any participation by such
Indemnifying Party, at such Indemnitee's sole expense. In such event, the
obligation of such Indemnifying Party to such Indemnitee with respect to such
Third-Party Claim shall be equal to (i) the costs and expenses of such
Indemnitee prior to the date such Indemnifying Party notifies such Indemnitee of
the offer to settle or compromise (to the extent such costs and expenses are
otherwise indemnifiable hereunder) plus (ii) the lesser of (A) the amount of any
offer of settlement or compromise which such Indemnitee declined to accept and
(B) the actual out-of-pocket amount such Indemnitee is obligated to pay
subsequent to such date as a result of such Indemnitee's continuing to pursue
such Third-Party Claim.
(e) Any claim on account of an Indemnifiable Loss which does not
result from a Third-Party Claim shall be asserted by written notice given by the
Indemnitee to the applicable Indemnifying Party. Such Indemnifying Party shall
have a period of 15 days after the receipt of such notice within which to
respond thereto. If such Indemnifying Party does not respond within such 15-day
period, such Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does not respond
within such 15-day period or rejects such claim in whole or in part, such
Indemnitee shall be free to pursue such remedies as may be available to such
party under applicable law or under this Agreement.
(f) In addition to any adjustments required pursuant to Section 5.03,
if the amount of any Indemnifiable Loss shall, at any time subsequent to the
payment required by this Agreement, be reduced by recovery, settlement or
otherwise, the amount of such reduction, less any expenses incurred in
connection therewith, shall promptly be repaid by the Indemnitee to the
Indemnifying Party.
(g) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third-Party Claim, such Indemnifying Party
shall be subrogated to and shall stand in the place of such Indemnitee as to any
events or circumstances in respect of which such Indemnitee may have any right
or claim relating to such Third-Party Claim against any claimant or plaintiff
asserting such Third-Party Claim. Such Indemnitee shall cooperate with such
Indemnifying Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
(h) Notwithstanding anything else in this Section 5.04 to the
contrary, with respect to any Action pending at the time of the Distribution (a
"Pending Action") with respect to
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which an Indemnifying Party may be obligated to provide indemnification pursuant
to this Agreement, LTC or Healthcare shall, at the request of any other party,
cause the employee(s) who were handling the defense, compromise or settlement of
such Pending Action prior to the Distribution to continue to handle such
defense, compromise or settlement following the Distribution (subject to the
last two sentences of subsection (b) above). If such employees are employed by
the Indemnitee, the Indemnitee shall keep the Indemnifying Party reasonably
informed of the progress of, and the Indemnifying Party shall cooperate in, such
defense, compromise or settlement.
Section 5.05. REMEDIES CUMULATIVE
The remedies provided in this Article V shall be cumulative and shall
not preclude assertion by any Indemnitee of any other rights or the seeking of
any and all other remedies against any Indemnifying Party.
Section 5.06. SURVIVAL OF INDEMNITIES
The obligations of each of LTC and Healthcare under this Article V
shall survive the sale or other transfer by it of any assets or businesses or
the assignment by it of any Liabilities with respect to any Indemnifiable Loss
of the others related to such assets, businesses or Liabilities.
ARTICLE VI.
CERTAIN ADDITIONAL MATTERS
Section 6.01. HEALTHCARE BOARD
LTC and Healthcare shall take all actions which may be required to
constitute, effective as of the Distribution Date, the Healthcare Board with the
persons listed on Schedule 1.01(f).
Section 6.02. ARTICLES AND BYLAWS
On or prior to the Distribution Date, Healthcare shall adopt the
Healthcare Articles and the Healthcare Bylaws, and shall file the Healthcare
Articles with the Secretary of State of the State of Nevada.
Section 6.03. CERTAIN POST-DISTRIBUTION TRANSACTIONS
(a) HEALTHCARE. Healthcare shall comply with each representation and
statement made, or to be made, to any taxing authority in connection with any
ruling obtained, or to be obtained, by LTC and Healthcare acting together, from
any such taxing authority with respect to any transaction contemplated by this
Agreement.
(b) LTC. LTC shall comply with each representation and statement
made, or to be made, to any taxing authority in connection with any ruling
obtained, or to be obtained, by
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LTC and Healthcare acting together, from any such taxing authority with respect
to any transaction contemplated by this Agreement.
Section 6.04. NOTICES BY LTC
LTC shall provide notice of the Distribution to all holders of its
securities, or options, rights or warrants convertible into its securities, as
may be required by LTC's Articles of Incorporation or Bylaws or any agreement to
which LTC is a party.
ARTICLE VII.
ACCESS TO INFORMATION AND SERVICES
Section 7.01. PROVISION OF CORPORATE RECORDS
(a) Except as may otherwise be provided in a Related Agreement, LTC
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, for the transportation (at Healthcare's cost) to Healthcare of
the Healthcare Books and Records in its possession, except to the extent such
items are already in the possession of Healthcare. The Healthcare Books and
Records shall be the property of Healthcare, but shall be available to LTC for
review and duplication until LTC shall notify Healthcare in writing that such
records are no longer of use to LTC.
(b) Except as otherwise provided in a Related Agreement, Healthcare
shall arrange as soon as practicable following the Distribution Date, to the
extent not previously delivered in connection with the transactions contemplated
in Article II, for the transportation (at LTC's cost) to LTC of the LTC Books
and Records in its possession, except to the extent such items are already in
the possession of LTC. The LTC Books and Records shall be the property of LTC,
but shall be available to Healthcare for review and duplication until Healthcare
shall notify LTC in writing that such records are no longer of use to
Healthcare.
Section 7.02. ACCESS TO INFORMATION
Except as otherwise provided in a Related Agreement, from and after
the Distribution Date, LTC shall afford to Healthcare and its authorized
accountants, counsel and other designated representatives reasonable access
(including using reasonable efforts to give access to persons or firms
possessing information) and duplicating rights during normal business hours to
all records, books, contracts, instruments, computer data and other data and
information relating to pre-Distribution operations (collectively,
"Information") within LTC's possession insofar as such access is reasonably
required by Healthcare for the conduct of its business, subject to appropriate
restrictions for classified or Privileged Information. Similarly, except as
otherwise provided in a Related Agreement, Healthcare shall afford to LTC and
their authorized accountants, counsel and other designated representatives
reasonable access (including using reasonable efforts to give access to persons
or firms possessing information) and duplicating rights during normal business
hours to Information within Healthcare's possession, insofar as
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such access is reasonably required by LTC for the conduct of its business,
subject to appropriate restrictions for classified or Privileged Information.
Information may be requested under this Article VII for the legitimate business
purposes of either party, including, without limitation, audit, accounting,
claims (including claims for indemnification hereunder), litigation and tax
purposes, as well as for purposes of fulfilling disclosure and reporting
obligations and for performing this Agreement and the transactions contemplated
hereby.
Section 7.03. PRODUCTION OF WITNESSES
At all times from and after the Distribution Date, each of LTC and
Healthcare shall use reasonable efforts to make available to the others, upon
written request, its and its Subsidiaries' officers, directors, employees and
agents as witnesses to the extent that such persons may reasonably be required
in connection with any Action.
Section 7.04. REIMBURSEMENT
Except to the extent otherwise contemplated in any Related Agreement,
a party providing Information or witness services to another party under this
Article VII shall be entitled to receive from the recipient, upon the
presentation of invoices therefor, payments of such amounts, relating to
supplies, disbursements and other out-of-pocket expenses (at cost) and direct
and indirect expenses of employees who are witnesses or otherwise furnish
assistance (at cost), as may be reasonably incurred in providing such
Information or witness services.
Section 7.05. RETENTION OF RECORDS
Except as otherwise required by law or agreed to in a Related
Agreement or otherwise in writing, each of LTC and Healthcare may destroy or
otherwise dispose of any of the Information, which is material Information and
is not contained in other Information retained by LTC or Healthcare, as the case
may be, at any time after the tenth anniversary of this Agreement, provided
that, prior to such destruction or disposal, (a) it shall provide no less than
90 or more than 120 days prior written notice to the other, specifying in
reasonable detail the Information proposed to be destroyed or disposed of and
(b) if a recipient of such notice shall request in writing prior to the
scheduled date for such destruction or disposal that any of the Information
proposed to be destroyed or disposed of be delivered to such requesting party,
the party proposing the destruction or disposal shall promptly arrange for the
delivery of such of the Information as was requested at the expense of the party
requesting such Information.
Section 7.06. CONFIDENTIALITY
Each of LTC, Healthcare and their respective Subsidiaries shall hold,
and shall cause its consultants and advisors to hold, in strict confidence, all
Information concerning the other parties hereto in its possession or furnished
by the other parties or the other parties' representatives pursuant to this
Agreement (except to the extent that such Information has been (i) in the public
domain through no fault of such party or (ii) later lawfully acquired from other
sources by such party), and subject to Section 7.07, each party shall not
release or disclose such Information to any other person, except its auditors,
attorneys, financial advisors, rating agencies,
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bankers and other consultants and advisors, unless compelled to disclose by
judicial or administrative process or, as reasonably advised by its counsel or
by other requirements of law, or unless such Information is reasonably required
to be disclosed in connection with (x) any litigation with any third-parties or
litigation between LTC and Healthcare or any of them, (y) any contractual
agreement to which LTC or Healthcare or any of them are currently parties, or
(z) in exercise of any party's rights hereunder.
Section 7.07. PRIVILEGED MATTERS
LTC and Healthcare recognize that legal and other professional
services that have been and will be provided prior to the Distribution Date have
been and will be rendered for the benefit of each of LTC and Healthcare and that
each of LTC and Healthcare should be deemed to be the client for the purposes of
asserting all Privileges. To allocate the interests of each party in the
Privileged Information, the parties agree as follows:
(a) LTC shall be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the LTC Retained Business, whether or not the Privileged Information
is in the possession of or under the control of LTC or Healthcare. LTC shall
also be entitled, in perpetuity, to control the assertion or waiver of all
Privileges in connection with Privileged Information that relates solely to the
subject matter of any claims constituting LTC Retained Liabilities, now pending
or which may be asserted in the future, in any lawsuits or other proceedings
initiated against or by LTC, whether or not the Privileged Information is in the
possession of or under the control of LTC or Healthcare.
(b) Healthcare shall be entitled, in perpetuity, to control the
assertion or waiver of all Privileges in connection with Privileged Information
which relates solely to the Healthcare Business, whether or not the Privileged
Information is in the possession of or under the control of LTC or Healthcare.
Healthcare shall also be entitled, in perpetuity, to control the assertion or
waiver of all Privileges in connection with Privileged Information which relates
solely to the subject matter of any claims constituting Healthcare Liabilities,
now pending or which may be asserted in the future, in any lawsuits or other
proceedings initiated against or by Healthcare, whether or not the Privileged
Information is in the possession of Healthcare or under the control of LTC or
Healthcare.
(c) LTC and Healthcare agree that they shall have a shared Privilege,
with equal right to assert or waive, subject to the restrictions in this Section
7.07, with respect to all Privileges not allocated pursuant to the terms of
Sections 7.07(a) and (b). All Privileges relating to any claims, proceedings,
litigation, disputes or other matters which involve each of LTC and Healthcare
in respect of which LTC and Healthcare retain any responsibility or liability
under this Agreement shall be subject to a shared Privilege.
(d) No party may waive any Privilege which could be asserted under
any applicable law, and in which any other party has a shared Privilege, without
the consent of the other party, except to the extent reasonably required in
connection with any litigation with third-parties or as provided in subsection
(e) below. Consent shall be in writing, or shall be deemed to
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be granted unless written objection is made within 20 days after notice upon the
other party requesting such consent.
(e) In the event of any litigation or dispute between LTC and
Healthcare, or any of them, any party may waive a Privilege in which any other
party has a shared Privilege, without obtaining the consent of the other party,
provided that such waiver of a shared Privilege shall be effective only as to
the use of Information with respect to the litigation or dispute between such
parties, and shall not operate as a waiver of the shared Privilege with respect
to third-parties.
(f) If a dispute arises between the parties regarding whether a
Privilege should be waived to protect or advance the interest of any party, each
party agrees that it shall negotiate in good faith, shall endeavor to minimize
any prejudice to the rights of the other parties, and shall not unreasonably
withhold consent to any request for waiver by the other parties. Each party
specifically agrees that it will not withhold consent to waiver for any purpose
except to protect its own legitimate interests.
(g) Upon receipt by any party of any subpoena, discovery or other
request which arguably calls for the production or disclosure of Information
subject to a shared Privilege or as to which any other party has the sole right
hereunder to assert a Privilege, or if any party obtains knowledge that any of
its current or former directors, officers, agents or employees have received any
subpoena, discovery or other requests which arguably calls for the production or
disclosure of such Privileged Information, such party shall promptly notify the
other party of the existence of the request and shall provide the other party a
reasonable opportunity to review the Information and to assert any rights it may
have under this Section 7.07 or otherwise to prevent the production or
disclosure of such Privileged Information.
(h) The transfer of the Healthcare Books and Records and the LTC
Books and Records and other Information between LTC, Healthcare and their
respective Subsidiaries is made in reliance on the agreement of LTC and
Healthcare, as set forth in Sections 7.06 and 7.07, to maintain the
confidentiality of Privileged Information and to assert and maintain all
applicable Privileges. The access to information being granted pursuant to
Sections 7.01 and 7.02, the agreement to provide witnesses and individuals
pursuant to Section 7.03 and the transfer of Privileged Information between LTC,
Healthcare and their respective Subsidiaries pursuant to this Agreement shall
not be deemed a waiver of any Privilege that has been or may be asserted under
this Agreement or otherwise.
ARTICLE VIII.
INSURANCE
Section 8.01. POLICIES AND RIGHTS INCLUDED WITHIN THE HEALTHCARE
ASSETS
Without limiting the generality of the definition of the Healthcare
Assets set forth in Section 2.01 or the effect of Section 2.01, the Healthcare
Assets shall include (a) any and all rights of an insured party under each of
the Shared Policies, specifically including rights of
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indemnity and the right to be defended by or at the expense of the insurer, with
respect to all injuries, losses, liabilities, damages and expenses incurred or
claimed to have been incurred on or prior to the Distribution Date by any party
in or in connection with the conduct of the Healthcare Business or, to the
extent any claim is made against Healthcare or any of its Subsidiaries, the LTC
Retained Business, and which injuries, losses, liabilities, damages and expenses
may arise out of insured or insurable occurrences or events under one or more of
the Shared Policies; PROVIDED, HOWEVER, that nothing in this Section 8.01 shall
be deemed to constitute (or to reflect) the assignment of the Shared Policies,
or any of them, to Healthcare, and (b) the Healthcare Policies.
Section 8.02. POST-DISTRIBUTION DATE CLAIMS
If, subsequent to the Distribution Date, any person, corporation, firm
or entity shall assert a claim against Healthcare with respect to any injury,
loss, liability, damage or expense incurred or claimed to have been incurred on
or prior to the Distribution Date in or in connection with the Distribution or
the conduct of the Healthcare Business or, to the extent any claim is made
against Healthcare or any of its Subsidiaries, the LTC Retained Business, and
which injury, loss, liability, damage or expense may arise out of insured or
insurable occurrences or events under one or more of the Shared Policies, LTC
shall at the time such claim is asserted be deemed to assign, without need of
further documentation, to Healthcare any and all rights of an insured party
under the applicable Shared Policy with respect to such asserted claim,
specifically including rights of indemnity and the right to be defended by or at
the expense of the insurer; provided, however, that nothing in this Section 8.02
shall be deemed to constitute (or to reflect) the assignment of the Shared
Policies, or any of them, to Healthcare.
Section 8.03. ADMINISTRATION AND RESERVES
(a) Notwithstanding the provisions of Article III, but subject to any
contrary provisions of any Related Agreement, from and after the Distribution
Date:
(i) Healthcare shall be entitled to any reserves established
by LTC or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the Healthcare Liabilities; and
(ii) LTC shall be entitled to any reserves established by LTC
or any of its Subsidiaries, or the benefit of reserves held by any
insurance carrier, with respect to the LTC Retained Liabilities.
(b) INSURANCE PREMIUMS. Healthcare shall have the right but not the
obligation to pay the premiums, to the extent that LTC does not pay premiums
with respect to the LTC Retained Liabilities (retrospectively-rated or
otherwise), with respect to Shared Policies and the Healthcare Policies, as
required under the terms and conditions of the respective Policies, whereupon
LTC shall forthwith reimburse Healthcare for that portion of such premiums paid
by Healthcare as are attributable to the LTC Retained Liabilities. LTC shall
provide continued coverage under its director and officer liability insurance
policy, if any, for a period of not less than three years for acts which took
place or were alleged to have taken place prior to the
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Distribution Date covering persons who were directors and officers of LTC prior
to the Distribution Date. Fifty percent of the additional premiums, if any, for
such coverage shall be reimbursed by Healthcare within 15 days of the
Distribution Date.
(c) ALLOCATION OF INSURANCE PROCEEDS. Insurance Proceeds received
with respect to claims, costs and expenses under the Policies shall be paid to
Healthcare with respect to the Healthcare Liabilities and to LTC with respect to
the LTC Retained Liabilities. Payment of the allocable portions of indemnity
costs of Insurance Proceeds resulting from the liability policies will be made
to the appropriate party upon receipt from the insurance carrier. In the event
that the aggregate limits on any Shared Policies are exceeded, the parties agree
to provide an equitable allocation of Insurance Proceeds received after the
Distribution Date based upon their respective bona fide claims. The parties
agree to use their best efforts to cooperate with respect to insurance matters.
Section 8.04. AGREEMENT FOR WAIVER OF CONFLICT AND SHARED DEFENSE
In the event that Insured Claims of LTC and Healthcare exist relating
to the same occurrence, such parties agree to jointly defend and to waive any
conflict of interest necessary to the conduct of that joint defense. Nothing in
this Section 8.04 shall be construed to limit or otherwise alter in any way the
indemnity obligations of the parties to this Agreement, including those created
by this Agreement, by operation of law or otherwise.
ARTICLE IX.
MISCELLANEOUS
Section 9.01. COMPLETE AGREEMENT; CONSTRUCTION
This Agreement, including the Schedules and Exhibits and the Related
Agreements and other agreements and documents referred to herein constitutes the
entire agreement and supersedes all prior agreements, understandings,
negotiations and discussions, whether written or oral, between the parties
hereto with respect to the subject matter hereof, so that no such external or
separate agreement relating to the subject matter of this Agreement shall have
any effect or be binding, unless the same is referred to specifically in this
Agreement or is executed by the parties after the date hereof. Notwithstanding
any other provisions in this Agreement to the contrary, in the event and to the
extent that there shall be a conflict between the provisions of this Agreement
and the provisions of the Related Agreements, the Related Agreements shall
control.
Section 9.02. EXPENSES
Except as otherwise set forth in this Agreement or any Related
Agreement, all costs and expenses in connection with the preparation, execution,
delivery and implementation of this Agreement, the Distribution and with the
consummation of the transactions contemplated by this Agreement shall be charged
to the party for whose benefit the expenses are incurred, with any expenses
which cannot be allocated on such basis to be split equally between the parties.
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Section 9.03. GOVERNING LAW
This Agreement and the rights and obligations of the parties hereunder
shall be governed by the laws of the State of California, without regard to the
principles of choice of law thereof, except with respect to matters of law
concerning the internal corporate affairs of any corporate entity which is a
party to or subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall govern.
Section 9.04. NOTICES
Notices shall be sent to the parties at the following addresses:
LTC Properties, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attn: James J. Pieczynski
Facsimile: (805) 981-8663
LTC Healthcare, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attn: James J. Pieczynski
Facsimile: (805) 981-8663
Notices may be hand-delivered or sent by certified mail, return
receipt requested, Federal Express or comparable overnight delivery service, or
facsimile. Notice shall be deemed received at the time delivered by hand, on
the fourth business day following deposit in the U.S. mail, and on the first
business day following deposit with Federal Express or other delivery service,
or transmission by facsimile. Any party to this Agreement may change its
address for notice by giving written notice to the other party at the address
and in accordance with the procedures provided above.
Section 9.05. AMENDMENTS; WAIVERS
No termination, cancellation, modification, amendment, deletion,
addition or other change in this Agreement, or any provision hereof, or waiver
of any right or remedy herein provided, shall be effective for any purpose
unless such change or waiver is specifically set forth in a writing signed by
the party or parties to be bound thereby. The waiver of any right or remedy
with respect to any occurrence on one occasion shall not be deemed a waiver of
such right or remedy with respect to such occurrence on any other occasion.
Section 9.06. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective successors and assigns. This Agreement
shall not be assigned without the express written consent of each of the parties
hereto.
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Section 9.07. TERMINATION
This Agreement may be terminated and the Distribution abandoned at any
time prior to the Distribution Date by and in the sole discretion of the LTC
Board without the approval of Healthcare or of the stockholders of LTC. In the
event of such termination, no party shall have any liability to any other party
pursuant to this Agreement.
Section 9.08. SUBSIDIARIES
Each of the parties hereto shall cause to be performed, and hereby
guarantees the performance of, all actions, agreements and obligations set forth
herein to be performed by any Subsidiary of such party which is contemplated to
be a Subsidiary of such party on and after the Distribution Date.
Section 9.09. NO THIRD-PARTY BENEFICIARIES
Except for the provisions of Article V relating to Indemnities, this
Agreement is solely for the benefit of the parties hereto and their respective
Subsidiaries and Affiliates and should not be deemed to confer upon
third-parties any remedy, claim, Liability, reimbursement, claim of action or
other right in excess of those existing without reference to this Agreement.
Section 9.10. TITLES AND HEADINGS
Titles and headings to sections herein are inserted for the
convenience of reference only and are not intended to be a part of or to affect
the meaning or interpretation of this Agreement.
Section 9.11. EXHIBITS AND SCHEDULES
The Exhibits and Schedules shall be construed with and as an integral
part of this Agreement to the same extent as if the same had been set forth
verbatim herein.
Section 9.12. LEGAL ENFORCEABILITY
Any provision of this Agreement which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any such prohibition or unenforceability in any jurisdiction
shall not invalidate or render unenforceable such provision in any other
jurisdiction. Without prejudice to any rights or remedies otherwise available
to any party hereto, each party hereto acknowledges that damages would be an
inadequate remedy for any breach of the provisions of this Agreement and agrees
that the obligations of the parties hereunder shall be specifically enforceable.
Section 9.13. ARBITRATION OF DISPUTES
(a) Any controversy or claim arising out of this Agreement, or any
breach of this Agreement, including any controversy relating to a determination
of whether specific assets
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constitute Healthcare Assets or LTC Retained Assets or whether specific
Liabilities constitute Healthcare Liabilities or LTC Retained Liabilities, shall
be settled by arbitration in accordance with the Rules of the American
Arbitration Association then in effect, as modified by this Section 9.13 or by
the further agreement of the parties.
(b) Such arbitration shall be conducted in Los Angeles, California.
(c) Any judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof. The arbitrators shall have
the authority to award to the prevailing party its attorneys' fees and costs
incurred in such arbitration. The arbitrators shall not, under any
circumstances, have any authority to award punitive, exemplary or similar
damages, and may not, in any event, make any ruling, finding or award that does
not conform to the terms and conditions of this Agreement.
(d) Nothing contained in this Section 9.13 shall limit or restrict in
any way the right or power of a party at any time to seek injunctive relief in
any court and to litigate the issues relevant to such request for injunctive
relief before such court (i) to restrain any other party from breaching this
Agreement or (ii) for specific enforcement of this Section 9.13. The parties
agree that any legal remedy available to a party with respect to a breach of
this Section 9.13 will not be adequate and that, in addition to all other legal
remedies, each party is entitled to an order specifically enforcing this Section
9.13.
(e) The parties hereby consent to the jurisdiction of the federal
courts located in Los Angeles, California for all purposes under this Agreement.
(f) Neither the parties nor the arbitrators may disclose the
existence or results of any arbitration under this Agreement or any evidence
presented during the course of the arbitration without the prior written consent
of the parties, except as required to fulfill applicable disclosure and
reporting obligations, or as otherwise required by law.
(g) Except as provided in Section 9.13(c), each party shall bear its
own costs incurred in the arbitration. If any party refuses to submit to
arbitration any dispute required to be submitted to arbitration pursuant to this
Section 9.13, and instead commences any other proceeding, including, without
limitation, litigation, then the party who seeks enforcement of the obligation
to arbitrate shall be entitled to its attorneys' fees and costs incurred in any
such proceeding.
Section 9.14. SEVERABILITY
In the event that one or more of the terms or provisions of this
Agreement or the application thereof to any person(s) or in any circumstance(s)
shall, for any reason and to any extent be found by a court of competent
jurisdiction to be invalid, illegal or unenforceable, such court shall have the
power, and hereby is directed, to substitute for or limit such invalid term(s),
provision(s) or application(s) and to enforce such substituted or limited terms
or provisions, or the application thereof. Subject to the foregoing, the
invalidity, illegality or enforceability of any one or more of the terms or
provisions of this Agreement, as the same may be amended from
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time to time, shall not affect the validity, legality or enforceability of any
other term or provision hereof.
Section 9.15. COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which together shall be deemed to be an original and all of which together shall
be deemed to constitute one and the same agreement.
Section 9.16. RELATIONSHIP OF PARTIES
Nothing in this Agreement shall be deemed or construed by the parties
or any third party as creating the relationship of principal and agent,
partnership or joint venture between the parties, it being understood and agreed
that no provision contained herein, and no act of the parties, shall be deemed
to create any relationship between the parties other than the relationship set
forth herein.
Section 9.17. FURTHER ACTION
Healthcare and LTC each shall cooperate in good faith and take such
steps and execute such papers as may be reasonably requested by the other party
to implement the terms and provisions of this Agreement.
Section 9.18. PREDECESSORS AND SUCCESSORS
To the extent necessary to give effect to the purposes of this
Agreement, any reference to any corporation shall also include any predecessor
or successor thereto, by operation of law or otherwise.
{SIGNATURE PAGE FOLLOWS}
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
LTC PROPERTIES, INC.
BY: ______________________
Name: ______________________
Title: ______________________
LTC HEALTHCARE, INC.
By: ______________________
Name: ______________________
Title: ______________________
S-1
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SCHEDULES
Schedule 1.01(a): LTC Shares
Schedule 1.01(b): LTC Real Estate Assets
Schedule 1.01(c): Healthcare Liabilities
Schedule 1.01(d): Healthcare Board
<PAGE>
SCHEDULE 1.01(a)
LTC SHARES
30,847 shares of common stock of Assisted Living Concepts, Inc.
69,000 shares of common stock of Regent Assisted Living, Inc.
<PAGE>
SCHEDULE 1.01(b)
LTC REAL ESTATE ASSETS
Coronado Care Center
Missouri River Manor
Park Villa Convalescent Center
Casa Maria Nursing Home
Casa Arena Blanca
Sunrise Golden Age Care & Rehabilitation
Sunrise High Plains Care & Rehabilitation
Boulevard Manor
Karrington on the Scioto
Karrington of Bexley
Karrington at Tucker Creek
Karrington Place
<PAGE>
SCHEDULE 1.01(c)
HEALTHCARE LIABILITIES
$20 million 10% unsecured revolving note payable to LTC Properties, Inc. due
March 31, 2008
<PAGE>
SCHEDULE 1.01(d)
HEALTHCARE BOARD
Andre C. Dimitriadis
James J. Pieczynski
Steven Stuart
Bary G. Bailey
<PAGE>
EXHIBITS
Exhibit A: Administrative Services Agreement
Exhibit B: Healthcare Bylaws
Exhibit C: Healthcare Articles
Exhibit D: Healthcare Employees
Exhibit E: Tax Sharing Agreement
<PAGE>
EXHIBIT A
FORM OF ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of __________, 1998, by and between LTC PROPERTIES, INC., a
Maryland corporation ("LTC"), and LTC HEALTHCARE, INC., a Nevada corporation
("Healthcare," and collectively with LTC, the "Parties"), effective as of the
Distribution Date (as hereinafter defined).
R E C I T A L S
WHEREAS, subject to certain conditions, LTC intends to spin-off
certain businesses and assets by distributing to LTC stockholders 1/10 of a
share of common stock, $.01 par value per share, of Healthcare for each share
of common stock, $.01 par value per share, of LTC held as of the close of
business on the Record Date (the "Distribution");
WHEREAS, in connection with the Distribution, LTC and Healthcare have
entered into a Distribution Agreement of even date herewith (the "Distribution
Agreement");
WHEREAS, after the Distribution, Healthcare will need office space for
its principal corporate office and certain management and administrative
services to be provided by LTC to Healthcare for a period of time from and
after the Distribution Date; and
WHEREAS, in connection with the Distribution, Healthcare has requested
LTC to provide, and LTC has agreed to provide, office space and certain
management and administrative services to Healthcare from and after the
Distribution Date pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, LTC and Healthcare agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings indicated below:
"Affiliate" -- with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of LTC shall not include
Healthcare or any other Person which would be an Affiliate of LTC by reason of
LTC's ownership of the capital stock of Healthcare prior to the Distribution or
the fact that any officer or director of Healthcare shall also serve as an
officer or director of LTC, and (ii) the Affiliates of Healthcare shall not
include LTC or any other Person which would be an Affiliate of Healthcare by
reason of LTC's ownership of the capital stock of
<PAGE>
Healthcare prior to the Distribution or the fact that any officer or director of
Healthcare shall also serve as an officer or director of LTC.
"Agreement" -- shall have the meaning set forth in the introductory
paragraph hereof.
"Change in Control" shall mean a change in ownership or control of a
party effected through either of the following transactions:
(i) any person or related group of persons (other than
such party or a Affiliate of such party) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of securities possessing
more than fifty percent (50%) of the total combined voting power of such
party's outstanding securities; or
(ii) there is a change in the composition of such party's
board of directors over a period of thirty-six (36) consecutive months
(or less) such that a majority of the board members (rounded up to the
nearest whole number) ceases, by reason of one or more proxy contests for
the election of board members, to be comprised of individuals who either
(A) have been board members continuously since the beginning of such
period or (B) have been elected or nominated for election as board
members during such period by at least a majority of the board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the board; or
(iii) there is a change in the composition of such party's
senior executive management such that both Andre C. Dimitriadis and James
J. Pieczynski cease to be employed by such party.
"Distribution" -- shall have the meaning set forth in the first recital
of this Agreement.
"Distribution Agreement" -- the agreement described in the second
recital of this Agreement.
"Distribution Date" -- the date on which the Distribution occurs, as
defined in the Distribution Agreement.
"Employee Benefit Plan" -- any plan, policy, arrangement, contract or
agreement providing compensation benefits for any group of LTC Employees or
former LTC Employees or individual LTC Employee or former LTC Employee, or the
dependents or beneficiaries of any such LTC Employee or former LTC Employee,
whether formal or informal or written or unwritten, and including, without
limitation, any means, whether or not legally required, pursuant to which any
benefit is provided by LTC to any LTC Employee or former LTC Employee or the
beneficiaries of any such LTC Employee or former LTC Employee, adopted or
entered into by LTC prior to, upon or after the Distribution. The term
"Employee Benefit Plan" as used in this Agreement does not include any contract,
agreement or understanding entered into by LTC relating to settlement of actual
or potential LTC Employee related litigation claims.
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"First Month" -- In the event that the Distribution Date does not fall
on the first day of a month, the month that includes the Distribution Date.
"Full Month" -- A full calendar month during the Term.
"Healthcare" -- shall have the meaning set forth in the introductory
paragraph hereof.
"Healthcare Business" -- any business or operation of Healthcare which
is, pursuant to the Distribution Agreement, to be conducted by Healthcare after
the Distribution.
"Healthcare Employee" -- any individual who (i) is independently hired by
Healthcare after the Distribution Date as an employee of Healthcare, and (ii) is
not an employee or director of LTC.
"Last Month" -- In the event that the Termination Date does not fall on
the last day of a month, the month that includes the Termination Date.
"LTC" -- shall have the meaning set forth in the introductory paragraph
hereof.
"LTC Employee" -- any individual who is an employee or director of LTC
and is not a Healthcare Employee.
"Month" -- a Full Month, First Month or Last Month, as the case may be.
"Monthly Fee" -- The amount payable by Healthcare to LTC under Section
4.1 herein with respect to a particular Full Month or any First Month or Last
Month.
"Parties" -- shall have the meaning set forth in the introductory
paragraph hereof.
"Person" -- any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
"Principal Office" -- shall have the meaning set forth in Section 4.2
hereof.
"Record Date" -- _________, 1998.
"Services" -- shall have the meaning set forth in Section 2 hereof.
"Term" -- shall have the meaning set forth in Section 3 hereof.
"Termination Date" -- shall have the meaning set forth in Section 3
hereof.
2. ENGAGEMENT OF LTC. During the term of this Agreement, LTC shall
provide to Healthcare office space and certain management and administrative
services ("Services"), as more fully described and defined below, as may be
necessary or desirable, or as Healthcare may reasonably request or require,
in connection with the business, operations and affairs of Healthcare.
"Services" means and includes, without limitation, the furnishing of advice,
assistance, guidance, equipment office space and the services of LTC
Employees in connection with, among other things, (i) the Healthcare
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Business and (ii) the use of LTC's management information and accounting
system, the administration of insurance and worker's compensation programs,
legal and employee benefit services and the preparation of payrolls.
3. TERM; TERMINATION. This Agreement shall commence as of the date
hereof for a term of ten years and continue thereafter unless and until
terminated upon the earlier of (a) not less than thirty (30) days' prior
written notice by either Party to the other at any time for any reason or
(b) a Change in Control of LTC (the "Termination Date", with the term of this
Agreement as set forth in this Section 3 being referred to as the "Term").
4. PAYMENTS TO LTC.
4.1. GENERALLY.
(a) FULL MONTH. With respect to each Full Month, in
consideration of the Services provided by LTC hereunder, Healthcare shall pay
to LTC fees equal to 25% of (1) the aggregate amount of all wages, salaries
and bonuses paid to LTC Employees and (2) the aggregate amount of rent paid
by LTC for rental of its principal corporate office located at 300 Esplanade
Drive, Suite 1860, Oxnard, CA 93030 (the "Principal Office") during the Full
Month.
(b) FIRST MONTH AND LAST MONTH. With respect to any First
Month or Last Month, in consideration of the Services provided by LTC
hereunder, Healthcare shall pay to LTC fees equal to the product of:
(i) 25% of (1) the aggregate amount of all wages,
salaries and bonuses paid to LTC Employees and (2) the aggregate amount of
rent paid by LTC for rental of the Principal Office during the First Month or
Last Month, as the case may be; and
(ii) the number of days in the First Month or the Last
Month, as the case may be, which are included in the Term, divided by the
total number of days in the First Month or the Last Month, as the case may be.
4.2. STATEMENT FROM LTC. Promptly and in any event not later than
ten (10) days following the end of each Month, LTC shall provide to
Healthcare a statement setting forth (i) a list of the LTC Employees, (ii)
the aggregate amount of all wages, salaries and bonuses paid to LTC Employees
during the Month and (iii) the aggregate amount of rent paid by LTC for
rental of the Principal Office during the Month.
4.3. PAYMENT BY HEALTHCARE. Promptly and in any event not later
than five (5) days after delivery by LTC of each statement referred to in
Section 4.2, Healthcare shall pay to LTC the Monthly Fee applicable to the
Month to which such statement relates.
5. EMPLOYEE BENEFIT PLANS. From and after the Distribution Date, LTC
shall permit the LTC Employees to continue to participate in the Employee
Benefit Plans on the same basis as such persons participated immediately
prior to the Distribution Date, provided, however, nothing contained in this
Agreement shall prohibit LTC from modifying or terminating any one or more of
the Employee Benefit Plans so long as such modification or termination shall
apply to all participants in such Employee Benefit Plans. LTC shall provide
Healthcare with thirty (30)
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days' prior written notice of its intent to terminate any Employee Benefit Plan
or effect the modification thereof in a manner adverse to Healthcare; provided
that no such notice shall be required for any Employee Benefit Plan which
terminates by its terms without any action by LTC.
6. EMPLOYEES. Nothing in this Agreement shall prohibit Healthcare from
independently hiring one or more Healthcare Employees; provided, however, that
(i) all wages, salaries, payroll taxes, and employee benefits with respect to
Healthcare Employees shall be Healthcare's sole responsibility, and
(ii) Healthcare Employees shall not be subject to this Agreement.
7. GENERAL.
7.1. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the Parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
Parties, it being understood and agreed that no provision contained herein, and
no act of the Parties, shall be deemed to create any relationship between the
Parties other than the relationship set forth herein.
7.2. ACCESS TO INFORMATION; COOPERATION. LTC and Healthcare and their
authorized agents shall be given reasonable access to and may take copies of all
information relating to the subjects of this Agreement (to the extent permitted
by federal and state confidentiality laws) in the custody of the other Party,
including any agent, contractor, subcontractor, agent or any other person or
entity under the contract of such Party.
7.3. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the Parties hereto and their respective successors and
assigns. This Agreement shall not be assigned without the express written
consent of each of the Parties hereto.
7.4. TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
7.5. SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
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7.6. NOTICES. Notices shall be sent to the Parties at the following
addresses:
LTC Properties, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attn: James J. Pieczynski
Facsimile: (805) 981-8663
LTC Healthcare, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attn: James J. Pieczynski
Facsimile: (805) 981-8663
Notices may be hand-delivered or sent by certified mail, return receipt
requested, Federal Express or comparable overnight delivery service, or
facsimile. Notice shall be deemed received at the time delivered by hand, on
the fourth business day following deposit in the U.S. mail, and on the first
business day following deposit with Federal Express or other delivery service,
or transmission by facsimile. Any Party to this Agreement may change its
address for notice by giving written notice to the other Party at the address
and in accordance with the procedures provided above.
7.7. FURTHER ACTION. Healthcare and LTC each shall cooperate in good
faith and take such steps and execute such papers as may be reasonably requested
by the other Party to implement the terms and provisions of this Agreement.
7.8. AMENDMENTS; WAIVERS. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless such change or waiver is specifically set forth
in a writing signed by the Party or Parties to be bound thereby. The waiver of
any right or remedy with respect to any occurrence on one occasion shall not be
deemed a waiver of such right or remedy with respect to such occurrence on any
other occasion.
7.9. GOVERNING LAW. This Agreement and the rights and obligations of
the Parties hereunder shall be governed by the laws of the State of California,
without regard to the principles of choice of law thereof, except with respect
to matters of law concerning the internal corporate affairs of any corporate
entity which is a Party to or subject of this Agreement, and as to those matters
the law of the jurisdiction under which the respective entity derives its powers
shall govern.
7.10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, between the Parties hereto with respect to
the subject matter hereof, so that no such external or separate agreement
relating to the subject matter of this Agreement shall have any effect or be
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binding, unless the same is referred to specifically in this Agreement or is
executed by the Parties after the date hereof. To the extent that the terms of
this Agreement and similar terms of the Distribution Agreement are in conflict,
this Agreement shall govern.
7.11. DISPUTE RESOLUTION. Any dispute arising under this Agreement
shall be resolved by binding arbitration in the manner contemplated by Section
9.13 of the Distribution Agreement, including the attorneys fees provisions
referred to therein.
7.12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
7.13. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the Parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without this Agreement.
7.14. EXPENSES. Except as otherwise set forth in this Agreement, all
costs and expenses in connection with the preparation, execution, delivery and
implementation of this Agreement and with the consummation of the transactions
contemplated by this Agreement shall be charged to the Party for whose benefit
the expenses are incurred, with any expenses which cannot be allocated on such
basis to be split equally between the Parties.
7.15. LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any Party hereto, each Party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the Parties
hereunder shall be specifically enforceable.
7.16. PREDECESSORS AND SUCCESSORS. To the extent necessary to give
effect to the purposes of this Agreement, any reference to any corporation shall
also include any predecessor or successor thereto, by operation of law or
otherwise.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
LTC PROPERTIES, INC., a Maryland corporation
By: ______________________________________
Name: _______________________________
Title: _______________________________
LTC HEALTHCARE, INC., a Nevada corporation
By: _____________________________________
Name: _______________________________
Title: _______________________________
S-1
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EXHIBIT B
FORM OF
AMENDED AND RESTATED BYLAWS
OF
LTC HEALTHCARE, INC.
ARTICLE I
OFFICES
SECTION 1.01 REGISTERED OFFICE. The registered office of the
corporation shall be in the City of Las Vegas, County of Clark, State of Nevada.
The corporation may, from time to time, in the manner provided by law, change
the registered office within the State of Nevada.
SECTION 1.02 OTHER OFFICES. The corporation may also maintain an office
or offices at such other places within or without the State of Nevada as the
Board of Directors may form time to time determine or the business of the
corporation may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.01 ANNUAL MEETING. The annual meeting of stockholders shall
be held each year on a date and time designated by the Board of Directors. Any
previously scheduled annual meeting of the stockholders may be postponed by
resolution of the Board of Directors upon public notice given prior to the date
previously scheduled for such annual meeting of the stockholders.
SECTION 2.02 SPECIAL MEETINGS.
(a) Except as otherwise required by law and subject to the rights
of the holders of Preferred Stock, special meetings of stockholders may be
called only by the Board of Directors pursuant to a resolution approved by a
majority of the entire Board of Directors, the chairman of the board, chief
executive officer, or president. Each special meeting shall be held at such
date, time and place either within or without the State of Nevada as shall be
designated by the Board of Directors at least ten (10) days prior to such
meeting.
(b) No business shall be acted upon at a special meeting except
as set forth in the notice calling the meeting, unless one of the conditions for
the holding of a meeting without notice set forth in Section 2.05 shall be
satisfied, in which case any business (except as noted in Section 2.12
immediately below) may be transacted and the meeting shall be valid for all
purposes.
SECTION 2.03 PLACE OF MEETINGS. Any meeting of the stockholders of the
corporation may be held at its registered office in the State of Nevada or at
such other place in or out of the
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United States as the Board of Directors may designate. A waiver of notice
signed by stockholders entitled to vote may designate any place for the holding
of such meeting.
SECTION 2.04 NOTICE OF MEETINGS.
(a) The president, a vice president, the secretary, an
assistant secretary or any other individual designated by the Board of Directors
shall sign and deliver written notice of any meeting at least ten (10) days, but
not more than sixty (60) days, before the date of such meeting. The notice
shall state the place, date and time of the meeting and the purpose or purposes
for which the meeting is called.
(b) In the case of an annual meeting, subject to Section 2.12,
any proper business may be presented for action, except that action on any of
the following items shall be taken only if the general nature of the proposal is
stated in the notice:
(1) Action with respect to any contract or transaction
between the corporation and one or more of its directors or officers or between
the corporation and any corporation, firm or association in which one or more of
the corporation's directors or officers is a director or officer or is
financially interested;
(2) Adoption of amendments to the Articles of
Incorporation; or
(3) Action with respect to a merger, share exchange,
reorganization, partial or complete liquidation, or dissolution of the
corporation.
(c) A copy of the notice shall be personally delivered or
mailed postage prepaid to each stockholder of record entitled to vote at the
meeting at the address appearing on the records of the corporation, and the
notice shall be deemed delivered the date the same is deposited in the United
States mail for transmission to such stockholder. If the address of any
stockholder does not appear upon the records of the corporation, it will be
sufficient to address any notice to such stockholder at the registered office of
the corporation.
(d) The written certificate of the individual signing a notice
of meeting, setting forth the substance of the notice or having a copy thereof
attached, the date the notice was mailed or personally delivered to the
stockholders and the addresses to which the notice was mailed, shall be prima
facie evidence of the manner and fact of giving such notice.
(e) Any stockholder may waive notice of any meeting by a signed
writing, either before or after the meeting.
SECTION 2.05 MEETING WITHOUT NOTICE.
(a) Whenever all persons entitled to vote at any meeting
consent, either by:
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(1) A writing on the records of the meeting or filed
with the secretary; or
(2) Presence at such meeting and oral consent entered on
the minutes; or
(3) Taking part in the deliberations at such meeting
without objection; The doings of such meeting shall be as valid as if had at a
meeting regularly called and noticed.
(b) At such meeting any business may be transacted which is not
excepted from the written consent or to the consideration of which no objection
for want of notice is made at the time.
(c) If any meeting be irregular for want of notice or of such
consent, provided a quorum was present at such meeting, the proceedings of the
meeting may be ratified and approved and rendered likewise valid and the
irregularity or defect therein waived by a writing signed by all parties having
the right to vote at such meeting.
(d) Such consent or approval may be by proxy or power of
attorney, but all such proxies and powers of attorney must be in writing.
SECTION 2.06 DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) For the purpose of determining the stockholders entitled to
notice of and to vote at any meeting of stockholders or any adjournment thereof,
or entitled to receive payment of any distribution or the allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion,
or exchange of stock or for the purpose of any other lawful action, the
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days nor less than ten (10) days before the date of such meeting, nor more
than sixty (60) days prior to any other action.
(b) If no record date is fixed, the record date for determining
stockholders: (i) entitled to notice of and to vote at a meeting of stockholders
shall be at the close of business on the day next preceding the day on which
notice is given, or, if notice is waived, at the close of business on the day
next preceding the day on which the meeting is held and (ii) for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at any meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 2.07 QUORUM; ADJOURNED MEETINGS.
(a) Unless the Articles of Incorporation provide for a
different proportion, stockholders holding at least a majority of the voting
power of the corporation's stock, represented in person or by proxy, are
necessary to constitute a quorum for the transaction of
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business at any meeting. If, on any issue, voting by classes is required by the
laws of the State of Nevada, the Articles of Incorporation or these Bylaws, at
least a majority of the voting power within each such class is necessary to
constitute a quorum of each such class.
(b) If a quorum is not represented, a majority of the voting
power so represented may adjourn the meeting from time to time until holders of
the voting power required to constitute a quorum shall be represented. At any
such adjourned meeting at which a quorum shall be represented, any business may
be transacted which might have been transacted as originally called. When a
stockholders' meeting is adjourned to another time or place hereunder, notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. The stockholders
present at a duly convened meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum of the voting power.
SECTION 2.08 VOTING.
(a) Unless otherwise provided in the Articles of Incorporation,
or in the resolution providing for the issuance of the stock adopted by the
Board of Directors pursuant to authority expressly vested in it by the
provisions of the Articles of Incorporation, each stockholder of record, or such
stockholder's duly authorized proxy or attorney-in-fact, shall be entitled to
one (1) vote for each share of voting stock standing registered in such
stockholder's name on the record date. No stockholder of the corporation shall
be entitled to cumulative voting for the election of directors.
(b) Except as otherwise provided herein, all votes with respect
to shares standing in the name of an individual on the record date (included
pledged shares) shall be cast only by that individual or such individual's duly
authorized proxy, attorney-in-fact, or voting trustee(s) pursuant to a voting
trust. With respect to shares held by a representative of the estate of a
deceased stockholder, guardian, conservator, custodian or trustee, votes may be
cast by such holder upon proof of capacity, even though the shares do not stand
in the name of such holder. In the case of shares under the control of a
receiver, the receiver may cast votes carried by such shares even though the
shares do not stand in the name of the receiver; provided, that the order of the
court of competent jurisdiction which appoints the receiver contains the
authority to cast votes carried by such shares. If shares stand in the name of
a minor, votes may be cast only by the duly appointed guardian of the estate of
such minor if such guardian has provided the corporation with written proof of
such appointment.
(c) With respect to shares standing in the name of another
corporation, partnership, limited liability company or other legal entity on the
record date, votes may be cast: (i) in the case of a corporation, by such
individual as the bylaws of such other corporation prescribe, by such individual
as may be appointed by resolution of the board of directors of such other
corporation or by such individual (including the officer making the
authorization) authorized in writing to do so by the chairman of the board of
directors, president or any vice-president of such corporation and (ii) in the
case of a partnership, limited liability company
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or other legal entity, by an individual representing such stockholder upon
presentation to the corporation of satisfactory evidence of his authority to do
so.
(d) Notwithstanding anything to the contrary herein contained,
no votes may be cast for shares owned by this corporation or its subsidiaries,
if any. If shares are held by this corporation or its subsidiaries, if any, in
a fiduciary capacity, no votes shall be cast with respect thereto on any matter
except to the extent that the beneficial owner thereof possesses and exercises
either a right to vote or to give the corporation holding the same binding
instructions on how to vote.
(e) Any holder of shares entitled to vote on any matter may
cast a portion of the votes in favor of such matter and refrain from casting the
remaining votes or cast the same against the proposal, except in the case of
elections of directors. If such holder entitled to vote fails to specify the
number of affirmative votes, it will be conclusively presumed that the holder is
casting affirmative votes with respect to all shares held.
(f) With respect to shares standing in the name of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting agreement
or otherwise and shares held by two or more persons (including proxy holders)
having the same fiduciary relationship in respect to the same shares, votes may
be cast in the following manner:
(1) If only one person votes, the vote of such person
binds all.
(2) If more than one person casts votes, the act of the
majority so voting binds all.
(3) If more than one person casts votes, but the vote is
evenly split on a particular matter, the votes shall be deemed cast
proportionately, as split.
(g) If a quorum is present, unless the Articles of
Incorporation provide for a different proportion, the affirmative vote of
holders of at least a majority of the voting power represented at the meeting
and entitled to vote on any matter shall be the act of the stockholders, unless
voting by classes is required for any action of the stockholders by the laws of
the State of Nevada, the Articles of Incorporation or these Bylaws, in which
case the affirmative vote of holders of a least a majority of the voting power
of each such class shall be required.
SECTION 2.09 PROXIES. At any meeting of stockholders, any holder of
shares entitled to vote may designate, in a manner permitted by the laws of the
State of Nevada, another person or persons to act as a proxy or proxies. No
proxy is valid after the expiration of six (6) months from the date of its
creation, unless it is coupled with an interest or unless otherwise specified in
the proxy. In no event shall the term of a proxy exceed seven (7) years from
the date of its creation. Every proxy shall continue in full force and effect
until its expiration or revocation in a manner permitted by the laws of the
State of Nevada.
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SECTION 2.10 ORDER OF BUSINESS. At the annual stockholder's meeting,
the regular order of business shall be as follows:
1. Determination of stockholders present and existence of
quorum, in person or by proxy;
2. Reading and approval of the minutes of the previous meeting
or meetings;
3. Reports of the Board of Directors, and, if any, the
president, treasurer and secretary of the corporation;
4. Reports of committees;
5. Election of directors;
6. Unfinished business;
7. New business;
8. Adjournment.
SECTION 2.11 ABSENTEES' CONSENT TO MEETINGS. Transactions of any
meeting of the stockholders are as valid as though had at a meeting duly held
after regular call and notice if a quorum is represented, either in person or by
proxy, and if, either before or after the meeting, each of the persons entitled
to vote, not represented in person or by proxy (and those who, although present,
either object at the beginning of the meeting to the transaction of any business
because the meeting has not been lawfully called or convened or expressly object
at the meeting to the consideration of matters not included in the notice which
are legally required to be included therein), signs a written waiver of notice
and/or consent to the holding of the meeting or an approval of the minutes
thereof. All such waivers, consents, and approvals shall be filed with the
corporate records and made a part of the minutes of the meeting. Attendance of
a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person objects at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened and except that attendance at a meeting is not a waiver of any right to
object to the consideration of matters not properly included in the notice if
such objection is expressly made at the time any such matters are presented at
the meeting. Neither the business to be transacted at nor the purpose of any
regular or special meeting of stockholders need be specified in any written
waiver of notice or consent, except as otherwise provided in Section 2.04(a) and
(b) or Section 2.12 (if applicable) of these Bylaws.
SECTION 2.12 BUSINESS TO BE CONDUCTED AT MEETING. At an annual or
special meeting of the stockholders, only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought
before a meeting, business must be (a) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of
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Directors, (b) brought before the meeting by or at the direction of the Board of
Directors, (c) properly brought before an annual meeting by a stockholder, or
(d) if, and only if, the notice of a special meeting provides for business to be
brought before the meeting by stockholders, properly brought before the meeting
by a stockholder who is a stockholder of record at the time of serving of the
notice pursuant to Section 2.04, who shall be entitled to vote at such meeting
and who complies with the notice procedures set forth in this Section 2.12. For
business to be properly brought before a meeting by a stockholder pursuant to
the preceding clauses (c) or (d), the stockholder must have given timely notice
thereof in writing to the secretary of the corporation. To be timely, a
stockholder's notice must be delivered to, or mailed and received by, the
secretary at the principal executive office of the corporation not less than
thirty-five (35) days prior to the meeting; PROVIDED, HOWEVER, that in the event
less than forty-five (45) days notice or public disclosure of the date of the
meeting is given or made to the stockholders, notice by the stockholder to be
timely must be so received not later than the fifth (5th) day following the day
on which such notice of the date of the meeting was mailed or such disclosure
was made. In no event shall the public disclosure of an adjournment of an
annual or special meeting commence a new time period for the giving of
stockholder's notice as described above. A stockholder's notice to the
secretary shall set forth as to each matter the stockholder proposes to bring
before the meeting (a) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting,
(b) the name and address, as they appear on the corporation's books, of the
stockholder proposing such business, and the name and address of the beneficial
owner, if any, on whose behalf the proposal is made, (c) the class and number of
shares of the corporation which are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any, on whose behalf the
proposal is made, and (d) any material interest of such stockholder of record
and the beneficial owner, if any, on whose behalf the proposal is made in such
business. Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at a meeting except in accordance with the procedures set
forth in this Section 2.12. The presiding officer at the meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
brought in accordance with this Section 2.12, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted. Notwithstanding the foregoing
provisions of this Section 2.12, a stockholder shall also comply with all
applicable requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations therunder with respect to the
matters set forth herein. As used herein, "public disclosure" shall mean
disclosure in a press release reported by the Dow Jones News Association, the
Associated Press, or comparable news service or in a document publicly filed
with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d)
of the Exchange Act.
SECTION 2.13 NO STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Stockholders may take action only at a regular or special meeting of
stockholders.
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ARTICLE III
DIRECTORS
SECTION 3.01 NUMBER, ELECTION, TENURE, AND QUALIFICATIONS. Except as
otherwise fixed by resolution of the Board of Directors pursuant to the Articles
of Incorporation relating to the authorization of the Board of Directors to
provide by resolution for the issuance of Preferred Stock and to determine the
rights of the holders of such Preferred Stock to elect directors, the Board of
Directors shall consist of at least one (1) individual who shall be elected at
the annual meeting of the stockholders of the corporation and who shall hold
office for one (1) year or until his or her successor is elected and qualify. A
director need not be a stockholder of the corporation.
SECTION 3.02 CHANGE IN NUMBER. Subject to any limitation in the laws of
the State of Nevada, the Articles of Incorporation or these Bylaws, the number
of directors may be changed from time to time by resolution adopted by the Board
of Directors.
SECTION 3.03 REDUCTION IN NUMBER. No reduction in the number of
directors shall have the effect of removing any director prior to the expiration
of his term in office.
SECTION 3.04 NOMINATION OF DIRECTORS. Except as otherwise fixed by
resolution of the Board of Directors pursuant to the Articles of Incorporation
relating to the authorization of the Board of Directors to provide by resolution
for the issuance of Preferred Stock and to determine the rights of the holders
of such Preferred Stock to elect directors, nominations for the election of
directors may be made by the Board of Directors, by a committee appointed by the
board of directors, or by any stockholder of record at the time of giving of
notice provided for herein. However, any stockholder entitled to vote in the
election of directors as provided herein may nominate one or more persons for
election as directors at a meeting only if written notice of such stockholder's
intent to make such nomination or nominations has been delivered to or mailed
and received by the secretary of the corporation not later than, (a) with
respect to an election to be held at an annual meeting of stockholders, 120
calendar days in advance of the first anniversary of the date the corporation's
proxy statement was released to security holders in connection with the
preceding year's annual meeting; PROVIDED, HOWEVER, that in the event that the
date of the annual meeting is changed by more than thirty (30) days from such
anniversary date, notice by the stockholder to be timely must be received not
later than the close of business on the tenth (10th) day following the earlier
of the day on which notice of the date of the meeting was mailed or public
disclosure was made, and (b) with respect to an election to be held at a special
meeting of stockholders for the election of directors, not earlier than the
close of business on the 90th day prior to such special meeting and not later
than the close of business on the later of the 60th day prior to such special
meeting or the tenth (10th) day following the day on which public disclosure is
first made of the date of the special meeting and the nominees proposed by the
board of directors to be elected at such a meeting. Notwithstanding any of the
foregoing to the contrary, in the event that the number of directors to be
elected by the Board of Directors of the corporation is increased and there is
no public disclosure by the corporation naming the nominees for director or
specifying the size of the increased Board of Directors at least seventy (70)
days prior to the first anniversary of the date of the preceding year's annual
meeting, a
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stockholder's notice required hereunder shall also be considered timely, but
only with respect to nominees for any new positions created by such increase, if
it shall be delivered to the secretary at the principal executive office of the
corporation not later than the close of business on the tenth (10th) day
following the earlier of day on which notice of the meeting is mailed or such
public disclosure is first made by the corporation. In no event shall the
public announcement of an adjournment of an annual or special meeting commence a
new time period for the giving of a stockholder's notice as describe above.
Each such notice shall set forth: (a) the name and address of the stockholder
who intends to make the nomination and of the person or persons to be nominated;
(b) a representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) the class and number of shares of the corporation which are
beneficially owned by such stockholder and also which are owned of record by
such stockholder; (d) as to the beneficial owner, if any, on whose behalf the
nomination is made, (i) the name and address of such person and (ii) the class
and number of shares of the corporation which are beneficially owned by such
person; (e) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (f) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had such
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (g) the written consent of each nominee to being named as nominee in the
proxy statement and to serving as a director of the corporation if so elected.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the secretary of the
corporation, that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. The presiding officer of the
meeting may refuse to acknowledge the nomination of any person not made in
compliance with the foregoing procedure. As used herein, "public disclosure"
shall have the meaning set forth in Section 2.12. No person shall be eligible
to serve as a director of the corporation unless nominated in accordance with
the procedures set forth in this Section 3.04. The presiding officer at the
meting shall, if the facts warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures prescribed by this
Section 3.04, and if he should so determine, he shall so declare to the meeting
and the defective nomination shall be disregarded. Notwithstanding the
foregoing provisions hereof, a stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and regulations thereunder with
respect to the matters set forth herein.
SECTION 3.05 VACANCIES; NEWLY CREATED DIRECTORSHIPS. Except as
otherwise fixed by resolution of the Board of Directors pursuant to the Articles
of Incorporation relating to the authorization of the Board of Directors to
provide by resolution for the issuance of Preferred Stock and to determine the
rights of the holders of such Preferred Stock to elect directors, any vacancies
on the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office, or other cause, and newly created
directorships resulting from any increase in the authorized number of directors,
may be filled only by a majority vote of the directors then in office, though
less than a quorum, or by a sole remaining director, and the director(s) so
chosen shall hold office (i) in the case of the replacement of a director,
during the
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remainder of the term of office of the replaced director and (ii) in the case of
an increase in the number of directors, until the next annual meeting of
stockholders at which directors are elected, unless sooner displaced.
SECTION 3.06. REMOVAL OF DIRECTORS. Subject to any rights of the holders
of Preferred Stock, any director may be removed from office by the affirmative
vote of the holders of at least two-thirds (2/3rds) of the voting power of all
shares of the corporation entitled to vote generally in the election of
directors (voting as a single class).
SECTION 3.07 ANNUAL AND REGULAR MEETINGS. Immediately following the
adjournment of, and at the same place as, the annual or any special meeting of
the stockholders at which directors are elected other than pursuant to Section
3.06 of this Article, the Board of Directors, including directors newly elected,
shall hold its annual meeting without notice, other than this provision, to
elect officers and to transact such further business as may be necessary or
appropriate. The Board of Directors may provide by resolution the place, date,
and hour for holding regular meetings between annual meetings.
SECTION 3.08 SPECIAL MEETINGS. Except as otherwise required by law, and
subject to the rights, if any, of the holders of Preferred Stock, special
meetings of the Board of Directors may be called by the chairman, or if there be
no chairman, by the president or secretary and shall be called by the chairman,
the president or the secretary upon the request of any two (2) directors. If
the chairman, or if there be no chairman both the president and secretary,
refuses or neglects to call such special meeting, a special meeting may be
called by notice signed by any two (2) directors.
SECTION 3.09 PLACE OF MEETINGS. Any regular or special meeting of the
directors of the corporation may be held at such place as the Board of
Directors, or in the absence of such designation, as the notice calling such
meeting, may designate. A waiver of notice signed by directors may designate
any place for the holding of such meeting.
SECTION 3.10 NOTICE OF MEETINGS. Except as otherwise provided in
Section 3.07, there shall be delivered to all directors, at least forty-eight
(48) hours before the time of such meeting, a copy of a written notice of any
meeting by delivery of such notice personally by mailing such notice postage
prepaid or by telegram. Such notice shall be addressed in the manner provided
for notice to stockholders in Section 2.04(c). If mailed, the notice shall be
deemed delivered two (2) business days following the date the same is deposited
in the United States mail, postage prepaid. Any director may waive notice of
any meeting, and the attendance of a director at a meeting and oral consent
entered on the minutes of the meeting or taking part in deliberations of the
meeting without objection shall constitute a waiver of notice of such meeting.
Attendance for the express purpose of objecting to the transaction of business
thereat because the meeting is not properly called or convened shall not
constitute presence nor a waiver of notice for purposes hereof.
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SECTION 3.11 QUORUM; ADJOURNED MEETINGS.
(a) A majority of the directors in office, at a meeting duly
assembled, is necessary to constitute a quorum for the transaction of business.
(b) At any meeting of the Board of Directors where a quorum is
not present, a majority of those present may adjourn, from time to time, until a
quorum is present, and no notice of such adjournment shall be required. At any
adjourned meeting where a quorum is present, any business may be transacted
which could have been transacted at the meeting originally called.
SECTION 3.12 BOARD OF DIRECTORS' DECISIONS. The affirmative vote of a
majority of the directors present at a meeting at which a quorum is present is
the act of the Board of Directors.
SECTION 3.13 TELEPHONIC MEETINGS. Members of the Board of Directors or
of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or committee by means of a telephone
conference or similar method of communication by which all persons participating
in such meeting can hear each other. Participation in a meeting pursuant to
this Section 3.13 constitutes presence in person at the meeting.
SECTION 3.14 ACTION WITHOUT MEETING. Any action required or permitted
to be taken at a meeting of the Board of Directors or of a committee thereof may
be taken without a meeting if, before or after the action, a written consent
thereto is signed by all of the members of the Board of Directors or the
committee. The written consent may be signed in counterparts and must be filed
with the minutes of the proceedings of the Board of Directors or committee.
SECTION 3.15 POWERS AND DUTIES.
(a) Except as otherwise restricted in the laws of the State of
Nevada or the Articles of Incorporation, the Board of Directors has full control
over the affairs of the corporation. The Board of Directors may delegate any of
its authority to manage, control or conduct the business of the corporation to
any standing or special committee, as more fully set forth in Article V of these
Bylaws, or to any officer or agent and to appoint any persons to be agents of
the corporation with such powers, including the power to subdelegate, and upon
such terms as may be deemed fit.
(b) The Board of Directors may present to the stockholders at
annual meetings of the stockholders, and when called for by a majority vote of
the stockholders at an annual meeting or, subject to Section 2.12, a special
meeting of the stockholders shall so present, a full and clear report of the
condition of the corporation.
(c) The Board of Directors, in its discretion, or the officer
of the corporation presiding at a meeting of stockholders, in his discretion,
may require that any votes cast at such meeting shall be cast by written ballot
and may submit any contract or act for approval or
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ratification at any annual meeting of the stockholders or any special meeting
properly called for the purpose of considering any such contract or act,
provided a quorum is present.
SECTION 3.16. COMPENSATION. The directors shall be paid their expenses of
attendance at each meeting of the board of directors and any applicable
committee and may be paid a fixed fee for attendance at each meeting of the
board of directors and any applicable committee or a stated salary as director
and member of an applicable committee. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor.
SECTION 3.17 BOARD OF DIRECTORS' OFFICERS.
(a) At its annual meeting, the Board of Directors shall elect,
from among its members, a chairman who shall preside at meetings of the Board of
Directors and the stockholders. The Board of Directors may also elect such
other officers of the Board of Directors and for such term as it may, from time
to time, determine advisable.
(b) Any vacancy in any office of the Board of Directors because
of death, resignation, removal or otherwise may be filled by the Board of
Directors for the unexpired portion of the term of such office.
SECTION 3.18 ORDER OF BUSINESS. The order of business at any meeting of
the Board of Directors shall be as follows:
1. Determination of members present and existence of quorum;
2. Reading and approval of the minutes of any previous meeting
or meetings;
3. Reports of officers and committeemen;
4. Election of officers (annual meeting);
5. Unfinished business;
6. New business;
7. Adjournment.
ARTICLE IV
COMMITTEES
SECTION 4.01 STANDING COMMITTEES. The Board of Directors shall
designate an audit committee and a compensation committee, each committee to
consist of two or more directors to serve at the pleasure of the Board. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or
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members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the board of directors to act at the meeting in the place of any such absent or
disqualified member. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required
(a) AUDIT COMMITTEE. The audit committee will review the
annual audits of the corporation's independent public accountants, review and
evaluate internal accounting controls, recommend the selection of the
corporation's independent public accountants, review and pass upon (or ratify)
related party transactions, and conduct such reviews and examinations as it
deems necessary with respect to the practices and policies of, and the
relationship between, the corporation and its independent public accountants.
(b) COMPENSATION COMMITTEE. The Compensation Committee will
review salaries, bonuses and stock options of senior officers of the corporation
and administer the corporation's executive compensation policies and stock
option plan.
SECTION 4.02 SPECIAL COMMITTEES. In addition to the standing committees
provided in Section 4.01 above, the Board of Directors may, by resolution passed
by a majority of the whole board, designate one or more special committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of a committee, the
member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Such committee or committees shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors. The committees shall keep regular minutes of their
proceedings and report the same to the Board when required. Subject to
applicable law and to the extent provided in the resolution of the Board of
Directors, any committee designated hereunder shall have and may exercise all
the powers of the Board of Directors, except with respect to: (i) the approval
of any action which, under Chapter 78 of the Nevada Revised Statutes, also
requires the approval of the full Board of Directors, or the stockholders of the
outstanding shares; (ii) the filling of vacancies on the Board of Directors or
in any committee; (iii) the amendment or repeal of bylaws or the adoption of
new bylaws; (iv) the amendment or repeal of any resolution of the Board of
Directors which by its express terms is not so amendable or repealable; (v) a
distribution to the stockholders of the corporation, except at a rate or in a
periodic amount or within a price range determined by the Board of Directors; or
(vi) the appointment of any other committees of the Board of Directors or the
members thereof.
SECTION 4.03 MEETINGS AND ACTIONS OF COMMITTEES. Meetings and actions
of committees shall be governed by, and held and taken in accordance with
Sections 3.07 (annual and regular meetings), 3.08 (special meetings), 3.09
(place of meetings). 3.10 (notice of meetings), 3.11 (quorum and adjourned
meetings), 3.13 (telephonic meetings), and 3.13 (action without a meeting) of
these Bylaws, with such changes in the context of those bylaws as are necessary
to substitute the committee and its members for the Board of Directors, and
notice of
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special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The Board of
Directors may adopt rules for the government of any committee not inconsistent
with the provisions of these Bylaws.
ARTICLE V
OFFICERS
SECTION 5.01 ELECTION. The Board of Directors, at its annual meeting,
shall elect a president, a secretary and a treasurer to hold office for a term
of one (1) year or until their successors are chosen and qualify. Any
individual may hold two or more offices. The Board of Directors may, from time
to time, by resolution, elect one or more vice-presidents, assistant
secretaries, assistant treasurers or other officers, and appoint agents of the
corporation, prescribe their duties and fix their compensation.
SECTION 5.02 REMOVAL; RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by it with or without cause.
Any officer may resign at any time upon written notice to the corporation. Any
such removal or resignation shall be subject to the rights, if any, of the
respective parties under any contract between the corporation and such officer
or agent.
SECTION 5.03 VACANCIES. Any vacancy in any office because of death,
resignation, removal or otherwise may be filled by the Board of Directors for
the unexpired portion of the term of such office.
SECTION 5.04 CHAIRMAN OF THE BOARD. The chairman shall be the chief
executive officer of the corporation and shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and affairs of the corporation and shall preside at meetings of the
stockholders and the Board of Directors.
SECTION 5.05 PRESIDENT.
(a) The president shall be the chief operations officer of the
corporation, subject to the supervision and control of the Board of Directors,
and shall direct the corporate affairs, with full power to execute all
resolutions and orders of the Board of Directors not expressly delegated to some
other officer or agent of the corporation. If the chairman of the Board of
Directors elects not to preside or is absent, the president shall preside at
meetings of the stockholders and Board of Directors and perform such other
duties as shall be prescribed by the Board of Directors.
(b) The president shall have full power and authority on behalf
of the corporation to attend and to act and to vote, or designate such other
officer or agent of the corporation to attend and to act and to vote, at any
meetings of the stockholders of any corporation in which the corporation may
hold stock and, at any such meetings, shall possess and may exercise any and all
rights and powers incident to the ownership of such stock. The Board
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of Directors, by resolution from time to time, may confer like powers on any
person or persons in place of the president to exercise such powers for these
purposes.
SECTION 5.06 VICE-PRESIDENTS. The Board of Directors may elect one or
more vice-presidents who shall be vested with all the powers and perform all the
duties of the president whenever the president is absent or unable to act and
such other duties as shall be prescribed by the Board of Directors or the
president.
SECTION 5.07 SECRETARY. The secretary shall keep, or cause to be kept,
the minutes of proceedings of the stockholders and the Board of Directors in
books provided for that purpose. The secretary shall attend to the giving and
service of all notices of the corporation, may sign with the president in the
name of the corporation all contracts in which the corporation is authorized to
enter, shall have the custody or designate control of the corporate seal, shall
affix the corporate seal to all certificates of stock duly issued by the
corporation, shall have charge or designate control of stock certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors or appropriate committee may direct, and shall, in general, perform
all duties incident to the office of the secretary.
SECTION 5.08 ASSISTANT SECRETARIES. The Board of Directors may appoint
one or more assistant secretaries who shall have such powers and perform such
duties as may be prescribed by the Board of Directors or the secretary.
SECTION 5.09 TREASURER. The treasurer shall be the chief financial
officer of the corporation, subject to the supervision and control of the Board
of Directors, and shall have custody of all the funds and securities of the
corporation. When necessary or proper, the treasurer shall endorse on behalf of
the corporation for collection checks, notes, and other obligations, and shall
deposit all moneys to the credit of the corporation in such bank or banks or
other depository as the Board of Directors may designate, and shall sign all
receipts and vouchers for payments made by the corporation. Unless otherwise
specified by the Board of Directors, the treasurer may sign with the president
all bills of exchange and promissory notes of the corporation, shall also have
the care and custody of the stocks, bonds, certificates, vouchers, evidence of
debts, securities, and such other property belonging to the corporation as the
Board of Directors shall designate, and shall sign all papers required by law,
by these Bylaws, or by the Board of Directors to be signed by the treasurer.
The treasurer shall enter, or cause to be entered, regularly in the financial
records of the corporation, to be kept for that purpose, full and accurate
accounts of all moneys received and paid on account of the corporation and,
whenever required by the Board of Directors, the treasurer shall render a
statement of any or all accounts. The treasurer shall at all reasonable times
exhibit the books of account to any director of the corporation and shall
perform all acts incident to the position of treasurer subject to the control of
the Board of Directors.
The treasurer shall, if required by the Board of Directors, give bond to
the corporation in such sum and with such security as shall be approved by the
Board of Directors for the faithful performance of all the duties of treasurer
and for restoration to the corporation, in the event of the treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
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vouchers, money and other property in the treasurer's custody or control and
belonging to the corporation. The expense of such bond shall be borne by the
corporation.
SECTION 5.10 ASSISTANT TREASURERS. The Board of Directors may appoint
one or more assistant treasurers who shall have such powers and perform such
duties as may be prescribed by the Board of Directors or the treasurer. The
Board of Directors may require an assistant treasurer to give a bond to the
corporation in such sum and with such security as it may approve, for the
faithful performance of the duties of assistant treasurer, and for restoration
to the corporation, in the event of the assistant treasurer's death,
resignation, retirement or removal from office, of all books, records, papers,
vouchers, money and other property in the assistant treasurer's custody or
control and belonging to the corporation. The expense of such bond shall be
borne by the corporation.
ARTICLE VI
CAPITAL STOCK
SECTION 6.01 ISSUANCE. Shares of the corporation's authorized stock
shall, subject to any provisions or limitations of the laws of the State of
Nevada, the Articles of Incorporation or any contracts or agreements to which
the corporation may be a party, be issued in such manner, at such times, upon
such conditions and for such consideration as shall be prescribed by the Board
of Directors.
SECTION 6.02 CERTIFICATES. Ownership in the corporation shall be
evidenced by certificates for shares of stock in such form as shall be
prescribed by the Board of Directors, shall be under the seal of the corporation
and shall be manually signed by the president or a vice-president and also by
the secretary or an assistant secretary; provided, however, whenever any
certificate is countersigned or otherwise authenticated by a transfer agent or
transfer clerk, and by a registrar, then a facsimile of the signatures of said
officers may be printed or lithographed upon the certificate in lieu of the
actual signatures. If the Corporation uses facsimile signatures of its officers
on its stock certificates, it shall not act as registrar of its own stock, but
its transfer agent and registrar may be identical if the institution acting in
those dual capacities countersigns any stock certificates in both capacities.
Each certificate shall contain the name of the record holder, the number,
designation, if any, class or series of shares represented, a statement or
summary of any applicable rights, preferences, privileges or restrictions
thereon, and a statement, if applicable, that the shares are assessable. All
certificates shall be consecutively numbered. If provided by the stockholder,
the name, address and federal tax identification number of the stockholder, the
number of shares, and the date of issue shall be entered in the stock transfer
records of the corporation.
SECTION 6.03 SURRENDERED; LOST OR DESTROYED CERTIFICATES. All
certificates surrendered to the corporation, except those representing shares of
treasury stock, shall be canceled and no new certificate shall be issued until
the former certificate for a like number of shares shall have been canceled,
except that in case of a lost, stolen, destroyed or mutilated certificate, a new
one may be issued therefor. However, any stockholder applying for the issuance
of a stock certificate in lieu of one alleged to have been lost, stolen,
destroyed or
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mutilated shall, prior to the issuance of a replacement, provide the corporation
with his, her or its affidavit of the facts surrounding the loss, theft,
destruction or mutilation and, if required by the Board of Directors, an
indemnity bond in an amount not less than twice the current market value of the
stock, and upon such terms as the treasurer or the Board of Directors shall
require which shall indemnify the corporation against any loss, damage, cost or
inconvenience arising as a consequence of the issuance of a replacement
certificate.
SECTION 6.04 REPLACEMENT CERTIFICATE. When the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares of capital stock of the corporation or it
becomes desirable for any reason, in the discretion of the Board of Directors,
including, without limitation, the merger of the corporation with another
corporation or the reorganization of the corporation, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board of Directors may order any holders of
outstanding certificates for shares to surrender and exchange the same for new
certificates within a reasonable time to be fixed by the Board of Directors.
The order may provide that a holder of any certificate(s) ordered to be
surrendered shall not be entitled to vote, receive distributions or exercise any
other rights of stockholders of record until the holder has complied with the
order, but the order operates to suspend such rights only after notice and until
compliance.
SECTION 6.05 TRANSFER OF SHARES. Upon surrender to the corporation, or
the transfer agent of the corporation, of a certificate or shares duly endorsed
or accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and the record the
transaction upon its books.
SECTION 6.06 TRANSFER AGENT; REGISTRARS. The Board of Directors may
appoint one or more transfer agents, transfer clerk and registrars of transfer
and may require all certificates for shares of stock to bear the signature of
such transfer agent, transfer clerk and/or registrar of transfer.
SECTION 6.07 STOCK TRANSFER RECORDS. The stock transfer records shall
be closed for a period of at least ten (10) days prior to all meetings of the
stockholders and shall be closed for the payment of distributions as provided in
Article VII hereof and during such periods as, from time to time, may be fixed
by the Board of Directors, and, during such periods, no stock shall be
transferable for purposes of Article VII and no voting rights shall be deemed
transferred during such periods. Subject to the forgoing limitations, nothing
contained herein shall cause transfers during such periods to be void or
voidable.
SECTION 6.08 MISCELLANEOUS. The Board of Directors shall have the power
and authority to make such rules and regulations not inconsistent herewith as it
may deem expedient concerning the issue, transfer, and registration of
certificates for shares of the corporation's stock.
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ARTICLE VII
DISTRIBUTIONS
SECTION 7.01 Distributions may be declared, subject to the provisions of
the laws of the State of Nevada and the Articles of Incorporation, by the Board
of Directors at any regular or special meeting and may be paid in cash,
property, shares of corporate stock, or any other medium. The Board of
Directors may fix in advance a record date, as provided in Section 2.06, prior
to the distribution for the purpose of determining stockholders entitled to
receive any distribution. The Board of Directors may close the stock transfer
books for such purpose for a period of not more than ten (10) days prior to the
date of such distribution.
ARTICLE VIII
RECORDS; REPORTS; SEAL; AND FINANCIAL MATTERS
SECTION 8.01 RECORDS. All original records of the corporation, shall be
kept by or under the direction of the secretary or at such places as may be
prescribed by the Board of Directors.
SECTION 8.02 DIRECTORS' AND OFFICERS' RIGHT OF INSPECTION. Every
director and officer shall have the absolute right at any reasonable time for a
purpose reasonably related to the exercise of such individual's duties to
inspect and copy all of the corporation's books, records, and documents of every
kind and to inspect the physical properties of the corporation and/or its
subsidiary corporations. Such inspection may be made in person or by agent or
attorney.
SECTION 8.03 CORPORATE SEAL. The Board of Directors may, by resolution,
authorize a seal, and the seal may be used by causing it, or a facsimile, to be
impressed or affixed or reproduced or otherwise. Except when otherwise
specifically provided herein, any officer of the corporation shall have the
authority to affix the seal to any document requiring it.
SECTION 8.04 FISCAL YEAR-END. The fiscal year-end of the corporation
shall be such date as may be fixed from time to time by resolution of the Board
of Directors.
SECTION 8.05 RESERVES. The Board of Directors may create, by
resolution, such reserves as the directors may, from time to time, in their
discretion, think proper to provide for contingencies, or to equalize
distributions or to repair or maintain any property of the corporation, or for
such other purpose as the Board of Directors may deem beneficial to the
corporation, and the directors may modify or abolish any such reserves in the
manner in which they were created.
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ARTICLE IX
INDEMNIFICATION
SECTION 9.01 INDEMNIFICATION AND INSURANCE.
(a) INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(i) For purposes of this Article, (A) "Indemnitee" shall
mean each director or officer who was or is a party to, or is threatened to be
made a party to, or is otherwise involved in, any Proceeding (as hereinafter
defined), by reason of the fact that he or she is or was a director or officer
of the corporation or is or was serving in any capacity at the request of the
corporation as a director, officer, employee, agent, partner, or fiduciary of,
or in any other capacity for, another corporation or any partnership, joint
venture, trust, or other enterprise; and (B) "Proceeding" shall mean any
threatened, pending, or completed action, or suit (including without limitation
an action, suit or proceeding by or in the right of the corporation), whether
civil, criminal, administrative, or investigative.
(ii) Each Indemnitee shall be indemnified and held
harmless by the corporation for all actions taken by him or her and for all
omissions (regardless of the date of any such action or omission), to the
fullest extent permitted by Nevada law, against all expense, liability and loss
(including without limitation attorneys' fees, judgments, fines, taxes,
penalties, and amounts paid or to be paid in settlement) reasonably incurred or
suffered by the Indemnitee in connection with any Proceeding.
(iii) Indemnification pursuant to this Section shall
continue as to an Indemnitee who has ceased to be a director or officer and
shall inure to the benefit of his or her heirs, executors and administrators.
(b) INDEMNIFICATION OF EMPLOYEES AND OTHER PERSONS.
The corporation may, by action of its Board of Directors
and to the extent provided in such action, indemnify employees and other persons
as though they were Indemnitees.
(c) NON-EXCLUSIVITY OF RIGHTS.
The rights to indemnification provided in this Article
shall not be exclusive of any other rights that any person may have or hereafter
acquire under any statute, provision of the corporation's Articles of
Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise.
(d) INSURANCE.
The corporation may purchase and maintain insurance or make
other financial arrangements on behalf of any person who is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director,
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officer, employee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise for any liability asserted against him or her and
liability and expenses incurred by him or her in his or her capacity as a
director, officer, employee or agent, or arising out of his or her status as
such, whether or not the corporation has the authority to indemnify him or her
against such liability and expenses.
(e) OTHER FINANCIAL ARRANGEMENTS.
The other financial arrangements which may be made by the
corporation may include the following (i) the creation of a trust fund; (ii) the
establishment of a program of self-insurance; (iii) the securing of its
obligation of indemnification by granting a security interest or other lien on
any assets of the corporation; (iv) the establishment of a letter of credit,
guarantee or surety. No financial arrangement made pursuant to this subsection
may provide protection for a person adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable for
intentional misconduct, fraud, or a knowing violation of law, except with
respect to advancement of expenses or indemnification ordered by a court.
(f) OTHER MATTERS RELATING TO INSURANCE OR FINANCIAL
ARRANGEMENTS.
Any insurance or other financial arrangement made on behalf
of a person pursuant to this section may be provided by the corporation or any
other person approved by the Board of Directors, even if all or part of the
other person's stock or other securities is owned by the corporation. In the
absence of fraud:
(i) the decision of the Board of Directors as to the
propriety of the terms and conditions of any insurance or other financial
arrangement made pursuant to this section and the choice of the person to
provide the insurance or other financial arrangement is conclusive; and
(ii) the insurance or other financial arrangement:
(A) is not void or voidable; and
(B) does not subject any director
approving it to personal liability for his
action,
even if a director approving the insurance or other financial arrangement is a
beneficiary of the insurance or other financial arrangement.
SECTION 9.02 AMENDMENT. The provisions of this Article IX relating to
indemnification shall constitute a contract between the corporation and each of
its directors and officers which may be modified as to any director or officer
only with that person's consent or as specifically provided in this Section.
Notwithstanding any other provision of these Bylaws relating to their amendment
generally (including, without limitation, Article X below), any repeal or
amendment of this Article IX which is adverse to any director or officer shall
apply to such director or officer
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only on a prospective basis, and shall not limit the rights of an Indemnitee to
indemnification with respect to any action or failure to act occurring prior to
the time of such repeal or amendment. Notwithstanding any other provision of
these Bylaws, no repeal or amendment of these Bylaws shall affect any or all of
this Article IX so as to limit or reduce the indemnification in any manner
unless adopted by (a) the unanimous vote of the directors of the corporation
then serving, or (b) by the stockholders as set forth in Article X hereof;
provided that no such amendment shall have a retroactive effect inconsistent
with the preceding sentence.
ARTICLE X
AMENDMENT OR REPEAL
SECTION 10.01 AMENDMENT OF BYLAWS. These Bylaws or any provision hereof
may be amended, altered, or repealed (a) by the Board of Directors at an annual
meeting thereof without prior notice or at any special meeting thereof if notice
of such proposed amendment, alteration or repeal is contained in the notice of
such special meeting or (b) by the affirmative vote of at least sixty-six and
two thirds percent (66-2/3%) of the voting power of all the then outstanding
shares of capital stock entitled to vote at any meeting of the stockholders at
which a quorum is present, if notice of such proposed amendment, alteration or
repeal is contained in the notice of such meeting.
SECTION 10.02 ADDITIONAL BYLAWS. Additional bylaws not inconsistent
herewith may be adopted by the Board of Directors. Any bylaws so adopted shall
be subject to alteration, amendment or repeal by the stockholders in accordance
with Section 10.01 of these Bylaws.
ARTICLE XI
CHANGES IN NEVADA LAW
SECTION 11.01 CHANGES IN NEVADA LAW. References in these Bylaws to
Nevada law or to any provision thereof shall be to such law as it existed on the
date these Bylaws were adopted or as such law thereafter may be changed;
provided that (a) in the case of any change which expands the liability of
directors or officers or limits the indemnification rights or the rights to
advancement of expenses which the corporation may provide in Article IX hereof,
the rights to limited liability, to indemnification and to the advancement of
expenses provided in the corporation's Articles of Incorporation and/or these
Bylaws shall continue as theretofore to the extent permitted by law; and (b) if
such change permits the corporation, without the requirement of any further
action by stockholders or directors, to limit further the liability of directors
or officers or to provide broader indemnification rights or rights to the
advancement of expenses than the corporation was permitted to provide prior to
such change, then liability thereupon shall be so limited and the rights to
indemnification and the advancement of expenses shall be so broadened to the
extent permitted by law.
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EXHIBIT C
FORM OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
LTC HEALTHCARE, INC.
Pursuant to the provisions of Nevada Revised Statutes ("NRS") Section
78.403, the Articles of Incorporation of the above-referenced corporation are
hereby amended and restated as follows:
ARTICLE I
NAME
The name of the corporation shall be LTC Healthcare, Inc. (the
"Corporation").
ARTICLE II
CAPITAL STOCK
Section 1. AUTHORIZED SHARES. The total number of shares of
stock which the Corporation shall have authority to issue is fifty million
(50,000,000) shares, consisting of two classes to be designated, respectively,
"Common Stock" and "Preferred Stock," with all of such shares having a par value
of $.01 per share. The total number of shares of Common Stock which the
Corporation shall have authority to issue is forty million (40,000,000) shares.
The total number of shares of Preferred Stock which the Corporation shall have
authority to issue is ten million (10,000,000) shares. The Preferred Stock may
be issued in one or more series, each series to be appropriately designated by a
distinguishing letter or title, prior to the issue of any shares thereof. The
voting powers, designations, preferences, limitations, restrictions, and
relative, participating, optional and other rights, and the qualifications,
limitations, or restrictions thereof, of the Preferred Stock shall hereinafter
be prescribed by resolution of the Board of Directors pursuant to Section 3 of
this Article II.
Section 2. COMMON STOCK.
(a) DIVIDEND RATE. Subject to the rights of holders of
any Preferred Stock having preference as to dividends, the holders of Common
Stock shall be entitled to receive dividends when, as and if declared by the
Board of Directors out of assets legally available therefor.
(b) VOTING RIGHTS. The holders of the issued and
outstanding shares of Common Stock shall be entitled to one vote for each share
of Common Stock.
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(c) LIQUIDATION RIGHTS. In the event of liquidation,
dissolution, or winding up of the affairs of the Corporation, whether voluntary
or involuntary, subject to the prior rights of holders of Preferred Stock to
share ratably in the Corporation's assets, the Common Stock and any shares of
Preferred Stock which are not entitled to any preference in liquidation shall
share equally and ratably in the Corporation's assets available for distribution
after giving effect to any liquidation preference of any shares of Preferred
Stock.
(d) NO CUMULATIVE VOTING, CONVERSION, REDEMPTION, OR
PREEMPTIVE RIGHTS. The holders of Common Stock shall not have any cumulative
voting, conversion, redemption, or preemptive rights.
(e) CONSIDERATION FOR SHARES. The Common Stock
authorized by this Article shall be issued for such consideration as shall be
fixed, from time to time, by the Board of Directors.
Section 3. PREFERRED STOCK.
(a) CONSIDERATION. The Board of Directors is hereby
vested with the authority from time to time to provide by resolution for the
issuance of shares of Preferred Stock in one or more series not exceeding the
aggregate number of shares of Preferred Stock authorized by these Amended and
Restated Articles of Incorporation, as amended from time to time (hereinafter,
the "Articles"), and to determine with respect to each such series the voting
powers, if any (which voting powers if granted may be full or limited),
designations, preferences, and relative, participating, optional, or other
special rights, and the qualifications, limitations, or restrictions relating
thereto, including without limiting the generality of the foregoing, the voting
rights relating to shares of Preferred Stock of any series (which may vary over
time and which may be applicable generally only upon the happening and
continuance of stated facts or events or ascertained outside the Articles), the
rate of dividend to which holders of Preferred Stock of any series may be
entitled (which may be cumulative or noncumulative), the rights of holders of
Preferred Stock of any series in the event of liquidation, dissolution, or
winding up of the affairs of the Corporation, the rights, if any, of holders of
Preferred Stock of any series to convert or exchange such shares of Preferred
Stock of such series for shares of any other class or series of capital stock or
for any other securities, property, or assets of the Corporation or any
subsidiary (including the determination of the price or prices or the rate or
rates applicable to such rights to convert or exchange and the adjustment
thereof, the time or times during which the right to convert or exchange shall
be applicable, and the time or times during which a particular price or rate
shall be applicable).
(b) CERTIFICATE. Before the Corporation shall issue any
shares of Preferred Stock of any series, a certificate setting forth a copy of
the resolution or resolutions of the Board of Directors, fixing the voting
powers, designations, preferences, the relative, participating, optional, or
other rights, if any, and the qualifications, limitations, and restrictions, if
any, relating to the shares of Preferred Stock of such series, and the number of
shares of Preferred Stock of such series authorized by the Board of Directors to
be issued shall be made and signed by, acknowledged and filed in the manner
prescribed by the NRS. The Board of
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Directors is further authorized to increase or decrease (but not below the
number of such shares of such series then outstanding) the number of shares of
any series subsequent to the issuance of shares of that series.
Section 4. NON-ASSESSMENT OF STOCK. The capital stock of the
Corporation, after the amount of the subscription price has been paid in money,
property or services, as the directors shall determine, shall not be subject to
assessment to pay the debts of the Corporation, nor for any other purpose, and
no stock issued as fully paid shall ever be assessable or assessed, and the
Articles shall not be amended in this particular. No stockholder of the
Corporation is individually liable for the debts or liabilities of the
Corporation.
ARTICLE III
STOCKHOLDERS
Section 1. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings
of stockholders of the Corporation for any purpose or purposes may be called
only in the manner provided in the Bylaws.
Section 2. ACTION OF STOCKHOLDERS. No action shall be taken by
the stockholders except at a duly called annual or special meeting of
stockholders. The stockholders may not take action by written consent.
ARTICLE IV
DIRECTORS AND OFFICERS
Section 1. NUMBER OF DIRECTORS. The members of the governing
board of the Corporation are styled as directors. The Board of Directors of the
Corporation shall consist of at least one (1) individual who shall be elected in
such manner as shall be provided in the Bylaws of the Corporation. The number
of directors may be changed from time to time in such manner as shall be
provided in the Bylaws of the Corporation.
Section 2. CURRENT DIRECTORS. The names and post office boxes
or street addresses of each of the four (4) directors constituting the current
Board of Directors are:
NAME ADDRESS
Andre C. Dimitriadis 300 Esplanade Drive, Suite 1860
Oxnard, CA 93030
James J. Pieczynski 300 Esplanade Drive, Suite 1860
Oxnard, CA 93030
Steven Stuart 31 West 52nd Street
New York, NY 10019
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Bary G. Bailey 12225 El Camino Real
San Diego, CA 92130
Section 3. STOCKHOLDER NOMINATION OF DIRECTOR CANDIDATES.
Advance notice of nominations for the election of directors, other than by the
Board of Directors or a duly authorized committee thereof or any authorized
officer of the Corporation to whom the Board of Directors or such committee
shall have delegated such authority, and information concerning nominees, shall
be given in the manner provided in the Bylaws.
Section 4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except
as otherwise fixed pursuant to the provisions of Article II hereof relating to
the rights of the holders of Preferred Stock, newly created directorships
resulting from any increase in the authorized number of directors and any
vacancies on the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause shall be filled
by a majority vote of the directors then in office, and directors so chosen
shall hold office for a term expiring at the next annual meeting of stockholders
at which the term of the class to which they have been elected expires. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.
Section 5. LIMITATION OF PERSONAL LIABILITY. No director or
officer of the Corporation shall be personally liable to the Corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer;
PROVIDED, HOWEVER, that the foregoing provision does not eliminate or limit the
liability of a director or officer of the Corporation for:
(a) Acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law; or
(b) The payment of distributions in violation of NRS
78.300.
Section 6. PAYMENT OF EXPENSES. In addition to any other
rights of indemnification permitted by the laws of the State of Nevada as may be
provided for by the Corporation in its Bylaws or by agreement, the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding, involving alleged acts or omissions of such officer or director in
his or her capacity as an officer or director of the Corporation, must be paid
by the Corporation or through insurance purchased and maintained by the
Corporation or through other financial arrangements made by the Corporation, as
they are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he or she is not entitled to be indemnified by the
Corporation.
Section 7. REPEAL AND CONFLICTS. Any repeal or modification of
Sections 5 or 6 above approved by the stockholders of the Corporation shall be
prospective only. In the event of any conflict between Sections 5 or 6 of this
Article and any other Article of the Articles, the terms and provisions of
Sections 5 or 6 of this Article shall control.
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ARTICLE V
VOTING ON CERTAIN TRANSACTIONS
Section 1. MERGER, SALE. The affirmative vote of the holders
of sixty-six and two-thirds percent (66-2/3%) of the outstanding stock of the
Corporation entitled to vote shall be required for:
(a) Any merger, exchange or consolidation to which the
Corporation is a party and which requires stockholder approval under the NRS;
and
(b) Any sale or other disposition by the Corporation of
all or substantially all of its assets.
Section 2. AMENDMENT OF ARTICLES. The Corporation reserves the
right to amend, alter, change or repeal any provision contained in the Articles,
in the manner now or hereafter prescribed by the NRS, and all rights conferred
on stockholders herein are granted subject to this reservation; PROVIDED,
HOWEVER, that no amendment, alteration, change or repeal may be made to: (i)
Section 2 of Article III or (ii) this Article V without the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66-2/3%) of the
outstanding voting stock of the Corporation, voting together as a single class.
Section 3. AMENDMENT OF BYLAWS.
(a) BOARD OF DIRECTORS. In furtherance and not in
limitation of the powers conferred by statute, the Board of Directors is
expressly authorized to adopt, repeal, alter, amend and rescind the Bylaws of
the Corporation.
(b) STOCKHOLDERS. Notwithstanding Section 3(a) of this
Article V, the Bylaws may be rescinded, altered, amended or repealed in any
respect by the affirmative vote of the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the outstanding voting stock of the Corporation,
voting together as a single class.
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EXHIBIT D
HEALTHCARE EMPLOYEES
None.
<PAGE>
EXHIBIT E
FORM OF TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (the "Agreement"), dated as of _______ __,
1998, between LTC Properties, Inc., a Maryland corporation ("LTC"), and LTC
Healthcare, Inc., a Nevada corporation ("Healthcare").
WHEREAS, LTC is the parent corporation of an affiliated group of
corporations that join in filing consolidated federal Income Tax Returns and
certain consolidated, combined or unitary state Income Tax Returns;
WHEREAS, pursuant to the Distribution Agreement (as
hereinafter defined), LTC presently intends to distribute all of the common
stock, $.01 par value per share, of Healthcare to its stockholders (the
"Distribution"); and
WHEREAS, LTC and Healthcare desire on behalf of themselves, their
subsidiaries and their successors to set forth their respective rights and
obligations with respect to Taxes (as hereinafter defined).
NOW THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
1. DEFINITIONS.
When used herein the following terms shall have the following
meanings:
"AGREEMENT" -- shall have the meaning set forth in the introductory
paragraph hereof.
"CLOSING DATE" -- the date the Distribution is consummated pursuant to
the terms of the Distribution Agreement.
"CODE" -- the Internal Revenue Code of 1986, as amended, or any
successor thereto, as in effect for the taxable year in question.
"DISTRIBUTION" -- shall have the meaning set forth in the recitals
hereof.
"DISTRIBUTION AGREEMENT" -- the Distribution Agreement dated as of
_______ __, 1998 between LTC and Healthcare.
"HEALTHCARE" -- shall have the meaning set forth in the introductory
paragraph hereof.
<PAGE>
"HEALTHCARE ASSETS" -- the retail properties and other assets
(together with any related liabilities) distributed to Healthcare pursuant to
the Distribution Agreement.
"HEALTHCARE GROUP" -- Healthcare and each corporation filing a
consolidated federal Income Tax Return with Healthcare as the parent
corporation.
"INCOME TAX(ES)" -- with respect to any corporation or group of
corporations, any and all Taxes to the extent based upon or measured by net
income (regardless of whether denominated as an "income tax," a "franchise tax"
or otherwise), imposed by any Taxing Authority, together with any related
interest, penalties or other additions thereto.
"IRS" -- the U.S. Internal Revenue Service.
"LTC" -- shall have the meaning set forth in the introductory
paragraph hereof.
"LTC ASSETS" -- the properties and other assets (together with any
related liabilities) retained by LTC pursuant to the Distribution Agreement.
"LTC GROUP" -- for any taxable year or period, LTC and each
corporation filing a consolidated federal Income Tax Return with LTC as the
parent corporation.
"OTHER TAXES" -- Taxes other than Income Taxes.
"OVERDUE RATE" -- a rate of interest per annum that fluctuates with
the federal short-term rate established from time to time pursuant to Code
Section 6621(b).
"TAX(ES)" -- any net income, gross income, gross receipts, sales, use,
excise, franchise, transfer, payroll, premium, property or windfall profits tax,
alternative or add-on minimum tax, or other tax, fee or assessment, together
with any interest and any penalty, addition to tax or other additional amount
imposed by any Taxing Authority, whether any such tax is imposed directly or
through withholding.
"TAXING AUTHORITY" -- the IRS and any other domestic or foreign
governmental authority responsible for the administration of any Tax.
"TAX RETURN(S)" -- all returns, reports, estimates, information
statements, declarations and other filings relating to, or required to be filed
by any taxpayer in connection with, its liability for, or its payment or receipt
of any refund of, any Tax.
2. PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES
a. LTC shall prepare and timely file, or cause to be prepared
and timely filed, with the appropriate Taxing Authorities (i) all federal and
state Income and Other Tax Returns of the LTC Group and any member or members
thereof for all taxable years and
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periods ending on or before the Closing Date; and (ii) all federal and state
Income and Other Tax Returns of LTC for all taxable years and periods beginning
after the Closing Date. LTC shall pay, or cause to be paid, all Taxes due with
respect to Tax Returns described in this subsection (a). LTC shall be entitled
to all Tax refunds received or receivable with respect to any and all Income and
Other Taxes attributable to the LTC Assets for all taxable years and periods.
b. Healthcare shall prepare and timely file, or cause to be
prepared and timely filed, with the appropriate Taxing Authorities, all federal
and state Income and Other Tax Returns of the Healthcare Group and any member or
members thereof for taxable years and periods beginning after the Closing Date.
Healthcare shall pay, or cause to be paid, all Taxes due with respect to Tax
Returns described in this subsection (b). Healthcare shall be entitled to all
Tax refunds received or receivable with respect to any and all Income and Other
Taxes attributable to the Healthcare Assets for all taxable years and periods.
3. PAYMENTS.
a. METHOD. Unless the parties otherwise agree, all payments
made by a party pursuant to this Agreement shall be made by wire transfer to a
bank account designated from time to time by the other party. The paying party
shall also provide a notice of payment to the recipient.
b. INTEREST. If any payment is not timely paid, interest shall
accrue on the unpaid amount at the Overdue Rate. A payment will be deemed to be
timely paid only if actually received by the payee within seven (7) days of the
receipt of notice from the other party that such payment is due.
c. CHARACTERIZATION. Any payment (other than interest thereon)
made hereunder shall be treated by all parties for all purposes as a nontaxable
intercompany settlement of liabilities existing immediately before the
Distribution or, to the extent appropriate, as a non-taxable dividend
distribution or capital contribution.
4. CONTESTS AND AUDITS; INDEMNIFICATION.
a. NOTICE. Upon the receipt by LTC or Healthcare, as the case
may be, of notice of any pending or threatened Tax audit or assessment which may
affect the liability for Taxes that are subject to indemnification hereunder,
LTC or Healthcare, as the case may be, shall promptly notify the other in
writing of the receipt of such notice.
b. CONTROL AND SETTLEMENT. From and after the Closing Date,
LTC shall have full control over, and the right to represent the interests of,
LTC and all other corporations involved in or affected by any Tax audit or
administrative, judicial or other proceeding relating, in whole or in part, to
Taxes that are subject to indemnification by LTC hereunder. LTC shall have the
right to employ counsel of its choice at its expense, and shall have the
ultimate control of the contest and any settlement or other resolution thereof.
Any
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liability for Taxes established pursuant to such proceeding shall be allocated
and paid in accordance with Section 2 of this Agreement.
c. AMENDMENT OF TAX RETURNS. LTC shall have sole control over
the preparation and filing of any and all amendments to Tax Returns described in
Section 2(a).
d. INDEMNIFICATION. LTC shall indemnify and hold harmless
Healthcare and the Healthcare Group against any and all Income and Other Taxes
specifically attributable to the LTC Assets for all taxable years and periods.
Healthcare shall indemnify and hold harmless LTC against any and all Income and
Other Taxes specifically attributable to the Healthcare Assets for all taxable
years and periods.
5. COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY.
a. COOPERATION. Upon reasonable request, LTC and Healthcare
shall promptly provide (and shall cause their respective affiliates to provide)
the requesting party with such cooperation and assistance, documents, and other
information, without charge, as may be necessary or reasonably helpful in
connection with (i) the preparation and filing of any original or amended Tax
Return, (ii) the conduct of any audit, appeal, protest or other examination or
any judicial or administrative proceeding involving to any extent Taxes or Tax
Returns within the scope of this Agreement, or (iii) the verification by a party
of an amount payable hereunder to, or receivable hereunder from, another party.
Such cooperation and assistance shall include, without limitation: (a) the
provision on demand of books, records, Tax Returns, documentation or other
information relating to any relevant Tax Return; (b) the execution of any
document that may be necessary or reasonably helpful in connection with the
filing of any Tax Return, or in connection with any audit, appeal, protest,
proceeding, suit or action of the type generally referred to in the preceding
sentence, including, without limitation, the execution of powers of attorney and
extensions of applicable statutes of limitations; (c) the prompt and timely
filing of appropriate claims for refund; and (d) the use of reasonable best
efforts to obtain any documentation from a governmental authority or a third
party that may be necessary or helpful in connection with the foregoing. Each
party shall make its employees and facilities available on a mutually convenient
basis to facilitate such cooperation.
b. RETENTION. LTC and Healthcare shall retain or cause to be
retained all Tax Returns, and all books, records, schedules, workpapers, and
other documents relating thereto, which Tax Returns and other materials are
within the scope of this Agreement, until the expiration of the later of (i) all
applicable statutes of limitations (including any waivers or extensions
thereof), and (ii) any retention period required by law or pursuant to any
record retention agreement. The parties hereto shall notify each other in
writing of any waivers, extensions or expirations of applicable statutes of
limitations, and shall provide at least thirty (30) days prior written notice of
any intended destruction of the documents referred to in the preceding sentence.
A party giving such a notification shall not dispose of any of the foregoing
materials without first allowing the other party a reasonable opportunity to
copy them at such other party's expense.
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c. CONFIDENTIALITY. Except as required by law or with the
prior written consent of the other party, all Tax Returns, documents, schedules,
work papers and similar items and all information contained therein, which Tax
Returns and other materials are within the scope of this Agreement, shall be
kept confidential by the parties hereto and their representatives, shall not be
disclosed to any other person or entity and shall be used only for the purposes
provided herein.
6. MISCELLANEOUS.
a. EFFECTIVENESS. This Agreement shall be effective from and
after the Closing Date and shall survive until the expiration of all applicable
statutes of limitations with respect to taxable years and periods ending on or
before or including the Closing Date.
b. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, between the parties hereto with respect to
the subject matter hereof, so that no such external or separate agreement
relating to the subject matter of this Agreement shall have any effect or be
binding, unless the same is referred to specifically in this Agreement or is
executed by the parties after the date hereof. To the extent that the terms of
this Agreement and similar terms of the Distribution Agreement are in conflict,
this Agreement shall govern. This Agreement cancels and supersedes, as of the
Closing Date, any and all other agreements with respect to Taxes between LTC and
Healthcare.
c. SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
d. AMENDMENTS; WAIVERS. No termination, cancellation,
modification, amendment, deletion, addition or other change in this Agreement,
or any provision hereof, or waiver of any right or remedy herein provided, shall
be effective for any purpose unless such change or waiver is specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy with respect to any occurrence on one occasion
shall not be deemed a waiver of such right or remedy with respect to such
occurrence on any other occasion.
e. GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by the laws of the State of
California, without regard to
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the principles of choice of law thereof, except with respect to matters of law
concerning the internal corporate affairs of any corporate entity which is a
party to or subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall govern.
f. NOTICES. All notices, requests, demands, statements, bills
and other communications under this Agreement shall be delivered in accordance
with Section 9.04 of the Distribution Agreement.
g. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement shall not be assigned without the
express written consent of each of the parties hereto.
h. NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for
the benefit of the parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without this Agreement.
i. TITLES AND HEADINGS. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
j. PREDECESSORS AND SUCCESSORS. To the extent necessary to
give effect to the purposes of this Agreement, any reference to any corporation
shall also include any predecessor or successor thereto, by operation of law or
otherwise.
k. TAX ELECTIONS. Nothing in this Agreement is intended to
change or otherwise affect any previous tax election made by or on behalf of the
LTC Group, and LTC shall have sole discretion to make or change any and all
elections affecting the LTC Group or any member or members thereof for all
taxable years and periods ending on or before the Closing Date.
l. EXPENSES. Except as otherwise set forth in this Agreement,
all costs and expenses in connection with the preparation, execution, delivery
and implementation of this Agreement and with the consummation of the
transactions contemplated by this Agreement shall be charged to the party for
whose benefit the expenses are incurred, with any expenses which cannot be
allocated on such basis to be split equally between the parties.
m. DISPUTE RESOLUTION. Any dispute arising under this
Agreement shall be resolved by binding arbitration in the manner contemplated by
Section 9.13 of the Distribution Agreement, including the attorneys fees
provisions referred to therein.
n. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
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o. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship set forth herein.
p. FURTHER ACTION. Healthcare and LTC each shall cooperate in
good faith and take such steps and execute such papers as may be reasonably
requested by the other party to implement the terms and provisions of this
Agreement.
q. LEGAL ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LTC PROPERTIES, INC., A MARYLAND CORPORATION.
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
LTC HEALTHCARE INC., A NEVADA CORPORATION
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
S-1
<PAGE>
FORM OF ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of __________, 1998, by and between LTC PROPERTIES, INC., a
Maryland corporation ("LTC"), and LTC HEALTHCARE, INC., a Nevada corporation
("Healthcare," and collectively with LTC, the "Parties"), effective as of the
Distribution Date (as hereinafter defined).
R E C I T A L S
WHEREAS, subject to certain conditions, LTC intends to spin-off
certain businesses and assets by distributing to LTC stockholders 1/10 of a
share of common stock, $.01 par value per share, of Healthcare for each share
of common stock, $.01 par value per share, of LTC held as of the close of
business on the Record Date (the "Distribution");
WHEREAS, in connection with the Distribution, LTC and Healthcare have
entered into a Distribution Agreement of even date herewith (the "Distribution
Agreement");
WHEREAS, after the Distribution, Healthcare will need office space for
its principal corporate office and certain management and administrative
services to be provided by LTC to Healthcare for a period of time from and
after the Distribution Date; and
WHEREAS, in connection with the Distribution, Healthcare has requested
LTC to provide, and LTC has agreed to provide, office space and certain
management and administrative services to Healthcare from and after the
Distribution Date pursuant to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, LTC and Healthcare agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings indicated below:
"Affiliate" -- with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, such specified Person. For purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" shall have meanings correlative to the foregoing.
Notwithstanding the foregoing, (i) the Affiliates of LTC shall not include
Healthcare or any other Person which would be an Affiliate of LTC by reason of
LTC's ownership of the capital stock of Healthcare prior to the Distribution or
the fact that any officer or director of Healthcare shall also serve as an
officer or director of LTC, and (ii) the Affiliates of Healthcare shall not
include LTC or any other Person which would be an Affiliate of Healthcare by
reason of LTC's ownership of the capital stock of
<PAGE>
Healthcare prior to the Distribution or the fact that any officer or director of
Healthcare shall also serve as an officer or director of LTC.
"Agreement" -- shall have the meaning set forth in the introductory
paragraph hereof.
"Change in Control" shall mean a change in ownership or control of a
party effected through either of the following transactions:
(i) any person or related group of persons (other than
such party or a Affiliate of such party) directly or indirectly acquires
beneficial ownership (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) of securities possessing
more than fifty percent (50%) of the total combined voting power of such
party's outstanding securities; or
(ii) there is a change in the composition of such party's
board of directors over a period of thirty-six (36) consecutive months
(or less) such that a majority of the board members (rounded up to the
nearest whole number) ceases, by reason of one or more proxy contests for
the election of board members, to be comprised of individuals who either
(A) have been board members continuously since the beginning of such
period or (B) have been elected or nominated for election as board
members during such period by at least a majority of the board members
described in clause (A) who were still in office at the time such
election or nomination was approved by the board; or
(iii) there is a change in the composition of such party's
senior executive management such that both Andre C. Dimitriadis and James
J. Pieczynski cease to be employed by such party.
"Distribution" -- shall have the meaning set forth in the first recital
of this Agreement.
"Distribution Agreement" -- the agreement described in the second
recital of this Agreement.
"Distribution Date" -- the date on which the Distribution occurs, as
defined in the Distribution Agreement.
"Employee Benefit Plan" -- any plan, policy, arrangement, contract or
agreement providing compensation benefits for any group of LTC Employees or
former LTC Employees or individual LTC Employee or former LTC Employee, or the
dependents or beneficiaries of any such LTC Employee or former LTC Employee,
whether formal or informal or written or unwritten, and including, without
limitation, any means, whether or not legally required, pursuant to which any
benefit is provided by LTC to any LTC Employee or former LTC Employee or the
beneficiaries of any such LTC Employee or former LTC Employee, adopted or
entered into by LTC prior to, upon or after the Distribution. The term
"Employee Benefit Plan" as used in this Agreement does not include any contract,
agreement or understanding entered into by LTC relating to settlement of actual
or potential LTC Employee related litigation claims.
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<PAGE>
"First Month" -- In the event that the Distribution Date does not fall
on the first day of a month, the month that includes the Distribution Date.
"Full Month" -- A full calendar month during the Term.
"Healthcare" -- shall have the meaning set forth in the introductory
paragraph hereof.
"Healthcare Business" -- any business or operation of Healthcare which
is, pursuant to the Distribution Agreement, to be conducted by Healthcare after
the Distribution.
"Healthcare Employee" -- any individual who (i) is independently hired by
Healthcare after the Distribution Date as an employee of Healthcare, and (ii) is
not an employee or director of LTC.
"Last Month" -- In the event that the Termination Date does not fall on
the last day of a month, the month that includes the Termination Date.
"LTC" -- shall have the meaning set forth in the introductory paragraph
hereof.
"LTC Employee" -- any individual who is an employee or director of LTC
and is not a Healthcare Employee.
"Month" -- a Full Month, First Month or Last Month, as the case may be.
"Monthly Fee" -- The amount payable by Healthcare to LTC under Section
4.1 herein with respect to a particular Full Month or any First Month or Last
Month.
"Parties" -- shall have the meaning set forth in the introductory
paragraph hereof.
"Person" -- any individual, corporation, partnership, association, trust,
estate or other entity or organization, including any governmental entity or
authority.
"Principal Office" -- shall have the meaning set forth in Section 4.2
hereof.
"Record Date" -- _________, 1998.
"Services" -- shall have the meaning set forth in Section 2 hereof.
"Term" -- shall have the meaning set forth in Section 3 hereof.
"Termination Date" -- shall have the meaning set forth in Section 3
hereof.
2. ENGAGEMENT OF LTC. During the term of this Agreement, LTC shall
provide to Healthcare office space and certain management and administrative
services ("Services"), as more fully described and defined below, as may be
necessary or desirable, or as Healthcare may reasonably request or require,
in connection with the business, operations and affairs of Healthcare.
"Services" means and includes, without limitation, the furnishing of advice,
assistance, guidance, equipment, office space and the services of LTC
Employees in connection with, among other things, (i) the Healthcare
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<PAGE>
Business and (ii) the use of LTC's management information and accounting system,
the administration of insurance and worker's compensation programs, legal and
employee benefit services and the preparation of payrolls.
3. TERM; TERMINATION. This Agreement shall commence as of the date
hereof and continue thereafter for a term of ten years unless and until
terminated upon the earlier of (a) not less than thirty (30) days' prior
written notice by either Party to the other at any time for any reason or (b)
a Change in Control of LTC (the "Termination Date", with the term of this
Agreement as set forth in this Section 3 being referred to as the "Term").
4. PAYMENTS TO LTC.
4.1. GENERALLY.
(a) FULL MONTH. With respect to each Full Month, in
consideration of the Services provided by LTC hereunder, Healthcare shall pay
to LTC fees equal to 25% of (1) the aggregate amount of all wages, salaries
and bonuses paid to LTC Employees and (2) the aggregate amount of rent paid
by LTC for rental of its principal corporate office located at 300 Esplanade
Drive, Suite 1860, Oxnard, CA 93030 (the "Principal Office") during the Full
Month.
(b) FIRST MONTH AND LAST MONTH. With respect to any First
Month or Last Month, in consideration of the Services provided by LTC
hereunder, Healthcare shall pay to LTC fees equal to the product of:
(i) 25% of (1) the aggregate amount of all wages,
salaries and bonuses paid to LTC Employees and (2) the aggregate amount of
rent paid by LTC for rental of the Principal Office during the First Month or
Last Month, as the case may be; and
(ii) the number of days in the First Month or the Last
Month, as the case may be, which are included in the Term, divided by the total
number of days in the First Month or the Last Month, as the case may be.
4.2. STATEMENT FROM LTC. Promptly and in any event not later than
ten (10) days following the end of each Month, LTC shall provide to
Healthcare a statement setting forth (i) a list of the LTC Employees, (ii)
the aggregate amount of all wages, salaries and bonuses paid to LTC Employees
during the Month and (iii) the aggregate amount of rent paid by LTC for rental
of the Principal Office during the Month.
4.3. PAYMENT BY HEALTHCARE. Promptly and in any event not later
than five (5) days after delivery by LTC of each statement referred to in
Section 4.2, Healthcare shall pay to LTC the Monthly Fee applicable to the
Month to which such statement relates.
5. EMPLOYEE BENEFIT PLANS. From and after the Distribution Date, LTC
shall permit the LTC Employees to continue to participate in the Employee
Benefit Plans on the same basis as such persons participated immediately
prior to the Distribution Date, provided, however, nothing contained in this
Agreement shall prohibit LTC from modifying or terminating any one or more of
the Employee Benefit Plans so long as such modification or termination shall
apply to all participants in such Employee Benefit Plans. LTC shall provide
Healthcare with thirty (30)
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<PAGE>
days' prior written notice of its intent to terminate any Employee Benefit
Plan or effect the modification thereof in a manner adverse to Healthcare;
provided that no such notice shall be required for any Employee Benefit Plan
which terminates by its terms without any action by LTC.
6. EMPLOYEES. Nothing in this Agreement shall prohibit Healthcare from
independently hiring one or more Healthcare Employees; provided, however,
that (i) all wages, salaries, payroll taxes, and employee benefits with
respect to Healthcare Employees shall be Healthcare's sole responsibility,
and (ii) Healthcare Employees shall not be subject to this Agreement.
7. GENERAL.
7.1. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the Parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
Parties, it being understood and agreed that no provision contained herein,
and no act of the Parties, shall be deemed to create any relationship between
the Parties other than the relationship set forth herein.
7.2. ACCESS TO INFORMATION; COOPERATION. LTC and Healthcare and their
authorized agents shall be given reasonable access to and may take copies of all
information relating to the subjects of this Agreement (to the extent permitted
by federal and state confidentiality laws) in the custody of the other Party,
including any agent, contractor, subcontractor, agent or any other person or
entity under the contract of such Party.
7.3. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the Parties hereto and their respective successors and
assigns. This Agreement shall not be assigned without the express written
consent of each of the Parties hereto.
7.4. TITLES AND HEADINGS. Titles and headings to sections herein are
inserted for the convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this Agreement.
7.5. SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
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<PAGE>
7.6. NOTICES. Notices shall be sent to the Parties at the following
addresses:
LTC Properties, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attn: James J. Pieczynski
Facsimile: (805) 981-8663
LTC Healthcare, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attn: James J. Pieczynski
Facsimile: (805) 981-8663
Notices may be hand-delivered or sent by certified mail, return receipt
requested, Federal Express or comparable overnight delivery service, or
facsimile. Notice shall be deemed received at the time delivered by hand, on
the fourth business day following deposit in the U.S. mail, and on the first
business day following deposit with Federal Express or other delivery service,
or transmission by facsimile. Any Party to this Agreement may change its
address for notice by giving written notice to the other Party at the address
and in accordance with the procedures provided above.
7.7. FURTHER ACTION. Healthcare and LTC each shall cooperate in good
faith and take such steps and execute such papers as may be reasonably requested
by the other Party to implement the terms and provisions of this Agreement.
7.8. AMENDMENTS; WAIVERS. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein provided, shall be
effective for any purpose unless such change or waiver is specifically set forth
in a writing signed by the Party or Parties to be bound thereby. The waiver of
any right or remedy with respect to any occurrence on one occasion shall not be
deemed a waiver of such right or remedy with respect to such occurrence on any
other occasion.
7.9. GOVERNING LAW. This Agreement and the rights and obligations of
the Parties hereunder shall be governed by the laws of the State of California,
without regard to the principles of choice of law thereof, except with respect
to matters of law concerning the internal corporate affairs of any corporate
entity which is a Party to or subject of this Agreement, and as to those matters
the law of the jurisdiction under which the respective entity derives its powers
shall govern.
7.10. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, between the Parties hereto with respect to
the subject matter hereof, so that no such external or separate agreement
relating to the subject matter of this Agreement shall have any effect or be
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<PAGE>
binding, unless the same is referred to specifically in this Agreement or is
executed by the Parties after the date hereof. To the extent that the terms of
this Agreement and similar terms of the Distribution Agreement are in conflict,
this Agreement shall govern.
7.11. DISPUTE RESOLUTION. Any dispute arising under this Agreement
shall be resolved by binding arbitration in the manner contemplated by Section
9.13 of the Distribution Agreement, including the attorneys fees provisions
referred to therein.
7.12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
7.13. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the Parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without this Agreement.
7.14. EXPENSES. Except as otherwise set forth in this Agreement, all
costs and expenses in connection with the preparation, execution, delivery and
implementation of this Agreement and with the consummation of the transactions
contemplated by this Agreement shall be charged to the Party for whose benefit
the expenses are incurred, with any expenses which cannot be allocated on such
basis to be split equally between the Parties.
7.15. LEGAL ENFORCEABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. Without prejudice to
any rights or remedies otherwise available to any Party hereto, each Party
hereto acknowledges that damages would be an inadequate remedy for any breach of
the provisions of this Agreement and agrees that the obligations of the Parties
hereunder shall be specifically enforceable.
7.16. PREDECESSORS AND SUCCESSORS. To the extent necessary to give
effect to the purposes of this Agreement, any reference to any corporation shall
also include any predecessor or successor thereto, by operation of law or
otherwise.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
LTC PROPERTIES, INC., a Maryland corporation
By: ______________________________________
Name: _______________________________
Title: _______________________________
LTC HEALTHCARE, INC., a Nevada corporation
By: _____________________________________
Name: _______________________________
Title: _______________________________
S-1
<PAGE>
FORM OF TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (the "Agreement"), dated as of _______ __, 1998,
between LTC Properties, Inc., a Maryland corporation ("LTC"), and LTC
Healthcare, Inc., a Nevada corporation ("Healthcare").
WHEREAS, LTC is the parent corporation of an affiliated group of
corporations that join in filing consolidated federal Income Tax Returns and
certain consolidated, combined or unitary state Income Tax Returns;
WHEREAS, pursuant to the Distribution Agreement (as hereinafter
defined), LTC presently intends to distribute all of the common stock, $.01
par value per share, of Healthcare to its stockholders (the "Distribution");
and
WHEREAS, LTC and Healthcare desire on behalf of themselves, their
subsidiaries and their successors to set forth their respective rights and
obligations with respect to Taxes (as hereinafter defined).
NOW THEREFORE, in consideration of their mutual promises, the parties
hereby agree as follows:
1. DEFINITIONS.
When used herein the following terms shall have the following
meanings:
"AGREEMENT" -- shall have the meaning set forth in the introductory
paragraph hereof.
"CLOSING DATE" -- the date the Distribution is consummated pursuant to
the terms of the Distribution Agreement.
"CODE" -- the Internal Revenue Code of 1986, as amended, or any
successor thereto, as in effect for the taxable year in question.
"DISTRIBUTION" -- shall have the meaning set forth in the recitals
hereof.
"DISTRIBUTION AGREEMENT" -- the Distribution Agreement dated as of
_______ __, 1998 between LTC and Healthcare.
"HEALTHCARE" -- shall have the meaning set forth in the introductory
paragraph hereof.
<PAGE>
"HEALTHCARE ASSETS" -- the retail properties and other assets
(together with any related liabilities) distributed to Healthcare pursuant to
the Distribution Agreement.
"HEALTHCARE GROUP" -- Healthcare and each corporation filing a
consolidated federal Income Tax Return with Healthcare as the parent
corporation.
"INCOME TAX(ES)" -- with respect to any corporation or group of
corporations, any and all Taxes to the extent based upon or measured by net
income (regardless of whether denominated as an "income tax," a "franchise tax"
or otherwise), imposed by any Taxing Authority, together with any related
interest, penalties or other additions thereto.
"IRS" -- the U.S. Internal Revenue Service.
"LTC" -- shall have the meaning set forth in the introductory
paragraph hereof.
"LTC ASSETS" -- the properties and other assets (together with any
related liabilities) retained by LTC pursuant to the Distribution Agreement.
"LTC GROUP" -- for any taxable year or period, LTC and each
corporation filing a consolidated federal Income Tax Return with LTC as the
parent corporation.
"OTHER TAXES" -- Taxes other than Income Taxes.
"OVERDUE RATE" -- a rate of interest per annum that fluctuates with
the federal short-term rate established from time to time pursuant to Code
Section 6621(b).
"TAX(ES)" -- any net income, gross income, gross receipts, sales, use,
excise, franchise, transfer, payroll, premium, property or windfall profits tax,
alternative or add-on minimum tax, or other tax, fee or assessment, together
with any interest and any penalty, addition to tax or other additional amount
imposed by any Taxing Authority, whether any such tax is imposed directly or
through withholding.
"TAXING AUTHORITY" -- the IRS and any other domestic or foreign
governmental authority responsible for the administration of any Tax.
"TAX RETURN(S)" -- all returns, reports, estimates, information
statements, declarations and other filings relating to, or required to be filed
by any taxpayer in connection with, its liability for, or its payment or receipt
of any refund of, any Tax.
2. PREPARATION AND FILING OF TAX RETURNS; PAYMENT OF TAXES
a. LTC shall prepare and timely file, or cause to be prepared
and timely filed, with the appropriate Taxing Authorities (i) all federal and
state Income and Other Tax Returns of the LTC Group and any member or members
thereof for all taxable years and
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periods ending on or before the Closing Date; and (ii) all federal and state
Income and Other Tax Returns of LTC for all taxable years and periods beginning
after the Closing Date. LTC shall pay, or cause to be paid, all Taxes due with
respect to Tax Returns described in this subsection (a). LTC shall be entitled
to all Tax refunds received or receivable with respect to any and all Income and
Other Taxes attributable to the LTC Assets for all taxable years and periods.
b. Healthcare shall prepare and timely file, or cause to be
prepared and timely filed, with the appropriate Taxing Authorities, all federal
and state Income and Other Tax Returns of the Healthcare Group and any member or
members thereof for taxable years and periods beginning after the Closing Date.
Healthcare shall pay, or cause to be paid, all Taxes due with respect to Tax
Returns described in this subsection (b). Healthcare shall be entitled to all
Tax refunds received or receivable with respect to any and all Income and Other
Taxes attributable to the Healthcare Assets for all taxable years and periods.
3. PAYMENTS.
a. METHOD. Unless the parties otherwise agree, all payments
made by a party pursuant to this Agreement shall be made by wire transfer to a
bank account designated from time to time by the other party. The paying party
shall also provide a notice of payment to the recipient.
b. INTEREST. If any payment is not timely paid, interest shall
accrue on the unpaid amount at the Overdue Rate. A payment will be deemed to be
timely paid only if actually received by the payee within seven (7) days of the
receipt of notice from the other party that such payment is due.
c. CHARACTERIZATION. Any payment (other than interest thereon)
made hereunder shall be treated by all parties for all purposes as a nontaxable
intercompany settlement of liabilities existing immediately before the
Distribution or, to the extent appropriate, as a non-taxable dividend
distribution or capital contribution.
4. CONTESTS AND AUDITS; INDEMNIFICATION.
a. NOTICE. Upon the receipt by LTC or Healthcare, as the case
may be, of notice of any pending or threatened Tax audit or assessment which may
affect the liability for Taxes that are subject to indemnification hereunder,
LTC or Healthcare, as the case may be, shall promptly notify the other in
writing of the receipt of such notice.
b. CONTROL AND SETTLEMENT. From and after the Closing Date,
LTC shall have full control over, and the right to represent the interests of,
LTC and all other corporations involved in or affected by any Tax audit or
administrative, judicial or other proceeding relating, in whole or in part, to
Taxes that are subject to indemnification by LTC hereunder. LTC shall have the
right to employ counsel of its choice at its expense, and shall have the
ultimate control of the contest and any settlement or other resolution thereof.
Any
3
<PAGE>
liability for Taxes established pursuant to such proceeding shall be allocated
and paid in accordance with Section 2 of this Agreement.
c. AMENDMENT OF TAX RETURNS. LTC shall have sole control over
the preparation and filing of any and all amendments to Tax Returns described in
Section 2(a).
d. INDEMNIFICATION. LTC shall indemnify and hold harmless
Healthcare and the Healthcare Group against any and all Income and Other Taxes
specifically attributable to the LTC Assets for all taxable years and periods.
Healthcare shall indemnify and hold harmless LTC against any and all Income and
Other Taxes specifically attributable to the Healthcare Assets for all taxable
years and periods.
5. COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY.
a. COOPERATION. Upon reasonable request, LTC and Healthcare
shall promptly provide (and shall cause their respective affiliates to provide)
the requesting party with such cooperation and assistance, documents, and other
information, without charge, as may be necessary or reasonably helpful in
connection with (i) the preparation and filing of any original or amended Tax
Return, (ii) the conduct of any audit, appeal, protest or other examination or
any judicial or administrative proceeding involving to any extent Taxes or Tax
Returns within the scope of this Agreement, or (iii) the verification by a party
of an amount payable hereunder to, or receivable hereunder from, another party.
Such cooperation and assistance shall include, without limitation: (a) the
provision on demand of books, records, Tax Returns, documentation or other
information relating to any relevant Tax Return; (b) the execution of any
document that may be necessary or reasonably helpful in connection with the
filing of any Tax Return, or in connection with any audit, appeal, protest,
proceeding, suit or action of the type generally referred to in the preceding
sentence, including, without limitation, the execution of powers of attorney and
extensions of applicable statutes of limitations; (c) the prompt and timely
filing of appropriate claims for refund; and (d) the use of reasonable best
efforts to obtain any documentation from a governmental authority or a third
party that may be necessary or helpful in connection with the foregoing. Each
party shall make its employees and facilities available on a mutually convenient
basis to facilitate such cooperation.
b. RETENTION. LTC and Healthcare shall retain or cause to be
retained all Tax Returns, and all books, records, schedules, workpapers, and
other documents relating thereto, which Tax Returns and other materials are
within the scope of this Agreement, until the expiration of the later of (i) all
applicable statutes of limitations (including any waivers or extensions
thereof), and (ii) any retention period required by law or pursuant to any
record retention agreement. The parties hereto shall notify each other in
writing of any waivers, extensions or expirations of applicable statutes of
limitations, and shall provide at least thirty (30) days prior written notice of
any intended destruction of the documents referred to in the preceding sentence.
A party giving such a notification shall not dispose of any of the foregoing
materials without first allowing the other party a reasonable opportunity to
copy them at such other party's expense.
4
<PAGE>
c. CONFIDENTIALITY. Except as required by law or with the
prior written consent of the other party, all Tax Returns, documents, schedules,
work papers and similar items and all information contained therein, which Tax
Returns and other materials are within the scope of this Agreement, shall be
kept confidential by the parties hereto and their representatives, shall not be
disclosed to any other person or entity and shall be used only for the purposes
provided herein.
6. MISCELLANEOUS.
a. EFFECTIVENESS. This Agreement shall be effective from and
after the Closing Date and shall survive until the expiration of all applicable
statutes of limitations with respect to taxable years and periods ending on or
before or including the Closing Date.
b. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, between the parties hereto with respect to
the subject matter hereof, so that no such external or separate agreement
relating to the subject matter of this Agreement shall have any effect or be
binding, unless the same is referred to specifically in this Agreement or is
executed by the parties after the date hereof. To the extent that the terms of
this Agreement and similar terms of the Distribution Agreement are in conflict,
this Agreement shall govern. This Agreement cancels and supersedes, as of the
Closing Date, any and all other agreements with respect to Taxes between LTC and
Healthcare.
c. SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
d. AMENDMENTS; WAIVERS. No termination, cancellation,
modification, amendment, deletion, addition or other change in this Agreement,
or any provision hereof, or waiver of any right or remedy herein provided, shall
be effective for any purpose unless such change or waiver is specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy with respect to any occurrence on one occasion
shall not be deemed a waiver of such right or remedy with respect to such
occurrence on any other occasion.
e. GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by the laws of the State of
California, without regard to
5
<PAGE>
the principles of choice of law thereof, except with respect to matters of law
concerning the internal corporate affairs of any corporate entity which is a
party to or subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall govern.
f. NOTICES. All notices, requests, demands, statements, bills
and other communications under this Agreement shall be delivered in accordance
with Section 9.04 of the Distribution Agreement.
g. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement shall not be assigned without the
express written consent of each of the parties hereto.
h. NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for
the benefit of the parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without this Agreement.
i. TITLES AND HEADINGS. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
j. PREDECESSORS AND SUCCESSORS. To the extent necessary to
give effect to the purposes of this Agreement, any reference to any corporation
shall also include any predecessor or successor thereto, by operation of law or
otherwise.
k. TAX ELECTIONS. Nothing in this Agreement is intended to
change or otherwise affect any previous tax election made by or on behalf of the
LTC Group, and LTC shall have sole discretion to make or change any and all
elections affecting the LTC Group or any member or members thereof for all
taxable years and periods ending on or before the Closing Date.
l. EXPENSES. Except as otherwise set forth in this Agreement,
all costs and expenses in connection with the preparation, execution, delivery
and implementation of this Agreement and with the consummation of the
transactions contemplated by this Agreement shall be charged to the party for
whose benefit the expenses are incurred, with any expenses which cannot be
allocated on such basis to be split equally between the parties.
m. DISPUTE RESOLUTION. Any dispute arising under this
Agreement shall be resolved by binding arbitration in the manner contemplated by
Section 9.13 of the Distribution Agreement, including the attorneys fees
provisions referred to therein.
n. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
6
<PAGE>
o. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship set forth herein.
p. FURTHER ACTION. Healthcare and LTC each shall cooperate in
good faith and take such steps and execute such papers as may be reasonably
requested by the other party to implement the terms and provisions of this
Agreement.
q. LEGAL ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LTC PROPERTIES, INC., A MARYLAND CORPORATION.
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
LTC HEALTHCARE INC., A NEVADA CORPORATION
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
S-1
<PAGE>
FORM OF INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered
into as of this ____ day of _______________, 1998, by and between LTC
Healthcare, Inc., a Nevada corporation (the "Corporation"), and
_______________________ (the "Indemnitee").
A. At the request of the Corporation, the Indemnitee currently
serves as a director and/or officer of the Corporation (and may from time to
time serve as a directors and/or officer of one or more of the Corporation's
subsidiaries), and, as such, may be subjected to claims, actions, suits or
proceedings arising out of or as a result of this service;
B. The Corporation is currently seeking to obtain a policy of
directors and officers liability insurance ("D&O Insurance") covering certain
liabilities that may be incurred by the Indemnitee as a director and/or officer;
C. Due to the fact that the indemnification provisions of Chapter 78
of the Nevada Revised Statutes ("NRS"), the Corporation's Restated and Amended
Articles of Incorporation (the "Articles") and the Corporation's Restated and
Amended Bylaws (the "Bylaws, and together with NRS and the Articles, the
"Indemnification Provisions") may be amended, modified or repealed, that the
Corporation may be unable to purchase or to continue to purchase and maintain
adequate D&O Insurance, and that there may be other substantial uncertainties
associated with the Indemnification Provisions and D&O Insurance, the Indemnitee
does not regard the rights to indemnification granted to him or her under the
Indemnification Provisions and D&O Insurance as adequate to protect him or her
against the risks associated with service as a director and/or officer of the
Corporation, and the Indemnitee may be unwilling to continue to serve as a
director and/or officer of the Corporation in the absence of the benefits and
assurances provided to him or her under this Agreement;
D. As an inducement to the Indemnitee to continue to serve as a
director and/or officer, the Corporation has agreed to indemnify the Indemnitee
against expenses and costs incurred by the Indemnitee in connection with certain
claims, actions, suits or proceedings in accordance with this Agreement; and
E. The parties are desirous of setting forth the terms and
conditions of their understandings and agreements in the foregoing respects and
other matters properly relating thereto.
NOW THEREFORE, based upon the foregoing recitals and in consideration
of the mutual promises and covenants herein contained, the parties hereto agree
as follows:
<PAGE>
ARTICLE I.
DEFINITIONS
Section 1.1. EXPENSES. "Expenses" shall mean any and all expenses
(including, without limitation, attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by the Indemnitee in
connection with any Action.
Section 1.2. ACTION. "Action" shall mean a threatened, pending or
completed action, suit or proceeding (including, without limitation, an action,
suit or proceeding by or in the right of the Corporation), whether civil,
criminal, administrative or investigative, that arises by reason of the fact
that the Indemnitee is or was a director, officer, employee or agent of the
Corporation, or that he or she is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
ARTICLE II.
INDEMNITY
Section 2.1. RIGHT TO INDEMNIFICATION. Notwithstanding any
amendment, modification or repeal of the Indemnification Provisions after the
date of this Agreement, the Corporation shall indemnify and hold the Indemnitee
harmless against any and all Expenses, except:
(a) D&O INSURANCE. Expenses for which the Indemnitee is
indemnified pursuant to any D&O Insurance purchased and maintained by the
Corporation. It is specifically understood that the indemnity provided in this
Agreement is in excess of any such D&O Insurance and the Indemnitee will look
first to such D&O Insurance;
(b) VIOLATION OF LAW. Amounts paid to the Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
amounts were in violation of the law;
(c) VIOLATION OF SECTION 16(b) OF THE SECURITIES EXCHANGE ACT.
Expenses incurred on account of any action in which judgment is rendered against
the Indemnitee for an accounting of profits made from the purchase or sale of
securities of the Corporation by the Indemnitee, pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or
any similar provisions of federal, state or local law;
(d) OTHER EXPENSES. Expenses incurred on account of the
Indemnitee's conduct that is finally adjudged to have been (or the Indemnitee
has admitted facts sufficient to conclude his or her conduct was): (i) an act
or omission that was not in good faith and which the Indemnitee did not
reasonably believe to be in the best interests of the Corporation, (ii) with
respect to any criminal action or proceeding, conduct which the Indemnitee had
reasonable cause to believe was unlawful, (iii) an act or omission involving
intentional misconduct, fraud or a knowing violation of law (except with respect
to the advancement of expenses pursuant to Section 2.3 of this Agreement or
indemnification ordered by a court of competent jurisdiction),
2
<PAGE>
(iv) a transaction from which the Indemnitee derived an improper personal
benefit, or (v) the payment of distributions in violation of NRS 78.300 and
amendments thereto or any other similar provision of state law;
(e) PUBLIC POLICY. If a final decision by a court of competent
jurisdiction in the matter shall determine that such indemnification violates
public policy; or
(f) INCOME TAXES. Any income taxes, or any interests and
penalties related thereto with respect to any compensation received for services
as a director and/or officer of the Corporation.
Section 2.2. CONTINUATION OF INDEMNITY. All agreements and
obligations of the Corporation contained in this Agreement shall continue during
the period the Indemnitee is a director, officer, employee or agent of the
Corporation (or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise), and shall continue so long as the
Indemnitee shall be subject to any possible action by reason of the fact that
the Indemnitee was a director or officer of the Corporation or serving in any
other capacity referred to in this Agreement.
Section 2.3. ADVANCEMENT OF EXPENSES. Notwithstanding any
amendment, modification or repeal of the Indemnification Provisions after the
date of this Agreement, on written request to the Corporation by Indemnitee, the
Corporation shall pay the Expenses of the Indemnitee incurred in defending an
Action as they are incurred and in advance of the final disposition of the
Action, upon receipt of an undertaking by or on behalf of the Indemnitee to
repay the amount if it is ultimately determined by a court of competent
jurisdiction that he or she is not entitled to be indemnified by the Corporation
pursuant to Section 2.1 of this Agreement.
Section 2.4. DEMAND FOR PERFORMANCE. The Corporation shall perform
its obligations under this Agreement upon receipt of written demand for such
performance from the Indemnitee, and, if the Corporation fails to perform its
obligations under this Agreement upon demand, the Indemnitee may then at any
time bring legal action against the Corporation to obtain full and complete
performance of its obligations under this Agreement. In any action brought to
enforce this Agreement, upon a showing by the Indemnitee that a claim has been
asserted against him or her with respect to or in connection with any alleged
act or omission by him or her as a director and/or officer of the Corporation,
or any alleged neglect or breach of duty by him or her as a director and/or
officer of the Corporation or otherwise in his or her capacity as a director
and/or officer of the Corporation, there shall be a presumption that the
Indemnitee is entitled to indemnification and advancement of Expenses from the
Corporation.
Section 2.5. NON-EXCLUSIVITY. The rights to indemnification granted
to Indemnitee under this Agreement shall not be exclusive or in limitation of
any rights to which the Indemnitee may have or hereafter acquire under any
statute, provision of the Articles or Bylaws, agreement, vote of the
stockholders or directors of the Corporation or otherwise.
3
<PAGE>
ARTICLE III.
CONTROL OF DEFENSE
Section 3.1. CONTROL OF DEFENSE. If a claim should be made or
threatened against the Indemnitee that has given rise to, or may give rise to, a
right to indemnification pursuant to Section 2.1 of this Agreement, or a right
to advancement of Expenses pursuant to Section 2.3 of this Agreement, and
provided that the claim is not made or threatened in the name of the Corporation
and there is no conflict of interest between the Corporation and the Indemnitee
with respect to such claim, then: (1) the Corporation shall have the right to
participate, at its own cost and expense, in the investigation, defense or other
contest of the claim; and (2) the Corporation shall have the right to elect to
assume the defense of the claim on behalf of the Indemnitee, and, if applicable,
jointly with any third party who may have an obligation to indemnify and hold
the Indemnitee harmless with respect to such claim.
Section 3.2. CONFLICT OF INTEREST. If a conflict of interest of the
type referred to in Section 3.1 should develop, the Indemnitee shall control the
defense of any Action against him or her that may give rise to a right of
indemnification under this Agreement, subject to the following: (1) if the
insurance carrier that shall have supplied any D&O Insurance shall be willing to
conduct the defense without any reservation as to coverage, then, the insurance
carrier shall select counsel to conduct the defense; (2) if the insurance
carrier shall not assume responsibility for the defense without any reservation
of rights as to coverage, the defense shall be conducted by experienced and able
counsel selected by the Indemnitee and reasonably acceptable to the board of
directors; and (3) separate counsel will be used by the Indemnitee and other
parties indemnified by the Corporation and subject to the same claim only to the
extent necessary, in the reasonable opinion of the Indemnitee, to avoid a
conflict of interest.
Section 3.3. ELECTION TO DEFEND. If the Corporation should elect to
assume the defense of a claim on behalf of the Indemnitee as provided in Section
3.1 (the "Election"), then: (1) the Corporation shall give the Indemnitee
prompt written notice of the Election (the "Election Notice"); (2) the
Corporation shall be obligated to defend the claim in good faith and in a manner
consistent with the best interests of the Indemnitee; (3) provided the
Corporation defends the claim in good faith and no conflict of interest develops
between the Corporation and the Indemnitee with respect to such claim, the
Corporation shall not be liable for any Expenses incurred by the Indemnitee in
connection with defending or otherwise contesting the claim after the Indemnitee
has received the Election Notice; and (4) the Corporation shall not settle or
compromise such the claim on any basis or in any manner that would impose any
liability, limitation or restriction of any kind on the Indemnitee without his
or her express written consent.
ARTICLE IV.
DIRECTORS AND OFFICERS LIABILITY INSURANCE
Section 4.1. PROVIDED IN SOLE DISCRETION OF CORPORATION. The
Corporation shall use reasonable efforts to provide the Indemnitee with D&O
Insurance providing to the Indemnitee such coverage then available in the
insurance industry in such amounts and with such exclusions and other conditions
to coverage as shall in the sole judgment of the Corporation
4
<PAGE>
provide reasonable coverage to the Indemnitee in light of the cost to the
Corporation and any other relevant considerations. Notwithstanding any of the
foregoing, the Corporation shall not be obligated to obtain D&O Insurance for
the Indemnitee.
Section 4.2. SETTLEMENT. The Indemnitee shall not settle any matter
for which he or she intends to seek indemnification under this agreement without
first attempting to obtain any approval required with respect to such settlement
by the insurance carrier of any applicable D&O Insurance. If the Indemnitee
seeks such approval, but the approval is not granted by the insurance carrier of
any applicable D&O Insurance, the Indemnitee shall be entitled to
indemnification to the fullest extent provided by this Agreement.
Section 4.3. NO LIMITATION OF OBLIGATION. Except as otherwise set
forth in Section 2.1(a) or the provisions of the D&O Insurance, the failure to
provide D&O Insurance shall in no way limit or diminish the obligation of the
Corporation to indemnify the Indemnitee as provided pursuant to the terms of
this Agreement.
ARTICLE V.
MISCELLANEOUS
Section 5.1. NOTICES. Any notices, consents or other communications
required or permitted to be given pursuant to this Agreement must be in writing
and must be given by certified mail, return receipt requested, and shall (except
to the extent otherwise provided herein) be deemed to have been given and
received (whether actually received or not) when a certified letter containing
such notice, consent or other communication, properly addressed with postage
prepaid, return receipt requested, is deposited in an official depository under
the regular care and custody of the United States Postal Service located within
the confines of the continental United States, addressed to the parties hereto
at the following respective addresses:
If to the Corporation: LTC Healthcare, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, CA 93030
Attention: James J. Pieczynski
With a copy to: Schreck Morris
300 South Fourth Street, Suite 1200
Las Vegas, Nevada 89101
Attention: Ellen Schulhofer
If to the Indemnitee: ___________________________
___________________________
___________________________
Either party may provide written notice of a substitute address
pursuant to written notice delivered to the other party in accordance with the
terms of this Section 5.1, provided, however, that no such notice of change of
address shall be effective unless and until actually received by the party to
whom such notice is sent.
5
<PAGE>
Section 5.2. APPLICABLE LAW. The laws of the State of Nevada
applicable to contracts made in that State shall govern the validity,
construction, performance and effect of this Agreement.
Section 5.3. ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding of the parties, and supersedes all previous agreements,
negotiations, memoranda, understandings, whether oral or written (other than the
Indemnification Provisions or the provisions of applicable D&O Insurance).
Section 5.4. MODIFICATIONS. This Agreement shall not be modified,
amended or changed in any matter unless in writing executed by the parties
hereto.
Section 5.5. ATTORNEYS' FEES. Unless otherwise specifically
provided herein, each party hereto shall bear its own attorneys' fees incurred
in the negotiation and preparation of this Agreement and any related documents.
In the event that any action or proceeding is instituted to interpret or enforce
the terms and provisions of this Agreement, however, the prevailing party shall
be entitled to its costs and attorneys' fees, in addition to any other relief it
may obtain or be entitled to.
Section 5.6. WAIVERS. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision,
whether or not similar, nor shall any waiver constitute a continuing waiver, and
no waiver shall be binding unless evidenced by an instrument in writing executed
by the party making the waiver.
Section 5.7. INVALIDITY. If any term, provision, covenant or
condition of this Agreement, or any application thereof, should be held by a
court of competent jurisdiction to be invalid, void or unenforceable, that
provision shall be deemed severable and all provisions, covenants and conditions
of this Agreement, and all applications thereof not held invalid, void or
unenforceable, shall continue in full force and effect and shall in no way be
affected, impaired or invalidated thereby.
Section 5.8. COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which may be
executed by any one or more of the parties hereto, but all of which shall
constitute one and the same instrument, and shall be binding and effective only
when all of the parties hereto have executed at least one counterpart.
Section 5.9. INTERPRETATION. Descriptive headings are for
convenience only and shall not control or affect the meaning or construction of
any provision of this Agreement. Whenever the context of this Agreement
requires, words used in the singular shall be construed to include the plural
and vice versa, and pronouns of whatsoever gender shall be deemed to include and
designate the masculine, feminine and neuter gender.
Section 5.10. ADDITIONAL DOCUMENTS. Each party covenants and agrees
to execute deliver to the other such further documents or instruments as may
reasonably be required to fully effectuate the manifest intent of the parties
and the transactions contemplated hereby.
6
<PAGE>
Section 5.11. NEGOTIATED AGREEMENT. This is a negotiated Agreement.
All parties have participated in its preparation. In the event of any dispute
regarding its interpretation, it shall not be construed for or against any party
based upon the grounds that the Agreement was prepared by any one of the
parties.
Section 5.12. TIME OF ESSENCE. Time is of the essence of the
Agreement and all of its provisions.
Section 5.13. SUCCESSORS AND ASSIGNS. the rights granted to the
Indemnitee under this Agreement shall inure to the benefit of the Indemnitee,
his or her personal representatives, heirs, executors, administrators and
beneficiaries, and this Agreement shall be binding on the Corporation, its
successors and assigns.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on the day first hereinabove written.
"Corporation"
LTC Healthcare, Inc.,
a Nevada corporation
By: ___________________________________
Name: ________________________________
Its: ___________________________________
"Indemnitee"
_______________________________________
S-1
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF LTC HEALTHCARE, INC.
None.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated May 6, 1998 on the balance
sheet of LTC Healthcare, Inc. as of March 25, 1998 and of our report dated
May 6, 1998 on the combined financial statements of LTC Healthcare Asset
Group as of December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997, each included in the Registration Statement
(Form 10) of LTC Healthcare, Inc. dated May 20, 1998.
/s/ ERNST & YOUNG LLP
Los Angeles, California
May 20, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LTC
HEALTHCARE, INC.'S BALANCE SHEET AS OF MARCH 25, 1998 INCLUDED IN THEIR
REGISTRATION STATEMENT ON FORM 10 INCORPORATED BY REFERENCE AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH BALANCE SHEET.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 1-MO
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-25-1998
<PERIOD-END> MAR-25-1998
<CASH> 2
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2
<TOTAL-LIABILITY-AND-EQUITY> 2
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
