<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 2
TO
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)
-------------------
Securities to be registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE PACIFIC EXCHANGE
-------------------------------------- -------------------------------
(Title of Class) (Name on each exchange on which
each class is to be registered)
Securities to be registered pursuant to Section 12(g) of the Act: None
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<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT
AND ITEMS OF FORM 10
<TABLE>
<CAPTION>
ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
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<S> <C> <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."
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."
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ITEM NO. ITEM CAPTION LOCATION IN INFORMATION STATEMENT
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<S> <C> <C>
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
NUMBER DESCRIPTION
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<S> <C>
3.1 Form of Amended and Restated Articles of
Incorporation of LTC Healthcare, Inc.
(included as Annex I to Information
Sheet). (3)
3.2 Form of Amended and Restated Bylaws of
LTC Healthcare, Inc. (included as Annex
II to Information Statement). (3)
4.1 Form of Common Stock Certificate. (3)
10.1 Form of 1998 Equity Participation Plan
of LTC Healthcare, Inc. (included as
Annex III to Information Statement).
(3)
10.2 Form of Intercompany Agreement. (3)
10.3 Form of Distribution Agreement. (3)
10.4 Form of Administrative Services
Agreement. (3)
10.5 Form of Tax Sharing Agreement. (3)
10.6 Form of Indemnity Agreement. (2)
10.7 Promissory Note, dated as of March 30,
1998, between LTC Healthcare, Inc.
(formerly known as LTC Equity Holding
Company, Inc.) and LTC Properties, Inc.
(3)
10.8 Lease and Sublease Agreement, dated as
of April 21, 1998, between LTC-Ohio,
Inc., a Delaware corporation, as Lessor
and Sublessor and Karrington Operating
Company, Inc., an Ohio corporation, as
Lessee and Sublessee. (3)
10.9 Lease Agreement (Erie, Pennsylvania),
dated as of June 30, 1998, between
Missouri River Corporation, a Delaware
corporation, as Lessor and Karrington
Operating Company, Inc., an Ohio
corporation, as Lessee. (3)
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
10.10 Lease Agreement (Rocky River), dated as
of May 21, 1998, between LTC-Ohio, Inc.,
a Delaware corporation, doing business
in Ohio as LTC Properties-Ohio, Inc., as
Lessor and Karrington Operating Company,
Inc., an Ohio corporation, as Lessee.
(3)
10.11 Lease Agreement, dated as of December
18, 1987, by and between Phoenix Nursing
Home Partnership, an Illinois limited
partnership, and Horizon Healthcare
Corporation, a Delaware corporation.
(3)
10.12 Amendment to Lease Agreement, dated as
of August 30, 1991, by and between
Phoenix Nursing Home Limited
Partnership, an Illinois limited
partnership, and Horizon Healthcare
Corporation, a Delaware corporation and
Sunrise Healthcare Corporation, a New
Mexico corporation. (3)
10.13 Lease Agreement, dated as of August 30,
1991, by and between Phoenix Nursing
Home Limited Partnership II, an Illinois
limited partnership, and Sunrise
Healthcare Corporation, a New Mexico
corporation, and Andrew Turner and Nora
Turner. (3)
10.14 First Amendment to Lease Agreement,
dated as of February 1, 1993, by and
between Phoenix Nursing Home Limited
Partnership II, an Illinois limited
partnership, and Sunrise Healthcare
Corporation, a New Mexico corporation,
and Andrew Turner and Nora Turner. (3)
10.15 Convertible Subordinated Note Purchase
Agreement, dated as of March 30, 1998,
by and between Regent Assisted Living,
Inc. and LTC Healthcare, Inc. (formerly
known as LTC Equity Holding Company,
Inc.). (3)
10.16 Registration Rights Agreement, dated as
of March 30, 1998, by and between Regent
Assisted Living, Inc. and LTC
Healthcare, Inc. (formerly known as LTC
Equity Holding Company, Inc.). (3)
21.1 Subsidiaries of LTC Healthcare, Inc.
(2)
23.1 Consent of Ernst & Young LLP. (3)
27.1 Financial Data Schedule. (3)
27.2 Financial Data Schedule. (3)
</TABLE>
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(1) To be filed by amendment.
(2) Previously filed.
(3) Filed herewith.
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, holders of LTC
Series C Preferred Stock and holders of LTC convertible subordinated debentures,
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 has applied 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 or LTC Series C Preferred 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 or for each share of LTC common stock receivable upon conversion.
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"), holders of 8.5% Series C
Cumulative Convertible Preferred Stock, $.01 par value per share ("Series C
Preferred Stock") and holders of convertible subordinated debentures 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, holders of Series C Preferred Stock and holders of the
following series of LTC convertible subordinated debentures : 8.50% due January
2001, 8.25% due January 1999, 7.75% due January 2002 and 8.25% due July 2001
(the "Debentures") 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 and for each share of LTC Common
Stock into which such holder's shares of Series C Preferred Stock or Debentures
may be converted on the record date. Only whole shares of Healthcare common
stock will be issued. Stockholders and debenture holders 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 and the debenture holders 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, holders of Series
C Preferred Stock and the holders of Debentures 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
has applied to have the shares of Company Common Stock approved for listing and
trading on the Pacific Exchange under the symbol "LTI." See "THE
DISTRIBUTION-Listing and Trading of Company Common Stock; Dividend Policy."
----------------------
NO STOCKHOLDER OR DEBENTUREHOLDER 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 and debenture holders 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 AUGUST 21, 1998.
<PAGE>
INFORMATION STATEMENT
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SUMMARY OF INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Recently Formed Entity; Lack of Independent Operating History. . . . . . . . . . . . . . . . .9
Anticipated Operating Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Possible Conflicts with LTC After the Distribution . . . . . . . . . . . . . . . . . . . . . .9
Failure of LTC to Qualify as a REIT Would Allow LTC to Compete with the Company. . . . . . . 10
Related Party Transactions On or Prior to the Distribution . . . . . . . . . . . . . . . . . 11
Reliance on Major Operators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Tax Consequences of the Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Dilution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Absence of Prior Trading Market for Company Common Stock; Potential Volatility . . . . . . . 15
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Potential Adverse Effects on LTC Common Stock of the Distribution. . . . . . . . . . . . . . 16
Difficulty of Locating Suitable Investments; Competition . . . . . . . . . . . . . . . . . . 16
Acquisition, Development, Construction and Renovation Activities . . . . . . . . . . . . . . 16
Acquired Properties May Fail to Perform as Expected and Capital Expenditures May Exceed
Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Uncertainty of Cash Flow from Development, Construction and Renovation Activities. . . . . 16
Operating Risks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Potential Increases in Operating Costs . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Dependence on Rental Income from Real Property . . . . . . . . . . . . . . . . . . . . . . . 17
Potential Adverse Consequences of Debt Financing . . . . . . . . . . . . . . . . . . . . . . 17
Use of Leverage Could Adversely Affect the Company . . . . . . . . . . . . . . . . . . . . 17
Inability to Repay or Refinance Indebtedness at Maturity; Foreclosures . . . . . . . . . . 17
Rising Interest Rates Could Increase the Company's Interest Expense. . . . . . . . . . . . 18
Restrictive Covenants Could Adversely Affect the Company's Borrowings. . . . . . . . . . . 18
No Limitation on Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Equity Investments in and with Third Parties . . . . . . . . . . . . . . . . . . . . . . . . 18
Dependence on Third Parties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Potential Lack of Control of Management. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Potential Conflicts and Increased Bankruptcy, Liability and Other Risks. . . . . . . . . . 18
Illiquidity of Real Estate Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Disadvantages of Investments in Debt Instruments . . . . . . . . . . . . . . . . . . . . . . 19
Dependence on Borrowers to Preserve Value of Collateral; Possibility of Nonpayment . . . . 19
Unrated Debt Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Limited Remedies Upon Default of Mortgage Loans. . . . . . . . . . . . . . . . . . . . . . . 19
Disadvantages of Investments in Commercial Mortgage-Backed Securities. . . . . . . . . . . . 20
Investments in Commercial Mortgage-Backed Securities Subject to Real Estate Risks
Applicable to Underlying Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Investment in Commercial Mortgage-Backed Securities Subject to Risks Associated with
Prepayment of Underlying Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Credit Support for Commercial Mortgage-Backed Securities May Prove Inadequate. . . . . . . 20
i
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Subordinated Securities May Not be Repaid Upon Default . . . . . . . . . . . . . . . . . . 20
Limitations on Remedies Upon Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Third-Party Bankruptcy Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Costs of Compliance with the Investment Company Act. . . . . . . . . . . . . . . . . . . . . 21
Uninsured Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Potential Environmental Liability Related to the Properties. . . . . . . . . . . . . . . . . 21
Hedging Policies/Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Certain Anti-Takeover Features Affecting a Change in Control of the Company. . . . . . . . . 23
Dependence on Key Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
THE DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Background and Reasons for the Distribution. . . . . . . . . . . . . . . . . . . . . . . . . 25
Distribution Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Manner of Effecting the Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Results of the Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Material Federal Income Tax Consequences of the Distribution . . . . . . . . . . . . . . . . 27
Listing and Trading of Company Common Stock; Dividend Policy . . . . . . . . . . . . . . . . 34
Conditions; Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Reasons for Furnishing the Information Statement . . . . . . . . . . . . . . . . . . . . . . 35
RELATIONSHIP BETWEEN HEALTHCARE AND LTC AFTER THE DISTRIBUTION . . . . . . . . . . . . . . . . 36
Distribution Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Administrative Services Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Tax Sharing Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Intercompany Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Policies and Procedures for Addressing Conflicts . . . . . . . . . . . . . . . . . . . . . . 37
REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
PRO FORMA COMBINED CAPITALIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
LTC HEALTHCARE, INC. UNAUDITED PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Liquidity and Capital Resources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Operating Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Statement Regarding Forward Looking Disclosure . . . . . . . . . . . . . . . . . . . . . . . 47
THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Intercompany Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
BUSINESS AND PROPERTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Initial Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Properties to Be Transferred to Healthcare Prior to the Distribution . . . . . . . . . . . . 53
Equity Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Corporate Headquarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Committees of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Compensation of the Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
ii
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Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Executive Officer Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Healthcare 1998 Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Indemnification Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . 72
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . 73
Authorized Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Liability for Monetary Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Anti-Takeover Effect of Authorized But Undesignated Preferred Stock. . . . . . . . . . . . . 75
Indemnification and Advancement of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . 75
Amendment of the Company Articles and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . 77
DESCRIPTION OF THE COMPANY'S CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 78
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Nevada Anti-Takeover Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY . . . . . . . . . . . . 81
Indemnification for Director's and Officer's Liability . . . . . . . . . . . . . . . . . . . 81
Restrictions on Interested Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . 81
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
<TABLE>
<S> <C>
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 and for each share of LTC
Common Stock into which shares of Series C Preferred
Stock and Debentures may be converted 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, 2,000,000 shares of LTC Common Stock into
which the Series C Preferred Stock may be converted and
____ shares of LTC Common Stock into which Debentures
may be converted 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, holders of Series
C Preferred Stock and holders of Debentures as soon as
practicable thereafter. Holders of LTC Common Stock
and Series C Preferred Stock should not send stock
certificates to LTC, the Company or the Distribution
Agent. Holders of Debentures should retain their
Debenture certificates which will continue to be
convertible into the same number of shares of LTC
Common Stock as such Debentures were convertible prior
to the Distribution Date. 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
2
<PAGE>
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 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."
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 13 properties and certain equity
investments. The properties to be transferred to the
Company represent an aggregate of 909 beds in skilled
nursing facilities, an aggregate of 293 assisted living
facility units and 26 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 $6.9
million in annual base rental income for the next 12
months. Each of these
3
<PAGE>
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 $6.5 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 $2.7 million on
June 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 52%, 31% and 11%,
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 and holders
of Debentures. . . . . . . . . . . . . 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 capital gain. The amount of the
Distribution received by each holder of Debentures will
be treated as a distribution of ordinary income, and
will further be treated as neither a dividend or
interest. 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 and the amount of the
Distribution to each holder of Debentures, to such
holder and to the IRS on IRS Form 1099-MISC. There can
be no 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
4
<PAGE>
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 has applied to have the
Company Common Stock approved for listing and trading
on the Pacific Exchange under the symbol "LTI." 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."
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
5
<PAGE>
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 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 will 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
6
<PAGE>
interest between the companies and require approval of
the disinterested directors of both companies with
respect to the Intercompany Agreement and the
Administrative Services Agreement. It is anticipated
that the members of the Board of Directors of each
company that do not have any potentially significant
conflict of interest between the companies will
determine whether a matter presents such a significant
conflict. 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 developing a direct or
indirect opportunity to invest in real estate through
mortgage loans, facility lease transactions and other
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 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 and continuing thereafter
for a period of time until the next annual stockholders
meeting or until his or her successor is elected and is
duly qualified, 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 who currently 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 and continuing thereafter
for a period of time until the next annual board
meeting or until his or her successor is chosen and is
duly qualified, 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."
</TABLE>
7
<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 six months ended
June 30, 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>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------- -------------------------------------------------
1998 1997 1997 1996 1995
-------------- ---------------- --------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues $ 1,225,800 $ 1,171,000 $ 2,350,400 $ 2,348,900 $ 2,342,800
Interest expense 833,900 663,400 1,323,000 1,113,700 -
Depreciation 316,500 316,000 632,000 632,000 632,000
Other expenses 45,100 36,900 86,800 80,900 83,100
-------------- ---------------- --------------- ---------------- --------------
Total expenses 1,195,500 1,016,300 2,041,800 1,826,600 715,100
-------------- ---------------- --------------- ---------------- --------------
Income before taxes 30,300 154,700 308,600 522,300 1,627,700
Income taxes 11,800 60,200 120,000 203,200 633,200
-------------- ---------------- --------------- ---------------- --------------
Net income $ 18,500 $ 94,500 $ 188,600 $ 319,100 $ 994,500
-------------- ---------------- --------------- ---------------- --------------
-------------- ---------------- --------------- ---------------- --------------
BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of depreciation $ 15,119,600 N/A $ 15,383,000 $ 16,015,000 N/A
Total assets 15,340,100 N/A 15,561,500 16,240,100 N/A
Mortgage loans payable 23,039,900 N/A 14,223,400 14,389,800 N/A
Total liabilities 23,669,500 N/A 14,759,500 14,865,400 N/A
Investment by LTC Properties, Inc. (8,329,400) N/A 802,000 1,374,700 N/A
<CAPTION>
SIX MONTHS
ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------- ----------------------------------------------------
1998 (1) 1997 1997 (1) 1996 1995
-------------- ---------------- --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
PRO FORMA OPERATING DATA:
Revenues $ 3,193,700 N/A $ 6,278,600 N/A N/A
Interest expense 2,455,000 N/A 4,921,200 N/A N/A
Depreciation 792,500 N/A 1,584,000 N/A N/A
Other expenses 621,600 N/A 1,243,200 N/A N/A
-------------- ---------------
Total expenses 3,869,100 N/A 7,748,400 N/A N/A
-------------- ---------------
Income before taxes (675,400) N/A (1,469,800) N/A N/A
Income taxes - N/A - N/A N/A
-------------- ---------------
Net loss $ (675,400) N/A $ (1,469,800) N/A N/A
-------------- ---------------
-------------- ---------------
Net loss per share:
Basic $ (0.20) N/A $ (0.44) N/A N/A
Diluted $ (0.20) N/A $ (0.44) N/A N/A
Pro forma shares outstanding 3,326.202 N/A 3,326,202 N/A N/A
PRO FORMA BALANCE SHEET DATA
(AT END OF PERIOD):
Real estate, net of depreciation $ 61,890,500 N/A N/A N/A N/A
Total assets 74,813,000 N/A N/A N/A N/A
Mortgage loans payable 46,731,100 N/A N/A N/A N/A
Total liabilities 58,589,600 N/A N/A N/A N/A
Minority interest 3,469,100 N/A N/A N/A N/A
Stockholders' equity 12,754,300 N/A N/A N/A N/A
</TABLE>
(1) The pro forma results of operations do not include base rental income
($1,484,600 annually) and related depreciation ($522,100 annually) for
two properties that were not available for occupancy during the year
ended December 31, 1997 and the six months ended June 30, 1998.
Construction was completed in May and June 1998 on these two assisted
living facilities which are leased to a wholly owned subsidiary of
Karrington Health, Inc.
8
<PAGE>
RISK FACTORS
All statements, other than statements of historical facts, included in this
Information Statement that address activities, events or developments that the
Company expects, believes or anticipates will or may occur in the future, are
forward looking statements. 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.
ANTICIPATED OPERATING LOSSES
Because the Company is recently formed and owns a significant amount of
real estate that is highly leveraged, it is anticipated that the Company will
incur operating losses. Due to the anticipated operating losses, the Company may
not be in a position to utilize tax benefits associated with net operating loss
carryforwards. On a pro forma basis, the Company would have incurred net losses
of $1,469,800 and $675,400 for the year ended December 31, 1997 and the six
months ended June 30, 1998, respectively. See "LTC HEALTHCARE, INC. PRO FORMA
FINANCIAL INFORMATION."
POSSIBLE CONFLICTS WITH LTC AFTER THE DISTRIBUTION
As of the Distribution Date and continuing thereafter for a period of time
until the next annual stockholders meeting or until his or her successor is
elected and is duly qualified, 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 and continuing thereafter
for a period of time until the next annual board meeting or until his or her
successor is chosen and is duly qualified, 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 anticipates that each of the
members of management of the Company will spend approximately 25% of his or her
time on the Company's affairs. As such, pursuant to the Administrative Services
Agreement, the Company will pay 25% of the aggregate amount of the wages,
salaries and bonuses of LTC's employees (which includes the members of
management of the Company) to LTC and LTC will pay the remaining 75% of such
amount.
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<PAGE>
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 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 will 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 and will require approval of the disinterested
directors of both companies with respect to the Intercompany Agreement and the
Administrative Services Agreement. It is anticipated that the members of the
Board of Directors of each company that do not have any potentially significant
conflict of interest between the companies will determine whether a matter
presents such a significant conflict. The Intercompany Agreement prohibits the
Company from developing a direct or indirect opportunity to invest in real
estate through mortgage loans, facility lease transactions and other 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 developing a direct or
indirect opportunity to invest in real estate through mortgage loans, facility
lease transactions and other 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. Additionally, the Clinton
Administration's 1999 budget proposals contain several provisions imposing
certain restrictions and limitations on a REIT's ownership of stock in another
corporation, on ownership of the REIT's stock by its stockholders, and on the
use of "paired" share arrangements between REITs and non-REITs which, if enacted
in their proposed form, may adversely affect LTC's qualification as a REIT. See
"THE DISTRIBUTION-Material Federal Income Tax Consequences of the
Distribution-Clinton Administration 1999 Budget Proposals." Furthermore,
because of the nature of the assets being transferred to the Company by LTC
prior to and in connection with the Distribution, and the uncertainty of the
value of the Company Common Stock, the amount of gain recognized by LTC in
connection with the Distribution (including in connection with such transfer)
could cause LTC to fail to satisfy the 75% gross income test applicable to REITs
for LTC's current taxable year. If LTC fails to satisfy such 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
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<PAGE>
disclosure requirements are met and the failure to meet such test is due to
reasonable cause and not willful neglect. The Company believes that it has
exercised ordinary business care and prudence in connection with the transfer of
assets to the Company and the Distribution in attempting to satisfy the 75%
gross income test, and that it will continue to exercise such ordinary business
care and prudence in attempting to satisfy the 75% gross income test. LTC has
engaged an independent valuation firm of nationally-recognized standing to
render an opinion as to the value of the Company
RELATED PARTY TRANSACTIONS ON OR PRIOR TO THE DISTRIBUTION
The Company and LTC will enter into the Intercompany Agreement and the
Administrative Services Agreement on or prior to the Distribution Date. Because
LTC owns nonvoting common stock of the Company (representing approximately 99%
of the outstanding shares of Company Common Stock), such agreements were not
negotiated at arms-length and may include terms which are not as favorable as
would have been derived from arms-length negotiations
In addition, although the Intercompany Agreement and Administrative
Services Agreement each have a stated term of 10 years, both of these agreements
shall terminate sooner upon a change of control of LTC. A change of control of
LTC shall occur upon the occurrence of any of the following: (i) any person or
related group of persons directly or indirectly acquires beneficial ownership of
more than 50% of the voting power of LTC, (ii) there is a change in the
composition of the LTC Board over a period of 36 consecutive months (or less)
such that a majority of the LTC Board ceases 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 LTC Board; or (iii) there is a change in the composition of
LTC's senior executive management such that both Andre C. Dimitriadis and James
J. Pieczynski cease to be employed by LTC. In addition, the Administrative
Services Agreement may be terminated by either LTC or the Company upon 30 days'
prior written notice to the other party. See "THE COMPANY-Intercompany
Agreement" and "RELATIONSHIP BETWEEN HEALTHCARE AND LTC AFTER THE
DISTRIBUTION-Administrative Services Agreement."
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. (through its wholly owned subsidiary Sunrise Healthcare Corporation) and
Integrated Health Services, Inc. will be the Company's largest operators for the
year ended December 31, 1998, operating 12 facilities which represent
approximately 52%, 31% and 11%, respectively, of the Company's total expected
annual lease revenue for such period and 63%, 23% and 9%, respectively, of the
Company's total pro forma real estate investments as of June 30, 1998. These
operators, and the Company's other operators, manage long-term care facilities
on each of the Company's properties. See "-Concentration of Company Operators
in Long-Term Care Industry" and "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
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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.
Karrington Health, Inc., Sun Healthcare Group, Inc. and Integrated Health
Services, Inc. are publicly-traded companies and as such, have financial and
other information on file with the Commission. The following table contains
summary information for these operators which was extracted from public reports
on file with the Commission (in thousands; balance sheet data is as of the end
of the period):
<TABLE>
<CAPTION>
YEAR ENDED
SIX MONTHS ENDED DECEMBER 31,
JUNE 30, 1998 1997
---------------- -------------
<S> <C> <C>
KARRINGTON HEALTH, INC.
Total assets.............................. $ 139,849 $ 141,316
Total debt................................ 105,469 104,506
Total stockholders' equity................ 20,664 26,507
Total revenues............................ $ 14,414 $ 19,220
Loss before taxes......................... (5,843) (5,860)
Net loss.................................. (5,843) (5,670)
INTEGRATED HEALTH SERVICES, INC.
Total assets.............................. $ 5,398,583 $ 5,063,144
Total debt................................ 3,184,153 3,238,233
Total stockholders' equity................ 1,469,401 1,088,161
Total revenues............................ $ 1,671,554 $ 1,993,197
Income before taxes and extraordinary
items................................... 134,877 13,326
Net income (loss)......................... 79,577 (33,505)
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
1998 1997
---------------- -------------
<S> <C> <C>
SUN HEALTHCARE GROUP, INC.
Total assets.............................. $ 2,687,986 $ 2,579,236
Total debt................................ 1,694,638 1,626,842
Total stockholders' equity................ 639,550 617,053
Total revenues............................ $ 741,490 $ 2,010,820
Income before taxes and extraordinary
items................................... 31,977 95,882
Net income................................ 18,387 34,801
</TABLE>
CONCENTRATION OF COMPANY OPERATORS IN LONG-TERM CARE INDUSTRY
The long-term care businesses of the major operators of the Company, and
the healthcare industry generally, are subject to extensive federal, state and
local regulation governing licensure and conduct of operations at existing
facilities, certain capital expenditures, the quality of services provided, the
manner in which such services are provided, financial and other arrangements
between healthcare providers (including anti-kickback and self-referral
arrangements) and reimbursement for services rendered. The failure of any
Company operator to comply with such laws, requirements and regulations could
adversely affect its ability to operate the facility or facilities and could
adversely affect such Company operator's ability to make payments to the
Company, thereby adversely affecting the Company.
RELIANCE ON GOVERNMENT REIMBURSEMENT. A significant portion of the revenue
of the Company's borrowers and lessees is derived from governmentally-funded
reimbursement programs, such as Medicare and Medicaid. These programs are
highly regulated and subject to frequent and substantial changes resulting from
legislation, adoption of rules and regulations, and administrative and judicial
interpretations of existing law. In recent years, there have been fundamental
changes in the Medicare program which have resulted in reduced levels of payment
for a substantial portion of health care services. Moreover, health care
facilities have experienced increasing pressures from private payers such as
health maintenance organizations attempting to control health care costs, and
reimbursement from
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<PAGE>
private payers has in many cases effectively been reduced to levels approaching
those of government payers. Governmental and popular concern regarding health
care costs may result in significant reductions in payment to health care
facilities, and there can be no assurance that future payment rates for either
governmental or private health care plans will be sufficient to cover cost
increases in providing services to patients. In many instances, revenues from
Medicaid programs are already insufficient to cover the actual costs incurred in
providing care to those patients. Any changes in reimbursement policies which
reduce reimbursement to levels that are insufficient to cover the cost of
providing patient care could adversely affect revenues of the Company's
borrowers and lessees and thereby adversely affect those borrowers' and lessees'
abilities to make their debt or lease payments to the Company. Failure of the
borrowers or lessees to make their debt or lease payments would have a direct
and material adverse impact on the Company.
HEALTH CARE REFORM. The Balanced Budget Act of 1997 signed by President
Clinton on August 5, 1997 (the "Act"), enacted significant changes to the
Medicare and Medicaid Programs designed to "modernize" payment and health care
delivery systems while achieving substantial budgetary savings.
In seeking to limit Medicare reimbursement for long term care services, the
Act mandated the establishment of a prospective payment system for skilled
nursing facility services to replace the current cost-based reimbursement
system. The cost-based system reimburses skilled nursing facilities for
reasonable direct and indirect allowable costs incurred in providing "routine
services" (as defined by the Program) as well as capital costs and ancillary
costs, subject to limits fixed for the particular geographic area served by the
skilled nursing facility. Under the prospective payment system, skilled nursing
facilities will be paid a federal per diem rate for covered services. The per
diem payment will cover routine service, ancillary, and capital-related costs.
The prospective payment system will be phased in over three cost reporting
periods, starting with periods beginning on or after July 1, 1998.
Under provisions of the Act, states will be provided additional flexibility
in managing their Medicaid programs while achieving in excess of $13 million in
federal budgetary savings over five years. Among other things, the Act repealed
the Boren Amendment payment standard, which had required states to pay
"reasonable and adequate" payments to cover the costs of efficiently and
economically operated hospitals, nursing facilities, and certain intermediate
care facilities.
These health care reforms may reduce reimbursement to levels that are
insufficient to cover the cost of providing patient care, which could adversely
affect revenues of the Company's borrowers and lessees and thereby adversely
affect those borrowers' and lessees' abilities to make their debt or lease
payments to the Company. Failure of the borrowers or lessees to make their debt
or lease payments would have a direct and material adverse impact on the
Company.
FRAUD AND ABUSE ENFORCEMENT. In the past several years, due to rising
health care costs, there has been an increased emphasis on detecting and
eliminating fraud and abuse in the Medicare and Medicaid programs. Payment of
any remuneration to induce the referral of Medicare and Medicaid patients is
generally prohibited by federal and state statutes. Both federal and state
self-referral statutes severely restrict the ability of physicians to refer
patients to entities in which they have a financial interest. The Act provided
the federal government with expanded enforcement powers to combat waste, fraud
and abuse in the delivery of health care services. Further, pursuant to a
government initiative called Operation Restore Trust, the Office of Inspector
General and the Health Care Financing Administration have increased
investigations and enforcement activity of fraud and abuse, specifically
targeting nursing homes, home health providers and medical equipment suppliers.
Failure to comply with the foregoing fraud and abuse laws or government program
integrity regulations may result in sanctions including the loss of licensure or
eligibility to participate in reimbursement programs (including Medicare and
Medicaid), asset forfeitures and civil and criminal penalties.
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<PAGE>
It is anticipated that the trend toward increased investigation and
informant activity in the area of fraud and abuse, as well as self-referral,
will continue in future years. In the event that any borrower or lessee were to
be found in violation of laws regarding fraud, abuse or self-referral, that
borrower's or lessee's licensure or certification to participate in government
reimbursement programs could be jeopardized, or that borrower or lessee could be
subject to civil and criminal fines and penalties. Either of these occurrences
could have a material adverse affect on the Company by adversely affecting the
borrower's or lessee's ability to make debt or lease payments to the Company.
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 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 and holders of Debentures 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 and will be fully
taxable as ordinary income to holders of Debentures. 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
treat the amount of the Distribution to holders of Debentures, as a distribution
of ordinary income that will not be a dividend or interest on the Debentures.
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 and will report the amount of the Distribution received by
each holder of Denbentures to such holder and to the IRS on IRS Form 1099-MISC.
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."
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<PAGE>
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 has applied 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. In
addition, the prices at which the Company Common Stock trades may fluctuate
as recipients of the Company Common Stock may sell their shares of the
Company Common Stock because the Company's objectives are not consistent with
their investment criteria or for other reasons. 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 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 and debenture holders 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.
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<PAGE>
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.
ACQUISITION, DEVELOPMENT, CONSTRUCTION AND RENOVATION ACTIVITIES
ACQUIRED PROPERTIES MAY FAIL TO PERFORM AS EXPECTED AND CAPITAL
EXPENDITURES MAY EXCEED ESTIMATES. As of the Distribution Date, the Company
will own a total of 13 properties. The acquisitions of these properties and the
future acquisitions of any 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.
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<PAGE>
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 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. As of the Distribution
Date, some of the Company's real estate equity investments utilize a leveraged
capital structure, in which case third party lenders are entitled to cash flow
generated by such investments prior to the Company receiving a return. As a
result of such leverage, the Company is 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 non-performing 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
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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. As part of its business strategy, the Company
intends to engage in the ownership of leveraged properties, and as such, the
purchase of additional properties will cause the Company's debt to increase.
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.
INABILITY TO REFINANCE INDEBTEDNESS. As of the Distribution Date, the
Company will have approximately $29.4 million of mortgage loans payable that
were securitized by LTC in REMIC transactions. The interest rates on the
mortgage loans range from 8.0% to 12.0%. In connection with the Administrative
Services Agreement, the Company has agreed not to prepay or cause to be prepaid
any of its mortgage loans provided by LTC which are securitized in REMIC
transactions unless the property is sold to an unaffiliated third party.
Because of this agreement, the Company will not have the ability to refinance
this mortgage debt and consequently will not be able to lower its interest costs
in a low interest rate environment.
EQUITY INVESTMENTS IN AND WITH THIRD PARTIES
DEPENDENCE ON THIRD PARTIES. As of the Distribution Date, the Company
invests in health care companies and 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 co-invests with
third parties and may continue to do so 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
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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. As of the Distribution Date, the Company owns convertible
subordinated debentures and may originate additional debt investments and may
acquire performing or non-performing 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 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. The Company's
potential investments in such assets will likely be from unrelated third
parties.
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.
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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."
INVESTMENT IN COMMERCIAL MORTGAGE-BACKED SECURITIES SUBJECT TO RISKS
ASSOCIATED WITH PREPAYMENT OF UNDERLYING MORTGAGES. As with many interest
bearing mortgage-backed instruments, prepayments of the underlying mortgages may
expose the Company to the risk that an equivalent rate of return is not
available in the current market and that new investment of equivalent risk will
have lower rates of return. Certain types of investments in commercial
mortgage-backed securities may be interest-only securities which expose the
holder to the risk that the underlying mortgages may prepay at a faster rate
than anticipated at acquisition. Faster than anticipated prepayments may cause
the investment in interest-only commercial mortgage-backed securities to have a
lower than anticipated rate of return and could result in a loss of the initial
investment under extreme prepayment scenarios.
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, 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.
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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 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
As of the Distribution Date, the Company will own a total of 13 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
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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."
In connection with the financing of certain real estate investments, the
Company may use derivative financial instruments primarily to reduce exposure to
adverse fluctuations in interest rates and foreign exchange rates. The Company
does not intend to enter into derivative financial instruments for trading
purposes. Any derivative position maintained by the Company would be used to
reduce risk by hedging an underlying economic exposure. Because of the high
correlation between the hedging instrument and the underlying exposure,
fluctuations in the value of the instruments are generally offset by reciprocal
changes in the value of the underlying exposure. The Company intends to invest
in derivatives having straightforward instruments with liquid markets. In
order to reduce counter-party credit or legal enforcement risk, all
counter-parties will be major investment or commercial banks and all
transactions will be executed with documentation consistent with accepted
industry practice. See "THE COMPANY--Financing Policies."
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
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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 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. In addition, the affirmative vote of at least 66 2/3% of the
shares of voting stock then outstanding is required for any merger, exchange or
consolidation to which the Company is a party and which requires stockholder
approval under Nevada statutory law and any sale or other disposition by the
Company of all or substantially all of its assets. 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."
In addition, certain provisions of Nevada statutory law may make more
difficult the acquisition of control of the Company without the approval of the
Company Board. 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
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
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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. See "DESCRIPTION OF
THE COMPANY'S CAPITAL STOCK."
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 June 30, 1998, the total pro forma
mortgages payable on these properties was $29,331,100. 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 $253,500 and $41,700, 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 June 30, 1998, LTC's average investment in owned assisted living facilities
was approximately $62,000 per unit. Four of the properties acquired from
Karrington Health, Inc. were acquired for approximately $125,000 per unit and
LTC has the opportunity to finance approximately 75% of the purchase price of
these properties with non-recourse mortgage financing, and the remaining 25% of
the purchase price with equity. The remaining two properties acquired from
Karrington Health, Inc. were acquired for approximately $121,000 per unit and
LTC intends to encumber such properties with non-recourse mortgage financing.
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, -Karrington Place, -Karrington of Rocky River and -Karrington on
Presque Isle Bay."
The LTC Board recognized in its planning that the Distribution would result
in a transaction taxable to LTC stockholders, LTC debenture holders and to LTC.
Due to the nature of the assets to be
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transferred to the 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
discussed in the preceding paragraphs of this section "-Background and Reasons
for the Distribution", 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."
A small number of REITs, operating under tax provisions that no longer are
available to other REITs, have shares of capital stock that are "paired" or
"stapled" with shares of capital stock of an operating company that is liable
for regular corporate income tax. The shares of LTC Common Stock, Series C
Preferred Stock and Company Common Stock are not, and will not be, paired or
stapled in any manner and may be owned and transferred separately and
independently of each other. However, investors who choose to own both shares
of LTC Common Stock or shares of Series C Preferred Stock and Company Common
Stock will, in effect, have substantially the same economic equivalent of a
"stapled" investment in LTC and the Company.
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, Series C Preferred
Stock and Debentures 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 and for each share of LTC Common Stock into
which Series C Preferred Stock and Debentures may be converted as of the close
of business on the Record Date. Only whole shares of Company Common Stock will
be issued. Stockholders and debenture holders 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, 2,000,000 shares of LTC Common Stock into which shares of
Series C Preferred Stock may be converted and ____ shares of LTC Common Stock
into which Debentures may be converted on the record date, approximately
____________ shares of Company Common Stock will be distributed to LTC
stockholders and debenture holders. The shares of Company Common Stock will be
fully paid and non-assessable, 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, holders of Series C Preferred Stock and holders of Debentures as
soon as practicable after the Distribution Date.
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HOLDERS OF LTC COMMON STOCK, SERIES C PREFERRED STOCK AND DEBENTURES 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 AND DEBENTURE CERTIFICATES WILL CONTINUE TO REPRESENT SHARES
OF LTC COMMON STOCK, SERIES C PREFERRED STOCK AND DEBENTURES AFTER THE
DISTRIBUTION IN THE SAME AMOUNT SHOWN ON THE CERTIFICATES.
No holder of LTC Common Stock, Series C Preferred Stock or Debentures 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, Series C Preferred Stock or Debentures or to take
any other action in order to receive the Company Common Stock pursuant to the
Distribution.
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 and debenture
holders of record on the Record Date, the outstanding shares of LTC Common Stock
on the Record Date, the number of shares of LTC Common Stock into which shares
of Series C Preferred Stock and Debentures may be converted on the Record Date
and the distribution ratio of 1/10 share of Company Common Stock for each share
of LTC Common Stock and for each share of LTC Common Stock into which shares of
Series C Preferred Stock and Debentures may be converted.
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
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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. 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,
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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.
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. ("ALC") 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 nature of the
assets being transferred to the Company in the Contribution and 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 believes that it has exercised
ordinary business care and prudence in connection with the Contribution and the
Distribution in attempting to satisfy the 75% gross income test, and that it
will continue to exercise such ordinary business care and prudence in attempting
to satisfy the 75% gross income test. Furthermore, LTC has engaged an
independent, nationally recognized valuation firm to render an opinion as to the
value of the Company
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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 Distribution.
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.
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 AND HOLDERS OF DEBENTURES 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 and
holders of Debentures 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. LTC will treat the amount of the Distribution to
holders of Debentures as a distribution of ordinary income that will not be
treated as a dividend or interest on the Debentures.
TAXATION OF TAX-EXEMPT STOCKHOLDERS AND HOLDERS OF DEBENTURES 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 or holder of Debentures that is a
Tax-Exempt entity
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should not constitute UBTI, provided that the Tax-Exempt entity has not financed
the acquisition of its shares of LTC Common Stock or Debentures 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
persons (collectively, "Non-U.S. Persons") holding stock of a domestic
corporation ("Non-U.S. Stockholders") are complex, and no attempt will be made
in this Information Statement to provide more than a summary of such rules.
Non-U.S. Persons holding LTC Common Stock or Debentures 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 and holders of
Debentures 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 and holders of Debentures will
receive a basis in Company Common Stock equal to the fair market value thereof
at the time of the Distribution.
Distributions to Non-U.S. stockholders 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. Distributions to Non-U.S. Persons holding
Debentures will be treated as a distribution of ordinary income that will not be
treated as a dividend or interest on the Debentures. 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. Person unless (i) a lower
treaty rate applies and the Non-U.S. Person 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. Person is
entitled to claim the benefits of such reduced treaty rate), or (ii) the
Non-U.S. Person files an IRS Form 4224 with LTC claiming that the distribution
is effectively connected with the Non-U.S. Person'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
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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
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. Persons 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, and
will report the amount of the Distribution received by each holder of Debentures
to such holder and to the IRS on IRS Form 1099-MISC. There can be no assurance
that the IRS or the courts will agree with the amount determined by LTC.
CLINTON ADMINISTRATION 1999 BUDGET PROPOSALS. On February 2, 1998, the
Department of the Treasury (the "Treasury") released an explanation of the
revenue proposals included in the Clinton Administration's fiscal 1999 budget.
These proposals contains several provisions which, if enacted in their proposed
form, may have an adverse impact on LTC's continued qualification as a REIT.
One provision would prohibit a REIT from holding greater than 10 percent of
the outstanding stock of any one issuer, measured by vote OR value. This
proposal would be effective with respect to stock acquired on or after the date
of first committee action (such date, the "Action Date"). However, under a
grandfather provision, stock acquired before the Action Date would become
subject to the proposal when the corporation in which stock is owned engages in
a trade or business in which it was not engaged on the Action Date or if the
corporation acquires substantial new assets on or after the Action Date.
A second provision would impose as an additional requirement for REIT
qualification that no person can own stock of a REIT possessing more than 50
percent of the combined voting power of all classes of voting stock OR 50
percent of the total value of shares of all classes of stock. For purposes of
determining stock ownership, rules similar to the attribution rules for REIT
qualification under present law would apply. This proposal would be effective
for entities electing REIT status for taxable years beginning on or after the
Action Date.
Finally, a third proposal regarding the "grandfathered" status of certain
"stapled" or "paired share" REITs that would otherwise be subject to Section
269B of the Code has been enacted in a
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provision of the IRS Restructuring and Reform Act of 1998, which was signed by
President Clinton on July 22, 1998 (the "1998 Act"). Under the provision in the
1998 Act, such grandfathered status would be revoked and the stapled entities
would be treated as a single corporation with respect to certain properties
acquired by the stapled entities on or after March 26, 1998 and activities or
services relating to such properties performed on or after such date. Under the
1998 Act, the anti-pairing rules provided in the Code apply to real property
interests acquired after March 26, 1998 by a REIT or a stapled entity, or a
subsidiary or partnership in which ten percent or greater interest is owned by
the REIT or a stapled entity unless (i) the real property interests are acquired
pursuant to a written agreement which was binding on March 26, 1998 and all
times thereafter or (ii) the acquisition of such real property interests was
described in a public announcement or in a filing with the Commission on or
before March 26, 1998.
With respect to the first proposal, LTCTC owns 100% of the nonvoting
preferred stock of LTC Development Company, Inc. ("LTC Development") and 100% of
the nonvoting common stock of the Company, (the Company and LTC Development are
collectively referred to herein as the "Preferred Stock Subsidiaries"), which
ownership represents, in each case, approximately 99% of the economic value of
all classes of stock of each of the Preferred Stock Subsidiaries. LTC does not
and will not own any of the voting securities of either of the Preferred Stock
Subsidiaries, and therefore LTC will not be considered to own more than 10% of
the voting securities of either of the Preferred Stock Subsidiaries (which would
be prohibited by the REIT asset tests currently set forth in the Code). If this
proposal were enacted in its present form, LTC's stock ownership in the
Preferred Stock Subsidiaries would be grandfathered, but such grandfathered
status would terminate if either of the Preferred Stock Subsidiaries engages in
a trade or business that it is not engaged in on the Action Date or acquires
substantial new assets on or after such date, even if such activities are
undertaken or assets are acquired prior to the adoption of the proposal. In
such case, LTC's continued ownership of more than 10% of the economic value of
the Preferred Stock Subsidiaries beyond LTC's next quarterly asset testing date
following the Action Date (which could occur prior to the adoption of the
proposal) could cause LTC to fail to qualify as a REIT. See "-Failure to
Qualify." At this time, it is expected that LTC Development will not acquire
additional properties notwithstanding the proposed legislation regarding REIT
subsidiaries. It is anticipated that the Company will not acquire any assets
other than from LTCC by way of the Company's contribution of certain of its
assets to the Company prior to the Distribution. It is presently uncertain,
however, whether any proposal regarding REIT subsidiaries, such as the Preferred
Stock Subsidiaries, will be enacted, or if enacted, what the terms of such
proposal (including its effective date) will be.
With respect to the second proposal, because LTCC's Common Stock is widely
held, and possesses approximately 80% of the value and 100% of the voting power
of all classes of LTC's stock, LTC does not anticipate that, if this proposal is
adopted as proposed, ownership of its stock will cause it to fail to satisfy
this test. Additionally, LTC believes that the share ownership and transfer
restrictions with respect to LTC's Common Stock and Preferred Stock contained in
LTC's Charter and Articles Supplementary should enable it to satisfy this
proposed share ownership requirement. Furthermore, if required, LTC intends to
take other reasonable action to ensure that this proposed share ownership
requirement, if enacted, would be met.
The Treasury's explanation of the two foregoing budget proposals provides
only a general description of the proposals, and the details of the statutory
amendments that would implement these proposals are not known, and would be
subject to change until such time as they are enacted into law. Consequently,
it is impossible to determine all of the ramifications of these proposals.
With respect to the anti-pairing provision under the 1998 Act, Section
269B(a)(3) of the Code provides that if the shares of a REIT and a non-REIT are
paired or "stapled," then the REIT and the stapled non-REIT shall be treated as
one entity for purposes of determining whether either company qualifies as a
REIT. Section 269B(a)(3) does not apply, however, if the shares of the REIT and
the non-REIT were paired on June 30, 1983 and the REIT was taxable as a REIT on
such date. While this "grandfathering" of stapled REITs does not apply to LTC,
LTC and the Company are not stapled entities,
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nor is LTC a stapled entity with respect to any other non-REIT corporate entity.
Therefore, LTC believes that this proposal will have no effect on LTC's
continued qualification as a REIT. However, if Section 269B(a)(3) did apply to
LTC and the Company, LTC and the Company would be treated as one entity for
purposes of determining REIT qualification, and LTC may not qualify as a REIT.
ALL LTC STOCKHOLDERS AND DEBENTURE HOLDERS 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 has applied 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."
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 and debenture holders 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
34
<PAGE>
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 and debenture holders 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.
35
<PAGE>
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 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
36
<PAGE>
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. A change of control of LTC shall occur upon
the occurrence of any of the following: (i) any person or related group of
persons directly or indirectly acquires beneficial ownership of more than 50% of
the voting power of LTC, (ii) there is a change in the composition of the LTC
Board over a period of 36 consecutive months (or less) such that a majority of
the LTC Board ceases 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 LTC Board; or
(iii) there is a change in the composition of LTC's senior executive management
such that both Andre C. Dimitriadis and James J. Pieczynski cease to be employed
by 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. See "RISK
FACTORS-Related Party Transactions On or Prior to the Distribution."
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 and continuing thereafter for a period of time
until the next annual shareholders meeting or until his or her successor is
elected and is duly qualified, 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 and continuing thereafter
for a period of time until the next annual board meeting or until his or her
successor is chosen and is duly qualified, 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
37
<PAGE>
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 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 develop a direct or indirect opportunity
to invest in real estate through mortgage loans, facility lease transactions and
other 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 will 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
and will require approval of the disinterested directors of both companies with
respect to the Intercompany Agreement and the Administrative Services Agreement.
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. It is anticipated that the members of the Board of Directors of
each company that do not have any potentially significant conflict of interest
between the companies will determine whether a matter presents such a
significant conflict. The Intercompany Agreement will prohibit the Company from
developing a direct or indirect opportunity to invest in real estate through
mortgage loans, facility lease transactions and other 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.
38
<PAGE>
PRO FORMA COMBINED CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 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 JUNE 30, 1998
-------------------------
ACTUAL AS ADJUSTED
----------- ------------
<S> <C> <C>
Mortgages payable. . . . . . . . . . $ - $46,731,100
Note payable to LTC. . . . . . . . . - 11,431,700
Minority interest. . . . . . . . . . - 3,469,100
Stockholders' equity . . . . . . . . 2,000 12,754,300
------- -----------
Total Capitalization . . . . . . . . $2,000 $74,386,200
------- -----------
------- -----------
</TABLE>
39
<PAGE>
LTC HEALTHCARE, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma balance sheet of LTC Healthcare, Inc. as of
June 30, 1998 and unaudited pro forma condensed combined statements of
operations for the six months ended June 30, 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 June 30, 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 June 30, 1998.
PRO FORMA BALANCE SHEET - UNAUDITED
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
TRANSFER OF ASSETS BY LTC
------------------------------------------------------
ASSETS
HEALTHCARE HEALTHCARE PURCHASED BY
HISTORICAL ASSET GROUP OTHER ASSETS HEALTHCARE
(A) (B) (C) (D)
---------- ------------- ------------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Real estate:
Buildings and improvements . . . . . . . . $ - $ 17,248,300 $ 7,261,400 (1) $ -
36,770,000 (4)
Land . . . . . . . . . . . . . . . . . . . - 976,600 300,000 (1) -
2,530,000 (4)
Accumulated depreciation . . . . . . . . - (3,105,300) (90,500) (1) -
--------- ------------- ------------- --------------
Real Estate investments, net . . . . . . . . - 15,119,600 46,770,900 -
Convertible subordinated debentures. . . . . - - - 6,500,000
Rent receivable. . . . . . . . . . . . . . . - 220,500 - -
Other assets . . . . . . . . . . . . . . . . - - 11,700 (1) 1,726,900
532,100 (2)
431,300 (3)
Cash . . . . . . . . . . . . . . . . . . . . 2,000 - 72,100 (1) -
--------- ------------- ------------- --------------
Total Assets . . . . . . . . . . . . . . . $ 2,000 $ 15,340,100 $ 47,818,100 $ 8,226,900
--------- ------------- ------------- --------------
--------- ------------- ------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable . . . . . . . . . . . $ - $ 23,039,900 $ 6,291,200 (1) $ -
17,400,000 (4)
Note payable - LTC. . . . . . . . . . . . . - - 1,876,100 (4) 6,226,900
Deferred tax liability. . . . . . . . . . . - 409,200 - -
Interest payable . . . . . . . . . . . . . . - 109,300 31,800 (1) -
Other liabilities. . . . . . . . . . . . . . - 111,100 77,400 (1) -
--------- ------------- ------------- --------------
Total Liabilities. . . . . . . . . . . . . . - 23,669,500 25,676,500 6,226,900
Minority interest. . . . . . . . . . . . . . - - 3,469,100 (1) -
Stockholders' equity:
Non-voting common stock ($0.01 par
value, 4,900,000 shares authorized, 2
shares outstanding as of March 25, 1998,
4,002 shares outstanding as of
June 30, 1998) . . . . . . . . . . . . . . - - - -
Voting common stock ($0.01 par value,
100,000 shares authorized, 2 shares
outstanding as of March 25, 1998 and
June 30, 1998) . . . . . . . . . . . . . . - - - -
Paid-in capital. . . . . . . . . . . . . . . 2,000 (8,329,400) (2,314,800) (1) 2,000,000
532,100 (2)
431,300 (3)
20,023,900 (4)
--------- ------------- ------------- --------------
Total Stockholders' Equity . . . . . . . . . 2,000 (8,329,400) 18,672,500 2,000,000
--------- ------------- ------------- --------------
Total Liabilities and Stockholders' Equity. . $ 2,000 $ 15,340,100 $ 47,818,100 $ 8,226,900
--------- ------------- ------------- --------------
--------- ------------- ------------- --------------
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
(E) CONSOLIDATED
------------ --------------
<S> <C> <C>
ASSETS
Real estate:
Buildings and improvements . . . . . . . . $ - $ 61,279,700
Land . . . . . . . . . . . . . . . . . . . - 3,806,600
Accumulated depreciation . . . . . . . . - (3,195,800)
------------ -------------
Real Estate investments, net . . . . . . . . - 61,890,500
Convertible subordinated debentures. . . . . 3,500,000 (2) 10,000,000
Rent receivable. . . . . . . . . . . . . . . - 220,500
Other assets . . . . . . . . . . . . . . . . - 2,702,000
Cash . . . . . . . . . . . . . . . . . . . . 3,425,900 (1) -
(3,500,000) (2)
------------ -------------
Total Assets . . . . . . . . . . . . . . . $ 3,425,900 $ 74,813,000
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans payable . . . . . . . . . . . $ - $ 46,731,100
Note payable -LTC. . . . . . . . . . . . . . 3,425,900 (1) 11,528,900
Deferred tax liability. . . . . . . . . . . (3,313,700) (3) -
2,904,500 (3)
Interest payable . . . . . . . . . . . . . . - 141,100
Other liabilities. . . . . . . . . . . . . . - 188,500
------------ -------------
Total Liabilities. . . . . . . . . . . . . . 3,016,700 58,589,600
Minority interest. . . . . . . . . . . . . . - 3,469,100
Stockholders' equity:
Non-voting common stock ($0.01 par
value, 4,900,000 shares authorized, 2
shares outstanding as of March 25, 1998,
4,002 shares outstanding as of
June 30, 1998) . . . . . . . . . . . . . . - -
Voting common stock ($0.01 par value,
100,000 shares authorized, 2 shares
outstanding as of March 25, 1998 and
June 30, 1998) . . . . . . . . . . . . . . - -
Paid-in capital . . . . . . . . . . . . . . 3,313,700 (3) 12,754,300
(2,904,500) (3)
------------ -------------
Total Stockholders' Equity . . . . . . . . . 409,200 12,754,300
------------ -------------
Total Liabilities and Stockholders' Equity. . $ 3,425,900 $ 74,813,000
------------ -------------
------------ -------------
</TABLE>
40
<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
included in the Healthcare Asset Group at June 30, 1998. These assets and
liabilities were contributed to the Company for non-voting common stock.
See Combined Balance Sheet of Healthcare Asset Group at F-6. The
Healthcare Asset Group includes four 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 controlling general partner interest
in a limited partnership that owns three skilled nursing facilities with a
book value equal to LTC's historical cost less accumulated depreciation 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 $72,100, other assets of $11,700, interest
payable of $31,800 and other liabilities of $77,400; (2) 30,847 shares of
ALC common stock with a book value equal to fair market value of
approximately $532,100; (3) 69,000 shares of Regent common stock with a
book value equal to fair market value of approximately $431,300; and (4)
six recently acquired assisted living facilities with a book value equal to
LTC's historical cost of approximately $39.3 million and encumbered by
mortgage loans of approximately $17.4 million payable to third parties and
borrowings under the unsecured line of credit provided by LTC (see note
(D)).
LTC's investment posture regarding its investment in ALC and Regent common
stock is to hold the investments long-term. Accordingly, LTC accounts for
its investment in ALC and Regent as available-for-sale securities under the
fair value provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY
SECURITIES which require the securities to be reported at fair value with
unrealized gains and losses on changes in the fair value to be reported as
a separate component of stockholders' equity. Subsequent to the
Distribution, Healthcare intends to hold these securities long-term and
will account for them at fair value as available-for-sale securities.
(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 $6.2 million to purchase 96,800 shares of LTC Common Stock
for approximately $1.7 million and $6.5 million par value of 7.5%
convertible subordinated debentures of Regent due 2008 (the "Regent
Debentures"). The Regent Debentures bear interest at 7.5% per annum 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. See "BUSINESS AND PROPERTIES-Initial Investments-
Convertible Subordinated Debentures of Regent."
41
<PAGE>
(E) Represents the following pro forma adjustments as numbered on the
accompanying pro forma balance sheet: (1) borrowings of approximately $3.4
million under the unsecured line of credit provided by LTC to fund the
purchase of additional convertible subordinated debentures of Regent; (2)
the purchase of an additional $3.5 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 $8.3 million over their current book
value, which would result in a deferred tax asset of approximately $3.3
million which will be offset by the $409,200 deferred tax liability
transferred from the Healthcare Asset Group. See "BUSINESS AND
PROPERTIES-Initial Investments-Convertible Subordinated Debentures of
Regent." 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 that it is more likely than not that future taxable
income will not be sufficient to realize such tax benefits and,
accordingly, a valuation allowance of approximately $2.9 million has been
established.
42
<PAGE>
LTC HEALTHCARE, INC.
PRO FORMA STATEMENTS OF OPERATIONS-UNAUDITED
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
TRANSFER OF ASSETS BY LTC
------------------------------------------------------
ASSETS
HEALTHCARE HEALTHCARE PURCHASED BY
HISTORICAL ASSET GROUP OTHER ASSETS HEALTHCARE
(A) (B) (C) (D)
---------- ------------- ------------------ --------------
<S> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
Revenues:
Rental income. . . . . . . . . . . . . . . $ - $ 1,225,800 $ 1,519,700 $ -
Interest and other income. . . . . . . . . - - - 316,900
--------- ------------- ------------- --------------
Total Revenues . . . . . . . . . . . . . . . - 1,225,800 1,519,700 316,900
--------- ------------- ------------- --------------
Expenses:
Interest . . . . . . . . . . . . . . . . . - 833,900 960,000 311,300
Depreciation . . . . . . . . . . . . . . . - 316,500 476,000 -
Minority interest. . . . . . . . . . . . . - - 171,600 -
Other. . . . . . . . . . . . . . . . . . . - 45,100 - -
--------- ------------- ------------- --------------
Total Expenses . . . . . . . . . . . . . . . - 1,195,500 1,607,600 311,300
--------- ------------- ------------- --------------
Income (Loss) Before Taxes . . . . . . . . . - 30,300 (87,900) 5,600
Provision (Benefit) for Income Taxes . . . . - 11,800 - -
--------- ------------- ------------- --------------
Net Income (Loss) . . . . . . . . . . . . . $ - $ 18,500 $ (87,900) $ 5,600
--------- ------------- ------------- --------------
--------- ------------- ------------- --------------
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . .
Pro forma shares outstanding (F) . . . . . .
YEAR ENDED DECEMBER 31, 1997
Revenues:
Rental income. . . . . . . . . . . . . . . $ - $ 2,350,400 $ 3,039,300 $ -
Interest and other income. . . . . . . . . - - - 626,400
--------- ------------- ------------- --------------
Total Revenues . . . . . . . . . . . . . . . - 2,350,400 3,039,300 626,400
--------- ------------- ------------- --------------
Expenses:
Interest . . . . . . . . . . . . . . . . . - 1,323,000 1,919,800 622,700
Depreciation . . . . . . . . . . . . . . . - 632,000 952,000 -
Minority interest. . . . . . . . . . . . . - - 343,200 -
Other. . . . . . . . . . . . . . . . . . . - 86,800 - -
--------- ------------- ------------- --------------
Total Expenses . . . . . . . . . . . . . . . - 2,041,800 3,215,000 622,700
--------- ------------- ------------- --------------
Income (Loss) Before Taxes . . . . . . . . . - 308,600 175,700 3,700
Provision (Benefit) for Income Taxes . . . . - 120,000 - -
--------- ------------- ------------- --------------
Net Income (Loss) . . . . . . . . . . . . . $ - $ 188,600 $ 175,700 $ 3,700
--------- ------------- ------------- --------------
--------- ------------- ------------- --------------
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . .
Pro forma shares outstanding (F) . . . . . .
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
(E) CONSOLIDATED
------------ --------------
<S> <C> <C>
SIX MONTHS ENDED JUNE 30, 1998
Revenues:
Rental income. . . . . . . . . . . . . . . $ - $ 2,745,500
Interest and other income. . . . . . . . . 131,300 (4) 448,200
----------- -------------
Total Revenues . . . . . . . . . . . . . . . 131,300 3,193,700
----------- -------------
Expenses:
Interest . . . . . . . . . . . . . . . . . 178,500 (1) 2,455,000
171,300 (2)
Depreciation . . . . . . . . . . . . . . . - 792,500
Minority interest. . . . . . . . . . . . . - 171,600
Other. . . . . . . . . . . . . . . . . . . 404,900 (3) 450,000
----------- -------------
Total Expenses . . . . . . . . . . . . . . . 754,700 3,869,100
----------- -------------
Income (Loss) Before Taxes . . . . . . . . . (623,400) (675,400)
Provision (Benefit) for Income Taxes . . . . (11,800) (5) -
----------- -------------
Net Income (Loss) . . . . . . . . . . . . . $ (611,600) $ (675,400)
----------- -------------
----------- -------------
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . $ (0.20)
Diluted . . . . . . . . . . . . . . . . . $ (0.20)
Pro forma shares outstanding (F) . . . . . . 3,326.202
YEAR ENDED DECEMBER 31, 1997
Revenues:
Rental income. . . . . . . . . . . . . . . $ - $ 5,389,700
Interest and other income. . . . . . . . . 262,500 (4) 888,900
----------- -------------
Total Revenues . . . . . . . . . . . . . . . 262,500 6,278,600
----------- -------------
Expenses:
Interest . . . . . . . . . . . . . . . . . 713,100 (1) 4,921,200
342,600 (2)
Depreciation . . . . . . . . . . . . . . . - 1,584,000
Minority interest. . . . . . . . . . . . . - 343,200
Other. . . . . . . . . . . . . . . . . . . 813,200 (3) 900,000
----------- -------------
Total Expenses . . . . . . . . . . . . . . . 1,868,900 7,748,400
----------- -------------
Income (Loss) Before Taxes . . . . . . . . . (1,606,400) (1,469,800)
Provision (Benefit) for Income Taxes . . . . (120,000) (5) -
----------- -------------
Net Income (Loss) . . . . . . . . . . . . . $(1,486,400) $ (1,469,800)
----------- -------------
----------- -------------
Net income (loss) per share:
Basic . . . . . . . . . . . . . . . . . . $ (0.44)
Diluted . . . . . . . . . . . . . . . . . $ (0.44)
Pro forma shares outstanding (F) . . . . . . 3,326.202
</TABLE>
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<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) Reflects revenues and expenses from the properties purchased by LTC
subsequent to December 31, 1997 that will be transferred to the Company.
See "BUSINESS AND PROPERTIES-LTC Partners IX Properties" and "-Karrington
Properties." The revenues and expenses consist of the following: (1) base
rental income under existing long-term triple-net leases on two skilled
nursing facilities leased to a wholly owned subsidiary of Sun Healthcare
Group, Inc. ($602,900 annually), three assisted living facilities and one
Alzheimer facility leased to a wholly owned subsidiary of Karrington
Health, Inc. ($2,092,500 annually) and one skilled nursing facility leased
to Sensitive Care, Inc. ($343,900 annually). See "RISK FACTORS -Reliance
on Major Operators."; (2) interest expense at a weighted average rate of
10.4% on mortgage loans of $6,291,200 currently encumbering the Partners IX
Properties and interest expense at 7.27% on a mortgage loan under
commitment with a third party lender of $17,400,000 secured by four
properties operated by Karrington Health, Inc.; (3) depreciation expense
calculated using depreciable lives of 35 years for real property and seven
years for personal property; and (4) minority interest expense equal to the
10% preferred return on the limited partners initial contribution to the
limited partnership owning the properties of LTC Partners IX, LP. The pro
forma results of operations do not include base rental income ($1,484,600
annually) and related depreciation ($522,100 annually) for two properties
that were not available for occupancy during the year ended December 31,
1997 or the six months ended June 30, 1998. Construction was completed in
May and June 1998 on these two assisted living facilities which are leased
to a wholly owned subsidiary of Karrington Health, Inc.
(D) Interest and other income represents interest income on $6.5 million of
7.5% convertible subordinated debentures of Regent and dividends on 96,800
shares of LTC Common Stock. See "BUSINESS AND PROPERTIES-Initial
Investments-Convertible Subordinated Debentures of Regent." Interest
expense represents interest at 10% on the outstanding principal of
approximately $6.2 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) interest expense at
10.0% on borrowings of $3.4 million under the unsecured line of credit
provided by LTC; (3) general and administrative costs of operating the
Company are estimated to be $900,000 annually. Such costs consist of
charges of approximately $750,000 calculated as 25% of LTC's wages,
salaries and bonuses and rent as provided for under the Administrative
Services Agreement and approximately $150,000 of direct general and
administrative costs (e.g. external legal counsel, independent audit fees,
directors and officers insurance, stockholder communication, etc.); (4)
interest income on $3.5 million of 7.5% convertible subordinated debentures
of Regent, and (5) the elimination of the tax provision previously
recorded. See "BUSINESS AND PROPERTIES-Initial Investments-Convertible
Subordinated Debentures of Regent." 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. The Company believes that it is more likely than not
that future taxable income may not be sufficient to realize such tax
benefits. As such, a valuation allowance has been established against
them.
44
<PAGE>
(F) Pro forma shares outstanding were calculated by applying the dividend
ratio of one share of Healthcare common stock for each 10 shares and
potential shares of LTC common stock as follows: (i) 27,636,786 shares
of LTC common stock outstanding as of June 30, 1998; (ii) 3,722,037
shares of LTC common stock receivable upon conversion of Debentures
which were outstanding as of June 30, 1998; (iii) 2,000,000 shares of
LTC common stock receivable upon conversion of the Series C Preferred
Stock which a qualified buyer has committed to purchase prior to the
Distribution; (iii) less 96,800 shares of LTC common stock held by
Healthcare, in each case divided by 10.
45
<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 has no external source of financing and
has not received any commitment for required funds.
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 $99.0
million in real estate that will be encumbered with mortgages totaling
approximately $46.7 million. The Company will also own unencumbered assets
consisting of approximately $16.1 million in real estate, $10 million of 7.5%
convertible subordinated debentures and approximately $2.7 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.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Rental income for the year ended December 31, 1997 of $2,350,400 was
comparable to rental income of $2,348,900 for the year ended December 31, 1996.
46
<PAGE>
Interest expense increased approximately 18.8% to $1,323,000 for the year
ended December 31, 1997 from $1,113,700 for the year ended December 31, 1996.
During February 1996, two properties in Arizona were encumbered with mortgage
loans totaling $14,505,000 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 $6,100 as a
result of increased contingent rents based on incremental revenues generated by
the facilities.
Interest expense increased to $1,113,700 for the year ended December 31,
1996 from $0 for the year ended December 31, 1995. During February 1996, two
properties in were encumbered with mortgage loans totaling $14,505,000 bearing
interest at 9.25%. Interest expense for the year ended December 31, 1996
represents ten months of interest.
SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Rental income for the six months ended June 30, 1998 increased by $54,800
(or approximately 4.7%) to $1,225,800 from $1,171,000 for the six months ended
June 30, 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.
Interest expense increased $170,500 for the six months ended June 30, 1998
compared to the same period in 1997. On March 31, 1998, two properties were
encumbered with mortgage loans totaling $8,926,000 bearing interest at 8.0%.
YEAR 2000
The Company has evaluated its internal software and hardware and believes
the existing systems will function properly with respect to dates in the year
2000 and beyond. The Company is currently assessing the extent to which its
operations are vulnerable should its tenants or other parties with which the
Company conducts business fail to ensure their computer systems are year 2000
compliant. The Company believes the year 2000 issue will not have a material
adverse effect upon the Company's financial position or results of operations.
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.
47
<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.
LTC has adopted The National Association of Real Estate Investment Trusts
("NAREIT") definition of Funds From Operations ("FFO") which is (i) net income
(computed in accordance with generally accepted accounting principles ("GAAP"))
excluding gains (or losses) from debt restructuring and sales of property, plus
(ii) depreciation of real property and (iii) after adjustments for
unconsolidated entities in which a REIT holds an interest. LTC believes that
FFO is an important supplemental measure of operating performance. FFO should
not be considered as an alternative to net income or any other GAAP measurement
of performance as an indicator of operating performance or as an alternative to
cash flows from operations, investing, and financing activities as a measure of
liquidity. LTC believes that FFO is helpful in evaluating a real estate
investment portfolio's overall performance considering the fact that historical
cost accounting implicitly assumes that the value of real estate assets
diminishes predictably over time. The term FFO was designed by the REIT
industry to provide useful supplemental information. FFO provides an
alternative measurement criteria, exclusive of certain non-cash charges included
in GAAP income, by which to evaluate the performance of such investments. FFO,
as used by the Company in accordance with the NAREIT definition, may not be
comparable to similarly entitled items reported by other REITs that have not
adopted the NAREIT definition.
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
48
<PAGE>
Group and the LTC Partners IX, LP ("Partners IX") properties results in such
properties generating minimal FFO. As of June 30, 1998, the total pro forma
mortgages payable on these properties was $29,331,100. The expected FFO of
$253,500 generated by the Healthcare Asset Group and the Partners IX properties
equates to only 0.9% of the $29,331,100 of mortgages payable that are being
transferred to the Company. By transferring these mortgages payable to the
Company, LTC will be able to increase its debt carrying capacity to fund
additional investments, thereby allowing LTC to generate FFO that will be
greater than the $253,500 generated by the Healthcare Asset Group and the
Partners IX properties. The assets in the Healthcare Asset Group were
attributed a value of approximately $23.4 million which represents the current
annual rent on the properties at a 10% capitalization rate. The book value of
these properties was approximately $15.1 million as of June 30, 1998. The
Partners IX properties were attributed a value of approximately $7.6 million,
which represents the purchase price of the properties in February 1998. The
book value of these properties was approximately $7.5 million as of June 30,
1998. 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 $253,500 and $41,700, 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 June 30, 1998, LTC's average investment in owned assisted
living facilities was approximately $62,000 per unit. Four of 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. The remaining two properties acquired from
Karrington Health, Inc. were acquired for approximately $121,000 per unit and
LTC intends to encumber such properties with non-recourse mortgage financing.
Because the leveraged returns are attractive, LTC felt this was a more
appropriate investment for Healthcare. The properties acquired from Karrington
Health, Inc. were attributed a value of approximately $39.3 million which
represents the purchase price of such properties.
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 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
49
<PAGE>
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."
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 shall terminate earlier upon a change of control of LTC. A change
of control of LTC shall occur upon the occurrence of any of the following:
(i) any person or related group of persons directly or indirectly acquires
beneficial ownership of more than 50% of the voting power of LTC, (ii) there is
a change in the composition of the LTC Board over a period of 36 consecutive
months (or less) such that a majority of the LTC Board ceases 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 LTC Board; or (iii) there is a change in the
composition of LTC's senior executive management such that both Andre C.
Dimitriadis and James J. Pieczynski cease to be employed by LTC. See "RISK
FACTORS-Possible Conflicts with LTC After
50
<PAGE>
the Distribution" "-Termination of Administrative Services and Intercompany
Agreements" and "RELATIONSHIP BETWEEN HEALTHCARE AND LTC AFTER THE
DISTRIBUTION-Policies and Procedures for Addressing Conflicts."
51
<PAGE>
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 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 June 30, 1998, LTC has provided $52.8 million of sale/leaseback financing
to Regent on eight assisted living communities with 744 units. 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.
As of June 30, 1998, pursuant to the terms of the Regent Purchase
Agreement, Healthcare had purchased $6.5 million aggregate principal amount of
Regent Debentures. Additionally, pursuant to the Purchase Agreement, Healthcare
must purchase up to an additional $3.5 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
The Company purchased for investment purposes, 96,800 shares of LTC Common
Stock. The shares were purchased at a weighted average price of $17.84 per
share for a total investment amount of approximately $1,726,900. As of June 30,
1998, the purchase price approximated the fair market value of such shares of
LTC Common Stock. 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
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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. Based on leases in effect as of the date of
this Information Statement, the Company presently expects that Sun will be one
of the Company's largest operators for the year ended December 31, 1998,
representing approximately 31% of the Company's total expected annual lease
revenue for such period. See "RISK FACTORS-Reliance on Major Operators" and
"-Concentration of Company Operators in Long-Term Care Industry." 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 ("Triple-Net Basis") under which the tenant is responsible for all ongoing
maintenance expenses, including taxes, utilities, insurance and general upkeep
of the property. 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 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
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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 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. See "RISK
FACTORS-Reliance on Major Operators" and "-Concentration of Company Operators in
Long-Term Care Industry." 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. See "RISK FACTORS-Reliance on Major Operators" and
"-Concentration of Company Operators in Long-Term Care Industry." Over the past
three years, the facility has maintained occupancy rates in excess of 95%. The
facility competes with two other skilled nursing
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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 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. See "RISK FACTORS-Reliance on Major Operators" and
"-Concentration of Company Operators in Long-Term Care Industry." 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.
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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
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. See "RISK FACTORS-Reliance on Major Operators"
and "-Concentration of Company Operators in Long-Term Care Industry." 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
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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 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. See "RISK FACTORS-Reliance on Major
Operators" and "-Concentration of Company Operators in Long-Term Care Industry."
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.
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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.
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 Delaware corporation doing business in the
State of Ohio as LTC Properties-Ohio, Inc. ("Ohio Corp."), acquired the fee
simple interest in two assisted living facilities and the ground leasehold
interest in one assisted living facility and one Alzheimer's facility
(collectively, the "Ohio Corp. Facilities") from Karrington Health, Inc. and/or
its affiliates ("Karrington") pursuant to a sale-leaseback transaction. The
Ohio Corp. Facilities were purchased for a total of $23,250,000 or approximately
$125,000 per unit. Under the terms of the master lease for the Ohio Corp.
Facilities (the "Master Lease"), the current annual rent is $2,092,500; however,
annual rent is increased by 150% of the change in the Consumer Price Index
("CPI") for the year, but in no event will the annual increase be greater than
2%. The Ohio Corp. Facilities are located in the suburbs of Columbus, Ohio.
In June and July 1998, Missouri River Corporation, a Delaware corporation
("MRC"), acquired the fee simple interest in two assisted living facilities (the
"MRC Facilities") from Karrington pursuant to sale-leaseback transactions. The
MRC Facilities were purchased for a total of $16,050,000 or approximately
$121,000 per unit. Under the terms of the leases for the MRC Facilities, the
current annual rent is $1,484,600; however annual rent is increased by 150% of
the change in CPI for the year,
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but in no event will the annual increase be greater than 2%. One of the MRC
Facilities is located on the west side of Cleveland, Ohio, and the other MRC
Facility is located in Erie, Pennsylvania.
Ohio Corp. is a wholly-owned subsidiary of MRC, and MRC is a wholly-owned
subsidiary of LTC.
The Ohio Corp. Facilities and the MRC 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. Based on leases in effect as of the date of this
Information Statement, the Company presently expects that Karrington will be one
of the Company's largest operators for the year ended December 31, 1998,
representing approximately 52% of the Company's total expected annual lease
revenue for such period. See "RISK FACTORS-Reliance on Major Operators" and
"-Concentration of Company Operators in Long-Term Care Industry."
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 that will
be secured by the Ohio Corp. Facilities. 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.
KARRINGTON ON THE SCIOTO
In April 1998, Ohio Corp. acquired the fee simple interest in 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 the fee simple interest in Karrington on the Scioto for
approximately $6.6 million or $125,000 per unit. Under the terms of the Master
Lease, the current annual rent attributable to this facility is approximately
$596,250; however, annual rent is 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 Master Lease term expires in April 2018; however, KOC will have two
consecutive ten-year options to extend the Master Lease so long as it extends
the leases for the MRC Facilities. There is no right of first refusal or
purchase option in the Master Leases.
KARRINGTON OF BEXLEY
In April 1998, Ohio Corp. acquired the fee simple interest in Karrington of
Bexley, a 53 unit assisted living facility located in Bexley, Ohio which is a
suburb of Columbus. Karrington of Bexley is a
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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 the fee simple interest in Karrington of Bexley for
approximately $6.6 million or $125,000 per unit. Under the terms of the Master
Lease, the current annual rent attributable to this facility is approximately
$596,250; however, annual rent is 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 Master Lease term expires in April 2018; however, KOC will have two
consecutive ten-year options to extend the Master Lease so long as it extends
the leases for the MRC Facilities. There is no right of first refusal or
purchase option in the Master Lease.
KARRINGTON AT TUCKER CREEK
In April 1998, Ohio Corp. acquired the ground leasehold interest in
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
100%. 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 the ground leasehold interest in Karrington at Tucker
Creek for approximately $6.8 million or $125,000 per unit. Under the terms of
the Master Lease, the current annual rent attributable to this facility is
approximately $607,500; however, annual rent is 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 Master Lease term expires in April 2018; however, KOC will
have two consecutive ten-year options to extend the Master Lease so long as it
extends the leases for the MRC Facilities. There is no right of first refusal
or purchase option in the Master Lease.
KARRINGTON PLACE
In April 1998, Ohio Corp. acquired the ground leasehold interest in
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.
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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 the ground leasehold interest in Karrington Place for
approximately $3.3 million or $125,000 per unit. Under the terms of the Master
Lease, the current annual rent attributable to this facility is approximately
$292,500; however, annual rent is 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 Master Lease term expires in April 2018; however, KOC will have two
consecutive ten year options to extend the Master Lease so long as it extends
the leases for the MRC Facilities. There is no right of first refusal or
purchase option in the Master Lease.
KARRINGTON OF ROCKY RIVER
In July 1998, MRC acquired the fee simple interest in Karrington of Rocky
River, a 64 unit assisted living facility located on Cleveland's west side.
Karrington of Rocky River is a 44,276 square foot three-story building situated
on approximately 2.2 acres of land on the western edge of the City of Rocky
River.
Karrington of Rocky River 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, which opened in May 1998, is
operated by KOC and competes with three other assisted living within a five-mile
radius with an average occupancy of 95%.
MRC acquired the fee simple interest in Karrington of Rocky River for
approximately $7.7 million or $121,000 per unit. Under the terms of the lease
for this facility, the current annual rent is approximately $714,405; however,
annual rent is increased by 150% of the change in 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 Master Lease and the lease for the
other MRC Facility. There is no right of first refusal or purchase option in
the lease for this facility.
KARRINGTON ON PRESQUE ISLE BAY
In June 1998, MRC acquired the fee simple interest in Karrington on Presque
Isle Bay, a 69 unit assisted living facility located in Erie, Pennsylvania.
Karrington on Presque Isle Bay is a 47,635 square foot three-story building
situated on approximately 2.9 acres of land along the edge of the Niagra Pier on
Presque Isle Bay, an inlet to Lake Erie.
Karrington on Presque Isle Bay 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, which opened in June
1998, is operated by KOC and competes with three other assisted living within a
five- mile radius. Two of the three have a 100% occupancy, while the third
opened in November 1997.
MRC acquired the fee simple interest in Karrington on Presque Isle Bay for
approximately $8.3 million or $121,000 per unit. Under the terms of the lease
for this facility, the current annual rent is approximately $770,220; however,
annual rent is increased by 150% of the change in CPI for the year, but in no
event will the annual increase be greater than 2%. The initial lease term
expires in April 2018;
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however, KOC will have two consecutive ten-year options to extend the lease so
long as it extends the Master Lease and the lease for the other MRC Facility.
There is no right of first refusal or purchase option in the lease for this
facility.
EQUITY INVESTMENTS
ASSISTED LIVING CONCEPTS, INC. COMMON STOCK
In September 1997, LTC received 30,847 shares of common stock of 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 June 30, 1998, the fair market value of the ALC common stock was $532,100 or
$17.25 per share (based on the closing sales price of such common stock on the
American Stock Exchange on such date). LTC's investment posture prior to the
Distribution is, and the Company's investment posture subsequent to the
Distribution will be, to hold the investment in ALC common stock as long-term
available-for-sale securities. Accordingly, LTC has accounted, and the Company
will account, for the investment in ALC common stock at fair value with
unrealized gains and losses on changes in the fair value reported as a separate
component of stockholders' equity. 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 June 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 June 30, 1998 the fair market value
of the stock was $431,300 or $6.25 per share (based on the closing sales price
of such common stock on the Nasdaq National Market on such date). LTC's
investment posture prior to the Distribution is, and the Company's investment
posture subsequent to the Distribution will be, to hold the investment in Regent
common stock as long-term available-for-sale securities. Accordingly, LTC has
accounted, and the Company will account, for the investment in Regent common
stock at fair value with unrealized gains and losses on changes in the fair
value reported as a separate component of stockholders' equity.
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.
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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 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. At March 31, 1998, LTC had 18
employees. 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 Officer 57
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 employed by American Medical
International, Inc., an owner/operator of hospitals, from 1987 to 1995 where he
served as Vice President of Finance and Controller from 1990 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 examinations as it deems necessary with respect to the
practices and policies of, and the relationship between, the Company and its
independent public accountants.
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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."
Pursuant to the Administrative Services Agreement, the Company will pay 25%
of the aggregate amount of the wages, salaries and bonuses of LTC's employees to
LTC and LTC will pay the remaining 75% of such amount. The following table sets
forth information for the fiscal year ended December 31, 1997 concerning the
compensation paid to the executive officers of LTC who are also executive
officers of the Company:
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<TABLE>
<CAPTION>
ALL OTHER
NAME POSITION WITH LTC SALARY ($) BONUS ($) COMPENSATION ($)
- ---- ----------------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Andre C. Dimitriadis . . . . . Chairman of the Board and Chief Executive Officer $ 400,000 $ 400,000 $ 62,400(1)
James J. Pieczynski. . . . . . President and Chief Financial Officer 190,000 265,000 17,700(1)
Pamela J. Privett. . . . . . . Senior Vice President and General Counsel 55,208(2) 150,000 1,100(1)
Christopher T. Ishikawa. . . . Senior Vice President and Chief Investment Officer 112,500 150,000 1,000(1)
</TABLE>
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
NUMBER OF OF STOCK PRICE
SECURITIES % OF TOTAL APPRECIATION FOR OPTION
UNDERLYING OPTIONS EXERCISE OR TERM(3)
OPTIONS GRANTED TO BASE PRICE EXPIRATION ----------------------------
NAME GRANTED EMPLOYEES PER SHARE DATE 5% 10%
- --------------------------------- ------------ ------------ ------------- ------------ -------------- ------------
<S> <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>
- ------------------------
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.
- ----------------------
(1) Such amounts represent LTC's contribution to the named executive
officer's deferred compensation plan account.
(2) Such amount represents salary for a partial year. Ms. Privett was
employed by LTC on September 7, 1997.
(3) 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.
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Under the Healthcare 1998 Plan, not more than 500,000 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.
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.
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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 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
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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.
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
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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 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
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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 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."
The Administrative Services Agreement between the Company and LTC
containing a number of provisions relating to employees of LTC and the Company.
See "RELATIONSHIP BETWEEN HEALTHCARE AND LTC AFTER THE DISTRIBUTION
- -Administrative Services 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
COMMON STOCK BENEFICIALLY OWNED PERCENT
NAME (1) BENEFICIALLY OWNED (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............................... - *
Bary G. Bailey.............................. - *
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 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 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
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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) te 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 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
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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."
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.
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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
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
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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.
80
<PAGE>
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 n 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 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
81
<PAGE>
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.
82
<PAGE>
[LTC Letterhead and Logo]
________________, 1998
Dear Debenture Holder:
The Board of Directors of LTC Properties, Inc. ("LTC") has approved the
distribution (the "Distribution") to holders of LTC common stock, holders of LTC
Series C Preferred Stock and holders of the following series of LTC convertible
subordinated debentures: 8.50% due January 2001, 8.25% due January 1999, 7.75%
due January 2002 and 8.25% due July 2001 (the "Debentures"), 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 the 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 has
applied to have the shares of Healthcare common stock approved for listing and
trading on the Pacific Exchange.
Pursuant to Section 10.04(5) of LTC's Base Indenture dated as of September
23, 1994 governing each series of Debentures, if every one share of LTC common
stock becomes one share of LTC common stock plus 1/10 of a share of Healthcare
common stock, LTC may issue to the holders of the Debentures, upon their
conversion, for every share of LTC common stock receivable upon conversion, an
additional 1/10 of a share of Healthcare common stock. In lieu of requiring the
holders of the Debentures to convert the Debentures to receive shares of
Healthcare common stock, LTC intends to distribute Healthcare shares to all
holders of Debentures on the Distribution Date (as defined below) without first
necessitating conversion.
If you are a holder of Debentures 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 into which your Debentures may
be converted. Only whole shares of Healthcare common stock will be issued.
Holders of Debentures 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 holders of Debentures. The Distribution is
scheduled to occur on or about _____________, 1998 (the "Distribution Date").
We expect to mail the Healthcare common stock certificates and checks for cash
in lieu of fractional shares shortly thereafter. Holders of Debentures on the
record date should retain their Debenture certificates which will continue to be
convertible into the same number of shares of LTC common stock as such
Debentures were convertible into prior to the Distribution Date.
The enclosed Information Statement contains information about the
Distribution and about Healthcare. We urge you to read it carefully. Holders
of the Debentures are not required to take any action to participate in the
Distribution.
We are optimistic about the prospects for LTC and Healthcare and appreciate
your continued support.
Sincerely,
83
<PAGE>
Andre C. Dimitriadis
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
LTC PROPERTIES, INC.
84
<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
FINANCIAL STATEMENTS:
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . F-5
Combined Balance Sheets as of December 31, 1996 and 1997
and June 30, 1998 (unaudited) . . . . . . . . . . . . . . . . . . . .F-6
Combined Statements of Income for the years ended December 31, 1995,
1996 and 1997 and the six months ended June 30, 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 six months ended June 30, 1998 (unaudited) . . . . . . . . . . . .F-8
Combined Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997 and the six months ended June 30, 1997
and 1998 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . .F-9
Notes to Combined Financial Statements . . . . . . . . . . . . . . . . F-10
FINANCIAL STATEMENT SCHEDULES:
Schedule III - Real Estate and Accumulated Depreciation as of
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . . . . F-15
</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>
<S> <C>
ASSET
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............................................... -
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. Our audits also included the
financial statement schedule listed in the index at page F-1. These financial
statements and the financial statement schedule are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and the financial statement schedule 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. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/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, JUNE 30,
------------------- ------------
1996 1997 1998
--------- -------- ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Real Estate:
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,195,200 $17,195,200 $17,248,300
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 976,600 976,600 976,600
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,156,800) (2,788,800) (3,105,300)
----------- ----------- -----------
Real Estate Investments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,015,000 15,383,000 15,119,600
Rent receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,100 178,500 220,500
----------- ----------- -----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $16,240,100 $15,561,500 $15,340,100
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND LTC PROPERTIES, INC. NET ASSET (DEFICIT)
Mortgage loans payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,389,800 $14,223,400 $23,039,900
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357,000 398,800 409,200
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,900 109,600 109,300
Other liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,700 27,700 111,100
----------- ----------- -----------
Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,865,400 14,759,500 23,669,500
LTC Properties, Inc. net asset (deficit) . . . . . . . . . . . . . . . . . . . . . . 1,374,700 802,000 (8,329,400)
----------- ----------- -----------
Total Liabilities and LTC Properties, Inc. net asset (deficit) . . . . . . . . . . . $16,240,100 $15,561,500 $15,340,100
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes
F-6
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
COMBINED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Rental income. . . . . . . .$2,342,800 $2,348,900 $2,350,400 $ 1,171,000 $1,225,800
EXPENSES:
Interest . . . . . . . . . . - 1,113,700 1,323,000 663,400 833,900
Depreciation . . . . . . . . 632,000 632,000 632,000 316,000 316,500
Other expenses . . . . . . . 83,100 80,900 86,800 36,900 45,100
---------- ---------- ---------- ----------- ----------
Total Expenses. . . . . . 715,100 1,826,600 2,041,800 1,016,300 1,195,500
---------- ---------- ---------- ----------- ----------
INCOME BEFORE TAXES. . . . . . 1,627,700 522,300 308,600 154,700 30,300
Income taxes . . . . . . . . 633,200 203,200 120,000 60,200 11,800
---------- ---------- ---------- ----------- ----------
NET INCOME . . . . . . . . . .$ 994,500 $ 319,100 $ 188,600 $ 94,500 $ 18,500
---------- ---------- ---------- ----------- ----------
---------- ---------- ---------- ----------- ----------
</TABLE>
See accompanying notes
F-7
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
COMBINED STATEMENTS OF CHANGES IN
LTC PROPERTIES, INC. NET ASSET (DEFICIT)
<TABLE>
<S> <C>
LTC Properties, Inc. net asset (deficit) at December 31, 1994. . $17,115,900
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 994,500
Net return to LTC Properties, Inc. . . . . . . . . . . . . . . (1,583,200)
------------
LTC Properties, Inc. net asset (deficit) at December 31, 1995. . 16,257,200
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 319,100
Net return to LTC Properties, Inc. . . . . . . . . . . . . . . (15,471,600)
------------
LTC Properties, Inc. net asset (deficit) at December 31, 1996. . 1,374,700
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 188,600
Net return to LTC Properties, Inc. . . . . . . . . . . . . . . (761,300)
------------
LTC Properties, Inc. net asset (deficit) at December 31, 1997. . 802,000
Net income (unaudited) . . . . . . . . . . . . . . . . . . . . 18,500
Net return to LTC Properties, Inc. (unaudited) . . . . . . . . (9,149,900)
------------
LTC Properties, Inc. net asset (deficit) at June 30, 1998
(unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . $(8,329,400)
------------
------------
</TABLE>
See accompanying notes
F-8
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- -----------------------
1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . $ 994,500 $ 319,100 $ 188,600 $ 94,500 $ 18,500
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation . . . . . . . . . . . . . . . . . . 632,000 632,000 632,000 316,000 316,500
(Increase) decrease in rent receivable . . . . . . (126,000) (88,600) 46,600 61,400 (42,000)
Increase in deferred tax liability . . . . . . . . 82,700 100,700 41,800 16,600 10,400
Increase (decrease) in interest payable. . . . . . - 110,900 (1,300) (600) (300)
Increase in other liabilities. . . . . . . . . . . - 7,700 20,000 10,000 83,400
---------- ---------- ---------- ---------- ---------
Net cash provided by operating activities. . . . 1,583,200 1,081,800 927,700 497,900 386,500
INVESTING ACTIVITIES:
Investment in real estate. . . . . . . . . . . . . - - - - (53,100)
---------- ---------- ---------- ---------- ---------
Net cash used in investing activities. . . . . . - - - - (53,100)
FINANCING ACTIVITIES:
Proceeds from mortgage loans . . . . . . . . . . . - 14,505,000 - - 8,926,000
Principal payments on mortgage loans . . . . . . . - (115,200) (166,400) (81,300) (109,500)
Net return to LTC Properties, Inc. . . . . . . . . (1,583,200) (15,471,600) (761,300) (416,600) (9,149,900)
---------- ---------- ---------- ---------- ---------
Net cash used in financing activities. . . . . . (1,583,200) (1,081,800) (927,700) (497,900) (333,400)
---------- ---------- ---------- ---------- ---------
Increase (decrease) in cash and cash equivalents - - - - -
Cash and cash equivalents, beginning of year . . . - - - - -
---------- ---------- ---------- ---------- ---------
Cash and cash equivalents, end of year . . . . . . $ - $ - $ - $ - $ -
---------- ---------- ---------- ---------- ---------
---------- ---------- ---------- ---------- ---------
Interest paid . . . . . . . . . . . . . . . . . . . $ - $1,002,800 $1,324,300 $ 664,000 $ 834,200
</TABLE>
See accompanying notes
F-9
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
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 Properties, Inc. ("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 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 four skilled nursing facilities that are leased to third parties
under triple net leases with a book value of $15,119,600 and encumbered by
mortgages of $23,039,900 as of June 30, 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 June 30, 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 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 June 30,
1998 and for the six months ended June 30, 1998 and 1997 are unaudited but
include all adjustments (consisting only of normal recurring adjustments) which
management 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 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 asset are less than the carrying amount. Impairment losses are measured
as the amount by which the carrying amount of the real estate exceeds the fair
value. Management assesses the recoverability of the carrying value of its
assets on a property by
F-10
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 have
been allocated to the Portfolio based on its proportionate share of LTC's
adjusted gross real estate investment portfolio. Indirect general and
administrative costs allocated to the Portfolio for the years ended December 31,
1995, 1996 and 1997 were $83,100, $78,400 and $79,900, respectively. Indirect
general and administrative costs allocated to the Portfolio for the six months
ended June 30, 1997 and 1998 were $34,100 and $37,600, respectively.
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.
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.
CONCENTRATION OF CREDIT RISKS. As of June 30, 1998, Integrated Health
Services, Inc. ("IHS") leased two facilities and a wholly-owned subsidiary of
Sun Healthcare Group, Inc. ("Sun") leased two facilities representing 34% and
66%, respectively, of the Portfolio's base rental revenue. As of December 31,
1996 and 1997 and June 30, 1998, approximately 37% and 63% of the Portfolio's
total real estate investments were leased to IHS and Sun, respectively. 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 Securities and Exchange Commission. The
following table contains summary information (in thousands) for IHS and Sun
which was extracted from public reports on file with the Securities and Exchange
Commission and which is not covered by the Report of Independent Auditors
contained herein.
F-11
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ------------ ------------- --------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
SUN
Total assets N/A $1,229,426 $2,579,236 N/A $2,687,986
Total debt N/A 512,435 1,626,842 N/A 1,694,638
Total stockholders' equity N/A 572,137 617,053 N/A 639,550
Total revenues $1,135,508 $1,316,308 $2,010,820 $398,636 $741,490
Income before taxes
and extraordinary items 12,794 52,466 95,882 26,127 31,977
Net income (loss) (23,751) 21,536 34,801 15,937 18,387
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------------- ----------------------
1995 1996 1997 1997 1998
----------- ------------ ------------- --------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
IHS
Total assets N/A $1,993,107 $5,063,144 N/A $5,398,583
Total debt N/A 1,054,747 3,238,233 N/A 3,184,153
Total stockholders' equity N/A 534,865 1,088,161 N/A 1,469,401
Total revenues $1,178,888 $1,434,695 $1,993,197 $918,916 $1,671,554
Income (loss) before taxes
and extraordinary items (42,259) 111,480 13,326 46,384 134,877
Net income (loss) (27,002) 46,334 (33,505) 10,126 79,577
</TABLE>
3. REAL ESTATE
As of June 30, 1998, the Portfolio consisted of two skilled nursing
facilities with 236 beds in New Mexico and two skilled nursing facilities with
393 beds in Arizona.
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 $31,600, $37,700 and $34,400, respectively. Contingent rent income for the
six months ended June 30, 1997 and 1998 was $15,400 and $13,800, 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 six months
ended June 30, 1997 and 1998 was $13,200 and $50,500, respectively. As of
December 31, 1996 and 1997 and June 30, 1998 straight-line rent receivable was
$144,900, $170,000 and $220,500, respectively. As of December 31, 1996 and 1997
and June 30, 1998 contingent rent receivable was $80,200, $8,500 and $0,
respectively.
F-12
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Future minimum base rents receivable under the remaining non-cancelable
terms of operating leases are: $1,176,800 for the remaining six months of 1998
and $2,368,600, $2,409,100, $2,450,700, $2,433,400 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 bear interest at a weighted average rate of 8.77% and are secured by
first mortgages on the facilities. Total annual debt service on the mortgage
loans is approximately $2,277,000. As of June 30, 1998, mortgage loans with an
aggregate outstanding principal balance of $14,125,900 may be prepaid, in whole
or in part, at anytime without prepayment penalty and mortgage loans with an
aggregate outstanding principal balance of $8,914,000 may be prepaid, in whole
or in part, at any time subject to a yield maintenance penalty.
Aggregate scheduled principal payments are: $122,100 for the remaining six
months of 1998 and $278,800, $304,700, $332,900, $363,800 and $21,637,600 for
the years ending December 31, 1999, 2000, 2001, 2002 and thereafter.
5. INCOME TAXES
The provisions for income taxes consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
----------------------------------------- -------------------------
1995 1996 1997 1997 1998
----------- ------------ ------------- --------- --------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Current:
Federal $ 450,000 $ 76,600 $ 61,500 $36,200 $ 1,400
State 100,500 25,900 16,700 7,400 -
--------- --------- -------- ------- -------
Total current 550,500 102,500 78,200 43,600 1,400
--------- --------- -------- ------- -------
Deferred:
Federal 60,000 85,700 33,600 12,400 8,100
State 22,700 15,000 8,200 4,200 2,300
--------- --------- -------- ------- -------
Total deferred 82,700 100,700 41,800 16,600 10,400
--------- --------- -------- ------- -------
$ 633,200 $203,200 $120,000 $60,200 $11,800
--------- --------- -------- ------- -------
--------- --------- -------- ------- -------
</TABLE>
F-13
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
The reconciliation of income to 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 $553,400 34.0% $177,600 34.0% $104,900 34.0%
State income taxes net of
federal tax benefits 79,800 4.9% 25,600 4.9% 15,100 4.9%
------------------- ------------------- -------------------
$633,200 38.9% $203,200 38.9% $120,000 38.9%
------------------- ------------------- -------------------
------------------- ------------------- -------------------
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-------------------------------------------------
1997 1998
------------------------ -----------------------
AMOUNT PERCENT AMOUNT PERCENT
------------------------ -----------------------
<S> <C> <C> <C> <C>
Tax and U.S. statutory rates $52,600 34.0% $10,300 34.0%
State income taxes net of
federal tax benefits 7,600 4.9% 1,500 4.9%
------------------- -------------------
$60,200 38.9% $11,800 38.9%
------------------- -------------------
------------------- -------------------
</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 JUNE 30,
1996 1997 1998
--------- --------- ---------
(unaudited)
<S> <C> <C> <C>
--------- --------- ---------
Deferred Liabilities:
Straight Line Rent $ 60,100 $ 70,500 $ 91,500
Depreciation 333,800 369,100 371,800
--------- --------- ---------
Total Deferred Tax
Liabilities 393,900 439,600 463,300
--------- --------- ---------
Deferred Tax Assets:
State Tax 10,200 7,100 3,600
Tax Credit - AMT 2,600 6,800 8,200
NOL Carryover - - 14,600
Other 24,100 26,900 27,700
--------- --------- ---------
Total Deferred Tax Assets 36,900 40,800 54,100
--------- --------- ---------
Net Deferred Tax Liabilities $ 357,000 $ 398,800 $ 409,200
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-14
<PAGE>
LTC HEALTHCARE, INC. ASSET GROUP
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1997
<TABLE>
<CAPTION>
Construction/
Buildings and Accumulated Renovation Acquisition
Encumbrances Land Improvements Total (1) Depreciation Date Date
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Phoenix, AZ $7,707,400 $431,800 $ 6,764,100 $ 7,195,900 $ 902,600 1985/1992 1994
Tucson, AZ 6,516,000 145,600 3,931,600 4,077,200 638,900 1985 1993
Alamagordo, NM - 314,200 3,567,300 3,881,500 612,100 1985 1993
Roswell, NM - 85,000 2,932,200 3,017,200 635,200 1979 1992
-------------------------------------------------------------
$14,223,400 $976,600 $17,195,200 $18,171,800 $2,788,800
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
(1) The aggregate cost for federal income tax purposes.
Activity for the years ended December 31, 1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
Real Estate and Accumulated
Equipment Depreciation
---------------------------------
<S> <C> <C>
Balance at December 31, 1994 $18,171,800 $ 892,800
Additions - 632,000
Cost of real estate sold - -
-------------- ----------
Balance at December 31, 1995 18,171,800 1,524,800
Additions - 632,000
Cost of real estate sold - -
-------------- ----------
Balance at December 31, 1996 18,171,800 2,156,800
Additions - 632,000
Cost of real estate sold - -
-------------- ----------
Balance at December 31, 1997 $18,171,800 $2,788,800
-------------- ----------
-------------- ----------
</TABLE>
F-15
<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.
(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.
I-1
<PAGE>
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.
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.
I-2
<PAGE>
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.
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.
I-3
<PAGE>
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.
I-4
<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.
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 to each stockholder
of record entitled to vote at the meeting. In addition, a copy of such notice
shall be delivered to the Pacific Exchange at least ten (10) days prior to 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.
II-1
<PAGE>
(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.
(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
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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.
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.
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(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.
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;
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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 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.
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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 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 perons 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
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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 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
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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.
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
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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
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
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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 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
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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 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.
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.
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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,
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
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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 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
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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, 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
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(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 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 Five Hundred Thousand (500,000). 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 Appreciation Right deemed
to be canceled and the Stock Appreciation Right deemed to be granted are
counted against the Award Limit.
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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, 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
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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:
(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;
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(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.
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.
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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.
(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.
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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; (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
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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 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
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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 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
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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 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.
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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.
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
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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 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
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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 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
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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 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.
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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 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,
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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;
(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;
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(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 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.
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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
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
III-21
<PAGE>
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.
III-22
<PAGE>
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: August 21, 1998 By: /s/ Andre C. Dimitriadis
---------------------------------
Andre C. Dimitriadis
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
3.1 Form of Amended and Restated Articles of Incorporation of LTC
Healthcare, Inc. (included as Annex I to Information Sheet). (3)
3.2 Form of Amended and Restated Bylaws of LTC Healthcare, Inc.
(included as Annex II to Information Statement). (3)
4.1 Form of Common Stock Certificate. (3)
10.1 Form of 1998 Equity Participation Plan of LTC Healthcare, Inc.
(included as Annex III to Information Statement). (3)
10.2 Form of Intercompany Agreement. (3)
10.3 Form of Distribution Agreement. (3)
10.4 Form of Administrative Services Agreement. (3)
10.5 Form of Tax Sharing Agreement. (3)
10.6 Form of Indemnity Agreement. (2)
10.7 Promissory Note, dated as of March 30, 1998, between LTC
Healthcare, Inc. (formerly known as LTC Equity Holding Company,
Inc.) and LTC Properties, Inc. (3)
10.8 Lease and Sublease Agreement, dated as of April 21, 1998, between
LTC-Ohio, Inc., a Delaware corporation, as Lessor and Sublessor
and Karrington Operating Company, Inc., an Ohio corporation, as
Lessee and Sublessee. (3)
10.9 Lease Agreement (Erie, Pennsylvania), dated as of June 30, 1998,
between Missouri River Corporation, a Delaware corporation, as
Lessor and Karrington Operating Company, Inc., an Ohio
corporation, as Lessee. (3)
10.10 Lease Agreement (Rocky River), dated as of May 21, 1998, between
LTC-Ohio, Inc., a Delaware corporation, doing business in Ohio as
LTC Properties-Ohio, Inc., as Lessor and Karrington Operating
Company, Inc., an Ohio corporation, as Lessee. (3)
10.11 Lease Agreement, dated as of December 18, 1987, by and between
Phoenix Nursing Home Partnership, an Illinois limited
partnership, and Horizon Healthcare Corporation, a Delaware
corporation. (3)
10.12 Amendment to Lease Agreement, dated as of August 30, 1991, by and
between Phoenix Nursing Home Limited Partnership, an Illinois
limited partnership, and Horizon Healthcare Corporation, a
Delaware corporation and Sunrise Healthcare Corporation, a New
Mexico corporation. (3)
10.13 Lease Agreement, dated as of August 30, 1991, by and between
Phoenix Nursing Home Limited Partnership II, an Illinois limited
partnership, and Sunrise Healthcare Corporation, a New Mexico
corporation, and Andrew Turner and Nora Turner. (3)
10.14 First Amendment to Lease Agreement, dated as of February 1, 1993,
by and between Phoenix Nursing Home Limited Partnership
<PAGE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------- -----------
<S> <C>
II, an Illinois limited partnership, and Sunrise Healthcare
Corporation, a New Mexico corporation, and Andrew Turner and Nora
Turner. (3)
10.15 Convertible Subordinated Note Purchase Agreement, dated as of
March 30, 1998, by and between Regent Assisted Living, Inc. and
LTC Healthcare, Inc. (formerly known as LTC Equity Holding
Company, Inc.). (3)
10.16 Registration Rights Agreement, dated as of March 30, 1998, by and
between Regent Assisted Living, Inc. and LTC Healthcare, Inc.
(formerly known as LTC Equity Holding Company, Inc.). (3)
21.1 Subsidiaries of LTC Healthcare, Inc. (2)
23.1 Consent of Ernst & Young LLP. (3)
27.1 Financial Data Schedule. (3)
27.2 Financial Data Schedule. (3)
</TABLE>
-----------------------
(1) To be filed by amendment.
(2) Previously filed.
(3) Filed herewith.
<PAGE>
<TABLE>
<CAPTION>
<S><C>
----------- -----------
NUMBER LOGO SHARES
LTC HEALTHCARE
SD ------------------------
---------------
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
COMMON COMMON
LTC HEALTHCARE, INC.
PAR VALUE $.01 SEE REVERSE FOR CERTAIN
PER SHARE DEFINITIONS
CUSIP 50217R 104
THIS CERTIFIES THAT
as the record holder of
---------------------------------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK OF
LTC HEALTHCARE, INC., TRANSFERABLE ON THE SHARE REGISTER OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR BY DULY
AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED. THIS CERTIFICATE IS NOT VALID UNTIL COUNTERSIGNED BY
THE TRANSFER AGENT AND REGISTERED BY THE REGISTRAR. REFERENCE IS MADE TO THE STATEMENT ON THE REVERSE HEREOF WITH RESPECT TO THE
CLASSES OF SHARES.
WITNESS THE FACSIMILE SEAL OF THE CORPORATION AND THE FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
SEAL
/s/ /s/
---------------------------------- ---------------------------------------
Secretary Chairman of the Board
</TABLE>
<PAGE>
LTC HEALTHCARE, INC.
LTC Healthcare, Inc., is authorized to issue two classes of shares, Common
and Preferred, and the Preferred may be issued in one or more series. A
statement of the powers, designations, preferences and relative, participating,
optional or other special rights to each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights granted to or imposed upon the respective classes or series of shares and
upon the holders thereof as established by the certificate of incorporation or
by any certificate of designation, and the number of shares constituting each
series and the designations thereof, may be obtained upon request and without
charge from the principal office of the corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S><C>
TEN COM -- as tenants in common UNIF GIFT MIN ACT.............Custodian..........................
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of survivorship Under Uniform Gifts to Minors
and not as tenants in common
Acts....................................
(State)
UNIF TRF MIN ACT..............Custodian (until age.............)
(Cust)
..................under Uniform Transfers
(Minor)
to Minors Act...........................................
(State)
</TABLE>
- --------------------------------------------------------------------------------
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ________________________ hereby sell, assign and transfer
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
|----------------------|
|______________________|
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
--------------------
X
------------------------------------------------
X
------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
----------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
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 common stockholders, Series C
preferred stockholders and debentureholders 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 ("LTC Common Stock") of LTC held and for each share of
LTC Common Stock into which shares of Series C preferred stock and debentures
may be converted 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.
2
<PAGE>
(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
6
<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.
7
<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)
8
<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. . . . . . . . . . . . . . . . . . . . . 24
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 holders of LTC 8.5% Series C cumulative
convertible preferred stock, par value $.01 per share and the holders of LTC
convertible subordinated debentures (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.
2
<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.
3
<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).
4
<PAGE>
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.
5
<PAGE>
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;
6
<PAGE>
(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
7
<PAGE>
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
8
<PAGE>
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
<PAGE>
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
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
Karrington of Rocky River
Karrington of Presque Isle
<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 common stockholders,
Series C preferred stockholders and debentureholders 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 ("LTC Common Stock"), of LTC held and
for each share of LTC Common Stock into which shares of Series C preferred
stock and debentures may be converted 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.
2
<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
3
<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 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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<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
6
<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
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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
to each stockholder of record entitled to vote at the meeting. In addition, a
copy of such notice shall be delivered to the Pacific Exchange at least ten
(10) days prior to 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 common stockholders, Series C
preferred stockholders and debentureholders (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 common stockholders,
Series C preferred stockholders and debentureholders 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 ("LTC Common Stock"), of LTC held and
for each share of LTC Common Stock into which shares of Series C preferred
stock and debentures may be converted 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 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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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
<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 common stockholders, Series C
preferred stockholders and debentureholders (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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<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.
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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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<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.
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<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]
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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>
PROMISSORY NOTE
$8,000,000.00 Date: March 30, 1998
Oxnard, California
In installments as herein stated, for value received, LTC EQUITY HOLDING
COMPANY, INC., a Nevada corporation ("Maker"), hereby promises to pay to the
order of LTC PROPERTIES, INC., a Maryland corporation ("Payee"), at Payee's
principal place of business in Oxnard, California, or such other place as
Payee may from time to time designate, the principal sum of Eight Million
Dollars ($8,000,000.00), or so much thereof as may have been advanced, with
interest accruing on the principal amount from time to time outstanding from
the date hereof to and including the Maturity Date (as defined below) at a
rate equal to the lesser of (i) Ten Percent (10%) per annum, or (ii) the
Highest Lawful Rate (defined in Section 11, below). Principal and interest
shall be payable as more particularly set forth below. All principal and
accrued but unpaid interest shall be due on or before April 1, 2008 (the
"Maturity Date"). Principal, interest and all other sums due hereunder shall
be payable in lawful money of the United States.
Maker desires to obtain an unsecured line of credit from Payee to enable
Maker to borrow, from time to time, sums up to, but not exceeding, in the
aggregate the principal sum of Eight Million Dollars ($8,000,000.00).
Accordingly, this Note represents funds that will be advanced to Maker in a
series of disbursements that will be made, from time to time, up to, but not
exceeding, in the aggregate the principal amount of Eight Million Dollars
($8,000,000.00). As a condition to Payee's obligation to make each and every
disbursement hereunder, Payee shall receive a request for advance setting
forth the desired amount of the advance and specifying the wiring
instructions to which the advance should be sent (or other method of
delivery) not later than two (2) business days prior to the date on which
Maker wishes to receive the funds. No request for any such advance shall be
for an amount less than One Hundred Thousand Dollars ($100,000.00).
1. PAYMENTS.
(a) PAYMENTS OF INTEREST. Payments of interest only under this
Note shall be made in arrears in bi-annual installments, without set-off,
deduction, demand or notice of any kind or nature whatsoever, on the 1st day
of April and the 1st day of October of each and every calendar year (each a
"Payment Date") in an amount equal to the accrued but unpaid interest for the
immediately preceding six-month period on the principal amount outstanding
from time to time; provided, however, that there shall be no interest paid on
the first (1st) Payment Date (I.E., April 1, 1998), and Maker shall pay the
accrued but unpaid interest from March 30, 1998 to and including September
30, 1998 on the second (2nd) Payment Date (I.E., October 1, 1998).
<PAGE>
(b) PAYMENTS ON MATURITY DATE. Assuming no acceleration by Payee
and no prepayment in full of the Loan by Maker, on the Maturity Date, Maker
shall pay to Payee the entire outstanding principal balance, accrued and
unpaid interest and any and all other outstanding charges, fees or amounts
owing to Payee by Maker under this Note.
2. PREPAYMENTS. Maker shall have the right to prepay all or any part
of the principal balance of this Note at any time without premium, penalty,
or charge of any kind whatsoever; provided, however, there shall be no
discount of any kind for any prepayment.
3. LATE PAYMENT CHARGE; NO WAIVER. MAKER ACKNOWLEDGES THAT LATE
PAYMENT TO PAYEE OF ANY SUMS DUE HEREUNDER WILL CAUSE PAYEE TO INCUR COSTS
NOT CONTEMPLATED HEREUNDER, THE EXACT AMOUNT OF WHICH WILL BE IMPRACTICABLE
OR EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS INCLUDE, BUT ARE NOT LIMITED
TO, PROCESSING AND ACCOUNTING CHARGES. ACCORDINGLY, IF ANY INSTALLMENT IS
NOT RECEIVED BY PAYEE WHEN DUE, OR IF ANY REMAINING PRINCIPAL AND ACCRUED BUT
UNPAID INTEREST OWING UNDER THIS NOTE IS NOT PAID IN FULL ON THE MATURITY
DATE, MAKER SHALL THEN PAY TO PAYEE AN ADDITIONAL SUM OF FIVE PERCENT (5%) OF
THE OVERDUE AMOUNT AS A LATE CHARGE. THE PARTIES HEREBY AGREE THAT LATE
CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COSTS PAYEE WILL
INCUR BY REASON OF LATE PAYMENT. THIS PROVISION SHALL NOT, HOWEVER, BE
CONSTRUED AS EXTENDING THE TIME FOR PAYMENT OF ANY AMOUNT HEREUNDER, AND
ACCEPTANCE OF SUCH LATE CHARGE BY PAYEE SHALL IN NO EVENT CONSTITUTE A WAIVER
OF MAKER'S DEFAULT WITH RESPECT TO SUCH OVERDUE AMOUNT NOR PREVENT PAYEE FROM
EXERCISING ANY OF ITS OTHER RIGHTS AND REMEDIES WITH RESPECT TO SUCH DEFAULT.
INITIAL: /s/ J.J.P.
----------
MAKER
4. DEFAULT. The occurrence of any of the following shall constitute
an event of default ("Event of Default") under this Note:
(a) failure to make any payment of principal, interest, or
any other sums due hereunder within five (5) business days of the date due;
(b) the occurrence of any breach or default of any other
obligation of Maker, monetary or otherwise, hereunder, which breach or
default shall continue for more than sixty (60) calendar days after Maker has
received written notice thereof from Payee.
5. ACCELERATION RIGHTS. Upon the occurrence of an Event of Default
hereunder, Payee may, in its sole discretion, declare the entire balance of
principal and interest hereon
<PAGE>
immediately due and payable, together with all costs of collection, including
reasonable attorneys' fees and all other costs and expenses incurred.
6. ATTORNEYS' FEES AND COSTS. In the event it becomes necessary
for Payee to utilize legal counsel for the enforcement of this Note or any of
its terms, if Payee is successful in such enforcement by legal proceedings or
otherwise, Payee shall be reimbursed immediately by Maker for all reasonable
attorneys' fees and other costs and expenses.
7. WAIVERS. Maker of this Note hereby waives diligence, demand,
presentment for payment, exhibition of this Note, notice of non-payment or
dishonor, protest and notice of protest, notice of demand, notice of election
of any right of holder hereof, any and all exemption rights against this
indebtedness, and expressly agrees that, at Payee's election, the time for
performance of any obligation under this Note may be extended from time to
time, without notice and that no such extension, renewal, or partial release
shall release Maker from its obligation of payment of this Note or any
installment hereof, and consents to offset of any sums owed to Maker by the
holder hereof at any time.
8. ASSIGNMENT/TRANSFER BY PAYEE. Payee, in Payee's sole and absolute
discretion, and without notice to Maker, shall have the absolute right to
sell, assign, gift, transfer, convey, encumber or otherwise dispose of all or
a portion of the holder's rights in this Note or any other agreement related
thereto. Maker may not assign, gift, transfer, convey, encumber or otherwise
dispose of all or a portion of its rights, nor delegate its duties or
obligations under this Note or any other agreement related thereto.
9. GOVERNING LAW. This Note shall in all respects be interpreted,
enforced, and governed by and under the internal laws of the State of
California without resort to choice of law principles.
10. SEVERABILITY. Every provision hereof is intended to be several.
If any provision of this Note is determined by a court of competent
jurisdiction to be illegal, invalid or unenforceable, such illegality,
invalidity or unenforceability shall not affect the other provisions hereof,
which shall remain binding and enforceable.
11. COMPLIANCE WITH USURY LAWS. It is the intention of the parties
hereto to conform strictly to applicable usury laws regarding the use,
forbearance or detention of the indebtedness evidenced by this Note, whether
such laws are now or hereafter in effect, including the laws of the United
States of America or any other jurisdiction whose laws are applicable, and
including subsequent revisions to or judicial interpretations of those laws,
in each case to the extent they are applicable to this Note (the "Applicable
Usury Laws"); provided, however, if such laws shall hereafter permit higher
rates of interest, then the Applicable Usury Laws shall be the laws allowing
the higher rate of interest. Accordingly, the following shall apply:
(a) if any acceleration of the Maturity Date of this Note or any
payment by Maker or any other person or entity results in the amount of
interest contracted for, charged, taken, reserved, received by or paid by
Maker or such other person or entity on the principal
<PAGE>
amount outstanding, from time to time, on the Note being deemed to have been
in excess of the Maximum Amount, as hereinafter defined, or if any
transaction contemplated hereby would otherwise be usurious under any
Applicable Usury Laws, then, in that event, notwithstanding anything to the
contrary in this Note, it is agreed as follows: (i) the provisions of this
Section 11 shall govern and control; (ii) the aggregate of all interest under
Applicable Usury Laws that is contracted for, charged, taken, reserved or
received under this Note, or under any of the other aforesaid agreements or
instruments or otherwise shall under no circumstances exceed the Maximum
Amount, and any excess shall either be refunded to Maker or applied in
reduction of principal, if permitted by California law, in the sole
discretion of Payee; (iii) neither Maker nor any other person or entity shall
obligated to pay the amount of such interest to the extent it is in excess of
the Maximum Amount; (iv) any interest contracted for, charged, reserved,
taken or received in excess of the Maximum Amount shall be deemed an
accidental or bona fide error and canceled automatically to the extent of
such excess; and (v) the effective rate of interest on the Loan shall be IPSO
FACTO reduced to the Highest Lawful Rate (defined below), and the provision
of this Note shall be deemed reformed, without the necessity of the execution
of any new document, so as to comply with all Applicable Usury Laws. All
sums paid, or agreed to be paid, to Payee for the use, forbearance, or the
detention of the indebtedness of Maker to Payee evidenced by this Note shall,
to the fullest extent permitted by the Applicable Usury Laws, be amortized,
pro-rated, allocated and spread throughout the full term of the indebtedness
evidenced by this Note so that the actual rate of interest does not exceed
the Highest Lawful Rate in effect at any particular time during the full term
thereof. As used herein, the term "Maximum Amount" means the maximum
non-usurious amount of interest which may be lawfully contracted for,
charged, reserved, taken or received by Payee in connection with the
indebtedness evidenced by this Note under all applicable Usury Laws.
(b) If at any time interest on the Loan, together with any fees
and additional amounts payable hereunder or under any other agreements or
instruments that are deemed to constitute interest under Applicable Usury
Laws (the "Additional Interest"), exceeds the Highest Lawful Rate, then the
amount of interest to accrue pursuant to this Note shall be limited,
notwithstanding anything to the contrary in this Note, or any other agreement
or instrument, to the amount of interest that would accrue at the Highest
Lawful Rate; provided, however, that to the fullest extent permitted by
Applicable Usury Laws, any subsequent reductions in the interest rate shall
not reduce the interest to accrue pursuant to this Note below the Highest
Lawful Rate until the aggregate amount of interest actually accrued pursuant
to this Note, together with all Additional Interest, equals the amount of
interest which would have accrued if the Highest Lawful Rate had at all times
been in effect and such Additional Interest, if any, had been paid in full.
For purposes of this Note, the term "Highest Lawful Rate" means the
maximum rate of interest and other charges (if any such maximum exists) for
the forbearance of the payment of monies, if any that may be charged,
contracted for, reserved, taken or received under all Applicable Usury Laws
on the principal balance of this Note from time to time outstanding.
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to be executed as of
the date first above written.
MAKER:
LTC EQUITY HOLDING COMPANY, INC.,
A NEVADA CORPORATION
By: /s/ James J. Picczynski
--------------------------------------
Name: James J. Picczynski
-------------------------------------
Its: President and Chief Financial Officer
--------------------------------------
<PAGE>
LEASE AND SUBLEASE
DATED APRIL 21, 1998
EXECUTED BY
LTC-OHIO, INC., as Lessor and Sublessor
and
KARRINGTON OPERATING COMPANY, INC., AN OHIO CORPORATION,
as Lessee and Sublessee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
1.1 Leased Property. . . . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
1.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.3 Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
3.1.1 Minimum Rent. . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
3.1.2 Adjustment to Rent. . . . . . . . . . . . . . . . . . . . . . - 8 -
3.2 Additional Charges . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.3 Net Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.4 Late Charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
4.1 Payment of Impositions . . . . . . . . . . . . . . . . . . . . . . . - 10 -
4.2 Notice of Impositions. . . . . . . . . . . . . . . . . . . . . . . . - 11 -
4.3 Utility Charges. . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
4.4 Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
4.5 Ground Lease Payments. . . . . . . . . . . . . . . . . . . . . . . . - 12 -
4.6 Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
5.1 No Termination, Abatement, etc . . . . . . . . . . . . . . . . . . . - 12 -
5.2 Abatement Procedures . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
6.1 Ownership of the Leased Property . . . . . . . . . . . . . . . . . . - 13 -
6.2 Lessee's Alterations . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
6.3 Lessee's Personal Property . . . . . . . . . . . . . . . . . . . . . - 14 -
6.4 Consumable Inventory . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
ARTICLE VII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
7.1 Condition of Leased Property . . . . . . . . . . . . . . . . . . . . - 14 -
7.2 Use of the Leased Property . . . . . . . . . . . . . . . . . . . . . - 15 -
7.3 Preservation of Gross Revenues . . . . . . . . . . . . . . . . . . . - 16 -
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<PAGE>
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
8.1 Compliance with Legal and Insurance Requirements, Instruments,
etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
8.2 Legal Requirement Covenants. . . . . . . . . . . . . . . . . . . . - 17 -
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
9.1 Maintenance and Repair . . . . . . . . . . . . . . . . . . . . . . - 18 -
9.2 Expenditures to Comply with Law; Construction of Additional
Improvements Pursuant to Certificate of Need . . . . . . . . . . . - 19 -
9.3 Encroachments, Restrictions, etc . . . . . . . . . . . . . . . . . - 20 -
ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
10.1 Lessee's Obligations for Hazardous Materials . . . . . . . . . . . - 20 -
10.2 Definition of Hazardous Materials. . . . . . . . . . . . . . . . . - 21 -
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
11.1 No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
11.2 Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
ARTICLE XII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
12. Permitted Contests . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
13.1 General Insurance Requirements . . . . . . . . . . . . . . . . . . - 23 -
13.2 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
13.3 Additional Insurance . . . . . . . . . . . . . . . . . . . . . . . - 25 -
13.4 Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . . . . - 25 -
13.5 Form Satisfactory, etc . . . . . . . . . . . . . . . . . . . . . . - 25 -
13.6 Increase in Limits . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
13.7 Blanket Policy . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
13.8 No Separate Insurance. . . . . . . . . . . . . . . . . . . . . . . - 26 -
13.9 Continuous Coverage. . . . . . . . . . . . . . . . . . . . . . . . - 26 -
ARTICLE XIV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
14.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
14.2 Reconstruction in the Event of Damage or Destruction Covered
by Insurance Proceeds. . . . . . . . . . . . . . . . . . . . . . . - 27 -
14.3 Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance . . . . . . . . . . . . . . . . . . . . . . . - 27 -
14.4 Lessee's Property. . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
14.5 Restoration of Lessee's Property . . . . . . . . . . . . . . . . . - 28 -
14.6 No Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . . - 28 -
14.7 Damage Near End of Term. . . . . . . . . . . . . . . . . . . . . . - 28 -
14.8 Termination of Option to Extend. . . . . . . . . . . . . . . . . . - 28 -
-ii-
<PAGE>
14.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
15. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
15.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
15.2 Parties' Rights and Obligations. . . . . . . . . . . . . . . . . . - 29 -
15.3 Total Condemnation . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
15.4 Allocation of Portion of Award . . . . . . . . . . . . . . . . . . - 30 -
15.5 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
15.6 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
ARTICLE XVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
16.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
16.2 Certain Remedies . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
16.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
16.5 Application of Funds . . . . . . . . . . . . . . . . . . . . . . . - 36 -
ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
17. Lessor's Right to Cure Lessee's Default. . . . . . . . . . . . . . - 36 -
ARTICLE XVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
18.1 Options to Extend. . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
18.2 Minimum Rent During Extended Terms . . . . . . . . . . . . . . . . - 37 -
ARTICLE XIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
19. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
20. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
ARTICLE XXI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
21. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
22. Subletting and Assignment. . . . . . . . . . . . . . . . . . . . . - 39 -
22.1 Attornment . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
22.2 Sublease Limitation. . . . . . . . . . . . . . . . . . . . . . . . - 40 -
ARTICLE XXIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
23. Officer's Certificates and Financial Statements; Lease
Covenants' . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
23.1 OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS.. . . . . . . - 41 -
23.2 Lease Covenants . . . . . . . . . . . . . . . . . . . . . . . - 41 -
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<PAGE>
ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
24. Lessor's Right to Inspect. . . . . . . . . . . . . . . . . . . . . - 42 -
ARTICLE XXV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
25. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
26. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . - 42 -
ARTICLE XXVII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
27. Acceptance of Surrender. . . . . . . . . . . . . . . . . . . . . . - 43 -
ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
28. No Merger of Title . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
ARTICLE XXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
29. Conveyance by Lessor . . . . . . . . . . . . . . . . . . . . . . . - 43 -
ARTICLE XXX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
30. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
ARTICLE XXXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
31. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
ARTICLE XXXII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
32.1 Lessor May Grant Liens . . . . . . . . . . . . . . . . . . . . . . - 44 -
32.2 Lessee's Right to Cure . . . . . . . . . . . . . . . . . . . . . . - 45 -
32.3 Default by Lessor. . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
ARTICLE XXXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
33. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . - 46 -
33.1 Survival of Obligations . . . . . . . . . . . . . . . . . . . - 46 -
33.2 Late Charges; Interest. . . . . . . . . . . . . . . . . . . . - 46 -
33.3 Limits of Lessor's Liability. . . . . . . . . . . . . . . . . - 46 -
33.4 Limits of Lessee's Liability. . . . . . . . . . . . . . . . . - 46 -
33.5 Transfer of Operations. . . . . . . . . . . . . . . . . . . . - 46 -
33.6 Addendum, Amendments and Exhibits . . . . . . . . . . . . . . - 47 -
33.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
33.8 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
33.9 Days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
33.10 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
33.11 Applicable Law; Venue. . . . . . . . . . . . . . . . . . . . - 47 -
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<PAGE>
33.12 Successors and Assigns . . . . . . . . . . . . . . . . . . . - 47 -
33.13 Recordation. . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
33.14 Prior and Future Agreements. . . . . . . . . . . . . . . . . - 47 -
33.15 Partial Invalidity . . . . . . . . . . . . . . . . . . . . . - 47 -
33.16 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . . . - 48 -
33.17 Authority of Lessor and Lessee . . . . . . . . . . . . . . . - 48 -
33.18 Relationship of the Parties. . . . . . . . . . . . . . . . . - 48 -
33.19 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
33.20 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . - 48 -
</TABLE>
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LEASE
This LEASE and SUBLEASE (collectively this "Lease") is made as of
the 21st day of April, 1998, by and between LTC-OHIO, INC., a Delaware
corporation, herein called ALessor", and KARRINGTON OPERATING COMPANY, INC.,
an Ohio corporation, herein called "Lessee", subject to the terms, conditions
and contingencies set forth below.
ARTICLE I
1.1 LEASED PROPERTY. Upon and subject to the terms
and conditions hereinafter set forth, Lessor leases to Lessee, and Lessee
rents and hires from Lessor all of the following (the "Leased Property"):
(i) Each of the real properties situated in
the State of Ohio and more particularly described in Exhibits "A-1", "A-2",
"A-3" and "A-4" attached hereto, as the same may be supplemented or modified
from time to time (the "Land"). The parties acknowledge that the Lessor's
interests in the real properties described on Exhibits "A-2" and "A-3" is as
lessee under the Ground Leases defined below;
(ii) All buildings, structures, Fixtures (as
hereinafter defined) and other improvements of every kind including, but not
limited to, alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures presently situated upon the Land
(collectively, the "Leased Improvements");
(iii) All easements, rights and appurtenances
relating to the Land and the Leased Improvements;
(iv) All permanently affixed equipment,
machinery, fixtures, and other items of real and/or personal property,
including all components thereof, permanently affixed to or incorporated into
the Leased Improvements, including, without limitation, all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control,
waste disposal, air-cooling and air conditioning systems and apparatus,
sprinkler systems and fire and theft protection equipment, all of which to
the greatest extent permitted by the law, are hereby deemed by the parties
hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, to the extent acquired by
Lessor pursuant to the "Purchase Agreement" as defined in Article II hereof
(collectively the "Fixtures"); and
(v) All personal tangible and intangible
property comprising the "Personal Property" and/or the "Intangible Property"
acquired by Lessor pursuant to the Purchase
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Agreement.
The Leased Property includes those four (4) assisted living
facilities located in the following: the City of Upper Arlington, County of
Franklin, State of Ohio; the City of Worthington, County of Franklin, State
of Ohio; the City of Worthington, County of Franklin, State of Ohio; and the
City of Bexley, County of Franklin, State of Ohio, and commonly known as
Karrington on the Scioto, Karrington Place, Karrington at Tucker Creek and
Karrington of Bexley, respectively. Notwithstanding the foregoing, the
Leased Property shall not include any property not acquired by Lessor from
the Seller pursuant to the Purchase Agreement. The Leased Property is
demised subject to all covenants, conditions, restrictions, easements, and
other matters of record, and all other matters that affect title, zoning and
any other matters set forth in that certain Title Policy issued by Chicago
Title Company concurrently with Lessor's purchase of the Leased Property and
all matters disclosed in the ALTA survey obtained in connection with such
title insurance (collectively the "Permitted Title Matters").
1.2 TERM. The initial term of the Lease (the "Initial
Term") shall be the period commencing on the closing (the "Closing") whereby
Lessor acquires fee or leasehold title, as the case may be, to the Leased
Property under the Purchase Agreement (the "Commencement Date") and expiring
on April 30, 2018. Lessee has the right to extend the term of this Lease, at
Lessee's option, as provided in Article XVIII, below. (The Initial Term plus
all validly exercised options to extend, if any, shall be referred to herein
as the "Term"). Lessor and Lessee agree to execute a memorandum setting
forth the Commencement Date.
1.3 CONTINGENCIES.
1.3.1 ACQUISITION OF LEASED PROPERTY. Lessee
acknowledges and agrees that, at the time of executing this Lease, Lessor
does not own the Leased Property, but Lessor has a right to purchase the
Leased Property pursuant to the Purchase Agreement. This Lease, and all
obligations hereunder of either party, are contingent upon Lessor's
acquisition of the fee simple or leasehold interest (as the case may be) in
the Leased Property. Therefore, if the Leased Property has not been
transferred to Lessor on or before the Outside Closing Date (as that term is
defined in the Purchase Agreement), or by such later date as Lessor, in its
sole discretion may permit, this Lease shall be null and void and of no force
or effect whatsoever, and both Lessor and Lessee shall be relieved of all
responsibility under the Lease.
1.3.2 CROSS DEFAULT WITH OTHER LEASES. Lessor
and Lessee acknowledge and agree that this Lease is to be cross-defaulted
with every other lease now or hereafter entered into between Lessor (or any
of its Affiliates) and Lessee (or any of its Affiliates) with respect to any
assisted living facility (collectively, the "Other Leases"), each of which
shall (if Lessor so requests) be specifically amended to confirm that they
are cross-defaulted as additional security for Lessee's performance under
this Lease. However, the cross-default provisions of this Paragraph shall be
effective regardless of whether Lessor requests the aforesaid specific
amendments.
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ARTICLE II
2. DEFINITIONS. For all purposes of this Lease, except as
otherwise expressly provided, (i) the terms defined in this Article II have
the meanings assigned to them in this Article II and include the plural as
well as the singular; (ii) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with generally accepted
accounting principles at the time applicable; and (iii) the words "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Lease as a whole and not to any particular Article, Paragraph or other
subdivision:
ADDITIONAL CHARGES. As defined in Article III.
AFFILIATE. When used with respect to any corporation, the
term "Affiliate" shall mean any person or entity (including any trust) which,
directly or indirectly, controls or is controlled by or is under common
control with such corporation. For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by"
and "under common control with"), as used with respect to any person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of such person, through the
ownership of voting securities, partnership interests or other equity
interests. For the purposes of this definition, "person" shall mean any
natural person, trust, partnership, corporation, joint venture or other legal
entity.
BUSINESS DAY. Each Monday, Tuesday, Wednesday, Thursday,
and Friday, which is not a day on which national banks in the State of Ohio
are authorized or obligated, by law or executive order, to close.
C.P.I. As defined in Paragraph 3.1.
CALENDAR YEAR. The period from January 1 through and
including December 31 in the same calendar year.
CODE. The Internal Revenue Code of 1986, as amended, and
all regulations issued thereunder.
CONSOLIDATED FINANCIALS. For any Fiscal Year or other
accounting period for Lessee and its consolidated subsidiaries, statements of
earnings and retained earnings and of changes in financial position for such
period and the related balance sheet as at the end of such period, together
with the notes thereto, all audited by a certified public accountant and in
reasonable detail and setting forth in comparative form the corresponding
figures for the corresponding period in the preceding Fiscal Year, and
prepared in accordance with generally accepted accounting principles.
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CONSOLIDATED NET WORTH. At any time, the sum of the
following for Lessee and its consolidated subsidiaries, on a consolidated
basis determined in accordance with generally accepted accounting principles:
(1) the amount of capital or stated capital
(after deducting the cost of any shares held in its treasury), plus
(2) the amount of capital surplus and retained
earnings (or, in the case of a capital or retained earnings deficit, minus
the amount of such deficit), minus
(3) the sum of the following (without duplication
of deductions in respect of items already deducted in arriving at surplus and
retained earnings): (a) unamortized debt discount and expense; and (b) any
write-up in the book value of assets resulting from a revaluation thereof
subsequent to the most recent Consolidated Financials prior to the date
thereof, except (i) any net write-up in value of foreign currency in
accordance with generally accepted accounting principles; and (ii) any
write-up resulting from a reversal of a reserve for bad debts or depreciation
and any write-up resulting from a change in methods of accounting for
inventory.
ENCUMBRANCE. As defined in Article XXXII.
EVENT OF DEFAULT. As defined in Article XVI.
EXTENDED TERM. As defined in Article XVIII.
FACILITY. Each and any assisted living facility which is
part of the Leased Property as defined in Article I, above, inclusive of the
Land, Leased Improvements, Fixtures, Personal Property and Intangible
Property pertaining to such Facility. The Facilities are collectively
referred to as the "Leased Property".
FACILITY MORTGAGE. As defined in Article XIII.
FACILITY MORTGAGEE. As defined in Article XIII.
FISCAL YEAR. The twelve (12) month period from January 1
through the following December 31.
FIXTURES. As defined in Article I.
GROUND LEASES. Those two ground leases more fully
described as (a) that certain Ground Lease concerning the Karrington at
Tucker Creek Facility between The United Methodist Children's Home West Ohio
Conference of the United Methodist Church, an Ohio nonprofit corporation, as
ground lessor ("Ground Lessor") and Developmed of Worthington Limited
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Partnership, an Ohio limited partnership, ("Developmed") as ground lessee
dated December 1, 1992 and thereafter amended pursuant to that certain First
Amendment to Ground Lease dated as of June 23, 1995. Developmed assigned its
interest in such Ground Lease to Karrington Operating Company, Inc., an Ohio
corporation pursuant to a Lease Assignment and Assumption Agreement dated as
of December 31, 1996, and Karrington Operating Company, Inc. subsequently
assigned its interest in such Ground Lease to Karrington Acquisition II, an
Ohio corporation pursuant to a Lease Assignment and Assumption Agreement
dated as of July 1, 1997; and (b) that certain Ground Lease concerning the
Karrington Place Facility between Ground Lessor and Developmed dated as of
June 29, 1995. Developmed assigned its interest in such Ground Lease to
Karrington Operating Company, Inc., pursuant to a Lease Assignment and
Assumption Agreement dated as of December 31, 1996, and Karrington Operating
Company, Inc. subsequently assigned its interest in such Ground Lease to
Karrington Acquisition II, Inc., an Ohio corporation pursuant to a Lease
Assignment and Assumption Agreement dated as of July 1, 1997. Either of the
Ground Leases may be referred to as a Ground Lease.
IMPOSITIONS. Collectively, all taxes (including, without
limitation, all ad valorem, sales and use, single business, gross receipts,
transaction, privilege, rent taxes, bed taxes or fees or any other taxes as
the same relate to or are imposed upon Lessee or Lessor or the business
conducted upon the Leased Property), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or
not commenced or completed prior to the date hereof and whether or not to be
completed within the Term), ground rents, water, sewer or other rents and
charges, excises, tax levies, fees (including, without limitation, license,
permit, inspection, authorization and similar fees), and all other
governmental charges, in each case whether general or special, ordinary or
extraordinary, or foreseen or unforeseen, of every character in respect of
the Leased Property, Lessor, or the business conducted thereon by Lessee
(including all interest and penalties thereon due to any failure in payment
by Lessee), and all increases in all the above from any cause whatsoever,
including reassessment, which at any time prior to, during or in respect of
the Term may be assessed or imposed on or in respect of or be a lien upon (a)
Lessor's interest in the Leased Property or any part thereof; (b) the Leased
Property or any part thereof, including without limitation any Personal
Property located thereon or used in connection therewith, or any rent
therefrom or any estate, right, title or interest therein; or (c) any
occupancy, operation, use or possession of, or sales from, or activity
conducted on, or in connection with the Leased Property or the leasing or use
of the Leased Property or any part thereof by Lessee. Without limiting the
foregoing, the term "Imposition" shall include any sales tax on rents paid
under this Lease or by residents of the Facility (including, but not limited
to, rental receipts taxes), bed taxes, depreciation recapture, any other
taxes (except for the specific exclusions stated below), fees or charges
imposed by the State of Ohio and any potential subdivision thereof relating
to any Facility or the Leased Property, this Lease, or rents received under
this Lease, whether relating to any period prior to or after the Commencement
Date. Provided, however, nothing contained in this Lease shall be construed
to require Lessee to pay (1) the following taxes and fees to the extent they
relate to Lessor's business generally (as opposed to relating specifically to
Lessor's ownership of any Facility, lease thereof to Lessee or income
therefrom): any federal, state or local income tax of Lessor, taxes based on
outstanding corporate shares of Lessor or Lessor's equity or capitalization,
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regardless of whether denominated as an income tax, franchise tax, capital
tax or otherwise; (2) any income or capital gain tax imposed with respect to
the sale, exchange or other disposition by Lessor of any Leased Property or
the proceeds thereof; or (3) estate, inheritance, gift taxes or documentary
transfer taxes.
INSURANCE REQUIREMENTS. All terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.
LAND. As defined in Article I.
LEASE. As defined in the Preamble.
LEASE YEAR. Any twelve (12) month period from May 1 to
each following April 30 during the Term. In the case of the beginning of the
Initial Term, the provision "Lease Year" shall mean the period from the
Commencement Date (defined in Paragraph 1.2, above) to April 30, 1999; in the
case of the end of the Term, the provision "Lease Year" shall mean the period
from the last May 1 to occur during the Term to the date of expiration of the
Lease.
LEASED IMPROVEMENTS; LEASED PROPERTY. Each as defined in
Article I.
LEGAL REQUIREMENTS. All federal, state, county, municipal,
and other governmental statutes, laws, rules, orders, regulations,
ordinances, judgments, decrees, and injunctions affecting either the Leased
Property or the construction, use or alteration thereof whether now or
hereafter enacted and in force, including any which may (i) require repairs,
modifications or alterations in or to the Leased Property; or (ii) in any way
adversely affect the use and enjoyment thereof, and all permits, licenses and
authorizations and regulations thereto, and all covenants, agreements,
restrictions, and encumbrances contained in any instruments, either of record
or known to Lessee, at any time in force affecting the Leased Property.
LESSEE. Karrington Operating Company, Inc. an Ohio
corporation (and any assignee permitted subject to the terms and conditions
in this Lease).
LESSEE'S PERSONAL PROPERTY. All machinery, equipment,
furniture, furnishings, movable walls or partitions, computers, or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Lessee and used or useful in Lessee's business on the Leased
Property and located thereon, including without limitation, all items of
furniture, furnishings, equipment, supplies and inventory, except items (i)
included within the definition of Fixtures; and (ii) personal property
described in Paragraph 1.1(v), above.
LESSOR. LTC-Ohio, Inc., a Delaware corporation, and its
successors and assigns.
MINIMUM RENT. As defined in Article III.
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NOTICE. A notice given pursuant to Article XXXI hereof.
OFFICER'S CERTIFICATE. A certificate of Lessee signed by
(i) the Chief Executive Officer or the President or any authorized Vice
President; AND (ii) the secretary, or another officer authorized by
appropriate resolution to so sign by the Board of Directors. Any signature
required above may be substituted with a signature of another person whose
power and authority to act has been authorized by an appropriate corporate
resolution.
OTHER LEASES. As defined in Paragraph 1.3.2.
OVERDUE RATE. On any date, a rate equal to the Prime Rate
(defined below), plus two percent (2%); provided, however, that it is the
intent of Lessor and Lessee that the Overdue Rate (and all other interest
rates provided for hereunder) be in strict compliance with applicable usury
laws of the State of Ohio, and that in the event the Overdue Rate (or other
interest rate provided for hereunder) shall be deemed to exceed that
permitted to be charged by the laws of the State of Ohio, any and all excess
sums collected by Lessor shall be credited against the Rent payable under
this Lease or if there is no Rent due, promptly refunded to Lessee.
PAYMENT DATE. Any due date for the payment of the
installments of Minimum Rent or any other payments required under this Lease.
PRIMARY INTENDED USE. As defined in Paragraph 7.2.2.
PRIME RATE. On any date, a rate equal to the annual rate
on such date as may be published by The Wall Street Journal as the prime rate
in its listing of "Money Rates."
PURCHASE AGREEMENT. That certain Agreement of Purchase and
Sale and Joint Escrow Instructions, dated as of April 15, 1998, by and
between Lessee and Karrington Acquisition II, Inc. as the "Seller" and Lessor
as the "Buyer," providing for Lessor's acquisition of the Leased Property at
the purchase price and as more fully described therein.
PURCHASE PRICE. Lessor's Purchase Price for the Leased
Property pursuant to (and as defined in) the Purchase Agreement.
RELATED LEASES. Those certain leases between Lessor, as
"Lessor", and Lessee, as "Lessee," enumerated on Exhibit "B", attached hereto.
RENT. Any and all monetary obligations of Lessee owing
under this Lease.
SUBSIDIARIES. Corporations, of which either Lessee or
Lessor owns, directly or indirectly, more than 50% of the voting stock
(individually, a "Subsidiary").
TERM. Collectively, the Initial Term plus any Extended
Terms, as the context may
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require, unless earlier terminated pursuant to the provisions hereof.
UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state of
condition of a Facility such that by reason of damage or destruction, or a
partial taking by Condemnation, in the good faith judgment of Lessor and
Lessee, reasonably exercised, such Facility cannot be operated on a
commercially practicable basis for its Primary Intended Use taking into
account, among other relevant factors, the number of usable units affected by
such damage or destruction or partial Condemnation.
UNAVOIDABLE DELAYS. Delays due to strikes, lock-outs,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or
other causes beyond the control of the party responsible for performing an
obligation hereunder; provided that lack of funds shall not be deemed a cause
beyond the control of either party hereto unless such lack of funds available
to Lessor results from Lessee's failure to perform any of its obligations
under this Lease.
The above does not include all the definitions to be used
in this Lease. Various definitions of other terms are included in the other
Articles of this Lease.
ARTICLE III
3.1 RENT.
3.1.1 MINIMUM RENT. Lessee will pay to Lessor
in lawful money of the United States of America which shall be legal tender
for the payment of public and private debts at Lessor's address set forth
hereinbelow or at such other place or to such other person, firms or
corporations as Lessor from time-to-time may designate in a Notice, a rent
(the "Minimum Rent"), during the Term, as follows:
(a) INITIAL TERM. The initial
annual Minimum Rent for the first Lease Year of the Initial Term shall be an
amount equal to Two Million Ninety-Two Thousand Five Hundred and 00/100
Dollars ($2,092,500). The Minimum Rent shall be subject to increase as and
when provided below in this Article III. The Minimum Rent, as the same may
be increased hereunder, shall be paid in advance in equal, consecutive
monthly installments on the first day of each calendar month of the Term
without demand, abatement, setoff or notice. Minimum Rent shall be prorated
for any partial month at the beginning or end of the Term; and
(b) EXTENDED TERMS. The Minimum
Rent during the Extended Terms shall be as stated in Article XVIII, below.
3.1.2 ADJUSTMENT TO RENT. Commencing on the
first (1st) day of the first calendar month following the one-year
anniversary of the Commencement Date (unless the Commencement Date falls on
the first (1st) day of a calendar month, in which case the Minimum
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Rent shall be increased (but never decreased) commencing on the one-year
anniversary of the Commencement Date) ("Rent Adjustment Date") and continuing
thereafter on each subsequent anniversary of the Rent Adjustment Date during
the Initial Term and each Extended Term, the Minimum Rent shall be increased
in an amount equal to the annual Minimum Rent payable under this Lease for
the immediately preceding twelve (12) month period increased by one hundred
fifty percent (150%) of the cumulative increase in the Consumer Price Index,
published as the "CPI-U" Index by the Bureau of Labor Statistics of the
Department of Labor, U.S. Cities Average, All Items (1982-84--100) in the
manner calculated on the date of this Lease ("C.P.I.") from the date two (2)
months prior to the immediately preceding Rent Adjustment Date (or, in the
case of the first adjustment to Minimum Rent, from the date two (2) months
prior to the Commencement Date) to the date two (2) months prior to then
current Rent Adjustment Date. Notwithstanding the foregoing, in no event
shall any INCREASE TO Minimum Rent in any Lease Year exceed two percent
(2.0%) of the Minimum Rent (as adjusted) payable for the immediately
preceding twelve (12) month period. In no event shall the Minimum Rent be
reduced by reason of the adjustment to Minimum Rent set forth in this
Paragraph 3.1.2. If the CPI Index is no longer published, or if the format
or components of the CPI Index are materially changed after the Commencement
Date, Lessor in its reasonable judgment shall substitute an index which is
published by the Bureau of Labor Statistics or similar agency and which is
most nearly equivalent to the Index in effect on the Commencement Date.
3.2 ADDITIONAL CHARGES. In addition to the Minimum
Rent, (1) Lessee will also pay and discharge as and when due and payable all
other amounts, liabilities, obligations (including but not limited to all
rents, charges, payments, impositions and amounts payable under the Ground
Leases) and Impositions which Lessee assumes, is obligated or agrees to pay
under this Lease, and (2) in the event of any failure on the part of Lessee
to pay any of those items referred to in clause (1) above, Lessee will also
promptly pay and discharge every fine, penalty, interest and cost which may
be added for non-payment or late payment of such items (the items referred to
in clauses (1) and (2) above being referred to herein collectively as the
"Additional Charges"), and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Lease or by
statute or otherwise in the case of non-payment of the Additional Charges.
If any elements of Additional Charges shall not be paid within five (5)
Business Days after its due date and Lessor pays any such amount (which
Lessor shall have the right, but not the obligation, to do), then, in
addition to Lessor's other rights and remedies, Lessee will pay Lessor on
demand, as Additional Charges, interest on such unpaid Additional Charges
computed at the Overdue Rate from the date that Lessor pays such amount to
the date that Lessor receives reimbursement from Lessee. To the extent that
Lessee pays any Additional Charges to Lessor pursuant to any requirement of
this Lease, Lessee shall be relieved of its obligation to pay such Additional
Charges to the entity to which they would otherwise be due.
3.3 NET LEASE. Subject to the provisions of Article
V, below, without limiting any provision of this Lease, the Rent shall be
paid absolutely net to Lessor, so that this Lease shall yield to Lessor the
full amount of the installments of Minimum Rent and Additional Charges
throughout the Term, all as more fully set forth in Articles III, IV, VIII,
IX and XIII, and other
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provisions of this Lease.
3.4 LATE CHARGE. LESSEE HEREBY ACKNOWLEDGES THAT LATE
PAYMENT BY LESSEE TO LESSOR OF RENT (INCLUDING MINIMUM RENT AND ADDITIONAL
CHARGES, BUT EXCLUDING LATE CHARGES) OR OTHER SUMS DUE HEREUNDER WILL CAUSE
LESSOR TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, THE EXACT AMOUNT OF
WHICH WILL BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS INCLUDE, BUT ARE
NOT LIMITED TO, PROCESSING AND ACCOUNTING CHARGES. ACCORDINGLY, IF ANY
INSTALLMENT OF RENT (INCLUDING MINIMUM RENT AND ADDITIONAL CHARGES, BUT
EXCLUDING LATE CHARGES) OR ANY OTHER SUM DUE FROM LESSEE SHALL NOT BE
RECEIVED BY LESSOR WHEN THE SAME BECOMES DUE AND PAYABLE AND SUCH FAILURE IS
NOT CURED WITHIN FIVE (5) BUSINESS DAYS AFTER NOTICE THEREOF FROM LESSOR,
THEN LESSEE SHALL PAY TO LESSOR A LATE CHARGE EQUAL TO FIVE PERCENT (5%) OF
SUCH OVERDUE AMOUNT. THE PARTIES HEREBY AGREE THAT SUCH LATE CHARGE
REPRESENTS A FAIR AND REASONABLE ESTIMATE OF THE COSTS LESSOR WILL INCUR BY
REASON OF LATE PAYMENT BY LESSEE. ACCEPTANCE OF SUCH LATE CHARGE BY LESSOR
SHALL IN NO EVENT CONSTITUTE A WAIVER OF LESSEE'S DEFAULT OR BREACH WITH
RESPECT TO SUCH OVERDUE AMOUNT, NOR PREVENT LESSOR FROM EXERCISING ANY OF THE
OTHER RIGHTS AND REMEDIES GRANTED UNDER THIS LEASE.
ARTICLE IV
4.1 PAYMENT OF IMPOSITIONS. Subject to Article XII
relating to permitted contests, Lessee will pay, or cause to be paid, all
Impositions coming due prior to or during the Term, or which relate to any
period within the Term or prior to the Term, before any fine, penalty,
interest or cost may be added for non-payment (or earlier if required by any
taxing authority), such payments to be made directly to the taxing
authorities where feasible, and upon written request will promptly furnish to
Lessor copies of official receipts or other satisfactory proof evidencing
such payments. Lessee's obligation to pay Impositions shall be deemed
absolutely fixed upon the date such Impositions become a lien upon the Leased
Property or any part thereof. If any Imposition may, at the option of the
taxpayer, lawfully (without penalty) be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Lessee may
exercise the option to pay the same (and any accrued interest on the unpaid
balance of such Imposition) in installments and in such event, shall pay such
installments during the Term hereof (subject to Lessee's right of contest
pursuant to the provisions of Article XII) as the same respectively become
due and before any fine, penalty, premium, further interest or cost may be
added thereto. Lessee, at its expense, shall, to the extent required or
permitted by Legal Requirements, prepare and file all tax returns and reports
in respect of any Imposition as may be required by governmental authorities.
If any refund shall be due from any taxing authority in respect of any
Imposition, the same shall be paid over to or retained by Lessee if no Event
of Default shall have occurred hereunder and be continuing, but if
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such Event of Default has occurred and is continuing (I.E., it has not been
cured), such refund shall be paid to Lessor and utilized to cure any such
continuing Event of Default. After fully curing such Event of Default, any
excess funds from such refund shall be paid by Lessor to Lessee. Any such
funds retained by Lessor, as provided above, shall be applied as provided in
Article XVI. Lessor and Lessee shall, upon request of the other, provide
such data as is maintained by the party to whom the request is made with
respect to the Leased Property as may be necessary to prepare any required
returns and reports. In the event governmental authorities classify any
property covered by this Lease as personal property, Lessee shall file all
personal property tax returns in such jurisdictions where it must legally so
file. Lessor, to the extent it possesses the same, and Lessee, to the extent
it possesses the same, will provide the other party, upon request, with cost
and depreciation records necessary for filing returns for any property so
classified as personal property. Where Lessor is legally required to file
personal property tax returns, Lessee will provide to Lessor copies of
assessment notices indicating a value in excess of the reported value in
sufficient time for Lessor to file a protest. Lessee may, upon notice to
Lessor, at Lessee's option and at Lessee's sole cost and expense, protest,
appeal or institute such proceedings as Lessee may deem appropriate to effect
a reduction of real estate or personal property assessments and Lessor, at
Lessee's sole cost and expense as aforesaid, shall fully cooperate with
Lessee in such protest, appeal, or other action, provided that Lessee may not
withhold payments pending such challenges except under the conditions set
forth in Article XII. Billings for reimbursement by Lessee to Lessor of
personal property taxes shall be accompanied by copies of a bill therefor and
payments thereof which identify the personal property with respect to which
such payments are made. Lessor shall have the right, once any Event of
Default has occurred hereunder (and irrespective of whether such Event of
Default is continuing or has been cured), to require that Lessee pay to
Lessor 1/12th of the annual Impositions each month concurrently with the
payment of Minimum Rent; provided that, during any period when such payments
are being made, Lessor agrees (a) to pay, or cause to be paid, all such
Impositions prior to delinquency, and (b) upon written request from Lessee,
to account to Lessee for all payments then on deposit. Unless Lessee is
notified by Lessor otherwise, Lessee shall pay all "Impositions" directly to
the appropriate taxing or other authorities to which payments are due, and
upon written request Lessee shall provide Lessor written evidence and notice
that all such payments have been made. Without limiting any of the other
indemnities set forth in this Lease, Lessee hereby agrees to defend,
indemnify, protect and hold harmless Lessor in connection with any
"Impositions" that relate to any time prior to or during the Term, and Lessee
acknowledges and agrees that it will not make claims against, or otherwise
look to, Lessor to reimburse Lessee for payments made relating to any period
prior to the Commencement Date.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt
Notice to Lessee for all Impositions payable by Lessee hereunder of which
Lessor has knowledge, but Lessor's failure to give any such Notice shall in
no way diminish Lessee's obligations hereunder to pay such Impositions, but
such failure shall obviate any default hereunder for a reasonable time after
Lessee receives notice (from any source) of any Imposition which it is
obligated to pay. However, notwithstanding the foregoing, it shall be
Lessee's sole duty to inquire and determine all of the Impositions for which
it is liable as provided herein and shall promptly pay such Impositions when
due, and Lessor shall have no duty of inquiry concerning Impositions.
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4.3 UTILITY CHARGES. Lessee will pay or cause to be
paid all charges for electricity, power, gas, oil, water, sewer connection
and all other utilities used in or for the Leased Property during the Term.
4.4 INSURANCE PREMIUMS. Lessee will pay or cause to
be paid all premiums for the insurance coverage required to be maintained
pursuant to Article XIII during the Term.
4.5 GROUND LEASE PAYMENTS. Lessee will pay any and
all rents, charges, payments impositions and amounts payable by or on behalf
of the lessee under the Ground Leases during the Term. Lessee shall pay to
Lessor all such amounts payable under the Ground Leases so as to cause Lessor
to receive such payments not later than three (3) business days prior to the
date on which such sums are due to the ground lessor (or to such other party
as any of such sums may be payable) under the Grounds Leases.
4.6 PAYABLES. Lessee acknowledges and agrees that
prior to the Rent Commencement Date, certain liabilities and other
obligations were incurred arising from the development, construction and
operation of the Facilities for which Lessee is and shall remain entirely
responsible and liable, and Lessor shall have no responsibility, liability or
obligation whatsoever with respect to the same. Therefore, Lessee agrees as
part of this Lease to pay all liabilities and obligations concerning each
Facility, whether arising before or after the Rent Commencement Date.
ARTICLE V
5.1 NO TERMINATION, ABATEMENT, ETC. Except as
specifically provided under Article XV hereunder, Lessee shall not be
entitled to any abatement, deduction, deferment or reduction of Rent, or
set-off against the Rent, nor shall the respective obligations of Lessor and
Lessee be otherwise affected by reasons of (a) any damage to, or destruction
of, any Leased Property or any portion thereof; (b) the lawful or unlawful
prohibition of, or restriction upon, Lessee's use of the Leased Property, or
any portion thereof, the interference with such use by any person,
corporation, partnership or other entity, or by reason of eviction by
paramount title; (c) any claim which Lessee has or might have against Lessor
or by reason of any default or breach of any warranty by Lessor under this
Lease or any other agreement between Lessor and Lessee, or to which Lessor
and Lessee are parties; (d) any bankruptcy, insolvency, reorganization,
composition, readjustment, liquidation, dissolution, winding-up or other
proceedings affecting Lessor or any assignee or transferee of Lessor; or (e)
for any other cause whether similar or dissimilar to any of the foregoing
other than a discharge of Lessee from any such obligations as a matter of
law. Lessee hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law
to (i) modify, surrender or terminate this Lease or quit or surrender the
Leased Property or any portion thereof; or (ii) entitle Lessee to any
abatement, reduction, suspension or deferment of the Rent payable under this
Lease except as specifically provided in Article XV hereunder. The
obligations of Lessor and Lessee hereunder shall be
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separate and independent covenants and agreements and the Rent due under this
Lease shall continue to be payable in all events, irrespective of Lessor's
performance or non-performance under this Lease, unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default.
5.2 ABATEMENT PROCEDURES. In the event Lessee is
entitled to an abatement of Minimum Rent under Paragraph 15.3 (by reason of a
total Condemnation of a Facility), the Minimum Rent shall be abated as provided
in Paragraph 15.3. In the event Lessee is entitled to an abatement of Minimum
Rent under Paragraph 15.5 (by reason of any partial Condemnation of a Facility
as provided hereunder), the Lease shall not terminate but the Minimum Rent shall
be abated in proportion to the reduced capacity of the Leased Property for the
use made of the same by Lessee at the time of the Condemnation (I.E., the
reduction in the number of residents the Leased Property can accommodate under
standards existing immediately prior to the Condemnation). If Lessor and Lessee
are unable to agree upon the amount of such abatement within thirty (30) days
after any partial taking as provided under Article XV, the matter shall be
submitted by either party to a court of competent jurisdiction for resolution,
but Lessee during such resolution shall continue to perform its obligations
hereunder, including, but not limited to, payment of that portion of the Minimum
Rent which is not then in dispute.
ARTICLE VI
6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee
acknowledges and agrees that the Leased Property is the property of Lessor
(subject to the rights of the ground lessors under the Ground Leases) and that
Lessee has only the right to the exclusive possession and use of the Leased
Property upon the terms and conditions of this Lease.
6.2 LESSEE'S ALTERATIONS. Lessee shall not make any
modifications, alterations or improvements, whether by addition or deletion, to
the Leased Improvements or any portion thereof (collectively, "Alterations")
without Lessor's prior written consent; provided, however that Lessee may, at
its sole cost and expense, make non-structural Alterations to the interior of
the Leased Improvements so long as the total cost thereof is less than One
Hundred Fifty Thousand and 00/100 Dollars ($150,000) for any single Facility and
provided that the aggregate cost over any twelve (12) month period of such
Alterations for all of the Leased Property does not exceed Six Hundred Thousand
and 00/100 Dollars ($600,000) unless approved in advance in writing by Lessor.
Any Alterations by Lessee during the Term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and in compliance
with law. Lessee will not make any Alteration or other improvement that may
materially impair the value or the usefulness of the Leased Property or any part
thereof for its Primary Intended Use. Subject to the provisions of Article XI,
all Alterations and other improvements shall be lien free (I.E., without
mechanics', materialmen's or other liens). Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessee shall, at its sole cost and expense, repair and restore the
Leased Property as and when required under Paragraph 9.1.
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6.3 LESSEE'S PERSONAL PROPERTY. Lessee may (and shall as
provided hereinbelow), at its expense, install, assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of Lessee's Personal
Property, and Lessee may, subject to the conditions set forth below, remove the
same upon the expiration or any prior termination of the Term. Lessee shall
provide and maintain during the entire Term all such Lessee's Personal Property
as shall be necessary in order to operate each Facility in compliance with all
licensure and certification requirements, in compliance with all applicable
Legal Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use. All of
Lessee's Personal Property not removed by Lessee within twenty (20) days
following the expiration or earlier termination of this Lease shall be
considered abandoned by Lessee and may be used, appropriated, sold, destroyed,
or otherwise disposed of by Lessor without first giving notice thereof to Lessee
and without any payment to Lessee and without any obligation to account
therefor. Lessee shall, within twenty (20) days following the expiration or
earlier termination of this Lease, at its sole cost and expense, repair any
damage to the Land or the Leased Improvements occasioned by the installation,
maintenance or removal of Lessee's Personal Property, and restore the Land or
Leased Improvements to its condition immediately prior to any such installation.
6.4 CONSUMABLE INVENTORY. Lessor and Lessee acknowledge
that certain inventory, including consumables, at each Facility, as of the
Commencement Date ("Consumable Inventory") will be completely consumed or
otherwise disposed of during the course of Lessee's operation of such Facility.
Lessee agrees that, at the end of the Term or earlier termination of the Lease,
it shall replace and restore the Consumable Inventory to the type and amount
(with the same value) as that existing as of the Commencement Date, and as may
otherwise be sufficient to fully equip each Facility for its operation and
maintenance as may be customary for properties comparable to the Leased Property
in the State of Ohio.
ARTICLE VII
7.1 CONDITION OF LEASED PROPERTY. Lessee acknowledges
receipt and delivery of possession of the Leased Property and further
acknowledges that Lessee has examined and otherwise has knowledge of the
condition of the Leased Property prior to the execution and delivery of this
Lease and has found the same to be in good order and repair and satisfactory for
it purposes hereunder. Lessee represents and warrants that the Personal
Property (as defined in Paragraph 1.1(v) hereof) includes all equipment and
property required under applicable federal and state law to operate each
Facility at full capacity. Lessee is leasing the Leased Property "AS-IS" in its
present condition. Lessee waives any claim or action against Lessor in respect
of the condition of the Leased Property. LESSOR MAKES NO WARRANTY OR
REPRESENTATIONS, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY
PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR THE
MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH
RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY
HAS BEEN INSPECTED BY
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LESSEE AND IS SATISFACTORY TO IT. WITHOUT LIMITING THE FOREGOING, IT SHALL
BE LESSEE'S RESPONSIBILITY TO DETERMINE THE AMOUNT OF REIMBURSEMENT AND OTHER
PAYMENTS THAT IT IS ENTITLED TO RECEIVE FROM THE FEDERAL, STATE OR LOCAL
GOVERNMENTS AND LESSEE'S OBLIGATIONS UNDER THIS LEASE SHALL NOT BE MODIFIED,
CHANGED OR OTHERWISE BE REDUCED IN THE EVENT THAT LESSEE HAS INCORRECTLY
ANALYZED THE AMOUNTS TO BE PAID TO LESSEE BY ANY GOVERNMENT OR AGENCY THEREOF.
7.2 USE OF THE LEASED PROPERTY.
7.2.1 Lessee covenants that it will obtain and
will at all times during the Term maintain all approvals needed to use and
operate the Leased Property and each Facility under applicable federal, state
and local law, including, but not limited to, licensure and Medicaid
certification, if and as applicable. Lessee shall provide to Lessor, at
Lessor's request a copy of any report or survey conducted by any federal, state
or local government entity regarding the quality of care at each Facility, and
any other such information or documents concerning the operation of each
Facility.
7.2.2 After the Commencement Date and during the
entire Term, Lessee shall use or cause to be used the Leased Property as
separate assisted living facilities licensed (if applicable) by the State of
Ohio and uses incidental to the foregoing, including without limitation home
health services provided in accordance with and as contemplated under Paragraph
22, below (the particular such use to which the Leased Property is put at any
particular time is herein referred to as the "Primary Intended Use"). Lessee
shall not use the Leased Property or any portion thereof for any other use
without the prior written consent of Lessor, which consent may be withheld in
Lessor's sole and absolute discretion. No use shall be made of the Leased
Property, and no acts shall be done, which will cause the cancellation of any
insurance policy to residents therein, or permit to be kept, used or sold in or
about the Leased Property any article which may be prohibited by law or by the
standard form of fire insurance policies, or any other insurance policies
required to be carried hereunder, or fire underwriter's regulations. Lessee
shall, at its sole cost, comply with all of the requirements pertaining to the
Leased Property or other improvements of any insurance board, association,
organization, or company necessary for the maintenance of insurance, as herein
provided, covering the Leased Property and Lessee's Personal Property.
7.2.3 Lessee covenants and agrees that subject to
damage, destruction and condemnation described in Articles XIV and XV, during
the Term it will operate continuously the entirety of the Leased Property in
accordance with its Primary Intended Use, provided that Lessee may cease
operations (at no more than one (1) Facility at a time) for more than ten (10)
days (i) if Lessee obtains Lessor's prior written approval, and (ii) so long as
such cessation of operations does not impair or threaten the status or
effectiveness of the operating license or other certification for operating such
Facility in accordance with its Primary Intended Use.
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7.2.4 Lessee shall not commit or suffer to be
committed any waste on the Leased Property, or in any Facility nor shall Lessee
cause or permit any nuisance thereon.
7.2.5 Lessee shall neither suffer nor permit the
Leased Property or any portion thereof, including Lessee's Personal Property, to
be used in such a manner as (i) might reasonably tend to impair Lessor's (or
Lessee's, as the case may be) title thereto or to any portion thereof; or (ii)
may reasonably make possible a claim or claims of adverse usage or adverse
possession by the public, as such, or of implied dedication of the Leased
Property or any portion thereof.
7.2.6 Lessee covenants and agrees that during the
Term it will maintain all licenses, approvals, permits and certifications for
reimbursement, licensure and as otherwise required for operating the Facility in
accordance with its Primary Intended Use.
7.3 PRESERVATION OF GROSS REVENUES. Lessee acknowledges
that a fair return to Lessor on its investment in the Leased Property is
dependent, in part, on the concentration on each Facility of the Leased Property
during the Term of the assisted living business of Lessee and its Affiliates in
the geographical area of each Facility of the Leased Property. Lessee further
acknowledges that diversion of residents and/or patients, as applicable, from
any Facility to other facilities or institutions owned, operated or managed,
whether directly or indirectly, by Lessee or its Affiliates will have a material
adverse impact on the value and utility of the Leased Property. Accordingly,
Lessor and Lessee agree as follows:
7.3.1 During the Term neither Lessee nor any of
its Affiliates, directly or indirectly, shall operate, own, manage or have any
interest in or otherwise participate in or receive revenues from any other
facility or institution providing services or similar goods to those provided in
connection with any Facility and the Primary Intended Use, within a four (4)
mile radius outward from the outside boundary of each Facility (other than any
other of the Facilities which may be located within such radius). All distances
shall be measured on a straight line rather than on a driving distance basis.
In the event that any portion of such other facility or institution is located
within such restricted area, the entire facility or institution shall be deemed
located within such restricted area.
7.3.2 During the Term, Lessee shall not recommend
or solicit the removal or transfer of any resident or patient from any Facility
to any other facility or institution; provided however that the provisions of
this Paragraph 7.3.2 shall not apply to removals or transfers required for
medically appropriate reasons, or required during the period of reconstruction
or restoration, if any, permitted after any casualty event pursuant to Article
XIV below or after any Condemnation pursuant to Article XV below.
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ARTICLE VIII
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS,
INSTRUMENTS, ETC. Subject to Article XII relating to permitted contests,
Lessee, at its sole cost and expense, will promptly (a) comply with all
applicable Legal Requirements and Insurance Requirements in respect of the use,
operation, maintenance, repair, and restoration of the Leased Property, whether
or not compliance therewith shall require structural changes in any of the
Leased Improvements or interfere with the use and enjoyment of the Leased
Property; and (b) procure, maintain and comply with all licenses, certificates
of need, provider agreements and other authorizations, if any, required for any
use of the Leased Property and Lessee's Personal Property then being made, and
for the proper erection, installation, operation, and maintenance of the Leased
Property or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Lessee covenants and
agrees that the Leased Property and Lessee's Personal Property shall not be used
for any unlawful purpose. Lessee further warrants and represents that Lessee
has obtained all necessary governmental approvals and has given all necessary
notices to allow Lessee to operate each Facility and all of the Leased Property
for its Primary Intended Use. Lessee shall acquire and maintain all licenses,
certificates, permits, provider agreements and other authorizations and
approvals needed to operate each Facility and the Leased Property in its
customary manner for the Primary Intended Use, and any other use conducted on
the Leased Property as may be permitted by Lessor from time-to-time hereunder.
Lessee further covenants and agrees that Lessee's use of the Leased Property and
maintenance, alteration and operation of the same, and all parts thereof, shall
at all times conform to all applicable federal, state and local laws,
ordinances, rules, and regulations unless the same are held by a court of
competent jurisdiction to be unlawful. Lessee, may, however, upon prior written
notice to Lessor, contest the legality or applicability of any such law,
ordinance, rule, or regulation, or any licensure or certification decision if
Lessee maintains such action in good faith, with due diligence, without
prejudice to Lessor's rights hereunder, and at Lessee's own expense. If by the
terms of any such law, ordinance, rule or regulation, compliance therewith
pending the prosecution of any such proceeding may legally be delayed without
the incurrence of any fine, charge or liability of any kind against the Leased
Property, including any Facility, or Lessee's leasehold interest therein and
without subjecting Lessor to any liability, civil or criminal, for failure so to
comply therewith, Lessee may delay compliance therewith until the final
determination of such proceeding. If any lien, charge or civil or criminal
liability would be incurred by reason of any such delay, Lessee, on the prior
written consent of Lessor, may nonetheless contest as aforesaid and delay as
aforesaid provided that such delay would not subject Lessor to criminal
liability and Lessee both (a) furnishes to Lessor security reasonably
satisfactory to Lessor against any loss or injury by reason of such contest or
delay; and (b) prosecutes the contest continuously, with due diligence and in
good faith.
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ARTICLE IX
9.1 MAINTENANCE AND REPAIR.
9.1.1 Lessee, at its sole cost and expense, will
keep the Leased Property and all portions thereof and Lessee's Personal Property
and all private roadways, sidewalks and curbs appurtenant thereto and which are
under Lessee's control in good order and repair (whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of the Leased Property, or any portion thereof), and, except as
otherwise provided in Article XIV, with reasonable promptness, make all
necessary and appropriate repairs thereto of every kind and nature, whether
interior or exterior, structural or non-structural, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing prior to the
Commencement Date (concealed or otherwise). All repairs shall, to the extent
reasonably achievable, be at least equivalent in quality to the original work.
Lessee will not take or omit to take any action the taking or omission of which
may materially impair the value or the usefulness of the Leased Property or any
part thereof for its Primary Intended Use. Any repair work performed by Lessee
shall be paid for so that no lien (I.E., mechanics', materialmen's or other
liens) shall attach to the Leased Property, subject to Article XII.
9.1.2 Lessor shall not under any circumstances be
required to build or rebuild any improvements on the Leased Property, or to make
any repairs, replacements, alterations, restorations, or renewals of any nature
or description to the Leased Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to maintain
the Leased Property in any way. Lessee hereby waives, to the extent permitted
by law, the right to make repairs at the expense of Lessor pursuant to any law
in effect at the time of the execution of this Lease or hereafter enacted.
Lessor shall have the right to give, record and post, as appropriate, notices of
non-responsibility (or similar notices) under any mechanics' or materialmen's
lien laws now or hereafter existing.
9.1.3 Nothing contained in this Lease and no
action or inaction by Lessor shall be construed as (i) constituting the consent
or request of Lessor, express or implied, to any contractor, sub-contractor,
laborer, materialman, or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair, or demolition of, or to the Leased
Property or any part thereof; or (ii) giving Lessee any right, power or
permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would
permit the making of any claim against Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for any right, title,
interest, lien, claim, or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof. Lessor shall have the right to give,
record and post, as appropriate, notices of non-responsibility (or similar
notices) under any mechanics' or materialsmen's lien laws now or hereafter
existing.
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9.1.4 Unless Lessor shall convey any of the Leased
Property to Lessee pursuant to the provisions of this Lease, and subject to the
provisions of Paragraph 6.3 regarding Lessee's Personal Property, upon the
expiration or prior termination of the Term, all the Leased Property, including
all Fixtures and Personal Property located thereon, and any Alterations,
repairs, restorations, additions or improvements otherwise made by or for
Lessee, shall be Lessor's property and shall be vacated and surrendered to
Lessor in the condition in which the Leased Property was originally received
from Lessor, and in the same type and amount (with the same depreciated value)
as that existing as of the Commencement Date, except as repaired, rebuilt,
restored, altered or added to as permitted or required under this Lease, and as
otherwise sufficient to fully equip the Facilities for their operation and
maintenance as may be customary for properties comparable to the Leased Property
in the County of Franklin, Ohio, and except for ordinary wear and tear (subject
to the obligation of Lessee to maintain the Leased Property) in good order and
repair without compensation to Lessee; provided however that, at the election of
Lessor, exercisable by notice to Lessee, Lessee shall, at Lessee's sole cost and
expense, prior to the expiration or prior termination of the Term, remove from
the Leased Property any Fixtures, Personal Property, Alterations or other
improvements to the Leased Property or any portion thereof that were not
consented to in advance in writing by Lessor, irrespective of whether Lessor's
consent was required hereunder, and Lessee shall repair any damage to the Leased
Property occasioned by the installation, maintenance or removal of the same, and
restore the Leased Property to its condition immediately prior to such
installation. Notwithstanding the foregoing, if this Lease is terminated
pursuant to Paragraph 14.7 due to damage or destruction during the last 24
months of the Term (as described in Paragraph 14.7), then, unless the dmage or
destruction was due to Lessee's negligent acts or omissions or willful
misconduct, at the end of the Term (shortened due to the damage and destruction)
Lessee shall not be obligated to repair any items that were damaged; provided
that nothing contained herein shall affect Lessee's obligation to maintain the
Leased Property in good order and repair during the entire Term. Additionally,
Lessor shall own and may remove, at the end of the Term (or at the earlier
termination of this Lease), all patient records and other records in connection
with the Facilities, and in connection with the transfer of such records, Lessee
shall take all necessary action to insure full compliance with any and all
patient confidentiality, patient-physician privileges or any duly enacted
APatient's Bill of Rights" or similar applicable laws or regulations.
9.2 EXPENDITURES TO COMPLY WITH LAW; CONSTRUCTION OF
ADDITIONAL IMPROVEMENTS PURSUANT TO CERTIFICATE OF NEED. Without limiting
Lessee's other obligations, during the Term of this Lease, Lessee will, at its
expense, make whatever expenditures (including, but not limited to capital and
non-capital expenditures) that are required to conform the Leased Property to
such standards as may from time-to-time be required by Federal Medicaid (Title
19) assisted living programs, as and if applicable, or any other applicable
programs or legislation, or capital improvements required by any other
governmental agency having jurisdiction over the Leased Property as a condition
of the continued operation of the Leased Property during the Term (as extended)
as an assisted living residence or other health-care related facility, approved
for Medicaid and similar programs as and if applicable, pursuant to present or
future laws of governmental regulation.
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9.3 ENCROACHMENTS, RESTRICTIONS, ETC. If any of the
Leased Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the rights
of others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor at the behest of any person
affected by any such encroachment, violation or impairment, Lessee shall, at its
sole cost and expense, (and after Lessor's prior approval) subject to Lessee's
right to sue Lessor's predecessors in title with respect thereto or to contest
the existence of any such encroachment, violation or impairment and, in such
case, in the event of an adverse final determination, either (i) obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether the same
shall affect Lessor or the Leased Property; or (ii) make such changes in the
Leased Improvements, and take such other actions, as Lessee in the good faith
exercise of its judgment deems reasonably practicable, to remove such
encroachment, and to end such violation or impairment, including, if necessary,
the alteration of any of the Leased Improvements, and in any event take all such
actions as may be necessary in order to be able to continue the operation of the
Leased Improvements for the Primary Intended Use substantially in the manner and
to the extent the Leased Improvements were operated prior to the assertion of
such violation, impairment or encroachment. Any such alteration shall be made
in conformity with the applicable requirements of Paragraph 6.2 (provided that
Lessor shall not unreasonably withhold its consent) and this Article IX.
Lessee's obligations under this Paragraph 9.3 shall be in addition to and shall
in no way discharge or diminish any obligation of any insurer under any policy
of title or other insurance.
ARTICLE X
10.1 LESSEE'S OBLIGATIONS FOR HAZARDOUS MATERIALS. Lessee
shall, at its sole cost and expense, take all actions as required to cause the
Leased Property including, but not limited to, the Land and all Leased
Improvements, to be free and clear of the presence of all Hazardous Materials
during the Term; provided, however, that Lessee shall be entitled to use and
maintain Hazardous Materials on the Leased Property of types and in the
quantities commonly used in assisted living facilities in the State of Ohio and
which have been used, stored and disposed of in compliance with all applicable
laws. In this connection, Lessee shall, upon its discovery, belief or suspicion
of the presence of Hazardous Materials on, in or under any part of the Leased
Property, including, but not limited to, the Land and all Leased Improvements in
violation of the preceding sentence, immediately notify Lessor and, at no
expense to Lessor, cause any such Hazardous Materials to be removed immediately,
in compliance with all applicable laws and in a manner causing the least
disruption of or interference with the operation of Lessee's business. Lessee
hereby agrees to fully indemnify, protect, defend and hold harmless Lessor from
any costs, damages, claims, liability or loss of any kind or nature arising out
of or in any way in connection with the presence, suspected presence, removal or
remediation of Hazardous Materials in, on, or about the Leased Property, or any
part thereof. Lessee acknowledges that it has received and reviewed a Phase I
Environmental Report prepared by C-K Associates, Inc. of approximately equal
date herewith for each Facility (collectively the "Environmental Report").
Without limiting
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Lessee's other obligations under this Lease, Lessee agrees, at Lessee's sole
cost, to fully comply with all recommendations set forth in the Environmental
Report or any other environmental report. Lessee's obligations hereunder
shall apply to all Hazardous Materials, irrespective of when they arose or
were discovered and therefore will include any Hazardous Materials that
existed prior to, at, or after the Commencement Date and during the Term.
10.2 DEFINITION OF HAZARDOUS MATERIALS. For purposes
of this Lease, "Hazardous Materials" shall mean (1) any flammables, explosive
or radioactive materials, hazardous wastes, toxic substances or related
materials including, without limitation, substances defined as "hazardous
substances," "hazardous materials", "toxic substances" or "solid waste" in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Sec. 9601, ET SEQ.; the hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; the Toxic Substances
Control Act, 15 U.S.C., Section 2601 ET SEQ.; the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901 ET SEQ.; Occupational Safety and
Health Act, 29 U.S.C. Section 651, ET SEQ.; and in comparable State of Ohio
and local laws and ordinances, and the regulations now or hereafter adopted,
published and/or promulgated pursuant thereto; (2) those substances listed in
the United States Department of Transportation Table (49 C.F.R. 172.101 and
amendments thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 C.F.R. Part 302 and amendments
thereto); (3) those substances defined as "hazardous wastes," "hazardous
substances" or "toxic substances" in any similar federal, state or local laws
or in the regulations adopted and publications promulgated pursuant to any of
the foregoing laws or which otherwise are regulated by any governmental
authority, agency, department, commission, board or instrumentality of the
United States of America, the State of Ohio or any political subdivision
thereof, (4) any pollutant or contaminant or hazardous, dangerous or toxic
chemicals, materials, or substances within the meaning of any other
applicable federal, state, or local law, regulation, ordinance, or
requirement (including consent decrees and administrative orders) relating to
or imposing liability or standards of conduct concerning any hazardous, toxic
or dangerous waste, substance or material, all as amended; (5) petroleum or
any by-products thereof; (6) any radioactive material, including any source,
special nuclear or by-product material as defined at 42 U.S.C. Sections 2011
ET SEQ., as amended, and in the regulations adopted and publications
promulgated pursuant to said law; (7) asbestos in any form or condition; and
(8) polychlorinated biphenyls. "Environmental Laws" means and includes any
law, ordinance, statute, rule, code, order, approval, regulation or
requirement now or hereinafter in effect relating to land use, air, soil,
surface water, groundwater (including the protection, cleanup, removal,
remediation or damage thereof), human health and safety or any other
environmental matter, including, without limitation, the following laws as
the same may be amended from time to time: Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C.
Section 9601, ET SEQ.; Federal Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, ET SEQ.; Clean Water Act, 33 U.S.C. Section 1251, ET
SEQ.; Toxic Substances Control Act, 15 U.S.C. Section 2601, ET SEQ.; Refuse
Act, 33 U.S.C. Section 407; Occupational Safety and Health Act, 29 U.S.C.
Section 651, ET SEQ.; Clean Air Act, 42 U.S.C. Section 7401, ET SEQ.; and
comparable Ohio laws; and any and all similar state and local laws and
ordinances and the regulations now or hereafter adopted, published and/or
promulgated pursuant thereto.
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ARTICLE XI
11.1 NO LIENS. Subject to the provisions of Article XII
relating to permitted contests, Lessee will not directly or indirectly,
voluntarily or by operation of law, create or allow to remain and will promptly
discharge at its expense any lien, mortgage, encumbrance, attachment, title
retention agreement, or claim upon the Leased Property or any portion thereof,
or Lessee's interest under this Lease or any attachment, levy, claim, or
encumbrance in respect of the Rent, not including however, (a) this Lease; (b)
restrictions, liens and other encumbrances created or allowed pursuant to the
provisions of Paragraph 11.2 below; (c) liens for those taxes of Lessor which
Lessee is not required to pay hereunder; (d) subleases permitted by Article
XXIII; (e) liens for Impositions or for sums resulting from non-compliance with
Legal Requirements so long as (1) the same are not yet payable or are payable
without the addition of any fine or penalty, or (2) such liens are in the
process of being contested as permitted by Article XII; (f) liens of mechanics,
laborers, materialmen, suppliers or vendors for sums either disputed or not yet
due, provided that in the case of disputed sums any such liens are in the
process of being contested as permitted by Article XII; (g) any liens which are
the responsibility of Lessor pursuant to the provisions of Article XXXIII of
this Lease; (h) the Permitted Title Matters (defined in Paragraph 1.1 above);
and (i) any other matters that have been consented to in advance in writing by
Lessor.
11.2 PERMITTED LIENS. Lessee may borrow funds to finance
all or any part of the cost of any Alterations or other improvements permitted
or required under this Lease to the extent and upon such terms and conditions as
may be approved in advance in writing by Lessor in Lessor's sole discretion,
subject to Lessor's right of first refusal to finance such Alterations or other
improvements upon commercially reasonable terms and conditions; provided,
however, that Lessor's approval shall not be required for any borrowing of funds
that does not result in a lien, mortgage, encumbrance or other claim affecting
the Leased Property or Lessee's interest under this Lease. Notwithstanding the
foregoing, Lessee may grant security interests encumbering specific items of
Lessee's Personal Property (but not fixtures attached to the Land) in favor of
the lessors of or purchase-money lenders for said items of Lessee's Personal
Property, so long as such personal property is permitted on the Land or in the
Leased Improvements under Paragraph 6.3 hereunder and is not owned by or subject
to any claim or right of Lessor.
ARTICLE XII
12. PERMITTED CONTESTS. Lessee shall have the right to contest
the amount or validity of any Imposition or any Legal Requirement or Insurance
Requirement or any lien, attachment, levy, encumbrance, charge or claim
("Claims") not otherwise permitted by Article XI, by appropriate legal
proceedings in good faith and with due diligence, and to delay payment if
legally permitted. Any such legal proceeding (and delay in payment) shall
operate to extend the time for performance of Lessee's covenants to pay such
charges hereunder only so long as such Claims are in the process of being
diligently contested as permitted in this Article XII and such legal proceedings
(and delay in payment) do not cause the sale of the Leased Property, or any part
thereof, to satisfy the same or
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<PAGE>
cause Lessor or Lessee to be in default under any mortgage or deed of trust
encumbering the Leased Property or any interest therein; provided that such
legal proceedings (and delay in payment) shall not otherwise be deemed or
construed as relieving, modifying or extending Lessee's covenants to pay or
its covenants to cause to be paid any such charges at the time and in the
manner provided for under this Lease. Upon the reasonable request of Lessor,
Lessee shall provide to Lessor reasonable security satisfactory to Lessor, in
Lessor's reasonable discretion, to assure the payment of all Claims which may
be assessed against the Leased Property or any portion thereof together with
interest and penalties, if any, thereon. Lessor agrees to join in any such
proceedings if the same be required to legally prosecute such contest of the
validity of such Claims; provided, however, that Lessor shall not thereby be
subjected to any liability for the payment of any costs or expenses in
connection with any proceedings brought by Lessee; and Lessee covenants to
indemnify and save harmless Lessor from any such costs or expenses. In the
event that Lessee fails to pay any Claims when due or, upon Lessor's request,
to provide the security therefor as provided in this Article XII and to
diligently prosecute any contest of the same, Lessor may, upon thirty (30)
days advance written Notice to Lessee, pay such charges together with any
interest and penalties and the same shall be repayable by Lessee to Lessor at
the next Payment Date provided for in this Lease. Provided, however, that
should Lessor reasonably determine that the giving of such Notice would risk
loss to the Leased Property or cause damage to Lessor, then Lessor shall give
such written Notice as is practical under the circumstances. Lessee shall be
entitled to any refund of any Claims and such charges and penalties or
interest thereon which have been paid by Lessee or paid by Lessor and for
which Lessor has been fully reimbursed.
ARTICLE XIII
13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the
provisions of Paragraph 13.8, during the Term, Lessee shall at all times keep
the Leased Property, and all portions thereof and all property located in or on
the Leased Property, including Lessee's Personal Property, insured with the
kinds and amounts of insurance described below. This insurance shall be written
by companies authorized to do insurance business in the state in which the
Leased Property is located. The policies must name Lessor as a loss payee and
additional insured. Losses shall be payable to Lessor or Lessee as provided in
Article XIV. In addition, upon Lessor's written request, the policies shall
name as mortgagee, loss payee and additional insured the holder ("Facility
Mortgagee") of any mortgage, deed of trust or other security agreement and any
other Encumbrance placed on the Leased Property or any portion thereof in
accordance with the provisions of Article XXXII ("Facility Mortgage") by way of
a standard form of mortgagee's loss payable endorsement. Any loss adjustment
shall require the written consent of Lessor, Lessee, and each Facility
Mortgagee. Evidence of insurance shall be deposited with Lessor and, if
requested, with any Facility Mortgagee(s). If any provision of any Facility
Mortgage requires deposits of premiums for insurance to be made with such
Facility Mortgagee, or, pursuant to written direction by Lessor upon the
occurrence of any Event of Default hereunder (and irrespective of whether such
Event of Default is continuing or has been cured), Lessee shall make such
deposits directly with such Facility Mortgagee or with Lessor, as required,
provided that during any period when such deposits are being made, the Facility
Mortgagee or Lessor (depending on which party collects such
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deposits) agrees (a) to pay the premiums on a timely basis, and (b) upon
written request from Lessee, to account to Lessee for all funds then on
deposit. The policies on the Leased Property, including the Leased
Improvements, Fixtures and Lessee's Personal Property, shall insure against
the following risks:
13.1.1 Loss or damage by fire, vandalism and
malicious mischief, extended coverage perils commonly known as "All Risk," and
all physical loss perils normally included in such All Risk insurance,
including, but not limited to, sprinkler leakage, in an amount not less than one
hundred percent (100%) of the then full replacement cost thereof (as defined
below in Paragraph 13.2);
13.1.2 Loss or damage by explosion of steam
boilers, pressure vessels or similar apparatus, now or hereafter installed in
any Facility, if any, in such amounts with respect to any one accident as may be
reasonably requested by Lessor from time-to-time;
13.1.3 Business interruption insurance policy
covering risk of loss during the first twelve (12) months of reconstruction
necessitated by the occurrence of any of the hazards described in Paragraph
13.1.1 or 13.1.2 in an amount sufficient to prevent Lessor from becoming a
co-insurer.
13.1.4 Claims for personal injury or property
damage under a policy of comprehensive general public liability insurance with
amounts not less than One Million Dollars ($1,000,000) per occurrence, and with
an annual aggregate of Three Million Dollars ($3,000,000);
13.1.5 Claims arising out of malpractice or other
professional actions or omissions under a policy of professional liability
insurance with amounts not less than One Million Dollars ($1,000,000) per
occurrence, and with an annual aggregate of Three Million Dollars ($3,000,000);
13.1.6 Flood (if any of the Leased Improvements are
located in whole or in part within a flood plain area, as designated by any
governmental or other responsible agency and if such insurance is available
pursuant to applicable law) and such other hazards and in such amounts as may be
customary for comparable properties in the area; and
13.2 REPLACEMENT COST. The term "full replacement cost"
as used herein, shall mean the actual replacement cost of the Leased Property
requiring replacement from time-to-time including an increased cost of
construction endorsement, less exclusions provided in the standard form of fire
insurance policy in the state where the Leased Property is located. Lessor and
Lessee agree that as of the Commencement Date the full replacement cost shall be
deemed to be the "Purchase Price" less the value of the Land. In the event
either party believes that full replacement cost (the then replacement cost less
such exclusions) has increased or decreased at any time during the Term, it
shall have the right to have such full replacement cost redetermined.
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<PAGE>
13.3 ADDITIONAL INSURANCE. In addition to the insurance
described above, Lessee shall maintain such additional insurance as may be
reasonably required from time-to-time by Lessor or any Facility Mortgagee (to
the extent available in the state where the Leased Property is located) and
shall further at all times maintain adequate worker's compensation insurance
coverage for all persons employed by Lessee on the Leased Property or any
portion thereof. Such worker's compensation insurance shall be in accordance
with the requirements of applicable federal, state and local law.
13.4 WAIVER OF SUBROGATION. All insurance policies
carried by either party covering the Leased Property, the Fixtures, the
Facilities, or Lessee's Personal Property including without limitations,
contents, fire and casualty insurance, shall expressly waive any right of
subrogation on the part of the insurer against the other party. The parties
hereto agree that their policies will include such waiver clause or endorsement
so long as the same are obtainable without extra cost, and in the event of such
an extra charge the other party, at its election, may pay the same, but shall
not be obligated to do so. Upon written request, each party shall provide the
other party with a copy of each insurance policy with the waiver clause or
endorsement attached.
13.5 FORM SATISFACTORY, ETC. All of the policies of
insurance referred to in this Article XIII shall be written in a form reasonably
satisfactory to Lessor and by insurance companies reasonably satisfactory to
Lessor. Subject to the foregoing, Lessor agrees that it will not unreasonably
withhold its approval as to the form of the policies of insurance or as to the
insurance companies selected by Lessee. Lessee shall pay all of the premiums
therefor, and deliver such policies or certificates thereof to Lessor prior to
their effective date (and, with respect to any renewal policy, prior to the
expiration of the existing policy), and in the event of the failure of Lessee
either to effect such insurance as herein called for or to pay the premiums
therefor, or to deliver such policies or certificates thereof to Lessor at the
times required, Lessor shall be entitled, but shall have no obligation, to
effect such insurance and pay the premiums therefor, which premiums shall be
repayable by Lessee to Lessor upon written demand therefor, and failure to repay
the same shall constitute an Event of Default within the meaning of Paragraph
16.1(c). Each insurer mentioned in this Article XIII shall agree, by
endorsement on the policy or policies issued by it, or by independent instrument
furnished to Lessor, that will give to Lessor (and to any Facility Mortgagee, if
required by the same) thirty (30) days written notice before the policy or
policies in questions shall be altered, allowed to expire or cancel.
13.6 INCREASE IN LIMITS. In the event that Lessor or a
Facility Mortgagee shall at any time reasonably deem the limits of the personal
injury or property damage public liability insurance then carried to be
insufficient, Lessee shall thereafter carry the insurance with increased limits
until further change pursuant to the provisions of this Paragraph; provided that
if Lessor desires to increase the limits of insurance, and such is not pursuant
to the request of a Facility Mortgagee, then Lessor may not demand an increase
in limits above the limits generally consistent with the requirements of owners
of assisted living facilities in the State of Ohio.
13.7 BLANKET POLICY. Notwithstanding anything to the
contrary contained in this
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Article XIII, Lessee's obligations to carry the insurance provided for herein
may be brought within the coverage of a so-called blanket policy or policies
of insurance carried and maintained by Lessee; provided, however, that the
coverage afforded Lessor will not be reduced or diminished or otherwise be
different from that which would exist under a separate policy meeting all
other requirements of this Lease by reason of the use of such blanket policy
of insurance, and provided further that the requirements of this Article XIII
are otherwise satisfied.
13.8 NO SEPARATE INSURANCE. Lessee shall not on Lessee's
own initiative or pursuant to the request or requirement of any third party take
out separate insurance concurrent in form or contributing in the event of loss
with that required in this Article, to be furnished or which may reasonably be
required to be furnished, by Lessee or increase the amount of any then existing
insurance by securing any additional policy or additional policies, unless all
parties having an insurable interest in the subject matter of the insurance,
including in all cases Lessor and all Facility Mortgagees, are included therein
as additional insureds, and the loss is payable under said insurance in the same
manner as losses are payable under the Lease. Lessee shall immediately notify
Lessor of the taking out of any such separate insurance or of the increasing of
any of the amount of the then existing insurance.
13.9 CONTINUOUS COVERAGE. Lessee shall assure that there
is no gap in the insurance coverage provided in connection with the Facilities
at or after the Commencement Date and, therefore, the insurance provided by
Lessee shall be continuous, with the types and amounts of coverage, described
herein to be applicable on the Commencement Date. To the extent there is not
full, complete and continuous coverage for all issues, no matter when arising,
claimed or occurring, Lessee shall, at its sole cost, obtain such insurance.
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ARTICLE XIV
14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any
loss of or damage to the Leased Property, or any portion thereof, which is
insured under any policy of insurance required by Article XIII of the Lease,
where the total proceeds paid by the insurer are less than $125,000.00 for
any single Facility, shall be paid to Lessee and applied to the
reconstruction or repair, as the case may be, of any damage to or destruction
of the Leased Property, or any portion thereof. All proceeds payable by
reason of any loss of or damage to the Leased Property, or any portion
thereof, which is insured under any policy of insurance required by Article
XIII of this Lease where the total proceeds paid by the insurer are equal to
or in excess of $125,000.00 for any single Facility shall be paid to Lessor
and held by Lessor in trust (subject to the provisions of Paragraph 14.7) and
shall be made available for reconstruction or repair, as the case may be, of
any damage to or destruction of the Leased Property, or any portion thereof,
and shall be paid out by Lessor from time-to-time for the reasonable costs of
such reconstruction or repair. Any excess proceeds of insurance remaining
after the completion of the restoration or reconstruction of the Leased
Property shall go to Lessee, provided the Lease is in force and there exists
no uncured Event of Default; otherwise such excess shall be paid to Lessor
for application as set forth in Article XVI hereof. In the event neither
Lessor nor Lessee is required or elects to repair and restore, and the Lease
is terminated as described in Paragraph 14.7, all such insurance proceeds
shall be retained by Lessor. All salvage resulting from any risk covered by
insurance shall belong to Lessor except that any salvage relating to Lessee's
Personal Property shall belong to Lessee.
14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED
BY INSURANCE PROCEEDS.
14.2.1 Except as provided in Paragraph 14.7, if
during the Term, any Facility or any portion of the Leased Property is totally
or partially destroyed by a risk covered by the insurance described in Article
XIII and whether or not any Facility is rendered Unsuitable for Its Primary
Intended Use, Lessee shall restore the Leased Property to substantially the same
condition as existed immediately before the damage or destruction. Lessee shall
be entitled to the insurance proceeds for the purpose of such repair and
restoration.
14.2.2 If the cost of the repair or restoration
exceeds the amount of proceeds received by Lessee or Lessor from the insurance
required under Article XIII as provided in Paragraph 14.1, above, Lessee shall
be obligated to restore the Leased Property and pay the extra cost therefor,
provided that, prior to commencing the repair and restoration, Lessee shall
either (i) contribute any excess amount needed to restore the Leased Property,
or (ii) provide Lessor with satisfactory evidence that such funds are, and
throughout the entire period of reconstruction will be, available. If Lessee
contributes such excess in cash, such excess shall be paid by Lessee to Lessor
to be held in trust, together with any insurance proceeds, for application to
the cost of repair and restoration.
14.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION
NOT COVERED BY
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INSURANCE. Except as provided in Paragraph 14.7 below, if during the Term
any Facility or any portion of the Leased Property is damaged or destroyed
irrespective of the extent of the damage from a risk not covered by the
insurance described in Article XIII, whether or not such damage or renders
the Facility Unsuitable for Its Primary Intended Use, Lessee shall restore
the Leased Property to substantially the same condition it was in immediately
before such damage or destruction and such damage or destruction shall not
terminate this Lease.
14.4 LESSEE'S PROPERTY. All insurance proceeds payable by
reason of any loss of or damage to any of Lessee's Personal Property shall be
paid to Lessee, and Lessee shall hold such insurance proceeds in trust to pay
the cost of repairing or replacing damaged Lessee's Personal Property. Any
proceeds in excess of the cost of repairing or replacing any such Lessee's
Personal Property shall belong to Lessee.
14.5 RESTORATION OF LESSEE'S PROPERTY. Without limiting
Lessee's obligation to restore the Leased Property as provided in Paragraphs
14.2 and 14.3, Lessee shall also pay the cost to restore all Alterations and
other improvements made by Lessee which Lessee elects to restore, including
Lessee's Personal Property to the extent that Lessee's Personal Property is
necessary to the operation of the Leased Property for its Primary Intended Use
in accordance with applicable Legal Requirements.
14.6 NO ABATEMENT OF RENT. This Lease shall remain in
full force and effect and Lessee's obligation to make rental payments and to pay
all other charges required by this Lease shall remain unabated during any period
required for repair and restoration.
14.7 DAMAGE NEAR END OF TERM. Notwithstanding any
provisions of Paragraph 14.2 or 14.3 appearing to be contrary, if damage to or
destruction of any of the Facilities occurs during the last six (6) months of
the Term (in calculating such 6 months, any Extended Terms as to which Lessee
exercised its option prior to or after the occurrence of such damage or
destruction shall be included), and if such damage or destruction cannot be
fully repaired and restored within six (6) months immediately following the date
of damage or destruction, then Lessor and Lessee shall each have the right to
terminate this Lease as to the damaged or destroyed Facility only (and this
Lease shall continue in full force and effect as to the remainder of the Leased
Property) by giving written notice to the other within thirty (30) days after
the date of damage or destruction. If the Lease as to any Facility so
terminates as provided in this Paragraph 14.7, and unless the damage or
destruction was due to Lessee's negligent acts or omissions or willful
misconduct, Lessee shall have no responsibility to repair or restore the damaged
or destroyed Facility. Upon the termination of this Lease as to any Facility
the Minimum Rent payable by Lessee hereunder with regard to such Facility shall
be apportioned as of the date this Lease is terminated as to such Facility and
the Minimum Rent as to the remaining Facilities shall be adjusted as provided in
Paragraph 15.3 below.
14.8 TERMINATION OF OPTION TO EXTEND. Any termination of
this Lease pursuant to this Article XIV shall cause any unexercised options to
extend the Lease under Article XVIII to
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be terminated and without further force or effect.
14.9 WAIVER. Lessee hereby waives any statutory rights of
termination which may arise by reason of any damage to or destruction of the
Leased Property or any portion thereof which Lessor is obligated to restore or
may restore under any of the provisions of this Lease.
ARTICLE XV
15. CONDEMNATION.
15.1 DEFINITIONS.
15.1.1 "Condemnation" means (a) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a Condemnor;
(b) a voluntary sale or transfer by Lessor to any Condemnor, either under threat
of Condemnation or while legal proceedings for Condemnation are pending.
15.1.2 "Date of Taking" means the date the
Condemnor has the right to possession of the property being condemned.
15.1.3 "Award" means all compensation, sums or
anything of value awarded, paid or received on a total or partial Condemnation.
15.1.4 "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power of
Condemnation.
15.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term
there is any taking of all or any part of any Facility, the Leased Property or
any interest in this Lease by Condemnation, the rights and obligations of the
parties shall be determined by this Article XV.
15.3 TOTAL CONDEMNATION. If title to the fee (or in the
case of the portion of the Leased Property which is subject to a Ground Lease,
Lessor's leasehold interest) of the whole of any Facility shall be taken or
condemned by any Condemnor, this Lease shall cease and terminate with regard to
such Facility only as of the Date of Condemnation by said Condemnor and shall
continue in full force and effect as to the remainder of the Leased Property.
If title to the fee (or Lessor's ground leasehold interest as the case may be)
of less than the whole of any Facility shall be so taken or condemned, which
nevertheless renders such Facility Unsuitable for Its Primary Intended Use, as
reasonably determined by Lessor and Lessee, Lessee and Lessor shall each have
the option by written Notice to the other, at any time at or prior to the taking
of possession by, or the date of vesting of title in, such Condemnor, whichever
first occurs, to terminate this Lease as to such Facility only as of the date of
the occurrence of such first event. If such Notice has timely been given, this
Lease shall thereupon cease and terminate as to such Facility. Upon the
termination of this Lease as to any single Facility in accordance with this
Paragraph 15.3, the
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Minimum Rent payable by Lessee hereunder with regard to such Facility shall
be apportioned as of the date the Lease terminated as to such Facility.
Notwithstanding the termination of this Lease as to any Facility in
accordance with provisions of this Section 15.3, this Lease shall continue in
full force and effect without modification with regard to the remainder of
the Leased Property. If and so often as this Lease shall terminate as to any
particular Facility (a "Terminated Facility"), then, from and after the date
of such termination, the then current Minimum Rent payable under this Lease
(as the same may have been previously reduced following termination of this
Lease as to another Facility or increased as provided herein) shall be
reduced by a fraction, the numerator of which fraction shall be the "Facility
Percentage" as set forth in the table below opposite the name of the
Terminated Facility, and the denominator of which fraction shall be the sum
of all the "Facility Percentages" as set forth in the table below for all
Facilities (including the Terminated Facility) which are subject to this
Lease immediately prior to the event of termination.
<TABLE>
<CAPTION>
Facility Facility Percentage
-------- -------------------
<S> <C>
Scioto 28.50%
Bexley 28.50%
Karrington Place 14.00%
Tucker Creek 29.00%
</TABLE>
By way of example only of the foregoing, assume that the Lease terminates as
to the Scioto Facility, and that the time of such termination all other
Facilities remain subject to this Lease. From and after the date of
termination of this Lease as to the Scioto Facility, the Minimum Rent shall
be reduced by a fraction equal to the Facility Percentage allocable to the
Scioto Facility (28.50%) divided by the sum of the Facility Percentages
allocable to all the Facilities then subject to this Lease (Scioto [28.50%] +
Bexley [28.5%] + Karrington Place [14.00%] + Tucker Creek [29%] = 100%), for
a reduction of 28.50/100, or 28.50%. Assume further that following the
termination of the Lease as to the Scioto Facility, the Lease also terminates
as to the Bexley Facility. From and after the date of termination of this
Lease as to the Bexley Facility, the Minimum Rent (as previously adjusted
following the termination of the Lease as to the Scioto Facility) shall be
further reduced by a fraction equal to the Facility Percentage allocable to
the Bexley Facility (28.50%) divided by the sum of the Facility Percentages
allocable to all the Facilities then subject to this Lease (Bexley [28.5%] +
Karrington Place [14.00%] + Tucker Creek [29%] = 71.50%), for a reduction of
28.50/71.5, or 39.86%.
15.4 ALLOCATION OF PORTION OF AWARD. The total Award made
with respect to all or any portion of the Leased Property or for loss of rent,
or for loss of business, whether or not beyond the Term of this Lease, or for
the loss of value of the leasehold (including the bonus value of the Lease)
shall be solely the property of and payable to Lessor and Lessee hereby assigns
to Lessor any and all rights in such Award; provided, however, that Lessee shall
be entitled to make a separate claim for the taking of Lessee's Personal
Property and relocation expense as long as any such claim will not in any way
diminish Lessor's Award, or for any other loss that can be awarded to Lessee
separately from Lessor's claim and which will not in any respect whatsoever
diminish or
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threaten to diminish the total amounts to be awarded to Lessor, as set forth
above or otherwise. To the extent Lessee's claim may thereafter reduce
Lessor's claim, Lessee shall, and hereby does, assign its claim to Lessor.
In any Condemnation proceedings, each of the Lessor and Lessee shall seek its
own claim in conformity herewith, at its own expense.
15.5 PARTIAL TAKING. If title to the fee (or in the case
of the Ground Leases, Lessor's ground lease interest) of less than the whole of
any Facility shall be so taken or condemned, and the Facility is still suitable
for its Primary Intended Use, as reasonably determined by Lessor and Lessee, or
if Lessee or Lessor shall be so entitled, but shall not elect to terminate this
Lease as provided in Paragraph 15.3 hereof, Lessee, at its own cost and expense
(subject to Lessor's contribution described below), shall with all reasonable
dispatch restore the untaken portion of any Leased Improvements on the Leased
Property for such Facility so that such Leased Improvements shall constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Leased Improvements
existed immediately prior to such Condemnation. Lessor shall contribute to the
cost of restoration that part of its Award as is reasonably necessary to
accomplish such restoration, provided, however, the amount of such contribution
shall not exceed the cost of restoration. The Minimum Rent shall be reduced as
set forth in Paragraph 5.2.
15.6 TEMPORARY TAKING. Lessee agrees that if, at any time
after the date hereof, the whole or any part of the Leased Property or of
Lessee's interest under this Lease, shall be Condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the times herein
specified, the full amounts of Minimum Rent and Additional Charges. Except
only to the extent that Lessee may be prevented from doing so pursuant to the
terms of the order of the Condemnor, Lessee shall also continue to perform and
observe all of the other terms, covenants, conditions and obligations hereof, on
the part of the Lessee to be performed and observed, as though such Condemnation
had not occurred. In the event of any such Condemnation as in this Paragraph
15.6 described, the entire amount of any such Award made for such temporary use,
whether paid by way of damages, rent or otherwise, shall be paid to Lessee to
the extent attributable to any period within the Term (as extended by any
already exercised options to extend or options thereafter timely exercised if
applicable). Lessee covenants that upon the termination of any such period of
temporary use or occupancy as set forth in this Paragraph 15.6, it will, at its
sole cost and expense, restore the Leased Property as nearly as may be
reasonably possible, to the condition in which the same was immediately prior to
the Condemnation, unless such period of temporary use or occupancy shall extend
beyond the expiration of the Term, in which case Lessee shall not be required to
make such restoration, and in such case, Lessee shall contribute to the cost of
such restoration that portion of its entire Award which is specifically
allocated to such restoration in the judgment or order of the court, if any.
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ARTICLE XVI
16.1 EVENTS OF DEFAULT. Any one or more of the following
events shall be an "Event of Default":
(a) if Lessee fails to make payment of the Rent
payable by Lessee under this Lease when the same becomes due and payable and
such failure is not cured by Lessee within a period of five (5) business days
after Notice thereof from Lessor; or
(b) if Lessee fails to observe or perform any
other term, covenant or condition of this Lease with regard to any portion of
the Leased Property and such failure is not cured by Lessee within a period of
thirty (30) days after Notice thereof from Lessor, unless such failure cannot
with due diligence be cured within a period of thirty (30) days, in which case
such failure shall not be deemed an Event of Default if Lessee proceeds promptly
and with due diligence to cure the failure and diligently completes the curing
thereof. No Event of Default (other than a failure to make payment of money)
shall be deemed to exist under this clause (b) during any time the curing
thereof is prevented by an Unavoidable Delay, provided that upon the cessation
of such Unavoidable Delay, Lessee shall remedy such default without further
delay; or
(c) if Lessee (or any of its Affiliates) commits
an "Event of Default" under any of the Other Leases. Without limiting the
foregoing, if Lessee commits an "Event of Default" under this Lease, Lessee (and
its Affiliates) shall thereby be in default (and shall therefore have committed
an "Event of Default") under all of and the Other Leases; or
(d) if Lessee does any of the following:
(i) admit in writing its inability to
pay its debts generally as
they become due;
(ii) file a petition in bankruptcy or a
petition to take advantage
of any insolvency law;
(iii) make a general assignment for the
benefit of its creditors;
(iv) consent to the appointment of a
receiver of itself or of the whole
or any substantial part of its
property; or
(v) file a petition or answer seeking
reorganization or arrangement under
the Federal bankruptcy laws or any
other applicable law or statute of
the United States of America or any
state thereof; or
(e) if Lessee, on a petition in bankruptcy filed
against it, is adjudicated a
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bankrupt or an order for relief thereunder is entered against it or a court
of competent jurisdiction shall enter an order or decree appointing, without
the consent of Lessee, a receiver for Lessee or of the whole or substantially
all of its property or the Facility, or approving a petition filed against
Lessee seeking reorganization or arrangement of Lessee under the Federal
bankruptcy laws or other applicable law or statute of the United States of
America or any state thereof, and such judgment, order or decree shall not be
vacated or set aside within ninety (90) days from the date of the entry
thereof; or
(f) if Lessee shall be liquidated or dissolved,
or shall begin proceedings toward such liquidation or dissolution, or shall, in
any manner, permit the sale or divestiture of substantially all of its assets
other than in connection with a merger or consolidation of Lessee into, or a
sale of substantially all of Lessee's assets to, another corporation, provided
any such actions shall also constitute an Event of Default unless: (i) the
survivor of such merger or the purchaser of such assets shall assume all of
Lessee's obligations under this Lease by a written instrument, in form and
substance reasonably satisfactory to Lessor, stating that such instrument of
assumption is valid, binding and enforceable against the parties thereto in
accordance with its terms (subject to usual bankruptcy and other creditor's
rights exceptions); and (ii) immediately after giving effect to any such merger,
consolidation or sale, Lessee or the other corporation (if not Lessee) surviving
the same shall have a Consolidated Net Worth of not less than Twenty Six Million
Five Hundred Thousand Dollars ($26,500,000) and a debt to equity ratio of not
more than four to one (4.0:1.0), all as to be set forth in an Officer's
Certificate and delivered to Lessor within a reasonable period of time after
such merger, consolidation or sale; or
(g) if the estate or interest of Lessee in the
Leased Property or any part thereof be levied upon or attached in a proceeding
and the same shall not be vacated or discharged within the later of ninety (90)
days after commencement thereof or thirty (30) days after Notice thereof from
Lessor (unless Lessee shall be contesting such lien or attachment in good faith
in accordance with Article XII hereof), or a mechanic's or similar lien is filed
with respect to the Leased Property or any part thereof and is not released or
bonded around for a period exceeding sixty (60) days after Lessee first has
knowledge of the lien having been filed; or
(h) if, except as a result of damage,
destruction or a partial or total Condemnation, or Unavoidable Delay, Lessee
voluntarily ceases operations at any Facility or other portion of the Leased
Property for a period in excess of ten (10) days; provided that Lessee may cease
operations for more than ten (10) days (i) if Lessee obtains Lessor's prior
written approval, and (ii) so long as such cessation of operations does not
impair or threaten the status or effectiveness of the operating license or other
certification for operating a Facility in accordance with its Primary Intended
Use; or
(i) if any of Lessee's representations,
covenants or warranties expressly set forth in this Lease (or financial
statements provided to Lessor) proves to be untrue when made in any material
respect which materially and adversely affects Lessor; or
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(j) if Lessee attempts to assign or sublease, in
violation of the provisions of this Lease;
(k) if Lessee fails to maintain in effect an
operator's license required to operate any Facility, or if Lessee otherwise
ceases to maintain in effect any license, permit, certificate or approval
necessary or otherwise required to operate any Facility in accordance with its
Primary Intended Use; or
(l) if Lessee and/or Karrington violates any of
the Lease Covenants described in Paragraph 23.2 hereof.
Upon the occurrence of an Event of Default, in addition to all
of Lessor's other remedies, Lessor may terminate this Lease by giving Lessee not
less than ten (10) business days Notice of such termination and upon the
expiration of the time fixed in such Notice, the Term shall terminate and all
rights of Lessee under this Lease shall cease.
In the event litigation is commenced with respect to any
alleged default under this Lease, the prevailing party in such litigation shall
receive, in addition to its damages incurred, such sum as the court shall
determine as its reasonable attorneys' fees, and all costs and expenses incurred
in connection therewith, including reasonable attorneys' fees and costs incurred
on appeal.
16.2 CERTAIN REMEDIES. Lessor shall have remedies and rights
provided in law and equity as a result of an Event of Default, including, to the
extent permitted by applicable Ohio law, the right to appoint a receiver as a
matter of strict right without regard to the solvency of Lessee, for the purpose
of preserving the Leased Property and any portion thereof, preventing waste,
protecting and otherwise enforcing any and all of Lessor's rights under this
Lease and for any and all other purposes for which a receiver is allowed under
the laws of the State of Ohio. Lessee hereby waives the right to notice of any
hearing with respect to the appointment of a receiver and waives the requirement
for the posting of a bond by any receiver. Without limiting the foregoing, if
an Event of Default occurs (and the event giving rise to such Event of Default
has not been cured within the curative period, if any, relating thereto as set
forth in this Lease) whether or not this Lease has been terminated pursuant to
Paragraph 16.1, Lessee shall, to the extent permitted by law, and if required by
Lessor to so do, immediately surrender to Lessor the entirety of the Leased
Property pursuant to the provisions of Paragraph 16.1 and quit the same and
Lessor may enter upon and repossess any portion of or the entirety of the Leased
Property, in person, by agent or by a court-appointed receiver, by reasonable
force, summary proceedings, ejectment or otherwise, and may remove Lessee and
all other persons and any and all personal property from the Leased Property
subject to rights of any residents (and their property) and to any requirements
of law. Without limiting all other rights and remedies of Lessor under this
Lease and under law, Lessor shall have the right to accelerate all Rent and
therefore, upon Lessee's default, at Lessor's option, all such Rent shall become
immediately due and payable in accordance with Paragraph 16.3, below. Further,
without limiting all other rights and remedies of Lessor under this Lease and
under law, Lessor shall be entitled to recover from Lessee, and Lessee shall
therefore be liable for, all costs of
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recovering possession (including without limitation all costs associated with
any receiver) and renovating the Leased Property or any portion thereof for a
new lessee and all other costs of any reletting or attempted reletting,
including, but not limited to, brokerage fees and reasonable attorneys fees,
except as limited by Paragraph 16.3 below.
16.3 DAMAGES. Neither (i) the termination of this Lease
pursuant to Section 16.1, (ii) the repossession of the Leased Property; (iii)
the failure of Lessor, notwithstanding reasonable good faith efforts, to relet
the Leased Property; nor (iv) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting (except for proceeds
received on subletting). In the event of any such termination, Lessee shall
forthwith pay to Lessor all Rent due and payable with respect to the Leased
Property to and including the date of such termination.
(a) Lessor shall not be deemed to have
terminated this Lease unless Lessor delivers written Notice to Lessee of such
election. If Lessor voluntarily elects to terminate this Lease upon an Event of
Default, then in addition to all remedies available to Lessor, Lessor may
recover the sum of:
(i) the worth at the time of award of
the unpaid Rent which had been earned at the time of termination;
(ii) the worth at the time of award of
the amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
Lessee proves could have been reasonably avoided;
(iii) the worth at the time of award of
the amount by which the unpaid Rent for the balance of the Term after the time
of award exceeds the amount of such rental loss that Lessee proves could be
reasonably avoided; and
(iv) any other amount necessary to
compensate Lessor for all the detriment proximately caused by Lessee's failure
to perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom.
The "worth at the time of award" of the
amounts referred to in subparagraphs (i) and (ii) above is computed by allowing
interest at the Overdue Rate. The worth at the time of award of the amount
referred to in subparagraph (iii) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
(b) Without limiting Lessor's other remedies
provided herein and provided by law, Lessor may continue the Lease in effect
after Lessee's breach and abandonment and recover Rent as it becomes due,
provided that, in such event, Lessee has the right to sublet or assign subject
only to reasonable conditions imposed by Lessor. Accordingly, without
termination
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of Lessee's right to possession of the Leased Property, Lessor may demand and
recover each installment of Rent and other sums payable by Lessee to Lessor
under the Lease as the same becomes due and payable, which Rent and other
sums shall bear interest at the maximum interest rate permitted in accordance
with the laws of the State of Ohio (or the Overdue Rate, whichever is lower),
from the date when due until paid, and Lessor may enforce, by action or
otherwise, any other term or covenant of this Lease. If Lessor elects to
recover each installment of Rent as it becomes due, then Lessor may file any
number of lawsuits for the recovery of the amounts due hereunder.
16.4 WAIVER. If this Lease is terminated pursuant to
Paragraph 16.1, Lessee waives, to the extent permitted by applicable law, the
benefit of any laws now or hereafter in force exempting property from liability
for rent or for debt.
16.5 APPLICATION OF FUNDS. Any payments received by
Lessor under any of the provisions of this Lease during the existence or
continuance of any Event of Default shall be applied to Lessee's obligations in
the order which Lessor may determine or as may be prescribed by the laws of the
State of Ohio.
ARTICLE XVII
17. LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails to
make any payment or to perform any act required to be made or performed under
this Lease, and to cure the same within the relevant time periods, if any,
provided under this Lease, Lessor, after thirty (30) days Notice to and demand
upon Lessee, and without waiving or releasing any obligation of Lessee or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased Property for such
purpose and take all such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. Provided, however, that should Lessor
reasonably determine that the giving of such Notice would risk loss to the
Leased Property or any portion thereof or cause damage to Lessor, then Lessor
shall give such written Notice as is practical under the circumstances. No such
entry shall be deemed an eviction of Lessee. In exercising any remedy under
this Article XVII, Lessor shall use its good faith efforts not to violate any
rights of residents of the Facility. All sums so paid by Lessor and all costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses, in each case) so incurred, together with a late charge thereon (to the
extent permitted by law) at the Overdue Rate from the date on which sums or
expenses are paid or incurred by Lessor, shall be paid by Lessee to Lessor on
demand. The obligations of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier termination of this Lease.
ARTICLE XVIII
18.1 OPTIONS TO EXTEND. Provided there exists no uncured
Event of Default
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under any of this Lease, the Related Leases and the Other Leases at the time
Lessee exercises any option to extend (in accordance with this Article
XVIII), Lessee will have the right to extend this Lease for two (2) periods
of ten (10) years each (each such additional term shall be referred to herein
as an "Extended Term"), commencing immediately following the end of the
Initial Term or the immediately preceding Extended Term, as the case may be;
provided, however, that notwithstanding anything stated in this Paragraph
18.1 or elsewhere in this Lease, Lessee shall not be entitled to exercise its
option to extend this Lease for any Extended Term (and any such option to
extend shall automatically expire and terminate) unless Lessee concurrently
exercises its option to extend all the Related Leases for the same period, as
provided in Article XVIII of the Related Leases. The Lease during any
Extended Term shall be on the same terms and conditions as during the Initial
Term, except that the Minimum Rent shall be determined as set forth in
Paragraph 18.2 below. In the event Lessee desires to exercise any option to
extend granted in this Article XVIII, Lessee shall give Landlord written
notice ("Notice to Extend") not less than one hundred eighty (180) days prior
to the expiration of the Initial Term or the immediately preceding Extended
Term, as the case may be. If Lessee fails to give Lessor any such notice,
then Lessor shall give Lessee written notice that Lessor has not received
Lessee's Notice to Extend. If Lessee fails to deliver to Lessor the Notice
to Extend within ten (10) days thereafter, Lessee shall be deemed to have
elected not to extend this Lease and the Related Leases, such option to
extend and all future options to extend granted in this Article XVIII or in
the Related Leases shall be null and void and of no further force or effect.
18.2 MINIMUM RENT DURING EXTENDED TERMS. The Minimum Rent
at the commencement of each Extended Term shall be Minimum Rent, as determined
below.
(a) The Minimum Rent for the first year of the
first Extended Term shall be $3,109,345 and shall be increased annually
thereafter in accordance with the method described in Paragraph 3.1.2, above.
(b) The Minimum Rent for the first year of the
second Extended Term shall be $3,790,274 and shall be increased annually
thereafter in accordance with the method described in Paragraph 3.2.1, above.
ARTICLE XIX
19. HOLDING OVER. If Lessee shall for any reason
remain in possession of the Leased Property after the expiration of the Term
or earlier termination of the Term hereof, such possession shall be as a
month-to-month tenant during which time Lessee shall pay as rental each
month, one and one-quarter times the aggregate of (i) one-twelfth of the
aggregate Minimum Rent payable with respect to the last Lease Year of the
Term; (ii) all Additional Charges accruing during the month; and (iii) all
other sums payable by Lessee pursuant to the provisions of this Lease.
During such period of month-to-month tenancy, Lessee shall be obligated to
perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given
by law to month-to-month tenancies, to continue its occupancy
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and use of the Leased Property. Nothing contained herein shall constitute
the consent, express or implied, of Lessor to the holding over of Lessee
after the expiration or earlier termination of this Lease.
ARTICLE XX
20. RISK OF LOSS. During the Term of this Lease, the risk of loss
or of decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than those caused by or through Lessor)
is assumed by Lessee, and Lessor shall in no event be answerable or accountable
therefor, nor shall any of the events mentioned in this Paragraph entitle Lessee
to any abatement of Rent except as specifically provided in this Lease, or any
right to terminate this Lease, except as provided in Paragraph 14.7, above.
Without limiting the foregoing, Lessor shall not be liable for injury or damage
to the person or goods, wares, merchandise or other property of Lessee, Lessee's
employees, contractors, invitees, customers, or any other person in or about the
Leased Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning, or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Leased Premises or upon other portions of the Land, or any part thereof, or from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is accessible or not. Lessor shall
not be liable for any damages arising from any act or neglect of Lessee, or any
other party named above. Lessor shall, however, remain liable for any damages
arising from Lessor's own gross negligence or willful misconduct.
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ARTICLE XXI
21. INDEMNIFICATION. Notwithstanding the existence of any
insurance provided for in Article XIII, and without regard to the policy limits
of any such insurance, Lessee will protect, indemnify, hold harmless and defend
Lessor from and against all liabilities, obligations, claims, demands damages,
penalties, causes of action, costs, and expenses (including, without limitation,
actual reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor by reason of any of the
following (except to the extent solely attributable to Lessor's gross negligence
or willful misconduct): (a) any accident, injury to or death of persons or loss
of or damage to property occurring on or about the Leased Property or adjoining
sidewalks, including without limitation any claims of malpractice, whether
arising in connection with events occurring prior to or after the Commencement
Date hereunder (except to the extent such events occur after the expiration of
this Lease); (b) any occupancy, use, misuse, non-use, condition, maintenance, or
repair by Lessee of the Leased Property; (c) any Impositions (which are the
obligations of Lessee to pay pursuant to the applicable provisions of this
Lease, which include any Impositions arising prior to the Commencement Date);
(d) any failure on the part of Lessee to perform or comply with any of the terms
of this Lease, (e) the non-performance of any of the terms and provisions of any
and all existing and future subleases of the Leased Property to be performed by
the landlord (Lessee) thereunder; (f) any Hazardous Materials, as defined in
Paragraph 10.2, above that now or hereafter during the Term may be located in,
on or around, or affecting, any part of the Land or Leased Improvements; (g) any
and all other matters pertaining to the Leased Property or the operation of the
Facility after the date of this Lease during the Term, including without
limitation compliance with or failure to comply with the provisions of Section 8
of the United States Housing Act of 1937, and the provisions of the Fair Housing
Amendments Act of 1988, each as amended from time to time; (h) any liability
relating to the construction or development of the Facility, including patent or
latent defects in the Facilities, whether arising in connection with events
occurring prior to or after the Commencement Date hereunder, including without
limitation compliance with or failure to comply with the provisions of the
federal Americans with Disabilities Act, as amended from time to time; and (i)
third party claims of any kind relating to the Leased Property, the Facilities,
the operations at the Facilities or otherwise, and any and all other matters
whatsoever relating to the Leased Property, the assisted living facilities
located thereon and the operation thereof. Any amounts which became payable by
Lessee under this Paragraph shall be paid within ten (10) days of the date the
same becomes due and if not timely paid, shall bear a late charge (to the extent
permitted by law) at the Overdue Rate from the date of such determination to the
date of payment. Lessee, at its expense, shall contest, resist and defend any
such claim, action or proceeding asserted or instituted against Lessor or may
compromise or otherwise dispose of the same as Lessee sees fit, at Lessee's sole
cost, but after consultation with and approval by Lessor, which approval shall
not be unreasonably withheld or delayed. Nothing herein shall be construed as
indemnifying Lessor against its own gross negligence or willful misconduct.
Lessee's liability for a breach of the provisions of this article arising during
the Term hereof shall survive any termination of this Lease.
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ARTICLE XXII
22. SUBLETTING AND ASSIGNMENT. Except as provided hereinbelow to
the contrary, Lessee may not assign, sublease or sublet, encumber, appropriate,
pledge or otherwise transfer, the Lease or the leasehold or other interest in
the Leased Property without Lessor's prior written consent, which consent may be
withheld or granted in Lessor's sole and absolute discretion; provided, however,
that Lessee may from time to time during the Term of this Lease enter into
rental agreements with residents of each Facility, and execute any documents
necessary in connection therewith, without obtaining Lessor's prior consent.
Notwithstanding the foregoing provisions of this Paragraph 22, (a) Lessee and
its permitted assigns shall be entitled, at any time without first obtaining the
consent of Lessor, to sublease up to the greater of (i) 2,000 square feet, or
(ii) ten percent (10%) of the total square footage of any single Facility, to
any person or entity providing any services related or ancillary to the
operation of such Facility or in connection with the provision of home health
services both within and outside such Facility; (b) so long as Lessee is lessee
under this Lease, Lessee shall be entitled, at any time without first obtaining
the consent of Lessor to sell, assign and convey to Karrington Health, Inc., an
Ohio corporation ("Karrington"), either (i) all (but not less than all) of
Lessee's leasehold or subleasehold interest in all of the Leased Property or
(ii) all of the issued and outstanding stock of Lessee; and (c) in the event
that there occurs a change in control in respect to the ownership of Karrington,
whether by merger, sale, or transfer of substantially all of Karrington's assets
(other than in the ordinary course of Karrington's business) or otherwise,
including without limitation the acquisition by any one person or entity of
thirty-five percent (35%) or more of the issued and outstanding stock of
Karrington (any of the foregoing, a "Change of Control"), and so long as the
surviving entity at the conclusion of such Change of Control has a net worth of
Twenty Six Million Five Hundred Thousand Dollars ($26,500,000) or more and a
debt to equity ratio of not more than four to one (4.0:1.0) (which net worth and
debt to equity ratio are greater than or substantially similar to Karrington's
as of the date hereof), Karrington or Lessee, as the case may be, shall be
entitled, without first obtaining the consent of Lessor, to assign all of its
right, title and interest in and to this Lease to said surviving entity, so long
as, under any of the scenarios described in this Paragraph 22, Lessor is
notified of such assignment or conveyance in writing within five (5) business
days thereafter. Upon Lessor's consent, (w) in the case of a subletting, the
sublessee shall comply with the provisions of Paragraph 22.2, (x) in the case of
an assignment, the assignee shall assume in writing and agree to keep and
perform all of the terms of this Lease on the part of Lessee to be kept and
performed and shall be, and become, jointly and severally liable with Lessee for
the performance thereof, (y) an original counterpart of each sublease and
assignment and assumption, duly executed by Lessee and such sublessee or
assignee, as the case may be, in form and substance satisfactory to Lessor,
shall be delivered promptly to Lessor, and (z) in case of either an assignment
or subletting, Lessee shall remain primarily liable, as principal rather than as
surety, for the prompt payment of the Rent and for the performance and
observance of all of the covenants and conditions to be performed by Lessee
hereunder.
22.1 ATTORNMENT. Lessee shall insert in each sublease
permitted under Paragraph 22 provisions to that effect that (i) such sublease is
subject and subordinate to all of the terms and provisions of this Lease and to
the rights of Lessor hereunder; (ii) in the event this Lease shall
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terminate before the expiration of such sublease, the sublessee thereunder
will, at Lessor's option, attorn to Lessor and waive any right the sublessee
may have to terminate the sublease or to surrender possession thereunder, as
a result of the termination of this Lease; and (iii) in the event the
sublessee receives a written Notice from Lessor or Lessor's assignees, if
any, stating that Lessee is in default under this Lease, the sublessee shall
thereafter be obligated to pay all rentals accruing under said sublease
directly to the party giving such Notice, or as such party may direct. All
rents received from the sublessee by Lessor or Lessor's assignees, if any, as
the case may be, shall be credited against amounts owing by Lessee under this
Lease.
22.2 SUBLEASE LIMITATION. Anything contained in this
Lease to the contrary notwithstanding, Lessee shall not sublet the Leased
Property on any basis such that the rental to be paid by the sublessee
thereunder would be based, in whole or in part, on either (i) the income or
profits derived by the business activities of the sublessee; or (ii) any other
formula such that any portion of the sublease rental received by Lessor would
fail to qualify as Arents from real property" within the meaning of Paragraph
856(d) of the Code, or any similar or successor provision thereto.
ARTICLE XXIII
23. OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS; LEASE
COVENANTS.
23.1 OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS.
(a) At any time from time-to-time upon not less
than twenty (20) days Notice by Lessor, Lessee will furnish to Lessor an
Officer's Certificate certifying that this Lease is unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid and
such other information concerning this Lease as may be reasonably requested by
Lessor. Any such certificate furnished pursuant to this Paragraph may be relied
upon by Lessor and any prospective purchaser or lender of the Leased Property.
(b) In addition to all other obligations to
provide financial information contained in the Lease, Lessee will furnish the
following statements to Lessor:
(i) within one hundred twenty (120) days
after the end of each Lease Year, an Officer's Certificate stating that to the
best of the signer's knowledge and belief after making reasonable inquiry,
Lessee is not in default in the performance or observance of any of the terms of
this Lease, or if Lessee shall be in default to its knowledge, specifying all
such defaults, the nature thereof, and the steps being taken to remedy the same,
and
(ii) with reasonable promptness, such other
information respecting the financial condition and affairs of Lessee as Lessor
may reasonably request from time-to-time.
(c) Within one hundred twenty (120) days after
the end of each Fiscal Year, Lessee agrees to provide to Lessor Consolidated
Financials of Lessee for such Fiscal Year.
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23.2 LEASE COVENANTS. Lessee warrants, covenants and represents
to Lessor that prior to December 31, 1999, Karrington shall not undertake or
accomplish any of the following: (a) buy back any of the stock of Karrington;
(b) declare a dividend to Karrington stockholders; or (c) repay any loan or
other indebtedness to any current or former directors, officers, shareholders
or affiliates of Karrington; provided, however, that Karrington shall be
allowed to do any of the foregoing only up to a total combined amount equal
to or less than fifty percent (50%) of a total amount of equity funding
actually received by Karrington from the Commencement Date through December
31, 1999. Notwithstanding the foregoing, Karrington shall be entitled, prior
to December 31, 1999, to do any of the following: (d) repay to JMAC the Four
Million Dollar ($4,000,000) bridge loan entered into on or about April 1,
1998, so long as the entire outstanding balance of such bridge loan has been
used substantially in accordance with the use of proceeds attached to this
Lease as Exhibit "D", (e) grant to JMAC the right to convert to equity in
Karrington all or any portion of its existing debt to Karrington, in the
approximate amount of Seven Million Five Hundred Thousand Dollars
($7,500,000); and (f) upon a Change of Control of Karrington, so long as the
surviving entity at the conclusion of such Change of Control has a net worth
of Twenty-Six Million Five Hundred Thousand Dollars ($26,500,000) or more and
a debt to equity ratio of not more than four to one (4.0:1.0), Karrington
shall be entitled to pay off any and all debts which it may have to JMAC.
Lessee acknowledges and agrees that Lessor has entered into this Lease in
material reliance on the foregoing warranties, covenants and representations
(the "Lease Covenants"). Lessee further acknowledges that certain of the
Lease Covenants concern the activities of Karrington rather than Lessee and
that any violation or breach of any of the Lease Covenants, whether by Lessee
or Karrington shall be an Event of Default hereunder.
ARTICLE XXIV
24. LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property or any portion thereof
on at least one Business Day's prior notice during usual business hours subject
to any security, health, safety, or confidentiality requirements of Lessee or
any governmental agency or insurance requirement relating to the Leased
Property, or imposed by law or applicable regulations. Lessor shall take
reasonable steps to avoid interference with the residents.
ARTICLE XXV
25. NO WAIVER. The waiver by Lessor or Lessee of any term,
covenant or condition in this Lease shall not be deemed to be a waiver of any
other term, covenant or condition or any subsequent waiver of the same or any
other term, covenant or condition contained in this Lease. The subsequent
acceptance of rent hereunder by Lessor or any payment by Lessee shall not be
deemed to be a waiver of any preceding default of any term, covenant or
condition of this Lease, other than the failure to pay the particular amount so
received and accepted, regardless of the knowledge of any preceding default at
the time of the receipt or acceptance.
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ARTICLE XXVI
26. REMEDIES CUMULATIVE. To the extent permitted by law, each
legal, equitable or contractual right, power and remedy of Lessor now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor of any one or
more of such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Lessor of any or all of such other rights, powers and
remedies.
ARTICLE XXVII
27. ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease
or of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Lessor and no
act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.
ARTICLE XXVIII
28. NO MERGER OF TITLE. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the same
person, firm, corporation, or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate; and (b) the fee estate in the
Leased Property.
ARTICLE XXIX
29. CONVEYANCE BY LESSOR. If Lessor or any successor owner of the
Leased Property shall transfer or assign Lessor's title or interest in the
Leased Property or any portion thereof or this Lease other than as security for
a debt, and provided the new owner has agreed in writing for the benefit of
Lessee to recognize this Lease and be bound by all of the terms and conditions
hereof, Lessor shall thereupon be released from all future liabilities and
obligations of Lessor under this Lease arising or accruing from and after the
date of such transfer or assignment and all such future liabilities and
obligations shall thereupon be binding upon the new owner.
ARTICLE XXX
30. QUIET ENJOYMENT. So long as Lessee shall pay all Rent as the
same becomes due and shall comply with all of the terms of this Lease and
perform its obligations hereunder, and except for any claims, actions, liens or
encumbrances arising from the acts or omissions of Lessee or otherwise from
events occurring prior to the Commencement Date hereunder, Lessee shall
peaceably and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Lessor or anyone claiming by,
through or under Lessor, but subject to all liens and encumbrances of record as
of the date hereof or hereafter
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consented to by Lessee. Except as otherwise provided in this Lease, no
failure by Lessor to comply with the foregoing covenant or any covenant of
this Lease shall give Lessee any right to abate, reduce or made a deduction
from or offset against the Rent or any other sum payable under this Lease, or
to fail to perform any other obligation of Lessee hereunder.
ARTICLE XXXI
31. NOTICES. All notices, demands, requests, consents, approvals,
and other communications ("Notice" or "Notices") hereunder shall be in writing
and personally served upon an Executive Officer of the party being served or
mailed (by registered or certified mail, return receipt requested and postage
prepaid), overnight delivery service addressed to the respective parties, as
follows:
(a) If to Lessee: Karrington Operating Company, Inc.
919 Old Henderson Road
Columbus, Ohio 43220
Attention: Thomas J. Klimbach,
Chief Financial Officer
with a copy to: Bricker & Eckler
100 South Third Street
Columbus, Ohio 43215
Attention: Charles H. McCreary, Esq.
(b) If to Lessor: LTC-Ohio, Inc.
c/o LTC Properties, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attention: James J. Pieczynski
with a copy to: LTC Properties, Inc.
300 Esplanade Drive, Suite 1865
Oxnard, California 93030
Attention: Pamela J. Privett, Esq.
and: Rosenfeld, Wolff, Aronson, Kurland & Klein
2049 Century Park East, Suite 3090
Los Angeles, California 90067
Attention: Alan D. Aronson, Esq.
or to such other address as either party may hereafter designate by a Notice
pursuant to this Paragraph. Personally delivered Notice (including Notices sent
by overnight delivery service) shall be effective upon receipt, and Notice given
by mail shall be completed five (5) days after the time of deposit in the U.S.
Mail system. For the purposes hereof, the term "Executive Officer" shall
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mean the Chairman of the Board of Directors, the President, any Vice
President, or the Secretary of the corporation upon which service is to be
made.
ARTICLE XXXII
32.1 LESSOR MAY GRANT LIENS. Lessor may, subject to
the terms and conditions set forth below in this Paragraph 32.1, from
time-to-time, directly or indirectly, create or otherwise cause to exist any
lien or encumbrance or any other change of title (AEncumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to
secure any borrowing or other means of financing or refinancing. Any such
Encumbrance shall contain the right to prepay (whether or not subject to a
prepayment penalty) and shall provide that it is subject to the rights of
Lessee under this Lease, provided that any holder of an Encumbrance shall (a)
give Lessee the same notice, if any, given to Lessor of any default or
acceleration of any obligation underlying any such mortgage or any sale in
foreclosure under such mortgage; (b) permit Lessee to cure any such default
on Lessor's behalf within any applicable cure period, and Lessee shall be
reimbursed by Lessor or shall be entitled to offset against Minimum Rent
payments next accruing or coming due for any and all costs incurred in
effecting such cure, including, without limitation, out-of-pocket costs
incurred to effect any such cure (including reasonable attorneys' fees); (c)
permit Lessee to appear and to bid at any sale in foreclosure made with
respect to any such mortgage, and (d) provide that in the event of
foreclosure or other possession of the Leased Property by the Mortgagee, that
the Mortgagee shall be bound by the terms and provisions of this lease. Upon
the reasonable request of Lessor, Lessee shall execute an agreement to the
effect that this Lease shall be subject and subordinate to the lien of a new
mortgage on the Leased Property and that in the event of any default or
foreclosure under such mortgage, Lessee shall attorn to the new mortgagee,
and as otherwise requested by Lessor; provided that the proposed mortgagee
execute a non-disturbance agreement recognizing this Lease and agreeing, for
itself and its successor and assigns, to comply with the provisions of this
Article XXXII.
32.2 LESSEE'S RIGHT TO CURE. Subject to the provisions
of Paragraph 32.3, if Lessor breaches any covenant to be performed by it
under this Lease, Lessee, after Notice to and demand upon Lessor, without
waiving or releasing any obligation hereunder, and in addition to any other
remedies available to Lessee, may (but shall be under no obligation at any
time thereafter to) make such payment or perform such act for the account and
at the expense of Lessor. All sums so paid by Lessee and all costs and
expenses (including, without limitation, reasonable attorneys' fees) so
incurred, together with interest thereon (at the Overdue Rate) from the date
on which such sums or expenses are paid or incurred by Lessee, shall be paid
by Lessor to Lessee on demand, but may not be offset by Lessee against
Minimum Rent payments. The rights of Lessee hereunder to cure and to secure
payment from Lessor in accordance with this Paragraph 32.2 shall survive the
termination of this Lease.
32.3 DEFAULT BY LESSOR. It shall be a default of this
Lease if Lessor fails to observe or perform any term, covenant or condition
of this Lease on its part to be performed, and such failure shall continue
for a period of ten (10) days after Notice thereof from Lessee in the case of
a monetary default or thirty (30) days after Notice thereof from Lessee (or
such shorter time as
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<PAGE>
may be required in order to protect the health or welfare of any patients or
other residents of the Leased Property) in the case of a non-monetary
default, unless in the case of a non-monetary default such failure cannot
with due diligence be cured within a period of thirty (30) days, in which
case such failure shall not be deemed to continue if Lessor, within said
thirty (30) day period, proceeds promptly, continuously and with due
diligence to cure the failure and diligently completes the curing thereof.
The time within which Lessor shall be obligated to cure any such failure
shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay.
ARTICLE XXXIII
33. MISCELLANEOUS.
33.1 SURVIVAL OF OBLIGATIONS. Anything contained in this
Lease to the contrary notwithstanding, all claims against, and liabilities of,
Lessee or Lessor arising prior to, or in connection with any event occurring
prior to, the date of any expiration or termination of this Lease or the date of
Lessee's surrender of possession of the Leased Property, whichever is later,
shall survive such termination or surrender of possession.
33.2 LATE CHARGES; INTEREST. If any interest rate
provided for in any provision of this Lease is based upon a rate in excess of
the maximum rate permitted by applicable law, the parties agree that such
charges shall be fixed at the maximum permissible rate.
33.3 LIMITS OF LESSOR'S LIABILITY. Lessee specifically
agrees to look solely to the assets of Lessor for recovery of any judgment
against Lessor, it being specifically agreed that no constituent shareholder,
officer or director of Lessor shall ever be personally liable for any such
judgment or the payment of any monetary obligation to Lessee. The provision
contained in the foregoing sentence is not intended to, and shall not, limit any
right that Lessee might otherwise have to obtain injunctive relief against
Lessor or Lessor's successors in interest, or any action not involving the
personal liability of Lessor (original or successor). Additionally, Lessor
shall be exonerated from any further liability under this Lease upon Lessor's
transfer or other divestiture of its ownership of the Leased Property, provided
that the assignee or grantee shall expressly assume in writing the obligations
of Lessor hereunder. Furthermore, in no event shall Lessor (original or
successor) ever be liable to Lessee for any indirect or consequential damages
suffered by Lessee from whatever cause.
33.4 LIMITS OF LESSEE'S LIABILITY. Lessor specifically
agrees to look solely to the assets of Lessee for recovery of any judgment
against Lessee, it being specifically agreed that no constituent shareholder,
officer or director of Lessee shall ever be personally liable for any such
judgment or the payment of any monetary obligation to Lessor. The provision
contained in the foregoing sentence is not intended to, and shall not, limit any
right that Lessor might otherwise have to obtain injunctive relief against
Lessee or Lessee's successors in interest, or any action not involving the
personal liability of Lessee (original or successor). Furthermore, in no event
shall Lessee (original or successor) ever be liable to Lessor for any indirect
or consequential damages suffered by Lessor from whatever cause.
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33.5 TRANSFER OF OPERATIONS. At Lessor's request, upon
the expiration or earlier termination of the Term, Lessee shall use its best
efforts to transfer to Lessor or Lessor's nominee (or to cooperate with Lessor
or Lessor's nominee in connection with the processing by Lessor or Lessor's
nominee of any applications for) all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities which may be necessary for the
operation of each Facility; provided that the costs and expenses of any such
transfer or the processing of any such application shall be paid by Lessor or
Lessor's nominee.
33.6 ADDENDUM, AMENDMENTS AND EXHIBITS. Any addendum,
amendments and exhibits attached to this Lease are hereby incorporated in this
Lease and made a part of this Lease.
33.7 HEADINGS. The headings and paragraph titles in this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part of this Lease.
33.8 TIME. Time is of the essence of this Lease and each
and all of its provisions.
33.9 DAYS. Unless otherwise expressly indicated herein,
any reference to "days" in this Lease shall be deemed to refer to calendar days.
33.10 RENT. Each and every monetary obligation under this
Lease shall be deemed to be "Rent" under this Lease and for all other purposes
under law.
33.11 APPLICABLE LAW; VENUE. This Lease shall be governed
by and construed in accordance with the laws of the State of Ohio, but not
including its conflicts of laws rules; thus the law that will apply is the law
applicable to a transaction solely within the State of Ohio. Notwithstanding
the application of the laws of the State of Ohio, each party hereto hereby
irrevocably submits itself to the jurisdiction of the state courts of the State
of California and to the jurisdiction of the United States District Court for
the Central District of California, for the purpose of any suit, action or other
proceeding arising out of or based upon this Lease or the subject matter hereof
brought by either party hereto and such suit, action or other proceedings shall
be conducted in the State or Federal courts located in Los Angeles, California.
33.12 SUCCESSORS AND ASSIGNS. The covenants and conditions
contained in this Lease shall, subject to the provisions regarding assignment
(Article XXII), apply to and bind the heirs, successors, executors,
administrators, and assigns of Lessor and Lessee.
33.13 RECORDATION. Lessor and Lessee shall execute with
appropriate acknowledgments and record in the Official Records of the county in
which the Leased Property is located, that certain Memorandum of Lease in the
form and content of Exhibit "C" attached hereto. Lessor and Lessee shall
equally share the cost of recording the Memorandum of Lease. In no
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event shall this Lease otherwise be recorded.
33.14 PRIOR AND FUTURE AGREEMENTS. This Lease contains all
of the agreements of Lessor and Lessee with respect to any matter covered or
mentioned in this Lease, and no prior agreements or understanding pertaining to
any such matters shall be effective for any purpose. No provision of this Lease
may be amended or supplemented except by an agreement in writing signed by both
Lessor and Lessee or their respective successors in interest. This Lease shall
not be effective or binding on any party until fully executed by both Lessor and
Lessee.
33.15 PARTIAL INVALIDITY. Any provision of this Lease
which shall be held by a court of competent jurisdiction to be invalid, void or
illegal shall in no way affect, impair or invalidate any other provision or term
of this Lease, and such other provision or terms shall remain in full force and
effect.
33.16 ATTORNEYS' FEES. In the event of any action or
proceeding brought by one party against the other under this Lease, the
prevailing party shall be entitled to recover its reasonable attorneys' fees in
such action or proceeding from the other party, including all attorneys' fees
incurred in connection with any appeals, and any post-judgment attorneys' fees
incurred in efforts to collect on any judgment.
33.17 AUTHORITY OF LESSOR AND LESSEE. Lessor and Lessee
each hereby represent and warrant that the individuals signing on its behalf are
duly authorized to execute and deliver this Lease on behalf of the corporation,
in accordance with the bylaws of the corporation, and that this Lease is binding
upon the corporation.
33.18 RELATIONSHIP OF THE PARTIES. Nothing contained in
this Lease shall be deemed or construed by Lessor or Lessee, nor by any third
party, as creating the relationship of principal and agent or a partnership, or
a joint venture by Lessor or Lessee, it being understood and agreed that no
provision contained in this Lease nor any acts of Lessor and Lessee shall be
deemed to create any relationship other than the relationship of landlord and
tenant.
33.19 COUNTERPARTS. This Lease may be executed in one or
more separate counterparts, each of which, once they are executed, shall be
deemed to be an original. Such counterparts shall be and constitute one and the
same instrument.
33.20 BROKERS. Lessor and Lessee each warrants that it has
had no dealings with any real estate broker or agent in connection with the
negotiation of this Lease and it knows of no real estate broker or agent who is
entitled to a commission in connection with this Lease. Lessor and Lessee
hereby agree to indemnify the other and to hold the other harmless from and
against any and all costs, expenses, claims, damages, suits, including
attorneys' fees, in any way resulting from claims or demands for commissions or
other compensation from any real estate brokers claiming through such party with
respect to this Lease.
WHEREFORE, each of the parties has accepted and agreed by affixing
their
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respective authorized signatures below as of the date first above written.
[SIGNATURE CONTINUED ON NEXT PAGE]
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[SIGNATURE CONTINUED FROM PREVIOUS PAGE]
"LESSEE"
SIGNED AND ACKNOWLEDGED KARRINGTON OPERATING COMPANY, INC.,
IN PRESENCE OF: AN OHIO CORPORATION
/s/ Renee Christner By: Pete A. Klisares
- ----------------------------- --------------------------
Printed: Renee Christner Its: President
-------------------- ---------------------------
SIGNED AND ACKNOWLEDGED
IN PRESENCE OF:
/s/ Amy S. Maxwell
- ---------------------------
Printed: Amy S. Maxwell
-------------------
[SIGNATURE CONTINUED ON NEXT PAGE]
<PAGE>
[SIGNATURE CONTINUED FROM PREVIOUS PAGE]
"LESSOR"
SIGNED AND ACKNOWLEDGED LTC-OHIO, INC.,
IN THE PRESENCE OF: A DELAWARE CORPORATION
/s/ Raad K. Shawaf By: /s/ James J. Pieczynski
- ---------------------------- ----------------------------------
Printed Name: Raad K. Shawaf Its: President and Chief Financial Officer
--------------- ----------------------------------------
/s/ Ami K. Harris
- -----------------------------
Printed Name: Ami K. Harris
-----------------
<PAGE>
ACKNOWLEDGEMENT
STATE OF OHIO )
-------- ) SS.
COUNTY OF FRANKLIN )
---------------
The foregoing instrument was acknowledged before me on this 20th day of
April, 1998, by Pete A. Klisares, President of Karrington Operating Company,
Inc., an Ohio corporation, on behalf of the corporation.
/s/ Amy S. Maxwell
- ------------------------
Amy S. Maxwell Notary Public
My Commission Expires:
- ---------------------------
[STAMP]
<PAGE>
ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
) SS.
COUNTY OF VENTURA )
On the 9th day of April, 1998, before me, Ami K. Harris, a notary
public in and for the State of California, personally appeared James J.
Pieczynski, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument he, or the entity on behalf of which he
acted, executed the instrument.
WITNESS my hand and official seal.
/s/ Ami K. Harris
-----------------------------------
[STAMP] AMI K. HARRIS
NOTARY PUBLIC
State of California
My Commission Expires July 31, 1998
This Instrument Prepared by:
Alan D. Aronson, Esq.
Rosenfeld, Wolff, Aronson, Kurland & Klein
2049 Century Park East, Suite 3090
Los Angeles, California 90067
<PAGE>
INDEX OF EXHIBITS
- -----------------
Exhibit "A-1" - "A-4" - Legal Description
Exhibit "B" - Related Leases
Exhibit "C" - Memorandum of Lease
Exhibit "D" - Approved Use of Proceeds
<PAGE>
EXHIBIT A-1
-----------
Legal Description
Scioto Property
<PAGE>
EXHIBIT A-2
-----------
Legal Description
Karrington Property
EXHIBIT A-2
<PAGE>
EXHIBIT A-3
-----------
Legal Description
Tucker Creek Property
EXHIBIT A-3
<PAGE>
EXHIBIT A-4
-----------
Legal Description
Bexley Property
EXHIBIT A-4
<PAGE>
EXHIBIT "B"
RELATED LEASES*
*The Related Leases referenced above will be modified in writing in the future
if Lessor and Lessee enter into a lease (or leases) of property in substitution
of any of the aforementioned Related Leases.
<PAGE>
EXHIBIT "C"
<PAGE>
LEASE
(ERIE, PENNSYLVANIA)
DATED JUNE 30, 1998
EXECUTED BY
MISSOURI RIVER CORPORATION,
A DELAWARE CORPORATION,
as Lessor
and
KARRINGTON OPERATING COMPANY, INC., AN OHIO CORPORATION,
as Lessee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
1.1 Leased Property. . . . . . . . . . . . . . . . . . . . . . . . . - 1 -
1.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
1.3 Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . - 2 -
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . - 3 -
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 8 -
3.1.1 Minimum Rent . . . . . . . . . . . . . . . . . . . . . - 8 -
3.1.2 Adjustment to Rent . . . . . . . . . . . . . . . . . . - 8 -
3.2 Additional Charges . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.3 Net Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
3.4 Late Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . - 9 -
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 10 -
4.1 Payment of Impositions . . . . . . . . . . . . . . . . . . . . .- 10 -
4.2 Notice of Impositions. . . . . . . . . . . . . . . . . . . . . .- 11 -
4.3 Utility Charges. . . . . . . . . . . . . . . . . . . . . . . . .- 11 -
4.4 Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . .- 11 -
4.5 Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 11 -
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 12 -
5.1 No Termination, Abatement, etc . . . . . . . . . . . . . . . . .- 12 -
5.2 Abatement Procedures . . . . . . . . . . . . . . . . . . . . . .- 12 -
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 13 -
6.1 Ownership of the Leased Property . . . . . . . . . . . . . . . .- 13 -
6.2 Lessee's Alterations . . . . . . . . . . . . . . . . . . . . . .- 13 -
6.3 Lessee's Personal Property . . . . . . . . . . . . . . . . . . .- 13 -
6.4 Consumable Inventory . . . . . . . . . . . . . . . . . . . . . .- 13 -
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 14 -
7.1 Condition of Leased Property . . . . . . . . . . . . . . . . . .- 14 -
7.2 Use of the Leased Property . . . . . . . . . . . . . . . . . . .- 14 -
7.3 Preservation of Gross Revenues . . . . . . . . . . . . . . . . .- 15 -
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 16 -
8.1 Compliance with Legal and Insurance Requirements,
Instruments, etc . . . . . . . . . . . . . . . . . . . . . . . .- 16 -
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<CAPTION>
<S> <C>
8.2 Legal Requirement Covenants. . . . . . . . . . . . . . . . . . .- 16 -
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 17 -
9.1 Maintenance and Repair . . . . . . . . . . . . . . . . . . . . .- 17 -
9.2 Expenditures to Comply with Law; Construction of Additional
Improvements Pursuant to Certificate of Need . . . . . . . . . .- 19 -
9.3 Encroachments, Restrictions, etc . . . . . . . . . . . . . . . .- 19 -
ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 20 -
10.1 Lessee's Obligations for Hazardous Materials . . . . . . . . . .- 20 -
10.2 Definition of Hazardous Materials. . . . . . . . . . . . . . . .- 20 -
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 21 -
11.1 No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 21 -
11.2 Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . .- 22 -
ARTICLE XII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 22 -
12. Permitted Contests . . . . . . . . . . . . . . . . . . . . . . .- 22 -
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 23 -
13.1 General Insurance Requirements . . . . . . . . . . . . . . . . .- 23 -
13.2 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . .- 24 -
13.3 Additional Insurance . . . . . . . . . . . . . . . . . . . . . .- 24 -
13.4 Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . . .- 24 -
13.5 Form Satisfactory, etc . . . . . . . . . . . . . . . . . . . . .- 25 -
13.6 Increase in Limits . . . . . . . . . . . . . . . . . . . . . . .- 25 -
13.7 Blanket Policy . . . . . . . . . . . . . . . . . . . . . . . . .- 25 -
13.8 No Separate Insurance. . . . . . . . . . . . . . . . . . . . . .- 25 -
13.9 Continuous Coverage. . . . . . . . . . . . . . . . . . . . . . .- 26 -
ARTICLE XIV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 26 -
14.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . .- 26 -
14.2 Reconstruction in the Event of Damage or Destruction Covered
by Insurance Proceeds. . . . . . . . . . . . . . . . . . . . . .- 26 -
14.3 Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance . . . . . . . . . . . . . . . . . . . . . .- 27 -
14.4 Lessee's Property. . . . . . . . . . . . . . . . . . . . . . . .- 27 -
14.5 Restoration of Lessee's Property . . . . . . . . . . . . . . . .- 27 -
14.6 No Abatement of Rent . . . . . . . . . . . . . . . . . . . . . .- 27 -
14.7 Damage Near End of Term. . . . . . . . . . . . . . . . . . . . .- 27 -
14.8 Termination of Option to Extend. . . . . . . . . . . . . . . . .- 28 -
14.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 28 -
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ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 28 -
15. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . .- 28 -
15.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .- 28 -
15.2 Parties' Rights and Obligations. . . . . . . . . . . . . . . . .- 28 -
15.3 Total Condemnation . . . . . . . . . . . . . . . . . . . . . . .- 28 -
15.4 Allocation of Portion of Award . . . . . . . . . . . . . . . . .- 29 -
15.5 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . .- 29 -
15.6 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . .- 29 -
ARTICLE XVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 30 -
16.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . .- 30 -
16.2 Certain Remedies . . . . . . . . . . . . . . . . . . . . . . . .- 32 -
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 33 -
16.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 34 -
16.5 Application of Funds . . . . . . . . . . . . . . . . . . . . . .- 34 -
ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 34 -
17. Lessor's Right to Cure Lessee's Default. . . . . . . . . . . . .- 34 -
ARTICLE XVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 35 -
18.1 Options to Extend. . . . . . . . . . . . . . . . . . . . . . . .- 35 -
18.2 Minimum Rent During Extended Terms . . . . . . . . . . . . . . .- 35 -
ARTICLE XIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 36 -
19. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . .- 36 -
ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 36 -
20. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . .- 36 -
ARTICLE XXI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 36 -
21. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . .- 36 -
ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 37 -
22. Subletting and Assignment. . . . . . . . . . . . . . . . . . . .- 37 -
22.1 Attornment. . . . . . . . . . . . . . . . . . . . . . . . .- 38 -
22.2 Sublease Limitation . . . . . . . . . . . . . . . . . . . .- 39 -
ARTICLE XXIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 39 -
23. Officer's Certificates and Financial Statements; Lease
Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . .- 39 -
23.1 Officer's Certificates and Financial Statements.. . . . . .- 39 -
23.2 Lease Covenants . . . . . . . . . . . . . . . . . . . . . .- 39 -
ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 40 -
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24. Lessor's Right to Inspect. . . . . . . . . . . . . . . . . . . .- 40 -
ARTICLE XXV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 40 -
25. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . .- 40 -
ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 41 -
26. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . .- 41 -
ARTICLE XXVII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 41 -
27. Acceptance of Surrender. . . . . . . . . . . . . . . . . . . . .- 41 -
ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 41 -
28. No Merger of Title . . . . . . . . . . . . . . . . . . . . . . .- 41 -
ARTICLE XXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 41 -
29. Conveyance by Lessor . . . . . . . . . . . . . . . . . . . . . .- 41 -
ARTICLE XXX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 41 -
30. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . .- 41 -
ARTICLE XXXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 42 -
31. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 42 -
ARTICLE XXXII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 43 -
32.1 Lessor May Grant Liens . . . . . . . . . . . . . . . . . . . . .- 43 -
32.2 Lessee's Right to Cure . . . . . . . . . . . . . . . . . . . . .- 43 -
32.3 Default by Lessor. . . . . . . . . . . . . . . . . . . . . . . .- 43 -
ARTICLE XXXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 44 -
33. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . .- 44 -
33.1 Survival of Obligations. . . . . . . . . . . . . . . . . .- 44 -
33.2 Late Charges; Interest . . . . . . . . . . . . . . . . . .- 44 -
33.3 Limits of Lessor's Liability . . . . . . . . . . . . . . .- 44 -
33.4 Limits of Lessee's Liability . . . . . . . . . . . . . . .- 44 -
33.5 Transfer of Operations . . . . . . . . . . . . . . . . . .- 45 -
33.6 Addendum, Amendments and Exhibits. . . . . . . . . . . . .- 45 -
33.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . .- 45 -
33.8 Time . . . . . . . . . . . . . . . . . . . . . . . . . . .- 45 -
33.9 Days . . . . . . . . . . . . . . . . . . . . . . . . . . .- 45 -
33.10 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . .- 45 -
33.11 Applicable Law; Venue. . . . . . . . . . . . . . . . . . .- 45 -
33.12 Successors and Assigns . . . . . . . . . . . . . . . . . .- 45 -
33.13 Recordation. . . . . . . . . . . . . . . . . . . . . . . .- 45 -
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33.14 Prior and Future Agreements. . . . . . . . . . . . . . . .- 45 -
33.15 Partial Invalidity . . . . . . . . . . . . . . . . . . . .- 46 -
33.16 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . .- 46 -
33.17 Authority of Lessor and Lessee . . . . . . . . . . . . . .- 46 -
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33.18 Relationship of the Parties. . . . . . . . . . . . . . . .- 46 -
33.19 Counterparts . . . . . . . . . . . . . . . . . . . . . . .- 46 -
33.20 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . .- 47 -
33.21 New Combined Lease . . . . . . . . . . . . . . . . . . . .- 47 -
</TABLE>
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LEASE
This LEASE (the "Lease") is made as of the 20th day of June, 1998,
by and between MISSOURI RIVER CORPORATION, a Delaware corporation, herein
called "Lessor", and KARRINGTON OPERATING COMPANY, INC., an Ohio
corporation, herein called "Lessee", subject to the terms, conditions and
contingencies set forth below.
ARTICLE I
1.1 LEASED PROPERTY. Upon and subject to the terms
and conditions hereinafter set forth, Lessor leases to Lessee, and Lessee
rents and hires from Lessor all of the following (the "Leased Property"):
(i) The real property situated in the
Commonwealth of Pennsylvania and more particularly described in Exhibit "A"
attached hereto, as the same may be supplemented or modified from time to
time (the "Land");
(ii) All buildings, structures, Fixtures (as
hereinafter defined) and other improvements of every kind including, but
not limited to, alleyways and connecting tunnels, sidewalks, utility pipes,
conduits and lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures presently situated upon the
Land (collectively, the "Leased Improvements");
(iii) All easements, rights and appurtenances
relating to the Land and the Leased Improvements;
(iv) All permanently affixed equipment,
machinery, fixtures, and other items of real and/or personal property,
including all components thereof, permanently affixed to or incorporated
into the Leased Improvements, including, without limitation, all furnaces,
boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control,
waste disposal, air-cooling and air conditioning systems and apparatus,
sprinkler systems and fire and theft protection equipment, all of which to
the greatest extent permitted by the law, are hereby deemed by the parties
hereto to constitute real estate, together with all replacements,
modifications, alterations and additions thereto, to the extent acquired by
Lessor pursuant to the "Purchase Agreement" as defined in Article II hereof
(collectively the "Fixtures"); and
(v) All personal tangible and intangible
property comprising the "Personal Property" and/or the "Intangible
Property" acquired by Lessor pursuant to the Purchase Agreement.
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The Leased Property includes that certain assisted living
facility located in the City of Erie, County of Erie, Commonwealth of
Pennsylvania and commonly known as Karrington at Presque Isle Bay at 1012
W. Bayfront Parkway, Erie, Pennsylvania 16507. Notwithstanding the
foregoing, the Leased Property shall not include any property not acquired
by Lessor from the Seller pursuant to the Purchase Agreement. The Leased
Property is demised subject to all covenants, conditions, restrictions,
easements, and other matters of record, and all other matters that affect
title, zoning and any other matters set forth in that certain Title Policy
issued by Chicago Title Company concurrently with Lessor's purchase of the
Leased Property and all matters disclosed in the ALTA survey obtained in
connection with such title insurance (collectively the "Permitted Title
Matters").
1.2 TERM. The initial term of the Lease (the
"Initial Term") shall be the period commencing on the closing (the
"Closing") whereby Lessor acquires fee title to the Leased Property under
the Purchase Agreement (the "Commencement Date") and expiring on April 30,
2018. Lessee has the right to extend the term of this Lease, at Lessee's
option, as provided in Article XVIII, below. (The Initial Term plus all
validly exercised options to extend, if any, shall be referred to herein as
the "Term"). Lessor and Lessee agree to execute a memorandum setting forth
the Commencement Date.
1.3 CONTINGENCIES.
1.3.1 ACQUISITION OF LEASED PROPERTY. Lessee
acknowledges and agrees that, at the time of executing this Lease, Lessor
does not own the Leased Property, but Lessor has a right to purchase the
Leased Property pursuant to the Purchase Agreement. This Lease, and all
obligations hereunder of either party, are contingent upon Lessor's
acquisition of the fee simple interest in the Leased Property. Therefore,
if the Leased Property has not been transferred to Lessor on or before the
Outside Closing Date (as that term is defined in the Purchase Agreement),
or by such later date as Lessor, in its sole discretion may permit, this
Lease shall be null and void and of no force or effect whatsoever, and both
Lessor and Lessee shall be relieved of all responsibility under the Lease.
1.3.2 CROSS DEFAULT WITH OTHER LEASES. Lessor
and Lessee acknowledge and agree that this Lease is to be cross-defaulted
with the Related Leases and every other lease now or hereafter entered into
between Lessor (or any of its Affiliates) and Lessee (or any of its
Affiliates) with respect to any assisted living facility (collectively, the
"Other Leases"), each of which shall (if Lessor so requests) be specifically
amended to confirm that they are cross-defaulted as additional security for
Lessee's performance under this Lease. However, the cross-default provisions
of this Paragraph shall be effective regardless of whether Lessor requests
the aforesaid specific amendments.
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ARTICLE II
2. DEFINITIONS. For all purposes of this Lease, except as
otherwise expressly provided, (i) the terms defined in this Article II have
the meanings assigned to them in this Article II and include the plural as
well as the singular; (ii) all accounting terms not otherwise defined
herein have the meanings assigned to them in accordance with generally
accepted accounting principles at the time applicable; and (iii) the words
"herein", "hereof" and "hereunder" and other words of similar import refer
to this Lease as a whole and not to any particular Article, Paragraph or
other subdivision:
ADDITIONAL CHARGES. As defined in Article III.
AFFILIATE. When used with respect to any corporation,
the term "Affiliate" shall mean any person or entity (including any trust)
which, directly or indirectly, controls or is controlled by or is under
common control with such corporation. For the purposes of this definition,
"control" (including the correlative meanings of the terms "controlled by"
and "under common control with"), as used with respect to any person, shall
mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such person, through
the ownership of voting securities, partnership interests or other equity
interests. For the purposes of this definition, "person" shall mean any
natural person, trust, partnership, corporation, joint venture or other
legal entity.
BUSINESS DAY. Each Monday, Tuesday, Wednesday, Thursday,
and Friday, which is not a day on which national banks in the Commonwealth
of Pennsylvania are authorized or obligated, by law or executive order, to
close.
C.P.I. As defined in Paragraph 3.1.
CALENDAR YEAR. The period from January 1 through and
including December 31 in the same calendar year.
CODE. The Internal Revenue Code of 1986, as amended, and
all regulations issued thereunder.
CONSOLIDATED FINANCIALS. For any Fiscal Year or other
accounting period for Lessee and its consolidated subsidiaries, statements
of earnings and retained earnings and of changes in financial position for
such period and the related balance sheet as at the end of such period,
together with the notes thereto, all audited by a certified public
accountant and in reasonable detail and setting forth in comparative form
the corresponding figures for the corresponding period in the preceding
Fiscal Year, and prepared in accordance with generally accepted accounting
principles.
CONSOLIDATED NET WORTH. At any time, the sum of the
following for Lessee and its
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consolidated subsidiaries, on a consolidated basis determined in accordance
with generally accepted accounting principles:
(1) the amount of capital or stated capital
(after deducting the cost of any shares held in its treasury), plus
(2) the amount of capital surplus and retained
earnings (or, in the case of a capital or retained earnings deficit, minus
the amount of such deficit), minus
(3) the sum of the following (without
duplication of deductions in respect of items already deducted in arriving
at surplus and retained earnings): (a) unamortized debt discount and
expense; and (b) any write-up in the book value of assets resulting from a
revaluation thereof subsequent to the most recent Consolidated Financials
prior to the date thereof, except (i) any net write-up in value of foreign
currency in accordance with generally accepted accounting principles; and
(ii) any write-up resulting from a reversal of a reserve for bad debts or
depreciation and any write-up resulting from a change in methods of
accounting for inventory.
ENCUMBRANCE. As defined in Article XXXII.
EVENT OF DEFAULT. As defined in Article XVI.
EXTENDED TERM. As defined in Article XVIII.
FACILITY. That certain assisted living facility which is
part of the Leased Property as defined in Article I, above, inclusive of
the Land, Leased Improvements, Fixtures, Personal Property and Intangible
Property pertaining to such Facility.
FACILITY MORTGAGE. As defined in Article XIII.
FACILITY MORTGAGEE. As defined in Article XIII.
FISCAL YEAR. The twelve (12) month period from January 1
through the following December 31.
FIXTURES. As defined in Article I.
IMPOSITIONS. Collectively, all taxes (including, without
limitation, all ad valorem, sales and use, single business, gross receipts,
transaction, privilege, rent taxes, bed taxes or fees or any other taxes as
the same relate to or are imposed upon Lessee or Lessor or the business
conducted upon the Leased Property), assessments (including, without
limitation, all assessments for public improvements or benefits, whether or
not commenced or completed prior to the date hereof and whether or not to
be completed within the Term), ground rents, water, sewer or other rents
and charges, excises, tax levies, fees (including, without limitation,
license, permit, inspection,
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<PAGE>
authorization and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property, Lessor, or
the business conducted thereon by Lessee (including all interest and
penalties thereon due to any failure in payment by Lessee), and all increases
in all the above from any cause whatsoever, including reassessment, which at
any time prior to, during or in respect of the Term may be assessed or
imposed on or in respect of or be a lien upon (a) Lessor's interest in the
Leased Property or any part thereof; (b) the Leased Property or any part
thereof, including without limitation any Personal Property located thereon
or used in connection therewith, or any rent therefrom or any estate, right,
title or interest therein; or (c) any occupancy, operation, use or possession
of, or sales from, or activity conducted on, or in connection with the Leased
Property or the leasing or use of the Leased Property or any part thereof by
Lessee. Without limiting the foregoing, the term "Imposition" shall include
any sales tax on rents paid under this Lease or by residents of the Facility
(including, but not limited to, rental receipts taxes), bed taxes,
depreciation recapture, any other taxes (except for the specific exclusions
stated below), fees or charges imposed by the Commonwealth of Pennsylvania
and any potential subdivision thereof relating to the Facility or the Leased
Property, this Lease, or rents received under this Lease, whether relating to
any period prior to or after the Commencement Date. Provided, however,
nothing contained in this Lease shall be construed to require Lessee to pay
(1) the following taxes and fees to the extent they relate to Lessor's
business generally (as opposed to relating specifically to Lessor's ownership
of the Facility, lease thereof to Lessee or income therefrom): any federal,
state or local income tax of Lessor, taxes based on outstanding corporate
shares of Lessor or Lessor's equity or capitalization, regardless of whether
denominated as an income tax, franchise tax, capital tax or otherwise; (2)
any income or capital gain tax imposed with respect to the sale, exchange or
other disposition by Lessor of any Leased Property or the proceeds thereof;
or (3) estate, inheritance, gift taxes or documentary transfer taxes.
INSURANCE REQUIREMENTS. All terms of any insurance
policy required by this Lease and all requirements of the issuer of any
such policy.
LAND. As defined in Article I.
LEASE. As defined in the Preamble.
LEASE YEAR. Any twelve (12) month period from May 1 to
each following April 30 during the Term. In the case of the beginning of
the Initial Term, the provision "Lease Year" shall mean the period from the
Commencement Date (defined in Paragraph 1.2, above) to April 30, 1999; in
the case of the end of the Term, the provision "Lease Year" shall mean the
period from the last May 1 to occur during the Term to the date of
expiration of the Lease.
LEASED IMPROVEMENTS; LEASED PROPERTY. Each as defined in
Article I.
LEGAL REQUIREMENTS. All federal, state, county,
municipal, and other governmental statutes, laws, rules, orders,
regulations, ordinances, judgments, decrees, and injunctions affecting
either the Leased Property or the construction, use or alteration thereof
whether now or hereafter
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<PAGE>
enacted and in force, including any which may (i) require repairs,
modifications or alterations in or to the Leased Property; or (ii) in any way
adversely affect the use and enjoyment thereof, and all permits, licenses and
authorizations and regulations thereto, and all covenants, agreements,
restrictions, and encumbrances contained in any instruments, either of record
or known to Lessee, at any time in force affecting the Leased Property.
LESSEE. Karrington Operating Company, Inc. an Ohio
corporation (and any assignee permitted subject to the terms and conditions
in this Lease).
LESSEE'S PERSONAL PROPERTY. All machinery, equipment,
furniture, furnishings, movable walls or partitions, computers, or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Lessee and used or useful in Lessee's business on the Leased
Property and located thereon, including without limitation, all items of
furniture, furnishings, equipment, supplies and inventory, except items (i)
included within the definition of Fixtures; and (ii) personal property
described in Paragraph 1.1(v), above.
LESSOR. Missouri River Corporation, a Delaware
corporation, and its successors and assigns.
MINIMUM RENT. As defined in Article III.
NOTICE. A notice given pursuant to Article XXXI hereof.
OFFICER'S CERTIFICATE. A certificate of Lessee signed by
(i) the Chief Executive Officer or the President or any authorized Vice
President; AND (ii) the secretary, or another officer authorized by
appropriate resolution to so sign by the Board of Directors. Any signature
required above may be substituted with a signature of another person whose
power and authority to act has been authorized by an appropriate corporate
resolution.
OTHER LEASES. As defined in Paragraph 1.3.2.
OVERDUE RATE. On any date, a rate equal to the Prime
Rate (defined below), plus two percent (2%); provided, however, that it is
the intent of Lessor and Lessee that the Overdue Rate (and all other
interest rates provided for hereunder) be in strict compliance with
applicable usury laws of the Commonwealth of Pennsylvania, and that in the
event the Overdue Rate (or other interest rate provided for hereunder)
shall be deemed to exceed that permitted to be charged by the laws of the
Commonwealth of Pennsylvania, any and all excess sums collected by Lessor
shall be credited against the Rent payable under this Lease or if there is
no Rent due, promptly refunded to Lessee.
PAYMENT DATE. Any due date for the payment of the
installments of Minimum Rent or any other payments required under this
Lease.
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PRIMARY INTENDED USE. As defined in Paragraph 7.2.2.
PRIME RATE. On any date, a rate equal to the annual rate
on such date as may be published by The Wall Street Journal as the prime
rate in its listing of "Money Rates."
PURCHASE AGREEMENT. That certain Agreement of Purchase
and Sale and Joint Escrow Instructions, dated as of May 12, 1998, by and
between Lessee as the "Seller" and Lessor (via assignment from LTC-Ohio,
Inc., doing business in Ohio as LTC Properties-Ohio, Inc.), as the "Buyer,"
providing for Lessor's acquisition of the Leased Property at the Purchase
Price and as more fully described therein.
PURCHASE PRICE. Lessor's Purchase Price for the Leased
Property pursuant to (and as defined in) the Purchase Agreement.
RELATED LEASES. Those certain leases between Lessor, as
"Lessor", and Lessee, as "Lessee," enumerated on Exhibit "B", attached
hereto.
RENT. Any and all monetary obligations of Lessee owing
under this Lease.
SUBSIDIARIES. Corporations, of which either Lessee or
Lessor owns, directly or indirectly, more than 50% of the voting stock
(individually, a "Subsidiary").
TERM. Collectively, the Initial Term plus any Extended
Terms, as the context may require, unless earlier terminated pursuant to
the provisions hereof.
UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state of
condition of the Facility such that by reason of damage or destruction, or
a partial taking by Condemnation, in the good faith judgment of Lessor and
Lessee, reasonably exercised, the Facility cannot be operated on a
commercially practicable basis for its Primary Intended Use taking into
account, among other relevant factors, the number of usable units affected
by such damage or destruction or partial Condemnation.
UNAVOIDABLE DELAYS. Delays due to strikes, lock-outs,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or
other causes beyond the control of the party responsible for performing an
obligation hereunder; provided that lack of funds shall not be deemed a
cause beyond the control of either party hereto unless such lack of funds
available to Lessor results from Lessee's failure to perform any of its
obligations under this Lease.
The above does not include all the definitions to be used
in this Lease. Various definitions of other terms are included in the
other Articles of this Lease.
ARTICLE III
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3.1 RENT.
3.1.1 MINIMUM RENT. Lessee will pay to
Lessor in lawful money of the United States of America which shall be legal
tender for the payment of public and private debts at Lessor's address set
forth hereinbelow or at such other place or to such other person, firms or
corporations as Lessor from time-to-time may designate in a Notice, a rent
(the "Minimum Rent"), during the Term, as follows:
(a) INITIAL TERM. The initial
annual Minimum Rent for the first Lease Year of the Initial Term shall be
an amount equal to Seven Hundred Seventy Thousand Two Hundred Nineteen and
75/100 Dollars ($770,219.75). The Minimum Rent shall be subject to
increase as and when provided below in this Article III. The Minimum Rent,
as the same may be increased hereunder, shall be paid in advance in equal,
consecutive monthly installments on the first day of each calendar month of
the Term without demand, abatement, setoff or notice. Minimum Rent shall
be prorated for any partial month or year at the beginning or end of the
Term; and
(b) EXTENDED TERMS. The Minimum
Rent during the Extended Terms shall be as stated in Article XVIII, below.
3.1.2 ADJUSTMENT TO RENT. Commencing on May
1, 1999 ("Rent Adjustment Date") and continuing thereafter on each
subsequent anniversary of the Rent Adjustment Date during the Initial Term
and each Extended Term, the Minimum Rent shall be increased (but never
decreased) in an amount equal to the annual Minimum Rent payable under this
Lease for the immediately preceding twelve (12) month period increased by
one hundred fifty percent (150%) of the cumulative increase in the Consumer
Price Index, published as the "CPI-U" Index by the Bureau of Labor
Statistics of the Department of Labor, U.S. Cities Average, All Items
(1982-84'100) in the manner calculated on the date of this Lease ("C.P.I.")
from the date two (2) months prior to the immediately preceding Rent
Adjustment Date (or in the case of the initial Rent Adjustment Date, the
C.P.I. from March 1998) to the date two (2) months prior to then current
Rent Adjustment Date. Notwithstanding the foregoing, in no event shall any
INCREASE TO Minimum Rent in any Lease Year exceed two percent (2.0%) of the
Minimum Rent (as adjusted) payable for the immediately preceding twelve
(12) month period (or in the case of the initial Rent Adjustment Date, the
increase, if any, to Minimum Rent in the first Lease Year shall not exceed
$15,404.40). In no event shall the Minimum Rent be reduced by reason of
the adjustment to Minimum Rent set forth in this Paragraph 3.1.2. If the
CPI Index is no longer published, or if the format or components of the CPI
Index are materially changed after the Commencement Date, Lessor in its
reasonable judgment shall substitute an index which is published by the
Bureau of Labor Statistics or similar agency and which is most nearly
equivalent to the Index in effect on the Commencement Date.
3.2 ADDITIONAL CHARGES. In addition to the Minimum
Rent, (1) Lessee will also pay and discharge as and when due and payable
all other amounts, liabilities, obligations and
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Impositions which Lessee assumes, is obligated or agrees to pay under this
Lease, and (2) in the event of any failure on the part of Lessee to pay any
of those items referred to in clause (1) above, Lessee will also promptly pay
and discharge every fine, penalty, interest and cost which may be added for
non-payment or late payment of such items (the items referred to in clauses
(1) and (2) above being referred to herein collectively as the "Additional
Charges"), and Lessor shall have all legal, equitable and contractual rights,
powers and remedies provided either in this Lease or by statute or otherwise
in the case of non-payment of the Additional Charges. If any elements of
Additional Charges shall not be paid within five (5) Business Days after its
due date and Lessor pays any such amount (which Lessor shall have the right,
but not the obligation, to do), then, in addition to Lessor's other rights
and remedies, Lessee will pay Lessor on demand, as Additional Charges,
interest on such unpaid Additional Charges computed at the Overdue Rate from
the date that Lessor pays such amount to the date that Lessor receives
reimbursement from Lessee. To the extent that Lessee pays any Additional
Charges to Lessor pursuant to any requirement of this Lease, Lessee shall be
relieved of its obligation to pay such Additional Charges to the entity to
which they would otherwise be due.
3.3 NET LEASE. Subject to the provisions of Article
V, below, without limiting any provision of this Lease, the Rent shall be
paid absolutely net to Lessor, so that this Lease shall yield to Lessor the
full amount of the installments of Minimum Rent and Additional Charges
throughout the Term, all as more fully set forth in Articles III, IV, VIII,
IX and XIII, and other provisions of this Lease.
3.4 LATE CHARGE. LESSEE HEREBY ACKNOWLEDGES THAT
LATE PAYMENT BY LESSEE TO LESSOR OF RENT (INCLUDING MINIMUM RENT AND
ADDITIONAL CHARGES, BUT EXCLUDING LATE CHARGES) OR OTHER SUMS DUE HEREUNDER
WILL CAUSE LESSOR TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, THE EXACT
AMOUNT OF WHICH WILL BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS
INCLUDE, BUT ARE NOT LIMITED TO, PROCESSING AND ACCOUNTING CHARGES.
ACCORDINGLY, IF ANY INSTALLMENT OF RENT (INCLUDING MINIMUM RENT AND
ADDITIONAL CHARGES, BUT EXCLUDING LATE CHARGES) OR ANY OTHER SUM DUE FROM
LESSEE SHALL NOT BE RECEIVED BY LESSOR WHEN THE SAME BECOMES DUE AND
PAYABLE AND SUCH FAILURE IS NOT CURED WITHIN FIVE (5) BUSINESS DAYS AFTER
NOTICE THEREOF FROM LESSOR, THEN LESSEE SHALL PAY TO LESSOR A LATE CHARGE
EQUAL TO FIVE PERCENT (5%) OF SUCH OVERDUE AMOUNT. THE PARTIES HEREBY
AGREE THAT SUCH LATE CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF
THE COSTS LESSOR WILL INCUR BY REASON OF LATE PAYMENT BY LESSEE.
ACCEPTANCE OF SUCH LATE CHARGE BY LESSOR SHALL IN NO EVENT CONSTITUTE A
WAIVER OF LESSEE'S DEFAULT OR BREACH WITH RESPECT TO SUCH OVERDUE AMOUNT,
NOR PREVENT LESSOR FROM EXERCISING ANY OF THE OTHER RIGHTS AND REMEDIES
GRANTED UNDER THIS LEASE.
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ARTICLE IV
4.1 PAYMENT OF IMPOSITIONS. Subject to Article XII
relating to permitted contests, Lessee will pay, or cause to be paid, all
Impositions coming due prior to or during the Term, or which relate to any
period within the Term or prior to the Term, before any fine, penalty,
interest or cost may be added for non-payment (or earlier if required by
any taxing authority), such payments to be made directly to the taxing
authorities where feasible, and upon written request will promptly furnish
to Lessor copies of official receipts or other satisfactory proof
evidencing such payments. Lessee's obligation to pay Impositions shall be
deemed absolutely fixed upon the date such Impositions become a lien upon
the Leased Property or any part thereof. If any Imposition may, at the
option of the taxpayer, lawfully (without penalty) be paid in installments
(whether or not interest shall accrue on the unpaid balance of such
Imposition), Lessee may exercise the option to pay the same (and any
accrued interest on the unpaid balance of such Imposition) in installments
and in such event, shall pay such installments during the Term hereof
(subject to Lessee's right of contest pursuant to the provisions of Article
XII) as the same respectively become due and before any fine, penalty,
premium, further interest or cost may be added thereto. Lessee, at its
expense, shall, to the extent required or permitted by Legal Requirements,
prepare and file all tax returns and reports in respect of any Imposition
as may be required by governmental authorities. If any refund shall be due
from any taxing authority in respect of any Imposition, the same shall be
paid over to or retained by Lessee if no Event of Default shall have
occurred hereunder and be continuing, but if such Event of Default has
occurred and is continuing (I.E., it has not been cured), such refund shall
be paid to Lessor and utilized to cure any such continuing Event of
Default. After fully curing such Event of Default, any excess funds from
such refund shall be paid by Lessor to Lessee. Any such funds retained by
Lessor, as provided above, shall be applied as provided in Article XVI.
Lessor and Lessee shall, upon request of the other, provide such data as is
maintained by the party to whom the request is made with respect to the
Leased Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any property
covered by this Lease as personal property, Lessee shall file all personal
property tax returns in such jurisdictions where it must legally so file.
Lessor, to the extent it possesses the same, and Lessee, to the extent it
possesses the same, will provide the other party, upon request, with cost
and depreciation records necessary for filing returns for any property so
classified as personal property. Where Lessor is legally required to file
personal property tax returns, Lessee will provide to Lessor copies of
assessment notices indicating a value in excess of the reported value in
sufficient time for Lessor to file a protest. Lessee may, upon notice to
Lessor, at Lessee's option and at Lessee's sole cost and expense, protest,
appeal or institute such proceedings as Lessee may deem appropriate to
effect a reduction of real estate or personal property assessments and
Lessor, at Lessee's sole cost and expense as aforesaid, shall fully
cooperate with Lessee in such protest, appeal, or other action, provided
that Lessee may not withhold payments pending such challenges except under
the conditions set forth in Article XII. Billings for reimbursement by
Lessee to Lessor of personal property taxes shall be accompanied by copies
of a bill therefor and payments thereof which identify the personal
property with respect to which such payments are made. Lessor shall have
the right, once any Event of Default has occurred hereunder (and
irrespective of whether such Event of Default is continuing or has been
cured), to require that Lessee pay to Lessor 1/12th of the annual
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Impositions each month concurrently with the payment of Minimum Rent;
provided that, during any period when such payments are being made, Lessor
agrees (a) to pay, or cause to be paid, all such Impositions prior to
delinquency, and (b) upon written request from Lessee, to account to Lessee
for all payments then on deposit. Unless Lessee is notified by Lessor
otherwise, Lessee shall pay all "Impositions" directly to the appropriate
taxing or other authorities to which payments are due, and upon written
request Lessee shall provide Lessor written evidence and notice that all
such payments have been made. Without limiting any of the other
indemnities set forth in this Lease, Lessee hereby agrees to defend,
indemnify, protect and hold harmless Lessor in connection with any
"Impositions" that relate to any time prior to or during the Term, and
Lessee acknowledges and agrees that it will not make claims against, or
otherwise look to, Lessor to reimburse Lessee for payments made relating to
any period prior to the Commencement Date.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt
Notice to Lessee for all Impositions payable by Lessee hereunder of which
Lessor has knowledge, but Lessor's failure to give any such Notice shall in
no way diminish Lessee's obligations hereunder to pay such Impositions, but
such failure shall obviate any default hereunder for a reasonable time
after Lessee receives notice (from any source) of any Imposition which it
is obligated to pay. However, notwithstanding the foregoing, it shall be
Lessee's sole duty to inquire and determine all of the Impositions for
which it is liable as provided herein and shall promptly pay such
Impositions when due, and Lessor shall have no duty of inquiry concerning
Impositions.
4.3 UTILITY CHARGES. Lessee will pay or cause to be
paid all charges for electricity, power, gas, oil, water, sewer connection
and all other utilities used in or for the Leased Property during the Term.
4.4 INSURANCE PREMIUMS. Lessee will pay or cause to
be paid all premiums for the insurance coverage required to be maintained
pursuant to Article XIII during the Term.
4.5 PAYABLES. Lessee acknowledges and agrees that
prior to the Rent Commencement Date, certain liabilities and other
obligations were incurred arising from the development, construction and
operation of the Facility for which Lessee is and shall remain entirely
responsible and liable, and Lessor shall have no responsibility, liability
or obligation whatsoever with respect to the same. Therefore, Lessee
agrees as part of this Lease to pay all liabilities and obligations
concerning the Facility, whether arising before or after the Rent
Commencement Date.
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ARTICLE V
5.1 NO TERMINATION, ABATEMENT, ETC. Except as
specifically provided under Article XV hereunder, Lessee shall not be
entitled to any abatement, deduction, deferment or reduction of Rent, or
set-off against the Rent, nor shall the respective obligations of Lessor
and Lessee be otherwise affected by reasons of (a) any damage to, or
destruction of, any Leased Property or any portion thereof; (b) the lawful
or unlawful prohibition of, or restriction upon, Lessee's use of the Leased
Property, or any portion thereof, the interference with such use by any
person, corporation, partnership or other entity, or by reason of eviction
by paramount title; (c) any claim which Lessee has or might have against
Lessor or by reason of any default or breach of any warranty by Lessor
under this Lease or any other agreement between Lessor and Lessee, or to
which Lessor and Lessee are parties; (d) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution,
winding-up or other proceedings affecting Lessor or any assignee or
transferee of Lessor; or (e) for any other cause whether similar or
dissimilar to any of the foregoing other than a discharge of Lessee from
any such obligations as a matter of law. Lessee hereby specifically waives
all rights, arising from any occurrence whatsoever, which may now or
hereafter be conferred upon it by law to (i) modify, surrender or terminate
this Lease or quit or surrender the Leased Property or any portion thereof;
or (ii) entitle Lessee to any abatement, reduction, suspension or deferment
of the Rent payable under this Lease except as specifically provided in
Article XV hereunder. The obligations of Lessor and Lessee hereunder shall
be separate and independent covenants and agreements and the Rent due under
this Lease shall continue to be payable in all events, irrespective of
Lessor's performance or non-performance under this Lease, unless the
obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by
reason of an Event of Default.
5.2 ABATEMENT PROCEDURES. In the event Lessee is
entitled to an abatement of Minimum Rent under Paragraph 15.3 (by reason of
a total Condemnation of the Facility), the Minimum Rent shall be abated as
provided in Paragraph 15.3. In the event Lessee is entitled to an
abatement of Minimum Rent under Paragraph 15.5 (by reason of any partial
Condemnation of the Facility as provided hereunder), the Lease shall not
terminate but the Minimum Rent shall be abated in proportion to the reduced
capacity of the Leased Property for the use made of the same by Lessee at
the time of the Condemnation (I.E., the reduction in the number of
residents the Leased Property can accommodate under standards existing
immediately prior to the Condemnation). If Lessor and Lessee are unable to
agree upon the amount of such abatement within thirty (30) days after any
partial taking as provided under Article XV, the matter shall be submitted
by either party to a court of competent jurisdiction for resolution, but
Lessee during such resolution shall continue to perform its obligations
hereunder, including, but not limited to, payment of that portion of the
Minimum Rent which is not then in dispute.
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ARTICLE VI
6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee
acknowledges and agrees that the Leased Property is the property of Lessor
and that Lessee has only the right to the exclusive possession and use of
the Leased Property upon the terms and conditions of this Lease.
6.2 LESSEE'S ALTERATIONS. Lessee shall not make any
modifications, alterations or improvements, whether by addition or
deletion, to the Leased Improvements or any portion thereof (collectively,
"Alterations") without Lessor's prior written consent; provided, however
that Lessee may, at its sole cost and expense, make non-structural
Alterations to the interior of the Leased Improvements so long as the total
cost thereof is less than One Hundred Fifty Thousand and 00/100 Dollars
($150,000) during any Lease Year unless approved in advance in writing by
Lessor. Any Alterations by Lessee during the Term of this Lease shall be
done in a good and workmanlike manner, with good and sufficient materials,
and in compliance with law, and shall be made pursuant to contracts under
which the contractor and all subcontractors shall have waived the right to
file any such liens and evidence of thereof shall have been filed with the
office of the prothonotary for the County of Erie, indexed in accordance
with applicable law and a copy thereof delivered to the Lessor. Lessee
will not make any Alteration or other improvement that may materially
impair the value or the usefulness of the Leased Property or any part
thereof for its Primary Intended Use. Subject to the provisions of Article
XI, all Alterations and other improvements shall be lien free (I.E.,
without mechanics', materialmen's or other liens). Lessee shall promptly
upon completion thereof furnish Lessor with as-built plans and
specifications therefor. Lessee shall, at its sole cost and expense,
repair and restore the Leased Property as and when required under Paragraph
9.1.
6.3 LESSEE'S PERSONAL PROPERTY. Lessee may (and
shall as provided hereinbelow), at its expense, install, assemble or place
on any parcels of the Land or in any of the Leased Improvements, any items
of Lessee's Personal Property, and Lessee may, subject to the conditions
set forth below, remove the same upon the expiration or any prior
termination of the Term. Lessee shall provide and maintain during the
entire Term all such Lessee's Personal Property as shall be necessary in
order to operate the Facility in compliance with all licensure and
certification requirements, in compliance with all applicable Legal
Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use. All of
Lessee's Personal Property not removed by Lessee within twenty (20) days
following the expiration or earlier termination of this Lease shall be
considered abandoned by Lessee and may be used, appropriated, sold,
destroyed, or otherwise disposed of by Lessor without first giving notice
thereof to Lessee and without any payment to Lessee and without any
obligation to account therefor. Lessee shall, within twenty (20) days
following the expiration or earlier termination of this Lease, at its sole
cost and expense, repair any damage to the Land or the Leased Improvements
occasioned by the installation, maintenance or removal of Lessee's Personal
Property, and restore the Land or Leased Improvements to its condition
immediately prior to any such installation.
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6.4 CONSUMABLE INVENTORY. Lessor and Lessee
acknowledge that certain inventory, including consumables, at the Facility,
as of the Commencement Date ("Consumable Inventory") will be completely
consumed or otherwise disposed of during the course of Lessee's operation of
the Facility. Lessee agrees that, at the end of the Term or earlier
termination of the Lease, it shall replace and restore the Consumable
Inventory to the type and amount (with the same value) as that existing as of
the Commencement Date, and as may otherwise be sufficient to fully equip the
Facility for its operation and maintenance as may be customary for properties
comparable to the Leased Property in the Commonwealth of Pennsylvania.
ARTICLE VII
7.1 CONDITION OF LEASED PROPERTY. Lessee
acknowledges receipt and delivery of possession of the Leased Property and
further acknowledges that Lessee has examined and otherwise has knowledge
of the condition of the Leased Property prior to the execution and delivery
of this Lease and has found the same to be in good order and repair and
satisfactory for it purposes hereunder. Lessee represents and warrants
that the Personal Property (as defined in Paragraph 1.1(v) hereof) includes
all equipment and property required under applicable federal and state law
to operate the Facility at full capacity. Lessee is leasing the Leased
Property "AS-IS" in its present condition. Lessee waives any claim or
action against Lessor in respect of the condition of the Leased Property.
LESSOR MAKES NO WARRANTY OR REPRESENTATIONS, EXPRESS OR IMPLIED, IN RESPECT
OF THE LEASED PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR
USE, DESIGN OR CONDITION FOR THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR
PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY LESSEE.
LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN INSPECTED BY LESSEE
AND IS SATISFACTORY TO IT. WITHOUT LIMITING THE FOREGOING, IT SHALL BE
LESSEE'S RESPONSIBILITY TO DETERMINE THE AMOUNT OF REIMBURSEMENT AND OTHER
PAYMENTS THAT IT IS ENTITLED TO RECEIVE FROM THE FEDERAL, STATE OR LOCAL
GOVERNMENTS AND LESSEE'S OBLIGATIONS UNDER THIS LEASE SHALL NOT BE
MODIFIED, CHANGED OR OTHERWISE BE REDUCED IN THE EVENT THAT LESSEE HAS
INCORRECTLY ANALYZED THE AMOUNTS TO BE PAID TO LESSEE BY ANY GOVERNMENT OR
AGENCY THEREOF.
7.2 USE OF THE LEASED PROPERTY.
7.2.1 Lessee covenants that it will obtain
and will at all times during the Term maintain all approvals needed to use
and operate the Leased Property and the Facility under applicable federal,
state and local law, including, but not limited to, licensure and Medicaid
certification, if and as applicable. Lessee shall provide to Lessor, at
Lessor's request a copy of any report or survey conducted by any federal,
state or local government entity regarding the quality of care at the
Facility, and any other such information or documents concerning the
operation of the Facility.
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7.2.2 After the Commencement Date and during
the entire Term, Lessee shall use or cause to be used the Leased Property
as an assisted living facility licensed (if applicable) by the Commonwealth
of Pennsylvania and uses incidental to the foregoing, including without
limitation home health services provided in accordance with and as
contemplated under Paragraph 22, below (the particular such use to which
the Leased Property is put at any particular time is herein referred to as
the "Primary Intended Use"). Lessee shall not use the Leased Property or
any portion thereof for any other use without the prior written consent of
Lessor, which consent may be withheld in Lessor's sole and absolute
discretion. No use shall be made of the Leased Property, and no acts shall
be done, which will cause the cancellation of any insurance policy to
residents therein, or permit to be kept, used or sold in or about the
Leased Property any article which may be prohibited by law or by the
standard form of fire insurance policies, or any other insurance policies
required to be carried hereunder, or fire underwriter's regulations.
Lessee shall, at its sole cost, comply with all of the requirements
pertaining to the Leased Property or other improvements of any insurance
board, association, organization, or company necessary for the maintenance
of insurance, as herein provided, covering the Leased Property and Lessee's
Personal Property.
7.2.3 Lessee covenants and agrees that
subject to damage, destruction and condemnation described in Articles XIV
and XV, during the Term it will operate continuously the entirety of the
Leased Property in accordance with its Primary Intended Use, provided that
Lessee may cease operations for more than ten (10) days (i) if Lessee
obtains Lessor's prior written approval, and (ii) so long as such cessation
of operations does not impair or threaten the status or effectiveness of
the operating license or other certification for operating the Facility in
accordance with its Primary Intended Use.
7.2.4 Lessee shall not commit or suffer to be
committed any waste on the Leased Property, or in the Facility nor shall
Lessee cause or permit any nuisance thereon.
7.2.5 Lessee shall neither suffer nor permit
the Leased Property or any portion thereof, including Lessee's Personal
Property, to be used in such a manner as (i) might reasonably tend to
impair Lessor's (or Lessee's, as the case may be) title thereto or to any
portion thereof; or (ii) may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of implied
dedication of the Leased Property or any portion thereof.
7.2.6 Lessee covenants and agrees that during
the Term it will maintain all licenses, approvals, permits and
certifications for reimbursement, licensure and as otherwise required for
operating the Facility in accordance with its Primary Intended Use.
7.3 PRESERVATION OF GROSS REVENUES. Lessee
acknowledges that a fair return to Lessor on its investment in the Leased
Property is dependent, in part, on the concentration of the Leased Property
during the Term of the assisted living business of Lessee and its
Affiliates in the
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geographical area of the Leased Property. Lessee further acknowledges that
diversion of residents and/or patients, as applicable, from the Facility to
other facilities or institutions owned, operated or managed, whether directly
or indirectly, by Lessee or its Affiliates will have a material adverse
impact on the value and utility of the Leased Property. Accordingly, Lessor
and Lessee agree as follows:
7.3.1 During the Term neither Lessee nor any
of its Affiliates, directly or indirectly, shall operate, own, manage or
have any interest in or otherwise participate in or receive revenues from
any other facility or institution providing services or similar goods to
those provided in connection with the Facility and the Primary Intended
Use, within a four (4) mile radius outward from the outside boundary of the
Facility. All distances shall be measured on a straight line rather than
on a driving distance basis. In the event that any portion of such other
facility or institution is located within such restricted area, the entire
facility or institution shall be deemed located within such restricted
area.
7.3.2 During the Term, Lessee shall not
recommend or solicit the removal or transfer of any resident or patient
from any Facility to other facility or institution; provided however that
the provisions of this Paragraph 7.3.2 shall not apply to removals or
transfers required for medically appropriate reasons, or required during
the period of reconstruction or restoration, if any, permitted after any
casualty event pursuant to Article XIV below or after any Condemnation
pursuant to Article XV below.
ARTICLE VIII
8.1 COMPLIANCE WITH LEGAL AND INSURANCE
REQUIREMENTS, INSTRUMENTS, ETC. Subject to Article XII relating to
permitted contests, Lessee, at its sole cost and expense, will promptly (a)
comply with all applicable Legal Requirements and Insurance Requirements in
respect of the use, operation, maintenance, repair, and restoration of the
Leased Property, whether or not compliance therewith shall require
structural changes in any of the Leased Improvements or interfere with the
use and enjoyment of the Leased Property; and (b) procure, maintain and
comply with all licenses, certificates of need, provider agreements and
other authorizations, if any, required for any use of the Leased Property
and Lessee's Personal Property then being made, and for the proper
erection, installation, operation, and maintenance of the Leased Property
or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Lessee covenants
and agrees that the Leased Property and Lessee's Personal Property shall
not be used for any unlawful purpose. Lessee further warrants and
represents that Lessee has obtained all necessary governmental approvals
and has given all necessary notices to allow Lessee to operate the Facility
and all of the Leased Property for its Primary Intended Use. Lessee shall
acquire and maintain all licenses, certificates, permits, provider
agreements and other authorizations and approvals needed to operate the
Facility and the Leased Property in its customary manner for the Primary
Intended Use, and any other use conducted on the Leased Property as may be
permitted by Lessor from time-to-time hereunder. Lessee further covenants
and agrees that Lessee's use of the Leased Property and maintenance,
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alteration and operation of the same, and all parts thereof, shall at all
times conform to all applicable federal, state and local laws, ordinances,
rules, and regulations unless the same are held by a court of competent
jurisdiction to be unlawful. Lessee, may, however, upon prior written
notice to Lessor, contest the legality or applicability of any such law,
ordinance, rule, or regulation, or any licensure or certification decision
if Lessee maintains such action in good faith, with due diligence, without
prejudice to Lessor's rights hereunder, and at Lessee's own expense. If by
the terms of any such law, ordinance, rule or regulation, compliance
therewith pending the prosecution of any such proceeding may legally be
delayed without the incurrence of any fine, charge or liability of any kind
against the Leased Property, including the Facility, or Lessee's leasehold
interest therein and without subjecting Lessor to any liability, civil or
criminal, for failure so to comply therewith, Lessee may delay compliance
therewith until the final determination of such proceeding. If any lien,
charge or civil or criminal liability would be incurred by reason of any
such delay, Lessee, on the prior written consent of Lessor, may nonetheless
contest as aforesaid and delay as aforesaid provided that such delay would
not subject Lessor to criminal liability and Lessee both (a) furnishes to
Lessor security reasonably satisfactory to Lessor against any loss or
injury by reason of such contest or delay; and (b) prosecutes the contest
continuously, with due diligence and in good faith.
ARTICLE IX
9.1 MAINTENANCE AND REPAIR.
9.1.1 Lessee, at its sole cost and expense,
will keep the Leased Property and all portions thereof and Lessee's Personal
Property and all private roadways, sidewalks and curbs appurtenant thereto
and which are under Lessee's control in good order and repair (whether or not
the need for such repairs occurs as a result of Lessee's use, any prior use,
the elements or the age of the Leased Property, or any portion thereof), and,
except as otherwise provided in Article XIV, with reasonable promptness, make
all necessary and appropriate repairs thereto of every kind and nature,
whether interior or exterior, structural or non-structural, ordinary or
extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the Commencement Date (concealed or otherwise). All
repairs shall, to the extent reasonably achievable, be at least equivalent in
quality to the original work. Lessee will not take or omit to take any
action the taking or omission of which may materially impair the value or the
usefulness of the Leased Property or any part thereof for its Primary
Intended Use. Any repair work performed by Lessee shall be paid for so that
no lien (I.E., mechanics', materialmen's or other liens) shall attach to the
Leased Property, subject to Article XII.
9.1.2 Lessor shall not under any
circumstances be required to build or rebuild any improvements on the
Leased Property, or to make any repairs, replacements, alterations,
restorations, or renewals of any nature or description to the Leased
Property, whether ordinary or extraordinary, structural or non-structural,
foreseen or unforeseen, or to make any expenditure whatsoever with respect
thereto, in connection with this Lease, or to maintain the Leased Property
in any way. Lessee hereby waives, to the extent permitted by law, the
right to
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make repairs at the expense of Lessor pursuant to any law in effect at the
time of the execution of this Lease or hereafter enacted. Lessor shall have
the right to give, record and post, as appropriate, notices of
non-responsibility (or similar notices) under any mechanics' or materialmen's
lien laws now or hereafter existing.
9.1.3 Nothing contained in this Lease and no
action or inaction by Lessor shall be construed as (i) constituting the
consent or request of Lessor, express or implied, to any contractor,
sub-contractor, laborer, materialman, or vendor to or for the performance of
any labor or services or the furnishing of any materials or other property
for the construction, alteration, addition, repair, or demolition of, or to
the Leased Property or any part thereof; or (ii) giving Lessee any right,
power or permission to contract for or permit the performance of any labor or
services or the furnishing of any materials or other property in such fashion
as would permit the making of any claim against Lessor in respect thereof or
to make any agreement that may create, or in any way be the basis for any
right, title, interest, lien, claim, or other encumbrance upon the estate of
Lessor in the Leased Property, or any portion thereof. Lessor shall have the
right to give, record and post, as appropriate, notices of non-responsibility
(or similar notices) under any mechanics' or materialsmen's lien laws now or
hereafter existing.
9.1.4 Unless Lessor shall convey any of the
Leased Property to Lessee pursuant to the provisions of this Lease, and
subject to the provisions of Paragraph 6.3 regarding Lessee's Personal
Property, upon the expiration or prior termination of the Term, all the
Leased Property, including all Fixtures and Personal Property located
thereon, and any Alterations, repairs, restorations, additions or
improvements otherwise made by or for Lessee, shall be Lessor's property
and shall be vacated and surrendered to Lessor in the condition in which
the Leased Property was originally received from Lessor, and in the same
type and amount (with the same depreciated value) as that existing as of
the Commencement Date, except as repaired, rebuilt, restored, altered or
added to as permitted or required under this Lease, and as otherwise
sufficient to fully equip the Facility for its operation and maintenance as
may be customary for properties comparable to the Leased Property in the
County of Erie, Pennsylvania, and except for ordinary wear and tear
(subject to the obligation of Lessee to maintain the Leased Property) in
good order and repair without compensation to Lessee; provided however
that, at the election of Lessor, exercisable by notice to Lessee, Lessee
shall, at Lessee's sole cost and expense, prior to the expiration or prior
termination of the Term, remove from the Leased Property any Fixtures,
Personal Property, Alterations or other improvements to the Leased Property
or any portion thereof that were not consented to in advance in writing by
Lessor, irrespective of whether Lessor's consent was required hereunder,
and Lessee shall repair any damage to the Leased Property occasioned by the
installation, maintenance or removal of the same, and restore the Leased
Property to its condition immediately prior to such installation.
Notwithstanding the foregoing, if this Lease is terminated pursuant to
Paragraph 14.7 due to damage or destruction during the last 6 months of the
Term (as described in Paragraph 14.7), then, unless the daage or
destruction was due to Lessee's negligent acts or omissions or willful
misconduct, at the end of the Term (shortened due to the damage and
destruction) Lessee shall not be obligated to repair any items that were
damaged; provided that nothing contained herein shall affect Lessee's
obligation to maintain the Leased Property in good order and repair during
the entire
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Term. Additionally, Lessor shall own and may remove, at the end
of the Term (or at the earlier termination of this Lease), all patient
records and other records in connection with the Facility, and in
connection with the transfer of such records, Lessee shall take all
necessary action to insure full compliance with any and all patient
confidentiality, patient-physician privileges or any duly enacted
"Patient's Bill of Rights" or similar applicable laws or regulations.
9.2 EXPENDITURES TO COMPLY WITH LAW; CONSTRUCTION OF
ADDITIONAL IMPROVEMENTS PURSUANT TO CERTIFICATE OF NEED. Without limiting
Lessee's other obligations, during the Term of this Lease, Lessee will, at
its expense, make whatever expenditures (including, but not limited to
capital and non-capital expenditures) that are required to conform the
Leased Property to such standards as may from time-to-time be required by
Federal Medicaid (Title 19) assisted living programs, as and if applicable,
or any other applicable programs or legislation, or capital improvements
required by any other governmental agency having jurisdiction over the
Leased Property as a condition of the continued operation of the Leased
Property during the Term (as extended) as an assisted living residence or
other health-care related facility, approved for Medicaid and similar
programs as and if applicable, pursuant to present or future laws of
governmental regulation.
9.3 ENCROACHMENTS, RESTRICTIONS, ETC. If any of the
Leased Improvements shall, at any time, encroach upon any property, street
or right-of-way adjacent to the Leased Property, or shall violate the
agreements or conditions contained in any lawful restrictive covenant or
other agreement affecting the Leased Property, or any part thereof, or
shall impair the rights of others under any easement or right-of-way to
which the Leased Property is subject, then promptly upon the request of
Lessor at the behest of any person affected by any such encroachment,
violation or impairment, Lessee shall, at its sole cost and expense, (and
after Lessor's prior approval) subject to Lessee's right to sue Lessor's
predecessors in title with respect thereto or to contest the existence of
any such encroachment, violation or impairment and, in such case, in the
event of an adverse final determination, either (i) obtain valid and
effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether the
same shall affect Lessor or the Leased Property; or (ii) make such changes
in the Leased Improvements, and take such other actions, as Lessee in the
good faith exercise of its judgment deems reasonably practicable, to remove
such encroachment, and to end such violation or impairment, including, if
necessary, the alteration of any of the Leased Improvements, and in any
event take all such actions as may be necessary in order to be able to
continue the operation of the Leased Improvements for the Primary Intended
Use substantially in the manner and to the extent the Leased Improvements
were operated prior to the assertion of such violation, impairment or
encroachment. Any such alteration shall be made in conformity with the
applicable requirements of Paragraph 6.2 (provided that Lessor shall not
unreasonably withhold its consent) and this Article IX. Lessee's
obligations under this Paragraph 9.3 shall be in addition to and shall in
no way discharge or diminish any obligation of any insurer under any policy
of title or other insurance.
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ARTICLE X
10.1 LESSEE'S OBLIGATIONS FOR HAZARDOUS MATERIALS.
Lessee shall, at its sole cost and expense, take all actions as required
to cause the Leased Property including, but not limited to, the Land and
all Leased Improvements, to be free and clear of the presence of all
Hazardous Materials during the Term; provided, however, that Lessee shall
be entitled to use and maintain Hazardous Materials on the Leased Property
of types and in the quantities commonly used in assisted living facilities
in the Commonwealth of Pennsylvania and which have been used, stored and
disposed of in compliance with all applicable laws. In this connection,
Lessee shall, upon its discovery, belief or suspicion of the presence of
Hazardous Materials on, in or under any part of the Leased Property,
including, but not limited to, the Land and all Leased Improvements in
violation of the preceding sentence, immediately notify Lessor and, at no
expense to Lessor, cause any such Hazardous Materials to be removed
immediately, in compliance with all applicable laws and in a manner causing
the least disruption of or interference with the operation of Lessee's
business. Lessee hereby agrees to fully indemnify, protect, defend and
hold harmless Lessor from any costs, damages, claims, liability or loss of
any kind or nature arising out of or in any way in connection with the
presence, suspected presence, removal or remediation of Hazardous Materials
in, on, or about the Leased Property, or any part thereof. Lessee
acknowledges that it has received and reviewed a Phase I Environmental Site
Assessment dated August 1996, and related supplemental reports and letters
prepared by Urban Engineers of Erie, Inc. and a Subsurface Exploration and
Foundation Engineering Report dated August 23, 1996, prepared by
Geotechnical Consultants, Inc. for the Facility (collectively, the
"Environmental Reports"). Without limiting Lessee's other obligations
under this Lease, Lessee agrees, at Lessee's sole cost, to fully comply
with all recommendations set forth in the Environmental Reports or any
other environmental report. Lessee's obligations hereunder shall apply to
all Hazardous Materials, irrespective of when they arose or were discovered
and therefore will include any Hazardous Materials that existed prior to,
at, or after the Commencement Date and during the Term.
10.2 DEFINITION OF HAZARDOUS MATERIALS. For purposes
of this Lease, "Hazardous Materials" shall mean (1) any flammables, explosive
or radioactive materials, hazardous wastes, toxic substances or related
materials including, without limitation, substances defined as "hazardous
substances," "hazardous materials", "toxic substances" or "solid waste" in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Sec. 9601, ET SEQ.; the hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; the Toxic Substances
Control Act, 15 U.S.C., Section 2601 ET SEQ.; the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901 ET SEQ.; Occupational Safety and
Health Act, 29 U.S.C. Section 651, ET SEQ.; and in comparable Commonwealth of
Pennsylvania and local laws and ordinances, and the regulations now or
hereafter adopted, published and/or promulgated pursuant thereto; (2) those
substances listed in the United States Department of Transportation Table (49
C.F.R. 172.101 and amendments thereto) or by the Environmental Protection
Agency (or any successor agency) as hazardous substances (40 C.F.R. Part 302
and amendments thereto); (3) those substances defined as "hazardous wastes,"
"hazardous substances" or "toxic substances" in any similar federal, state or
local laws or in the regulations adopted and publications promulgated
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pursuant to any of the foregoing laws or which otherwise are regulated by any
governmental authority, agency, department, commission, board or
instrumentality of the United States of America, the Commonwealth of
Pennsylvania or any political subdivision thereof, (4) any pollutant or
contaminant or hazardous, dangerous or toxic chemicals, materials, or
substances within the meaning of any other applicable federal, state, or
local law, regulation, ordinance, or requirement (including consent decrees
and administrative orders) relating to or imposing liability or standards of
conduct concerning any hazardous, toxic or dangerous waste, substance or
material, all as amended; (5) petroleum or any by-products thereof; (6) any
radioactive material, including any source, special nuclear or by-product
material as defined at 42 U.S.C. Sections 2011 ET SEQ., as amended, and in
the regulations adopted and publications promulgated pursuant to said law;
(7) asbestos in any form or condition; and (8) polychlorinated biphenyls.
"Environmental Laws" means and includes any law, ordinance, statute, rule,
code, order, approval, regulation or requirement now or hereinafter in effect
relating to land use, air, soil, surface water, groundwater (including the
protection, cleanup, removal, remediation or damage thereof), human health
and safety or any other environmental matter, including, without limitation,
the following laws as the same may be amended from time to time:
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. Section 9601, ET SEQ.; Federal Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, ET SEQ.; Clean Water Act, 33 U.S.C.
Section 1251, ET SEQ.; Toxic Substances Control Act, 15 U.S.C. Section 2601,
ET SEQ.; Refuse Act, 33 U.S.C. Section 407; Occupational Safety and Health
Act, 29 U.S.C. Section 651, ET SEQ.; Clean Air Act, 42 U.S.C. Section 7401,
ET SEQ.; and comparable Pennsylvania laws; and any and all similar state and
local laws and ordinances and the regulations now or hereafter adopted,
published and/or promulgated pursuant thereto.
ARTICLE XI
11.1 NO LIENS. Subject to the provisions of Article
XII relating to permitted contests, Lessee will not directly or indirectly,
voluntarily or by operation of law, create or allow to remain and will
promptly discharge at its expense any lien, mortgage, encumbrance,
attachment, title retention agreement, or claim upon the Leased Property or
any portion thereof, or Lessee's interest under this Lease or any
attachment, levy, claim, or encumbrance in respect of the Rent, not
including however, (a) this Lease; (b) restrictions, liens and other
encumbrances created or allowed pursuant to the provisions of Paragraph
11.2 below; (c) liens for those taxes of Lessor which Lessee is not
required to pay hereunder; (d) subleases permitted by Article XXIII; (e)
liens for Impositions or for sums resulting from non-compliance with Legal
Requirements so long as (1) the same are not yet payable or are payable
without the addition of any fine or penalty, or (2) such liens are in the
process of being contested as permitted by Article XII; (f) liens of
mechanics, laborers, materialmen, suppliers or vendors for sums either
disputed or not yet due, provided that in the case of disputed sums any
such liens are in the process of being contested as permitted by Article
XII; (g) any liens which are the responsibility of Lessor pursuant to the
provisions of Article XXXIII of this Lease; (h) the Permitted Title Matters
(defined in Paragraph 1.1 above); and (i) any other matters that have been
consented to in advance in writing by Lessor.
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11.2 PERMITTED LIENS. Lessee may borrow funds to
finance all or any part of the cost of any Alterations or other
improvements permitted or required under this Lease to the extent and upon
such terms and conditions as may be approved in advance in writing by
Lessor in Lessor's sole discretion, subject to Lessor's right of first
refusal to finance such Alterations or other improvements upon commercially
reasonable terms and conditions; provided, however, that Lessor's approval
shall not be required for any borrowing of funds that does not result in a
lien, mortgage, encumbrance or other claim affecting the Leased Property or
Lessee's interest under this Lease. Notwithstanding the foregoing, Lessee
may grant security interests encumbering specific items of Lessee's
Personal Property (but not fixtures attached to the Land) in favor of the
lessors of or purchase-money lenders for said items of Lessee's Personal
Property, so long as such personal property is permitted on the Land or in
the Leased Improvements under Paragraph 6.3 hereunder and is not owned by
or subject to any claim or right of Lessor.
ARTICLE XII
12. PERMITTED CONTESTS. Lessee shall have the right to
contest the amount or validity of any Imposition or any Legal Requirement
or Insurance Requirement or any lien, attachment, levy, encumbrance, charge
or claim ("Claims") not otherwise permitted by Article XI, by appropriate
legal proceedings in good faith and with due diligence, and to delay
payment if legally permitted. Any such legal proceeding (and delay in
payment) shall operate to extend the time for performance of Lessee's
covenants to pay such charges hereunder only so long as such Claims are in
the process of being diligently contested as permitted in this Article XII
and such legal proceedings (and delay in payment) do not cause the sale of
the Leased Property, or any part thereof, to satisfy the same or cause
Lessor or Lessee to be in default under any mortgage or deed of trust
encumbering the Leased Property or any interest therein; provided that such
legal proceedings (and delay in payment) shall not otherwise be deemed or
construed as relieving, modifying or extending Lessee's covenants to pay or
its covenants to cause to be paid any such charges at the time and in the
manner provided for under this Lease. Upon the reasonable request of
Lessor, Lessee shall provide to Lessor reasonable security satisfactory to
Lessor, in Lessor's reasonable discretion, to assure the payment of all
Claims which may be assessed against the Leased Property or any portion
thereof together with interest and penalties, if any, thereon. Lessor
agrees to join in any such proceedings if the same be required to legally
prosecute such contest of the validity of such Claims; provided, however,
that Lessor shall not thereby be subjected to any liability for the payment
of any costs or expenses in connection with any proceedings brought by
Lessee; and Lessee covenants to indemnify and save harmless Lessor from any
such costs or expenses. In the event that Lessee fails to pay any Claims
when due or, upon Lessor's request, to provide the security therefor as
provided in this Article XII and to diligently prosecute any contest of the
same, Lessor may, upon thirty (30) days advance written Notice to Lessee,
pay such charges together with any interest and penalties and the same
shall be repayable by Lessee to Lessor at the next Payment Date provided
for in this Lease. Provided, however, that should Lessor reasonably
determine that the giving of such Notice would risk loss to the Leased
Property or cause damage to Lessor, then Lessor shall give such written
Notice as is practical under the circumstances. Lessee shall be entitled
to any refund of any Claims and such charges and penalties or interest
thereon which have been paid by Lessee or paid by
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Lessor and for which Lessor has been fully reimbursed.
ARTICLE XIII
13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the provisions of
Paragraph 13.8, during the Term, Lessee shall at all times keep the Leased
Property, and all portions thereof and all property located in or on the
Leased Property, including Lessee's Personal Property, insured with the kinds
and amounts of insurance described below. This insurance shall be written by
companies authorized to do insurance business in the state in which the
Leased Property is located. The policies must name Lessor as a loss payee
and additional insured. Losses shall be payable to Lessor or Lessee as
provided in Article XIV. In addition, upon Lessor's written request, the
policies shall name as mortgagee, loss payee and additional insured the
holder ("Facility Mortgagee") of any mortgage, deed of trust or other
security agreement and any other Encumbrance placed on the Leased Property or
any portion thereof in accordance with the provisions of Article XXXII
("Facility Mortgage") by way of a standard form of mortgagee's loss payable
endorsement. Any loss adjustment shall require the written consent of
Lessor, Lessee, and each Facility Mortgagee. Evidence of insurance shall be
deposited with Lessor and, if requested, with any Facility Mortgagee(s). If
any provision of any Facility Mortgage requires deposits of premiums for
insurance to be made with such Facility Mortgagee, or, pursuant to written
direction by Lessor upon the occurrence of any Event of Default hereunder
(and irrespective of whether such Event of Default is continuing or has been
cured), Lessee shall make such deposits directly with such Facility Mortgagee
or with Lessor, as required, provided that during any period when such
deposits are being made, the Facility Mortgagee or Lessor (depending on which
party collects such deposits) agrees (a) to pay the premiums on a timely
basis, and (b) upon written request from Lessee, to account to Lessee for all
funds then on deposit. The policies on the Leased Property, including the
Leased Improvements, Fixtures and Lessee's Personal Property, shall insure
against the following risks:
13.1.1 Loss or damage by fire, vandalism and malicious
mischief, extended coverage perils commonly known as "All Risk," and all
physical loss perils normally included in such All Risk insurance, including,
but not limited to, sprinkler leakage, in an amount not less than one hundred
percent (100%) of the then full replacement cost thereof (as defined below in
Paragraph 13.2);
13.1.2 Loss or damage by explosion of steam boilers, pressure
vessels or similar apparatus, now or hereafter installed in the Facility, if
any, in such amounts with respect to any one accident as may be reasonably
requested by Lessor from time-to-time;
13.1.3 Business interruption insurance policy covering risk
of loss during the first twelve (12) months of reconstruction necessitated by
the occurrence of any of the hazards described in Paragraph 13.1.1 or 13.1.2
in an amount sufficient to prevent Lessor from becoming a co-insurer.
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13.1.4 Claims for personal injury or property damage under a
policy of comprehensive general public liability insurance with amounts not
less than One Million Dollars ($1,000,000) per occurrence, and with an annual
aggregate of Three Million Dollars ($3,000,000);
13.1.5 Claims arising out of malpractice or other
professional actions or omissions under a policy of professional liability
insurance with amounts not less than One Million Dollars ($1,000,000) per
occurrence, and with an annual aggregate of Three Million Dollars
($3,000,000);
13.1.6 Flood (if any of the Leased Improvements are located
in whole or in part within a flood plain area, as designated by any
governmental or other responsible agency and if such insurance is available
pursuant to applicable law) and such other hazards and in such amounts as may
be customary for comparable properties in the area; and
13.2 REPLACEMENT COST. The term "full replacement cost" as used
herein, shall mean the actual replacement cost of the Leased Property
requiring replacement from time-to-time including an increased cost of
construction endorsement, less exclusions provided in the standard form of
fire insurance policy in the state where the Leased Property is located.
Lessor and Lessee agree that as of the Commencement Date the full replacement
cost shall be deemed to be the "Purchase Price" less the value of the Land.
In the event either party believes that full replacement cost (the then
replacement cost less such exclusions) has increased or decreased at any time
during the Term, it shall have the right to have such full replacement cost
redetermined.
13.3 ADDITIONAL INSURANCE. In addition to the insurance described
above, Lessee shall maintain such additional insurance as may be reasonably
required from time-to-time by Lessor or any Facility Mortgagee (to the extent
available in the state where the Leased Property is located) and shall
further at all times maintain adequate worker's compensation insurance
coverage for all persons employed by Lessee on the Leased Property or any
portion thereof. Such worker's compensation insurance shall be in accordance
with the requirements of applicable federal, state and local law.
13.4 WAIVER OF SUBROGATION. All insurance policies carried by
either party covering the Leased Property, the Fixtures, the Facility, or
Lessee's Personal Property including without limitations, contents, fire and
casualty insurance, shall expressly waive any right of subrogation on the
part of the insurer against the other party. The parties hereto agree that
their policies will include such waiver clause or endorsement so long as the
same are obtainable without extra cost, and in the event of such an extra
charge the other party, at its election, may pay the same, but shall not be
obligated to do so. Upon written request, each party shall provide the other
party with a copy of each insurance policy with the waiver clause or
endorsement attached.
13.5 FORM SATISFACTORY, ETC. All of the policies of insurance
referred to in this Article XIII shall be written in a form reasonably
satisfactory to Lessor and by insurance companies reasonably satisfactory to
Lessor. Subject to the foregoing, Lessor agrees that it will not
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unreasonably withhold its approval as to the form of the policies of
insurance or as to the insurance companies selected by Lessee. Lessee shall
pay all of the premiums therefor, and deliver such policies or certificates
thereof to Lessor prior to their effective date (and, with respect to any
renewal policy, prior to the expiration of the existing policy), and in the
event of the failure of Lessee either to effect such insurance as herein
called for or to pay the premiums therefor, or to deliver such policies or
certificates thereof to Lessor at the times required, Lessor shall be
entitled, but shall have no obligation, to effect such insurance and pay the
premiums therefor, which premiums shall be repayable by Lessee to Lessor upon
written demand therefor, and failure to repay the same shall constitute an
Event of Default within the meaning of Paragraph 16.1(c). Each insurer
mentioned in this Article XIII shall agree, by endorsement on the policy or
policies issued by it, or by independent instrument furnished to Lessor, that
will give to Lessor (and to any Facility Mortgagee, if required by the same)
thirty (30) days written notice before the policy or policies in questions
shall be altered, allowed to expire or cancel.
13.6 INCREASE IN LIMITS. In the event that Lessor or a Facility
Mortgagee shall at any time reasonably deem the limits of the personal injury
or property damage public liability insurance then carried to be
insufficient, Lessee shall thereafter carry the insurance with increased
limits until further change pursuant to the provisions of this Paragraph;
provided that if Lessor desires to increase the limits of insurance, and such
is not pursuant to the request of a Facility Mortgagee, then Lessor may not
demand an increase in limits above the limits generally consistent with the
requirements of owners of assisted living facilities in the Commonwealth of
Pennsylvania.
13.7 BLANKET POLICY. Notwithstanding anything to the contrary
contained in this Article XIII, Lessee's obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Lessee; provided,
however, that the coverage afforded Lessor will not be reduced or diminished
or otherwise be different from that which would exist under a separate policy
meeting all other requirements of this Lease by reason of the use of such
blanket policy of insurance, and provided further that the requirements of
this Article XIII are otherwise satisfied.
13.8 NO SEPARATE INSURANCE. Lessee shall not on Lessee's own
initiative or pursuant to the request or requirement of any third party take
out separate insurance concurrent in form or contributing in the event of
loss with that required in this Article, to be furnished or which may
reasonably be required to be furnished, by Lessee or increase the amount of
any then existing insurance by securing any additional policy or additional
policies, unless all parties having an insurable interest in the subject
matter of the insurance, including in all cases Lessor and all Facility
Mortgagees, are included therein as additional insureds, and the loss is
payable under said insurance in the same manner as losses are payable under
the Lease. Lessee shall immediately notify Lessor of the taking out of any
such separate insurance or of the increasing of any of the amount of the then
existing insurance.
13.9 CONTINUOUS COVERAGE. Lessee shall assure that there is no gap
in the insurance coverage provided in connection with the Facility at or
after the Commencement Date
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and, therefore, the insurance provided by Lessee shall be continuous, with
the types and amounts of coverage, described herein to be applicable on the
Commencement Date. To the extent there is not full, complete and continuous
coverage for all issues, no matter when arising, claimed or occurring, Lessee
shall, at its sole cost, obtain such insurance.
ARTICLE XIV
14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any
loss of or damage to the Leased Property, or any portion thereof, which is
insured under any policy of insurance required by Article XIII of the Lease,
where the total proceeds paid by the insurer are less than $125,000.00, shall
be paid to Lessee and applied to the reconstruction or repair, as the case
may be, of any damage to or destruction of the Leased Property, or any
portion thereof. All proceeds payable by reason of any loss of or damage to
the Leased Property, or any portion thereof, which is insured under any
policy of insurance required by Article XIII of this Lease where the total
proceeds paid by the insurer are equal to or in excess of $125,000.00 shall
be paid to Lessor and held by Lessor in trust (subject to the provisions of
Paragraph 14.7) and shall be made available for reconstruction or repair, as
the case may be, of any damage to or destruction of the Leased Property, or
any portion thereof, and shall be paid out by Lessor from time-to-time for
the reasonable costs of such reconstruction or repair. Any excess proceeds
of insurance remaining after the completion of the restoration or
reconstruction of the Leased Property shall go to Lessee, provided the Lease
is in force and there exists no uncured Event of Default; otherwise such
excess shall be paid to Lessor for application as set forth in Article XVI
hereof. In the event neither Lessor nor Lessee is required or elects to
repair and restore, and the Lease is terminated as described in Paragraph
14.7, all such insurance proceeds shall be retained by Lessor. All salvage
resulting from any risk covered by insurance shall belong to Lessor except
that any salvage relating to Lessee's Personal Property shall belong to
Lessee.
14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED BY
INSURANCE PROCEEDS.
14.2.1 Except as provided in Paragraph 14.7, if during the
Term, the Facility or any portion of the Leased Property is totally or
partially destroyed by a risk covered by the insurance described in Article
XIII and whether or not the Facility is rendered Unsuitable for Its Primary
Intended Use, Lessee shall restore the Leased Property to substantially the
same condition as existed immediately before the damage or destruction.
Lessee shall be entitled to the insurance proceeds for the purpose of such
repair and restoration.
14.2.2 If the cost of the repair or restoration exceeds the
amount of proceeds received by Lessee or Lessor from the insurance required
under Article XIII as provided in Paragraph 14.1, above, Lessee shall be
obligated to restore the Leased Property and pay the extra cost therefor,
provided that, prior to commencing the repair and restoration, Lessee shall
either (i) contribute any excess amount needed to restore the Leased
Property, or (ii) provide Lessor with satisfactory evidence that such funds
are, and throughout the entire period of reconstruction will be,
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available. If Lessee contributes such excess in cash, such excess shall be
paid by Lessee to Lessor to be held in trust, together with any insurance
proceeds, for application to the cost of repair and restoration.
14.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION NOT
COVERED BY INSURANCE. Except as provided in Paragraph 14.7 below, if during
the Term the Facility or any portion of the Leased Property is damaged or
destroyed irrespective of the extent of the damage from a risk not covered by
the insurance described in Article XIII, whether or not such damage or
renders the Facility Unsuitable for Its Primary Intended Use, Lessee shall
restore the Leased Property to substantially the same condition it was in
immediately before such damage or destruction and such damage or destruction
shall not terminate this Lease.
14.4 LESSEE'S PROPERTY. All insurance proceeds payable by reason
of any loss of or damage to any of Lessee's Personal Property shall be paid
to Lessee, and Lessee shall hold such insurance proceeds in trust to pay the
cost of repairing or replacing damaged Lessee's Personal Property. Any
proceeds in excess of the cost of repairing or replacing any such Lessee's
Personal Property shall belong to Lessee.
14.5 RESTORATION OF LESSEE'S PROPERTY. Without limiting Lessee's
obligation to restore the Leased Property as provided in Paragraphs 14.2 and
14.3, Lessee shall also pay the cost to restore all Alterations and other
improvements made by Lessee which Lessee elects to restore, including
Lessee's Personal Property to the extent that Lessee's Personal Property is
necessary to the operation of the Leased Property for its Primary Intended
Use in accordance with applicable Legal Requirements.
14.6 NO ABATEMENT OF RENT. This Lease shall remain in full force
and effect and Lessee's obligation to make rental payments and to pay all
other charges required by this Lease shall remain unabated during any period
required for repair and restoration.
14.7 DAMAGE NEAR END OF TERM. Notwithstanding any provisions of
Paragraph 14.2 or 14.3 appearing to be contrary, if damage to or destruction
of the Facility occurs during the last six (6) months of the Term (in
calculating such 6 months, any Extended Terms as to which Lessee exercised
its option prior to or after the occurrence of such damage or destruction
shall be included), and if such damage or destruction cannot be fully
repaired and restored within six (6) months immediately following the date of
damage or destruction, then Lessor and Lessee shall each have the right to
terminate this Lease by giving written notice to the other within thirty (30)
days after the date of damage or destruction. If the Lease so terminates as
provided in this Paragraph 14.7, and unless the damage or destruction was due
to Lessee's negligent acts or omissions or willful misconduct, Lessee shall
have no responsibility to repair or restore the damaged or destroyed
Facility. Upon the termination of this Lease the Minimum Rent payable by
Lessee hereunder with regard to the Facility shall be apportioned as of the
date this Lease is terminated.
14.8 TERMINATION OF OPTION TO EXTEND. Any termination of this
Lease pursuant
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to this Article XIV shall cause any unexercised options to extend the Lease
under Article XVIII to be terminated and without further force or effect.
14.9 WAIVER. Lessee hereby waives any statutory rights of
termination which may arise by reason of any damage to or destruction of the
Leased Property or any portion thereof which Lessor is obligated to restore
or may restore under any of the provisions of this Lease.
ARTICLE XV
15. CONDEMNATION.
15.1 DEFINITIONS.
15.1.1 "Condemnation" means (a) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a
Condemnor; (b) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of Condemnation or while legal proceedings for
Condemnation are pending.
15.1.2 "Date of Taking" means the date the Condemnor has
the right to possession of the property being condemned.
15.1.3 "Award" means all compensation, sums or anything
of value awarded, paid or received on a total or partial Condemnation.
15.1.4 "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power of
Condemnation.
15.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term there is
any taking of all or any part of the Facility, the Leased Property or any
interest in this Lease by Condemnation, the rights and obligations of the
parties shall be determined by this Article XV.
15.3 TOTAL CONDEMNATION. If title to the fee of the whole of the
Facility shall be taken or condemned by any Condemnor, this Lease shall cease
and terminate as of the Date of Condemnation by said Condemnor. If title to
the fee of less than the whole of the Leased Property shall be so taken or
condemned, which nevertheless renders the Facility Unsuitable for Its Primary
Intended Use, as reasonably determined by Lessor and Lessee, Lessee and
Lessor shall each have the option by written Notice to the other, at any time
at or prior to the taking of possession by, or the date of vesting of title
in, such Condemnor, whichever first occurs, to terminate this Lease as of the
date of the occurrence of such first event. If such Notice has timely been
given, this Lease shall thereupon cease and terminate. Upon the termination
of this Lease in accordance with this Paragraph 15.3, the Minimum Rent
payable by Lessee hereunder shall be apportioned as of the date the Lease
terminates.
15.4 ALLOCATION OF PORTION OF AWARD. The total Award made with
respect to all
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or any portion of the Leased Property or for loss of rent, or for loss of
business, whether or not beyond the Term of this Lease, or for the loss of
value of the leasehold (including the bonus value of the Lease) shall be
solely the property of and payable to Lessor and Lessee hereby assigns to
Lessor any and all rights in such Award; provided, however, that Lessee shall
be entitled to make a separate claim for the taking of Lessee's Personal
Property and relocation expense as long as any such claim will not in any way
diminish Lessor's Award, or for any other loss that can be awarded to Lessee
separately from Lessor's claim and which will not in any respect whatsoever
diminish or threaten to diminish the total amounts to be awarded to Lessor,
as set forth above or otherwise. To the extent Lessee's claim may thereafter
reduce Lessor's claim, Lessee shall, and hereby does, assign its claim to
Lessor. In any Condemnation proceedings, each of the Lessor and Lessee shall
seek its own claim in conformity herewith, at its own expense.
15.5 PARTIAL TAKING. If title to the fee of less than the whole of
any Facility shall be so taken or condemned, and the Facility is still
suitable for its Primary Intended Use, as reasonably determined by Lessor and
Lessee, or if Lessee or Lessor shall be so entitled, but shall not elect to
terminate this Lease as provided in Paragraph 15.3 hereof, Lessee, at its own
cost and expense (subject to Lessor's contribution described below), shall
with all reasonable dispatch restore the untaken portion of any Leased
Improvements on the Leased Property so that such Leased Improvements shall
constitute a complete architectural unit of the same general character and
condition (as nearly as may be possible under the circumstances) as the
Leased Improvements existed immediately prior to such Condemnation. Lessor
shall contribute to the cost of restoration that part of its Award as is
reasonably necessary to accomplish such restoration, provided, however, the
amount of such contribution shall not exceed the cost of restoration. The
Minimum Rent shall be reduced as set forth in Paragraph 5.2.
15.6 TEMPORARY TAKING. Lessee agrees that if, at any time after
the date hereof, the whole or any part of the Leased Property or of Lessee's
interest under this Lease, shall be Condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
and Lessee shall continue to pay, in the manner and at the times herein
specified, the full amounts of Minimum Rent and Additional Charges. Except
only to the extent that Lessee may be prevented from doing so pursuant to the
terms of the order of the Condemnor, Lessee shall also continue to perform
and observe all of the other terms, covenants, conditions and obligations
hereof, on the part of the Lessee to be performed and observed, as though
such Condemnation had not occurred. In the event of any such Condemnation as
in this Paragraph 15.6 described, the entire amount of any such Award made
for such temporary use, whether paid by way of damages, rent or otherwise,
shall be paid to Lessee to the extent attributable to any period within the
Term (as extended by any already exercised options to extend or options
thereafter timely exercised if applicable). Lessee covenants that upon the
termination of any such period of temporary use or occupancy as set forth in
this Paragraph 15.6, it will, at its sole cost and expense, restore the
Leased Property as nearly as may be reasonably possible, to the condition in
which the same was immediately prior to the Condemnation, unless such period
of temporary use or occupancy shall extend beyond the expiration of the Term,
in which case Lessee shall not be required to make such restoration, and in
such case, Lessee shall contribute to the cost of such restoration that
portion of
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its entire Award which is specifically allocated to such restoration in the
judgment or order of the court, if any.
ARTICLE XVI
16.1 EVENTS OF DEFAULT. Any one or more of the following events
shall be an AEvent of Default":
(a) if Lessee fails to make payment of the Rent payable by
Lessee under this Lease when the same becomes due and payable and such
failure is not cured by Lessee within a period of five (5) business days
after Notice thereof from Lessor; or
(b) if Lessee fails to observe or perform any other term,
covenant or condition of this Lease and such failure is not cured by Lessee
within a period of thirty (30) days after Notice thereof from Lessor, unless
such failure cannot with due diligence be cured within a period of thirty
(30) days, in which case such failure shall not be deemed an Event of Default
if Lessee proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof. No Event of Default (other than a
failure to make payment of money) shall be deemed to exist under this clause
(b) during any time the curing thereof is prevented by an Unavoidable Delay,
provided that upon the cessation of such Unavoidable Delay, Lessee shall
remedy such default without further delay; or
(c) if Lessee (or any of its Affiliates) commits an "Event of
Default" under any of the Related Leases or any of the Other Leases. Without
limiting the foregoing, if Lessee commits an "Event of Default" under this
Lease, Lessee (and its Affiliates) shall thereby be in default (and shall
therefore have committed an "Event of Default") under all of the Related
Leases and the Other Leases; or
(d) if Lessee does any of the following:
(i) admit in writing its inability to pay its debts
generally as they become due;
(ii) file a petition in bankruptcy or a petition to take
advantage of any insolvency law;
(iii) make a general assignment for the benefit of its
creditors;
(iv) consent to the appointment of a receiver of itself
or of the whole or any substantial part of its
property; or
(v) file a petition or answer seeking reorganization or
arrangement under the Federal bankruptcy laws or any
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other applicable law or statute of the United States
of America or any state thereof; or
(e) if Lessee, on a petition in bankruptcy filed against it,
is adjudicated a bankrupt or an order for relief thereunder is entered
against it or a court of competent jurisdiction shall enter an order or
decree appointing, without the consent of Lessee, a receiver for Lessee or of
the whole or substantially all of its property or the Facility, or approving
a petition filed against Lessee seeking reorganization or arrangement of
Lessee under the Federal bankruptcy laws or other applicable law or statute
of the United States of America or any state thereof, and such judgment,
order or decree shall not be vacated or set aside within ninety (90) days
from the date of the entry thereof; or
(f) if Lessee shall be liquidated or dissolved, or shall
begin proceedings toward such liquidation or dissolution, or shall, in any
manner, permit the sale or divestiture of substantially all of its assets
other than in connection with a merger or consolidation of Lessee into, or a
sale of substantially all of Lessee's assets to, another corporation,
provided any such actions shall also constitute an Event of Default unless:
(i) the survivor of such merger or the purchaser of such assets shall assume
all of Lessee's obligations under this Lease by a written instrument, in form
and substance reasonably satisfactory to Lessor, stating that such instrument
of assumption is valid, binding and enforceable against the parties thereto
in accordance with its terms (subject to usual bankruptcy and other
creditor's rights exceptions); and (ii) immediately after giving effect to
any such merger, consolidation or sale, Lessee or the other corporation (if
not Lessee) surviving the same shall have a Consolidated Net Worth of not
less than Twenty Six Million Five Hundred Thousand Dollars ($26,500,000) and
a debt to equity ratio of not more than four to one (4.0:1.0), all as to be
set forth in an Officer's Certificate and delivered to Lessor within a
reasonable period of time after such merger, consolidation or sale; or
(g) if the estate or interest of Lessee in the Leased
Property or any part thereof be levied upon or attached in a proceeding and
the same shall not be vacated or discharged within the later of ninety (90)
days after commencement thereof or thirty (30) days after Notice thereof from
Lessor (unless Lessee shall be contesting such lien or attachment in good
faith in accordance with Article XII hereof), or a mechanic's or similar lien
is filed with respect to the Leased Property and is not released or bonded
around for a period exceeding sixty (60) days after Lessee first has
knowledge of the lien having been filed; or
(h) if, except as a result of damage, destruction or a
partial or total Condemnation, or Unavoidable Delay, Lessee voluntarily
ceases operations at the Facility for a period in excess of ten (10) days;
provided that Lessee may cease operations for more than ten (10) days (i) if
Lessee obtains Lessor's prior written approval, and (ii) so long as such
cessation of operations does not impair or threaten the status or
effectiveness of the operating license or other certification for operating
the Facility in accordance with its Primary Intended Use; or
(i) if any of Lessee's representations, covenants or
warranties expressly
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set forth in this Lease (or financial statements provided to Lessor) proves
to be untrue when made in any material respect which materially and adversely
affects Lessor; or
(j) if Lessee attempts to assign or sublease, in violation of
the provisions of this Lease;
(k) if Lessee fails to maintain in effect an operator's
license required to operate the Facility, or if Lessee otherwise ceases to
maintain in effect any license, permit, certificate or approval necessary or
otherwise required to operate the Facility in accordance with its Primary
Intended Use; or
(l) if Lessee and/or Karrington violates any of the Lease
Covenants described in Paragraph 23.2 hereof.
Upon the occurrence of an Event of Default, in addition to all of
Lessor's other remedies, Lessor may terminate this Lease by giving Lessee not
less than ten (10) business days Notice of such termination and upon the
expiration of the time fixed in such Notice, the Term shall terminate and all
rights of Lessee under this Lease shall cease.
In the event litigation is commenced with respect to any alleged
default under this Lease, the prevailing party in such litigation shall
receive, in addition to its damages incurred, such sum as the court shall
determine as its reasonable attorneys' fees, and all costs and expenses
incurred in connection therewith, including reasonable attorneys' fees and
costs incurred on appeal.
16.2 CERTAIN REMEDIES. Lessor shall have remedies and rights
provided in law and equity as a result of an Event of Default, including, to
the extent permitted by applicable Pennsylvania law, the right to appoint a
receiver as a matter of strict right without regard to the solvency of
Lessee, for the purpose of preserving the Leased Property and any portion
thereof, preventing waste, protecting and otherwise enforcing any and all of
Lessor's rights under this Lease and for any and all other purposes for which
a receiver is allowed under the laws of the Commonwealth of Pennsylvania.
Lessee hereby waives the right to notice of any hearing with respect to the
appointment of a receiver and waives the requirement for the posting of a
bond by any receiver. Without limiting the foregoing, if an Event of Default
occurs (and the event giving rise to such Event of Default has not been cured
within the curative period, if any, relating thereto as set forth in this
Lease) whether or not this Lease has been terminated pursuant to Paragraph
16.1, Lessee shall, to the extent permitted by law, and if required by Lessor
to so do, immediately surrender to Lessor the Leased Property pursuant to the
provisions of Paragraph 16.1 and quit the same and Lessor may enter upon and
repossess the Leased Property, in person, by agent or by a court-appointed
receiver, by reasonable force, summary proceedings, ejectment or otherwise,
and may remove Lessee and all other persons and any and all personal property
from the Leased Property subject to rights of any residents (and their
property) and to any requirements of law. Without limiting all other rights
and remedies of Lessor under this Lease and under law, Lessor shall have the
right to accelerate all Rent and therefore, upon Lessee's default, at
Lessor's option,
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all such Rent shall become immediately due and payable in accordance with
Paragraph 16.3, below. Further, without limiting all other rights and
remedies of Lessor under this Lease and under law, Lessor shall be entitled
to recover from Lessee, and Lessee shall therefore be liable for, all costs
of recovering possession (including without limitation all costs associated
with any receiver) and renovating the Leased Property or any portion thereof
for a new lessee and all other costs of any reletting or attempted reletting,
including, but not limited to, brokerage fees and reasonable attorneys fees,
except as limited by Paragraph 16.3 below.
16.3 DAMAGES. Neither (i) the termination of this Lease
pursuant to Section 16.1, (ii) the repossession of the Leased Property; (iii)
the failure of Lessor, notwithstanding reasonable good faith efforts, to
relet the Leased Property; nor (iv) the reletting of all or any portion
thereof, shall relieve Lessee of its liability and obligations hereunder, all
of which shall survive any such termination, repossession or reletting
(except for proceeds received on subletting). In the event of any such
termination, Lessee shall forthwith pay to Lessor all Rent due and payable
with respect to the Leased Property to and including the date of such
termination.
(a) Lessor shall not be deemed to have terminated this
Lease unless Lessor delivers written Notice to Lessee of such election. If
Lessor voluntarily elects to terminate this Lease upon an Event of Default,
then in addition to all remedies available to Lessor, Lessor may recover the
sum of:
(i) the worth at the time of award of the unpaid
Rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount
by which the unpaid Rent which would have been earned after termination until
tthe time of award exceeds the amount of such rental loss that Lessee proves
could have been reasonably avoided;
(iii) the worth at the time of award of the amount
by which the unpaid Rent for the balance of the Term after the time of award
exceeds the amount of such rental loss that Lessee proves could be reasonably
avoided; and
(iv) any other amount necessary to compensate
Lessor for all the detriment proximately caused by Lessee's failure to
perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom.
The "worth at the time of award" of the amounts
referred to in subparagraphs (i) and (ii) above is computed by allowing
interest at the Overdue Rate. The worth at the time of award of the amount
referred to in subparagraph (iii) is computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%).
(b) Without limiting Lessor's other remedies provided
herein and
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provided by law, Lessor may continue the Lease in effect after Lessee's
breach and abandonment and recover Rent as it becomes due, provided that, in
such event, Lessee has the right to sublet or assign subject only to
reasonable conditions imposed by Lessor. Accordingly, without termination of
Lessee's right to possession of the Leased Property, Lessor may demand and
recover each installment of Rent and other sums payable by Lessee to Lessor
under the Lease as the same becomes due and payable, which Rent and other
sums shall bear interest at the maximum interest rate permitted in accordance
with the laws of the Commonwealth of Pennsylvania (or the Overdue Rate,
whichever is lower), from the date when due until paid, and Lessor may
enforce, by action or otherwise, any other term or covenant of this Lease.
If Lessor elects to recover each installment of Rent as it becomes due, then
Lessor may file any number of lawsuits for the recovery of the amounts due
hereunder.
16.4 WAIVER. If this Lease is terminated pursuant to Paragraph
16.1, Lessee waives, to the extent permitted by applicable law, the benefit
of any laws now or hereafter in force exempting property from liability for
rent or for debt.
16.5 APPLICATION OF FUNDS. Any payments received by Lessor
under any of the provisions of this Lease during the existence or continuance
of any Event of Default shall be applied to Lessee's obligations in the order
which Lessor may determine or as may be prescribed by the laws of the
Commonwealth of Pennsylvania.
ARTICLE XVII
17. LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails
to make any payment or to perform any act required to be made or performed
under this Lease, and to cure the same within the relevant time periods, if
any, provided under this Lease, Lessor, after thirty (30) days Notice to and
demand upon Lessee, and without waiving or releasing any obligation of Lessee
or default, may (but shall be under no obligation to) at any time thereafter
make such payment or perform such act for the account and at the expense of
Lessee, and may, to the extent permitted by law, enter upon the Leased
Property for such purpose and take all such action thereon as, in Lessor's
opinion, may be necessary or appropriate therefor. Provided, however, that
should Lessor reasonably determine that the giving of such Notice would risk
loss to the Leased Property or any portion thereof or cause damage to Lessor,
then Lessor shall give such written Notice as is practical under the
circumstances. No such entry shall be deemed an eviction of Lessee. In
exercising any remedy under this Article XVII, Lessor shall use its good
faith efforts not to violate any rights of residents of the Facility. All
sums so paid by Lessor and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses, in each case) so
incurred, together with a late charge thereon (to the extent permitted by
law) at the Overdue Rate from the date on which sums or expenses are paid or
incurred by Lessor, shall be paid by Lessee to Lessor on demand. The
obligations of Lessee and rights of Lessor contained in this Article shall
survive the expiration or earlier termination of this Lease.
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ARTICLE XVIII
18.1 OPTIONS TO EXTEND. Provided there exists no uncured Event
of Default under any of this Lease, the Related Leases and the Other Leases
at the time Lessee exercises any option to extend (in accordance with this
Article XVIII), Lessee will have the right to extend this Lease for two (2)
periods of ten (10) years each (each such additional term shall be referred
to herein as an "Extended Term"), commencing immediately following the end of
the Initial Term or the immediately preceding Extended Term, as the case may
be; provided, however, that notwithstanding anything stated in this Paragraph
18.1 or elsewhere in this Lease, Lessee shall not be entitled to exercise its
option to extend this Lease for any Extended Term (and any such option to
extend shall automatically expire and terminate) unless Lessee concurrently
exercises its option to extend all the Related Leases for the same period, as
provided in Article XVIII of the Related Leases. The Lease during any
Extended Term shall be on the same terms and conditions as during the Initial
Term, except that the Minimum Rent shall be determined as set forth in
Paragraph 18.2 below. In the event Lessee desires to exercise any option to
extend granted in this Article XVIII, Lessee shall give Landlord written
notice ("Notice to Extend") not less than one hundred eighty (180) days prior
to the expiration of the Initial Term or the immediately preceding Extended
Term, as the case may be. If Lessee fails to give Lessor any such notice,
then Lessor shall give Lessee written notice that Lessor has not received
Lessee's Notice to Extend. If Lessee fails to deliver to Lessor the Notice
to Extend within ten (10) days thereafter, Lessee shall be deemed to have
elected not to extend this Lease and the Related Leases, such option to
extend and all future options to extend granted in this Article XVIII or in
the Related Leases shall be null and void and of no further force or effect.
18.2 MINIMUM RENT DURING EXTENDED TERMS. The Minimum Rent at
the commencement of each Extended Term shall be Minimum Rent, as determined
below.
(a) The Minimum Rent for the first year of the first
Extended Term shall be $1,144,506.03 and shall be increased annually
thereafter in accordance with the method described in Paragraph 3.1.2, above.
(b) The Minimum Rent for the first year of the second
Extended Term shall be $1,395,146.47 and shall be increased annually
thereafter in accordance with the method described in Paragraph 3.1.2, above.
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ARTICLE XIX
19. HOLDING OVER. If Lessee shall for any reason remain in
possession of the Leased Property after the expiration of the Term or earlier
termination of the Term hereof, such possession shall be as a month-to-month
tenant during which time Lessee shall pay as rental each month, one and
one-quarter times the aggregate of (i) one-twelfth of the aggregate Minimum
Rent payable with respect to the last Lease Year of the Term; (ii) all
Additional Charges accruing during the month; and (iii) all other sums
payable by Lessee pursuant to the provisions of this Lease. During such
period of month-to-month tenancy, Lessee shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall
have no rights hereunder other than the right, to the extent given by law to
month-to-month tenancies, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or
earlier termination of this Lease.
ARTICLE XX
20. RISK OF LOSS. During the Term of this Lease, the risk of
loss or of decrease in the enjoyment and beneficial use of the Leased
Property in consequence of the damage or destruction thereof by fire, the
elements, casualties, thefts, riots, wars or otherwise, or in consequence of
foreclosures, attachments, levies or executions (other than those caused by
or through Lessor) is assumed by Lessee, and Lessor shall in no event be
answerable or accountable therefor, nor shall any of the events mentioned in
this Paragraph entitle Lessee to any abatement of Rent except as specifically
provided in this Lease, or any right to terminate this Lease, except as
provided in Paragraph 14.7, above. Without limiting the foregoing, Lessor
shall not be liable for injury or damage to the person or goods, wares,
merchandise or other property of Lessee, Lessee's employees, contractors,
invitees, customers, or any other person in or about the Leased Premises,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction
or other defects of pipes, fire sprinklers, wires, appliances, plumbing, air
conditioning, or lighting fixtures, or from any other cause, whether the said
injury or damage results from conditions arising upon the Leased Premises or
upon other portions of the Land, or any part thereof, or from other sources
or places, and regardless of whether the cause of such damage or injury or
the means of repairing the same is accessible or not. Lessor shall not be
liable for any damages arising from any act or neglect of Lessee, or any
other party named above. Lessor shall, however, remain liable for any
damages arising from Lessor's own gross negligence or willful misconduct.
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ARTICLE XXI
21. INDEMNIFICATION. Notwithstanding the existence of any
insurance provided for in Article XIII, and without regard to the policy
limits of any such insurance, Lessee will protect, indemnify, hold harmless
and defend Lessor from and against all liabilities, obligations, claims,
demands damages, penalties, causes of action, costs, and expenses (including,
without limitation, actual reasonable attorneys' fees and expenses), to the
extent permitted by law, imposed upon or incurred by or asserted against
Lessor by reason of any of the following (except to the extent solely
attributable to Lessor's gross negligence or willful misconduct): (a) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Property or adjoining sidewalks, including
without limitation any claims of malpractice, whether arising in connection
with events occurring prior to or after the Commencement Date hereunder
(except to the extent such events occur after the expiration of this Lease);
(b) any occupancy, use, misuse, non-use, condition, maintenance, or repair by
Lessee of the Leased Property; (c) any Impositions (which are the obligations
of Lessee to pay pursuant to the applicable provisions of this Lease, which
include any Impositions arising prior to the Commencement Date); (d) any
failure on the part of Lessee to perform or comply with any of the terms of
this Lease, (e) the non-performance of any of the terms and provisions of any
and all existing and future subleases of the Leased Property to be performed
by the landlord (Lessee) thereunder; (f) any Hazardous Materials, as defined
in Paragraph 10.2, above that now or hereafter during the Term may be located
in, on or around, or affecting, any part of the Land or Leased Improvements;
(g) any and all other matters pertaining to the Leased Property or the
operation of the Facility after the date of this Lease during the Term,
including without limitation compliance with or failure to comply with the
provisions of Section 8 of the United States Housing Act of 1937, and the
provisions of the Fair Housing Amendments Act of 1988, each as amended from
time to time; (h) any liability relating to the construction or development
of the Facility, including patent or latent defects in the Facility, whether
arising in connection with events occurring prior to or after the
Commencement Date hereunder, including without limitation compliance with or
failure to comply with the provisions of the federal Americans with
Disabilities Act, as amended from time to time; and (i) third party claims of
any kind relating to the Leased Property, the Facility, the operations at the
Facility or otherwise, and any and all other matters whatsoever relating to
the Leased Property, the assisted living facility located thereon and the
operation thereof. Any amounts which became payable by Lessee under this
Paragraph shall be paid within ten (10) days of the date the same becomes due
and if not timely paid, shall bear a late charge (to the extent permitted by
law) at the Overdue Rate from the date of such determination to the date of
payment. Lessee, at its expense, shall contest, resist and defend any such
claim, action or proceeding asserted or instituted against Lessor or may
compromise or otherwise dispose of the same as Lessee sees fit, at Lessee's
sole cost, but after consultation with and approval by Lessor, which approval
shall not be unreasonably withheld or delayed. Nothing herein shall be
construed as indemnifying Lessor against its own gross negligence or willful
misconduct. Lessee's liability for a breach of the provisions of this
article arising during the Term hereof shall survive any termination of this
Lease.
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ARTICLE XXII
22. SUBLETTING AND ASSIGNMENT. Except as provided hereinbelow
to the contrary, Lessee may not assign, sublease or sublet, encumber,
appropriate, pledge or otherwise transfer, the Lease or the leasehold or
other interest in the Leased Property without Lessor's prior written consent,
which consent may be withheld or granted in Lessor's sole and absolute
discretion; provided, however, that Lessee may from time to time during the
Term of this Lease enter into rental agreements with residents of the
Facility, and execute any documents necessary in connection therewith,
without obtaining Lessor's prior consent. Notwithstanding the foregoing
provisions of this Paragraph 22, (a) Lessee and its permitted assigns shall
be entitled, at any time without first obtaining the consent of Lessor, to
sublease up to the greater of (i) 2,000 square feet, or (ii) ten percent
(10%) of the total square footage of the Facility, to any person or entity
providing any services related or ancillary to the operation of the Facility
or in connection with the provision of home health services both within and
outside the Facility; (b) so long as Lessee is lessee under this Lease,
Lessee shall be entitled, at any time without first obtaining the consent of
Lessor to sell, assign and convey to Karrington Health, Inc., an Ohio
corporation ("Karrington"), either (i) all (but not less than all) of
Lessee's leasehold interest in all of the Leased Property or (ii) all of the
issued and outstanding stock of Lessee; and (c) in the event that there
occurs a change in control in respect to the ownership of Karrington, whether
by merger, sale, or transfer of substantially all of Karrington's assets
(other than in the ordinary course of Karrington's business) or otherwise,
including without limitation the acquisition by any one person or entity of
thirty-five percent (35%) or more of the issued and outstanding stock of
Karrington (any of the foregoing, a "Change of Control"), and so long as the
surviving entity at the conclusion of such Change of Control has a net worth
of Twenty Six Million Five Hundred Thousand Dollars ($26,500,000) or more and
a debt to equity ratio of not more than four to one (4.0:1.0) (which net
worth and debt to equity ratio are greater than or substantially similar to
Karrington's as of the date hereof), Karrington or Lessee, as the case may
be, shall be entitled, without first obtaining the consent of Lessor, to
assign all of its right, title and interest in and to this Lease to said
surviving entity, so long as, under any of the scenarios described in this
Paragraph 22, Lessor is notified of such assignment or conveyance in writing
within five (5) business days thereafter. Upon Lessor's consent, (w) in the
case of a subletting, the sublessee shall comply with the provisions of
Paragraph 22.2, (x) in the case of an assignment, the assignee shall assume
in writing and agree to keep and perform all of the terms of this Lease on
the part of Lessee to be kept and performed and shall be, and become, jointly
and severally liable with Lessee for the performance thereof, (y) an original
counterpart of each sublease and assignment and assumption, duly executed by
Lessee and such sublessee or assignee, as the case may be, in form and
substance satisfactory to Lessor, shall be delivered promptly to Lessor, and
(z) in case of either an assignment or subletting, Lessee shall remain
primarily liable, as principal rather than as surety, for the prompt payment
of the Rent and for the performance and observance of all of the covenants
and conditions to be performed by Lessee hereunder.
22.1 ATTORNMENT. Lessee shall insert in each sublease
permitted under Paragraph 22 provisions to that effect that (i) such sublease
is subject and subordinate to all of the terms and provisions of this Lease
and to the rights of Lessor hereunder; (ii) in the event this Lease shall
terminate before the expiration of such sublease, the sublessee thereunder
will, at Lessor's option,
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attorn to Lessor and waive any right the sublessee may have to terminate the
sublease or to surrender possession thereunder, as a result of the
termination of this Lease; and (iii) in the event the sublessee receives a
written Notice from Lessor or Lessor's assignees, if any, stating that Lessee
is in default under this Lease, the sublessee shall thereafter be obligated
to pay all rentals accruing under said sublease directly to the party giving
such Notice, or as such party may direct. All rents received from the
sublessee by Lessor or Lessor's assignees, if any, as the case may be, shall
be credited against amounts owing by Lessee under this Lease.
22.2 SUBLEASE LIMITATION. Anything contained in this Lease to
the contrary notwithstanding, Lessee shall not sublet the Leased Property on
any basis such that the rental to be paid by the sublessee thereunder would
be based, in whole or in part, on either (i) the income or profits derived by
the business activities of the sublessee; or (ii) any other formula such that
any portion of the sublease rental received by Lessor would fail to qualify
as Arents from real property" within the meaning of Paragraph 856(d) of the
Code, or any similar or successor provision thereto.
ARTICLE XXIII
23. OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS; LEASE
COVENANTS.
23.1 OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS.
(a) At any time from time-to-time upon not less than
twenty (20) days Notice by Lessor, Lessee will furnish to Lessor an Officer's
Certificate certifying that this Lease is unmodified and in full force and
effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid
and such other information concerning this Lease as may be reasonably
requested by Lessor. Any such certificate furnished pursuant to this
Paragraph may be relied upon by Lessor and any prospective purchaser or
lender of the Leased Property.
(b) In addition to all other obligations to provide
financial information contained in the Lease, Lessee will furnish the
following statements to Lessor:
(i) within one hundred twenty (120) days after the
end of each Lease Year, an Officer's Certificate stating that to the best of
the signer's knowledge and belief after making reasonable inquiry, Lessee is
not in default in the performance or observance of any of the terms of this
Lease, or if Lessee shall be in default to its knowledge, specifying all such
defaults, the nature thereof, and the steps being taken to remedy the same,
and
(ii) with reasonable promptness, such other
information respecting the financial condition and affairs of Lessee as
Lessor may reasonably request from time-to-time.
(c) Within one hundred twenty (120) days after the end of
each Fiscal Year, Lessee agrees to provide to Lessor Consolidated Financials
of Lessee for such Fiscal Year.
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23.2 LEASE COVENANTS. Lessee warrants, covenants and
represents to Lessor that prior to December 31, 1999, Karrington shall not
undertake or accomplish any of the following: (a) buy back any of the stock
of Karrington; (b) declare a dividend to Karrington stockholders; or (c)
repay any loan or other indebtedness to any current or former directors,
officers, shareholders or affiliates of Karrington; provided, however, that
Karrington shall be allowed to do any of the foregoing only up to a total
combined amount equal to or less than fifty percent (50%) of a total amount
of equity funding actually received by Karrington from the Commencement Date
through December 31, 1999. Notwithstanding the foregoing, Karrington shall
be entitled, prior to December 31, 1999, to do any of the following: (d)
repay to JMAC the Four Million Dollar ($4,000,000) bridge loan entered into
on or about April 1, 1998, so long as the entire outstanding balance of such
bridge loan has been used substantially in accordance with the use of
proceeds attached to this Lease as Exhibit "D", (e) grant to JMAC the right
to convert to equity in Karrington all or any portion of its existing debt to
Karrington, in the approximate amount of Seven Million Five Hundred Thousand
Dollars ($7,500,000); and (f) upon a Change of Control of Karrington, so
long as the surviving entity at the conclusion of such Change of Control has
a net worth of Twenty-Six Million Five Hundred Thousand Dollars ($26,500,000)
or more and a debt to equity ratio of not more than four to one (4.0:1.0),
Karrington shall be entitled to pay off any and all debts which it may have
to JMAC. Lessee acknowledges and agrees that Lessor has entered into this
Lease in material reliance on the foregoing warranties, covenants and
representations (the "Lease Covenants"). Lessee further acknowledges that
certain of the Lease Covenants concern the activities of Karrington rather
than Lessee and that any violation or breach of any of the Lease Covenants,
whether by Lessee or Karrington shall be an Event of Default hereunder.
ARTICLE XXIV
24. LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and
its authorized representatives to inspect the Leased Property on at least one
(1) Business Day's prior notice during usual business hours subject to any
security, health, safety, or confidentiality requirements of Lessee or any
governmental agency or insurance requirement relating to the Leased Property,
or imposed by law or applicable regulations. Lessor shall take reasonable
steps to avoid interference with the residents.
ARTICLE XXV
25. NO WAIVER. The waiver by Lessor or Lessee of any term,
covenant or condition in this Lease shall not be deemed to be a waiver of any
other term, covenant or condition or any subsequent waiver of the same or any
other term, covenant or condition contained in this Lease. The subsequent
acceptance of rent hereunder by Lessor or any payment by Lessee shall not be
deemed to be a waiver of any preceding default of any term, covenant or
condition of this Lease, other than the failure to pay the particular amount
so received and accepted, regardless of the knowledge of any preceding
default at the time of the receipt or acceptance.
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ARTICLE XXVI
26. REMEDIES CUMULATIVE. To the extent permitted by law, each
legal, equitable or contractual right, power and remedy of Lessor now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right,
power and remedy and the exercise or beginning of the exercise by Lessor of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Lessor of any or all of such other
rights, powers and remedies.
ARTICLE XXVII
27. ACCEPTANCE OF SURRENDER. No surrender to Lessor of this
Lease or of the Leased Property or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in writing
by Lessor and no act by Lessor or any representative or agent of Lessor,
other than such a written acceptance by Lessor, shall constitute an
acceptance of any such surrender.
ARTICLE XXVIII
28. NO MERGER OF TITLE. There shall be no merger of this
Lease or of the leasehold estate created hereby by reason of the fact that
the same person, firm, corporation, or other entity may acquire, own or hold,
directly or indirectly, (a) this Lease or the leasehold estate created hereby
or any interest in this Lease or such leasehold estate; and (b) the fee
estate in the Leased Property.
ARTICLE XXIX
29. CONVEYANCE BY LESSOR. If Lessor or any successor owner of
the Leased Property shall transfer or assign Lessor's title or interest in
the Leased Property or this Lease other than as security for a debt, and
provided the new owner has agreed in writing for the benefit of Lessee to
recognize this Lease and be bound by all of the terms and conditions hereof,
Lessor shall thereupon be released from all future liabilities and
obligations of Lessor under this Lease arising or accruing from and after the
date of such transfer or assignment and all such future liabilities and
obligations shall thereupon be binding upon the new owner.
ARTICLE XXX
30. QUIET ENJOYMENT. So long as Lessee shall pay all Rent as
the same becomes due and shall comply with all of the terms of this Lease and
perform its obligations hereunder, and except for any claims, actions, liens
or encumbrances arising from the acts or omissions of Lessee or otherwise
from events occurring prior to the Commencement Date hereunder, Lessee shall
peaceably and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Lessor or anyone claiming by,
through or under Lessor, but subject to all liens and encumbrances of record
as of the date hereof or hereafter
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consented to by Lessee. Except as otherwise provided in this Lease, no
failure by Lessor to comply with the foregoing covenant or any covenant of
this Lease shall give Lessee any right to abate, reduce or made a deduction
from or offset against the Rent or any other sum payable under this Lease, or
to fail to perform any other obligation of Lessee hereunder.
ARTICLE XXXI
31. NOTICES. All notices, demands, requests, consents,
approvals, and other communications ("Notice" or "Notices") hereunder shall
be in writing and personally served upon an Executive Officer of the party
being served or mailed (by registered or certified mail, return receipt
requested and postage prepaid), overnight delivery service addressed to the
respective parties, as follows:
(a) If to Lessee: Karrington Operating Company, Inc.
919 Old Henderson Road
Columbus, Ohio 43220
Attention: Thomas J. Klimback,
Chief Financial Officer
with a copy to: Bricker & Eckler
100 South Third Street
Columbus, Ohio 43215
Attention: Charles H. McCreary, Esq.
(b) If to Lessor: Missouri River Corporation
c/o LTC Properties, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attention: James J. Pieczynski
with a copy to: LTC Properties, Inc.
300 Esplanade Drive, Suite 1865
Oxnard, California 93030
Attention: Pamela J. Privett, Esq.
and: Rosenfeld, Wolff, Aronson, Kurland & Klein
2049 Century Park East, Suite 3090
Los Angeles, California 90067
Attention: Alan D. Aronson, Esq.
or to such other address as either party may hereafter designate by a Notice
pursuant to this Paragraph. Personally delivered Notice (including Notices
sent by overnight delivery service) shall be effective upon receipt, and
Notice given by mail shall be completed five (5) days after the time of
deposit in the U.S. Mail system. For the purposes hereof, the term
AExecutive Officer" shall
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mean the Chairman of the Board of Directors, the President, any Vice
President, or the Secretary of the corporation upon which service is to be
made.
ARTICLE XXXII
32.1 LESSOR MAY GRANT LIENS. Lessor may, subject to
the terms and conditions set forth below in this Paragraph 32.1, from
time-to-time, directly or indirectly, create or otherwise cause to exist any
lien or encumbrance or any other change of title ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to
secure any borrowing or other means of financing or refinancing. Any such
Encumbrance shall contain the right to prepay (whether or not subject to a
prepayment penalty) and shall provide that it is subject to the rights of
Lessee under this Lease, provided that any holder of an Encumbrance shall (a)
give Lessee the same notice, if any, given to Lessor of any default or
acceleration of any obligation underlying any such mortgage or any sale in
foreclosure under such mortgage; (b) permit Lessee to cure any such default
on Lessor's behalf within any applicable cure period, and Lessee shall be
reimbursed by Lessor or shall be entitled to offset against Minimum Rent
payments next accruing or coming due for any and all costs incurred in
effecting such cure, including, without limitation, out-of-pocket costs
incurred to effect any such cure (including reasonable attorneys' fees); (c)
permit Lessee to appear and to bid at any sale in foreclosure made with
respect to any such mortgage, and (d) provide that in the event of
foreclosure or other possession of the Leased Property by the Mortgagee, that
the Mortgagee shall be bound by the terms and provisions of this lease. Upon
the reasonable request of Lessor, Lessee shall execute an agreement to the
effect that this Lease shall be subject and subordinate to the lien of a new
mortgage on the Leased Property and that in the event of any default or
foreclosure under such mortgage, Lessee shall attorn to the new mortgagee,
and as otherwise requested by Lessor; provided that the proposed mortgagee
execute a non-disturbance agreement recognizing this Lease and agreeing, for
itself and its successor and assigns, to comply with the provisions of this
Article XXXII.
32.2 LESSEE'S RIGHT TO CURE. Subject to the
provisions of Paragraph 32.3, if Lessor breaches any covenant to be
performed by it under this Lease, Lessee, after Notice to and demand upon
Lessor, without waiving or releasing any obligation hereunder, and in
addition to any other remedies available to Lessee, may (but shall be under
no obligation at any time thereafter to) make such payment or perform such
act for the account and at the expense of Lessor. All sums so paid by
Lessee and all costs and expenses (including, without limitation,
reasonable attorneys' fees) so incurred, together with interest thereon (at
the Overdue Rate) from the date on which such sums or expenses are paid or
incurred by Lessee, shall be paid by Lessor to Lessee on demand, but may
not be offset by Lessee against Minimum Rent payments. The rights of
Lessee hereunder to cure and to secure payment from Lessor in accordance
with this Paragraph 32.2 shall survive the termination of this Lease.
32.3 DEFAULT BY LESSOR. It shall be a default of
this Lease if Lessor fails to observe or perform any term, covenant or
condition of this Lease on its part to be performed, and such failure shall
continue for a period of ten (10) days after Notice thereof from Lessee in
the case of a monetary default or thirty (30) days after Notice thereof
from Lessee (or such shorter time as
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may be required in order to protect the health or welfare of any patients or
other residents of the Leased Property) in the case of a non-monetary
default, unless in the case of a non-monetary default such failure cannot
with due diligence be cured within a period of thirty (30) days, in which
case such failure shall not be deemed to continue if Lessor, within said
thirty (30) day period, proceeds promptly, continuously and with due
diligence to cure the failure and diligently completes the curing thereof.
The time within which Lessor shall be obligated to cure any such failure
shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay.
ARTICLE XXXIII
33. MISCELLANEOUS.
33.1 SURVIVAL OF OBLIGATIONS. Anything contained in
this Lease to the contrary notwithstanding, all claims against, and
liabilities of, Lessee or Lessor arising prior to, or in connection with
any event occurring prior to, the date of any expiration or termination of
this Lease or the date of Lessee's surrender of possession of the Leased
Property, whichever is later, shall survive such termination or surrender
of possession.
33.2 LATE CHARGES; INTEREST. If any interest rate
provided for in any provision of this Lease is based upon a rate in excess
of the maximum rate permitted by applicable law, the parties agree that
such charges shall be fixed at the maximum permissible rate.
33.3 LIMITS OF LESSOR'S LIABILITY. Lessee
specifically agrees to look solely to the assets of Lessor for recovery of
any judgment against Lessor, it being specifically agreed that no
constituent shareholder, officer or director of Lessor shall ever be
personally liable for any such judgment or the payment of any monetary
obligation to Lessee. The provision contained in the foregoing sentence is
not intended to, and shall not, limit any right that Lessee might otherwise
have to obtain injunctive relief against Lessor or Lessor's successors in
interest, or any action not involving the personal liability of Lessor
(original or successor). Additionally, Lessor shall be exonerated from any
further liability under this Lease upon Lessor's transfer or other
divestiture of its ownership of the Leased Property, provided that the
assignee or grantee shall expressly assume in writing the obligations of
Lessor hereunder. Furthermore, in no event shall Lessor (original or
successor) ever be liable to Lessee for any indirect or consequential
damages suffered by Lessee from whatever cause.
33.4 LIMITS OF LESSEE'S LIABILITY. Lessor
specifically agrees to look solely to the assets of Lessee for recovery of
any judgment against Lessee, it being specifically agreed that no
constituent shareholder, officer or director of Lessee shall ever be
personally liable for any such judgment or the payment of any monetary
obligation to Lessor. The provision contained in the foregoing sentence is
not intended to, and shall not, limit any right that Lessor might otherwise
have to obtain injunctive relief against Lessee or Lessee's successors in
interest, or any action not involving the personal liability of Lessee
(original or successor). Furthermore, in no event shall Lessee (original
or successor) ever be liable to Lessor for any indirect or consequential
damages suffered by Lessor from whatever cause.
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33.5 TRANSFER OF OPERATIONS. At Lessor's request,
upon the expiration or earlier termination of the Term, Lessee shall use
its best efforts to transfer to Lessor or Lessor's nominee (or to cooperate
with Lessor or Lessor's nominee in connection with the processing by Lessor
or Lessor's nominee of any applications for) all licenses, operating
permits and other governmental authorizations and all contracts, including
contracts with governmental or quasi-governmental entities which may be
necessary for the operation of the Facility; provided that the costs and
expenses of any such transfer or the processing of any such application
shall be paid by Lessor or Lessor's nominee.
33.6 ADDENDUM, AMENDMENTS AND EXHIBITS. Any
addendum, amendments and exhibits attached to this Lease are hereby
incorporated in this Lease and made a part of this Lease.
33.7 HEADINGS. The headings and paragraph titles in
this Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part of this Lease.
33.8 TIME. Time is of the essence of this Lease and
each and all of its provisions.
33.9 DAYS. Unless otherwise expressly indicated
herein, any reference to "days" in this Lease shall be deemed to refer to
calendar days.
33.10 RENT. Each and every monetary obligation under
this Lease shall be deemed to be "Rent" under this Lease and for all other
purposes under law.
33.11 APPLICABLE LAW; VENUE. This Lease shall be
governed by and construed in accordance with the laws of the Commonwealth
of Pennsylvania, but not including its conflicts of laws rules; thus the
law that will apply is the law applicable to a transaction solely within
the Commonwealth of Pennsylvania. Notwithstanding the application of the
laws of the Commonwealth of Pennsylvania, each party hereto hereby
irrevocably submits itself to the jurisdiction of the state courts of the
State of California and to the jurisdiction of the United States District
Court for the Central District of California, for the purpose of any suit,
action or other proceeding arising out of or based upon this Lease or the
subject matter hereof brought by either party hereto and such suit, action
or other proceedings shall be conducted in the State or Federal courts
located in Los Angeles, California.
33.12 SUCCESSORS AND ASSIGNS. The covenants and
conditions contained in this Lease shall, subject to the provisions
regarding assignment (Article XXII), apply to and bind the heirs,
successors, executors, administrators, and assigns of Lessor and Lessee.
33.13 RECORDATION. Lessor and Lessee shall execute
with appropriate acknowledgments and record in the Official Records of the
county in which the Leased Property is located, that certain Memorandum of
Lease in the form and content of Exhibit "C" attached hereto.
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Lessor and Lessee shall equally share the cost of recording the Memorandum of
Lease. In no event shall this Lease otherwise be recorded.
33.14 PRIOR AND FUTURE AGREEMENTS. This Lease
contains all of the agreements of Lessor and Lessee with respect to any
matter covered or mentioned in this Lease, and no prior agreements or
understanding pertaining to any such matters shall be effective for any
purpose. No provision of this Lease may be amended or supplemented except
by an agreement in writing signed by both Lessor and Lessee or their
respective successors in interest. This Lease shall not be effective or
binding on any party until fully executed by both Lessor and Lessee.
33.15 PARTIAL INVALIDITY. Any provision of this Lease
which shall be held by a court of competent jurisdiction to be invalid,
void or illegal shall in no way affect, impair or invalidate any other
provision or term of this Lease, and such other provision or terms shall
remain in full force and effect.
33.16 ATTORNEYS' FEES. In the event of any action or
proceeding brought by one party against the other under this Lease, the
prevailing party shall be entitled to recover its reasonable attorneys' fees
in such action or proceeding from the other party, including all attorneys'
fees incurred in connection with any appeals, and any post-judgment
attorneys' fees incurred in efforts to collect on any judgment.
33.17 AUTHORITY OF LESSOR AND LESSEE. Lessor and
Lessee each hereby represent and warrant that the individuals signing on
its behalf are duly authorized to execute and deliver this Lease on behalf
of the corporation, in accordance with the bylaws of the corporation, and
that this Lease is binding upon the corporation.
33.18 RELATIONSHIP OF THE PARTIES. Nothing contained
in this Lease shall be deemed or construed by Lessor or Lessee, nor by any
third party, as creating the relationship of principal and agent or a
partnership, or a joint venture by Lessor or Lessee, it being understood
and agreed that no provision contained in this Lease nor any acts of Lessor
and Lessee shall be deemed to create any relationship other than the
relationship of landlord and tenant.
33.19 COUNTERPARTS. This Lease may be executed in one
or more separate counterparts, each of which, once they are executed, shall
be deemed to be an original. Such counterparts shall be and constitute one
and the same instrument.
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33.20 BROKERS. Lessor and Lessee each warrants that
it has had no dealings with any real estate broker or agent in connection
with the negotiation of this Lease and it knows of no real estate broker or
agent who is entitled to a commission in connection with this Lease.
Lessor and Lessee hereby agree to indemnify the other and to hold the other
harmless from and against any and all costs, expenses, claims, damages,
suits, including attorneys' fees, in any way resulting from claims or
demands for commissions or other compensation from any real estate brokers
claiming through such party with respect to this Lease.
33.21 NEW COMBINED LEASE. The parties agree that at
any time during the Term of this Lease, upon the written request of Lessor,
Lessor and Lessee shall execute a new lease merging this Lease and the
lease entered into between the Lessor and Lessee, dated May 21, 1998, for
that certain assisted living facility commonly known as Karrington at Rocky
River located in the City of Rocky River, State of Ohio. The new combined
lease for both facilities shall incorporate all of the same terms and
conditions as set forth in each individual lease and shall provide for the
aggregation of all payments due under each lease.
WHEREFORE, each of the parties has accepted and agreed by affixing
their respective authorized signatures below as of the date first above
written.
[SIGNATURE CONTINUED ON NEXT PAGE]
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[SIGNATURE CONTINUED FROM PREVIOUS PAGE]
"LESSEE"
SIGNED AND ACKNOWLEDGED KARRINGTON OPERATING COMPANY, INC.,
IN PRESENCE OF: AN OHIO CORPORATION
/s/ Amy S. Maxwell By: /s/ Pete A. Klisares
- ----------------------------- ---------------------------------------
Printed: Amy S. Maxwell Its: President and Chief Operating Officer
-------------------- --------------------------------------
SIGNED AND ACKNOWLEDGED
IN PRESENCE OF:
/s/ Renee B. Christner
- -----------------------------
Printed: Renee B. Christner
---------------------
[SIGNATURE CONTINUED ON NEXT PAGE]
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[SIGNATURE CONTINUED FROM PREVIOUS PAGE]
"LESSOR"
SIGNED AND ACKNOWLEDGED MISSOURI RIVER CORPORATION,
IN THE PRESENCE OF: A DELAWARE CORPORATION
/s/ Paul Rosenbaum BY: /s/ Raad K. Shawaf
- ----------------------------------- -----------------------------
PRINTED NAME: Paul Rosenbaum ITS: Assistant Secretary
---------------------- ----------------------------
/s/ Elizabeth H. Malloy
- -----------------------------------
PRINTED NAME: Elizabeth H. Malloy
- -----------------------------------
<PAGE>
ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES)
The foregoing instrument was acknowledged before me on this 28th
day of June, 1998, by Raad K. Shawaf, Assistant Secretary of Missouri River
Corporation, a Delaware corporation, on behalf of the corporation.
/s/ Elizabeth H. Malloy
- -----------------------------------
Elizabeth H. Malloy Notary Public
My Commission Expires:
[STAMP]
June 22, 1999
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<PAGE>
ACKNOWLEDGEMENT
STATE OF OHIO )
) SS.
COUNTY OF FRANKLIN)
The foregoing instrument was acknowledged before me on this 26th
day of June, 1998, by Pete A. Klisares, President and Chief Operating
Officer of Karrington Operating Company, Inc., an Ohio Corporation, on
behalf of the corporation.
/s/ Amy S. Maxwell
- -------------------------
Notary Public
[STAMP]
My Commission Expires:
September 29, 1999
- --------------------------
<PAGE>
INDEX OF EXHIBITS
Exhibit "A" - Legal Description
Exhibit "B" - Related Leases
Exhibit "C" - Memorandum of Lease
Exhibit "D" - Approved Use of Proceeds
<PAGE>
EXHIBIT A
Legal Description
Erie Real Property
<PAGE>
EXHIBIT "B"
RELATED LEASES*
1. That certain Lease and Sublease dated April 21, 1998 by and
between LTC-Ohio, Inc., as "Lessor and Sublessor", and Karrington
Operating Company, Inc., as "Lessee and Sublessee", for those four
(4) assisted living facilities commonly known as Karrington on the
Scioto, Karrington Place, Karrington at Tucker Creek and
Karrington of Bexley and located in the City of Upper Arlington,
City of Worthington, City of Worthington and City of Bexley,
respectively, all in the State of Ohio.
2. That certain Lease dated May 21, 1998, by and between Missouri
River Corporation (via assignment from LTC-Ohio,Inc.), as
"Lessor", and Karrington Operating Company, Inc., as "Lessee", for
that certain assisted living facility commonly known as Karrington
at Rocky River located in the City of Rocky River, State of Ohio.
*The Related Leases referenced above will be modified in writing in the
future if Lessor and Lessee enter into a lease (or leases) of property in
addition to or in substitution of any of the aforementioned Related Leases.
<PAGE>
LEASE
(ROCKY RIVER)
DATED MAY 21, 1998
EXECUTED BY
LTC-OHIO, INC., A DELAWARE CORPORATION,
DOING BUSINESS IN OHIO AS
LTC PROPERTIES-OHIO, INC.,
as Lessor
and
KARRINGTON OPERATING COMPANY, INC., AN OHIO CORPORATION,
as Lessee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 1 -
1.1 Leased Property. . . . . . . . . . . . . . . . . . . . . . . . . . .- 1 -
1.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 2 -
1.3 Contingencies. . . . . . . . . . . . . . . . . . . . . . . . . . . .- 2 -
ARTICLE II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 3 -
2. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 3 -
ARTICLE III. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 8 -
3.1 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 8 -
3.1.1 Minimum Rent . . . . . . . . . . . . . . . . . . . . . . .- 8 -
3.1.2 Adjustment to Rent . . . . . . . . . . . . . . . . . . . .- 8 -
3.2 Additional Charges . . . . . . . . . . . . . . . . . . . . . . . . .- 9 -
3.3 Net Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 9 -
3.4 Late Charge. . . . . . . . . . . . . . . . . . . . . . . . . . . . .- 9 -
ARTICLE IV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 10 -
4.1 Payment of Impositions . . . . . . . . . . . . . . . . . . . . . . - 10 -
4.2 Notice of Impositions. . . . . . . . . . . . . . . . . . . . . . . - 11 -
4.3 Utility Charges. . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
4.4 Insurance Premiums . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
4.5 Payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 11 -
ARTICLE V. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
5.1 No Termination, Abatement, etc . . . . . . . . . . . . . . . . . . - 12 -
5.2 Abatement Procedures . . . . . . . . . . . . . . . . . . . . . . . - 12 -
ARTICLE VI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
6.1 Ownership of the Leased Property . . . . . . . . . . . . . . . . . - 13 -
6.2 Lessee's Alterations . . . . . . . . . . . . . . . . . . . . . . . - 13 -
6.3 Lessee's Personal Property . . . . . . . . . . . . . . . . . . . . - 13 -
6.4 Consumable Inventory . . . . . . . . . . . . . . . . . . . . . . . - 13 -
ARTICLE VII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14 -
7.1 Condition of Leased Property . . . . . . . . . . . . . . . . . . . - 14 -
7.2 Use of the Leased Property . . . . . . . . . . . . . . . . . . . . - 14 -
7.3 Preservation of Gross Revenues . . . . . . . . . . . . . . . . . . - 15 -
ARTICLE VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
8.1 Compliance with Legal and Insurance Requirements, Instruments,
etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 16 -
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<PAGE>
8.2 Legal Requirement Covenants. . . . . . . . . . . . . . . . . . . . - 16 -
ARTICLE IX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 17 -
9.1 Maintenance and Repair . . . . . . . . . . . . . . . . . . . . . . - 17 -
9.2 Expenditures to Comply with Law; Construction of Additional
Improvements Pursuant to Certificate of Need . . . . . . . . . . . - 19 -
9.3 Encroachments, Restrictions, etc . . . . . . . . . . . . . . . . . - 19 -
ARTICLE X. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
10.1 Lessee's Obligations for Hazardous Materials . . . . . . . . . . . - 20 -
10.2 Definition of Hazardous Materials. . . . . . . . . . . . . . . . . - 20 -
ARTICLE XI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
11.1 No Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
11.2 Permitted Liens. . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
ARTICLE XII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
12. Permitted Contests . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
ARTICLE XIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
13.1 General Insurance Requirements . . . . . . . . . . . . . . . . . . - 23 -
13.2 Replacement Cost . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
13.3 Additional Insurance . . . . . . . . . . . . . . . . . . . . . . . - 24 -
13.4 Waiver of Subrogation. . . . . . . . . . . . . . . . . . . . . . . - 24 -
13.5 Form Satisfactory, etc . . . . . . . . . . . . . . . . . . . . . . - 25 -
13.6 Increase in Limits . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
13.7 Blanket Policy . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
13.8 No Separate Insurance. . . . . . . . . . . . . . . . . . . . . . . - 25 -
13.9 Continuous Coverage. . . . . . . . . . . . . . . . . . . . . . . . - 26 -
ARTICLE XIV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
14.1 Insurance Proceeds . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
14.2 Reconstruction in the Event of Damage or Destruction Covered
by Insurance Proceeds. . . . . . . . . . . . . . . . . . . . . . . - 26 -
14.3 Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance . . . . . . . . . . . . . . . . . . . . . . . - 27 -
14.4 Lessee's Property. . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
14.5 Restoration of Lessee's Property . . . . . . . . . . . . . . . . . - 27 -
14.6 No Abatement of Rent . . . . . . . . . . . . . . . . . . . . . . . - 27 -
14.7 Damage Near End of Term. . . . . . . . . . . . . . . . . . . . . . - 27 -
14.8 Termination of Option to Extend. . . . . . . . . . . . . . . . . . - 28 -
14.9 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
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<PAGE>
ARTICLE XV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
15. Condemnation . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
15.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
15.2 Parties' Rights and Obligations. . . . . . . . . . . . . . . . . . - 28 -
15.3 Total Condemnation . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
15.4 Allocation of Portion of Award . . . . . . . . . . . . . . . . . . - 29 -
15.5 Partial Taking . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
15.6 Temporary Taking . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
ARTICLE XVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
16.1 Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
16.2 Certain Remedies . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
16.3 Damages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
16.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
16.5 Application of Funds . . . . . . . . . . . . . . . . . . . . . . . - 34 -
ARTICLE XVII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
17. Lessor's Right to Cure Lessee's Default. . . . . . . . . . . . . . - 34 -
ARTICLE XVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
18.1 Options to Extend. . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
18.2 Minimum Rent During Extended Terms . . . . . . . . . . . . . . . . - 35 -
ARTICLE XIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
19. Holding Over . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
ARTICLE XX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
20. Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
ARTICLE XXI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
21. Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
ARTICLE XXII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
22. Subletting and Assignment. . . . . . . . . . . . . . . . . . . . . - 37 -
22.1 Attornment. . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
22.2 Sublease Limitation . . . . . . . . . . . . . . . . . . . . . - 39 -
ARTICLE XXIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
23. Officer's Certificates and Financial Statements; Lease
Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
23.1 Officer's Certificates and Financial Statements.. . . . . . . - 39 -
23.2 Lease Covenants . . . . . . . . . . . . . . . . . . . . . . . - 39 -
ARTICLE XXIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
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<PAGE>
24. Lessor's Right to Inspect. . . . . . . . . . . . . . . . . . . . . - 40 -
ARTICLE XXV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
25. No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
ARTICLE XXVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
26. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . - 41 -
ARTICLE XXVII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
27. Acceptance of Surrender. . . . . . . . . . . . . . . . . . . . . . - 41 -
ARTICLE XXVIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
28. No Merger of Title . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
ARTICLE XXIX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
29. Conveyance by Lessor . . . . . . . . . . . . . . . . . . . . . . . - 41 -
ARTICLE XXX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
30. Quiet Enjoyment. . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
ARTICLE XXXI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
31. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 42 -
ARTICLE XXXII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
32.1 Lessor May Grant Liens . . . . . . . . . . . . . . . . . . . . . . - 43 -
32.2 Lessee's Right to Cure . . . . . . . . . . . . . . . . . . . . . . - 43 -
32.3 Default by Lessor. . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
ARTICLE XXXIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
33. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . - 44 -
33.1 Survival of Obligations . . . . . . . . . . . . . . . . . . . - 44 -
33.2 Late Charges; Interest. . . . . . . . . . . . . . . . . . . . - 44 -
33.3 Limits of Lessor's Liability. . . . . . . . . . . . . . . . . - 44 -
33.4 Limits of Lessee's Liability. . . . . . . . . . . . . . . . . - 44 -
33.5 Transfer of Operations. . . . . . . . . . . . . . . . . . . . - 45 -
33.6 Addendum, Amendments and Exhibits . . . . . . . . . . . . . . - 45 -
33.7 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
33.8 Time. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
33.9 Days. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
33.10 Rent . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
33.11 Applicable Law; Venue. . . . . . . . . . . . . . . . . . - 45 -
33.12 Successors and Assigns . . . . . . . . . . . . . . . . . - 45 -
33.13 Recordation. . . . . . . . . . . . . . . . . . . . . . . - 45 -
-iv-
<PAGE>
33.14 Prior and Future Agreements. . . . . . . . . . . . . . . - 45 -
33.15 Partial Invalidity . . . . . . . . . . . . . . . . . . . - 46 -
33.16 Attorneys' Fees. . . . . . . . . . . . . . . . . . . . . - 46 -
33.17 Authority of Lessor and Lessee . . . . . . . . . . . . . - 46 -
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<PAGE>
33.18 Relationship of the Parties. . . . . . . . . . . . . . . - 46 -
33.19 Counterparts . . . . . . . . . . . . . . . . . . . . . . - 46 -
33.20 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
33.21 New Combined Lease . . . . . . . . . . . . . . . . . . . - 47 -
</TABLE>
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<PAGE>
LEASE
This LEASE (the "Lease") is made as of the 21st day of May, 1998, by
and between LTC-OHIO, INC., a Delaware corporation, doing business in Ohio as
LTC Properties-Ohio, Inc., herein called "Lessor", and KARRINGTON OPERATING
COMPANY, INC., an Ohio corporation, herein called "Lessee", subject to the
terms, conditions and contingencies set forth below.
ARTICLE I
1.1 LEASED PROPERTY. Upon and subject to the terms and
conditions hereinafter set forth, Lessor leases to Lessee, and Lessee rents and
hires from Lessor all of the following (the "Leased Property"):
(i) The real property situated in the State of
Ohio and more particularly described in Exhibit "A" attached hereto, as the same
may be supplemented or modified from time to time (the "Land");
(ii) All buildings, structures, Fixtures (as
hereinafter defined) and other improvements of every kind including, but not
limited to, alleyways and connecting tunnels, sidewalks, utility pipes, conduits
and lines (on-site and off-site), parking areas and roadways appurtenant to such
buildings and structures presently situated upon the Land (collectively, the
"Leased Improvements");
(iii) All easements, rights and appurtenances
relating to the Land and the Leased Improvements;
(iv) All permanently affixed equipment,
machinery, fixtures, and other items of real and/or personal property, including
all components thereof, permanently affixed to or incorporated into the Leased
Improvements, including, without limitation, all furnaces, boilers, heaters,
electrical equipment, heating, plumbing, lighting, ventilating, refrigerating,
incineration, air and water pollution control, waste disposal, air-cooling and
air conditioning systems and apparatus, sprinkler systems and fire and theft
protection equipment, all of which to the greatest extent permitted by the law,
are hereby deemed by the parties hereto to constitute real estate, together with
all replacements, modifications, alterations and additions thereto, to the
extent acquired by Lessor pursuant to the "Purchase Agreement" as defined in
Article II hereof (collectively the "Fixtures"); and
(v) All personal tangible and intangible
property comprising the "Personal Property" and/or the "Intangible Property"
acquired by Lessor pursuant to the Purchase Agreement.
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<PAGE>
The Leased Property includes that certain assisted living
facility located in the City of Rocky River, County of Cuyahoga, State of Ohio
and commonly known as Karrington of Rocky River at 21600 Detroit Road, Rocky
River, Ohio 44116. Notwithstanding the foregoing, the Leased Property shall not
include any property not acquired by Lessor from the Seller pursuant to the
Purchase Agreement. The Leased Property is demised subject to all covenants,
conditions, restrictions, easements, and other matters of record, and all other
matters that affect title, zoning and any other matters set forth in that
certain Title Policy issued by Chicago Title Company concurrently with Lessor's
purchase of the Leased Property and all matters disclosed in the ALTA survey
obtained in connection with such title insurance (collectively the "Permitted
Title Matters").
1.2 TERM. The initial term of the Lease (the "Initial
Term") shall be the period commencing on the closing (the "Closing") whereby
Lessor acquires fee title to the Leased Property under the Purchase Agreement
(the "Commencement Date") and expiring on April 30, 2018. Lessee has the right
to extend the term of this Lease, at Lessee's option, as provided in Article
XVIII, below. (The Initial Term plus all validly exercised options to extend,
if any, shall be referred to herein as the "Term"). Lessor and Lessee agree to
execute a memorandum setting forth the Commencement Date.
1.3 CONTINGENCIES.
1.3.1 ACQUISITION OF LEASED PROPERTY. Lessee
acknowledges and agrees that, at the time of executing this Lease, Lessor does
not own the Leased Property, but Lessor has a right to purchase the Leased
Property pursuant to the Purchase Agreement. This Lease, and all obligations
hereunder of either party, are contingent upon Lessor's acquisition of the fee
simple interest in the Leased Property. Therefore, if the Leased Property has
not been transferred to Lessor on or before the Outside Closing Date (as that
term is defined in the Purchase Agreement), or by such later date as Lessor, in
its sole discretion may permit, this Lease shall be null and void and of no
force or effect whatsoever, and both Lessor and Lessee shall be relieved of all
responsibility under the Lease.
1.3.2 CROSS DEFAULT WITH OTHER LEASES. Lessor and
Lessee acknowledge and agree that this Lease is to be cross-defaulted with the
Related Leases and every other lease now or hereafter entered into between
Lessor (or any of its Affiliates) and Lessee (or any of its Affiliates) with
respect to any assisted living facility (collectively, the "Other Leases"), each
of which shall (if Lessor so requests) be specifically amended to confirm that
they are cross-defaulted as additional security for Lessee's performance under
this Lease. However, the cross-default provisions of this Paragraph shall be
effective regardless of whether Lessor requests the aforesaid specific
amendments.
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<PAGE>
ARTICLE II
2. DEFINITIONS. For all purposes of this Lease, except as
otherwise expressly provided, (i) the terms defined in this Article II have the
meanings assigned to them in this Article II and include the plural as well as
the singular; (ii) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles at the time applicable; and (iii) the words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Lease as a whole and
not to any particular Article, Paragraph or other subdivision:
ADDITIONAL CHARGES. As defined in Article III.
AFFILIATE. When used with respect to any corporation, the
term "Affiliate" shall mean any person or entity (including any trust) which,
directly or indirectly, controls or is controlled by or is under common control
with such corporation. For the purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), as used with respect to any person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, through the ownership
of voting securities, partnership interests or other equity interests. For the
purposes of this definition, "person" shall mean any natural person, trust,
partnership, corporation, joint venture or other legal entity.
BUSINESS DAY. Each Monday, Tuesday, Wednesday, Thursday, and
Friday, which is not a day on which national banks in the State of Ohio are
authorized or obligated, by law or executive order, to close.
C.P.I. As defined in Paragraph 3.1.
CALENDAR YEAR. The period from January 1 through and
including December 31 in the same calendar year.
CODE. The Internal Revenue Code of 1986, as amended, and all
regulations issued thereunder.
CONSOLIDATED FINANCIALS. For any Fiscal Year or other
accounting period for Lessee and its consolidated subsidiaries, statements of
earnings and retained earnings and of changes in financial position for such
period and the related balance sheet as at the end of such period, together with
the notes thereto, all audited by a certified public accountant and in
reasonable detail and setting forth in comparative form the corresponding
figures for the corresponding period in the preceding Fiscal Year, and prepared
in accordance with generally accepted accounting principles.
CONSOLIDATED NET WORTH. At any time, the sum of the following
for Lessee and its
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<PAGE>
consolidated subsidiaries, on a consolidated basis determined in accordance
with generally accepted accounting principles:
(1) the amount of capital or stated capital
(after deducting the cost of any shares held in its treasury), plus
(2) the amount of capital surplus and retained
earnings (or, in the case of a capital or retained earnings deficit, minus the
amount of such deficit), minus
(3) the sum of the following (without
duplication of deductions in respect of items already deducted in arriving at
surplus and retained earnings): (a) unamortized debt discount and expense; and
(b) any write-up in the book value of assets resulting from a revaluation
thereof subsequent to the most recent Consolidated Financials prior to the date
thereof, except (i) any net write-up in value of foreign currency in accordance
with generally accepted accounting principles; and (ii) any write-up resulting
from a reversal of a reserve for bad debts or depreciation and any write-up
resulting from a change in methods of accounting for inventory.
ENCUMBRANCE. As defined in Article XXXII.
EVENT OF DEFAULT. As defined in Article XVI.
EXTENDED TERM. As defined in Article XVIII.
FACILITY. That certain assisted living facility which is part
of the Leased Property as defined in Article I, above, inclusive of the Land,
Leased Improvements, Fixtures, Personal Property and Intangible Property
pertaining to such Facility.
FACILITY MORTGAGE. As defined in Article XIII.
FACILITY MORTGAGEE. As defined in Article XIII.
FISCAL YEAR. The twelve (12) month period from January 1
through the following December 31.
FIXTURES. As defined in Article I.
IMPOSITIONS. Collectively, all taxes (including, without
limitation, all ad valorem, sales and use, single business, gross receipts,
transaction, privilege, rent taxes, bed taxes or fees or any other taxes as the
same relate to or are imposed upon Lessee or Lessor or the business conducted
upon the Leased Property), assessments (including, without limitation, all
assessments for public improvements or benefits, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the
Term), ground rents, water, sewer or other rents and charges, excises, tax
levies, fees (including, without limitation, license, permit, inspection,
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authorization and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property, Lessor, or the
business conducted thereon by Lessee (including all interest and penalties
thereon due to any failure in payment by Lessee), and all increases in all the
above from any cause whatsoever, including reassessment, which at any time prior
to, during or in respect of the Term may be assessed or imposed on or in respect
of or be a lien upon (a) Lessor's interest in the Leased Property or any part
thereof; (b) the Leased Property or any part thereof, including without
limitation any Personal Property located thereon or used in connection
therewith, or any rent therefrom or any estate, right, title or interest
therein; or (c) any occupancy, operation, use or possession of, or sales from,
or activity conducted on, or in connection with the Leased Property or the
leasing or use of the Leased Property or any part thereof by Lessee. Without
limiting the foregoing, the term "Imposition" shall include any sales tax on
rents paid under this Lease or by residents of the Facility (including, but not
limited to, rental receipts taxes), bed taxes, depreciation recapture, any other
taxes (except for the specific exclusions stated below), fees or charges imposed
by the State of Ohio and any potential subdivision thereof relating to the
Facility or the Leased Property, this Lease, or rents received under this Lease,
whether relating to any period prior to or after the Commencement Date.
Provided, however, nothing contained in this Lease shall be construed to require
Lessee to pay (1) the following taxes and fees to the extent they relate to
Lessor's business generally (as opposed to relating specifically to Lessor's
ownership of the Facility, lease thereof to Lessee or income therefrom): any
federal, state or local income tax of Lessor, taxes based on outstanding
corporate shares of Lessor or Lessor's equity or capitalization, regardless of
whether denominated as an income tax, franchise tax, capital tax or otherwise;
(2) any income or capital gain tax imposed with respect to the sale, exchange or
other disposition by Lessor of any Leased Property or the proceeds thereof; or
(3) estate, inheritance, gift taxes or documentary transfer taxes.
INSURANCE REQUIREMENTS. All terms of any insurance policy
required by this Lease and all requirements of the issuer of any such policy.
LAND. As defined in Article I.
LEASE. As defined in the Preamble.
LEASE YEAR. Any twelve (12) month period from May 1 to each
following April 30 during the Term. In the case of the beginning of the Initial
Term, the provision "Lease Year" shall mean the period from the Commencement
Date (defined in Paragraph 1.2, above) to April 30, 1999; in the case of the end
of the Term, the provision "Lease Year" shall mean the period from the last May
1 to occur during the Term to the date of expiration of the Lease.
LEASED IMPROVEMENTS; LEASED PROPERTY. Each as defined in
Article I.
LEGAL REQUIREMENTS. All federal, state, county, municipal,
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees, and injunctions affecting either the Leased Property or the
construction, use or alteration thereof whether now or hereafter
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enacted and in force, including any which may (i) require repairs,
modifications or alterations in or to the Leased Property; or (ii) in any way
adversely affect the use and enjoyment thereof, and all permits, licenses and
authorizations and regulations thereto, and all covenants, agreements,
restrictions, and encumbrances contained in any instruments, either of record
or known to Lessee, at any time in force affecting the Leased Property.
LESSEE. Karrington Operating Company, Inc. an Ohio
corporation (and any assignee permitted subject to the terms and conditions in
this Lease).
LESSEE'S PERSONAL PROPERTY. All machinery, equipment,
furniture, furnishings, movable walls or partitions, computers, or trade
fixtures or other personal property, and consumable inventory and supplies,
owned by Lessee and used or useful in Lessee's business on the Leased Property
and located thereon, including without limitation, all items of furniture,
furnishings, equipment, supplies and inventory, except items (i) included within
the definition of Fixtures; and (ii) personal property described in Paragraph
1.1(v), above.
LESSOR. LTC-Ohio, Inc., a Delaware corporation, doing
business in Ohio as LTC Properties-Ohio, Inc., and its successors and assigns.
MINIMUM RENT. As defined in Article III.
NOTICE. A notice given pursuant to Article XXXI hereof.
OFFICER'S CERTIFICATE. A certificate of Lessee signed by (i)
the Chief Executive Officer or the President or any authorized Vice President;
AND (ii) the secretary, or another officer authorized by appropriate resolution
to so sign by the Board of Directors. Any signature required above may be
substituted with a signature of another person whose power and authority to act
has been authorized by an appropriate corporate resolution.
OTHER LEASES. As defined in Paragraph 1.3.2.
OVERDUE RATE. On any date, a rate equal to the Prime Rate
(defined below), plus two percent (2%); provided, however, that it is the intent
of Lessor and Lessee that the Overdue Rate (and all other interest rates
provided for hereunder) be in strict compliance with applicable usury laws of
the State of Ohio, and that in the event the Overdue Rate (or other interest
rate provided for hereunder) shall be deemed to exceed that permitted to be
charged by the laws of the State of Ohio, any and all excess sums collected by
Lessor shall be credited against the Rent payable under this Lease or if there
is no Rent due, promptly refunded to Lessee.
PAYMENT DATE. Any due date for the payment of the
installments of Minimum Rent or any other payments required under this Lease.
PRIMARY INTENDED USE. As defined in Paragraph 7.2.2.
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PRIME RATE. On any date, a rate equal to the annual rate on
such date as may be published by The Wall Street Journal as the prime rate in
its listing of "Money Rates."
PURCHASE AGREEMENT. That certain Agreement of Purchase and
Sale and Joint Escrow Instructions, dated as of May 12, 1998, by and between
Lessee as the "Seller" and Lessor as the "Buyer," providing for Lessor's
acquisition of the Leased Property at the Purchase Price and as more fully
described therein.
PURCHASE PRICE. Lessor's Purchase Price for the Leased
Property pursuant to (and as defined in) the Purchase Agreement.
RELATED LEASES. Those certain leases between Lessor, as
"Lessor", and Lessee, as "Lessee," enumerated on Exhibit "B", attached hereto.
RENT. Any and all monetary obligations of Lessee owing under
this Lease.
SUBSIDIARIES. Corporations, of which either Lessee or Lessor
owns, directly or indirectly, more than 50% of the voting stock (individually, a
"Subsidiary").
TERM. Collectively, the Initial Term plus any Extended Terms,
as the context may require, unless earlier terminated pursuant to the provisions
hereof.
UNSUITABLE FOR ITS PRIMARY INTENDED USE. A state of condition
of the Facility such that by reason of damage or destruction, or a partial
taking by Condemnation, in the good faith judgment of Lessor and Lessee,
reasonably exercised, the Facility cannot be operated on a commercially
practicable basis for its Primary Intended Use taking into account, among other
relevant factors, the number of usable units affected by such damage or
destruction or partial Condemnation.
UNAVOIDABLE DELAYS. Delays due to strikes, lock-outs,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty or other
causes beyond the control of the party responsible for performing an obligation
hereunder; provided that lack of funds shall not be deemed a cause beyond the
control of either party hereto unless such lack of funds available to Lessor
results from Lessee's failure to perform any of its obligations under this
Lease.
The above does not include all the definitions to be used in
this Lease. Various definitions of other terms are included in the other
Articles of this Lease.
ARTICLE III
3.1 RENT.
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3.1.1 MINIMUM RENT. Lessee will pay to Lessor in
lawful money of the United States of America which shall be legal tender for the
payment of public and private debts at Lessor's address set forth hereinbelow or
at such other place or to such other person, firms or corporations as Lessor
from time-to-time may designate in a Notice, a rent (the "Minimum Rent"), during
the Term, as follows:
(a) INITIAL TERM. The initial annual
Minimum Rent for the first Lease Year of the Initial Term shall be an amount
equal to Seven Hundred Fourteen Thousand Four Hundred Five and 25/100 Dollars
($714,405.25). The Minimum Rent shall be subject to increase as and when
provided below in this Article III. The Minimum Rent, as the same may be
increased hereunder, shall be paid in advance in equal, consecutive monthly
installments on the first day of each calendar month of the Term without demand,
abatement, setoff or notice. Minimum Rent shall be prorated for any partial
month or year at the beginning or end of the Term; and
(b) EXTENDED TERMS. The Minimum Rent
during the Extended Terms shall be as stated in Article XVIII, below.
3.1.2 ADJUSTMENT TO RENT. Commencing on May 1,
1999 ("Rent Adjustment Date") and continuing thereafter on each subsequent
anniversary of the Rent Adjustment Date during the Initial Term and each
Extended Term, the Minimum Rent shall be increased (but never decreased) in an
amount equal to the annual Minimum Rent payable under this Lease for the
immediately preceding twelve (12) month period increased by one hundred fifty
percent (150%) of the cumulative increase in the Consumer Price Index, published
as the "CPI-U" Index by the Bureau of Labor Statistics of the Department of
Labor, U.S. Cities Average, All Items (1982-84=100) in the manner calculated on
the date of this Lease ("C.P.I.") from the date two (2) months prior to the
immediately preceding Rent Adjustment Date (or in the case of the initial Rent
Adjustment Date, the C.P.I. from March 1998) to the date two (2) months prior to
then current Rent Adjustment Date. Notwithstanding the foregoing, in no event
shall any INCREASE TO Minimum Rent in any Lease Year exceed two percent (2.0%)
of the Minimum Rent (as adjusted) payable for the immediately preceding twelve
(12) month period (or in the case of the initial Rent Adjustment Date, the
increase, if any, to Minimum Rent in the first Lease Year shall not exceed
$14,288.11). In no event shall the Minimum Rent be reduced by reason of the
adjustment to Minimum Rent set forth in this Paragraph 3.1.2. If the CPI Index
is no longer published, or if the format or components of the CPI Index are
materially changed after the Commencement Date, Lessor in its reasonable
judgment shall substitute an index which is published by the Bureau of Labor
Statistics or similar agency and which is most nearly equivalent to the Index in
effect on the Commencement Date.
3.2 ADDITIONAL CHARGES. In addition to the Minimum Rent,
(1) Lessee will also pay and discharge as and when due and payable all other
amounts, liabilities, obligations and Impositions which Lessee assumes, is
obligated or agrees to pay under this Lease, and (2) in the event of any failure
on the part of Lessee to pay any of those items referred to in clause (1) above,
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Lessee will also promptly pay and discharge every fine, penalty, interest and
cost which may be added for non-payment or late payment of such items (the items
referred to in clauses (1) and (2) above being referred to herein collectively
as the "Additional Charges"), and Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Lease or by
statute or otherwise in the case of non-payment of the Additional Charges. If
any elements of Additional Charges shall not be paid within five (5) Business
Days after its due date and Lessor pays any such amount (which Lessor shall have
the right, but not the obligation, to do), then, in addition to Lessor's other
rights and remedies, Lessee will pay Lessor on demand, as Additional Charges,
interest on such unpaid Additional Charges computed at the Overdue Rate from the
date that Lessor pays such amount to the date that Lessor receives reimbursement
from Lessee. To the extent that Lessee pays any Additional Charges to Lessor
pursuant to any requirement of this Lease, Lessee shall be relieved of its
obligation to pay such Additional Charges to the entity to which they would
otherwise be due.
3.3 NET LEASE. Subject to the provisions of Article V,
below, without limiting any provision of this Lease, the Rent shall be paid
absolutely net to Lessor, so that this Lease shall yield to Lessor the full
amount of the installments of Minimum Rent and Additional Charges throughout the
Term, all as more fully set forth in Articles III, IV, VIII, IX and XIII, and
other provisions of this Lease.
3.4 LATE CHARGE. LESSEE HEREBY ACKNOWLEDGES THAT LATE
PAYMENT BY LESSEE TO LESSOR OF RENT (INCLUDING MINIMUM RENT AND ADDITIONAL
CHARGES, BUT EXCLUDING LATE CHARGES) OR OTHER SUMS DUE HEREUNDER WILL CAUSE
LESSOR TO INCUR COSTS NOT CONTEMPLATED BY THIS LEASE, THE EXACT AMOUNT OF WHICH
WILL BE EXTREMELY DIFFICULT TO ASCERTAIN. SUCH COSTS INCLUDE, BUT ARE NOT
LIMITED TO, PROCESSING AND ACCOUNTING CHARGES. ACCORDINGLY, IF ANY INSTALLMENT
OF RENT (INCLUDING MINIMUM RENT AND ADDITIONAL CHARGES, BUT EXCLUDING LATE
CHARGES) OR ANY OTHER SUM DUE FROM LESSEE SHALL NOT BE RECEIVED BY LESSOR WHEN
THE SAME BECOMES DUE AND PAYABLE AND SUCH FAILURE IS NOT CURED WITHIN FIVE (5)
BUSINESS DAYS AFTER NOTICE THEREOF FROM LESSOR, THEN LESSEE SHALL PAY TO LESSOR
A LATE CHARGE EQUAL TO FIVE PERCENT (5%) OF SUCH OVERDUE AMOUNT. THE PARTIES
HEREBY AGREE THAT SUCH LATE CHARGE REPRESENTS A FAIR AND REASONABLE ESTIMATE OF
THE COSTS LESSOR WILL INCUR BY REASON OF LATE PAYMENT BY LESSEE. ACCEPTANCE OF
SUCH LATE CHARGE BY LESSOR SHALL IN NO EVENT CONSTITUTE A WAIVER OF LESSEE'S
DEFAULT OR BREACH WITH RESPECT TO SUCH OVERDUE AMOUNT, NOR PREVENT LESSOR FROM
EXERCISING ANY OF THE OTHER RIGHTS AND REMEDIES GRANTED UNDER THIS LEASE.
ARTICLE IV
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4.1 PAYMENT OF IMPOSITIONS. Subject to Article XII
relating to permitted contests, Lessee will pay, or cause to be paid, all
Impositions coming due prior to or during the Term, or which relate to any
period within the Term or prior to the Term, before any fine, penalty, interest
or cost may be added for non-payment (or earlier if required by any taxing
authority), such payments to be made directly to the taxing authorities where
feasible, and upon written request will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments.
Lessee's obligation to pay Impositions shall be deemed absolutely fixed upon the
date such Impositions become a lien upon the Leased Property or any part
thereof. If any Imposition may, at the option of the taxpayer, lawfully
(without penalty) be paid in installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Lessee may exercise the option to pay
the same (and any accrued interest on the unpaid balance of such Imposition) in
installments and in such event, shall pay such installments during the Term
hereof (subject to Lessee's right of contest pursuant to the provisions of
Article XII) as the same respectively become due and before any fine, penalty,
premium, further interest or cost may be added thereto. Lessee, at its expense,
shall, to the extent required or permitted by Legal Requirements, prepare and
file all tax returns and reports in respect of any Imposition as may be required
by governmental authorities. If any refund shall be due from any taxing
authority in respect of any Imposition, the same shall be paid over to or
retained by Lessee if no Event of Default shall have occurred hereunder and be
continuing, but if such Event of Default has occurred and is continuing (I.E.,
it has not been cured), such refund shall be paid to Lessor and utilized to cure
any such continuing Event of Default. After fully curing such Event of Default,
any excess funds from such refund shall be paid by Lessor to Lessee. Any such
funds retained by Lessor, as provided above, shall be applied as provided in
Article XVI. Lessor and Lessee shall, upon request of the other, provide such
data as is maintained by the party to whom the request is made with respect to
the Leased Property as may be necessary to prepare any required returns and
reports. In the event governmental authorities classify any property covered by
this Lease as personal property, Lessee shall file all personal property tax
returns in such jurisdictions where it must legally so file. Lessor, to the
extent it possesses the same, and Lessee, to the extent it possesses the same,
will provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property. Where Lessor is legally required to file personal property tax
returns, Lessee will provide to Lessor copies of assessment notices indicating a
value in excess of the reported value in sufficient time for Lessor to file a
protest. Lessee may, upon notice to Lessor, at Lessee's option and at Lessee's
sole cost and expense, protest, appeal or institute such proceedings as Lessee
may deem appropriate to effect a reduction of real estate or personal property
assessments and Lessor, at Lessee's sole cost and expense as aforesaid, shall
fully cooperate with Lessee in such protest, appeal, or other action, provided
that Lessee may not withhold payments pending such challenges except under the
conditions set forth in Article XII. Billings for reimbursement by Lessee to
Lessor of personal property taxes shall be accompanied by copies of a bill
therefor and payments thereof which identify the personal property with respect
to which such payments are made. Lessor shall have the right, once any Event of
Default has occurred hereunder (and irrespective of whether such Event of
Default is continuing or has been cured), to require that Lessee pay to Lessor
1/12th of the annual Impositions each month concurrently with the payment of
Minimum Rent; provided that, during any period when such payments are being
made, Lessor agrees (a) to pay, or cause to be paid, all
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such Impositions prior to delinquency, and (b) upon written request from
Lessee, to account to Lessee for all payments then on deposit. Unless Lessee
is notified by Lessor otherwise, Lessee shall pay all "Impositions" directly
to the appropriate taxing or other authorities to which payments are due, and
upon written request Lessee shall provide Lessor written evidence and notice
that all such payments have been made. Without limiting any of the other
indemnities set forth in this Lease, Lessee hereby agrees to defend,
indemnify, protect and hold harmless Lessor in connection with any
"Impositions" that relate to any time prior to or during the Term, and Lessee
acknowledges and agrees that it will not make claims against, or otherwise
look to, Lessor to reimburse Lessee for payments made relating to any period
prior to the Commencement Date.
4.2 NOTICE OF IMPOSITIONS. Lessor shall give prompt
Notice to Lessee for all Impositions payable by Lessee hereunder of which Lessor
has knowledge, but Lessor's failure to give any such Notice shall in no way
diminish Lessee's obligations hereunder to pay such Impositions, but such
failure shall obviate any default hereunder for a reasonable time after Lessee
receives notice (from any source) of any Imposition which it is obligated to
pay. However, notwithstanding the foregoing, it shall be Lessee's sole duty to
inquire and determine all of the Impositions for which it is liable as provided
herein and shall promptly pay such Impositions when due, and Lessor shall have
no duty of inquiry concerning Impositions.
4.3 UTILITY CHARGES. Lessee will pay or cause to be paid
all charges for electricity, power, gas, oil, water, sewer connection and all
other utilities used in or for the Leased Property during the Term.
4.4 INSURANCE PREMIUMS. Lessee will pay or cause to be
paid all premiums for the insurance coverage required to be maintained pursuant
to Article XIII during the Term.
4.5 PAYABLES. Lessee acknowledges and agrees that prior
to the Rent Commencement Date, certain liabilities and other obligations were
incurred arising from the development, construction and operation of the
Facility for which Lessee is and shall remain entirely responsible and liable,
and Lessor shall have no responsibility, liability or obligation whatsoever with
respect to the same. Therefore, Lessee agrees as part of this Lease to pay all
liabilities and obligations concerning the Facility, whether arising before or
after the Rent Commencement Date.
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ARTICLE V
5.1 NO TERMINATION, ABATEMENT, ETC. Except as
specifically provided under Article XV hereunder, Lessee shall not be entitled
to any abatement, deduction, deferment or reduction of Rent, or set-off against
the Rent, nor shall the respective obligations of Lessor and Lessee be otherwise
affected by reasons of (a) any damage to, or destruction of, any Leased Property
or any portion thereof; (b) the lawful or unlawful prohibition of, or
restriction upon, Lessee's use of the Leased Property, or any portion thereof,
the interference with such use by any person, corporation, partnership or other
entity, or by reason of eviction by paramount title; (c) any claim which Lessee
has or might have against Lessor or by reason of any default or breach of any
warranty by Lessor under this Lease or any other agreement between Lessor and
Lessee, or to which Lessor and Lessee are parties; (d) any bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation, dissolution,
winding-up or other proceedings affecting Lessor or any assignee or transferee
of Lessor; or (e) for any other cause whether similar or dissimilar to any of
the foregoing other than a discharge of Lessee from any such obligations as a
matter of law. Lessee hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law to
(i) modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof; or (ii) entitle Lessee to any abatement,
reduction, suspension or deferment of the Rent payable under this Lease except
as specifically provided in Article XV hereunder. The obligations of Lessor and
Lessee hereunder shall be separate and independent covenants and agreements and
the Rent due under this Lease shall continue to be payable in all events,
irrespective of Lessor's performance or non-performance under this Lease, unless
the obligations to pay the same shall be terminated pursuant to the express
provisions of this Lease or by termination of this Lease other than by reason of
an Event of Default.
5.2 ABATEMENT PROCEDURES. In the event Lessee is
entitled to an abatement of Minimum Rent under Paragraph 15.3 (by reason of a
total Condemnation of the Facility), the Minimum Rent shall be abated as
provided in Paragraph 15.3. In the event Lessee is entitled to an abatement of
Minimum Rent under Paragraph 15.5 (by reason of any partial Condemnation of the
Facility as provided hereunder), the Lease shall not terminate but the Minimum
Rent shall be abated in proportion to the reduced capacity of the Leased
Property for the use made of the same by Lessee at the time of the Condemnation
(I.E., the reduction in the number of residents the Leased Property can
accommodate under standards existing immediately prior to the Condemnation). If
Lessor and Lessee are unable to agree upon the amount of such abatement within
thirty (30) days after any partial taking as provided under Article XV, the
matter shall be submitted by either party to a court of competent jurisdiction
for resolution, but Lessee during such resolution shall continue to perform its
obligations hereunder, including, but not limited to, payment of that portion of
the Minimum Rent which is not then in dispute.
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ARTICLE VI
6.1 OWNERSHIP OF THE LEASED PROPERTY. Lessee
acknowledges and agrees that the Leased Property is the property of Lessor and
that Lessee has only the right to the exclusive possession and use of the Leased
Property upon the terms and conditions of this Lease.
6.2 LESSEE'S ALTERATIONS. Lessee shall not make any
modifications, alterations or improvements, whether by addition or deletion, to
the Leased Improvements or any portion thereof (collectively, "Alterations")
without Lessor's prior written consent; provided, however that Lessee may, at
its sole cost and expense, make non-structural Alterations to the interior of
the Leased Improvements so long as the total cost thereof is less than One
Hundred Fifty Thousand and 00/100 Dollars ($150,000) during any Lease Year
unless approved in advance in writing by Lessor. Any Alterations by Lessee
during the Term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and in compliance with law. Lessee will not
make any Alteration or other improvement that may materially impair the value or
the usefulness of the Leased Property or any part thereof for its Primary
Intended Use. Subject to the provisions of Article XI, all Alterations and
other improvements shall be lien free (I.E., without mechanics', materialmen's
or other liens). Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessee shall, at its sole cost
and expense, repair and restore the Leased Property as and when required under
Paragraph 9.1.
6.3 LESSEE'S PERSONAL PROPERTY. Lessee may (and shall as
provided hereinbelow), at its expense, install, assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of Lessee's Personal
Property, and Lessee may, subject to the conditions set forth below, remove the
same upon the expiration or any prior termination of the Term. Lessee shall
provide and maintain during the entire Term all such Lessee's Personal Property
as shall be necessary in order to operate the Facility in compliance with all
licensure and certification requirements, in compliance with all applicable
Legal Requirements and Insurance Requirements and otherwise in accordance with
customary practice in the industry for the Primary Intended Use. All of
Lessee's Personal Property not removed by Lessee within twenty (20) days
following the expiration or earlier termination of this Lease shall be
considered abandoned by Lessee and may be used, appropriated, sold, destroyed,
or otherwise disposed of by Lessor without first giving notice thereof to Lessee
and without any payment to Lessee and without any obligation to account
therefor. Lessee shall, within twenty (20) days following the expiration or
earlier termination of this Lease, at its sole cost and expense, repair any
damage to the Land or the Leased Improvements occasioned by the installation,
maintenance or removal of Lessee's Personal Property, and restore the Land or
Leased Improvements to its condition immediately prior to any such installation.
6.4 CONSUMABLE INVENTORY. Lessor and Lessee acknowledge
that certain inventory, including consumables, at the Facility, as of the
Commencement Date (Consumable Inventory") will be completely consumed or
otherwise disposed of during the course of Lessee's operation of the Facility.
Lessee agrees that, at the end of the Term or earlier termination of the
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Lease, it shall replace and restore the Consumable Inventory to the type and
amount (with the same value) as that existing as of the Commencement Date,
and as may otherwise be sufficient to fully equip the Facility for its
operation and maintenance as may be customary for properties comparable to
the Leased Property in the State of Ohio.
ARTICLE VII
7.1 CONDITION OF LEASED PROPERTY. Lessee acknowledges
receipt and delivery of possession of the Leased Property and further
acknowledges that Lessee has examined and otherwise has knowledge of the
condition of the Leased Property prior to the execution and delivery of this
Lease and has found the same to be in good order and repair and satisfactory for
it purposes hereunder. Lessee represents and warrants that the Personal
Property (as defined in Paragraph 1.1(v) hereof) includes all equipment and
property required under applicable federal and state law to operate the Facility
at full capacity. Lessee is leasing the Leased Property "AS-IS" in its present
condition. Lessee waives any claim or action against Lessor in respect of the
condition of the Leased Property. LESSOR MAKES NO WARRANTY OR REPRESENTATIONS,
EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF,
EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR THE MATERIAL OR
WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL SUCH RISKS ARE
TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED PROPERTY HAS BEEN
INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. WITHOUT LIMITING THE FOREGOING,
IT SHALL BE LESSEE'S RESPONSIBILITY TO DETERMINE THE AMOUNT OF REIMBURSEMENT AND
OTHER PAYMENTS THAT IT IS ENTITLED TO RECEIVE FROM THE FEDERAL, STATE OR LOCAL
GOVERNMENTS AND LESSEE'S OBLIGATIONS UNDER THIS LEASE SHALL NOT BE MODIFIED,
CHANGED OR OTHERWISE BE REDUCED IN THE EVENT THAT LESSEE HAS INCORRECTLY
ANALYZED THE AMOUNTS TO BE PAID TO LESSEE BY ANY GOVERNMENT OR AGENCY THEREOF.
7.2 USE OF THE LEASED PROPERTY.
7.2.1 Lessee covenants that it will obtain and
will at all times during the Term maintain all approvals needed to use and
operate the Leased Property and the Facility under applicable federal, state and
local law, including, but not limited to, licensure and Medicaid certification,
if and as applicable. Lessee shall provide to Lessor, at Lessor's request a
copy of any report or survey conducted by any federal, state or local government
entity regarding the quality of care at the Facility, and any other such
information or documents concerning the operation of the Facility.
7.2.2 After the Commencement Date and during the
entire Term, Lessee shall use or cause to be used the Leased Property as an
assisted living facility licensed (if applicable) by the State of Ohio and uses
incidental to the foregoing, including without limitation
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home health services provided in accordance with and as contemplated under
Paragraph 22, below (the particular such use to which the Leased Property is
put at any particular time is herein referred to as the "Primary Intended
Use"). Lessee shall not use the Leased Property or any portion thereof for
any other use without the prior written consent of Lessor, which consent may
be withheld in Lessor's sole and absolute discretion. No use shall be made
of the Leased Property, and no acts shall be done, which will cause the
cancellation of any insurance policy to residents therein, or permit to be
kept, used or sold in or about the Leased Property any article which may be
prohibited by law or by the standard form of fire insurance policies, or any
other insurance policies required to be carried hereunder, or fire
underwriter's regulations. Lessee shall, at its sole cost, comply with all
of the requirements pertaining to the Leased Property or other improvements
of any insurance board, association, organization, or company necessary for
the maintenance of insurance, as herein provided, covering the Leased
Property and Lessee's Personal Property.
7.2.3 Lessee covenants and agrees that subject to
damage, destruction and condemnation described in Articles XIV and XV, during
the Term it will operate continuously the entirety of the Leased Property in
accordance with its Primary Intended Use, provided that Lessee may cease
operations for more than ten (10) days (i) if Lessee obtains Lessor's prior
written approval, and (ii) so long as such cessation of operations does not
impair or threaten the status or effectiveness of the operating license or other
certification for operating the Facility in accordance with its Primary Intended
Use.
7.2.4 Lessee shall not commit or suffer to be
committed any waste on the Leased Property, or in the Facility nor shall Lessee
cause or permit any nuisance thereon.
7.2.5 Lessee shall neither suffer nor permit the
Leased Property or any portion thereof, including Lessee's Personal Property, to
be used in such a manner as (i) might reasonably tend to impair Lessor's (or
Lessee's, as the case may be) title thereto or to any portion thereof; or (ii)
may reasonably make possible a claim or claims of adverse usage or adverse
possession by the public, as such, or of implied dedication of the Leased
Property or any portion thereof.
7.2.6 Lessee covenants and agrees that during the
Term it will maintain all licenses, approvals, permits and certifications for
reimbursement, licensure and as otherwise required for operating the Facility in
accordance with its Primary Intended Use.
7.3 PRESERVATION OF GROSS REVENUES. Lessee acknowledges
that a fair return to Lessor on its investment in the Leased Property is
dependent, in part, on the concentration of the Leased Property during the Term
of the assisted living business of Lessee and its Affiliates in the geographical
area of the Leased Property. Lessee further acknowledges that diversion of
residents and/or patients, as applicable, from the Facility to other facilities
or institutions owned, operated or managed, whether directly or indirectly, by
Lessee or its Affiliates will have a material adverse impact on the value and
utility of the Leased Property. Accordingly, Lessor and Lessee agree as
follows:
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7.3.1 During the Term neither Lessee nor any of
its Affiliates, directly or indirectly, shall operate, own, manage or have any
interest in or otherwise participate in or receive revenues from any other
facility or institution providing services or similar goods to those provided in
connection with the Facility and the Primary Intended Use, within a four (4)
mile radius outward from the outside boundary of the Facility. All distances
shall be measured on a straight line rather than on a driving distance basis.
In the event that any portion of such other facility or institution is located
within such restricted area, the entire facility or institution shall be deemed
located within such restricted area.
7.3.2 During the Term, Lessee shall not recommend
or solicit the removal or transfer of any resident or patient from any Facility
to other facility or institution; provided however that the provisions of this
Paragraph 7.3.2 shall not apply to removals or transfers required for medically
appropriate reasons, or required during the period of reconstruction or
restoration, if any, permitted after any casualty event pursuant to Article XIV
below or after any Condemnation pursuant to Article XV below.
ARTICLE VIII
8.1 COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS,
INSTRUMENTS, ETC. Subject to Article XII relating to permitted contests,
Lessee, at its sole cost and expense, will promptly (a) comply with all
applicable Legal Requirements and Insurance Requirements in respect of the use,
operation, maintenance, repair, and restoration of the Leased Property, whether
or not compliance therewith shall require structural changes in any of the
Leased Improvements or interfere with the use and enjoyment of the Leased
Property; and (b) procure, maintain and comply with all licenses, certificates
of need, provider agreements and other authorizations, if any, required for any
use of the Leased Property and Lessee's Personal Property then being made, and
for the proper erection, installation, operation, and maintenance of the Leased
Property or any part thereof.
8.2 LEGAL REQUIREMENT COVENANTS. Lessee covenants and
agrees that the Leased Property and Lessee's Personal Property shall not be used
for any unlawful purpose. Lessee further warrants and represents that Lessee
has obtained all necessary governmental approvals and has given all necessary
notices to allow Lessee to operate the Facility and all of the Leased Property
for its Primary Intended Use. Lessee shall acquire and maintain all licenses,
certificates, permits, provider agreements and other authorizations and
approvals needed to operate the Facility and the Leased Property in its
customary manner for the Primary Intended Use, and any other use conducted on
the Leased Property as may be permitted by Lessor from time-to-time hereunder.
Lessee further covenants and agrees that Lessee's use of the Leased Property and
maintenance, alteration and operation of the same, and all parts thereof, shall
at all times conform to all applicable federal, state and local laws,
ordinances, rules, and regulations unless the same are held by a court of
competent jurisdiction to be unlawful. Lessee, may, however, upon prior written
notice to Lessor, contest the legality or applicability of any such law,
ordinance, rule, or regulation, or any licensure or certification decision if
Lessee maintains such action in good faith, with due
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diligence, without prejudice to Lessor's rights hereunder, and at Lessee's
own expense. If by the terms of any such law, ordinance, rule or regulation,
compliance therewith pending the prosecution of any such proceeding may
legally be delayed without the incurrence of any fine, charge or liability of
any kind against the Leased Property, including the Facility, or Lessee's
leasehold interest therein and without subjecting Lessor to any liability,
civil or criminal, for failure so to comply therewith, Lessee may delay
compliance therewith until the final determination of such proceeding. If
any lien, charge or civil or criminal liability would be incurred by reason
of any such delay, Lessee, on the prior written consent of Lessor, may
nonetheless contest as aforesaid and delay as aforesaid provided that such
delay would not subject Lessor to criminal liability and Lessee both (a)
furnishes to Lessor security reasonably satisfactory to Lessor against any
loss or injury by reason of such contest or delay; and (b) prosecutes the
contest continuously, with due diligence and in good faith.
ARTICLE IX
9.1 MAINTENANCE AND REPAIR.
9.1.1 Lessee, at its sole cost and expense, will
keep the Leased Property and all portions thereof and Lessee's Personal Property
and all private roadways, sidewalks and curbs appurtenant thereto and which are
under Lessee's control in good order and repair (whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the elements or
the age of the Leased Property, or any portion thereof), and, except as
otherwise provided in Article XIV, with reasonable promptness, make all
necessary and appropriate repairs thereto of every kind and nature, whether
interior or exterior, structural or non-structural, ordinary or extraordinary,
foreseen or unforeseen or arising by reason of a condition existing prior to the
Commencement Date (concealed or otherwise). All repairs shall, to the extent
reasonably achievable, be at least equivalent in quality to the original work.
Lessee will not take or omit to take any action the taking or omission of which
may materially impair the value or the usefulness of the Leased Property or any
part thereof for its Primary Intended Use. Any repair work performed by Lessee
shall be paid for so that no lien (I.E., mechanics', materialmen's or other
liens) shall attach to the Leased Property, subject to Article XII.
9.1.2 Lessor shall not under any circumstances be
required to build or rebuild any improvements on the Leased Property, or to make
any repairs, replacements, alterations, restorations, or renewals of any nature
or description to the Leased Property, whether ordinary or extraordinary,
structural or non-structural, foreseen or unforeseen, or to make any expenditure
whatsoever with respect thereto, in connection with this Lease, or to maintain
the Leased Property in any way. Lessee hereby waives, to the extent permitted
by law, the right to make repairs at the expense of Lessor pursuant to any law
in effect at the time of the execution of this Lease or hereafter enacted.
Lessor shall have the right to give, record and post, as appropriate, notices of
non-responsibility (or similar notices) under any mechanics' or materialmen's
lien laws now or hereafter existing.
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9.1.3 Nothing contained in this Lease and no
action or inaction by Lessor shall be construed as (i) constituting the consent
or request of Lessor, express or implied, to any contractor, sub-contractor,
laborer, materialman, or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair, or demolition of, or to the Leased
Property or any part thereof; or (ii) giving Lessee any right, power or
permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would
permit the making of any claim against Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for any right, title,
interest, lien, claim, or other encumbrance upon the estate of Lessor in the
Leased Property, or any portion thereof. Lessor shall have the right to give,
record and post, as appropriate, notices of non-responsibility (or similar
notices) under any mechanics' or materialsmen's lien laws now or hereafter
existing.
9.1.4 Unless Lessor shall convey any of the Leased
Property to Lessee pursuant to the provisions of this Lease, and subject to the
provisions of Paragraph 6.3 regarding Lessee's Personal Property, upon the
expiration or prior termination of the Term, all the Leased Property, including
all Fixtures and Personal Property located thereon, and any Alterations,
repairs, restorations, additions or improvements otherwise made by or for
Lessee, shall be Lessor's property and shall be vacated and surrendered to
Lessor in the condition in which the Leased Property was originally received
from Lessor, and in the same type and amount (with the same depreciated value)
as that existing as of the Commencement Date, except as repaired, rebuilt,
restored, altered or added to as permitted or required under this Lease, and as
otherwise sufficient to fully equip the Facility for its operation and
maintenance as may be customary for properties comparable to the Leased Property
in the County of Cuyahoga, Ohio, and except for ordinary wear and tear (subject
to the obligation of Lessee to maintain the Leased Property) in good order and
repair without compensation to Lessee; provided however that, at the election of
Lessor, exercisable by notice to Lessee, Lessee shall, at Lessee's sole cost and
expense, prior to the expiration or prior termination of the Term, remove from
the Leased Property any Fixtures, Personal Property, Alterations or other
improvements to the Leased Property or any portion thereof that were not
consented to in advance in writing by Lessor, irrespective of whether Lessor's
consent was required hereunder, and Lessee shall repair any damage to the Leased
Property occasioned by the installation, maintenance or removal of the same, and
restore the Leased Property to its condition immediately prior to such
installation. Notwithstanding the foregoing, if this Lease is terminated
pursuant to Paragraph 14.7 due to damage or destruction during the last 24
months of the Term (as described in Paragraph 14.7), then, unless the damag or
destruction was due to Lessee's negligent acts or omissions or willful
misconduct, at the end of the Term (shortened due to the damage and destruction)
Lessee shall not be obligated to repair any items that were damaged; provided
that nothing contained herein shall affect Lessee's obligation to maintain the
Leased Property in good order and repair during the entire Term. Additionally,
Lessor shall own and may remove, at the end of the Term (or at the earlier
termination of this Lease), all patient records and other records in connection
with the Facility, and in connection with the transfer of such records, Lessee
shall take all necessary action to insure full compliance with any and all
patient confidentiality, patient-physician privileges or any duly enacted
"Patient's Bill of Rights" or similar applicable laws or regulations.
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9.2 EXPENDITURES TO COMPLY WITH LAW; CONSTRUCTION OF
ADDITIONAL IMPROVEMENTS PURSUANT TO CERTIFICATE OF NEED. Without limiting
Lessee's other obligations, during the Term of this Lease, Lessee will, at its
expense, make whatever expenditures (including, but not limited to capital and
non-capital expenditures) that are required to conform the Leased Property to
such standards as may from time-to-time be required by Federal Medicaid (Title
19) assisted living programs, as and if applicable, or any other applicable
programs or legislation, or capital improvements required by any other
governmental agency having jurisdiction over the Leased Property as a condition
of the continued operation of the Leased Property during the Term (as extended)
as an assisted living residence or other health-care related facility, approved
for Medicaid and similar programs as and if applicable, pursuant to present or
future laws of governmental regulation.
9.3 ENCROACHMENTS, RESTRICTIONS, ETC. If any of the
Leased Improvements shall, at any time, encroach upon any property, street or
right-of-way adjacent to the Leased Property, or shall violate the agreements or
conditions contained in any lawful restrictive covenant or other agreement
affecting the Leased Property, or any part thereof, or shall impair the rights
of others under any easement or right-of-way to which the Leased Property is
subject, then promptly upon the request of Lessor at the behest of any person
affected by any such encroachment, violation or impairment, Lessee shall, at its
sole cost and expense, (and after Lessor's prior approval) subject to Lessee's
right to sue Lessor's predecessors in title with respect thereto or to contest
the existence of any such encroachment, violation or impairment and, in such
case, in the event of an adverse final determination, either (i) obtain valid
and effective waivers or settlements of all claims, liabilities and damages
resulting from each such encroachment, violation or impairment, whether the same
shall affect Lessor or the Leased Property; or (ii) make such changes in the
Leased Improvements, and take such other actions, as Lessee in the good faith
exercise of its judgment deems reasonably practicable, to remove such
encroachment, and to end such violation or impairment, including, if necessary,
the alteration of any of the Leased Improvements, and in any event take all such
actions as may be necessary in order to be able to continue the operation of the
Leased Improvements for the Primary Intended Use substantially in the manner and
to the extent the Leased Improvements were operated prior to the assertion of
such violation, impairment or encroachment. Any such alteration shall be made
in conformity with the applicable requirements of Paragraph 6.2 (provided that
Lessor shall not unreasonably withhold its consent) and this Article IX.
Lessee's obligations under this Paragraph 9.3 shall be in addition to and shall
in no way discharge or diminish any obligation of any insurer under any policy
of title or other insurance.
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ARTICLE X
10.1 LESSEE'S OBLIGATIONS FOR HAZARDOUS MATERIALS. Lessee
shall, at its sole cost and expense, take all actions as required to cause the
Leased Property including, but not limited to, the Land and all Leased
Improvements, to be free and clear of the presence of all Hazardous Materials
during the Term; provided, however, that Lessee shall be entitled to use and
maintain Hazardous Materials on the Leased Property of types and in the
quantities commonly used in assisted living facilities in the State of Ohio and
which have been used, stored and disposed of in compliance with all applicable
laws. In this connection, Lessee shall, upon its discovery, belief or suspicion
of the presence of Hazardous Materials on, in or under any part of the Leased
Property, including, but not limited to, the Land and all Leased Improvements in
violation of the preceding sentence, immediately notify Lessor and, at no
expense to Lessor, cause any such Hazardous Materials to be removed immediately,
in compliance with all applicable laws and in a manner causing the least
disruption of or interference with the operation of Lessee's business. Lessee
hereby agrees to fully indemnify, protect, defend and hold harmless Lessor from
any costs, damages, claims, liability or loss of any kind or nature arising out
of or in any way in connection with the presence, suspected presence, removal or
remediation of Hazardous Materials in, on, or about the Leased Property, or any
part thereof. Lessee acknowledges that it has received and reviewed a Phase I
Environmental Site Assessment prepared by ATC Associates, Inc. dated December
31, 1997 for the Facility (the "Environmental Report"). Without limiting
Lessee's other obligations under this Lease, Lessee agrees, at Lessee's sole
cost, to fully comply with all recommendations set forth in the Environmental
Report or any other environmental report (including, without limitation, any UST
System Closure Reports prepared by GETCO Environmental Consultants.) Lessee's
obligations hereunder shall apply to all Hazardous Materials, irrespective of
when they arose or were discovered and therefore will include any Hazardous
Materials that existed prior to, at, or after the Commencement Date and during
the Term.
10.2 DEFINITION OF HAZARDOUS MATERIALS. For purposes
of this Lease, "Hazardous Materials" shall mean (1) any flammables, explosive
or radioactive materials, hazardous wastes, toxic substances or related
materials including, without limitation, substances defined as "hazardous
substances," "hazardous materials", "toxic substances" or "solid waste" in
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, 42 U.S.C. Sec. 9601, ET SEQ.; the hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, ET SEQ.; the Toxic Substances
Control Act, 15 U.S.C., Section 2601 ET SEQ.; the Resource Conservation and
Recovery Act of 1976, 42 U.S.C. Section 6901 ET SEQ.; Occupational Safety and
Health Act, 29 U.S.C. Section 651, ET SEQ.; and in comparable State of Ohio and
local laws and ordinances, and the regulations now or hereafter adopted,
published and/or promulgated pursuant thereto; (2) those substances listed in
the United States Department of Transportation Table (49 C.F.R. 172.101 and
amendments thereto) or by the Environmental Protection Agency (or any
successor agency) as hazardous substances (40 C.F.R. Part 302 and amendments
thereto); (3) those substances defined as "hazardous wastes," "hazardous
substances" or "toxic substances" in any similar federal, state or local laws
or in the regulations adopted and publications promulgated pursuant to any of
the
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foregoing laws or which otherwise are regulated by any governmental
authority, agency, department, commission, board or instrumentality of the
United States of America, the State of Ohio or any political subdivision
thereof, (4) any pollutant or contaminant or hazardous, dangerous or toxic
chemicals, materials, or substances within the meaning of any other
applicable federal, state, or local law, regulation, ordinance, or
requirement (including consent decrees and administrative orders) relating to
or imposing liability or standards of conduct concerning any hazardous, toxic
or dangerous waste, substance or material, all as amended; (5) petroleum or
any by-products thereof; (6) any radioactive material, including any source,
special nuclear or by-product material as defined at 42 U.S.C. Sections 2011
ET SEQ., as amended, and in the regulations adopted and publications
promulgated pursuant to said law; (7) asbestos in any form or condition; and
(8) polychlorinated biphenyls. "Environmental Laws" means and includes any
law, ordinance, statute, rule, code, order, approval, regulation or
requirement now or hereinafter in effect relating to land use, air, soil,
surface water, groundwater (including the protection, cleanup, removal,
remediation or damage thereof), human health and safety or any other
environmental matter, including, without limitation, the following laws as
the same may be amended from time to time: Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C.
Section 9601, ET SEQ.; Federal Resource Conservation and Recovery Act, 42
U.S.C. Section 6901, ET SEQ.; Clean Water Act, 33 U.S.C. Section 1251,
ET SEQ.; Toxic Substances Control Act, 15 U.S.C. Section 2601, ET SEQ.;
Refuse Act, 33 U.S.C. Section 407; Occupational Safety and Health Act, 29
U.S.C. Section 651, ET SEQ.; Clean Air Act, 42 U.S.C. Section 7401,
ET SEQ.; and comparable Ohio laws; and any and all similar state and local
laws and ordinances and the regulations now or hereafter adopted, published
and/or promulgated pursuant thereto.
ARTICLE XI
11.1 NO LIENS. Subject to the provisions of Article XII
relating to permitted contests, Lessee will not directly or indirectly,
voluntarily or by operation of law, create or allow to remain and will promptly
discharge at its expense any lien, mortgage, encumbrance, attachment, title
retention agreement, or claim upon the Leased Property or any portion thereof,
or Lessee's interest under this Lease or any attachment, levy, claim, or
encumbrance in respect of the Rent, not including however, (a) this Lease; (b)
restrictions, liens and other encumbrances created or allowed pursuant to the
provisions of Paragraph 11.2 below; (c) liens for those taxes of Lessor which
Lessee is not required to pay hereunder; (d) subleases permitted by Article
XXIII; (e) liens for Impositions or for sums resulting from non-compliance with
Legal Requirements so long as (1) the same are not yet payable or are payable
without the addition of any fine or penalty, or (2) such liens are in the
process of being contested as permitted by Article XII; (f) liens of mechanics,
laborers, materialmen, suppliers or vendors for sums either disputed or not yet
due, provided that in the case of disputed sums any such liens are in the
process of being contested as permitted by Article XII; (g) any liens which are
the responsibility of Lessor pursuant to the provisions of Article XXXIII of
this Lease; (h) the Permitted Title Matters (defined in Paragraph 1.1 above);
and (i) any other matters that have been consented to in advance in writing by
Lessor.
11.2 PERMITTED LIENS. Lessee may borrow funds to finance
all or any part of the
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cost of any Alterations or other improvements permitted or required under
this Lease to the extent and upon such terms and conditions as may be
approved in advance in writing by Lessor in Lessor's sole discretion, subject
to Lessor's right of first refusal to finance such Alterations or other
improvements upon commercially reasonable terms and conditions; provided,
however, that Lessor's approval shall not be required for any borrowing of
funds that does not result in a lien, mortgage, encumbrance or other claim
affecting the Leased Property or Lessee's interest under this Lease.
Notwithstanding the foregoing, Lessee may grant security interests
encumbering specific items of Lessee's Personal Property (but not fixtures
attached to the Land) in favor of the lessors of or purchase-money lenders
for said items of Lessee's Personal Property, so long as such personal
property is permitted on the Land or in the Leased Improvements under
Paragraph 6.3 hereunder and is not owned by or subject to any claim or right
of Lessor.
ARTICLE XII
12. PERMITTED CONTESTS. Lessee shall have the right to contest
the amount or validity of any Imposition or any Legal Requirement or
Insurance Requirement or any lien, attachment, levy, encumbrance, charge or
claim ("Claims") not otherwise permitted by Article XI, by appropriate legal
proceedings in good faith and with due diligence, and to delay payment if
legally permitted. Any such legal proceeding (and delay in payment) shall
operate to extend the time for performance of Lessee's covenants to pay such
charges hereunder only so long as such Claims are in the process of being
diligently contested as permitted in this Article XII and such legal
proceedings (and delay in payment) do not cause the sale of the Leased
Property, or any part thereof, to satisfy the same or cause Lessor or Lessee
to be in default under any mortgage or deed of trust encumbering the Leased
Property or any interest therein; provided that such legal proceedings (and
delay in payment) shall not otherwise be deemed or construed as relieving,
modifying or extending Lessee's covenants to pay or its covenants to cause to
be paid any such charges at the time and in the manner provided for under
this Lease. Upon the reasonable request of Lessor, Lessee shall provide to
Lessor reasonable security satisfactory to Lessor, in Lessor's reasonable
discretion, to assure the payment of all Claims which may be assessed against
the Leased Property or any portion thereof together with interest and
penalties, if any, thereon. Lessor agrees to join in any such proceedings if
the same be required to legally prosecute such contest of the validity of
such Claims; provided, however, that Lessor shall not thereby be subjected to
any liability for the payment of any costs or expenses in connection with any
proceedings brought by Lessee; and Lessee covenants to indemnify and save
harmless Lessor from any such costs or expenses. In the event that Lessee
fails to pay any Claims when due or, upon Lessor's request, to provide the
security therefor as provided in this Article XII and to diligently prosecute
any contest of the same, Lessor may, upon thirty (30) days advance written
Notice to Lessee, pay such charges together with any interest and penalties
and the same shall be repayable by Lessee to Lessor at the next Payment Date
provided for in this Lease. Provided, however, that should Lessor reasonably
determine that the giving of such Notice would risk loss to the Leased
Property or cause damage to Lessor, then Lessor shall give such written
Notice as is practical under the circumstances. Lessee shall be entitled to
any refund of any Claims and such charges and penalties or interest thereon
which have been paid by Lessee or paid by Lessor and for which Lessor has
been fully reimbursed.
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ARTICLE XIII
13.1 GENERAL INSURANCE REQUIREMENTS. Subject to the
provisions of Paragraph 13.8, during the Term, Lessee shall at all times keep
the Leased Property, and all portions thereof and all property located in or
on the Leased Property, including Lessee's Personal Property, insured with
the kinds and amounts of insurance described below. This insurance shall be
written by companies authorized to do insurance business in the state in
which the Leased Property is located. The policies must name Lessor as a
loss payee and additional insured. Losses shall be payable to Lessor or
Lessee as provided in Article XIV. In addition, upon Lessor's written
request, the policies shall name as mortgagee, loss payee and additional
insured the holder ("Facility Mortgagee") of any mortgage, deed of trust or
other security agreement and any other Encumbrance placed on the Leased
Property or any portion thereof in accordance with the provisions of Article
XXXII ("Facility Mortgage") by way of a standard form of mortgagee's loss
payable endorsement. Any loss adjustment shall require the written consent
of Lessor, Lessee, and each Facility Mortgagee. Evidence of insurance shall
be deposited with Lessor and, if requested, with any Facility Mortgagee(s).
If any provision of any Facility Mortgage requires deposits of premiums for
insurance to be made with such Facility Mortgagee, or, pursuant to written
direction by Lessor upon the occurrence of any Event of Default hereunder
(and irrespective of whether such Event of Default is continuing or has been
cured), Lessee shall make such deposits directly with such Facility Mortgagee
or with Lessor, as required, provided that during any period when such
deposits are being made, the Facility Mortgagee or Lessor (depending on which
party collects such deposits) agrees (a) to pay the premiums on a timely
basis, and (b) upon written request from Lessee, to account to Lessee for all
funds then on deposit. The policies on the Leased Property, including the
Leased Improvements, Fixtures and Lessee's Personal Property, shall insure
against the following risks:
13.1.1 Loss or damage by fire, vandalism and
malicious mischief, extended coverage perils commonly known as "All Risk,"
and all physical loss perils normally included in such All Risk insurance,
including, but not limited to, sprinkler leakage, in an amount not less than
one hundred percent (100%) of the then full replacement cost thereof (as
defined below in Paragraph 13.2);
13.1.2 Loss or damage by explosion of steam
boilers, pressure vessels or similar apparatus, now or hereafter installed in
the Facility, if any, in such amounts with respect to any one accident as may
be reasonably requested by Lessor from time-to-time;
13.1.3 Business interruption insurance policy
covering risk of loss during the first twelve (12) months of reconstruction
necessitated by the occurrence of any of the hazards described in Paragraph
13.1.1 or 13.1.2 in an amount sufficient to prevent Lessor from becoming a
co-insurer.
13.1.4 Claims for personal injury or property
damage under a policy of
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comprehensive general public liability insurance with amounts not less than
One Million Dollars ($1,000,000) per occurrence, and with an annual aggregate
of Three Million Dollars ($3,000,000);
13.1.5 Claims arising out of malpractice or
other professional actions or omissions under a policy of professional
liability insurance with amounts not less than One Million Dollars
($1,000,000) per occurrence, and with an annual aggregate of Three Million
Dollars ($3,000,000);
13.1.6 Flood (if any of the Leased Improvements
are located in whole or in part within a flood plain area, as designated by
any governmental or other responsible agency and if such insurance is
available pursuant to applicable law) and such other hazards and in such
amounts as may be customary for comparable properties in the area; and
13.2 REPLACEMENT COST. The term "full replacement
cost" as used herein, shall mean the actual replacement cost of the Leased
Property requiring replacement from time-to-time including an increased cost
of construction endorsement, less exclusions provided in the standard form of
fire insurance policy in the state where the Leased Property is located.
Lessor and Lessee agree that as of the Commencement Date the full replacement
cost shall be deemed to be the "Purchase Price" less the value of the Land.
In the event either party believes that full replacement cost (the then
replacement cost less such exclusions) has increased or decreased at any time
during the Term, it shall have the right to have such full replacement cost
redetermined.
13.3 ADDITIONAL INSURANCE. In addition to the
insurance described above, Lessee shall maintain such additional insurance as
may be reasonably required from time-to-time by Lessor or any Facility
Mortgagee (to the extent available in the state where the Leased Property is
located) and shall further at all times maintain adequate worker's
compensation insurance coverage for all persons employed by Lessee on the
Leased Property or any portion thereof. Such worker's compensation insurance
shall be in accordance with the requirements of applicable federal, state and
local law.
13.4 WAIVER OF SUBROGATION. All insurance policies
carried by either party covering the Leased Property, the Fixtures, the
Facility, or Lessee's Personal Property including without limitations,
contents, fire and casualty insurance, shall expressly waive any right of
subrogation on the part of the insurer against the other party. The parties
hereto agree that their policies will include such waiver clause or
endorsement so long as the same are obtainable without extra cost, and in the
event of such an extra charge the other party, at its election, may pay the
same, but shall not be obligated to do so. Upon written request, each party
shall provide the other party with a copy of each insurance policy with the
waiver clause or endorsement attached.
13.5 FORM SATISFACTORY, ETC. All of the policies of
insurance referred to in this Article XIII shall be written in a form
reasonably satisfactory to Lessor and by insurance companies reasonably
satisfactory to Lessor. Subject to the foregoing, Lessor agrees that it will
not unreasonably withhold its approval as to the form of the policies of
insurance or as to the insurance
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companies selected by Lessee. Lessee shall pay all of the premiums therefor,
and deliver such policies or certificates thereof to Lessor prior to their
effective date (and, with respect to any renewal policy, prior to the
expiration of the existing policy), and in the event of the failure of Lessee
either to effect such insurance as herein called for or to pay the premiums
therefor, or to deliver such policies or certificates thereof to Lessor at
the times required, Lessor shall be entitled, but shall have no obligation,
to effect such insurance and pay the premiums therefor, which premiums shall
be repayable by Lessee to Lessor upon written demand therefor, and failure to
repay the same shall constitute an Event of Default within the meaning of
Paragraph 16.1(c). Each insurer mentioned in this Article XIII shall agree,
by endorsement on the policy or policies issued by it, or by independent
instrument furnished to Lessor, that will give to Lessor (and to any Facility
Mortgagee, if required by the same) thirty (30) days written notice before
the policy or policies in questions shall be altered, allowed to expire or
cancel.
13.6 INCREASE IN LIMITS. In the event that Lessor or a
Facility Mortgagee shall at any time reasonably deem the limits of the
personal injury or property damage public liability insurance then carried to
be insufficient, Lessee shall thereafter carry the insurance with increased
limits until further change pursuant to the provisions of this Paragraph;
provided that if Lessor desires to increase the limits of insurance, and such
is not pursuant to the request of a Facility Mortgagee, then Lessor may not
demand an increase in limits above the limits generally consistent with the
requirements of owners of assisted living facilities in the State of Ohio.
13.7 BLANKET POLICY. Notwithstanding anything to the
contrary contained in this Article XIII, Lessee's obligations to carry the
insurance provided for herein may be brought within the coverage of a
so-called blanket policy or policies of insurance carried and maintained by
Lessee; provided, however, that the coverage afforded Lessor will not be
reduced or diminished or otherwise be different from that which would exist
under a separate policy meeting all other requirements of this Lease by
reason of the use of such blanket policy of insurance, and provided further
that the requirements of this Article XIII are otherwise satisfied.
13.8 NO SEPARATE INSURANCE. Lessee shall not on
Lessee's own initiative or pursuant to the request or requirement of any
third party take out separate insurance concurrent in form or contributing in
the event of loss with that required in this Article, to be furnished or
which may reasonably be required to be furnished, by Lessee or increase the
amount of any then existing insurance by securing any additional policy or
additional policies, unless all parties having an insurable interest in the
subject matter of the insurance, including in all cases Lessor and all
Facility Mortgagees, are included therein as additional insureds, and the
loss is payable under said insurance in the same manner as losses are payable
under the Lease. Lessee shall immediately notify Lessor of the taking out of
any such separate insurance or of the increasing of any of the amount of the
then existing insurance.
13.9 CONTINUOUS COVERAGE. Lessee shall assure that
there is no gap in the insurance coverage provided in connection with the
Facility at or after the Commencement Date and, therefore, the insurance
provided by Lessee shall be continuous, with the types and amounts of
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coverage, described herein to be applicable on the Commencement Date. To the
extent there is not full, complete and continuous coverage for all issues, no
matter when arising, claimed or occurring, Lessee shall, at its sole cost,
obtain such insurance.
ARTICLE XIV
14.1 INSURANCE PROCEEDS. All proceeds payable by reason of any
loss of or damage to the Leased Property, or any portion thereof, which is
insured under any policy of insurance required by Article XIII of the Lease,
where the total proceeds paid by the insurer are less than $125,000.00, shall
be paid to Lessee and applied to the reconstruction or repair, as the case
may be, of any damage to or destruction of the Leased Property, or any
portion thereof. All proceeds payable by reason of any loss of or damage to
the Leased Property, or any portion thereof, which is insured under any
policy of insurance required by Article XIII of this Lease where the total
proceeds paid by the insurer are equal to or in excess of $125,000.00 shall
be paid to Lessor and held by Lessor in trust (subject to the provisions of
Paragraph 14.7) and shall be made available for reconstruction or repair, as
the case may be, of any damage to or destruction of the Leased Property, or
any portion thereof, and shall be paid out by Lessor from time-to-time for
the reasonable costs of such reconstruction or repair. Any excess proceeds
of insurance remaining after the completion of the restoration or
reconstruction of the Leased Property shall go to Lessee, provided the Lease
is in force and there exists no uncured Event of Default; otherwise such
excess shall be paid to Lessor for application as set forth in Article XVI
hereof. In the event neither Lessor nor Lessee is required or elects to
repair and restore, and the Lease is terminated as described in Paragraph
14.7, all such insurance proceeds shall be retained by Lessor. All salvage
resulting from any risk covered by insurance shall belong to Lessor except
that any salvage relating to Lessee's Personal Property shall belong to
Lessee.
14.2 RECONSTRUCTION IN THE EVENT OF DAMAGE OR DESTRUCTION COVERED
BY INSURANCE PROCEEDS.
14.2.1 Except as provided in Paragraph 14.7, if
during the Term, the Facility or any portion of the Leased Property is
totally or partially destroyed by a risk covered by the insurance described
in Article XIII and whether or not the Facility is rendered Unsuitable for
Its Primary Intended Use, Lessee shall restore the Leased Property to
substantially the same condition as existed immediately before the damage or
destruction. Lessee shall be entitled to the insurance proceeds for the
purpose of such repair and restoration.
14.2.2 If the cost of the repair or restoration
exceeds the amount of proceeds received by Lessee or Lessor from the
insurance required under Article XIII as provided in Paragraph 14.1, above,
Lessee shall be obligated to restore the Leased Property and pay the extra
cost therefor, provided that, prior to commencing the repair and restoration,
Lessee shall either (i) contribute any excess amount needed to restore the
Leased Property, or (ii) provide Lessor with satisfactory evidence that such
funds are, and throughout the entire period of reconstruction will be,
available. If Lessee contributes such excess in cash, such excess shall be
paid by Lessee to Lessor
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to be held in trust, together with any insurance proceeds, for application to
the cost of repair and restoration.
14.3 RECONSTRUCTION IN THE EVENT OF DAMAGE OR
DESTRUCTION NOT COVERED BY INSURANCE. Except as provided in Paragraph 14.7
below, if during the Term the Facility or any portion of the Leased Property
is damaged or destroyed irrespective of the extent of the damage from a risk
not covered by the insurance described in Article XIII, whether or not such
damage or renders the Facility Unsuitable for Its Primary Intended Use,
Lessee shall restore the Leased Property to substantially the same condition
it was in immediately before such damage or destruction and such damage or
destruction shall not terminate this Lease.
14.4 LESSEE'S PROPERTY. All insurance proceeds payable
by reason of any loss of or damage to any of Lessee's Personal Property shall
be paid to Lessee, and Lessee shall hold such insurance proceeds in trust to
pay the cost of repairing or replacing damaged Lessee's Personal Property.
Any proceeds in excess of the cost of repairing or replacing any such
Lessee's Personal Property shall belong to Lessee.
14.5 RESTORATION OF LESSEE'S PROPERTY. Without
limiting Lessee's obligation to restore the Leased Property as provided in
Paragraphs 14.2 and 14.3, Lessee shall also pay the cost to restore all
Alterations and other improvements made by Lessee which Lessee elects to
restore, including Lessee's Personal Property to the extent that Lessee's
Personal Property is necessary to the operation of the Leased Property for
its Primary Intended Use in accordance with applicable Legal Requirements.
14.6 NO ABATEMENT OF RENT. This Lease shall remain in
full force and effect and Lessee's obligation to make rental payments and to
pay all other charges required by this Lease shall remain unabated during any
period required for repair and restoration.
14.7 DAMAGE NEAR END OF TERM. Notwithstanding any
provisions of Paragraph 14.2 or 14.3 appearing to be contrary, if damage to
or destruction of the Facility occurs during the last six (6) months of the
Term (in calculating such 6 months, any Extended Terms as to which Lessee
exercised its option prior to or after the occurrence of such damage or
destruction shall be included), and if such damage or destruction cannot be
fully repaired and restored within six (6) months immediately following the
date of damage or destruction, then Lessor and Lessee shall each have the
right to terminate this Lease by giving written notice to the other within
thirty (30) days after the date of damage or destruction. If the Lease so
terminates as provided in this Paragraph 14.7, and unless the damage or
destruction was due to Lessee's negligent acts or omissions or willful
misconduct, Lessee shall have no responsibility to repair or restore the
damaged or destroyed Facility. Upon the termination of this Lease the
Minimum Rent payable by Lessee hereunder with regard to the Facility shall be
apportioned as of the date this Lease is terminated.
14.8 TERMINATION OF OPTION TO EXTEND. Any termination
of this Lease pursuant to this Article XIV shall cause any unexercised
options to extend the Lease under Article XVIII to
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be terminated and without further force or effect.
14.9 WAIVER. Lessee hereby waives any statutory rights
of termination which may arise by reason of any damage to or destruction of
the Leased Property or any portion thereof which Lessor is obligated to
restore or may restore under any of the provisions of this Lease.
ARTICLE XV
15. CONDEMNATION.
15.1 DEFINITIONS.
15.1.1 "Condemnation" means (a) the exercise of
any governmental power, whether by legal proceedings or otherwise, by a
Condemnor; (b) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of Condemnation or while legal proceedings for
Condemnation are pending.
15.1.2 "Date of Taking" means the date the
Condemnor has the right to possession of the property being condemned.
15.1.3 "Award" means all compensation, sums or
anything of value awarded, paid or received on a total or partial Condemnation.
15.1.4 "Condemnor" means any public or quasi-public
authority, or private corporation or individual, having the power of
Condemnation.
15.2 PARTIES' RIGHTS AND OBLIGATIONS. If during the Term
there is any taking of all or any part of the Facility, the Leased Property or
any interest in this Lease by Condemnation, the rights and obligations of the
parties shall be determined by this Article XV.
15.3 TOTAL CONDEMNATION. If title to the fee of the whole
of the Facility shall be taken or condemned by any Condemnor, this Lease shall
cease and terminate as of the Date of Condemnation by said Condemnor. If title
to the fee of less than the whole of the Leased Property shall be so taken or
condemned, which nevertheless renders the Facility Unsuitable for Its Primary
Intended Use, as reasonably determined by Lessor and Lessee, Lessee and Lessor
shall each have the option by written Notice to the other, at any time at or
prior to the taking of possession by, or the date of vesting of title in, such
Condemnor, whichever first occurs, to terminate this Lease as of the date of the
occurrence of such first event. If such Notice has timely been given, this
Lease shall thereupon cease and terminate. Upon the termination of this Lease
in accordance with this Paragraph 15.3, the Minimum Rent payable by Lessee
hereunder shall be apportioned as of the date the Lease terminates.
15.4 ALLOCATION OF PORTION OF AWARD. The total Award
made with respect to all or any portion of the Leased Property or for loss of
rent, or for loss of business, whether or not
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beyond the Term of this Lease, or for the loss of value of the leasehold
(including the bonus value of the Lease) shall be solely the property of and
payable to Lessor and Lessee hereby assigns to Lessor any and all rights in
such Award; provided, however, that Lessee shall be entitled to make a
separate claim for the taking of Lessee's Personal Property and relocation
expense as long as any such claim will not in any way diminish Lessor's
Award, or for any other loss that can be awarded to Lessee separately from
Lessor's claim and which will not in any respect whatsoever diminish or
threaten to diminish the total amounts to be awarded to Lessor, as set forth
above or otherwise. To the extent Lessee's claim may thereafter reduce
Lessor's claim, Lessee shall, and hereby does, assign its claim to Lessor.
In any Condemnation proceedings, each of the Lessor and Lessee shall seek its
own claim in conformity herewith, at its own expense.
15.5 PARTIAL TAKING. If title to the fee of less than
the whole of any Facility shall be so taken or condemned, and the Facility is
still suitable for its Primary Intended Use, as reasonably determined by
Lessor and Lessee, or if Lessee or Lessor shall be so entitled, but shall not
elect to terminate this Lease as provided in Paragraph 15.3 hereof, Lessee,
at its own cost and expense (subject to Lessor's contribution described
below), shall with all reasonable dispatch restore the untaken portion of any
Leased Improvements on the Leased Property so that such Leased Improvements
shall constitute a complete architectural unit of the same general character
and condition (as nearly as may be possible under the circumstances) as the
Leased Improvements existed immediately prior to such Condemnation. Lessor
shall contribute to the cost of restoration that part of its Award as is
reasonably necessary to accomplish such restoration, provided, however, the
amount of such contribution shall not exceed the cost of restoration. The
Minimum Rent shall be reduced as set forth in Paragraph 5.2.
15.6 TEMPORARY TAKING. Lessee agrees that if, at any
time after the date hereof, the whole or any part of the Leased Property or
of Lessee's interest under this Lease, shall be Condemned by any Condemnor
for its temporary use or occupancy, this Lease shall not terminate by reason
thereof, and Lessee shall continue to pay, in the manner and at the times
herein specified, the full amounts of Minimum Rent and Additional Charges.
Except only to the extent that Lessee may be prevented from doing so pursuant
to the terms of the order of the Condemnor, Lessee shall also continue to
perform and observe all of the other terms, covenants, conditions and
obligations hereof, on the part of the Lessee to be performed and observed,
as though such Condemnation had not occurred. In the event of any such
Condemnation as in this Paragraph 15.6 described, the entire amount of any
such Award made for such temporary use, whether paid by way of damages, rent
or otherwise, shall be paid to Lessee to the extent attributable to any
period within the Term (as extended by any already exercised options to
extend or options thereafter timely exercised if applicable). Lessee
covenants that upon the termination of any such period of temporary use or
occupancy as set forth in this Paragraph 15.6, it will, at its sole cost and
expense, restore the Leased Property as nearly as may be reasonably possible,
to the condition in which the same was immediately prior to the Condemnation,
unless such period of temporary use or occupancy shall extend beyond the
expiration of the Term, in which case Lessee shall not be required to make
such restoration, and in such case, Lessee shall contribute to the cost of
such restoration that portion of its entire Award which is specifically
allocated to such restoration in the judgment or order of the
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court, if any.
ARTICLE XVI
16.1 EVENTS OF DEFAULT. Any one or more of the following
events shall be an "Event of Default":
(a) if Lessee fails to make payment of the Rent
payable by Lessee under this Lease when the same becomes due and payable and
such failure is not cured by Lessee within a period of five (5) business days
after Notice thereof from Lessor; or
(b) if Lessee fails to observe or perform any
other term, covenant or condition of this Lease and such failure is not cured by
Lessee within a period of thirty (30) days after Notice thereof from Lessor,
unless such failure cannot with due diligence be cured within a period of thirty
(30) days, in which case such failure shall not be deemed an Event of Default if
Lessee proceeds promptly and with due diligence to cure the failure and
diligently completes the curing thereof. No Event of Default (other than a
failure to make payment of money) shall be deemed to exist under this clause (b)
during any time the curing thereof is prevented by an Unavoidable Delay,
provided that upon the cessation of such Unavoidable Delay, Lessee shall remedy
such default without further delay; or
(c) if Lessee (or any of its Affiliates) commits
an "Event of Default" under any of the Related Leases or any of the Other
Leases. Without limiting the foregoing, if Lessee commits an "Event of Default"
under this Lease, Lessee (and its Affiliates) shall thereby be in default (and
shall therefore have committed an "Event of Default") under all of the Related
Leases and the Other Leases; or
(d) if Lessee does any of the following:
(i) admit in writing its inability to
pay its debts generally as they
become due;
(ii) file a petition in bankruptcy or a
petition to take advantage of any
insolvency law;
(iii) make a general assignment for the
benefit of its creditors;
(iv) consent to the appointment of a
receiver of itself or of the whole
or any substantial part of its
property; or
(v) file a petition or answer seeking
reorganization or arrangement under
the Federal bankruptcy laws or any
other applicable law or statute of
the United States of
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America or any state thereof; or
(e) if Lessee, on a petition in bankruptcy filed
against it, is adjudicated a bankrupt or an order for relief thereunder is
entered against it or a court of competent jurisdiction shall enter an order or
decree appointing, without the consent of Lessee, a receiver for Lessee or of
the whole or substantially all of its property or the Facility, or approving a
petition filed against Lessee seeking reorganization or arrangement of Lessee
under the Federal bankruptcy laws or other applicable law or statute of the
United States of America or any state thereof, and such judgment, order or
decree shall not be vacated or set aside within ninety (90) days from the date
of the entry thereof; or
(f) if Lessee shall be liquidated or dissolved,
or shall begin proceedings toward such liquidation or dissolution, or shall, in
any manner, permit the sale or divestiture of substantially all of its assets
other than in connection with a merger or consolidation of Lessee into, or a
sale of substantially all of Lessee's assets to, another corporation, provided
any such actions shall also constitute an Event of Default unless: (i) the
survivor of such merger or the purchaser of such assets shall assume all of
Lessee's obligations under this Lease by a written instrument, in form and
substance reasonably satisfactory to Lessor, stating that such instrument of
assumption is valid, binding and enforceable against the parties thereto in
accordance with its terms (subject to usual bankruptcy and other creditor's
rights exceptions); and (ii) immediately after giving effect to any such merger,
consolidation or sale, Lessee or the other corporation (if not Lessee) surviving
the same shall have a Consolidated Net Worth of not less than Twenty Six Million
Five Hundred Thousand Dollars ($26,500,000) and a debt to equity ratio of not
more than four to one (4.0:1.0), all as to be set forth in an Officer's
Certificate and delivered to Lessor within a reasonable period of time after
such merger, consolidation or sale; or
(g) if the estate or interest of Lessee in the
Leased Property or any part thereof be levied upon or attached in a proceeding
and the same shall not be vacated or discharged within the later of ninety (90)
days after commencement thereof or thirty (30) days after Notice thereof from
Lessor (unless Lessee shall be contesting such lien or attachment in good faith
in accordance with Article XII hereof), or a mechanic's or similar lien is filed
with respect to the Leased Property and is not released or bonded around for a
period exceeding sixty (60) days after Lessee first has knowledge of the lien
having been filed; or
(h) if, except as a result of damage,
destruction or a partial or total Condemnation, or Unavoidable Delay, Lessee
voluntarily ceases operations at the Facility for a period in excess of ten (10)
days; provided that Lessee may cease operations for more than ten (10) days (i)
if Lessee obtains Lessor's prior written approval, and (ii) so long as such
cessation of operations does not impair or threaten the status or effectiveness
of the operating license or other certification for operating the Facility in
accordance with its Primary Intended Use; or
(i) if any of Lessee's representations,
covenants or warranties expressly set forth in this Lease (or financial
statements provided to Lessor) proves to be untrue when made
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in any material respect which materially and adversely affects Lessor; or
(j) if Lessee attempts to assign or sublease, in
violation of the provisions of this Lease;
(k) if Lessee fails to maintain in effect an
operator's license required to operate the Facility, or if Lessee otherwise
ceases to maintain in effect any license, permit, certificate or approval
necessary or otherwise required to operate the Facility in accordance with its
Primary Intended Use; or
(l) if Lessee and/or Karrington violates any of
the Lease Covenants described in Paragraph 23.2 hereof.
Upon the occurrence of an Event of Default, in addition to all
of Lessor's other remedies, Lessor may terminate this Lease by giving Lessee not
less than ten (10) business days Notice of such termination and upon the
expiration of the time fixed in such Notice, the Term shall terminate and all
rights of Lessee under this Lease shall cease.
In the event litigation is commenced with respect to any
alleged default under this Lease, the prevailing party in such litigation shall
receive, in addition to its damages incurred, such sum as the court shall
determine as its reasonable attorneys' fees, and all costs and expenses incurred
in connection therewith, including reasonable attorneys' fees and costs incurred
on appeal.
16.2 CERTAIN REMEDIES. Lessor shall have remedies and rights
provided in law and equity as a result of an Event of Default, including, to the
extent permitted by applicable Ohio law, the right to appoint a receiver as a
matter of strict right without regard to the solvency of Lessee, for the purpose
of preserving the Leased Property and any portion thereof, preventing waste,
protecting and otherwise enforcing any and all of Lessor's rights under this
Lease and for any and all other purposes for which a receiver is allowed under
the laws of the State of Ohio. Lessee hereby waives the right to notice of any
hearing with respect to the appointment of a receiver and waives the requirement
for the posting of a bond by any receiver. Without limiting the foregoing, if
an Event of Default occurs (and the event giving rise to such Event of Default
has not been cured within the curative period, if any, relating thereto as set
forth in this Lease) whether or not this Lease has been terminated pursuant to
Paragraph 16.1, Lessee shall, to the extent permitted by law, and if required by
Lessor to so do, immediately surrender to Lessor the Leased Property pursuant to
the provisions of Paragraph 16.1 and quit the same and Lessor may enter upon and
repossess the Leased Property, in person, by agent or by a court-appointed
receiver, by reasonable force, summary proceedings, ejectment or otherwise, and
may remove Lessee and all other persons and any and all personal property from
the Leased Property subject to rights of any residents (and their property) and
to any requirements of law. Without limiting all other rights and remedies of
Lessor under this Lease and under law, Lessor shall have the right to accelerate
all Rent and therefore, upon Lessee's default, at Lessor's option, all such Rent
shall become immediately due and payable in accordance with Paragraph 16.3,
below. Further, without limiting all other rights and remedies
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of Lessor under this Lease and under law, Lessor shall be entitled to recover
from Lessee, and Lessee shall therefore be liable for, all costs of
recovering possession (including without limitation all costs associated with
any receiver) and renovating the Leased Property or any portion thereof for a
new lessee and all other costs of any reletting or attempted reletting,
including, but not limited to, brokerage fees and reasonable attorneys fees,
except as limited by Paragraph 16.3 below.
16.3 DAMAGES. Neither (i) the termination of this Lease
pursuant to Section 16.1, (ii) the repossession of the Leased Property; (iii)
the failure of Lessor, notwithstanding reasonable good faith efforts, to relet
the Leased Property; nor (iv) the reletting of all or any portion thereof, shall
relieve Lessee of its liability and obligations hereunder, all of which shall
survive any such termination, repossession or reletting (except for proceeds
received on subletting). In the event of any such termination, Lessee shall
forthwith pay to Lessor all Rent due and payable with respect to the Leased
Property to and including the date of such termination.
(a) Lessor shall not be deemed to have
terminated this Lease unless Lessor delivers written Notice to Lessee of such
election. If Lessor voluntarily elects to terminate this Lease upon an Event of
Default, then in addition to all remedies available to Lessor, Lessor may
recover the sum of:
(i) the worth at the time of award of
the unpaid Rent which had been earned at the time of termination;
(ii) the worth at the time of award of
the amount by which the unpaid Rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
Lessee proves could have been reasonably avoided;
(iii) the worth at the time of award of
the amount by which the unpaid Rent for the balance of the Term after the time
of award exceeds the amount of such rental loss that Lessee proves could be
reasonably avoided; and
(iv) any other amount necessary to
compensate Lessor for all the detriment proximately caused by Lessee's failure
to perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom.
The "worth at the time of award" of the
amounts referred to in subparagraphs (i) and (ii) above is computed by allowing
interest at the Overdue Rate. The worth at the time of award of the amount
referred to in subparagraph (iii) is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
(b) Without limiting Lessor's other remedies
provided herein and provided by law, Lessor may continue the Lease in effect
after Lessee's breach and abandonment and recover Rent as it becomes due,
provided that, in such event, Lessee has the right to sublet or
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assign subject only to reasonable conditions imposed by Lessor. Accordingly,
without termination of Lessee's right to possession of the Leased Property,
Lessor may demand and recover each installment of Rent and other sums payable
by Lessee to Lessor under the Lease as the same becomes due and payable,
which Rent and other sums shall bear interest at the maximum interest rate
permitted in accordance with the laws of the State of Ohio (or the Overdue
Rate, whichever is lower), from the date when due until paid, and Lessor may
enforce, by action or otherwise, any other term or covenant of this Lease.
If Lessor elects to recover each installment of Rent as it becomes due, then
Lessor may file any number of lawsuits for the recovery of the amounts due
hereunder.
16.4 WAIVER. If this Lease is terminated pursuant to
Paragraph 16.1, Lessee waives, to the extent permitted by applicable law, the
benefit of any laws now or hereafter in force exempting property from liability
for rent or for debt.
16.5 APPLICATION OF FUNDS. Any payments received by
Lessor under any of the provisions of this Lease during the existence or
continuance of any Event of Default shall be applied to Lessee's obligations in
the order which Lessor may determine or as may be prescribed by the laws of the
State of Ohio.
ARTICLE XVII
17. LESSOR'S RIGHT TO CURE LESSEE'S DEFAULT. If Lessee fails to
make any payment or to perform any act required to be made or performed under
this Lease, and to cure the same within the relevant time periods, if any,
provided under this Lease, Lessor, after thirty (30) days Notice to and demand
upon Lessee, and without waiving or releasing any obligation of Lessee or
default, may (but shall be under no obligation to) at any time thereafter make
such payment or perform such act for the account and at the expense of Lessee,
and may, to the extent permitted by law, enter upon the Leased Property for such
purpose and take all such action thereon as, in Lessor's opinion, may be
necessary or appropriate therefor. Provided, however, that should Lessor
reasonably determine that the giving of such Notice would risk loss to the
Leased Property or any portion thereof or cause damage to Lessor, then Lessor
shall give such written Notice as is practical under the circumstances. No such
entry shall be deemed an eviction of Lessee. In exercising any remedy under
this Article XVII, Lessor shall use its good faith efforts not to violate any
rights of residents of the Facility. All sums so paid by Lessor and all costs
and expenses (including, without limitation, reasonable attorneys' fees and
expenses, in each case) so incurred, together with a late charge thereon (to the
extent permitted by law) at the Overdue Rate from the date on which sums or
expenses are paid or incurred by Lessor, shall be paid by Lessee to Lessor on
demand. The obligations of Lessee and rights of Lessor contained in this
Article shall survive the expiration or earlier termination of this Lease.
ARTICLE XVIII
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18.1 OPTIONS TO EXTEND. Provided there exists no uncured
Event of Default under any of this Lease, the Related Leases and the Other
Leases at the time Lessee exercises any option to extend (in accordance with
this Article XVIII), Lessee will have the right to extend this Lease for two (2)
periods of ten (10) years each (each such additional term shall be referred to
herein as an "Extended Term"), commencing immediately following the end of the
Initial Term or the immediately preceding Extended Term, as the case may be;
provided, however, that notwithstanding anything stated in this Paragraph 18.1
or elsewhere in this Lease, Lessee shall not be entitled to exercise its option
to extend this Lease for any Extended Term (and any such option to extend shall
automatically expire and terminate) unless Lessee concurrently exercises its
option to extend all the Related Leases for the same period, as provided in
Article XVIII of the Related Leases. The Lease during any Extended Term shall
be on the same terms and conditions as during the Initial Term, except that the
Minimum Rent shall be determined as set forth in Paragraph 18.2 below. In the
event Lessee desires to exercise any option to extend granted in this Article
XVIII, Lessee shall give Landlord written notice ("Notice to Extend") not less
than one hundred eighty (180) days prior to the expiration of the Initial Term
or the immediately preceding Extended Term, as the case may be. If Lessee fails
to give Lessor any such notice, then Lessor shall give Lessee written notice
that Lessor has not received Lessee's Notice to Extend. If Lessee fails to
deliver to Lessor the Notice to Extend within ten (10) days thereafter, Lessee
shall be deemed to have elected not to extend this Lease and the Related Leases,
such option to extend and all future options to extend granted in this Article
XVIII or in the Related Leases shall be null and void and of no further force or
effect.
18.2 MINIMUM RENT DURING EXTENDED TERMS. The Minimum Rent
at the commencement of each Extended Term shall be Minimum Rent, as determined
below.
(a) The Minimum Rent for the first year of the
first Extended Term shall be $1,061,569 and shall be increased annually
thereafter in accordance with the method described in Paragraph 3.1.2, above.
(b) The Minimum Rent for the first year of the
second Extended Term shall be $1,294,046 and shall be increased annually
thereafter in accordance with the method described in Paragraph 3.1.2, above.
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ARTICLE XIX
19. HOLDING OVER. If Lessee shall for any reason
remain in possession of the Leased Property after the expiration of the Term
or earlier termination of the Term hereof, such possession shall be as a
month-to-month tenant during which time Lessee shall pay as rental each
month, one and one-quarter times the aggregate of (i) one-twelfth of the
aggregate Minimum Rent payable with respect to the last Lease Year of the
Term; (ii) all Additional Charges accruing during the month; and (iii) all
other sums payable by Lessee pursuant to the provisions of this Lease.
During such period of month-to-month tenancy, Lessee shall be obligated to
perform and observe all of the terms, covenants and conditions of this Lease,
but shall have no rights hereunder other than the right, to the extent given
by law to month-to-month tenancies, to continue its occupancy and use of the
Leased Property. Nothing contained herein shall constitute the consent,
express or implied, of Lessor to the holding over of Lessee after the
expiration or earlier termination of this Lease.
ARTICLE XX
20. RISK OF LOSS. During the Term of this Lease, the risk of loss
or of decrease in the enjoyment and beneficial use of the Leased Property in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than those caused by or through Lessor)
is assumed by Lessee, and Lessor shall in no event be answerable or accountable
therefor, nor shall any of the events mentioned in this Paragraph entitle Lessee
to any abatement of Rent except as specifically provided in this Lease, or any
right to terminate this Lease, except as provided in Paragraph 14.7, above.
Without limiting the foregoing, Lessor shall not be liable for injury or damage
to the person or goods, wares, merchandise or other property of Lessee, Lessee's
employees, contractors, invitees, customers, or any other person in or about the
Leased Premises, whether such damage or injury is caused by or results from
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, fire sprinklers, wires, appliances,
plumbing, air conditioning, or lighting fixtures, or from any other cause,
whether the said injury or damage results from conditions arising upon the
Leased Premises or upon other portions of the Land, or any part thereof, or from
other sources or places, and regardless of whether the cause of such damage or
injury or the means of repairing the same is accessible or not. Lessor shall
not be liable for any damages arising from any act or neglect of Lessee, or any
other party named above. Lessor shall, however, remain liable for any damages
arising from Lessor's own gross negligence or willful misconduct.
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ARTICLE XXI
21. INDEMNIFICATION. Notwithstanding the existence of any
insurance provided for in Article XIII, and without regard to the policy limits
of any such insurance, Lessee will protect, indemnify, hold harmless and defend
Lessor from and against all liabilities, obligations, claims, demands damages,
penalties, causes of action, costs, and expenses (including, without limitation,
actual reasonable attorneys' fees and expenses), to the extent permitted by law,
imposed upon or incurred by or asserted against Lessor by reason of any of the
following (except to the extent solely attributable to Lessor's gross negligence
or willful misconduct): (a) any accident, injury to or death of persons or loss
of or damage to property occurring on or about the Leased Property or adjoining
sidewalks, including without limitation any claims of malpractice, whether
arising in connection with events occurring prior to or after the Commencement
Date hereunder (except to the extent such events occur after the expiration of
this Lease); (b) any occupancy, use, misuse, non-use, condition, maintenance, or
repair by Lessee of the Leased Property; (c) any Impositions (which are the
obligations of Lessee to pay pursuant to the applicable provisions of this
Lease, which include any Impositions arising prior to the Commencement Date);
(d) any failure on the part of Lessee to perform or comply with any of the terms
of this Lease, (e) the non-performance of any of the terms and provisions of any
and all existing and future subleases of the Leased Property to be performed by
the landlord (Lessee) thereunder; (f) any Hazardous Materials, as defined in
Paragraph 10.2, above that now or hereafter during the Term may be located in,
on or around, or affecting, any part of the Land or Leased Improvements; (g) any
and all other matters pertaining to the Leased Property or the operation of the
Facility after the date of this Lease during the Term, including without
limitation compliance with or failure to comply with the provisions of Section 8
of the United States Housing Act of 1937, and the provisions of the Fair Housing
Amendments Act of 1988, each as amended from time to time; (h) any liability
relating to the construction or development of the Facility, including patent or
latent defects in the Facility, whether arising in connection with events
occurring prior to or after the Commencement Date hereunder, including without
limitation compliance with or failure to comply with the provisions of the
federal Americans with Disabilities Act, as amended from time to time; and (i)
third party claims of any kind relating to the Leased Property, the Facility,
the operations at the Facility or otherwise, and any and all other matters
whatsoever relating to the Leased Property, the assisted living facility located
thereon and the operation thereof. Any amounts which became payable by Lessee
under this Paragraph shall be paid within ten (10) days of the date the same
becomes due and if not timely paid, shall bear a late charge (to the extent
permitted by law) at the Overdue Rate from the date of such determination to the
date of payment. Lessee, at its expense, shall contest, resist and defend any
such claim, action or proceeding asserted or instituted against Lessor or may
compromise or otherwise dispose of the same as Lessee sees fit, at Lessee's sole
cost, but after consultation with and approval by Lessor, which approval shall
not be unreasonably withheld or delayed. Nothing herein shall be construed as
indemnifying Lessor against its own gross negligence or willful misconduct.
Lessee's liability for a breach of the provisions of this article arising during
the Term hereof shall survive any termination of this Lease.
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ARTICLE XXII
22. SUBLETTING AND ASSIGNMENT. Except as provided hereinbelow to
the contrary, Lessee may not assign, sublease or sublet, encumber, appropriate,
pledge or otherwise transfer, the Lease or the leasehold or other interest in
the Leased Property without Lessor's prior written consent, which consent may be
withheld or granted in Lessor's sole and absolute discretion; provided, however,
that Lessee may from time to time during the Term of this Lease enter into
rental agreements with residents of the Facility, and execute any documents
necessary in connection therewith, without obtaining Lessor's prior consent.
Notwithstanding the foregoing provisions of this Paragraph 22, (a) Lessee and
its permitted assigns shall be entitled, at any time without first obtaining the
consent of Lessor, to sublease up to the greater of (i) 2,000 square feet, or
(ii) ten percent (10%) of the total square footage of the Facility, to any
person or entity providing any services related or ancillary to the operation of
the Facility or in connection with the provision of home health services both
within and outside the Facility; (b) so long as Lessee is lessee under this
Lease, Lessee shall be entitled, at any time without first obtaining the consent
of Lessor to sell, assign and convey to Karrington Health, Inc., an Ohio
corporation ("Karrington"), either (i) all (but not less than all) of Lessee's
leasehold interest in all of the Leased Property or (ii) all of the issued and
outstanding stock of Lessee; and (c) in the event that there occurs a change in
control in respect to the ownership of Karrington, whether by merger, sale, or
transfer of substantially all of Karrington's assets (other than in the ordinary
course of Karrington's business) or otherwise, including without limitation the
acquisition by any one person or entity of thirty-five percent (35%) or more of
the issued and outstanding stock of Karrington (any of the foregoing, a "Change
of Control"), and so long as the surviving entity at the conclusion of such
Change of Control has a net worth of Twenty Six Million Five Hundred Thousand
Dollars ($26,500,000) or more and a debt to equity ratio of not more than four
to one (4.0:1.0) (which net worth and debt to equity ratio are greater than or
substantially similar to Karrington's as of the date hereof), Karrington or
Lessee, as the case may be, shall be entitled, without first obtaining the
consent of Lessor, to assign all of its right, title and interest in and to this
Lease to said surviving entity, so long as, under any of the scenarios described
in this Paragraph 22, Lessor is notified of such assignment or conveyance in
writing within five (5) business days thereafter. Upon Lessor's consent, (w) in
the case of a subletting, the sublessee shall comply with the provisions of
Paragraph 22.2, (x) in the case of an assignment, the assignee shall assume in
writing and agree to keep and perform all of the terms of this Lease on the part
of Lessee to be kept and performed and shall be, and become, jointly and
severally liable with Lessee for the performance thereof, (y) an original
counterpart of each sublease and assignment and assumption, duly executed by
Lessee and such sublessee or assignee, as the case may be, in form and substance
satisfactory to Lessor, shall be delivered promptly to Lessor, and (z) in case
of either an assignment or subletting, Lessee shall remain primarily liable, as
principal rather than as surety, for the prompt payment of the Rent and for the
performance and observance of all of the covenants and conditions to be
performed by Lessee hereunder.
22.1 ATTORNMENT. Lessee shall insert in each sublease
permitted under Paragraph 22 provisions to that effect that (i) such sublease is
subject and subordinate to all of the terms and provisions of this Lease and to
the rights of Lessor hereunder; (ii) in the event this Lease shall terminate
before the expiration of such sublease, the sublessee thereunder will, at
Lessor's option,
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attorn to Lessor and waive any right the sublessee may have to terminate the
sublease or to surrender possession thereunder, as a result of the
termination of this Lease; and (iii) in the event the sublessee receives a
written Notice from Lessor or Lessor's assignees, if any, stating that Lessee
is in default under this Lease, the sublessee shall thereafter be obligated
to pay all rentals accruing under said sublease directly to the party giving
such Notice, or as such party may direct. All rents received from the
sublessee by Lessor or Lessor's assignees, if any, as the case may be, shall
be credited against amounts owing by Lessee under this Lease.
22.2 SUBLEASE LIMITATION. Anything contained in this
Lease to the contrary notwithstanding, Lessee shall not sublet the Leased
Property on any basis such that the rental to be paid by the sublessee
thereunder would be based, in whole or in part, on either (i) the income or
profits derived by the business activities of the sublessee; or (ii) any other
formula such that any portion of the sublease rental received by Lessor would
fail to qualify as Arents from real property" within the meaning of Paragraph
856(d) of the Code, or any similar or successor provision thereto.
ARTICLE XXIII
23. OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS; LEASE
COVENANTS.
23.1 OFFICER'S CERTIFICATES AND FINANCIAL STATEMENTS.
(a) At any time from time-to-time upon not less
than twenty (20) days Notice by Lessor, Lessee will furnish to Lessor an
Officer's Certificate certifying that this Lease is unmodified and in full force
and effect (or that this Lease is in full force and effect as modified and
setting forth the modifications), the date to which the Rent has been paid and
such other information concerning this Lease as may be reasonably requested by
Lessor. Any such certificate furnished pursuant to this Paragraph may be relied
upon by Lessor and any prospective purchaser or lender of the Leased Property.
(b) In addition to all other obligations to
provide financial information contained in the Lease, Lessee will furnish the
following statements to Lessor:
(i) within one hundred twenty (120) days
after the end of each Lease Year, an Officer's Certificate stating that to the
best of the signer's knowledge and belief after making reasonable inquiry,
Lessee is not in default in the performance or observance of any of the terms of
this Lease, or if Lessee shall be in default to its knowledge, specifying all
such defaults, the nature thereof, and the steps being taken to remedy the same,
and
(ii) with reasonable promptness, such other
information respecting the financial condition and affairs of Lessee as Lessor
may reasonably request from time-to-time.
(c) Within one hundred twenty (120) days after
the end of each Fiscal Year, Lessee agrees to provide to Lessor Consolidated
Financials of Lessee for such Fiscal Year.
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23.2 LEASE COVENANTS. Lessee warrants, covenants and represents to
Lessor that prior to December 31, 1999, Karrington shall not undertake or
accomplish any of the following: (a) buy back any of the stock of Karrington;
(b) declare a dividend to Karrington stockholders; or (c) repay any loan or
other indebtedness to any current or former directors, officers, shareholders or
affiliates of Karrington; provided, however, that Karrington shall be allowed to
do any of the foregoing only up to a total combined amount equal to or less than
fifty percent (50%) of a total amount of equity funding actually received by
Karrington from the Commencement Date through December 31, 1999.
Notwithstanding the foregoing, Karrington shall be entitled, prior to December
31, 1999, to do any of the following: (d) repay to JMAC the Four Million Dollar
($4,000,000) bridge loan entered into on or about April 1, 1998, so long as the
entire outstanding balance of such bridge loan has been used substantially in
accordance with the use of proceeds attached to this Lease as Exhibit "D", (e)
grant to JMAC the right to convert to equity in Karrington all or any portion of
its existing debt to Karrington, in the approximate amount of Seven Million Five
Hundred Thousand Dollars ($7,500,000); and (f) upon a Change of Control of
Karrington, so long as the surviving entity at the conclusion of such Change of
Control has a net worth of Twenty-Six Million Five Hundred Thousand Dollars
($26,500,000) or more and a debt to equity ratio of not more than four to one
(4.0:1.0), Karrington shall be entitled to pay off any and all debts which it
may have to JMAC. Lessee acknowledges and agrees that Lessor has entered into
this Lease in material reliance on the foregoing warranties, covenants and
representations (the "Lease Covenants"). Lessee further acknowledges that
certain of the Lease Covenants concern the activities of Karrington rather than
Lessee and that any violation or breach of any of the Lease Covenants, whether
by Lessee or Karrington shall be an Event of Default hereunder.
ARTICLE XXIV
24. LESSOR'S RIGHT TO INSPECT. Lessee shall permit Lessor and its
authorized representatives to inspect the Leased Property on at least one (1)
Business Day's prior notice during usual business hours subject to any security,
health, safety, or confidentiality requirements of Lessee or any governmental
agency or insurance requirement relating to the Leased Property, or imposed by
law or applicable regulations. Lessor shall take reasonable steps to avoid
interference with the residents.
ARTICLE XXV
25. NO WAIVER. The waiver by Lessor or Lessee of any term,
covenant or condition in this Lease shall not be deemed to be a waiver of any
other term, covenant or condition or any subsequent waiver of the same or any
other term, covenant or condition contained in this Lease. The subsequent
acceptance of rent hereunder by Lessor or any payment by Lessee shall not be
deemed to be a waiver of any preceding default of any term, covenant or
condition of this Lease, other than the failure to pay the particular amount so
received and accepted, regardless of the knowledge of any preceding default at
the time of the receipt or acceptance.
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ARTICLE XXVI
26. REMEDIES CUMULATIVE. To the extent permitted by law, each
legal, equitable or contractual right, power and remedy of Lessor now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy and the exercise or beginning of the exercise by Lessor of any one or
more of such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Lessor of any or all of such other rights, powers and
remedies.
ARTICLE XXVII
27. ACCEPTANCE OF SURRENDER. No surrender to Lessor of this Lease
or of the Leased Property or any part thereof, or of any interest therein, shall
be valid or effective unless agreed to and accepted in writing by Lessor and no
act by Lessor or any representative or agent of Lessor, other than such a
written acceptance by Lessor, shall constitute an acceptance of any such
surrender.
ARTICLE XXVIII
28. NO MERGER OF TITLE. There shall be no merger of this Lease or
of the leasehold estate created hereby by reason of the fact that the same
person, firm, corporation, or other entity may acquire, own or hold, directly or
indirectly, (a) this Lease or the leasehold estate created hereby or any
interest in this Lease or such leasehold estate; and (b) the fee estate in the
Leased Property.
ARTICLE XXIX
29. CONVEYANCE BY LESSOR. If Lessor or any successor owner of the
Leased Property shall transfer or assign Lessor's title or interest in the
Leased Property or this Lease other than as security for a debt, and provided
the new owner has agreed in writing for the benefit of Lessee to recognize this
Lease and be bound by all of the terms and conditions hereof, Lessor shall
thereupon be released from all future liabilities and obligations of Lessor
under this Lease arising or accruing from and after the date of such transfer or
assignment and all such future liabilities and obligations shall thereupon be
binding upon the new owner.
ARTICLE XXX
30. QUIET ENJOYMENT. So long as Lessee shall pay all Rent as the
same becomes due and shall comply with all of the terms of this Lease and
perform its obligations hereunder, and except for any claims, actions, liens or
encumbrances arising from the acts or omissions of Lessee or otherwise from
events occurring prior to the Commencement Date hereunder, Lessee shall
peaceably and quietly have, hold and enjoy the Leased Property for the Term
hereof, free of any claim or other action by Lessor or anyone claiming by,
through or under Lessor, but subject to all liens and encumbrances of record as
of the date hereof or hereafter
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consented to by Lessee. Except as otherwise provided in this Lease, no
failure by Lessor to comply with the foregoing covenant or any covenant of
this Lease shall give Lessee any right to abate, reduce or made a deduction
from or offset against the Rent or any other sum payable under this Lease, or
to fail to perform any other obligation of Lessee hereunder.
ARTICLE XXXI
31. NOTICES. All notices, demands, requests, consents, approvals,
and other communications ("Notice" or "Notices") hereunder shall be in writing
and personally served upon an Executive Officer of the party being served or
mailed (by registered or certified mail, return receipt requested and postage
prepaid), overnight delivery service addressed to the respective parties, as
follows:
(a) If to Lessee: Karrington Operating Company, Inc.
919 Old Henderson Road
Columbus, Ohio 43220
Attention: Thomas J. Klimbach,
Chief Financial Officer
with a copy to: Bricker & Eckler
100 South Third Street
Columbus, Ohio 43215
Attention: Charles H. McCreary, Esq.
(b) If to Lessor: LTC-Ohio, Inc.
c/o LTC Properties, Inc.
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
Attention: James J. Pieczynski
with a copy to: LTC Properties, Inc.
300 Esplanade Drive, Suite 1865
Oxnard, California 93030
Attention: Pamela J. Privett, Esq.
and: Rosenfeld, Wolff, Aronson, Kurland
& Klein
2049 Century Park East, Suite 3090
Los Angeles, California 90067
Attention: Alan D. Aronson, Esq.
or to such other address as either party may hereafter designate by a Notice
pursuant to this Paragraph. Personally delivered Notice (including Notices sent
by overnight delivery service) shall be effective upon receipt, and Notice given
by mail shall be completed five (5) days after the time of deposit in the U.S.
Mail system. For the purposes hereof, the term "Executive Officer" shall
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mean the Chairman of the Board of Directors, the President, any Vice
President, or the Secretary of the corporation upon which service is to be
made.
ARTICLE XXXII
32.1 LESSOR MAY GRANT LIENS. Lessor may, subject to
the terms and conditions set forth below in this Paragraph 32.1, from
time-to-time, directly or indirectly, create or otherwise cause to exist any
lien or encumbrance or any other change of title ("Encumbrance") upon the
Leased Property, or any portion thereof or interest therein, whether to
secure any borrowing or other means of financing or refinancing. Any such
Encumbrance shall contain the right to prepay (whether or not subject to a
prepayment penalty) and shall provide that it is subject to the rights of
Lessee under this Lease, provided that any holder of an Encumbrance shall (a)
give Lessee the same notice, if any, given to Lessor of any default or
acceleration of any obligation underlying any such mortgage or any sale in
foreclosure under such mortgage; (b) permit Lessee to cure any such default
on Lessor's behalf within any applicable cure period, and Lessee shall be
reimbursed by Lessor or shall be entitled to offset against Minimum Rent
payments next accruing or coming due for any and all costs incurred in
effecting such cure, including, without limitation, out-of-pocket costs
incurred to effect any such cure (including reasonable attorneys' fees); (c)
permit Lessee to appear and to bid at any sale in foreclosure made with
respect to any such mortgage, and (d) provide that in the event of
foreclosure or other possession of the Leased Property by the Mortgagee, that
the Mortgagee shall be bound by the terms and provisions of this lease. Upon
the reasonable request of Lessor, Lessee shall execute an agreement to the
effect that this Lease shall be subject and subordinate to the lien of a new
mortgage on the Leased Property and that in the event of any default or
foreclosure under such mortgage, Lessee shall attorn to the new mortgagee,
and as otherwise requested by Lessor; provided that the proposed mortgagee
execute a non-disturbance agreement recognizing this Lease and agreeing, for
itself and its successor and assigns, to comply with the provisions of this
Article XXXII.
32.2 LESSEE'S RIGHT TO CURE. Subject to the provisions of
Paragraph 32.3, if Lessor breaches any covenant to be performed by it under this
Lease, Lessee, after Notice to and demand upon Lessor, without waiving or
releasing any obligation hereunder, and in addition to any other remedies
available to Lessee, may (but shall be under no obligation at any time
thereafter to) make such payment or perform such act for the account and at the
expense of Lessor. All sums so paid by Lessee and all costs and expenses
(including, without limitation, reasonable attorneys' fees) so incurred,
together with interest thereon (at the Overdue Rate) from the date on which such
sums or expenses are paid or incurred by Lessee, shall be paid by Lessor to
Lessee on demand, but may not be offset by Lessee against Minimum Rent payments.
The rights of Lessee hereunder to cure and to secure payment from Lessor in
accordance with this Paragraph 32.2 shall survive the termination of this Lease.
32.3 DEFAULT BY LESSOR. It shall be a default of this
Lease if Lessor fails to observe or perform any term, covenant or condition
of this Lease on its part to be performed, and such failure shall continue
for a period of ten (10) days after Notice thereof from Lessee in the case of
a monetary default or thirty (30) days after Notice thereof from Lessee (or
such shorter time as
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may be required in order to protect the health or welfare of any patients or
other residents of the Leased Property) in the case of a non-monetary
default, unless in the case of a non-monetary default such failure cannot
with due diligence be cured within a period of thirty (30) days, in which
case such failure shall not be deemed to continue if Lessor, within said
thirty (30) day period, proceeds promptly, continuously and with due
diligence to cure the failure and diligently completes the curing thereof.
The time within which Lessor shall be obligated to cure any such failure
shall also be subject to extension of time due to the occurrence of any
Unavoidable Delay.
ARTICLE XXXIII
33. MISCELLANEOUS.
33.1 SURVIVAL OF OBLIGATIONS. Anything contained in
this Lease to the contrary notwithstanding, all claims against, and
liabilities of, Lessee or Lessor arising prior to, or in connection with any
event occurring prior to, the date of any expiration or termination of this
Lease or the date of Lessee's surrender of possession of the Leased Property,
whichever is later, shall survive such termination or surrender of possession.
33.2 LATE CHARGES; INTEREST. If any interest rate
provided for in any provision of this Lease is based upon a rate in excess of
the maximum rate permitted by applicable law, the parties agree that such
charges shall be fixed at the maximum permissible rate.
33.3 LIMITS OF LESSOR'S LIABILITY. Lessee specifically
agrees to look solely to the assets of Lessor for recovery of any judgment
against Lessor, it being specifically agreed that no constituent shareholder,
officer or director of Lessor shall ever be personally liable for any such
judgment or the payment of any monetary obligation to Lessee. The provision
contained in the foregoing sentence is not intended to, and shall not, limit
any right that Lessee might otherwise have to obtain injunctive relief
against Lessor or Lessor's successors in interest, or any action not
involving the personal liability of Lessor (original or successor).
Additionally, Lessor shall be exonerated from any further liability under
this Lease upon Lessor's transfer or other divestiture of its ownership of
the Leased Property, provided that the assignee or grantee shall expressly
assume in writing the obligations of Lessor hereunder. Furthermore, in no
event shall Lessor (original or successor) ever be liable to Lessee for any
indirect or consequential damages suffered by Lessee from whatever cause.
33.4 LIMITS OF LESSEE'S LIABILITY. Lessor specifically
agrees to look solely to the assets of Lessee for recovery of any judgment
against Lessee, it being specifically agreed that no constituent shareholder,
officer or director of Lessee shall ever be personally liable for any such
judgment or the payment of any monetary obligation to Lessor. The provision
contained in the foregoing sentence is not intended to, and shall not, limit
any right that Lessor might otherwise have to obtain injunctive relief
against Lessee or Lessee's successors in interest, or any action not
involving the personal liability of Lessee (original or successor).
Furthermore, in no event shall Lessee (original or successor) ever be liable
to Lessor for any indirect or consequential damages suffered by Lessor from
whatever cause.
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<PAGE>
33.5 TRANSFER OF OPERATIONS. At Lessor's request, upon
the expiration or earlier termination of the Term, Lessee shall use its best
efforts to transfer to Lessor or Lessor's nominee (or to cooperate with Lessor
or Lessor's nominee in connection with the processing by Lessor or Lessor's
nominee of any applications for) all licenses, operating permits and other
governmental authorizations and all contracts, including contracts with
governmental or quasi-governmental entities which may be necessary for the
operation of the Facility; provided that the costs and expenses of any such
transfer or the processing of any such application shall be paid by Lessor or
Lessor's nominee.
33.6 ADDENDUM, AMENDMENTS AND EXHIBITS. Any addendum,
amendments and exhibits attached to this Lease are hereby incorporated in this
Lease and made a part of this Lease.
33.7 HEADINGS. The headings and paragraph titles in this
Lease are not a part of this Lease and shall have no effect upon the
construction or interpretation of any part of this Lease.
33.8 TIME. Time is of the essence of this Lease and each
and all of its provisions.
33.9 DAYS. Unless otherwise expressly indicated herein,
any reference to "days" in this Lease shall be deemed to refer to calendar days.
33.10 RENT. Each and every monetary obligation under this
Lease shall be deemed to be "Rent" under this Lease and for all other purposes
under law.
33.11 APPLICABLE LAW; VENUE. This Lease shall be governed
by and construed in accordance with the laws of the State of Ohio, but not
including its conflicts of laws rules; thus the law that will apply is the law
applicable to a transaction solely within the State of Ohio. Notwithstanding
the application of the laws of the State of Ohio, each party hereto hereby
irrevocably submits itself to the jurisdiction of the state courts of the State
of California and to the jurisdiction of the United States District Court for
the Central District of California, for the purpose of any suit, action or other
proceeding arising out of or based upon this Lease or the subject matter hereof
brought by either party hereto and such suit, action or other proceedings shall
be conducted in the State or Federal courts located in Los Angeles, California.
33.12 SUCCESSORS AND ASSIGNS. The covenants and conditions
contained in this Lease shall, subject to the provisions regarding assignment
(Article XXII), apply to and bind the heirs, successors, executors,
administrators, and assigns of Lessor and Lessee.
33.13 RECORDATION. Lessor and Lessee shall execute with
appropriate acknowledgments and record in the Official Records of the county in
which the Leased Property is located, that certain Memorandum of Lease in the
form and content of Exhibit "C" attached hereto. Lessor and Lessee shall
equally share the cost of recording the Memorandum of Lease. In no
-45-
<PAGE>
event shall this Lease otherwise be recorded.
33.14 PRIOR AND FUTURE AGREEMENTS. This Lease contains all
of the agreements of Lessor and Lessee with respect to any matter covered or
mentioned in this Lease, and no prior agreements or understanding pertaining to
any such matters shall be effective for any purpose. No provision of this Lease
may be amended or supplemented except by an agreement in writing signed by both
Lessor and Lessee or their respective successors in interest. This Lease shall
not be effective or binding on any party until fully executed by both Lessor and
Lessee.
33.15 PARTIAL INVALIDITY. Any provision of this Lease
which shall be held by a court of competent jurisdiction to be invalid, void or
illegal shall in no way affect, impair or invalidate any other provision or term
of this Lease, and such other provision or terms shall remain in full force and
effect.
33.16 ATTORNEYS' FEES. In the event of any action or
proceeding brought by one party against the other under this Lease, the
prevailing party shall be entitled to recover its reasonable attorneys' fees
in such action or proceeding from the other party, including all attorneys'
fees incurred in connection with any appeals, and any post-judgment
attorneys' fees incurred in efforts to collect on any judgment.
33.17 AUTHORITY OF LESSOR AND LESSEE. Lessor and Lessee
each hereby represent and warrant that the individuals signing on its behalf
are duly authorized to execute and deliver this Lease on behalf of the
corporation, in accordance with the bylaws of the corporation, and that this
Lease is binding upon the corporation.
33.18 RELATIONSHIP OF THE PARTIES. Nothing contained in
this Lease shall be deemed or construed by Lessor or Lessee, nor by any third
party, as creating the relationship of principal and agent or a partnership,
or a joint venture by Lessor or Lessee, it being understood and agreed that
no provision contained in this Lease nor any acts of Lessor and Lessee shall
be deemed to create any relationship other than the relationship of landlord
and tenant.
33.19 COUNTERPARTS. This Lease may be executed in one
or more separate counterparts, each of which, once they are executed, shall
be deemed to be an original. Such counterparts shall be and constitute one
and the same instrument.
-46-
<PAGE>
33.20 BROKERS. Lessor and Lessee each warrants that it
has had no dealings with any real estate broker or agent in connection with
the negotiation of this Lease and it knows of no real estate broker or agent
who is entitled to a commission in connection with this Lease. Lessor and
Lessee hereby agree to indemnify the other and to hold the other harmless
from and against any and all costs, expenses, claims, damages, suits,
including attorneys' fees, in any way resulting from claims or demands for
commissions or other compensation from any real estate brokers claiming
through such party with respect to this Lease.
33.21 NEW COMBINED LEASE. The parties agree that at any
time during the Term of this Lease, upon the written request of Lessor,
Lessor and Lessee shall execute a new lease merging this Lease and the lease
entered into concurrently herewith or hereafter between the Lessor and Lessee
for that certain assisted living facility commonly known as Karrington on
Presque Isle Bay located in the City of Erie, State of Pennsylvania. The new
combined lease for both facilities shall incorporate all of the same terms
and conditions as set forth in each individual lease and shall provide for
the aggregation of all payments due under each lease.
WHEREFORE, each of the parties has accepted and agreed by affixing
their respective authorized signatures below as of the date first above
written.
[SIGNATURE CONTINUED ON NEXT PAGE]
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<PAGE>
[SIGNATURE CONTINUED FROM PREVIOUS PAGE]
"LESSOR"
SIGNED AND ACKNOWLEDGED LTC-OHIO, INC.,
IN THE PRESENCE OF: A DELAWARE CORPORATION,
DOING BUSINESS IN OHIO AS
LTC PROPERTIES-OHIO, INC.
/s/ Paul Rosenbaum BY: /s/ Pamela J. Privett
- ------------------------------------ ------------------------------
ITS: Senior V.P. and
PRINTED NAME: Paul Rosenbaum General Counsel
---------------------- -----------------------------
/s/ Elizabeth H. Malloy
- ------------------------------------
PRINTED NAME: Elizabeth H. Malloy
----------------------
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<PAGE>
ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
----------- ) SS.
COUNTY OF LOS ANGELES )
------------
The foregoing instrument was acknowledged before me on this 22nd day
-----
of May , 1998, by Pamela J. Privett, Senior Vice President and General Counsel
----- ----------------- ----------------------------------------
of LTC-OHIO, Inc., a Delaware corporation, on behalf of the corporation.
--------------- --------------------
/s/ Elizabeth H. Malloy
- ----------------------------
Elizabeth H. Malloy Notary Public
My Commission Expires: June 22, 1999
[SEAL]
<PAGE>
ACKNOWLEDGEMENT
STATE OF OHIO )
-------- ) SS.
COUNTY OF FRANKLIN )
-----------
The foregoing instrument was acknowledged before me on this 26th day
------
of May, 1998, by Stephen Lewis, Senior Vice President and General Counsel of
---- ------------- -----------------------------------------
Karrington Operating Company, Inc., a Ohio Corporation, on behalf of the
- ---------------------------------- ----------------
corporation.
/s/ Amy S. Maxwell
- -----------------------------
Notary Public
My Commission Expires:
[SEAL]
9/29/99
- -------------------
This Instrument Prepared by: Alan D. Aronson, Esq.
Rosenfeld, Wolff, Aronson, Kurland & Klein
2049 Century Park East, Suite 3090
Los Angeles, California 90067
<PAGE>
[SIGNATURE CONTINUED FROM PREIVUOUS PAGE]
"LESSOR"
Signed and acknowledged LTC-OHIO, INC.,
in the presence of: a Delaware corporation, doing business in
Ohio as LTC Properties-Ohio, Inc.
/s/ Paul Rosenbaum By: Pamela J. Privett
- ---------------------------- -------------------------------
Printed Name: Paul Rosenbaum Its: Senior V.P.-General Council
--------------- --------------------------------
/s/ Elizabeth H. Malloy
Printed Name: Elizabeth H. Malloy
--------------------
<PAGE>
ACKNOWLEDGEMENT
STATE OF CALIFORNIA )
----------- ) SS.
COUNTY OF LOS ANGELES )
------------
The foregoing instrument was acknowledged before me on this 22nd day
-----
of May , 1998, by Pamela J. Privett, Senior Vice President and General Counsel
----- ----------------- ----------------------------------------
of LTC-OHIO, Inc., a Delaware corporation, on behalf of the corporation.
--------------- --------------------
/s/ Elizabeth H. Malloy
- ----------------------------
Elizabeth H. Malloy Notary Public
My Commission Expires: June 22, 1999
[SEAL]
<PAGE>
ACKNOWLEDGEMENT
STATE OF OHIO )
-------- ) SS.
COUNTY OF FRANKLIN )
-----------
The foregoing instrument was acknowledged before me on this 26th day
------
of May, 1998, by Stephen Lewis, Senior Vice President and General Counsel of
---- ------------- -----------------------------------------
Karrington Operating Company, Inc., an Ohio Corporation, on behalf of the
- ---------------------------------- ----------------
corporation.
/s/ Amy S. Maxwell
- -----------------------------
Notary Public
My Commission Expires: [SEAL]
9/29/99
- -------------------
This Instrument Prepared by: Alan D. Aronson, Esq.
Rosenfeld, Wolff, Aronson, Kurland & Klein
2049 Century Park East, Suite 3090
Los Angeles, California 90067
-48-
<PAGE>
INDEX OF EXHIBITS
Exhibit "AA" - Legal Description
Exhibit "AB" - Related Leases
Exhibit "AC" - Memorandum of Lease
Exhibit "AD" - Approved Use of Proceeds
<PAGE>
EXHIBIT A
Legal Description
Rocky River Real Property
<PAGE>
EXHIBIT "B"
RELATED LEASES*
1. That certain Lease and Sublease dated April 21, 1998 by and between
LTC-Ohio, Inc., as "Lessor and Sublessor", and Karrington Operating
Company, Inc., as "Lessee and Sublessee", for those four (4) assisted
living facilities commonly known as Karrington on the Scioto,
Karrington Place, Karrington at Tucker Creek and Karrington of Bexley
and located in the City of Upper Arlington, City of Worthington, City
of Worthington and City of Bexley, respectively, all in the State of
Ohio.
2. That certain Lease dated ______ __, by and between LTC-Ohio, Inc., as
"Lessor", and Karrington Operating Company, Inc., as "Lessee", for that
certain assisted living facility commonly known as Karrington on
Presque Isle Bay located in the City of Erie, State of Pennsylvania.
*The Related Leases referenced above will be modified in writing in the future
if Lessor and Lessee enter into a lease (or leases) of property in addition to
or in substitution of any of the aforementioned Related Leases.
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT made and entered into as of this 18TH day of December,
1987, by and between PHOENIX NURSING HOME LIMITED PARTNERSHIP, an Illinois
limited partnership (hereinafter referred to as "Lessor") and HORIZON HEALTHCARE
CORPORATION, a Delaware corporation (hereinafter referred to as "Lessee").
WITNESSETH
WHEREAS, Lessor has entered into a contract to purchase a certain tract of
land which is improved with a nursing home facility, located at 11411 N. 19th
Ave. Phoenix, AZ and known as the Phoenix Jewish Care Center, all as more
particularly described in Exhibit A attached hereto and made a part hereof
(which tract and nursing home facility, together with any other improvements now
or hereafter located on the tract and all easements, tenements, hereditaments
and appurtenances thereto are hereinafter referred to as the "Demised
Premises"); and
WHEREAS, Lessor has entered into a contract to purchase the furnishings,
furniture, equipment and fixtures to be used in or about the Demised Premises
(hereinafter collectively referred to as the "Personal Property"); and
WHEREAS, following the closing of the purchase of the Demised Premises and
Personal Property, Lessor desires to lease the Demised Premises and Personal
Property to the Lessee and Lessee desires to lease the Demised Premises and
Personal Property from Lessor; and
WHEREAS, the parties hereto have agreed to the terms and conditions of this
Lease.
NOW, THEREFORE, it is agreed that the use and occupancy of the Demised
Premises, and the use of the Personal Property shall be subject to and in
accordance with the terms, conditions and provisions of this Lease.
ARTICLE I - DEFINITIONS
1.1 The terms defined in this Article shall, for all purposes of this Lease and
all agreements supplemental hereto, have the meaning herein specified:
(a) "Demised Premises" shall mean the real property described in Exhibit A
and all improvements located thereon.
(b) "Personal Property" shall mean the furniture, fixtures, equipment and
supplies acquired by Lessor.
(c) "Leased Property shall mean the Demised Premises and the Personal
Property.
(d) "Lease Year" shall mean each twelve-month period commencing on January
1 or each year and ending on December 31 or the same year.
1
<PAGE>
(e) All other terms shall be as defined in other sections or this Lease.
ARTICLE II - DEMISED PREMISES AND PERSONAL PROPERTY
2.1 Lessor, for and in consideration of the rents, and covenants and agreements
hereinafter reserved, mentioned and contained on the part of the Lessee, its
successors and assigns, to be kept and performed, does hereby Lease unto Lessee
the Demised Premises together with the Personal Property to be used in and upon
the Demised Premises for the term hereinafter specified, for use and operation
therein and thereon of a 128 bed skilled and/or intermediate care nursing home,
in full compliance with all the rules and regulations and minimum standards
applicable thereto, as prescribed by the State of Arizona and such other
governmental authorities having jurisdiction thereof.
ARTICLE III - TERM OF LEASE
3.1 The initial term of this Lease shall be for a period or ten (10) years
commencing on January 1, 1988 (said date is hereafter referred to as the
"Commencement Date"), and shall expire on December 31, 1997 (the "Initial
Term"), unless extended or sooner terminated as hereinafter provided.
3.2 Lessee shall have the right to extend the term of this Lease for two (2)
consecutive periods of five (5) years each (the "Extended Terms"). Lessee shall
exercise its option to extend by written notice to Lessor given at least 180
days prior to expiration of the Initial Term or the First Extended Term, as
appropriate.
3.3 The Initial Term and the Extended Terms are hereinafter sometimes
collectively referred to as the "Lease Term".
ARTICLE IV - RENT
4.1 Lessee shall pay to Lessor, or as Lessor shall direct, Minimum Rent and
Additional Rent in the amounts and in the manner specified below. Unless
otherwise notified in writing by Lessor, all such payments shall be made by
check made payable to Phoenix Nursing Home Partnership and shall be sent c/o
Harvey Angell, 55 West Monroe, Suite 1690, Chicago, IL 60603.
4.2 Rent. Rent shall be payable in each Lease Year of the Initial Term and any
Extended Terms in the following amounts:
4.2.1 In the first Lease Year, an annual Rent payment of Three Hundred
Ninety Seven Thousand One Hundred Twenty and No/100 Dollars ($397,120) shall be
due and owing on the first of each month commencing January 1, 1988, and shall
be payable in equal consecutive monthly installments of $33,093.33.
2
<PAGE>
4.2.2 In the Second Year, an annual Rent payment of Four Hundred Eight
Thousand Eight Hundred and No/100 Dollars ($408,800) shall be due and owing on
the first of each month commencing January 1, 1989 and shall be payable in equal
consecutive monthly installments or $34,066.67.
4.2.3 In the Third, fourth and Fifth Lease Years, an annual Rent
payment of Four Hundred Twenty Thousand Four Hundred Eighty and No/100 Dollars
($420,480) shall be due and owing on the first of each month commencing January
1, 1990 and shall be payable in equal consecutive monthly installments or
$35,040.00.
4.2.4 In the remaining Lease Years, Lessee shall pay to Lessor the
annual Rent specified below:
<TABLE>
<CAPTION>
LEASE YEAR ANNUAL MONTHLY
---------- ------ --------
<S> <C> <C>
6 $426,787.20 $35,565.50
7 433,189.01 36,099.08
8 439,686.85 36,640.57
9 446,282.15 37,190.18
10 452,976.38 37,748.03
11 459,771.03 38,314.25
12 466,667.60 38,888.97
13 473,667.61 39,472.30
14 480,772.62 40,064.39
15 487,984.21 40,665.35
16 495,303.97 41,275.33
17 502,733.53 41,894.46
18 510,274.53 42,522.88
19 517,928.65 43,160.72
20 525,697.58 43,808.13
</TABLE>
4.2.5 In the event the Lease should commence or terminate other then on
the first day of a month, Lessee shall pay to Lessor a pro rata portion of the
Rent due for the month.
4.3 This Lease is and shall be deemed and construed to be an absolutely net
lease and the rent specified herein shall be net to the Lessor in each year
during the term of this Lease. The Lessee shall pay all costs, expenses and
obligations relating to the Leased Property as set forth herein, and excluding
any principal and interest payments relating to any mortgage on the Demised
Premises, which payments shall be the responsibility of Lessor. Lessee does
hereby indemnify the Lessor against any and all said costs, expenses and
obligations.
ARTICLE V - LATE CHARGES
5.1 If payment of any sums required to be paid or deposited by Lessee to
Lessor under this Lease, and payments made by Lessor under any provision
hereof for which Lessor is
3
<PAGE>
entitled to reimbursement by Lessee, shall become overdue for a period of
ten (10) days beyond the date on which they are due and payable as in
this Lease provided, a late charge of 3% per month on the sums so overdue
shall become immediately due and payable to Lessor as liquidated damages
for Lessee's failure to make prompt payment and said late charges shall
be payable on the first day of the month next succeeding the month during
which such late charges become payable. If non-payment of any late
charges shall occur Lessor shall have, in addition to all other rights
and remedies, all the rights and remedies provided for herein and by law
in the case of non-payment of Rent. No failure by Lessor to insist upon
the strict performance by Lessee of Lessee's obligations to pay late
charges shall constitute a waiver by Lessor of its rights to enforce the
provisions of this Article in any instance thereafter occurring.
ARTICLE VI - PAYMENT OF TAXES AND ASSESSMENTS
6.1 Subject to the conditions of this paragraph, Lessee shall pay before
delinquency all taxes, assessments, improvement assessments and charges for
public utilities or every kind and character which have or may be levied,
imposed or assessed upon the Demised Premises and upon the Personal Property and
any replacements thereof during the term of this Lease (hereinafter referred to
as "Taxes and Assessments"); provided, however, this Article VI shall not
require Lessee to make any payments for which Lessee has previously deposited
funds with Lessor pursuant to Article XXVIII hereof. Forthwith upon payment by
Lessee of any Taxes or Assessments required to be paid by it, Lessee shall
submit to Lessor the official receipt or receipts showing payment of such taxes,
or photostatic copies thereof.
6.2 Any Taxes and Assessments relating to a fiscal period of any authority, a
part of which is included within the term of this Lease and a part of which is
included in a period of time before or after the term of this Lease, shall be
adjusted pro rata between Lessor and Lessee and each party shall be responsible
for its pro rata share of any such Taxes and Assessments.
6.3 Nothing herein contained shall require Lessee to pay income taxes
assessed against Lessor, or capital levy, franchise, estate, succession or
inheritance taxes of Lessor.
6.4 Lessee shall have the right to contest the amount or validity, in whole
or in part, of any Taxes and Assessments by appropriate proceedings diligently
conducted in good faith.
6.5 Upon the termination of any such proceedings, Lessee shall pay the amount
of such Taxes and Assessments or part thereof as finally determined in such
proceedings, the payment of which may have been deferred during the prosecution
of such proceedings, together with any costs, fees, interest, penalties or other
liabilities in connection therewith.
6.6 Lessor shall not be required to join in any proceedings referred to in
this Article, unless the provisions of any law, rule or regulation at the time
in effect shall require that such proceedings be brought by and/or in the name
of Lessor, in which event Lessor shall join in such proceedings or permit the
same to be brought in its name. Lessor shall not ultimately be subjected to any
liability for the payment of any costs or expenses in connection with any such
4
<PAGE>
proceedings, and Lessee will indemnify and save harmless Lessor from any such
costs and expenses. Lessee shall be entitled to any refund of any real estate
taxes and penalties or interest thereon received by Lessor but previously
reimbursed in full by Lessee.
6.7 If any income, profits or revenue tax shall be levied, assessed or
imposed upon the income, profits or revenue arising from rents payable
hereunder, partially or totally in lieu of or as a substitute for real estate or
personal property taxes imposed upon the Demised Premises or Personal Property
during the term of this Lease, then Lessee shall be responsible for the payment
of such tax.
ARTICLE VII - RESERVES AND ACCOUNTS RECEIVABLE
7.1 At the Commencement Date, Lessor shall account, or shall direct PJCC
Partnership, the current operator of the Facility, to account, to Lessee for all
entrance fees, advance payments or other funds held by Lessor, or PJCC
Partnership for any patients (in trust or otherwise) or in connection with any
reserve requirements imposed by statute, regulation or otherwise in connection
with operation of the Demised Premises and Personal Property and shall thereupon
deliver such funds to Lessee.
7.2 All accounts receivable in respect of the facility on the Demised
Premises shall be prorated as of the Commencement Date. All amounts collected
from private patients after the Commencement Date shall be first applied to
services rendered or to be rendered after the Commencement Date.
ARTICLE VIII - OCCUPANCY
8.1 During the term of this Lease, the Demised Premises shall be used and
occupied by Lessee for and as a skilled care and/or intermediate care nursing
home and for no other purpose without the prior written consent of Lessor, which
consent shall not be unreasonably withheld. Lessee shall at all times use its
best efforts to maintain in good standing and full force all the licenses issued
by the State of Washington and any other governmental agencies permitting the
operation on the Demised Premises of a skilled and/or intermediate care nursing
home facility.
8.2 Lessee will not suffer any act to be done or any condition to exist on
the Demised Premises which may be dangerous or which may, in law, constitute a
public or private nuisance or which may void or make voidable any insurance then
in force on the Demised Premises
8.3 Upon termination of this Lease for any reason, Lessee will return to
Lessor the Demised Premises qualified and sufficient for licensing by all
governmental agencies having jurisdiction over the Demised Premises as a skilled
and/or intermediate care nursing home with licenses in full force and good
standing. All the Demised Premises, with the improvements located therein and
all the Personal Property shall be surrendered in good order, condition and
repair, reasonable wear and tear excepted.
ARTICLE IX - INSURANCE
5
<PAGE>
9.1 Lessee shall, at its sole cost and expense, during the full term of this
Lease, maintain fire and casualty insurance with extended coverage endorsement
on the Leased Property with a responsible company or companies approved by
Lessor, which approval will not be unreasonably withheld. Such insurance shall,
at all times, be maintained (without any co-insurance clause, if possible) in an
amount as may be required by an mortgagee of the Demised Premises or, absent
such requirement, in an amount sufficient to prevent Lessor and Lessee from
becoming co-insurers under applicable provisions of the insurance policies.
Such insurance shall at all times be payable to Lessor and Lessee as their
interests may appear, and shall contain a loss-payable clause to the holder of
any mortgage to which this Lease shall be subject and subordinate, as said
mortgagee's interest may appear.
9.2 Lessee shall also, at Lessee's sole cost and expense, cause to be issued
and shall maintain during the entire term of this Lease:
a) A public liability policy naming Lessor, as an additional insured or
loss payee, as appropriate, and insuring Lessor against claims for bodily
injury, or property damage occurring upon, in or about the Demises Premises, or
in or upon the adjoining streets, sidewalks, passageways, and areas such
insurance to afford protection to the limits of not less than $1,000,000.00 per
each occurrence and $1,000,000.00 in the aggregate and an umbrella liability
policy of not less than $4,000,000.00 per each occurrence;
b) Boiler explosion insurance, in the amount of not less than $100,000.00
under the terms of which Lessor and Lessee will be indemnified, as their
interests may appear, against any loss or damage which may result from any
accident or casualty in connection with any boiler used in the Demised Premises,
whereby any person or persons may be injured or killed or property damaged in or
about the Demised Premises; and
c) Medical Malpractice insurance in the amount of $500,000.00.
9.3 All policies of insurance shall provide:
a) That they are carried in favor of the Lessor, Lessee, and any
mortgagee, as their respective interests may appear, and any loss shall be
payable as therein provided, notwithstanding any act or negligence of Lessor or
Lessee, which might otherwise result in forfeiture of insurance;
b) That they shall not be cancelled, terminated, reduced or materially
modified without at least twenty (20) days' prior written notice to Lessor; and
c) A standard mortgagee clause in favor of any mortgagee, and shall
contain, if obtainable, a waiver of the insurer's right of subrogation against
funds paid under the standard mortgagee endorsement which are to be used to pay
the cost of any repairing, rebuilding, restoring or replacing.
6
<PAGE>
9.4 Certificates evidencing the existence of the insurance required to be
carried by Lessee shall be delivered to Lessor upon request.
9.5 Lessee shall at all times keep in effect business interruption insurance
with a loss of rents endorsement naming Lessor as an insured in an amount at
least sufficient to cover:
a) To the extent the same can be ascertained, the aggregate of the cost
of all Taxes and Assessments due during the period of the next succeeding twelve
(12) months following the occurrence of the business interruption;
b) The cost of all insurance premiums for insurance required to be
carried by Lessee for such twelve (12) month period; and
c) The aggregate of the amount of (i) Miniumum Rent for the next
consecutive twelve (12) month period and the (ii) the Additional Rent paid in
the immediately preceeding Lease Year.
All proceeds of any business interruption insurance shall be applied,
first, to the payment of any and all Rent payments for the next succeeding
twelve (12) months; second, to the payment of any Taxes and assessments and
insurance deposits required for the next succeeding twelve (12) months; and,
thereafter, after all necessary repairing, rebuilding, restoring or replacing
has been completed as required by the pertinent Articles of this Lease and the
pertinent section of any mortgage, any remaining balance of such proceeds shall
be paid over to the Lessee.
ARTICLE X - LESSOR'S RIGHT TO PERFORM
10.1 Should Lessee fail to perform any of its covenants herein agreed to be
performed, and such failure shall continue for ten (10) days after Lessor has
given Lessee written notice of such failure unless such failure cannot, with due
diligence, be cured within a period of thirty (30) days, in which case such
failure shall not be deemed to continue if Lessee proceeds promptly and with due
diligence to cure the failure, Lessor may, but shall not be required to make
such payment or perform such covenants, and all sums so expended by Lessor
thereon shall immediately be payable by Lessee to Lessor, with interest thereon
at the rate of fifteen percent (15%) per annum from date thereof until paid, and
in addition, Lessee shall reimburse Lessor for Lessor's reasonable expenses in
enforcing or performing such covenants, including reasonable attorney's fees.
10.2 Performance of and/or payment to discharge said Lessee's obligations
shall be optional with Lessor and such performance and payment shall in no way
constitute a waiver of, or a limitation upon, Lessor's other rights hereunder.
ARTICLE XI - REPAIRS AND MAINTENANCE
7
<PAGE>
11.1 Throughout the term of this Lease, Lessee, at its sole cost and expense,
will keep and maintain, or cause to be kept and maintained, the Demised Premises
(including the grounds, sidewalks and curbs abutting the same) and the Personal
Property in good order and condition without waste and in a suitable state of
repair at least comparable to that which existed immediately prior to the
Commencement Date (ordinary wear and tear expected), and will make or cause to
be made, as and when the same shall become necessary, all structural and
non-structural, exterior and interior, replacing, repairing and restoring
necessary to that end. All replacing, repairing and restoring required of
Lessee shall be (in the reasonable opinion of Lessor) of a quality at least
equal to the original work and shall be in compliance with all standards and
requirements of law, licenses and municipal ordinances necessary to operate the
Demised Premises as a skilled and/or intermediate care nursing home. Any items
of Personal Property that are uneconomical to repair shall be replaced where
reasonable by items of like kind and all replacement items shall become part of
the Personal Property. No items of Personal Property shall be removed from the
Demised Premises except in connection with repair or replacement of such items.
Lessee may place additional property on the Demised Premises (not required for
the replacement of the Personal Property) and such additional property shall be
and remain the property of Lessee. Lessee may remove such additional property
upon termination of this Lease provided that Lessee shall make such necessary
repairs or replacements as may be required in order to return the Demised
Premises to the condition which existed prior to the removal of the additional
property.
ARTICLE XIA - DAMAGE AND DESTRUCTION
11A. 1 If the Demised Premises shall be substantially damaged or destroyed, as
hereinafter defined, by fire, casualty, act of God or similar or dissimilar
causes, then in any such event Lessee may elect to terminate this Lease by
giving Lessor within forty-five (45) days immediately following such substantial
damage or destruction written notice electing to terminate. This Lease shall
then terminate thirty (30) days after delivery of such notice, with rent
adjusted to the effective date of damage or destruction. For the purposes of
this Lease, the Demised Premises shall be deemed substantially damaged or
destroyed if the number of beds usable at the nursing care facility included
therein, immediately after the damage or destruction, is reduced below one
hundred (100).
11A.2 If the Demised Premises Lessee shall be damaged or destroyed by fire,
casualty, act of God or similar or dissimilar causes, and this Lease is not
terminated as provided in paragraph 11A.1 above, either because Lessee elects
not to terminate or because the damage or destruction is not deemed substantial
as defined in such paragraph, Lessee, at its expense, and subject to the
provisions of this paragraph, shall repair and restore the Premises upon the
same general plan and dimensions as before such damage or destruction, unless
another plan is agreed upon in writing between Lessor and Lessee. Lessee shall
commence to repair and restore the Demised Premises within fifteen (15) days
after Lessee gives written notice of damage or destruction to Lessor and that
Lessee elects not to exercise any available right to terminate as provided by
paragraph 11A.1 above. Lessee may utilize all insurance proceeds available for
any such repair or restoration, subject to any required approval of any
mortgagee. Lessee's obligation to make
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rent payments and to pay all other charges required by this Lease shall be
equitably abated during the period of repair or restoration.
ARTICLE XII - ALTERATIONS AND DEMOLITION
12.1 Lessee will not remove or demolish any improvement or building which is
part of the Demised Premises or any portion thereof or allow it to be removed or
demolished, without the prior written consent of the Lessor, which consent shall
not be unreasonably withheld. Lessee further agrees that it will not make,
authorize or permit to be made any changes or alterations in or to the Demised
Premises without first obtaining the Lessor's written consent thereto, which
consent shall not be unreasonably withheld. All alterations, improvements and
additions to the Demised Premises shall be in quality and class at least equal
to the original work and shall become the property of the Lessor and shall meet
all building and fire codes, and all other applicable codes, rules, regulations,
laws and ordinances.
ARTICLE XIII - COMPLIANCE WITH LAWS AND ORDINANCES
13.1 Throughout the term of this Lease, Lessee shall use its best efforts to
obey, observe and promptly comply with all present and future laws, ordinances,
orders, rules, regulations and requirements of any federal, state and municipal
governmental agency or authority having jurisdiction over the Demised Premises
and the operation thereof as a skilled and/or intermediate care nursing home,
which may be applicable to the Personal Property and the nursing home and the
Demised Premises and including, but not limited to, the sidewalks, alleyways,
passageways, vacant land, parking spaces, curb cuts, curbs adjoining the Demised
Premises, whether or not such law, ordinance, order, rules, regulation or
requirement shall necessitate structural changes or improvements.
13.2 Lessee shall likewise use its best efforts to observe and comply with the
requirements of all policies of public liability and fire insurance and all
other policies of insurance at any time in force with respect to the Demised
Premises.
13.3 Lessee shall promptly apply for and procure and use its best efforts to
keep in good standing and in full force and effect all necessary licenses,
permits and certifications required by any governmental authority for the
purpose of maintaining and operating on the Demised Premises a skilled and/or
intermediate care nursing home which at all times shall be qualified to
participate in the Medicare and/or Maricopa County Welfare Programs.
13.4 Lessee shall notify Lessor within twenty-four (24) hours after receipt
thereof of any notice from any governmental agency terminating or suspending or
threatening termination or suspension, of any license or certification relating
to the Demised Premises or the nursing home operated thereon.
13.6 Lessee will deliver to Lessor within thirty (30) days of Lessor's written
request therefor, copies of any inspection reports or surveys from any state,
federal and local governmental bodies regarding the Demised Premises.
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ARTICLE XIV - DISCHARGE OF LIENS
14.1 Subject to the provisions of Article 14.2 hereof, Lessee will not create
or permit to be created or to remain, and Lessee will discharge, any lien,
encumbrance or charge levied on account of any mechanic's, laborer's or
materialman's lien or any conditional sale, security agreement or chattel
mortgage, or otherwise, which might be or become a lien, encumbrance or charge
upon the Demised Premises or any part thereof or the income therefrom or the
Personal Property, for work or materials or personal property furnished or
supplied to, or claimed to have been supplied to or at the request of Lessee.
14.2 If any mechanic's, laborer's or materialman's lien caused or charged to
Lessee shall at any time be filed against the Demised Premises or Personal
Property, Lessee shall have the right to contest such lien or charge, provided,
Lessee within sixty (60) days after notice of the filing thereof, will cause the
same to be discharged of record or in lieu thereof to secure Lessor against said
lien by deposit with Lessor of such security as may be reasonably demanded by
Lessor to protect against such lien. If Lessee shall fail to cause such lien to
be discharged within the period aforesaid, or to otherwise secure Lessor as
aforesaid, then in addition to any other right or remedy, Lessor may, upon ten
(10) days notice in writing by Lessor to Lessee, but shall not be obligated to,
discharge the same either by paying the amount claimed to be due or by
processing the discharge of such lien by deposit or by bonding proceedings. Any
amount so paid by Lessor and all costs and expenses incurred by Lessor in
connection therewith, together with interest thereon at the rate of fifteen
percent (15%) per annum, but not in excess of the maximum amount permitted by
law, shall constitute additional rent payable by Lessee under this Lease and
shall be paid by Lessee to Lessor on demand. Except as herein provided, nothing
contained herein shall in any way empower Lessee to do or suffer any act which
can, may or shall cloud or encumber Lessor's or mortgagee's interest in the
Demised Premises.
ARTICLE XV - INSPECTION OF PREMISES BY LESSOR
15.1 At any time, during reasonable business hours, Lessor and/or its
authorized representative shall have the right to enter and inspect the Demised
Premises and Personal Property.
15.2 Lessor agrees that the person or persons upon entering and inspecting the
Demised Premises and Personal Property will cause as little inconvenience to the
Lessee as may reasonably be possible under the circumstances.
ARTICLE XVI - CONDEMNATION
16.1 In case all or substantially all of the Demised Premises leased hereunder
shall be taken or sold under the threat of such taking for any public use by act
of any public authorities, then this Lease shall terminate as of the date of
title vesting in such proceeding and all rentals shall be paid to that date. If
all or substantially all of the Leased Property shall be taken, the net proceeds
of any condemnation award, settlement or compromise for the Leased Property
taken shall be allocated between Lessor and Lessee in the proportion in which
the value of Lessor's
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interest under this Lease plus the value of Lessor's reversionary interest in
the Leased Property, both as of the date of title vesting in such proceeding,
bears to the value of Lessee's interest (taking into consideration its rental
obligations) under this Lease as of the date of title vesting in such
proceedings. For the purposes of this paragraph "substantially all of the
Demised Premises leased hereunder" shall be deemed to have been taken if upon
the taking of less than the whole of the Demised Premises that portion of the
Demised Premises not so taken shall not by itself be adequate for the conduct
therein of Lessee's business, in the reasonable discretion of Lessee.
In the event of a partial condemnation the result of which shall be a reduction
in the number of licensed beds on the Demised Premises, Lessee shall have the
right to terminate this Lease by written notice to Lessor within ninety (90)
days following the Issuance of the condemnation order or conveyance of the
property, whichever is earlier, with rent adjusted to the date of termination.
ARTICLE XVII - LESSOR'S WARRANTIES AND REPRESENTATIONS
17.1 Lessee hereby acknowledges that it has inspected the Facility prior to
execution of this Lease and that the Facility is currently fully equipped.
Lessor does hereby represent and warrant that to the extent the Demised Premises
is found by Lessee after the Commencement Date not to be so fully equipped, and
Lessee advises Lessor in writing of said deficiency, Lessor shall take such
steps as may be reasonably necessary to secure the missing equipment and/or to
compensate Lessee for the replacement value thereof.
17.2 Lessee shall peaceably and quietly hold and enjoy the Demised Premises
and Personal Property for the term hereby demised without hindrance or
interruption by Lessor or any other person or persons lawfully or equitably
claiming by, through or under Lessor subject, nevertheless, to the terms and
conditions of this Lease.
17.3 With respect to the obligations of Lessor (or any other party who shall
be obligated to do so) to pay when due any amounts due under a mortgage which
may now or hereafter affect the Demised Premises including, but not limited to,
the Deed of Trust described in Section 19.1(d), below, or to pay (or bond over
in a manner reasonably satisfactory to Lessee) any other charge or lien which if
unpaid, would affect Lessee's quiet enjoyment of the Demised Premises, then
after ten (10) days' written notice from Lessee to Lessor specifying with
particularity the alleged default, and failure of Lessor to cure such default
within such period, Lessee may cure any such default, all on behalf of and at
the expense of Lessor and make all necessary payments in connection therewith,
including payments for reasonable attorneys fees in instituting, prosecuting or
defending any action or proceedings instituted by reason of any default of
Lessor, and withhold any and all rental payments and other payments thereafter
due to Lessor, up to the amount of the sums theretofore actually advanced by or
on behalf of Lessee under this Lease together with interest thereon from the
date of payment by Lessee at the rate of fifteen (15%) percent per annum, but
not in excess of the maximum amount permitted by law. In addition, in the event
of Lessor's failure on three occasions to make its mortgage payments, in lieu of
exercising the rights and remedies specified above, Lessee may terminate this
Lease,
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provided at the time of said termination Lessee is not in default of its rental
obligations hereunder.
ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
18.1 During the term of the Lease, Lessee shall not assign this Lease or in
any manner whatsoever sublet, assign or transfer all or any part of the Demised
Premises without the prior written consent of the Lessor, which consent shall
not be unreasonably withheld. Any violation or breach or attempted violation or
breach of the provisions of this Article by Lessee, or any acts inconsistent
herewith shall vest no right, title or interest herein or hereunder or in the
Demised Premises, in any such transferee or assignee; and Lessor may, it its
exclusive option, terminate this Lease and invoke the provisions of this Lease
relating to default.
ARTICLE XIX - ACTS OF DEFAULT
19.1 The following acts or events shall be deemed to be an Event of Default
(herein an "Event of Default") on the part of the Lessee:
(a) The failure of Lessee to pay when due any rental payment, or any
part thereof, or any other sum or sums of money due or payable to the Lessor
under the provisions of this Lease, when such failure shall continue for a
period of ten (10) days after notice in writing thereof by Lessor to Lessee;
(b) The failure of Lessee to perform, or the violation by Lessee of,
any of the covenants, terms, conditions or provisions of this Lease, if such
failure or violation shall not be cured within thirty (30) days after notice
thereof in writing by Lessor to Lessee, (provided, however, that in the case of
a default which cannot with due diligence be cured within said period of thirty
(30) days after the notice, Lessee shall have such additional time to cure the
same as may reasonably be necessary, provided Lessee proceeds promptly and with
due diligence to cure such default after receipt of such notice);
(c) The removal by any local, state or federal agency having
jurisdiction over the operation of the nursing home located on the Demised
Premises of fifty (50%) percent or more of the patients located in the nursing
home;
(d) The failure or Lessee to comply, or the violation by Lessee of,
any of the terms, conditions or provisions of any Deed of Trust or Mortgage
encumbering the Leased Property which Lessee has agreed in writing to be bound
by, if such failure or violation shall not be cured within twenty (20) days (or
such lesser period as may be provided in said Deed of Trust or Mortgage) after
notice in writing thereof by Lessor to Lessee, subject, however, to the
provision of 19.1(b) with respect to defaults not susceptible of cure within
such period to the extent the same is consistent with the cure provisions or the
said Deed of Trust or Mortgage;
(e) The failure of Lessee to replace, within thirty (30) days after
notice in writing by Lessor to Lessee, a substantial portion of the Personal
Property previously removed by Lessee;
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(f) The making by Lessee of an assignment for the benefit of
creditors;
(g) The levying of a writ of execution or attachment on or against
the property of Lessee which is not discharged or stayed by action of Lessee
contesting same, within thirty (30) days after such levy or attachment (provided
if the stay is vacated or ended, this paragraph shall again apply);
(h) If proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary dissolution of
the Lessee or for its adjudication as a bankrupt or insolvent, or for the
appointment of a receiver of the property of Lessee, and said proceedings are
not dismissed and any receiver, trustee or liquidator appointed therein is not
discharged with thirty (30) days after the institution of said proceedings;
(i) The sale of the interest of Lessee in the Demised Premises under
execution;
(j) The institution of any proceedings against Lessee by any
governmental authority either (i) to revoke any license granted to Lessee for
the operation of a skilled and/or intermediate care nursing home within the
Demised Premises or (ii) decertify the nursing home operated on the Demised
Premises from participation in the Medicaid reimbursement program, subject
however to Lessee's rights under Article XX hereof.
(k) The abandonment of the Demised Premises by Lessee.
ARTICLE XX - RIGHT TO CONTEST
20.1 Lessee shall have the right, upon written notice thereof to the Lessor,
to contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any law, regulation or rule mentioned herein, and
to delay compliance therewith pending the prosecution of such proceedings;
provided, however, that no civil or criminal liability would thereby be incurred
by Lessor and further provided that the effectiveness and good standing of any
license, certificate or permit substantially affecting the Demised Premises or
the nursing home operated thereon would continue in full force and effect during
the period of such contest.
ARTICLE XXI - LESSOR'S REMEDIES UPON DEFAULT
21.1 In the event of any Event of Default on the part of Lessee, Lessor may,
if it so elects, upon twenty (20) days prior written notice to Lessee of such
election, and with or without any demand whatsoever upon Lessee, forthwith
terminate this Lease and Lessee's right to possession of the Leased Property,
or, at the option of the Lessor, terminate Lessee's right to possession of the
Leased Property without terminating this Lease. Upon any such termination of
this Lease, or upon any such termination of Lessee's right to possession without
termination of this Lease, Lessee shall vacate the Demised Premises immediately,
and shall quietly and peaceably deliver possession thereof to the Lessor, and
Lessee hereby grants to the Lessor full and free license to enter into and upon
the Demised Premises in such event with or without
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process of law and to repossess the Demised Premises and Personal Property as
the Lessor's former estate. In the event of any such termination of this Lease,
the Lessor shall again have possession and enjoyment of the Demised Premises and
Personal Property to the extent as if this Lease had not been made, and
thereupon this Lease and everything herein contained on the part of Lessee to be
done and performed shall cease and terminate, all, however, without prejudice to
and without relinquishing the rights of the Lessor to rent (which, upon such
termination of this Lease and entry of Lessor upon the Demised Premises, shall,
in any event, be the right to receive rent due up to the time of such entry) or
any other right given to the Lessor hereunder or by operation of law.
21.2 If Lessee abandons the Demised Premises or otherwise entitles Lessor so
to elect, and the Lessor elects to terminate Lessee's right to possession only,
without terminating this Lease, Lessor may, at its option, enter into the
Demised Premises, remove Lessee's signs and other evidences of tenancy and take
and hold possession thereof as in the foregoing paragraph 21.1 of this Article
provided, without such entry and possession terminating this Lease or releasing
Lessee, in whole or in part, from Lessee's obligation to pay the rent hereunder
for the full remaining term of this Lease, less any rents and other charges that
Lessor will receive by reason of reletting the Demised Premises, and in any such
case, Lessee shall pay to Lessor a sum equal to the entire amount of any rent
reserved hereunder and required to be paid by Lessee up to the time of such
termination of the right of possession plus any other sums then due hereunder.
Upon and after entry into possession without termination of this Lease, Lessor
may attempt to relet the Demised Premises or any part thereof for the account of
Lessee for such rent, or shall operate the nursing home located on the Demised
Premises for such time and upon such terms as Lessor in its sole discretion
shall determine. Lessee shall, upon demand, pay the cost of Lessor's reasonable
expenses of reletting. If the consideration collected by Lessor upon any such
reletting is not sufficient to pay monthly the full amount of rent reserved in
this Lease, together with any reasonable costs of repairs, alterations,
additions or redecorating necessitated by Lessee's default hereunder, Lessee
shall pay to the Lessor the amount of each monthly deficiency upon demand.
21.3 Lessee's liability to Lessor for damages for default in payment of rent
or otherwise hereunder shall in all events survive the termination by Lessor of
the Lease or the termination by Lessor of Lessee's right to possession only, as
hereinabove provided. However, in exercising any remedies hereunder, Lessor
shall have the duty to mitigate the damages for which Lessee may be liable to
the extent reasonably possible, including, but not limited to, efforts to lease
or relet the Demised Premises. Upon such termination of the Lease or at any
time after such termination of Lessee's right to possession, Lessor may recover
from Lessee and Lessee shall pay to Lessor as liquidated and final damages, less
any current monthly deficiencies Lessor shall have collected under the foregoing
paragraph, and in lieu of such current deficiencies after the date of demand for
such final damages, the amount thereof found to be due by a court of competent
jurisdiction, which amount thus found may be equal to:
a) the remainder, if any, of rent and charges due from Lessee for the
period up to and including the date of the termination of the Lease or Lessee's
right to possession;
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b) the amount of any current monthly deficiencies accruing and unpaid by
Lessee up to and including the date of Lessor's demand for final
damages hereunder; and
c) the excess, if any, of:
i) the present value, discounted at the rate of 10% per annum,
of the rent reserved for what would have been the remainder of the term of this
Lease together with charges to be paid by Lessee under the Lease, over
ii) the present value, discounted at the rate of 10% per annum
of the then fair rental value of the Demised Premises and the Personal Property.
If any statute or rule governing a proceeding in which such liquidated final
damages are to be proved shall validly limit the amount thereof to an amount
less than the amount above agreed upon, Lessor shall be entitled to the maximum
amount allowable under such statute or rule of law.
21.4 Except for default by Lessee in the payment of rent or any additional
payment required hereunder, in any case where Lessor shall have given to Lessee
a written notice specifying a situation which, as hereinbefore provided, must be
remedied by Lessee within a certain time period, and, if for causes beyond
Lessee's control, it would not reasonably be possible for Lessee to remedy such
situation within such period, then, provided Lessee, immediately upon receipt of
such notice, shall advise Lessor in writing of Lessee's intention to institute,
and shall, as soon as reasonably possible thereafter, duly institute, and
thereafter diligently prosecute to completion, all steps necessary to remedy
such situation and shall remedy the same, and provided that any license or
certification necessary for the operation of the Demised Premises, as a skilled
and/or intermediate care nursing home is not terminated or cancelled, this Lease
and the term and estate hereby granted shall not expire and terminate at the
expiration of such time period as otherwise hereinbefore provided.
ARTICLE XXII - (THIS SECTION INTENTIONALLY DELETED)
ARTICLE XXIII - CUMULATIVE REMEDIES OF LESSOR
23.1 The specific remedies to which Lessor may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other remedies
or means of redress to which Lessor may be lawfully entitled in case of any
breach or threatened breach by Lessee of any provision or provisions of this
Lease. The failure of Lessor to insist, in any one or more cases, upon the
strict performance of any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver or relinquishment for the future of any such term,
covenant, condition, provisions, agreement or option.
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ARTICLE XXIV - (THIS SECTION INTENTIONALLY DELETED)
ARTICLE XXV - INDEMNIFICATION
25.1 To the extent insurance proceeds do not cover same, Lessee agrees to
protect, indemnify and save harmless the Lessor from and against any and all
claims, demands and causes of action of any nature whatsoever for injury to or
death of persons or loss of or damage to property, occurring on the Demised
Premises or adjoining sidewalks, streets or ways, or in any manner growing out
of or connected with the use and occupation of the Demised Premises or the
condition thereof. Lessee further agrees to pay any reasonable attorneys' fees
and expenses incident to the defense by Lessor of any such claims, demands or
causes of action; provided, however, that notwithstanding anything to the
contrary contained within this Article XXV, Lessee shall not and does not hereby
assume any liabilities of Lessor for payment of the debt service or other sums
under any Deed of Trust or mortgage encumbering the Leased Property or relating
to Lessor's ownership of the Leased Property, except for the payment of taxes
and insurance and other expenses to be paid by Lessee as specified in this
Lease, or any other liabilities or obligations arising prior to the Commencement
Date of this Lease; and provided, further, that Lessee shall not and does not
hereby assume any obligations to Lessor or any other party or person pursuant to
this Article XXV with respect to any claims, demands or causes of action
relating in any manner whatsoever to the negligence or willful misconduct of
Lessor. Lessor hereby agrees to indemnify and hold Lessee harmless from and
against any and all liabilities and obligations arising out of or incurred in
connection with the operation of such facility prior to the Commencement Date,
including, but not limited to any claim arising out of any lease or management
of any such facility prior to such date and any claims, demands or causes of
action relating in any manner whatsoever to the negligence or willful misconduct
of Lessor.
ARTICLE XXVI - SUBORDINATION PROVISIONS
26.1 This Lease (and Lessee's interest in the Demised Premises and Personal
Property) shall be subject and subordinate to any first mortgage to any lender
which may now or hereinafter affect the Demised Premises and/or Personal
Property, and to any junior mortgage (if the holder of the first mortgage
consents thereto in writing) and to all renewals, modifications, consolidations,
replacements and extensions thereof, provided that any such renewals,
modifications, consolidations and extensions do not require monthly payments
thereon of principal and interest, in excess of the monthly rental payment from
time to time required hereunder, and provided, further, that such lender or
holder of any mortgage agrees in writing not to disturb Lessee's quiet
possession. Notwithstanding the immediately proceeding sentence, with respect
to any mortgage which may now affect the Demised Premises and which does not
contain a nondisturbance clause, Lessor agrees to use its best efforts to obtain
such a nondisturbance clause relating to Lessee's quiet possession of the
Demised Premises.
ARTICLE XXVII - RIGHT OF FIRST REFUSAL
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27.1 Lessor shall not sell the Demised Premises to a third party ("Third
Party") unless and until (i) Lessor has received and, subject to Lessee's right
of first refusal, accepted a bonafide written offer ("Offer") from Third Party
containing the sales price and all of the terms and conditions upon which Lessor
is willing to sell the Demised Premises to Third Party and (ii) Lessor has
provided Lessee with a copy of the Offer and disclosed the identity of Third
Party to Lessee.
27.2 If Lessee, within thirty (30) days after receipt of Lessor's written
notice, gives Lessor written notice of its desire to purchase the Demised
Premises, Lessor and Lessee shall, within thirty (30) days after Lessor receives
Lessee's notice, enter into a written purchase and sales agreement for Lessor's
sale of the Demised Premises to Lessee for the price, and on the terms and
conditions, set forth in the Offer.
27.3 If Lessee does not give Lessor its written notice within such thirty (30)
day period, Lessor thereafter shall have the right to sell the Demised Premises
to Third Party on the terms and conditions set forth in the Offer, so long as
the sale to Third Party closes within one hundred eighty (180) days after
Lessor's delivery of the Offer to Lessee. If such sale to Third Party does not
close within the time period specified herein, then all Lessee's first refusal
rights stated within this Article XXVII shall be reinstated with respect to such
Offer and any and all subsequent Offers.
ARTICLE XXVIII - MORTGAGE RESERVES
28.1 Any tax or insurance reserve required by the holder of any mortgage
against the Demised Premises during the term of this Lease shall be paid by the
Lessee to Lessor, marked payable to such holder.
ARTICLE XXIX - LESSEE'S ATTORNMENT
29.1 Lessee covenants and agrees that, if by reason of a default upon the part
of the Lessor herein in the performance of any of the terms and conditions of
any mortgage, and the estate of the Lessor thereunder are terminated by summary
dispossession proceedings or otherwise, Lessee will attorn to the then holder of
such mortgage or the purchaser in such foreclosure proceedings, as the case may
be, and will recognize such holder of the mortgage or such purchaser as the
Lessor under this Lease; provided, however, that the holder of such mortgage or
the purchaser in foreclosure proceedings agrees in writing not to disturb
Lessee's quiet possession of the Demised Premises so long as Lessee is not in
default hereunder. Lessee covenants and agrees to execute and deliver, at any
time and from time to time, upon the reasonable request of Lessor or of the
holder of such Mortgage or the purchaser in foreclosure proceedings, any
instrument which may be necessary or appropriate to evidence such attornment.
Lessee further waives the provisions of any statute or rule of law now or
hereafter in effect which may terminate this Lease or give or purport to give
Lessee any right of election to terminate this Lease or to surrender possession
of the Demised Premises in the event any such proceedings are brought against
the Lessor under such Mortgage or the holder of any such
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Mortgage, and agrees that this Lease shall not be affected in any way whatsoever
by any such proceedings.
29.2 If Lessor shall default in the performance of any of the terms,
provisions, covenants or conditions under any mortgage, or fails to pay the
amounts due thereunder when due, then immediately upon notice of such default or
failure on the part of Lessor, Lessee shall have the right to cure such
defaults, and to make such payments as are due from Lessor, directly to the
holder of the mortgage, as the case may be, and to the extent such payments are
accepted by the holder of the mortgage, to deduct the amounts expended by Lessee
to cure such defaults from the next succeeding rental payment or payments due
under this Lease, and such deductions shall not constitute a default under this
Lease
ARTICLE XXX - LESSEE'S REPRESENTATIONS AND WARRANTIES
30.1 Lessee represents, warrants and covenants to Lessor as follows:
a) Lessee is a corporation duly organized and validly existing and in
good standing.
b) Lessee has full right and power to enter into, or perform its
obligations under this Lease and has taken all requisite action to authorize the
execution, delivery and performance of this Lease.
ARTICLE XXXI - (THIS SECTION INTENTIONALLY DELETED)
ARTICLE XXXII - LESSOR'S PURCHASE OF LEASED PREMISES
32.1 Lessee hereby acknowledges that it has been advised that Lessor has
entered into a contract to purchase the Leased Property from the current owner.
Lessee hereby agrees that this Lease, the obligations of Lessor and the rights
of Lessee to lease the Leased Premises pursuant to this lease are subject to and
conditioned upon the purchase of the Leased Premises by Lessor, provided,
however, that if Lessor has not consummated its purchase of the Leased Property
on or before December 31, 1987, Lessee has the option to terminate this Lease.
ARTICLE XXXIII - FINANCIAL STATEMENTS
33.1 Within 120 days after the end of each of its fiscal years, Lessee shall
furnish to Lessor unaudited financial statements of the operations of the
Demised Premises and nursing home operated thereon.
ARTICLE XXXIV - MISCELLANEOUS
34.1 Lessee, upon paying the annual rental and all other charges herein
provided, and for observing and keeping the covenants, agreements, terms and
conditions of this Lease on its part to be performed, shall lawfully and quietly
hold, occupy and enjoy the Demised Premises
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during the term of this Lease, and subject to its terms, without hindrance by
Lessor or by any other person or persons claiming under Lessor.
34.2 All payments to be made by the Lessee hereunder shall be deemed
additional rent, so that in the event of a default of payment when due, the
Lessor shall be entitled to all of the remedies available at law or equity, or
under this Lease, for the nonpayment of rent.
34.3 It is understood and agreed that the granting of any consent by Lessor to
Lessee to perform any act of Lessee requiring Lessor's consent under the terms
of this Lease, or the failure on the part of Lessor to object to any such action
taken by Lessee without Lessor's consent, shall not be deemed a waiver by Lessor
of its rights to require such consent for any further similar act by Lessee, and
Lessee hereby expressly covenants and warrants that as to all matters requiring
Lessor's consent under the terms of this Lease, Lessee shall secure such consent
for each and every happening of the event requiring such consent, and shall not
claim any waiver on the part of Lessor of the requirement to secure such
consent.
34.4 Lessor and Lessee each represent to the other that there are no claims
for brokerage or other commission or finder's or other similar fees in
connection with this Lease, and hereby agree to hold the other harmless in the
event any such claims or demands are made based on arrangements allegedly made
by or on behalf of the party so representing.
34.5 In the event either party brings an action to enforce any of the terms
hereof or in connection herewith the prevailing party shall be entitled to
recover from the other party, as part of the prevailing party's costs,
reasonable attorney's fees the amount of which shall be fixed by the court and
shall be made a part of any judgement rendered.
34.6 Should Lessee hold possession hereunder after the expiration of the term
of this Lease without the written consent of Lessor, Lessee shall become a
tenant on a month-to-month basis upon all the terms, covenants and conditions
herein specified, excepting however that Lessee shall pay Lessor a monthly
rental, for the period of such month-to-month tenancy, in an amount mutually
agreed upon by Lessor and Lessee.
34.7 All notices, demands or requests which may or are required to be given by
either party to the other shall be in writing and shall be sent by United States
certified mail, return receipt requested, addressed to the other party hereto at
the address set forth below:
If to Lessor:
Phoenix Nursing Home
c/o Harvey Angell
55 West Monroe, #1690
Chicago, Illinois 60603
With copies to:
19
<PAGE>
David S. Heller
Roger L. Schenfeld
Goldbereg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd.
55 East Monroe St.
Suite 3900
Chicago, Illinois 60603
If to Lessee:
Horizon Healthcare Corporation
615 Commerce Street, Suite 250
Tacoma, Washington 98402
Attention: Neal Elliott
or if notification of a change of address has been sent, to such other party
and/or to such other address as may be designated in that written notification.
34.8 Upon demand by either party, Lessor and Lessee agree to execute and
deliver a short form lease in recordable form so that the same may be recorded
by either party.
34.9 Each party agrees that any time, and from time to time, upon not less
than ten (10) days prior written request from the other party, to execute,
acknowledge and deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified, and
stating the modification), the dates to which the rent has been paid and whether
the Lease is then in default or whether any events have occurred which, with the
giving of notice or the passage of time, or both, could constitute a default
hereunder, it being intended that any such statement delivered pursuant to this
paragraph may be relied upon by any prospective assignee, mortgagee or purchaser
of the fee interest in the Demised Premises or of this Lease.
34.10 All of the provisions of this Lease shall be deemed and construed to be
"conditions" and "covenants" as though the words specifically expressing or
importing covenants and conditions were used in each separate provision hereof.
34.11 Any reference herein to the termination of this Lease shall be deemed to
include any termination thereof by expiration, or pursuant to Articles referring
to earlier termination.
34.12 The headings and titles in this Lease are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of this Lease, nor in any way affect this Lease.
34.13 This Lease contains the entire agreement between the parties and any
executory agreement hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in writing
and signed by the party against whom
20
<PAGE>
enforcement of the change, modification or discharge is sought. This Lease
cannot be changed orally or terminated orally.
34.14 Except as otherwise herein expressly provided, the covenants, conditions
and agreements in this Lease shall bind and inure to the benefit of the Lessor
and Lessee and their respective successors and assigns.
34.15 All nouns and pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as the identity of
the person or persons, firm or firms, corporation or corporations, entity or
entities or any other thing or things may require.
34.16 If any term or provision of this Lease shall to any extent be held
invalid or unenforceable, the remaining terms and provisions of this Lease shall
not be affected thereby, but each term and provision shall be valid and be
enforced to the fullest extent permitted by law.
34.17 Lessee agrees at any time and from time to time upon not less than twenty
(20) days' prior written notice by Lessor or any mortgagee to execute,
acknowledge and deliver to Lessor or such mortgagee, as the case may be, a
statement in writing certifying that this Lease is unmodified and in full force
and effect (or if there have been modifications, that the same is in full force
and effect as modified and stating the modifications) and the dates to which any
rental, Taxes and Assessments and other charges have been paid in advance, if
any, and stating whether or not to the best knowledge of the signer of such
certificate Lessee or Lessor is in default in performance of any covenant,
agreement or condition contained in this Lease and, if so, specifying each such
default of which the signer may have knowledge.
34.18 In the event of any conveyance or other divestiture of title to the
Leased Property the grantor or the person who is divested of title shall be
entirely freed and relieved of all covenants and obligations thereafter accruing
hereunder, and the grantee or the person who otherwise succeeds to title shall
be deemed to have assumed the covenants and obligations of Lessor thereafter
accruing hereunder and shall then be the Lessor under this Lease.
Notwithstanding anything to the contrary provided in this Lease, there shall be
no personal liability on the part of any stockholder, director, officer,
employee or partner of Lessor with respect to the terms, covenants or conditions
of this Lease. Lessee shall look solely to Lessor and the assets of Lessor,
including but not limited to, the interest of Lessor in the Leased Property, for
the satisfaction of each and every remedy which Lessee may have for the breach
of this Lease.
34.19 The failure of either party to insist upon strict performance of any of
the covenants, agreements, terms and conditions of this Lease or to exercise any
option conferred herein in any one or more instances shall not be construed to
be a waiver or relinquishment of any such covenant, agreement, term, condition
or option and the same shall be and remain in full force and effect.
21
<PAGE>
34.20 This Lease may be simultaneously executed in any number of counterparts,
each of which when so executed and delivered shall be an original, but such
counterparts together shall constitute but one and the same instrument.
34.21 This Lease shall be governed by and construed in accordance with the laws
of the State of Arizona.
ARTICLE XXXV - CONDITION OF THE DEMISED PREMISES
35.1 The Personal Property and the Demised Premises are let and leased subject
to the rights of the residents of the nursing facility located thereon and the
state of the title thereof as of the date the Lessor acquired title from the
predecessor in title, to any state of facts which an accurate survey or physical
inspection thereof might show, and to all zoning regulations, restrictions,
rules and ordinances, building restrictions and other laws and regulations now
in effect or hereafter adopted by any governmental authority having jurisdiction
thereover; provided, however, that to the extent that any of the foregoing items
precludes Lessee from using or operating the Leased Property, Lessor shall take
such reasonable steps as may be necessary to cure the same within sixty (60)
days of Lessee's delivery to Lessor of notice thereof and failing such Lessee
shall have the right to terminate this Lease.
ARTICLE XXXVI - EMPLOYEE'S BENEFITS
36.1 On or before the Commencement Date, Lessor shall provide, or shall direct
the current operator of the Facility, to provide, Lessee with a statement of all
amounts of accrued vacation benefits as of the Commencement Date (the "accrued
vacation schedule"), a statement of all earned vacation benefits as of the
Commencement Date (the "earned vacation schedule") and a statement of earned
sick pay as of the Commencement Date (the "earned sick pay schedule") and the
names and addresses of the employees to whom said amounts are payable. For
purposes of this Article XXXVI, a benefit shall be deemed to be earned if the
employee is then entitled to be compensated for or to take said benefit and/or
if upon termination the employee would be entitled to be compensated in whole or
in part for said benefit; if not, the benefit shall be deemed to be accured.
36.2 Lessor shall pay, or shall direct the then operator of the Facility pay,
to Lessee on the Commencement Date all sums for vacation pay set forth in the
earned and accured vacation schedules.
36.3 Lessee agrees to pay all sums set forth in the accrued vacation and
earned vacation schedules referred to in Section 36.1 above, to the appropriate
employees when the same become due and payable in accordance with its Paid Time
Off policy.
36.4 Lessor hereby agrees that if any of the earned sick pay set forth in the
earned sick pay schedule referred to in Section 36.1 above, is paid by Lessee,
Lessor shall reimburse, or shall direct the prior operator of the Facility to
reimburse, Lessee therefore, upon Lessor's receipt of a written request for
reimbursement and evidence that payment has been made.
22
<PAGE>
36.5 Payroll shall be prorated as of 12:01 am the Commencement Date, with
Lessee assuming full responsibility therefore as of said time and date.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
signed by persons authorized so to do on behalf of each or them respectively the
day and year first above written.
LESSOR: PHOENIX NURSING HOME LIMITED
PARTNERSHIP,
an Illinois limited partnership
By:
---------------------------------
Harvey Angell, general partner
By:
---------------------------------
Zev Karkomi, general partner
LESSEE: HORIZON HEALTHCARE CORPORATION,
a Delaware corporation
By:
---------------------------------
Its:
---------------------------------
23
<PAGE>
AMENDMENT TO LEASE AGREEMENT
----------------------------
This, Amendment to Lease Agreement is made and entered into as of this 30th
day of August, 1991 by and between Phoenix Nursing Home Limited Partnership, an
Illinois limited partnership ("Lessor"), Horizon Healthcare Corporation, a New
Mexico corporation ("Lessee") and Sunrise Healthcare Corporation, a New Mexico
corporation ("Sublessee").
RECITALS:
---------
A. Lessor and Lessee entered into that certain Lease Agreement (the
"Lease") dated December 18, 1987 for that certain nursing home facility located
in Phoenix, Arizona formerly known as Phoenix Jewish Care Center and now known
as Coronado Care Center (the "Facility");
B. Lessor, Lessee and Sublessee entered into that certain Sublease,
Assumption and Consent Agreement dated May 31, 1990 (the "Sublease") pursuant to
which Lessee subleased the Facility to Sublessee;
C. Phoenix Nursing Home Limited Partnership II, an Illinois limited
partnership (the "New Partnership") has acquired a certain parcel of real estate
adjacent to the Facility and Lessor intends to construct thereon a 65 bed
nursing home facility also to be known as Coronado Care Center (the "New
Facility"). The general partners of Lessor are also general partners of the New
Partnership;
D. Sublessee desires to Lease the New Facility from the New Partnership
and the New Partnership desires to lease the New Facility to Sublessee and the
New Partnership and Sublessee have entered, into that certain Lease Agreement
(the "New Lease") dated August 30, 1991 for said purpose; and
E. In connection with Sublessee's lease of the New Facility pursuant to
the New Lease and the parties desire to have the terms of the Lease and the New
Lease consistent, the parties hereto have agreed to amend the terms of the Lease
subject to the terms herein contained.
NOW, THEREFORE, for and in consideration of the mutual terms, provisions
and conditions herein contained, the receipt, sufficiency and adequacy of which
is hereby acknowledged, and other good and valuable consideration, the parties
hereto agree as follows:
1. The parties hereto acknowledge that the New Partnership and Sublessee
have entered into the New Lease with respect to the New Facility and that there
exist certain differences and inconsistencies between the terms of the New Lease
and the Lease. The parties hereto agree that, from and after the date hereof,
to the extent that any of the terms of the New Lease are different from or
inconsistent with the parallel provisions of the Lease, or require compliance
with higher standards or new requirements, the terms of the Lease are hereby
deemed amended to conform to such provisions of the New Lease.
2. Notwithstanding anything to the contrary contained in paragraph 1
above, the following shall apply to the Lease from and after the date hereof:
<PAGE>
(a) Sections 1.1 (a), 1.1 (b), 1.1 (c), 1.1 (d), 2.1, 3.1, 4.1 and
4.2 of the Lease shall remain in full force and effect, unmodified
by the terms of the New Lease or this Amendment;
(b) The reference to the Coronado Lease in Section 3.2 of the New
Lease shall be deemed to refer to the New Lease for the purposes of
the Lease such that Lessee may only exercise its option to extend
the lease term contained in the Lease if it also exercises its
option to extend the lease term contained in the New Lease;
(c) The reference to the Coronado Lease in Section 18.1 of the New
Lease shall be deemed to refer to the New Lease for the purposes of
the Lease, such that Lessee may only request Lessor's consent to an
assignment or sublease pursuant to the Lease if it also requests
Lessor's consent to an assignment or sublease pursuant to the New
Lease; and
(d) Sections 19.1 (1), 28.1 and 31.1 of the New Lease are intended
to apply solely to the Sublessee's obligations under the New Lease
and shall not be deemed part of the Lease.
3. In the event that the terms, provisions and agreements contained
herein conflict with those contained in the Lease, the terms of this
Amendment shall prevail. Any and all terms defined in the Lease and used
herein shall have the same meaning as set forth in the Lease.
4. This Amendment shall amend, modify and alter the terms and
conditions of the Lease to the extent expressly herein provided. Lessor and
Lessee acknowledge and agree, however, that except as expressly amended,
modified or altered herein, the terms, provisions and agreements contained in
the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have made, executed and delivered
this Amendment as of this 30th day of August, 1991.
Lessor:
Phoenix Nursing Home Limited Partnership,
an Illinois limited partnership
By: /s/ Zev Karkomi , a
-------------------------------------
general partner
Lessee:
Horizon Healthcare Corporation, a
New Mexico corporation
By:
-------------------------------------
Its: Vice President
-------------------------------
<PAGE>
Sublessee:
Sunrise Healthcare Corporation, a
New Mexico corporation
By: /s/ Andrew L. Turner
-------------------------------------
Its: President
----------------------------
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of this 30th
day of August, 1991, by and between Phoenix Nursing Home Limited Partnership
II, an Illinois limited partnership (hereinafter referred to as "Lessor") and
Sunrise Healthcare Corporation, a New Mexico corporation, Andrew Turner and
Nora Turner, individually (hereinafter referred to together as "Lessee").
WITNESSETH
WHEREAS, Lessor is the owner of a certain vacant tract of land located at the
Southeast corner of Cortez Street and 19th Avenue in Phoenix, Arizona, upon
which Lessor intends to construct a 65 bed addition to the nursing home
facility known as Coronado Care Center located at 1411 North 19th Avenue,
Phoenix, Arizona 88310-1906, all as more particularly described in Exhibit A
attached hereto and made a part hereof (which tract and nursing home
facility, together with any other improvements now or hereafter located on
the tract and all easements, tenements, hereditaments and appurtenances
thereto are hereinafter referred to as the "Demised Premises");
WHEREAS, Lessor shall acquire the furnishings, furniture, equipment and
fixtures to be used in or about the Demised Premises (hereinafter
collectively referred to as the "Personal Property"), which personal property
is more fully described in Exhibit B attached hereto;
WHEREAS, following construction of the nursing home facility and purchase of
the Personal Property, Lessor desires to lease the Demised Premises and
Personal Property to the Lessee and Lessee desires to lease the Demised
Premises and Personal Property from Lessor; and
WHEREAS, the parties hereto have agreed to the terms and conditions of this
Lease;
NOW, THEREFORE, it is agreed that the use and occupancy of the Demised
Premises and the use of the Personal Property shall be subject to and in
accordance with the terms, conditions and provisions of this Lease.
ARTICLE I - DEFINITIONS
1.1 The terms defined in this Article shall, for all purposes of this Lease
and all agreements supplemental hereto, have the meaning herein specified:
a) "Demised Premises" shall mean the real property described in
Exhibit A and all improvements located thereon.
b) "Personal Property" shall mean the furniture, fixtures, equipment
and supplies purchased by Lessor, which Personal Property is more fully
described in Exhibit B attached hereto.
c) "Leased Property" shall mean the Demised Premises and the Personal
Property.
d) "Lease Year" shall mean with respect to the first Lease Year a
period commencing on the Commencement Date and ending on December 31 of that
year and, thereafter a twelve month period commencing on the first day of
January and ending on the 31st day of December.
e) "Rent Year" shall mean each twelve (12) month period commencing on
the Commencement Date and each anniversary thereof and ending on the last day of
the twelfth (12) calendar month thereafter.
f) All other terms shall be as defined in other sections of this
Lease.
<PAGE>
ARTICLE II - DEMISED PREMISES AND PERSONAL PROPERTY
2.1 Lessor, for and in consideration of the rents, covenants and agreements
hereinafter reserved, mentioned and contained on the part of the Lessee, its
successors and assigns, to be paid, kept and performed, does hereby lease unto
Lessee the Demised Premises together with the Personal Property to be used in
and upon the Demised Premises for the term hereinafter specified, for use and
operation therein and thereon of a 65 bed skilled and/or intermediate care
nursing home, in full compliance with all the rules and regulations and minimum
standards applicable thereto, as prescribed by the State of Arizona and such
other governmental authorities having jurisdiction thereof.
ARTICLE III - TERM OF LEASE
3.1 The term of this Lease shall be for a period commencing on the
Commencement Date (hereinafter defined), and shall expire on December 31, 1997
(the "Initial Term") unless extended or sooner terminated as hereinafter
provided. The date on which this Lease becomes effective, as set forth in
Section 32.2 hereof, shall be the "Commencement Date" of the term of this Lease.
The parties shall enter into a memorandum setting forth the Commencement Date
within five (5) days of the actual Commencement Date.
3.2 Lessee shall have the right to extend the lease term for two (2)
consecutive periods of five (5) years each (the "Extended Terms"). Lessee shall
exercise its option to extend by written notice to Lessor given at least 180
days prior to expiration of the Initial Term, or the first Extended Term, as
applicable. Notwithstanding the foregoing Lessee may exercise the foregoing
option only if, at that time, it also exercises the option to extend contained
in the Coronado Lease (hereinafter defined in Section 19.1(1)), subject to the
terms contained herein and therein.
3.3 Lessee shall not have the right to extend the Initial Term or any
Extended Term if an Event of Default shall exist hereunder at the time said
notice is given or at the time the renewal term commences. Any such renewal
shall be on the same terms and conditions as set forth herein. Lessee does
hereby acknowledge that in the event it fails to give the notice of renewal
within the time periods specified herein, the Lease shall terminate at the end
of the then applicable term.
3.4 The Initial Term and the Extended Terms are hereinafter sometimes
collectively referred to as the "Lease Term".
ARTICLE IV - RENT
4.1 Lessee shall pay to Lessor, as Lessor shall direct, as fixed annual
rental for the Demised Premises and the Personal Property over and above all
other additional payments to be made by Lessee as provided in this Lease the
following: (a) during the first Rent Year, the annual sum of $301,545.00 payable
in equal monthly installments of $25,128.75 (the "Initial Rent"); and (b) during
each succeeding Rent Year during the Lease Term an amount equal to the annual
rent for the immediately preceding Rent Year multiplied by 1.03, payable in
twelve (12) equal monthly installments. The memorandum described in Section 3.1
hereof shall also set forth the annual and monthly rental for the Lease Term
based on the foregoing.
4.2 In the event the Commencement Date shall be other than the first (1st)
day of the month, Lessee shall pay to Lessor a pro rata portion of rent for the
month. All annual rental payments shall be made in equal monthly installments
and shall be paid in advance on the tenth (10th) day of each month. Unless
otherwise notified in writing, all checks shall be made payable to Phoenix
Nursing Home Limited Partnership II, c/o Karell Capital Ventures, Inc., Two
North LaSalle Street, Suite 1901, Chicago, Illinois 60602.
4.3 This Lease is and shall be deemed and construed to be an absolutely net
lease and the rent specified herein shall be net to the Lessor in each year
during the term of this Lease. Lessee does hereby acknowledge and agree that
each payment of rent is a separate, absolute, unconditional and independent
covenant of Lessee, and shall be subject to no right of offset, discount or
abatement. Lessee shall pay all costs, expenses and obligations relating to
<PAGE>
the Leased Property as set forth herein, and excluding any principal and
interest payments relating to any mortgage on the Demised Premises, which
payments shall be the responsibility of Lessor. Lessee does hereby
indemnify, defend and hold harmless the Lessor against any and all said
costs, expenses and obligations.
ARTICLE V - LATE CHARGES
5.1 If payment of any sums required to be paid or deposited by Lessee to
Lessor under this Lease, and payments made by Lessor under any provision
hereof for which Lessor is entitled to reimbursement by Lessee, shall become
overdue for a period of ten (10) days beyond the date on which they are due
and payable as in this Lease provided, a late charge of 3% per month on the
sums so overdue shall become immediately due and payable to Lessor as
liquidated damages for Lessee's failure to make prompt payment and said late
charges shall be payable on the first day of the month next succeeding the
month during which such late charges become payable. If non-payment of any
late charges shall occur, Lessor shall have, in addition to all other rights
and remedies, all the rights and remedies provided for herein and by law in
the case of non-payment of rent. No failure by Lessor to insist upon the
strict performance by Lessee of Lessee's obligations to pay late charges
shall constitute a waiver by Lessor of its rights to enforce the provisions
of this Article in any instance thereafter occurring.
ARTICLE VI - PAYMENT OF TAXES AND ASSESSMENTS
6.1 Subject to the conditions of this paragraph, Lessee shall pay before
delinquency all taxes, assessments, improvement assessments and charges for
public utilities of every kind and character which have or may be levied,
imposed or assessed upon the Demised Premises or upon the Personal Property
and any replacements thereof during the term of this Lease including but not
limited to the Arizona Privilege Tax, A.R.S. Section 42-1310.09, as amended
from time to time, (hereinafter referred to as "Taxes and Assessments") ;
provided, however, this Article VI shall not require Lessee to make any
payments for which Lessee has previously deposited funds with Lessor pursuant
to Article XXVIII hereof. Forthwith upon payment by Lessee of any Taxes or
Assessments required to be paid by it, Lessee shall submit to Lessor the
official receipt or receipts showing payment of such taxes, or photostatic
copies thereof.
6.2 Any Taxes and Assessments relating to a fiscal period of any
authority, a part of which is included within the term of this Lease and a
part of which is included in a period of time before or after the term of
this Lease, shall be adjusted pro rata between Lessor and Lessee and each
party shall be responsible for its pro rata share of any such Taxes and
Assessments.
6.3 Except as set forth in Section 6.7 below, nothing herein contained
shall require Lessee to pay income taxes assessed against Lessor, or capital
levy, franchise, estate, succession or inheritance taxes of Lessor.
6.4 Lessee shall have the right to contest the amount or validity, in
whole or in part, of any Taxes and Assessments by appropriate proceedings
diligently conducted in good faith; provided, however, that in the event
Lessor's mortgagee requires a cash deposit or other security in order to
undertake such a contest, Lessee shall satisfy any such obligations imposed
by said mortgagee.
6.5 Upon the termination of any such proceeding, Lessee shall pay, prior
to delinquency, the amount of such Taxes and Assessments or part thereof as
finally determined in such proceedings, the payment of which may have been
deferred during the prosecution of such proceedings, together with any costs,
fees, interest, penalties or other liabilities in connection therewith.
6.6 Lessor shall not be required to join in any proceedings referred to in
this Article, unless the provisions of any law, rule or regulation at the
time in effect shall require that such proceedings be brought by and/or in
the name of Lessor, in which event Lessor at Lessee's expense shall join in
such proceedings or permit the same to be brought in its name. Lessor shall
not ultimately be subjected to any liability for the payment of any costs or
expenses in connection with any such proceedings, and Lessee will indemnify,
defend and save harmless Lessor from any such costs and expenses. Lessee
shall be entitled to any refund of any real estate taxes and penalties or
interest thereon received by Lessor but previously reimbursed in full by
Lessee.
<PAGE>
6.7 If any income, profits or revenue tax shall be levied, assessed or
imposed upon the income, profits or revenue arising from rents payable
hereunder, partially or totally in lieu of or as a substitute for real estate
or personal property taxes imposed upon the Demised Premises or Personal
Property during the term of this Lease, then Lessee shall be responsible for
the payment of such tax.
ARTICLE VII - (THIS SECTION INTENTIONALLY DELETED)
ARTICLE VIII - OCCUPANCY
8.1 During the term of this Lease, the Demised Premises shall be used and
occupied by Lessee for and as a skilled care and/or intermediate care nursing
home and for no other purpose without the prior written consent of Lessor,
which consent shall not be unreasonably withheld. Lessee shall at all times
maintain in good standing and full force all the licenses issued by the State
of Arizona and any other governmental agencies permitting the operation on
the Demised Premises of a skilled and/or intermediate care nursing home
facility.
8.2 Lessee shall not suffer any act to be done or any condition to exist
on the Demised Premises which may be dangerous or which may, in law,
constitute a public or private nuisance or which may void or make voidable
any insurance then in force on the Demised Premises.
8.3 Upon termination of this Lease for any reason, Lessee will return to
Lessor the Leased Property qualified and sufficient for licensing by all
governmental agencies having jurisdiction over the Demised Premises as a
skilled and/or intermediate care nursing home with licensure in full force
and good standing. All the Demised Premises, with the improvements located
thereon and all the Personal Property shall be surrendered in good order,
condition and repair, reasonable wear and tear excepted. Upon termination or
expiration of the Lease and surrender of the Leased Property, Lessee shall
remove Lessee's Property and shall repair any injury or damage to the Leased
Property caused by the removal thereof and Lessee shall restore the same to
the same condition as prior to the installation thereof. If Lessee fails to
do so, Lessor may, at its option, remove the same (and repair any damage
occasioned thereby) and dispose thereof or deliver the same to Lessee and
Lessee shall pay the cost of such removal, repair or delivery or treat such
Lessee's Property as having been conveyed to Lessor with this Lease as a Bill
of Sale, without further payment or credit by Lessor to Lessee.
ARTICLE IX - INSURANCE
9.1 Lessee shall, at its sole cost and expense, during the full term of
this Lease, maintain so-called "All Risk" or "All Perils" insurance with
extended coverage endorsement on the Leased Property against loss or damage
by fire, vandalism, casualty, malicious mischief and such other risks or
hazards as are customarily insured against at the time. Such insurance shall
be obtained from a responsible company or companies approved by Lessor, which
approval will not be unreasonably withheld. Such insurance shall, at all
times, be maintained in an amount equal to the full replacement cost of the
Demised Premises and the Personal Property (without any co-insurance clause,
if possible) or in such other amount as may be required by Lessor and any
mortgagee of the Demised Premises but, at all times, in an amount sufficient
to prevent Lessor and Lessee from becoming co-insurers under applicable
provisions of the insurance policies. As used herein, the term "full
replacement cost" shall mean coverage for the actual replacement cost of the
Demised Premises and the Personal Property requiring replacement from time to
time (including an increased cost of construction endorsement), which, if not
agreed upon by Lessor and Lessee, shall be determined by an appraiser,
engineer, architect or contractor acceptable to Lessor and Lessee. Such
insurance shall at all times be payable to Lessor and Lessee as their
interests may appear, and shall contain a loss-payable clause to the holder
of any mortgage to which this Lease shall be subject and subordinate, as said
mortgagee's interest may appear.
9.2 Lessee shall also, at Lessee's sole cost and expenses cause to be
issued and shall maintain during the entire term of this Lease:
<PAGE>
a) A public liability policy naming Lessor, as an additional
insured, and insuring Lessor against claims for bodily injury, or property
damage occurring upon, in or about the Demises Premises, or in or upon the
adjoining streets, sidewalks, passageways, and areas such insurance to afford
protection to the limits of not less than $1,000,000.00 per each occurrence
and $2,000,000.00 in the aggregate and an umbrella liability policy of not
less than $5,000,000.00 per each occurrence;
b) Boiler explosion insurance, in the amount of not less than
$100,000.00 under the terms of which Lessor and Lessee will be indemnified,
as their interests may appear, against any loss or damage which may result
from any accident or casualty in connection with any boiler used in the
Demised Premises, whereby any person or persons may be injured or killed or
property damaged in or about the Demised Premises; and
c) Medical Malpractice insurance in the amount of $1,000,000.00.
Lessor may, from time to time, reasonably require Lessee to change the
amount or type of insurance, or to add or substitute additional coverages,
required to be maintained by Lessee hereunder.
9.3 All policies of insurance shall provide:
a) They are carried in favor of the Lessor, Lessee and any
mortgagee, as their respective interests may appear, and any loss shall be
payable as therein provided, notwithstanding any act or negligence of Lessor
or Lessee, which might otherwise result in forfeiture of insurance;
b) They shall not be canceled, terminated, reduced or materially
modified without at least twenty (20) days prior written notice to Lessor and
any mortgagee of Lessor; and
c) A standard mortgagee clause in favor of any mortgagee, and
shall contain, if obtainable, a waiver of the insurer's right of subrogation
against funds paid under the standard mortgagee endorsement which are to be
used to pay the cost of any repairing, rebuilding, restoring or replacing.
9.4 An original certificate of insurance and a copy of each policy,
certified by an officer of Lessee as being true, correct and complete, for
all insurance policies required by this Article shall be delivered to Lessor
at least five (5) days prior to the Commencement Date.
9.5 Lessee shall at all times keep in effect business interruption
insurance with a loss of rents endorsement naming Lessor as an insured in an
amount at least sufficient to cover:
a) The aggregate of the cost of all Taxes and Assessments due
during the period of the next succeeding twelve (12) months following the
occurrence of the business interruption;
b) The cost of all insurance premium for insurance required to be
carried by Lessee for such twelve (12) month period; and
c) The aggregate of the amount of the monthly Rent for the next
consecutive twelve (12) month period.
In lieu of the foregoing, Lessee may, at its option, obtain and
maintain a blanket insurance policy in an amount sufficient to provide the
coverage described in this Section 9.5. All proceeds of any business
interruption insurance shall be applied, first, to the payment of any and all
Rent payments for the next succeeding twelve (12) months; second, to the
payment of any Taxes and assessments and insurance deposits required for the
next succeeding twelve (12) months; and, thereafter, after all necessary
repairing, rebuilding, restoring or replacing has been completed as required
by the pertinent Articles of this Lease and the section of any mortgage, any
remaining balance of such proceeds shall be paid over to the Lessee.
<PAGE>
ARTICLE X - LESSOR'S RIGHT TO PERFORM
10.1 Should Lessee fail to perform any of its covenants herein agreed to be
performed and should Lessee fail to cure said failure within the time periods
specified in Article XIX, Lessor may, but shall not be required to make such
payment or perform such covenants, and all sums so expended by Lessor
thereon, shall immediately be payable by Lessee to Lessor, with interest
thereon at the rate of fifteen percent (15%) per annum from date thereof
until paid, and in addition, Lessee shall reimburse Lessor for Lessor's
reasonable expenses in enforcing or performing such covenants, including
reasonable attorney's fees.
10.2 Performance of and/or payment to discharge said Lessee's obligations
shall be optional with Lessor and such performance and payment shall in no
way constitute a waiver of, or a limitation upon, Lessor's other rights
hereunder.
ARTICLE XI - REPAIRS AND MAINTENANCE
11.1 Throughout the term of this Lease, Lessee, at its sole cost and
expenses, will keep and maintain, or cause to be kept and maintained, the
Demised Premises (including the grounds, sidewalks and curbs abutting the
same, the heating, ventilating and air conditioning systems and the roof) and
the Personal Property in good order and condition without waste and in a
suitable state of repair at least comparable to that which existed
immediately prior to the Commencement Date (ordinary wear and tear expected),
and will make or cause to be made, as and when the same shall become
necessary, all structural and non-structural, exterior and interior,
replacing, repairing and restoring necessary to that end; provided, however,
that to the extent Lessee undertakes any repairs or improvements that involve
structural changes to the Demised Premises, including, but not limited to,
replacement of the roof or structural work which requires penetration of the
roof, Lessee shall not undertake the same without the prior written consent
of Lessor, which consent shall not be unreasonably withheld.
11.2 All replacing, repairing and restoring required of Lessee under this
Article shall be (in the reasonable opinion of Lessor) of a quality at least
equal to the original work and shall be in compliance with all standards and
requirements of law, licenses and municipal ordinances necessary to operate
the Demised Premises as a skilled and/or intermediate care nursing home. Any
items of Personal Property that are uneconomical to repair shall be replaced
where reasonable by items of like kind and all replacement items shall become
part of the Personal Property. No items of Personal Property shall be
removed from the Demised Premises except in connection with repair or
replacement of such items.
11.3 Lessee may place additional property on the Demised Premises (not
required for the replacement of the Personal Property) and such additional
property shall be and remain the property of Lessee ("Lessee's Property").
Lessee may remove such additional property upon termination of this Lease
provided that Lessee shall make such necessary repairs or replacements as may
be required in order to return the Demised Premises to the condition which
existed prior to the removal of the additional property.
ARTICLE XIA - DAMAGE AND DESTRUCTION
11A.1 If the Demised Premises or the Personal Property shall be
substantially damaged or destroyed, as hereinafter defined, by fire,
casualty, act of God or similar or dissimilar causes, then in any such event
Lessee shall notify Lessor in writing thereof and Lessor may elect to
terminate this Lease by giving Lessee written notice of its election within
forty-five (45) days immediately following its receipt of notice of such
substantial damage or destruction. This lease shall then terminate thirty
(30) days after such notice, with rent adjusted to the effective date of
termination. For the purposes of this Lease, the Demised Premises shall be
deemed substantially damaged or destroyed if the number of beds usable at the
nursing care facility included therein, immediately after the damage or
destruction, is reduced below 30.
11A.2 If the Demised Premises or the Personal Property shall be damaged or
destroyed by fire, casualty, act of God or similar or dissimilar causes, and
this Lease is not terminated as provided in paragraph 11A.1 above, either
because Lessor elects not to terminate or because the damage or destruction
is not deemed substantial as defined in
<PAGE>
such paragraph, Lessee, at its expense, and subject to the provisions of this
paragraph, shall diligently repair and restore the Demised Premises and the
Personal Property upon the same general plan and dimensions as before such
damage or destruction, unless another plan is agreed upon in writing between
Lessor and Lessee.
11A.3 Before Lessee commences such repair, restoration or rebuilding, within
thirty (30) days of the later of the occurrence of the damage or destruction
or Lessor's election not to terminate this Lease, Lessee shall submit to
Lessor for its review and approval, which approval shall not be unreasonably
withheld, plans and specifications therefor (the "Plans"), prepared by a
licensed architect, if required by law, along with an estimated cost of the
proposed work and the sources of funds to be utilized to cover said cost.
11A.4 Within fifteen (15) days after approval of the Plans, Lessee shall
commence to restore the Demised Premises and Lessee shall complete the same
within 180 days thereafter, provided, however, that in the case of damage or
destruction which cannot with due diligence be cured within said 180 day
period, Lessee shall have an additional period of time, not to exceed 60
additional days, to complete the reconstruction, provided Lessee is
proceeding promptly and with due diligence to complete the restoration.
Provided there is not then an Event of Default hereunder, Lessee may utilize
all insurance proceeds available for any such repair or restoration, subject
to any required approval of any mortgagee. Lessee's obligation to make rent
payments and to pay all other charges required by this Lease shall not be
abated during the period of the repair or restoration.
ARTICLE XII - ALTERATIONS AND DEMOLITION
12.1 Lessee will not remove or demolish any improvement or building which
is part of the Demised Premises or any portion thereof or allow it to be
removed or demolished, without the prior written consent of the Lessor, which
consent shall not be unreasonably withheld. Lessee further agrees that in
accordance with the provisions of Section 11.1 it will not make, authorize or
permit to be made any structural changes or alterations in or to the Demised
Premises without first obtaining the Lessor's written consent thereto, which
consent shall not be unreasonably withheld. All alterations, improvements and
additions to the Demised Premises shall be in quality and class at least
equal to the original work and shall become the property of the Lessor and
shall meet all building and fire codes, and all other applicable codes,
rules, regulations, laws and ordinances. Nothing herein shall be deemed or
construed to require Lessee to obtain Lessor's consent to nonstructural
changes or alterations such as painting, the replacement of wallcoverings or
the replacement of floor coverings.
ARTICLE XIII - COMPLIANCE WITH LAWS AND ORDINANCES
13.1 Throughout the term of this Lease, Lessee shall obey, observe and
promptly comply with all present and future laws, ordinances, orders, rules,
regulations and requirements of any federal, state and municipal governmental
agency or authority having jurisdiction over the Demised Premises and the
operation thereof as a skilled and/or intermediate care nursing home, which
may be applicable to the Personal Property, and the nursing home and the
Demised Premises and including, but not limited to the sidewalks, alleyways,
passageways, vacant land, parking spaces, curb cuts, curbs adjoining the
Demised Premises, whether or not such law, ordinance, order, rules,
regulation or requirement shall necessitate structural changes or
improvements.
13.2 Lessee shall observe and comply with the requirements of all policies
of public liability and fire insurance and all other policies of insurance at
any time in force with respect to the Demised Premises.
13.3 Lessee shall promptly apply for and procure and keep in good standing
and in full force and effect all necessary licenses, permits and
certifications required by any governmental authority for the purpose of
maintaining and operating on the Demised Premises a skilled and/or
intermediate care nursing home which at all times shall be qualified to
participate in the Medicare and/or Maricopa County reimbursement programs, as
appropriate.
<PAGE>
13.4 Lessee shall notify Lessor within twenty-four (24) hours after receipt
of any notice from any governmental agency terminating or suspending or
threatening termination or suspension, of any license or certification
relating to the Demised Premises or the nursing home operated thereon.
13.5 Lessee shall deliver to Lessor within thirty (30) days of Lessee's
receipt thereof, copies of any inspection reports or surveys from any state,
federal and local governmental bodies regarding the Demised Premises.
ARTICLE XIV - DISCHARGE OF LIENS
14.1 Subject to the provisions of Article 14.2 hereof, Lessee will not
create or permit to be created or to remain, and Lessee will promptly
discharge, any lien, encumbrance or charge levied on account of any
mechanic's, laborer's or materialman's lien or any conditional sale, security
agreement or chattel mortgage, or otherwise, which might be or become a lien,
encumbrance or charge upon the Demised Premises or any part thereof or the
income therefrom or the Personal Property, for work or materials or personal
property furnished or supplied to, or claimed to have been supplied to or at
the request of Lessee.
14.2 If any mechanic's, laborer's or materialman's lien caused or charged
to Lessee shall at any time be filed against the Demised Premises or Personal
Property, subject to the terms of any mortgage affecting the Leased Property,
Lessee shall have the right to contest such lien or charge, provided, within
sixty (60) days after notice of the filing thereof, Lessee will cause the
same to be discharged of record or in lieu thereof, prior to the expiration
of said 60 day period, Lessee shall secure Lessor against said lien by
depositing with Lessor such security as may be reasonably demanded by Lessor.
If Lessee shall fail to cause such lien to be discharged within the period
aforesaid, or to otherwise secure Lessor as aforesaid, then in addition to
any other right or remedy, Lessor may, upon ten (10) days notice in writing
by Lessor to Lessee, but shall not be obligated to, discharge the same either
by paying the amount claimed to be due or by processing the discharge of such
lien by deposit or by bonding proceedings. Any amount so paid by Lessor and
all costs and expenses incurred by Lessor in connection therewith, including
its reasonable attorney's fees, together with interest thereon at the rate of
fifteen percent (15%) per annum, but not in excess of the maximum amount
permitted by law, shall constitute additional rent payable by Lessee under
this Lease and shall be paid by Lessee to Lessor on demand. Except as herein
provided, nothing contained herein shall in any way empower Lessee to do or
suffer any act which can, may or shall cloud or encumber Lessor's or
mortgagee's interest in the Demised Premises.
ARTICLE XV - INSPECTION OF PREMISES BY LESSOR
15.1 At any time, during reasonable business hours, Lessor and/or its
authorized representatives shall have the right to enter and inspect the
Demised Premises and Personal Property.
15.2 Lessor agrees that the person or persons upon entering and inspecting
the Demised Premises and Personal Property will cause as little inconvenience
to the Lessee as may reasonably be possible under the circumstances.
ARTICLE XVI - CONDEMNATION
16.1 In case all or substantially all of the Demised Premises leased
hereunder shall be taken or sold under the threat of such taking for any
public use by act of any public authorities, then this Lease shall terminate
as of the date of title vesting in such proceeding and all rentals shall be
paid to that date. If all or substantially all of the Leased Property shall
be taken, the proceeds of any condemnation award, settlement or compromise
for the Leased Property shall belong to Lessor; provided, however, that
Lessee shall have the right to pursue a separate award, settlement or
compromise from the condemning authority for the value of Lessee's leasehold
interest or Lessee's Property, as defined in Section 11.4 as long as any such
award does not diminish Lessor's award, settlement or compromise. For the
purposes of this paragraph "substantially all of the Demised Premises leased
hereunder" shall be deemed to have been taken if upon the taking of less than
the whole of the Demised Premises that portion of the Demised Premises not so
taken shall not by itself be adequate for the conduct therein of Lessee's
business, in the
<PAGE>
reasonable discretion of Lessor and Lessee; subject, however, to the rights
of determination of Lessor's lender under any mortgage affecting the Leased
Property.
16.2 In the event of a partial condemnation the result of which shall be a
reduction in the number of licensed beds on the Demised Premises to 30 or
less, Lessee shall have the right to terminate this Lease by written notice
to Lessor within thirty (30) days following the issuance of the condemnation
order or conveyance of the property, whichever is earlier. If Lessee does
not elect to terminate this Lease, Lessee shall restore the Demised Premises
in accordance with all of the terms set forth in paragraph 16.3 below.
16.3 In the event of a condemnation which does not involve all or
substantially all of the Demised Premises leased hereunder (a "Partial
Condemnation"), Lessor shall have the right to terminate this Lease by
written notice to Lessee within ninety (90) days following the issuance of
the condemnation order or conveyance of the property, whichever is earlier,
with rent adjusted to the date of termination. Subject to Lessee's
termination right described in paragraph 16.2 above, in the event Lessor does
not elect to terminate this Lease and in the event the condemnation proceeds
are available to Lessor, Lessor shall remit the condemnation proceeds to
Lessee, and Lessee shall use the same to repair and restore the Leased
Property, to the extent practical in light of the nature of the condemnation,
to as near the same general plan and dimensions as existed before said
condemnation and, to the extent proceeds remain available after said repair,
Lessee shall retain the same and use them to satisfy its monthly rental
obligations to Lessor, with no abatement of rent hereunder. In the event of
such a Partial Condemnation where no condemnation proceeds are made available
to Lessor because, for example, Lessor's lender has claimed title thereto
under the terms of the mortgage or in the event that following such repair or
restoration the number of licensed beds is permanently reduced due to the
Partial Condemnation, rent due hereunder shall abate to the extent that is
fair, just and equitable to both Lessor and Lessee, taking into
consideration, among other relevant factors, the number of licensed beds
rendered unusable by such taking; provided, however, in no event shall the
rent be less than Lessor's monthly mortgage payment.
ARTICLE XVII - LESSOR'S WARRANTIES AND REPRESENTATIONS
17.1 Subject to the terms of Article XXXII hereof, Lessee shall have
inspected, accepted and approved the Facility as of the Commencement Date of
this Lease and it shall accept the Facility as fully equipped.
17.2 With respect to the obligations of Lessor (or any other party who
shall be obligated to do so) to pay when due any amounts due under a mortgage
which may now or hereafter affect the Demised Premises, then after ten (10)
days' written notice from Lessee to Lessor specifying with particularity the
alleged default, and failure of Lessor to cure such default within such
period, Lessee may cure any such default, all on behalf of and at the expense
of Lessor and make all necessary payments in connection therewith, including
payments for reasonable attorneys fees in instituting, prosecuting, or
defending any action or proceedings instituted by reason of any default of
Lessor, and withhold any and all rental payments and other payments
thereafter due to Lessor, up to the amount of the sums theretofore actually
advanced by or on behalf of Lessee under this Lease together with interest
thereon from the date of payment by Lessee at the rate of fifteen (15%)
percent per annum, but not it excess of the maximum amount permitted by law.
ARTICLE XVIII - ASSIGNMENT AND SUBLETTING
18.1 During the term of the Lease, Lessee shall not assign this Lease,
Sublet the Demised Premises or in any manner whatsoever sublet, assign or
transfer all or any part of the Leased Property without the prior written
consent of the Lessor, which consent shall not be unreasonably withheld,
except that the parties acknowledge and agree that Lessor may withhold its
consent to any proposed sublet or assignment which does not also relate to
the Coronado Lease or the premises covered thereby. It shall be deemed to be
an assignment of this Lease for purposes of this Section 18.1 in the event of
a change in the ownership of Lessee's stock, such that all or such
substantial portion of it as comprises a controlling interest in Lessee is
owned by one person or entity, other than Andrew Turner, an entity controlled
by Andrew Turner or a wholly owned subsidiary of Lessee. Any violation or
breach or attempted violation or breach of the provisions of this Article by
Lessee, or any acts inconsistent herewith shall vest no right,
<PAGE>
title or interest herein or hereunder or in the Leased Property, in any such
transferee or assignee; and Lessor may, at its exclusive option, terminate
this Lease and invoke the provisions of this Lease relating to default.
ARTICLE XIX - ACTS OF DEFAULT
19.1 The following acts or events shall be deemed to be an Event of Default
(herein an "Event of Default") on the part of the Lessee:
a) The failure of Lessee to pay when due any rental payment, or
any part thereof, of any other sum or sums of money due or payable to the
Lessor under the provisions of this Lease within five (5) days following the
date therefor;
b) The failure of Lessee to perform, or the violation by Lessee
of, any of the covenants, terms, conditions or provisions of this Lease, if
such failure or violation shall not be cured within thirty (30) days after
notice thereof in writing by Lessor to Lessee (provided, however, that in the
case of a default which cannot with due diligence be cured within said period
of thirty (30) days after the notice, Lessee shall have an additional period
of time, not to exceed sixty (60) additional days, to cure the same, provided
Lessee proceeds promptly and with due diligence to cure such default after
receipt of such notice or such longer period of time granted by any
governmental agency having jurisdiction over the Facility);
c) The removal by any local, state or federal agency having
jurisdiction over the operation of the nursing home located on the Demised
Premises of fifty percent (50%) or more of the patients located in the
nursing home;
d) The failure of Lessee to comply, or the violation by Lessee of,
any of the terms, conditions or provisions of any mortgage encumbering the
Leased Property, which Lessee has agreed in writing to be bound by, if such
failure or violation shall not be cured within twenty (20) days (or such
lesser period as may be provided in the mortgage) after notice in writing
thereof by Lessor to Lessee, subject, however, to the provision of 19.1(b)
with respect to defaults not susceptible of cure within such period to the
extent the same is consistent with the cure provisions of the mortgage;
e) The failure of Lessee to replace, within thirty (30) days after
notice in writing by Lessor to Lessee, a substantial portion of the Personal
Property previously removed by Lessee;
f) The making by Lessee of an assignment for the benefit of
creditors;
g) The levying of a writ of execution or attachment on or against
the property of Lessee which is not discharged or stayed by action of Lessee
contesting same, within thirty (30) days after such levy or attachment
(provided if the stay is vacated or ended this paragraph shall again apply);
h) If proceedings are instituted in a court of competent
jurisdiction for the reorganization, liquidation or involuntary dissolution
of the Lessee or for its adjudication as a bankrupt or insolvent, or for the
appointment of a receiver of the property of Lessee, and said proceedings are
not dismissed and any receiver, trustee or liquidator appointed therein is
not discharged within thirty (30) days after the institution of said
proceedings;
i) The sale of the interest of Lessee in the Demised Premises
under execution;
j) The institution of any proceedings against Lessee by any
governmental authority either (i) to revoke any license granted to Lessee for
the operation of a skilled and/or intermediate care nursing home within the
Demised Premises or (ii) decertify the nursing home operated on the Demised
Premises from participation in the Medicaid or Maricopa County reimbursement
programs, subject however to Lessee's rights under Article XX hereof;
<PAGE>
k) The abandonment of the Demised Premises by Lessee; and
l) The occurrence of an Event of Default under that certain
Sublease, Assumption and Consent Agreement dated May 31, 1990, by and between
Lessor, as Landlord, Lessee, as Sublessee, and Horizon Healthcare Corporation
("Horizon"), as Tenant/Sublessor, relating to that certain nursing home
facility known as Coronado Care Center located in Phoenix, Arizona and that
certain Lease Agreement dated December 18, 1987 between Lessor and Horizon
relating thereto (the "Coronado Center Lease").
ARTICLE XX - RIGHT TO CONTEST
20.1 Lessee shall have the right, upon written notice thereof to Lessor, to
contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any law, regulation or rule mentioned herein,
and to delay compliance therewith pending the prosecution of such
proceedings; provided, however, that no civil or criminal liability would
thereby be incurred by Lessor and further provided that the effectiveness and
good standing of any license, certificate or permit substantially affecting
the Demised Premises or the nursing home operated thereon would continue in
full force and effect during the period of such contest.
ARTICLE XXI - LESSOR'S REMEDIES UPON DEFAULT
21.1 In the event of any Event of Default on the part of Lessee, Lessor
may, if it so elects, and with or without any further demand whatsoever upon
Lessee, forthwith terminate this Lease and Lessee's right to possession of
the Leased Property, or, at the option of the Lessor, terminate Lessee's
right to possession of the Leased Property without terminating this Lease.
Upon any such termination of this Lease, or upon any such termination of
Lessee's right to possession without termination of this Lease, Lessee shall
vacate the Demised Premises immediately, and shall quietly and peaceably
deliver possession thereof to Lessor, and Lessee hereby grants to Lessor full
and free license to enter into and upon the Demised Premises in such event
with or without process of law and to repossess the Demised Premises and
Personal Property as Lessor's former estate. In the event of any such
termination of this Lease, Lessor shall again have possession and enjoyment
of the Demised Premises and Personal Property to the extent as if this Lease
had not been made, and thereupon this Lease and everything herein contained
on the part of Lessee to be done and performed shall cease and terminate,
all, however, without prejudice to and without relinquishing the rights of
the Lessor to rent (which, upon such termination of this Lease and entry of
Lessor upon the Demised Premises, shall, in any event, be the right to
receive rent due up to the time of such entry) or any other right given to
the Lessor hereunder or by operation of law.
21.2 If Lessee abandons the Demised Premises or otherwise entitles Lessor
so to elect, and the Lessor elects to terminate Lessee's right to possession
only, without terminating this Lease, Lessor may, at its option, enter into
the Demised Premises, remove Lessee's signs and other evidences of tenancy
and take and hold possession thereof as in the foregoing Section 21.1 of this
Article provided, without such entry and possession terminating this Lease or
releasing Lessee, in whole or in part, from Lessee's obligation to pay the
rent hereunder for the full remaining term of this Lease, less any rents and
other charges that Lessor will receive by reason of reletting the Demised
Premises, and in any such case, Lessee shall pay to Lessor a sum equal to the
entire amount of any rent reserved hereunder and required to be paid by
Lessee up to the time of such termination of the right of possession plus any
other sums then due hereunder. Upon and after entry into possession without
termination of this Lease, Lessor may attempt to relet the Demised Premises
or any part thereof for the account of Lessee for such rent, or shall operate
the nursing home located on the Demised Premises for such time and upon such
terms as Lessor in its sole discretion shall determine. Lessee shall, upon
demand, pay the cost of Lessor's reasonable expenses of reletting including,
Lessor's reasonable attorney's fees. If the consideration collected by
Lessor upon any such reletting is not sufficient to pay monthly the full
amount of rent reserved in this Lease, together with any reasonable costs of
repairs, alterations, additions or redecorating necessitated by Lessee's
default hereunder, Lessee shall pay to the Lessor the amount of each monthly
deficiency upon demand.
21.3 Lessee's liability to Lessor for damages for default in payment of
rent or otherwise hereunder shall in all events survive the termination by
Lessor of the Lease or the termination by Lessor of Lessee's right to
possession only, as hereinabove provided.
<PAGE>
However, in exercising any remedies hereunder, Lessor shall have the duty to
mitigate the damages for which Lessee may be liable to the extent reasonably
possible, including, but not limited to, efforts to lease or relet the
Demised Premises. Upon such termination of the Lease or at any time after
such termination of Lessee's right to possession, Lessor may recover from
Lessee and Lessee shall pay to Lessor as liquidated and final damages, less
any current monthly deficiencies Lessor shall have collected under the
foregoing paragraph, and in lieu of such current deficiencies after the date
of demand for such final damages, the amount thereof found to be due by a
court of competent jurisdiction, which amount thus found may be equal to:
a) the remainder, if any, of rent and charges due from Lessee for
the period up to and including the date of the termination of the Lease or
Lessee's right to possession;
b) the amount of any current monthly deficiencies accruing and
unpaid by Lessee up to and including the date of Lessor's demand for final
damages hereunder; and
c) the excess, if any, of:
i) the present value, discounted at the rate of 10% per
annum, of the rent reserved for what would have been the remainder of the
term of this Lease together with charges to be paid by Lessee under the
Lease, over
ii) the present value, discounted at the rate of 10% per annum
of the then fair rental value of the Demised Premises and the Personal Property.
If any statute or rule governing a proceeding in which such liquidated final
damages are to be proved shall validly limit the amount thereof to an amount
less than the amount above agreed upon, Lessor shall be entitled to the
maximum amount allowable under such statute or rule of law.
ARTICLE XXII - (THIS SECTION INTENTIONALLY DELETED)
ARTICLE XXIII - CUMULATIVE REMEDIES OF LESSOR
23.1 The specific remedies to which Lessor may resort under the terms of
this Lease are cumulative and are not intended to be exclusive of any other
remedies or means of redress to which Lessor may be lawfully entitled in case
of any breach or threatened breach by Lessee or any provision or provisions
of this Lease. The failure of Lessor to insist, in any one or more cases,
upon the strict performance of any of the terms, covenants, conditions,
provisions or agreements of this Lease, or to exercise any option herein
contained, shall not be construed as a waiver or relinquishment for the
future of any such term, covenant, condition, provisions, agreement or option.
ARTICLE XXIV - (THIS SECTION INTENTIONALLY DELETED)
ARTICLE XXV - INDEMNIFICATION
25.1 Whether or not from available insurance proceeds or otherwise, Lessee
agrees to protect, indemnify, defend and save harmless the Lessor from and
against any and all claims, demands and causes of action of any nature
whatsoever for injury to or death of persons or loss of or damage to
property, occurring on the Demised Premises or adjoining sidewalks, streets
or ways, or in any manner growing out of or connected with the use and
occupation of the Demised Premises or the condition thereof. Lessee further
agrees to pay any reasonable attorney's fees and expenses incident to the
defense by Lessor of any such claims, demands or causes of action; provided,
however, that notwithstanding anything to the contrary contained within this
Article XXV, Lessee shall not and does not hereby assume any liabilities of
Lessor for payment of the debt service or other sums under any
<PAGE>
Deed of Trust or mortgage encumbering the Leased Property or relating to
Lessor's ownership of the Leased Property, except for the payment of taxes
and insurance and other expenses to be paid by Lessee as specified in this
Lease, or any other liabilities or obligations arising prior to the
Commencement Date of this Lease; provided, further, that Lessee shall not and
does not hereby assume any obligations to Lessor or any other party or person
pursuant to this Article XXV with respect to any claims, demands or causes of
action relating in any manner whatsoever to the gross negligence or willful
misconduct of Lessor. Lessor hereby agrees to protect, indemnify, defend and
hold Lessee harmless from and against any and all liabilities and obligations
arising out of or incurred in connection with any claims, demands or causes
of action relating in any matter whatsoever to the gross negligence or
willful misconduct of Lessor.
ARTICLE XXVI - SUBORDINATION PROVISIONS
26.1 This Lease (and Lessee's interest in the Demised Premises and Personal
Property) shall be subject and subordinate to any mortgage to any lender
which may now or hereinafter affect the Demised Premises and/or Personal
Property, and to all renewals, modifications, consolidations, replacements
and executions thereof, provided that any such renewals, modifications,
consolidations and extensions do not require monthly payments thereon of
principal and interest, in excess of the monthly rental payment from time to
time required hereunder, and provided, further, that such lender or holder of
any mortgage agrees in writing not to disturb Lessee's quiet possession
provided Lessee is in compliance hereunder. Lessee does hereby agree to
execute and to deliver any and all documents reasonably requested by Lessor I
s lender to evidence such subordination and non-disturbance agreements. This
Lease hereof shall be assignable by Lessor as collateral to any such lender
or mortgagee.
ARTICLE XXVII - RIGHT OF FIRST REFUSAL
27.1 Lessor shall not sell the Leased Property to a third party ("Third
Party") unless and until (i) Lessor has received and, subject to Lessee's
right of first refusal, accepted a bonafide written offer ("Offer") from
Third Party containing the sales price and all of the terms and conditions
upon which Lessor is willing to sell the Leased Property to Third Party and
(ii) Lessor has provided Lessee with a copy of the offer and disclosed the
identity of Third Party to Lessee.
27.2 If Lessee, within thirty (30) days after receipt of Lessor's written
notice, gives Lessor written notice of its desire to purchase the Leased
Property, Lessor and Lessee shall enter into a written purchase and sales
agreement for Lessor's sale of the Leased Property to Lessee for the price,
and on the terms and conditions, set forth in the Offer.
27.3 If Lessee does not give Lessor its written notice within such thirty
(30) day period, Lessor thereafter shall have the right to sell the Leased
Property to Third Party on the terms and conditions set forth in the Offer,
so long as the sale to Third Party closes within one hundred eighty (180)
days after Lessor's delivery of the Offer to Lessee. If such sale to Third
Party does not close within the time period specified herein, then all
Lessee's first refusal rights stated within this Article XXVII shall be
reinstated with respect to such Offer and any and all subsequent Offers;
27.4 Notwithstanding anything to the contrary contained in this Article
XXVII, (a) Lessee shall have no right to exercise its Right of First Refusal
if any Events of Default shall exist under this Lease at the time of Lessor's
receipt of the Offer or at the time of the exercise of the right by Lessee;
and (b) Lessee's Right of First Refusal shall not apply with respect to a
sale to one or more partners of Lessor or an entity in which one or more
partners of Lessor shall have a controlling interest.
ARTICLE XXVIII - MORTGAGE RESERVES
28.1 Lessee shall be required to make deposits for annual real estate taxes
and insurance premiums and will make monthly deposits with Lessor, of an
amount equal to one-twelfth (1/12) of the annual real estate taxes or such
greater amount as may be required by any mortgagee and an amount equal to
one-twelfth (1/12) of the annual premiums for insurance on the Demised
Premises and Personal Property. Said deposits shall be due and payable on the
first (lst) day of each month as Additional Rent, shall not bear interest and
shall be held by Lessor and/or a
<PAGE>
mortgagee of the Lessor to pay the real estate taxes and insurance premiums
as they become due and payable. If the total of the monthly payments as made
under this Article shall be insufficient to pay the real estate taxes and
insurance premiums when due, then Lessee shall on demand pay Lessor the
amount necessary to make up the deficiency in its pro rata share in the
initial and last year of the term hereof and thereafter shall pay the full
deficiency upon demand.
ARTICLE XXIX - LESSEE'S ATTORNMENT
29.1 Lessee covenants and agrees that, if by reason of a default upon the
part of Lessor herein in the performance of any of the terms and conditions
of any mortgage, the estate of Lessor thereunder is terminated by SUMMARY
disposition proceedings or otherwise, Lessee will attorn to the then holder
of such mortgage or the purchaser in such foreclosure proceedings, as the
case may be, and will recognize such holder of the mortgage or such purchaser
as the Lessor under this Lease; provided, however, that the holder of such
mortgage or the purchaser in foreclosure proceedings agrees in writing not to
disturb Lessee's quiet possession of the Demised Premises so long as Lessee
is not in default hereunder. Lessee covenants and agrees to execute and
deliver, at any time and from time to time, upon the reasonable request of
Lessor or of the holder of such mortgage or the purchaser in foreclosure
proceedings, any instrument which may be necessary or appropriate to evidence
such attornment. Lessee further waives the provisions of any statute or rule
of law now or hereafter in effect which may terminate this Lease or give or
purport to give Lessee any right of election to terminate this Lease or to
surrender possession of the Demised Premises in the event any such
proceedings are brought against Lessor under such mortgage or the holder of
any such mortgage, and agrees that this Lease shall not be affected in any
way whatsoever by any such proceedings.
29.2 If Lessor shall default in the performance of any of the terms,
provisions, covenants or conditions under any mortgage, or fails to pay the
amounts due thereunder when due, then immediately upon notice of such default
or failure on the part of Lessor, Lessee shall have the right to cure such
defaults, and to make such payments as are due from Lessor, directly to the
holder of the mortgage, as the case may be, and to the extent such payments
are accepted by the holder of the mortgage, to deduct the amounts by Lessee
to cure such defaults, together with interest therein from the date of
payment by Lessee at the rate of fifteen percent (15%) per annum, from the
next succeeding rental payment or payments due under this Lease, and such
deductions shall not constitute a default under this Lease
ARTICLE XXX - LESSEE'S REPRESENTATIONS AND WARRANTIES
30.1 Lessee represents, warrants and covenants to Lessor as follows:
a) Lessee is a corporation duly organized and validly existing and
in good standing under the laws of the State of New Mexico and is qualified
to do business in the State of Arizona.
b) The execution, delivery and performance of this Lease have been
duly authorized by the directors of Lessee and no consent by any other person
or entity to such execution, delivery and performance is required.
ARTICLE XXXI - SECURITY DEPOSIT
31.1 Following the occurrence of a default hereunder, Lessor may require
Lessee to pay to Lessor, as additional security for the faithful and prompt
performance of its obligations hereunder, a security deposit in an amount
equal to $50,257.50. Said security deposit may be applied by Lessor for the
purpose of curing any default or defaults of Lessee hereunder, in which event
Lessee shall replenish said deposit in fully by promptly paying to Lessor the
amount so applied. Lessor shall not pay any interest on said deposit, except
as required by law. If Lessee has not defaulted hereunder and Lessor has not
applied said deposit to cure a default, then said deposit, or such applicable
portion thereof, shall be paid to Lessee after the termination of this Lease.
Said deposit shall not be deemed an advance payment of Rent or a measure of
Lessor's damages for any default hereunder by Lessee.
ARTICLE XXXII - CONDITIONS OF LEASE
<PAGE>
32.1 Lessor and Lessee acknowledge that the nursing home facility has not
yet been constructed and that the Personal Property has not yet been
purchased but that Lessor shall be responsible therefor following the
execution hereof. Lessee hereby acknowledges that it has reviewed and
approved the plans for the construction of the Facility and Lessor
acknowledges that it shall construct the Facility substantially in accordance
with such plans and in accordance with the requirements of federal and state
law relating to the operation of the facility as a nursing home. Lessee
shall have the right to inspect the Facility upon its completion to verify
that it has been substantially completed and equipped in accordance with the
plans therefor. If following the Lessee's inspection of the Facility, it is
not satisfied that the Facility has be substantially completed and equipped
in accordance with the plans, Lessee shall within five (5) days following its
inspection notify Lessor in writing of the manner in which Lessee believes
the Facility fails to comply with the plans. Lessee's failure to notify
Lessor within said five (5) day period shall constitute Lessee's acceptance
of the Facility as substantially completed by Lessor. If Lessor reasonably
concludes that the Facility has not been substantially completed and equipped
in accordance with the plans in any respect described in Lessee's notice,
Lessor shall promptly cause the required changes to be made.
32.2 This Lease is expressly conditioned upon and will become effective and
operative on the later to occur of the date that the certificate of occupancy
for the Demised Premises has been issued by the City of Phoenix and the date
that the State of Arizona licensing agency has inspected and approved the
facility in connection with the issuance of Lessee's license to operate the
Facility as a nursing home.
ARTICLE XXXIII - FINANCIAL STATEMENTS
33.1 Within 120 days after the end of each of its fiscal years, Lessee
shall furnish to Lessor unaudited financial statements of the operations of
the Demised Premises and nursing home operated thereon or such additional
financial information as Lessor or Lessor's lender may reasonably require.
ARTICLE XXXIV - MISCELLANEOUS
34.1 Lessee, upon paying the annual rental and all other charges herein
provided, and for observing and keeping the covenants, agreements, terms and
conditions of this Lease on its part to be performed, shall lawfully and
quietly hold, occupy and enjoy the Demised Premises during the term of this
Lease, and subject to its terms, without hindrance by Lessor or by any other
person or persons claiming under Lessor.
34.2 All payments to be made by the Lessee hereunder shall be rent, so that
in the event of a default of payment when due, Lessor shall be entitled to
all of the remedies available at law or equity, or under this Lease, for the
nonpayment of rent.
34.3 It is understood and agreed that the granting of any consent letter by
Lessor to Lessee to perform any act of Lessee requiring Lessor's consent
under the terms of this Lease, or the failure on the part of Lessor to object
to any such action taken by Lessee without Lessor's consent, shall not be
deemed a waiver by Lessor of its rights to require such consent for any
further similar act by Lessee, and Lessee hereby expressly covenants and
warrants that as to all matters requiring Lessor's consent under the terms of
this Lease, Lessee shall secure such consent for each and every happening of
the event requiring such consent, and shall not claim any waiver on the part
of Lessor of the requirement to secure such consent.
34.4 Lessor and Lessee each represent to the other that there are no claims
for brokerage or other commission or finder's or other similar f ees in
connection with this Lease, and hereby agree to hold the other harmless in
the event any such claims or demands are made based on arrangements allegedly
made by or on behalf of the party so representing.
<PAGE>
34.5 In the event either party brings an action to enforce any of the terms
hereof or in connection herewith the prevailing party shall be entitled to
recover from the other party, as part of the prevailing party's costs,
reasonable attorney's fees the amount of which shall be fixed by the court
and shall be made a part of any judgement rendered.
34.6 Should Lessee hold possession hereunder after the expiration of the
term of this Lease without the consent of Lessor, Lessee shall pay Lessor a
monthly rental, for the period of such month-to-month tenancy, in an amount
equal to 1.5 times the applicable Minimum Rent at the expiration of the term
of this Lease. In addition, during said period of occupancy, Lessor may
exercise any and all remedies available to it at law or in equity to recover
possession of the Leased Property and to be compensated for its damages
incurred by said holding over.
34.7 All notices, demands or requests which may or are required to be given
by either party to the other shall be in writing and addressed to the other
party hereto at the address set forth below:
If to Lessor:
Phoenix Nursing Home Limited Partnership II c/o Karell Capital Ventures,
Inc.
Two North LaSalle, Suite 1901
Chicago, Illinois 60602
Attn: Zev Karkomi
If to Lessee:
Sunrise Healthcare Corporation
5600 Wyoming Boulevard, Suite 180
Albuquerque, New Mexico 87110
Attention: Andrew Turner
or if notification of a change of address has been sent, to such other party
and/or to such other address as may be designated in that written
notification. Notice shall be either (i) personally delivered to the offices
set forth above, in which case they shall be deemed delivered on the date of
delivery to said offices, (ii) sent by Western Union telegram, in which case
they shall be deemed delivered on the date Western Union delivers its
telephonic communication, (iii) sent by certified mail, return receipt
requested, in which case they shall be deemed delivered on the date of
delivery set forth in the return receipt, or (iv) by air courier (Federal
Express or like service) in which case they shall be deemed received on the
date of delivery set forth in the courier's receipt.
34.8 Upon demand by either party, Lessor or Lessee agree to execute and
deliver a short form lease in recordable form so that the same may be
recorded by either party.
34.9 Each party agrees that any time, and from time to time, upon not less
than ten (10) days prior written request from the other party, to execute,
acknowledge and deliver to the other party a statement in writing, certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same is in full force and effect as modified,
and stating the modification), the dates to which the rent has been paid and
whether the Lease is then in default or whether any events have occurred
which, with the giving of notice or the passage of time, or both, could
constitute a default hereunder, it being intended that any such statement
delivered pursuant to this paragraph may be relied upon by any prospective
assignee, mortgagee or purchaser of the fee or leasehold interest, as
appropriate, in the Leased Property or of this Lease.
34.10 All of the provisions of this Lease shall be deemed and construed to
be "conditions" and "covenants" as though the words specifically expressing
or importing covenants and conditions were used in each separate provision
hereof.
34.11 Any reference herein to the termination of this Lease shall be deemed
to include any termination thereof by expiration, or pursuant to Articles
referring to earlier termination.
<PAGE>
34.12 The headings and titles in this Lease are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the
scope or intent of this Lease, nor in any way affect this Lease.
34.13 This Lease contains the entire agreement between the parties and any
executory agreement hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification or discharge is sought. This Lease cannot be changed orally or
terminated orally.
34.14 Except as otherwise herein expressly provided, the covenants,
conditions and agreements in this Lease shall bind and inure to the benefit
of the Lessor and Lessee and their respective successors and assigns.
34.15 All nouns and pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural as the identity
of the person or persons, firm or firms, corporation or corporations, entity
or entities or any other thing or things may require.
34.16 If any term or provision of this Lease shall to any extent be held
invalid or unenforceable, the remaining terms and provisions of this Lease
shall not be affected thereby, but each term and provision shall be valid and
be enforced to the fullest extent permitted by law.
34.17 In the event of any conveyance or other divestiture of title to the
Leased Property, the grantor or the person who is divested of title shall be
entirely freed and relieved of all covenants and obligations thereafter
accruing hereunder, and the grantee or the person who otherwise succeeds to
title shall be deemed to have assumed the covenants and obligations of Lessor
thereafter accruing hereunder shall then be the Lessor under this Lease.
Notwithstanding anything to the contrary provided in this Lease, there shall
be no personal liability on the part of any stockholder, director, officer,
employee or partner of Lessor with respect to the terms, covenants or
conditions of this Lease. Lessee shall look solely to Lessor and the assets
of Lessor, including, but not limited to, the interest of Lessor in the
Leased Property, for the satisfaction of each and every remedy which Lessee
may have for the breach of this Lease.
34.18 The failure of either party to insist upon strict performance of any
of the covenants, agreements, terms and conditions of this Lease or to
exercise any option conferred herein in any one or more instances shall not
be construed to be a waiver or relinquishment of any such covenants,
agreement, term, condition or option and the same shall be and remain in full
force and effect.
34.19 This Lease may be simultaneously executed in any number of
counterparts, each of which when so executed and delivered shall be an
original, but such counterparts together shall constitute but one and the
same instrument.
34.20 If any mortgagee or committed financier of Lessor should require, as a
condition precedent to the closing of any loan or the disbursal of any money
under any loan, that this Lease be amended or supplemented in any manner
(other than in the description of the Leased Property, the term, the purpose,
the rent or other charges hereunder, or in any other regard as will
substantially or materially affect the rights of Lessee under this Lease)
Lessor shall give written notice thereof to Lessee, which notice shall be
accompanied by a Lease Supplement Agreement, embodying such amendments and
supplements. Lessee shall within ten (10) days after the effective date of
Lessor's notice, either consent to such amendments and supplements (which
consent shall not be unreasonably withheld) and execute the tendered Lease
Supplement Agreement, or deliver to Lessor a written statement of its reason
or reasons for refusing to so consent and execute. If Lessee fails to
respond within said ten (10) day period, it shall be deemed to have consented
to such Lease Supplement Agreement without further notice. If Lessor and
Lessee are then unable to agree on a Lease Supplement Agreement satisfactory
to each of them and to the lender within thirty (30) days after delivery of
Lessee's written statement, Lessor shall have the right to terminate this
Lease within sixty (60) days after the end of said thirty (30) day period.
34.21 This Lease shall be governed by and construed in accordance with the
laws of the State of Arizona.
<PAGE>
ARTICLE XXXV - CONDITION OF THE DEMISED PREMISES
35.1 The Personal Property and the Demised Premises are let and leased
subject to the state of the title thereof as of the date the Lessor acquired
title from the predecessor in title, to any state of facts which an accurate
survey or physical inspection thereof might show, and to all zoning
regulations, restrictions, rules and ordinances, building restrictions and
other laws and regulations now in effect or hereafter adopted by any
governmental authority having jurisdiction thereover.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be signed by
persons authorized to do so on behalf of each of them respectively the day
and year first written above.
LESSOR: Phoenix Nursing Home Limited
Partnership II, an Illinois
limited partnership
By: /s/ Zev Karkomi
---------------
its general partner
LESSEE: SUNRISE HEALTHCARE CORPORATION,
a New Mexico corporation
By: /s/ Andrew L. Turner
--------------------
Its: President
---------
/s/ Andrew L. Turner
--------------------
Andrew Turner
/s/ Nora Turner
---------------
Nora Turner
<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
----------------------------------
This First Amendment to Lease Agreement (this "Amendment") is made as
of this 1st day of February, 1993 by and between Phoenix Nursing Home Limited
Partnership II, an Illinois limited partnership, as Lessor ("Lessor") and
Sunrise Healthcare Corporation, a New Mexico corporation, Andrew Turner and
Nora Turner, individually, as Lessee (together, "Lessee").
A. Lessor and Lessee entered into that certain Lease Agreement
dated as of August 30, 1991 (the "Lease") for that certain 64 bed addition to
that certain long term fare facility at 11411 North Avenue, Phoenix, Arizona
85029 commonly known as Coronado Care Center, legally described on Exhibit A
attached hereto (the "Facility"); the Lease covers the Demised Premises,
which includes the Facility, and the Personal Property located thereon,
B. The Lease provided for the construction of the Facility and the
commencement of the Lease upon completion of the Facility;
C. The construction of the Facility has been completed and Lessee
has accepted and taken possession of the Leased Property pursuant to the
Lease;
D. Prior to construction of the Facility, Lessor conveyed title to
the Demised Premises to Wheeling Partnership, an Illinois general partnership
("Wheeling"), and Wheeling, as Lessor, and Lessor, as Lessee, entered into
that certain Ground Lease (the "Ground Lease") dated as of January 1, 1993;
E. The parties are entering into this Amendment, among other
things, to acknowledge the commencement of the Lease to amend the Lease in
the manner set forth herein.
NOW, THEREFORE, for and in consideration of the mutual terms,
provisions and conditions herein contained, the receipt, sufficiency and
adequacy of which is hereby acknowledge, and other good and valuable
consideration, the parties hereto agree as follows:
1. ACCEPTANCE OF FACILITY. Lessee has inspected the Facility as
constructed by Lessor and Lessee hereby approves and accepts the Facility as
completed and fully equipped.
2. COMMENCEMENT DATE. Lessee took possession of the Leased
Property under the Lease on or about January 1, 1993 and the parties hereby
acknowledge said date as the Commencement Date.
3. RENT.
(a) Lessee shall not be obligated to pay rent for the month
of January, 1993. Lessee's first monthly installment of rent, for the month
of February, 1993, shall be due on February 10, 1993.
(b) The Initial Rent shall be the annual sum of $302,138.00,
payable in equal monthly installments of $25,178.17.
(c) The term Rent Year, as used in the Lease. shall mean
each twelve month (12) period commencing on February 1, and each anniversary
thereof, and ending on January 31.
<PAGE>
4. SECURITY DEPOSIT. Lessee shall pay to Lessor, together with
the first installment of month rent hereunder, the sum of $50,356.00 as the
security deposit under the Lease. Lessor shall hold the hold the security
deposit subject to and in accordance with the terms and conditions of the
Lease.
5. PERSONAL PROPERTY. The Personal Property covered by the Lease,
as of the Commencement Date, shall include those items set forth on Exhibit B
attached hereto and made a part hereof.
6. COMPLIANCE WITH GROUND LEASE/MORTGAGE.
(a) Notwithstanding anything to the contrary contained in the
Lease, Lessee shall at all times and in all respects fully, timely and
faithfully comply with and observe each and all of the conditions, covenants
and provisions required on the part of Lessor under the Ground Lease (and any
mortgage or deed of trust to which the Lease is subordinate or to which it
later may become subordinate), including, without limitation, such
conditions, covenants and provisions thereof as relate to the care,
maintenance, repair, insurance, restoration, preservation and condemnation of
the Demised Premises, notwithstanding that such conditions, covenants and
provisions may require compliance and observance to a standard or degree in
excess of that required by the provisions of the Lease, or may require
performance not required by the provisions of the Lease, and shall not do or
permit to be done anything which would constitute a breach of or default
under any obligation of Lessor under the Ground Lease (or any mortgage or
deed of trust), it being the intention hereof that Lessee shall so comply
with and observe each and all of such covenants, conditions and provisions of
the Ground Lease (and any mortgage or deed of trust) so that they will at all
times be in good standing and there will not be any default an the part of
Lessor thereunder. However, nothing contained herein shall be construed to
obligate Lessee to pay any part of the rent due under the Ground Lease (or
the principal or interest secured by any mortgage or deed of trust), except
as may otherwise be provided in the Lease.
(b) With respect to any mortgage or dead of trust affecting the
Demised Premises during the term hereof, Lessee further covenants and agrees
as follows: (i) Lessee shall give the holder of any such mortgage or deed of
trust notice of any default by Lessor which occurs under the Lease; (ii)
Lessee shall not terminate the Lease as a result of any default by Lessor,
without giving such holder written notice of Lessor's default under the Lease
at the same time that Lessor is given notice of such default; and (iii) if
Lessor fails to cure such default within the applicable grace period, if any,
contained in the Lease, such holder shall have an additional reasonable
period of tine to cure any such default.
7. ENVIRONMENTAL COMPLIANCE. Lessee shall not generate, dispose
of, release, use, handle, possess or store any hazardous substances upon the
Demised Premises except in accordance with applicable laws, rules and
regulations. Lessee shall at its sole cost and expense promptly remove or
clean any hazardous substances introduced onto the Demised Premises by Lessee
or with its permission or at its sufferance. Such removal or cleanup shall
be in compliance with all applicable laws and regulations. Lessee hereby
agrees to indemnify and hold Lessor harmless and agrees to defend Lessor from
all losses, damages, claims, liabilities and fines, of any nature whatsoever
in connection with the actual or alleged presence upon the Demised Premises
of any hazardous substances introduced by Lessee or with its permission or at
its sufferance.
<PAGE>
8. REPRESENTATIONS. All of the representations and warranties
contained in the Lease, Including, without limitation, those contained in
Section 30.1, are hereby remade by Lessee and are true and correct as of the
date hereof.
9. CONFLICTS, DEFINED TERMS. In the event that the terms,
provisions and agreements contained herein conflict with those contained in
the Lease, the terms of this Amendment shall prevail. Any and all terms
defined in the Lease and used herein shall have the same meaning as set forth
in the Lease.
10. EFFECT OF AMENDMENT. This Amendment shall amend, modify and
alter the terms and conditions of the Lease to the extent expressly herein
provided. Lessor and Lessee acknowledge and agree, however, that except as
expressly amended, modified or altered herein, the terms, provisions, and
agreements contained in the Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have made, executed and
delivered this Amendment as of the date first above written.
Lessor:
Phoenix Nursing Home Limited Partnership II,
an Illinois limited partnership
By: /s/ Zev Karkomi
-------------------------------
a general partner
By: /s/ Harvey Angell
-------------------------------
a general partner
Lessee:
Sunrise Healthcare Corporation,
a New Mexico corporation
By: /s/ Andrew Turner
-------------------------------
Its: President
-----------------------
/s/ Andrew Turner
-------------------------------
Andrew Turner
/s/ Nora Turner
-------------------------------
Nora Turner
<PAGE>
- --------------------------------------------------------------------------------
REGENT ASSISTED LIVING, INC.
AND
LTC EQUITY HOLDING COMPANY, INC.
$10,000,000 PRINCIPAL AMOUNT
OF
7.5% CONVERTIBLE SUBORDINATED NOTES DUE MARCH 31, 2008
CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
DATED AS OF MARCH 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. PURCHASE AND SALE OF NOTES. . . . . . . . . . . . . . . . . . . . 1
1.1. Issue of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Purchase and Sale of Notes . . . . . . . . . . . . . . . . . . . .1
1.3. Maintenance of Note Register . . . . . . . . . . . . . . . . . . .3
1.4. Issue Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.5. Direct Payment . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.6. Lost, Etc. Notes . . . . . . . . . . . . . . . . . . . . . . . . .4
SECTION 2. CLOSING CONDITIONS. . . . . . . . . . . . . . . . . . . . . . . . 4
2.1. Delivery of Documents. . . . . . . . . . . . . . . . . . . . . . .5
2.2. Delivery of Other Agreements . . . . . . . . . . . . . . . . . . .6
2.3. Representations and Warranties, Agreements and Covenants . . . . .6
2.4. No Event of Default. . . . . . . . . . . . . . . . . . . . . . . .6
2.5. Proceedings Satisfactory . . . . . . . . . . . . . . . . . . . . .6
2.6. Consents and Permits . . . . . . . . . . . . . . . . . . . . . . .7
2.7. No Material Adverse Change . . . . . . . . . . . . . . . . . . . .7
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . 7
3.1. Organization; Power and Authority. . . . . . . . . . . . . . . . .7
3.2. Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.3. Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.4. No Other Registration Rights . . . . . . . . . . . . . . . . . . .8
3.5. No Violation or Conflict; No Default . . . . . . . . . . . . . . .9
3.6. Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . .9
3.7. Private Offering . . . . . . . . . . . . . . . . . . . . . . . . .9
3.8. Due Authorization of Material Contracts. . . . . . . . . . . . . 10
3.9. Financial Statements . . . . . . . . . . . . . . . . . . . . . . 10
3.10. Litigation; Judgments. . . . . . . . . . . . . . . . . . . . . . 11
3.11. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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3.12. Investment Company Act. . . . . . . . . . . . . . . . . . . . . .11
3.13. Environmental Matters . . . . . . . . . . . . . . . . . . . . . .11
3.14. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . .12
3.15. Real Property; Leases . . . . . . . . . . . . . . . . . . . . . .12
3.16. Intellectual Property; Licenses . . . . . . . . . . . . . . . . .12
3.17. Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.18. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.19. Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . .13
3.20. Compliance With Law; Permits. . . . . . . . . . . . . . . . . . .13
3.21. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.22. Material Events . . . . . . . . . . . . . . . . . . . . . . . . .14
3.23. SEC Documents; Undisclosed Liabilities. . . . . . . . . . . . . .15
3.24. Material Misstatements or Omissions . . . . . . . . . . . . . . .16
3.25. Survival of Representations and Warranties. . . . . . . . . . . .16
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER. . . . . . . . .16
4.1. Purchase for Own Account. . . . . . . . . . . . . . . . . . . . .16
4.2. Accredited Investor . . . . . . . . . . . . . . . . . . . . . . .16
4.3. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.4. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
SECTION 5. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
5.1. Payment of Notes; Satisfaction of Obligations . . . . . . . . . .17
5.2. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . .17
5.3. Limitation on Additional Indebtedness . . . . . . . . . . . . . .18
5.4. Change of Control . . . . . . . . . . . . . . . . . . . . . . . .18
5.5. Stay, Extension and Usury Laws. . . . . . . . . . . . . . . . . .20
5.6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . .20
5.7. Corporate Existence; Merger; Successor Corporation. . . . . . . .22
5.8. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
5.9. Investment Company Act. . . . . . . . . . . . . . . . . . . . . .23
5.10. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
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5.11. Inconsistent Agreements . . . . . . . . . . . . . . . . . . . . .23
5.12. Compliance With Laws. . . . . . . . . . . . . . . . . . . . . . .24
5.13. Inspection of Properties and Records. . . . . . . . . . . . . . .24
SECTION 6. CONVERSION OF NOTES . . . . . . . . . . . . . . . . . . . . . . .24
6.1. Conversion. . . . . . . . . . . . . . . . . . . . . . . . . . . .24
6.2. Conversion Rate . . . . . . . . . . . . . . . . . . . . . . . . .25
6.3. Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . .25
6.4. Adjustments for Stock Splits, Combinations and Dividends. . . . .26
6.5. Reorganization, Mergers, Consolidations or Sales of Assets. . . .26
6.6. Sale of Shares Below Market or Conversion Price . . . . . . . . .27
6.7. Adjustment for Failure to Quote on NASDAQ National Market . . . .28
6.8. Accountants' Certificate of Adjustment. . . . . . . . . . . . . .28
6.9. Reservation of Shares Issuable Upon Conversion. . . . . . . . . .29
6.10. No Impairment . . . . . . . . . . . . . . . . . . . . . . . . . .29
SECTION 7. Defaults and Remedies . . . . . . . . . . . . . . . . . . . . . .29
7.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . .29
7.2. Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . .31
7.3. Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . .31
SECTION 8. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . .31
8.1. Notes Subordinated to Senior Indebtedness . . . . . . . . . . . .31
8.2. Company Not to Make Payments With Respect to Notes in
Certain Circumstances . . . . . . . . . . . . . . . . . . . . . .32
8.3. Subrogation of Notes. . . . . . . . . . . . . . . . . . . . . . .33
8.4. No Impairment of Subordination. . . . . . . . . . . . . . . . . .34
8.5. Section 8 Not to Prevent Events of Default. . . . . . . . . . . .34
8.6. Securities Senior to Subordinated Indebtedness. . . . . . . . . .34
8.7. Assignment of Junior Claims . . . . . . . . . . . . . . . . . . .34
SECTION 9. AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . . . . . . . . .35
9.1. With Consent of Holders . . . . . . . . . . . . . . . . . . . . .35
9.2. Revocation and Effect of Consents . . . . . . . . . . . . . . . .36
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9.3. Notation on or Exchange of Notes. . . . . . . . . . . . . . . . .37
SECTION 10. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .37
10.1. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . .37
10.2. Rules of Construction. . . . . . . . . . . . . . . . . . . . . .46
SECTION 11. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . .47
11.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
11.2. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . .47
11.3. Successors and Assigns . . . . . . . . . . . . . . . . . . . . .47
11.4. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . .47
11.5. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
11.6. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . .48
11.7. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . .48
11.8. Severability . . . . . . . . . . . . . . . . . . . . . . . . . .48
11.9. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
</TABLE>
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CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
This CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT, is dated as
of March 30, 1998 (this "AGREEMENT"), and entered into by and between REGENT
ASSISTED LIVING, INC., an Oregon corporation (the "COMPANY") and LTC EQUITY
HOLDING COMPANY, INC., a Nevada corporation (the "PURCHASER").
Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in Section 10.1 hereof.
In consideration of the premises, mutual covenants and agreements
hereinafter contained and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the Company agrees as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.1. ISSUE OF NOTES
On or before the Closing,
(a) The Company will have authorized the issue and sale of
$10,000,000 aggregate principal amount of its 7.5% Convertible Subordinated
Notes due March 31, 2008 (the "NOTES") to the Purchaser, to be substantially in
the form attached hereto as Annex A.
(b) The Notes shall be substantially in the form attached hereto
as Annex A, including such other notations, legends or endorsements set forth
therefor or required by law. The Notes shall be dated the date of their
issuance. The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Agreement and, to the extent
applicable, the Company and the Purchaser, by their execution and delivery of
this Agreement, expressly agree to such terms and provisions and to be bound
thereby.
1.2. PURCHASE AND SALE OF NOTES
(a) PURCHASE AND SALE. The Company agrees to sell and, subject
to the terms and conditions set forth herein and in the Registration Rights
Agreement and in reliance on the representations and warranties of the Company
contained or incorporated herein, the Purchaser agrees to purchase the Notes for
an aggregate purchase price of $10,000,000 as follows:
(1) $4,000,000 principal amount of Notes will be issued and
sold to the Purchaser on the Closing Date, and
(2) the remaining $6,000,000 principal amount of Notes
shall be issued in increments of at least $1,000,000 (except that if more than
$9,000,000 but less than $10,000,000 principal amount of Notes have been issued
to the Purchaser, the last increment of Notes shall be issued in a principal
amount so that an aggregate of $10,000,000 principal amount of Notes shall have
been issued to the Purchaser) on or prior to March 31, 2000 upon the receipt of
the following:
<PAGE>
(a) five (5) Business Days written notice by the
Company to the Purchaser;
(b) a Certificate executed by any two executive
officers of the Company, dated the date such additional principal amount of
Notes is delivered to the Purchaser (i) certifying and attaching a Disclosure
Schedule scheduling all Indebtedness of the Company and its Subsidiaries as of
such date, showing as to each item of such Indebtedness the creditor, the
aggregate principal amount outstanding, the agreement or instrument governing
such Indebtedness and a brief description of any security therefor; (ii)
certifying that the Company is not in default in the performance or observance
in any material respect of any of the terms, covenants or conditions contained
in any instrument evidencing Indebtedness listed on the Disclosure Schedule
pursuant to which such Indebtedness was issued or secured or has requested any
waiver in respect of any default and no event has occurred and is continuing
which, with notice or the lapse of time or both, would constitute such a
default; and (iii) certifying that all of the representations and warranties of
the Company contained or incorporated by reference herein that (A) are qualified
as to materiality are true and correct on and as of such date as though made on
and as of such date and that (B) are not qualified as to materiality are true
and correct in all material respects on and as of such date as though made on
and as of such date, and no event has occurred and is continuing, or would
result from the issuance of the Notes or the extension of borrowings under the
Commitment Letter, which constitutes or would constitute a Default or an Event
of Default; and
(c) If the date such additional principal amount of
Notes is delivered to the Purchaser is on or after March 31, 1999, an opinion,
dated as of such date, from David R. Gibson, counsel for the Company, as to the
matters set forth on Annex B; PROVIDED, HOWEVER, any further issuance of Notes
after such date shall not require an opinion of counsel pursuant to this clause
(c).
(b) CLOSING. The purchase and sale of the Notes referred to in
Section 1.2(a)(1) shall take place at a closing (the "CLOSING") at the offices
of Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California
at 2:00 p.m. on March 30, 1998 (the "CLOSING DATE"). At the Closing, the
Company will deliver to the Purchaser the Notes to be purchased by the Purchaser
(in such permitted denomination or denominations and registered in the
Purchaser's name or the name of such nominee or nominees as the Purchaser may
request) on the Closing Date, dated the Closing Date, against payment of the
purchase price therefor by intra-bank or federal funds bank wire transfer of
same day funds to such bank account as the Company shall designate at least two
Business Days prior to the Closing.
(c) FEES AND EXPENSES. Whether or not the Notes are sold, the
Company agrees to pay or reimburse all expenses relating to this Agreement,
including but not limited to:
(1) the reasonable fees and other expenses of the
Purchaser's counsel, Latham & Watkins, in connection herewith (not to exceed
$50,000 in the aggregate, relating to this Agreement and similar agreements
dated on or about the date of this Agreement);
2
<PAGE>
(2) any reasonable out-of-pocket fees and expenses
(including the reasonable fees and expenses of counsel) in connection with any
registration or qualification of the Notes required in connection with the offer
and sale of the Notes at the Closing pursuant to this Agreement under the
securities or "blue sky" laws of any jurisdiction requiring such registration or
qualification or in connection with obtaining any exemptions from such
requirements; and
(3) the Purchaser's reasonable out-of-pocket expenses
(including the reasonable fees and expenses of counsel) relating to any
amendment, or modification of, or any waiver, or consent or preservation of
rights under this Agreement, the Notes, the Registration Rights Agreement and
any other documents contemplated hereby or thereby.
Purchaser may deduct such expenses from the purchase price of the
Notes; PROVIDED that the Purchaser agrees to provide the Company with a
statement describing any amounts to be so paid at least one Business Day prior
to the Closing.
1.3. MAINTENANCE OF NOTE REGISTER
The Company shall cause to be kept at its principal office a
register for the registration and transfer of the Notes (the "NOTE REGISTER").
The names and addresses of the Holders of Notes, the transfer of Notes, and the
names and addresses of the transferees of the Notes shall be registered in the
Note Register.
The Person in whose name any registered Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes of
this Agreement and the Company shall not be affected by any notice to the
contrary, until due presentment of such Note for registration of transfer so
provided in this Section 1.3. Payment of or on account of the principal and
interest on any registered Notes shall be made to or upon the written order of
such registered holder.
1.4. ISSUE TAXES
The Company agrees to pay all taxes owed by or on behalf of the
Company in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the Purchaser harmless
without limitation as to time against any and all liabilities with respect to
all such taxes. The Purchaser agrees to pay all taxes owed by or on behalf of
the Purchaser in connection with the issuance, sale, delivery or transfer by the
Company to the Purchaser of the Notes and the execution and delivery of the
agreements and instruments contemplated hereby and any modification of any of
such Notes, agreements and instruments and will save the Company harmless
without limitation as to time against any and all liabilities with respect to
all such taxes. The obligations of the Company and the Purchaser under this
Section 1.4 shall survive the payment or prepayment of the Notes and the
termination of this Agreement.
3
<PAGE>
1.5. DIRECT PAYMENT
(a) The Company will pay or cause to be paid all amounts payable
with respect to any Note (without any presentment of such Note and without any
notation of such payment being made thereon) by crediting (before 11:00 a.m.,
Pacific time), by federal funds bank wire transfer to each Holder's account in
any bank in the United States as may be designated and specified in writing by
such Holder at least two Business Days prior thereto.
(b) Notwithstanding anything to the contrary contained in the
Notes, if any principal amount payable with respect to a Note is payable on a
Legal Holiday, then the Company shall pay such amount on the next succeeding
Business Day, and interest shall accrue on such amount until the date on
which such amount is paid and payment of such accrued interest shall be made
concurrently with the payment of such amount, PROVIDED that the Company may
elect to pay in full (but not in part) any such amount on the last Business
Day prior to the date such payment otherwise would be due, and no such
additional interest shall accrue on such amount. Notwithstanding anything to
the contrary contained in the Notes, if any interest payable with respect to
a Note is payable on a Legal Holiday, then the Company shall pay such
interest on the next succeeding Business Day, and such extension of time
shall be included in the computation of the interest payment, PROVIDED that
the Company may elect to pay in full (but not in part) any such interest on
the last Business Day prior to the date such payment otherwise would be due,
and such diminution in time may, at the Company's option, be included in the
computation of the interest payment.
1.6. LOST, ETC. NOTES
Notwithstanding any provision to the contrary, if any Note of
which the Purchaser or any other Holder (or nominee thereof) which is a
transferee is the owner is mutilated, destroyed, lost or stolen, then the
affidavit of the Purchaser or such Holder, if an individual, or of the
Purchaser's or such Holder's treasurer or assistant treasurer (or other
authorized officer), if a Person other than an individual, briefly setting forth
the circumstances with respect to such mutilation, destruction, loss or theft,
shall be accepted as satisfactory evidence thereof, and no indemnity, note or
payment of charges or expenses shall be required as a condition to the execution
and delivery by the Company or the transfer agent with respect to such Note, of
new Notes for a like aggregate principal amount or number of shares, as
applicable, in substitution therefor, other than such Purchaser's or such
Holder's unsecured written agreement reasonably satisfactory to indemnify the
Company or the transfer agent, as the case may be, which written agreement may
be required by the Company.
SECTION 2. CLOSING CONDITIONS
The obligations of the Purchaser to purchase and pay for the Notes
to be delivered to such Purchaser at the Closing shall be subject to the
satisfaction of the following conditions on or before the Closing Date:
4
<PAGE>
2.1. DELIVERY OF DOCUMENTS
The Company shall have delivered to the Purchaser, in form and
substance reasonably satisfactory to the Purchaser, the following:
(a) The Notes being purchased by the Purchaser pursuant to
Section 1.2(a)(1), duly executed by the Company, in the aggregate principal
amount of $4,000,000.
(b) An opinion, dated the Closing Date and addressed to the
Purchaser, from David R. Gibson, counsel for the Company, as to the matters set
forth on Annex B.
In rendering such opinion, such counsel may rely as to factual
matters upon certificates or other documents furnished by officers and directors
of the Company (copies of which shall be delivered to the Purchaser) and by
government officials, and upon such other documents as such counsel reasonably
deems appropriate as a basis for its opinion. Such counsel shall opine as to
the federal laws of the United States, the laws of the State of Oregon.
(c) Resolutions of the Board of Directors of the Company,
certified by the Secretary or Assistant Secretary, to be duly adopted and in
full force and effect on the Closing Date, authorizing (i) the execution,
delivery and performance of this Agreement, the Registration Rights Agreement
and the Commitment Letter and the consummation of transactions contemplated
hereby and thereby, (ii) the issuance of the Notes to be purchased by the
Purchaser and (iii) specific officers to execute and deliver this Agreement, the
Notes, the Registration Rights Agreement and the Commitment Letter.
(d) Certificates executed by any two executive officers of the
Company, dated the Closing Date, certifying (i) that all of the conditions set
forth in Section 2 of this Agreement are satisfied on and as of such date, (ii)
that all of the representations and warranties of the Company contained or
incorporated by reference herein that (A) are qualified as to materiality are
true and correct on and as of such date as though made on and as of such date
and that (B) are not qualified as to materiality are true and correct in all
material respects on and as of such date as though made on and as of such date,
and no event has occurred and is continuing, or would result from the issuance
of the Notes or the extension of borrowings under the Commitment Letter, which
constitutes or would constitute a Default or an Event of Default and (iii) as to
such other matters as the Purchaser may request in the exercise of its
reasonable discretion.
(e) Governmental certificates, dated the most recent practicable
date but in no event more than thirty (30) calendar days prior to the Closing
Date showing that the Company was incorporated under the Oregon Business
Corporation Act, is active on the records of the Corporation Division and is
qualified as a foreign corporation and in good standing in all other
jurisdictions in which it is qualified to transact business, except where the
failure to be so qualified would not have a Material Adverse Effect.
(f) Copies of each consent, license and approval required in
connection with the execution, delivery and performance by the Company of this
Agreement, the Notes, the
5
<PAGE>
Registration Rights Agreement and the Commitment Letter and the consummation of
the transactions contemplated hereby and thereby.
(g) Copies of the Charter Documents of the Company, certified as
of a recent date but in no event more than thirty (30) calendar days prior to
the Closing Date by the Secretary of State of the State of Oregon and certified
by the Secretary or Assistant Secretary of the Company (or person possessing
comparable authority of the Company), as true and correct on and as of the
Closing Date.
(h) Certificates of the Secretary or an Assistant Secretary of
the Company as to the incumbency and signatures of the officers or
representatives of such entity executing this Agreement, the Notes, the
Registration Rights Agreement, the Commitment Letter and any other certificate
or other document to be delivered pursuant hereto or thereto on the Closing
Date, together with evidence of the incumbency of such Secretary or Assistant
Secretary;
(i) Copies of all agreements associated with or entered into in
connection with the investment of Prudential Private Equity Investors III, L.P.
in the Company's Preferred Stock and if requested by the Purchaser prior to the
Closing Date, copies of all lease agreements to which the Company is a party.
2.2. DELIVERY OF OTHER AGREEMENTS
The Company shall have executed and delivered the Registration
Rights Agreement and the Commitment Letter.
2.3. REPRESENTATIONS AND WARRANTIES, AGREEMENTS AND COVENANTS
All of the representations and warranties of the Company contained
herein that (A) are qualified as to materiality shall be true and correct on and
as of the Closing Date, except to the extent any representation or warranty
expressly relates to an earlier date and that (B) are not qualified as to
materiality are true and correct in all material respects on and as of the
Closing Date, except to the extent any representation or warranty expressly
relates to an earlier date. The Company shall have performed or complied with
all agreements, covenants and conditions contained herein and in the
Registration Rights Agreement and the Commitment Letter which are required to be
performed or complied with by the Company on or before the Closing Date.
2.4. NO EVENT OF DEFAULT
No event shall have occurred and be continuing, or would result
from the purchase of the Notes or the extension of borrowings pursuant to the
Commitment Letter, which constitutes or would constitute a Default or an Event
of Default.
2.5. PROCEEDINGS SATISFACTORY
All proceedings taken in connection with the sale of the Notes,
the transactions contemplated hereby, and all documents and papers relating
thereto, shall be reasonably
6
<PAGE>
satisfactory to the Purchaser. The Purchaser and its counsel shall have
received copies of such documents and papers as they may reasonably request in
connection therewith, all in form and substance satisfactory to the Purchaser.
Any document annexed to this Agreement or any other document contemplated by
this Agreement not approved by the Purchaser in writing as to form and substance
on the date this Agreement is executed shall be satisfactory in form and
substance to the Purchaser.
2.6. CONSENTS AND PERMITS
The Company shall have received all consents, approvals, and
authorizations and sent or made all notices, filings, registrations and
qualifications required for the issuance of the Notes, all of which are
disclosed on the Disclosure Schedule.
2.7. NO MATERIAL ADVERSE CHANGE
Since the date of this Agreement, neither the Company nor any of
its Subsidiaries shall have suffered any material adverse change in its
properties, business, prospects, operations, earnings, assets, liabilities or
condition (financial or otherwise) which would reasonably likely to result in a
Material Adverse Effect.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Disclosure Schedule attached to this
Agreement (each scheduled item contained therein referencing the Section of this
Agreement that it qualifies), the Company represents and warrants as follows:
3.1. ORGANIZATION; POWER AND AUTHORITY
The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation. The Company and each of its
Subsidiaries have all requisite power and authority to own or hold under lease
the properties it purports so to own or hold except where the failure so to own
or hold could not have a Material Adverse Effect and to transact their
respective businesses as now transacted. The Company and each of its
Subsidiaries are duly qualified as foreign corporations and are in good standing
in each jurisdiction in which the character of the properties owned or held
under lease by them or the nature of the business transacted by them requires
such qualification, except where the failure so to be qualified or be in good
standing could not have a Material Adverse Effect.
3.2. AUTHORIZATION
The Company has taken all actions necessary to authorize it (i) to
execute, deliver and perform all of its obligations under this Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby. Each of this Agreement, the
Notes, the Registration Rights Agreement, and the Commitment Letter is a legally
valid and
7
<PAGE>
binding obligation of the Company, enforceable against it in accordance with its
terms, except for (a) the effect thereon of bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting the
rights of creditors generally and (b) limitations imposed by federal or state
law or equitable principles upon the specific enforceability of any of the
remedies, covenants or other provisions thereof and upon the availability of
injunctive relief or other equitable remedies.
3.3. CAPITAL STOCK
The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock. The Company has the power
and authority and has taken all actions (corporate or other) necessary to
authorize it to enter into and perform its obligations and undertakings under
this Agreement. As of March 30, 1998, there were 4,633,000 shares of Common
Stock issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company. Neither the Company nor any of its
Subsidiaries has outstanding any securities convertible into or exchangeable for
any shares of Capital Stock nor does it have outstanding any rights to subscribe
for or to purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any Capital Stock or
securities convertible into or exchangeable for any Capital Stock other than (i)
the Notes to be issued pursuant to this Agreement or pursuant to other similar
agreements dated on or about the date of this Agreement, (ii) 1,666,667 shares
of Preferred Stock convertible into Common Stock, and (iii) options and warrants
to purchase shares of Common Stock as set forth and for the numbers of shares
set forth on the Disclosure Schedule. The Company has duly authorized and
reserved for issuance the Conversion Shares, and the Conversion Shares will,
when issued, be duly and validly issued, fully paid and nonassessable and free
from all Liens.
3.4. NO OTHER REGISTRATION RIGHTS
Except for the Notes to be issued in connection with the
transactions contemplated by this Agreement or pursuant to other similar
agreements dated on or about the date of this Agreement, there are no contracts,
agreements or understandings between the Company and any other Person granting
such Person the right to require the Company to file a registration statement
under the Securities Act with respect to any securities of the Company owned or
to be owned by such person or to require the Company to include such securities
in the securities registered pursuant to any other registration statement filed
by the Company under the Securities Act.
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3.5. NO VIOLATION OR CONFLICT; NO DEFAULT
Neither the execution or delivery of this Agreement, the
Registration Rights Agreement or the Commitment Letter by the Company nor the
issuance, sale or delivery of the Notes nor the performance of its respective
obligations hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any
judgment, decree, order, regulation or rule of any court or governmental
authority to which the Company, any of its Subsidiaries, or any of their
respective properties may be subject;
(c) permit or cause the acceleration of the maturity of any
debt or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a
default under, or permit the termination of, or require the consent of any
Person under, or result in the creation of any Lien upon any property of the
Company or any of its Subsidiaries under, any mortgage, indenture, loan
agreement, note, debenture or other agreement for borrowed money or any other
material agreement to which the Company or any of its Subsidiaries is a party or
by which the Company or any of its Subsidiaries (or their respective properties)
may be bound, other than such violations, conflicts, defaults, terminations and
Liens, or such failures to obtain consents, which could not reasonably be
expected to result in a Material Adverse Effect.
3.6. MARGIN REGULATIONS
No part of the proceeds from the sale of the Notes hereunder will
be used, directly or indirectly, for the purpose of buying or carrying any
"margin stock" within the meaning of Regulation G of the Board of Governors of
the Federal Reserve System (12 C.F.R. Section 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 C.F.R.
Section 224) or to involve any broker or dealer in a violation of Regulation T
of said Board (12 C.F.R. Section 220). The assets of the Company and its
Subsidiaries do not include any margin stock, and the Company does not have any
present intention of acquiring margin stock.
3.7. PRIVATE OFFERING
The sale of the Notes hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act. In the case of each
offer or sale of the Notes, no form of general solicitation or general
advertising was used by the Company or its respective representatives.
The Company agrees that neither it, nor anyone acting on its
behalf, will offer or sell the Notes, or any portion of them, if such offer or
sale might bring the issuance and sale of the Notes to the Purchaser within the
provisions of Section 5 of the Securities Act nor offer any similar Notes for
issuance or sale to, or solicit any offer to acquire any of the same from, or
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otherwise approach or negotiate with respect thereto with, anyone if the sale of
the Notes and any such Notes could be integrated as a single offering for the
purposes of the Securities Act, including without limitation Regulation D.
3.8. DUE AUTHORIZATION OF MATERIAL CONTRACTS
The descriptions in the Incorporated Documents of statutes, legal
and governmental proceedings or contracts or other documents are accurate in all
material respects and fairly present the information required to be shown AT THE
TIME SHOWN; and there are no statutes or legal or governmental proceedings
required to be described in the Incorporated Documents that are not described as
required and there is no document or contract of a character required to be
described in the Incorporated Documents or to be filed as an exhibit to the
Incorporated Documents which is not described or filed as required. All
contracts described in the Incorporated Documents or filed as an exhibit to the
Incorporated Documents to which the Company or any of its Subsidiaries is a
party have been duly authorized, executed and delivered by the Company or such
Subsidiary, constitute valid and binding agreements of the Company or such
Subsidiary and are enforceable against and by the Company or such Subsidiary in
accordance with the terms thereof, except as the enforcement thereof may be
limited by bankruptcy and laws relating to the rights and remedies of the
creditors generally or by the availability of general equitable remedies.
3.9. FINANCIAL STATEMENTS
The financial statements and schedules of the Company and its
consolidated subsidiaries included in the Incorporated Documents comply as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, present fairly
the financial condition of the Company and its consolidated subsidiaries, as of
the respective dates thereof and the results of operations and cash flows of the
Company and its consolidated subsidiaries, for the respective periods covered
thereby, all in conformity with GAAP (except in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the Company
and its consolidated subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments). No
other financial statements or schedules of the Company and its consolidated
subsidiaries or any other company or entity are required by the Securities Act,
the Exchange Act or the rules and regulations of the SEC to be included in the
Incorporated Documents. The Independent Auditors, who have reported on certain
of such financial statements and schedules, are, and were during the periods
covered by their reports included in the Incorporated Documents, independent
accountants with respect to the Company and its consolidated subsidiaries, as
required by the Securities Act, the Exchange Act and the rules and regulations
of the SEC. The summary financial and statistical data included in the
Incorporated Documents present fairly the information shown therein and have
been compiled on a basis consistent with the financial statements presented
therein. The unaudited consolidated financial statements included in the
Incorporated Documents comply as to form in all material
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respects with the applicable accounting requirements of the Securities Act, the
Exchange Act and the rules and regulations of the SEC, and such statements
fairly present the consolidated financial position and results of operations and
the other information purported to be shown therein at the respective dates or
for the respective periods therein specified.
3.10. LITIGATION; JUDGMENTS
Except as described in the Incorporated Documents, there are no
actions, suits or proceedings (formal or informal) pending or, to the Knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties, assets, or directors or
officers, in their capacity as such, before or by any Federal or state court,
commission, regulatory body, administrative agency or other governmental body,
domestic or foreign, wherein an unfavorable ruling, decision or finding might
reasonably be expected to, individually or in the aggregate, and after giving
effect to the sale and issuance of the Notes, result in a Material Adverse
Effect.
3.11. TAXES
Each of the Company and its Subsidiaries has filed all federal,
state, local and foreign income tax returns which have been required to be filed
and has paid all taxes and assessments received by it to the extent that such
taxes have become due. None of the Company nor its Subsidiaries has any tax
deficiency which has been or might be asserted or threatened against it which
could reasonably be expected to result in a Material Adverse Effect.
3.12. INVESTMENT COMPANY ACT
Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
3.13. ENVIRONMENTAL MATTERS
The operations of the Company and its Subsidiaries with respect to
any real property currently leased, owned, controlled or managed by the Company
or any of its Subsidiaries are, and with respect to any real property previously
leased, owned, managed or controlled were, when such real property was leased,
owned, managed or controlled by the Company or any of its Subsidiaries, in
compliance in all material respects with all applicable federal, state, and
local laws, ordinances, rules, and regulations relating to occupational health
and safety and the environment (collectively, "ENVIRONMENTAL LAWS"), and the
Company and its Subsidiaries have all material licenses, permits and
authorizations required under all Environmental Laws; neither the Company nor
any of its Subsidiaries has authorized or conducted or has knowledge of the
generation, transportation, storage, use, treatment, disposal or release of any
hazardous substance, hazardous waste, hazardous material, hazardous constituent,
toxic substance, pollutant, contaminant, petroleum product, natural gas,
liquefied gas or synthetic gas defined or regulated under any Environmental Law
on, in or under any real property currently leased, owned, controlled or managed
by the Company or any of its Subsidiaries or
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previously leased, owned, controlled or managed by the Company or any of its
Subsidiaries when such real property was owned, leased, controlled or managed by
the Company or any of its Subsidiaries, except in compliance with applicable
Environmental Laws; and there is not pending or, to the Knowledge of the
Company, any threatened claim, litigation or any administrative agency
proceeding, nor has the Company or any of its Subsidiaries received any written
or oral notice from any governmental entity or third party, that: (i) alleges a
violation of any Environmental Laws by the Company or any of its Subsidiaries;
(ii) alleges the Company or any of its Subsidiaries is a liable party under
CERCLA or any state superfund law; (iii) alleges possible contamination of the
environment by the Company or any of its Subsidiaries; or (iv) alleges possible
contamination of real property currently leased, owned, controlled or managed by
the Company or any of its Subsidiaries or previously leased, owned, controlled
or managed by the Company or any of its Subsidiaries when such real property was
owned, leased, controlled or managed by the Company or any of its Subsidiaries.
3.14. LABOR RELATIONS
No labor dispute with the employees of the Company or any of its
Subsidiaries exists or is threatened that could reasonably be expected to result
in a Material Adverse Effect; and the Company is not aware of any existing or
threatened labor disturbance by the employees of any other entity that could
reasonably be expected to result in a Material Adverse Effect.
3.15. REAL PROPERTY; LEASES
Each of the Company and its Subsidiaries has good and indefeasible
title to all properties and assets described in the Incorporated Documents as
owned by it, free and clear of all Liens except such as are described in the
Incorporated Documents or are not material, singly or in the aggregate, to the
Company. Each of the Company and its Subsidiaries has valid, subsisting and
enforceable leases for the properties described in the Incorporated Documents as
leased by it, except such as are described in the Incorporated Documents.
3.16. INTELLECTUAL PROPERTY; LICENSES
Each of the Company and its Subsidiaries owns or has the right to
use all patents, patent applications, trademarks, trademark applications,
tradenames, copyrights, franchises, trade secrets, proprietary or other
confidential information and intangible properties and assets (collectively,
"INTANGIBLES") reasonably necessary to conduct its business as now conducted;
and none of the Company or its Subsidiaries has any knowledge of any
infringement by it of Intangibles of others, and there is no claim being made
against the Company or any of its Subsidiaries, or to the Knowledge of the
Company, any employee of the Company or its Subsidiaries, regarding infringement
of any Intangibles of others which could reasonably be expected to have a
Material Adverse Effect and, to the Knowledge of the Company, there is no
infringement by others of Intangibles of the Company or any of its Subsidiaries.
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3.17. DEFAULTS
The continuation, validity and effectiveness of each contract,
agreement, arrangement or other instrument related to borrowed money (of any
amount) or involving payments in excess of $100,000 or that is material to the
Company or its Subsidiaries (each a "MATERIAL CONTRACT") will not be adversely
affected by the execution, delivery and performance of this Agreement, the
Registration Rights Agreement, or the Commitment Letter, the issuance or sale of
the Notes, or the consummation of the transactions contemplated hereby or
thereby. The Company and its Subsidiaries are not in default in any respect,
and will not, with the giving of notice or the lapse of time, or both, be in
default in any respect, under any Material Contract upon or as a result of the
consummation of the transactions contemplated by this Agreement, the
Registration Rights Agreement or the Commitment Letter. To the Knowledge of the
Company, there is no default or claimed or purported or alleged default or state
of facts that with the giving of notice or the lapse of time, or both, would
constitute a default on the part of any party other than the Company or any of
its Subsidiaries under any Material Contract.
3.18. BROKERS
The Company has not dealt with any broker, finder, commission
agent or other Person in connection with the sale of the Notes and the
transactions contemplated by this Agreement, and the Company is not under any
obligation to pay any broker's or finder's fee or commission or similar payment
in connection with such transactions.
3.19. EXISTING INDEBTEDNESS
The Disclosure Schedule sets forth a complete and correct list of
all Indebtedness of the Company and its Subsidiaries as of the date hereof,
showing as to each item of such Indebtedness the creditor, the aggregate
principal amount outstanding, the agreement or instrument governing such
Indebtedness and a brief description of any security therefor. With respect to
each item of Indebtedness listed on the Disclosure Schedule, the Company will
deliver to the Purchaser or its representatives, upon request, a true and
complete copy of each instrument evidencing such Indebtedness or pursuant to
which such Indebtedness was issued or secured (including each amendment,
consent, waiver or similar instrument in respect thereof), as the same is in
effect on the date hereof. The Company and its Subsidiaries are not in default
in the performance or observance in any material respect of any of the terms,
covenants or conditions contained in any instrument evidencing Indebtedness
listed on the Disclosure Schedule or pursuant to which such Indebtedness was
issued or secured or has requested any waiver in respect of any default and no
event has occurred and is continuing which, with notice or the lapse of time or
both, would constitute such a default.
3.20. COMPLIANCE WITH LAW; PERMITS
(a) The Company and its Subsidiaries own or possess all
authorizations, approvals, orders, licenses, registrations, other certificates
and permits of and from all governmental regulatory officials and bodies,
necessary to conduct their respective businesses except where the failure to own
or possess all such authorizations, approvals, orders, licenses,
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registrations, other certificates and permits would not have a Material Adverse
Effect. There is no proceeding pending or, to the Knowledge of the Company,
threatened (or any basis therefor known to the Company) which may cause any such
authorization, approval, order, license, registration, certificate or permit to
be revoked, withdrawn, canceled, suspended or not renewed; and the Company and
its Subsidiaries are conducting their respective business in compliance with all
laws, rules and regulations applicable thereto except where such noncompliance
could not reasonably be expected to result in a Material Adverse Effect.
(b) Neither the nature of the Company nor of any of its
businesses or properties, nor any relationship between the Company and any other
Person, nor any circumstance in connection with the offer, issuance, sale or
delivery of the Notes at the Closing, nor the performance by the Company of its
other obligations hereunder or under the Notes, the Registration Rights
Agreement or the Commitment Letter, as the case may be, is such as to require a
consent, approval or authorization of, or notice to, or filing, registration or
qualification with, any governmental authority or other Person on the part of
the Company as a condition to the execution and delivery of this Agreement, the
Registration Rights Agreement, the Commitment Letter or the offer, issuance,
sale or delivery of the Notes at the Closing, other than the filings,
registrations, qualifications or consents which shall have been made or obtained
on the Closing Date (and copies of which shall have been delivered to the
Purchaser). All required consents, approvals or authorizations of, or notices
to or filings, registrations or qualifications with, any governmental authority
or other Person required in connection with the transactions contemplated by
this Agreement, the Notes, the Registration Rights Agreement or the Commitment
Letter have been obtained or made.
3.21. INSURANCE
The Company maintains, and will maintain after giving effect to
the issuance and the sale of the Notes, insurance of the types and in the
amounts generally deemed adequate for its business, including, but not limited
to, insurance covering director and officer liability, workers compensation
liability, malpractice liability respecting the provision of assisted living
services, real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is and will be in full force and effect.
3.22. MATERIAL EVENTS
Since December 31, 1997, there has not been with respect to the
Company or any of its Subsidiaries:
(a) any material adverse change in their properties, business,
prospects, operations, earnings, assets, liabilities or condition (financial or
otherwise) which could reasonably be expected to result in a Material Adverse
Effect; or
(b) any damage, destruction or loss to the properties or assets
of the Company or any of its Subsidiaries, whether or not covered by insurance,
that has or could reasonably be expected to have a Material Adverse Effect or
that in the aggregate exceed $100,000; or
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(c) any loss or waiver by the Company or any of its Subsidiaries
of any right, not in the ordinary course of business, or any material debt owed
to it; or
(d) other than the sales of assets in the ordinary course of
business (including pursuant to sale leaseback transactions), any sale, transfer
or other disposition of, or agreement to sell, transfer or otherwise dispose of,
any assets by the Company or any of its Subsidiaries in excess of $100,000 in
the aggregate, or any cancellation or agreement to cancel any debts or claims of
the Company or any of its Subsidiaries; or
(e) other than dividends payable on the currently outstanding
Preferred Stock, any declaration or setting aside or payment of any dividend
(whether in cash, property or stock) or any distribution (whether in cash,
property or stock) or other payment with respect to any of the Capital Stock of
the Company or any of its Subsidiaries, or any repurchase, purchase or other
acquisition of, or agreement to repurchase, purchase or otherwise acquire, any
of the Company's or any of its Subsidiaries' capital stock; or
(f) any amendment or termination of any contract, agreement or
license to which the Company or any of its Subsidiaries is a party or by which
it is bound, except where such amendment or termination could not be reasonably
expected to have a Material Adverse Effect; or
(g) any resignation or termination of employment of any Key
Employee, and there is no impending or threatened resignation or resignations or
termination or terminations of employment of any Key Employee; or
(h) any labor dispute (including, without limitation, any
negotiation, or request for negotiation, for any labor representation or any
labor contract) affecting the Company or any of its Subsidiaries; or
(i) any application of any existing (or the enactment of any new)
Environmental Law or personnel, product safety law or other governmental
regulation that has or which could reasonably be expected to have a Material
Adverse Effect.
3.23. SEC DOCUMENTS; UNDISCLOSED LIABILITIES
The Company has been subject to the reporting requirements of
Section 13 of the Exchange Act since at least January 1, 1996 and, except as set
forth in any Company SEC Document, has timely filed all required reports,
schedules, forms, statements and other documents required to be filed by the
Company under the Securities Act and the Exchange Act with the SEC since January
1, 1996 (the "COMPANY SEC DOCUMENTS"). As of their respective dates, the
Company SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents at the time filed with the SEC
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
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misleading. Except to the extent that information contained in any Company SEC
Document has been revised or superseded by a later filed Company SEC Document,
none of the Company SEC Documents contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
3.24. MATERIAL MISSTATEMENTS OR OMISSIONS
No representation or warranty by the Company contained in this
Agreement (including the schedules and exhibits attached hereto), the
Registration Rights Agreement, the Commitment Letter or in any document,
exhibit, statement, certificate or schedule dated the Closing Date, signed by
the Company and furnished to the Purchaser pursuant hereto, or in connection
with the transactions contemplated hereunder, contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact necessary to make the statements or facts contained herein and therein not
misleading.
3.25. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All of the Company's representations and warranties hereunder and
under the Registration Rights Agreement and the Commitment Letter shall survive
the execution and delivery of the same, any investigation by the Purchaser and
the issuance of the Notes.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF EACH PURCHASER
The Purchaser represents and warrants to the Company that:
4.1. PURCHASE FOR OWN ACCOUNT
The Purchaser is purchasing the Notes to be purchased by it solely
for its own account and not as nominee or agent for any other person and not
with a view to, or for offer or sale in connection with, any distribution
thereof (within the meaning of the Securities Act) that would be in violation of
the securities laws of the United States of America or any state thereof,
without prejudice, however, to its right at all times to sell or otherwise
dispose of all or any part of said Notes pursuant to a registration statement
under the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act.
4.2. ACCREDITED INVESTOR
The Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; it acknowledges that the Notes have not been
registered under the Securities Act and understands that the Notes must be held
indefinitely unless they are subsequently registered under the Securities Act or
such sale is permitted pursuant to an available exemption from such registration
requirement; it is able to bear the economic risk of its investment in the
Notes; it is an "accredited investor" as defined in Regulation D promulgated
under the Securities Act; and it has been afforded access to information about
the Company and the Company's financial condition, results of operations,
business, property, management and prospects
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sufficient to enable it to evaluate its investment in the Notes. The Purchaser
acknowledges that it has conducted its own analysis of the Company's financial
condition and other foregoing factors.
4.3. AUTHORIZATION
The Purchaser has taken all actions necessary to authorize it (i)
to execute, deliver and perform all of its obligations under this Agreement (ii)
to issue and perform all of its obligations under the Notes, as the case may be,
and (iii) to consummate the transactions contemplated hereby and thereby. This
Agreement is a legally valid and binding obligation of the Purchaser enforceable
against it in accordance with its terms, except for (a) the effect thereon of
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting the rights of creditors generally and (b) limitations
imposed by federal or state law or equitable principles upon the specific
enforceability of any of the remedies, covenants or other provisions thereof and
upon the availability of injunctive relief or other equitable remedies.
4.4. BROKERS
The Purchaser has not dealt with any broker, finder, commission
agent or other Person in connection with the sale of the Notes and the
transactions contemplated by this Agreement, and the Purchaser is not under any
obligation to pay any broker's or finder's fee or commission or similar payment
in connection with such transactions.
SECTION 5. COVENANTS
So long as any of the Notes remain unpaid and outstanding, the
Company covenants to the Holders of outstanding Notes as follows:
5.1. PAYMENT OF NOTES; SATISFACTION OF OBLIGATIONS
The Company shall pay the principal of and interest on the Notes
on the dates and in the manner provided in the Notes. To the extent lawful, the
Company shall pay interest (including interest accruing after the commencement
of any proceeding under any Bankruptcy Law) on all unpaid amounts outstanding
under the Notes (including overdue installments of principal or interest) at a
rate equal to 7.5% per annum, payable quarterly on each January 1, April 1, July
1 and October 1, beginning July 1, 1998. Such interest rate is subject to
adjustment as set forth in Section 3(b) to the Registration Rights Agreement.
5.2. NOTICE OF DEFAULT
The Company will deliver to the Holders, forthwith upon (i)
becoming aware of any Default or Event of Default, (ii) becoming aware of any
payment default under any other loan agreement, mortgage, indenture or
instrument referred to in Sections 7.1(d) or (iii) the receipt by the Company of
any notice of any non-monetary default under any such loan agreement, mortgage,
indenture or instrument, an Officers' Certificate specifying in reasonable
detail such Default, Event of Default or default and the nature of any remedial
or corrective action the Company proposes to take with respect thereto.
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5.3. LIMITATION ON ADDITIONAL INDEBTEDNESS
None of the Company, nor any of its Subsidiaries (including
without limitation, upon the creation or acquisition of such Subsidiary) shall,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable with respect to (collectively, "INCUR") any
Indebtedness after the date of this Agreement, if a Default or an Event of
Default shall have occurred and be continuing at the time or would occur as a
consequence of the incurrence of such Indebtedness.
5.4. CHANGE OF CONTROL
(a) CHANGE OF CONTROL. Prior to the consummation of a Change of
Control (the date of such consummation being referred to herein as the "CHANGE
OF CONTROL DATE"), the Company shall give each Holder notice describing in
reasonable detail the nature of the Change of Control and offering to each
Approved Holder and Approved Purchaser the following rights, as applicable (such
written notice, the "CHANGE OF CONTROL NOTICE"):
(1) to require the Company, with respect to any entity
whose executive officer is Andre Dimitriadis or Jim Pieczynski (an
"APPROVED HOLDER"), to repurchase all or any part of each Approved
Holder's Notes pursuant to the offer (the "CHANGE OF CONTROL
REPURCHASE OFFER") at a purchase price equal to 100% of the
aggregate principal amount thereof, together with unpaid interest
to the date of repurchase (the "CHANGE OF CONTROL PRICE"). The
obligation of the Company to repurchase Notes pursuant to the
Change of Control Repurchase Offer is subject to the subordination
provisions of Section 8 hereof; or
(2) to require the Company, in the event that (x) less than
$10,000,000 aggregate principal amount of Notes have been issued
and sold to the Purchaser pursuant to Section 1.2(a) and (y)
either Andre Dimitriadis or Jim Pieczynski serve as an executive
officer of the party that has the obligation to purchase Notes
hereunder (the "APPROVED PURCHASER"), to issue and sell additional
Notes to the Approved Purchaser at a purchase price of 100% of the
principal amount thereof in such amount designated in writing by
the Approved Purchaser (but in no event shall more than
$10,000,000 aggregate principal amount of Notes be issued to the
Approved Purchaser pursuant to Section 1.2(a) and pursuant to this
Section 5.4). The foregoing is referred to herein as the "CHANGE
OF CONTROL ISSUANCE OF ADDITIONAL NOTES."
(b) TIMING OF NOTICE. The Change of Control Notice shall be
mailed by the Company to all Holders at their last registered address no later
than fifteen (15) Business Days prior to the Change of Control Date.
(c) PROCEDURE. The Change of Control Notice shall state a date
not later than five (5) Business Days following the Change of Control Date for
repurchase of the Notes pursuant to the Change of Control Repurchase Offer (such
date, the "CHANGE OF CONTROL REPURCHASE DATE") and shall state a date not later
than five (5) Business Days prior to the Change
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of Control Date for issuance of additional Notes pursuant to the Change of
Control Issuance of Additional Notes (such date, the "CHANGE OF CONTROL ISSUANCE
DATE"). The Change of Control Notice, which shall govern the terms of the
Change of Control Repurchase Offer and the Change of Control Issuance of
Additional Notes, shall state:
(1) that the Change of Control Repurchase Offer and the
Change of Control Issuance of Additional Notes is being made
pursuant to this Section 5.4;
(2) the Change of Control Price, the Change of Control
Repurchase Date and the Change of Control Issuance Date;
(3) that, unless the Company defaults in the payment of the
Change of Control Price, all Notes accepted for payment shall
cease to accrue interest on and after the Change of Control
Repurchase Date;
(4) that Approved Holders electing to require the Company
to repurchase any Notes will be required to surrender the Note to
the address specified in the Change of Control Notice prior to the
close of business on the Business Day preceding the Change of
Control Repurchase Date;
(5) that the Approved Purchaser electing to require the
Company to issue additional Notes will be required to make payment
for such Notes by wire transfer of immediately available funds to
an account designated by the Company in such Change of Control
Notice on or prior to the close of business on the Change of
Control Issuance Date;
(6) that the Approved Holders will be entitled to withdraw
their election to require the Company to repurchase any Notes on
the terms and conditions set forth in such Change of Control
Notice by written notice to the Company prior to the Change of
Control Repurchase Date and the Approved Purchaser will be
entitled to withdraw its election to require the Company to issue
additional Notes on the terms and conditions set forth in such
Change of Control Notice by written notice to the Company prior to
the Change of Control Issuance Date; and
(7) that the Approved Holders electing to require the
Company to repurchase any Notes in part will be issued a new Note
in a principal amount equal to the unpurchased portion of the
Notes surrendered.
Any such Change of Control Repurchase Offer shall comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations to the extent applicable in connection with any Change of
Control Repurchase Offer.
(d) ACCEPTANCE OF NOTES/ISSUANCE OF ADDITIONAL NOTES.:
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(1) On the Change of Control Repurchase Date, the Company
shall accept for payment all Notes or portions thereof validly
tendered pursuant to the Change of Control Repurchase Offer and
promptly thereafter mail or deliver to the Holders of Notes
accepted for repurchase payment in the amount equal to the
aggregate Change of Control Price for such Notes, and the Company
shall execute and mail or deliver to such Holders a new Note equal
in principal amount to any unpurchased portion of the Notes
surrendered; and
(2) On the Change of Control Issuance Date, the Company
shall issue additional Notes in the amount set forth in writing by
the Approved Purchaser, pursuant to this Section 5.4; deliver a
Certificate of the Chief Executive Officer and the Chief Financial
Officer of the Company, dated the date such additional principal
amount of Notes is delivered to the Approved Purchaser, certifying
(x) that all of the representations and warranties of the Company
contained or incorporated by reference in this Agreement are true
and correct on and as of such date as though made on and as of
such date, and no event has occurred and is continuing, or would
result from the issuance of the Notes or the extension of
borrowings under the Commitment Letter, which constitutes or would
constitute a Default or an Event of Default and (y) as to such
other matters as the Approved Purchaser may request in the
exercise of its reasonable discretion and (z) an opinion, dated
the date such additional principal amount of Notes is delivered to
the Approved Purchaser and addressed to the Approved Purchaser,
from David R. Gibson, counsel for the Company, as to the matters
set forth on Annex B.
The Company will notify the Holders of the results of the Change
of Control Repurchase Offer and the Change of Control Issuance of Additional
Notes on the Change of Control Repurchase Date and Change of Control Issuance
Date, respectively.
5.5. STAY, EXTENSION AND USURY LAWS
The Company covenants and agrees (to the extent that it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, and will use its
best efforts to resist any attempts to claim or take the benefit of any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
which may affect the covenants or the performance of its obligations under this
Agreement or the Notes; and the Company (to the extent it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Holders, but will suffer and permit
the execution of every such power as though no such law has been enacted.
5.6. INDEMNIFICATION
The Company agrees to indemnify the Purchaser and each director,
officer, employee, counsel, Agent and Affiliate of such Purchaser (collectively,
the "INDEMNIFIED PARTIES") against, and hold it and them harmless from, all
losses, claims, damages, liabilities, taxes, deficiencies, expenses and costs
(including diminution in value and costs of preparation
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and reasonable attorneys' fees and expenses) (collectively, "LOSSES") incurred
by it or them (A) arising from any breach of any representation or warranty or
the inaccuracy of any representation made by the Company in or pursuant to the
Agreement, the Registration Rights Agreement or the Commitment Letter (including
without limitation any breach or inaccuracy of any representation or warranty
relating to CERCLA, any equivalent state statute or any other Environmental
Law); and (B) arising from any breach of any covenant or agreement made by the
Company in or pursuant to the Agreement, the Registration Rights Agreement or
the Commitment Letter; PROVIDED, HOWEVER, that the Company shall not be required
to indemnify any Indemnified Party for any Loss that results from (x) the action
of any Indemnified Party which is finally judicially determined to have resulted
from such Indemnified Party's negligence, intentionally wrongful acts or
intentionally wrongful omissions or (y) the Purchaser's failure to purchase
additional Notes from the Company pursuant to Section 1.2(a)(2) hereof;
PROVIDED, FURTHER, that no Indemnified Party shall be entitled to assert a claim
on account of the indemnity provided in this Section 5.6, unless and until the
aggregate amount of Losses with respect to all claims asserted under this
Section and under Section 5.6 of the purchase agreements for the Notes executed
on the date hereof by other purchasers exceeds $100,000 (in which case the
Company shall be liable for Losses in excess of such $100,000 that have
accrued).
The Company agrees to reimburse any Indemnified Party promptly for
all such Losses as they are incurred by such Indemnified Party. The Company's
liability to any such Indemnified Party hereunder shall not be extinguished
solely because any other Indemnified Party is not entitled to indemnity
hereunder. The obligations of the Company under this Section 5.6 shall survive
the payment or prepayment of the Notes, at maturity, upon acceleration,
repurchase or otherwise, any transfer of the Notes by any Purchaser to any
subsequent Holder and the termination of this Agreement, the Notes, the
Registration Rights Agreement and the Commitment Letter. The indemnity provided
in this Section 5.6 will be in addition to any liability which the Company may
otherwise have, including, without limitation, under this Agreement, the Notes,
the Registration Rights Agreement and the Commitment Letter.
In case any action shall be brought against any Indemnified Party
with respect to which indemnity may be sought against the Company, such
Indemnified Party shall promptly notify the Company in writing and the Company
shall, if it so desires, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company shall not
affect any obligation it may have to any Indemnified Party under this
Section 5.6 or otherwise unless the Company is materially adversely affected by
such failure.
Each Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party
unless: (i) the Company has agreed in writing to pay such expenses; (ii) the
Company has failed to assume the defense and employ counsel; or (iii) the named
parties to any such action (including any impleaded parties) include any
Indemnified Party and the Company, and such Indemnified Party shall have been
advised by outside counsel that there may be one or more legal defenses
available to it which are inconsistent with those available to the Company;
PROVIDED that, if such Indemnified Party notifies the Company in
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writing that it elects to employ separate counsel in the circumstances described
in clauses (i), (ii) or (iii) above, the Company shall not have the right to
assume the defense of such action or proceeding; PROVIDED, HOWEVER, that the
Company shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
responsible hereunder for the fees and expenses of more than one such firm of
separate counsel (in addition to any necessary local counsel), which counsel
shall be designated by such Indemnified Party. The Company shall not be liable
for any settlement of any such action effected without its written consent
(which shall not be unreasonably withheld). The Company agrees that it will
not, without the Indemnified Party's prior consent, which shall not be
unreasonably withheld, settle or compromise any pending or threatened claim,
action or suit in respect of which indemnification may be sought hereunder
unless the foregoing contains an unconditional release of the Indemnified
Parties from all liability and obligation arising therefrom.
5.7. CORPORATE EXISTENCE; MERGER; SUCCESSOR CORPORATION
(a) The Company will do or cause to be done all things necessary
to preserve and keep in full force and effect its corporate existence in
accordance with its organizational documents and the corporate rights (charter
and statutory), licenses and franchises of the Company; PROVIDED, HOWEVER, that
the Company shall not be required to preserve any such right, license or
franchise, or corporate existence if the Board of Directors of the Company shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and that the loss thereof is not adverse in any
material respect to any Holder.
(b) The Company shall not in a single transaction or through a
series of related transactions, (i) consolidate with or merge with or into any
other person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) the Company shall be the continuing Person, or the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or to which all or substantially all of the properties and
assets of the Company as an entirety or substantially as an entirety are
transferred (or, in the case of a Plan of Liquidation, any Person to which
assets are transferred) (the Company or such other Person being hereinafter
referred to as the "SURVIVING PERSON") shall be a corporation organized and
validly existing under the laws of the United States, any State thereof or the
District of Columbia, and shall expressly assume, by an amendment to this
Agreement, all the obligations of the Company under the Notes and this
Agreement;
(2) immediately after and giving effect to such transaction
and the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, (ii) the Surviving Person shall have a Consolidated Net Worth equal
to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction;
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(3) immediately before and immediately after and giving
effect to such transaction and the assumption of the obligations as set forth in
clause (1) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or Event of
Default shall have occurred and be continuing; and
(4) The Company shall have delivered to the Purchaser an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such amendment to this Agreement
comply with this Section 5.7, that the Surviving Person agrees to be bound
hereby, and that all conditions precedent herein provided relating to such
transaction have been satisfied.
(c) Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with this
Section 5.7, the successor person formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Agreement with the same effect as if such successor person had been named
as the Company herein; PROVIDED, HOWEVER, that the Company shall not be released
from the obligations and covenants under this Agreement or under the Notes.
5.8. TAXES
The Company shall, and shall cause its Subsidiaries to, pay prior
to delinquency all material taxes, assessments and governmental levies except as
contested in good faith and by appropriate proceedings.
5.9. INVESTMENT COMPANY ACT
Neither the Company nor any of its Subsidiaries shall become an
investment company subject to registration under the Investment Company Act of
1940, as amended.
5.10. INSURANCE
The Company and its Subsidiaries shall maintain liability,
casualty and other insurance with a reputable insurer or insurers in such
amounts and against such risks as is carried by responsible companies engaged in
similar businesses and owning similar assets.
5.11. INCONSISTENT AGREEMENTS
The Company shall not, and shall not permit any of its
Subsidiaries to, (i) enter into any agreement or arrangement which is
inconsistent with, or would impair the ability of the Company to fulfill, its
obligations under this Agreement, the Notes, the Registration Rights Agreement
or the Commitment Letter or (ii) supplement, amend or otherwise modify the terms
of their respective Charter Documents, if the effect thereof would be materially
adverse to the Holders, including without limitation to increase the liquidation
preference of, or the rate of dividends payable on, any series of preferred
stock.
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5.12. COMPLIANCE WITH LAWS
The Company shall, and shall cause its Subsidiaries to, comply
with all statutes, ordinances, governmental rules and regulations, judgments,
orders and decrees (including all Environmental Laws) to which any of them is
subject, and obtain and keep in effect all licenses, permits, franchises and
other governmental authorizations necessary to the ownership or operation of
their respective properties or the conduct of their respective businesses,
except to the extent that the failure to so comply or obtain and keep in effect
would not have a Material Adverse Effect.
5.13. INSPECTION OF PROPERTIES AND RECORDS
The Company agrees to allow, and to cause each of their respective
Subsidiaries to allow, the Purchaser and each subsequent Holder (or such Persons
as the Purchaser or subsequent Holder may designate) (individually and
collectively, "INSPECTORS") upon reasonable prior notice to visit and inspect
any of the properties of the Company or its Subsidiaries, to examine all their
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers, and independent public accountants with
representatives of the Company or its Subsidiaries present (and by this
provision the Company authorizes said accountants to discuss with such
Inspectors the finances and affairs of the Company and its Subsidiaries) all at
such reasonable times and as often as may be reasonably requested but not more
than twice in any twelve-month period for all Holders in the aggregate unless a
Default or an Event of Default shall have occurred; PROVIDED, HOWEVER, that the
Purchaser shall not be so limited in the number of such inspections prior to
March 31, 2000 where such inspections are made in connection with the issuance
and sale by the Company of any additional Notes. If a Default or an Event of
Default shall have occurred and be continuing, the Company shall pay or
reimburse all Inspectors for expenses which such Inspectors may reasonably incur
in connection with any such visitations or inspections.
SECTION 6. CONVERSION OF NOTES
6.1. CONVERSION
(a) Each Note shall be convertible, in whole or in part, at the
option of the Holder thereof, at any time prior to the Maturity Date, at the
office of the Company or any transfer agent for the Notes, into that number of
fully paid and nonassessable shares of Common Stock determined in accordance
with the provisions of Section 6.2. In order to convert Notes into Conversion
Shares, the Holder thereof shall surrender the Notes therefor, duly endorsed, at
the office of the Company or to the transfer agent for the Notes, together with
written notice to the Company stating that it elects to convert the same and
setting forth the name or names in which it wishes the certificate or
certificates for Conversion Shares to be issued, and the principal amount of the
Notes being converted. The Company shall, as soon as practicable after the
surrender of the Notes for conversion at the office of the Company or the
transfer agent for the Notes, issue to each holder of such Notes, or its nominee
or nominees, a certificate or certificates evidencing the number of Conversion
Shares (and any other securities and property) to which it
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shall be entitled, cash representing payment in full for all accrued but unpaid
interest on the Note (or portion thereof) surrendered for conversion, and, in
the event that only a part of the Notes presented are converted, a Note
evidencing the principal amount not so converted. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the Notes to be converted, and the person or persons
entitled to receive the Conversion Shares issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock at such date and shall, with respect to such shares, thereafter
have only those rights of a holder of Common Stock of the Company.
(b) In the event that the average trading price of the Common
Stock over thirty (30) consecutive trading days is equal to or exceeds $12 per
share, the Company shall have the right, but not the obligation, to force a
conversion of all then outstanding Notes, in whole but not in part, within the
fifteen (15) day period immediately following such thirty (30) consecutive
trading days. Any such forced conversion shall in all other respects be in
accordance with this Section 6, and, if the Company shall elect to force
conversion of Notes, it shall promptly provide notice of such forced conversion
to all Holders of Notes. The Company shall, as soon as practicable following
the notice of such forced conversion (and in no event later than sixty (60)
calendar days after the date of such notice) issue to each holder of such Notes,
or its nominee or nominees, a certificate or certificates evidencing the number
of Conversion Shares (and any other securities and property) to which it shall
be entitled and cash representing payment in full for all accrued but unpaid
interest on the Note surrendered for conversion. Such conversion shall be
deemed to have been made at the close of business on the date specified in such
notice, and the person or persons entitled to receive the Conversion Shares
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock at such date and shall, with
respect to such shares, thereafter have only those rights of a holder of Common
Stock of the Company.
(c) The Company shall use its best efforts to quote and maintain
quotation of the Conversion Shares on the Nasdaq National Market or such other
principal national securities exchange on which the Common Stock is then listed
or quoted.
6.2. CONVERSION RATE
The number of shares of Common Stock issuable upon conversion of
the Notes shall be one (1) share for every $7.50 of principal amount of Notes
being converted (the "CONVERSION RATE"), and shall be subject to adjustment from
time to time as provided herein and as provided in Section 3(b) of the
Registration Rights Agreement.
6.3. FRACTIONAL SHARES
No fractional shares of Common Stock shall be issued upon
conversion of Notes. Instead, the Company shall deliver cash in the form of its
check for the Fair Market Value of the fractional share.
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6.4. ADJUSTMENTS FOR STOCK SPLITS, COMBINATIONS AND DIVIDENDS
If the outstanding shares of the Common Stock shall be subdivided
into a greater number of shares or combined into a lesser number of shares, the
Conversion Rate in effect immediately prior to such subdivision shall,
simultaneously with the effectiveness of such subdivision, be proportionately
increased or decreased, as the case may be. If the Company pays a dividend or
otherwise makes a distribution with respect to its Common Stock (whether in
cash, additional shares of Common Stock or other property) on or prior to March
31, 2003, then the Conversion Rate shall be increased by a fraction, the
numerator of which is the aggregate amount of the fair market value of such
dividend or distribution and the denominator of which is the number of shares of
Common Stock entitled to such dividend or other distribution. If the Company
pays a dividend or otherwise makes a distribution with respect to its Common
Stock (whether in cash, additional shares of Common Stock or other property)
after March 31, 2003 (the effective date of such dividend or other
distribution, the "Determination Date") and if the fair market value of such
dividend or other distribution, together with the fair market value of all other
dividends and distributions with respect to its Common Stock during the 12-month
period immediately preceding the Determination Date exceeds 2% of the Average
Closing Sales Price during such 12-month period, then the Conversion Rate shall
be increased by a fraction, the numerator of which is the aggregate amount of
the fair market value of the dividend or other distribution to be effected on
the Determination Date plus the aggregate amount of the fair market value of all
dividends and distributions effected during such 12-month period for which no
adjustment in the Conversion Rate was effected pursuant to this Section 6.4, and
the denominator of which is the number of shares of Common Stock entitled to
such dividend or other distribution on the Determination Date. Any adjustment
to the Conversion Rate under this Section 6.4 shall become effective at the
close of business on the date the subdivision, combination, dividend or other
distribution referred to herein becomes effective. For purposes of the
calculations made in this Section 6.4, the fair market value of any dividend or
other distribution that is in the form of property other than Common Stock or
cash shall be determined in good faith by the Board.
6.5. REORGANIZATION, MERGERS, CONSOLIDATIONS OR SALES OF ASSETS
In the event of any capital reorganization, any reclassification
of the Common Stock (other than a change in par value or as a result of a stock
dividend, subdivision, split-up or combination of shares), the consolidation or
merger of the Company with or into another person, or the sale or other
disposition of all or substantially all of the properties of the Company as an
entirety to another person (collectively referred to hereinafter as
"REORGANIZATIONS"), the Holders of the Notes shall thereafter be entitled to
receive, and provision shall be made therefor in any agreement relating to a
Reorganization, upon conversion of the Notes the kind and number of shares of
Common Stock or other securities or property (including cash) of the Company, or
the other corporation resulting from such consolidation or surviving such
merger, which would have been distributed to a holder of the number of shares of
Common Stock which the Notes entitled the holders thereof to convert to
immediately prior to such Reorganization; and in any such case appropriate
adjustment shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the Holders of the Notes,
to the end that the
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provisions set forth herein (including the specified changes and other
adjustments to the Conversion Rate) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares, other securities or property
thereafter receivable upon conversion of the Notes.
6.6. SALE OF SHARES BELOW MARKET OR CONVERSION PRICE
(a) If at any time or from time to time the Company shall issue
or sell Additional Shares of Common Stock other than in a transaction which
falls within Section 6.1, Section 6.4 or Section 6.5, for an Effective Price
less than the greater of (x) the Fair Market Value of the Common Stock or (y)
the then effective conversion price calculated by dividing $7.50 by the then
existing Conversion Rate (the "ADJUSTED CONVERSION PRICE"), then, and in each
such case, the then existing Conversion Rate shall be adjusted to a rate per
$7.50 principal amount of Notes determined by multiplying that Conversion Rate
by a fraction (i) the numerator of which shall be the number of shares of Common
Stock outstanding at the close of business on the date of such issue after
giving effect to such issue of Additional Shares of Common Stock, and (ii) the
denominator of which shall be (A) the number of shares of Common Stock
outstanding at the close of business on the day next preceding the date of such
issue or sale, plus (B) the number of shares of Common Stock which the aggregate
consideration received (or by the express provisions hereof deemed to have been
received) by the Company for the total number of Additional Shares of Common
Stock so issued would purchase at such Adjusted Conversion Price.
(b) For the purpose of making any adjustment required in this
Section 6.6, the consideration received by the Company for any issue or sale of
securities shall:
(i) to the extent it consists of cash, the consideration
received by the Company therefor shall be deemed to be the net
amount of cash actually received by the Company, after deducting
therefrom any compensation, discounts, fees or expenses paid to
(but not on behalf of) any purchaser of such securities and any
compensation, discounts, fees or expenses that are not reasonable
or are not customary (it being understood that underwriters'
discounts and compensation in public offerings and brokers'
commissions in private placements of such securities shall be
deemed reasonable and customary);
(ii) to the extent it consists of property other than
cash, the consideration other than cash shall be computed at the
fair market value thereof as determined in good faith by the Board
of Directors of the Company; and
(iii) if Additional Shares of Common Stock, Convertible
Securities or rights or options to purchase either Additional
Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of
the Company for consideration which covers both, the consideration
received for the Common Stock, Convertible Securities or rights or
options shall be computed as that portion of the consideration so
received which is reasonably determined in good faith by the Board
of Directors of the Company to
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be allocable to such Additional Shares of Common Stock,
Convertible Securities or rights or options.
(c) For the purpose of making any adjustment in the Conversion
Rate provided in this Section 6.6, if at any time, or from time to time, the
Company issues any stock convertible into Additional Shares of Common Stock
(such convertible stock being hereinafter referred to as "CONVERTIBLE
SECURITIES") or issues any rights or options, other than options pursuant to the
Stock Option Plan, to purchase Additional Shares of Common Stock for Convertible
Securities (such rights or options being hereinafter referred to as "RIGHTS"),
then, and in each such case, the Company shall be deemed to have issued at the
time of the issuance of such Rights or Convertible Securities the maximum number
of shares of Additional Shares of Common Stock issuable upon exercise (other
than options pursuant to the Stock Option Plan) or conversion thereof and to
have received in consideration for the issuance of such shares an amount equal
to the total amount of the consideration, if any, received by the Company for
the issuance of such Rights or Convertible Securities, plus in the case of such
Rights, the amount of consideration, if any, payable to the Company upon
exercise of such Rights, plus, in the case of Convertible Securities, the amount
of consideration, if any, payable to the Company upon the conversion thereof.
No further adjustment of the Conversion Rate, adjusted upon the issuance of such
Rights or Convertible Securities, shall be made as a result of the actual
issuance of Additional Shares of Common Stock on the exercise of any such Rights
or the conversion of any such convertible Securities. If any such Rights or the
conversion privilege represented by any such Convertible Securities shall expire
without having been exercised, the Conversion Rate adjusted upon the issuance of
such rights, options or convertible securities shall be readjusted to the
conversion rate which would have been in effect had an adjustment been made on
the basis that the only Additional Shares of Common Stock so issued were the
Additional Shares of Common Stock, if any, actually issued or sold on the
exercise of such Rights of conversion of such Convertible Securities, and such
Additional Shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the Company for granting of all such
Rights, whether or not exercised, plus consideration received for issuing or
selling the Convertible Securities actually converted, plus the consideration,
if any, actually received by the Company on the conversion of such Convertible
Securities.
6.7. ADJUSTMENT FOR FAILURE TO QUOTE ON NASDAQ NATIONAL MARKET
In event that, from the time of effectiveness of the registration
statement to be filed pursuant to Section 3(a) of the Registration Rights
Agreement and until all Notes have been converted into Conversion Shares,
immediately prior to the conversion of any Notes into Conversion Shares pursuant
to this Section 6, such Conversion Shares have not been approved for quotation
on Nasdaq National Market (or any other national securities exchange where the
Common Stock is then listed or quoted), then the Conversion Rate with respect to
such Conversion Shares shall be increased by 10% immediately prior to the
conversion of any Notes into such Conversion Shares.
6.8. ACCOUNTANTS' CERTIFICATE OF ADJUSTMENT
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In each case of an adjustment or readjustment of the Conversion
Rate or the number of shares of Common Stock or other securities issuable upon
conversion of the Notes, the Company shall as soon as reasonably practicable
(and in no event less than thirty (30) days following the event causing such
adjustment or readjustment) compute such adjustment or readjustment in
accordance with this Agreement and prepare a certificate showing such adjustment
or readjustment, and shall mail such certificate, by first-class mail, postage
prepaid, to each Holder of the Notes at the Holder's address as shown on the
Company's note register. The certificate shall set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (i) the Conversion Rate at the
time in effect for the Notes, and (ii) the number of shares of Common Stock and
the type and amount, if any, of other property which at the time would be
received upon conversion of the Notes. At the written request of the Requisite
Noteholders, the Company shall cause its Independent Auditors to verify the
computations contained in the certificate prepared by the Company.
6.9. RESERVATION OF SHARES ISSUABLE UPON CONVERSION
The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the Notes, such number and class of its shares of
Common Stock as shall from time to time be sufficient to effect a conversion of
all outstanding Notes, and if at any time the number and class of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding Notes, the Company shall promptly seek such corporate
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number and class of
shares as shall be sufficient for such purpose. In the event of the
consolidation or merger of the Company with another corporation where the
Company is not the surviving corporation, effective provision shall be made in
the certificate or articles of incorporation, documents of merger or
consolidation, or otherwise, of the surviving corporation so that such
corporation will at all times reserve and keep available a sufficient number of
shares of Common Stock or other securities or property to provide for the
conversion of the Notes in accordance with the provisions of this Section 6.
6.10. NO IMPAIRMENT
The Company shall not amend its Charter Documents or participate
in any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, for the principal
purpose of avoiding or attempting to avoid the observance or performance of any
of the terms to be observed or performed by the Company pursuant to this
Section 6.
SECTION 7. DEFAULTS AND REMEDIES
7.1. EVENTS OF DEFAULT
An "EVENT OF DEFAULT" occurs if:
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(a) the Company defaults in the payment of the principal of any
Note when the same becomes due and payable at maturity, upon repurchase or
otherwise;
(b) the Company defaults in the payment of interest on any Note
when the same becomes due and payable and the Default continues for the period
and after the notice specified below;
(c) the Company fails to comply with any of the agreements,
covenants, or provisions of this Agreement or the Notes and the Default
continues for the period and after the notice specified below;
(d) a default occurs under any mortgage, indenture or instrument
(other than a mortgage, indenture or instrument to which the Purchaser or its
Subsidiaries is a party) under which there may be issued or by which there may
be secured or evidenced any Indebtedness for money borrowed by the Company or
any of its Subsidiaries (or the payment of which is guaranteed by the Company or
any of its Subsidiaries), whether such Indebtedness or guaranteed Indebtedness
now exists or shall be created hereafter, which default (i) is caused by a
failure to pay principal of or premium, if any, on such Indebtedness prior to
the expiration of the grace period provided in such Indebtedness, or
(ii) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of such Indebtedness, together
with the principal amount of any other Indebtedness as to which there has been a
payment default or the maturity of which has been so accelerated, aggregates
$1,000,000 or more;
(e) a final judgment for the payment of money is entered by a
court or courts of competent jurisdiction against the Company or any Subsidiary
of the Company and such remains undischarged for a period (during which
execution shall not be effectively stayed) of (1) ninety (90) days, if the
aggregate of all such judgments exceeds $1,000,000 but is less than $5,000,000
or (2) thirty (30) days if the aggregate of all such judgments exceeds
$5,000,000;
(f) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law: (1) commences a voluntary case, (2) consents
to the entry of an order for relief against it in an involuntary case, (3)
consents to the appointment of a Custodian of it or for all or substantially all
of its property, (4) makes a general assignment for the benefit of its
creditors, (5) generally is unable to pay its debts as the same become due; or
(6) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (i) is for relief against the Company or any of its
Subsidiaries in an involuntary case, (ii) appoints a Custodian of the Company or
any of its Subsidiaries or for all or substantially all of its property, or
(iii) orders the liquidation of the Company or any of its Subsidiaries, and the
order or decree remains unstayed and in effect for 60 days.
A Default under clause (b) is not an Event of Default until a
Holder notifies the Company of such Default and the Company does not cure such
Default within two (2) Business Days after receipt of such notice. A Default
under clause (c) (other than a Default under Sections 5.3, 5.4, 5.6 or 5.7 of
this Agreement, which Default shall be an Event of Default without the notice or
passage of time specified in this paragraph) or (d) (other than a Default
resulting from the acceleration of any Indebtedness described therein, which
Default shall be an Event of
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Default without the notice or passage of time specified in this paragraph) or
(e) is not an Event of Default until the Requisite Noteholders notify the
Company of the Default and the Company does not cure the Default within ten (10)
days after receipt of the notice. Any such notices must specify the Default,
demand that it be remedied and state that the notice is a "Notice of Default."
7.2. ACCELERATION OF NOTES
If an Event of Default (other than an Event of Default specified
in clauses (e) and (f) of Section 7.1) occurs and is continuing, the Requisite
Noteholders, by notice to the Company, may declare the unpaid principal of and
any accrued interest on all the Notes to be due and payable. Immediately upon
such declaration, the principal and interest shall be due and payable. If an
Event of Default specified in clause (e) or (f) of Section 7.1 occurs, such an
amount shall become and be immediately due and payable without any declaration
or other act on the part of any Holder. The Requisite Noteholders by notice to
the Company may rescind an acceleration of and its consequences if the
rescission would not conflict with any judgment or decree and if all existing
Events of Default have been cured or waived except nonpayment of principal or
interest that has become due solely because of the acceleration.
7.3. OTHER REMEDIES
If an Event of Default occurs and is continuing, Holders of the
Notes may pursue any available remedy to collect the payment of principal or
interest on the Notes or to enforce the performance of any provision of the
Notes or this Agreement.
A delay or omission by any Holder of any Notes in exercising any
right or remedy accruing upon an Event of Default shall not impair the right or
remedy or constitute a waiver of or acquiescence in the Event of Default. All
remedies are cumulative to the extent permitted by law.
SECTION 8. SUBORDINATION
8.1. NOTES SUBORDINATED TO SENIOR INDEBTEDNESS
(a) The Notes are subordinated and junior in right of payment of
the principal of and interest and all other obligations (all of the foregoing, a
"PAYMENT OR DISTRIBUTION") on such Notes to the prior payment in full of any
Senior Indebtedness whether outstanding on the date hereof or hereafter created,
incurred, assumed or guaranteed, the Notes shall comply with the provisions of
this Section 8, and each Holder by his acceptance thereof likewise agrees.
A Payment or Distribution shall include any asset of any kind or
character, and may consist of cash, securities or other property, by set-off or
otherwise, except that Holders may receive (i) securities that are subordinated
to at least the same extent as the Notes to (A) Senior Indebtedness and (B) any
securities issued in exchange for Senior Indebtedness.
(b) The Senior Indebtedness of the Company shall continue to be
Senior Indebtedness and entitled to the benefit of these subordination
provisions irrespective of any
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amendment, modification or waiver of any term of any instrument relating to
refinancing of the Senior Indebtedness, whether with or without notice to
Holders.
(c) No right of any holder of any Senior Indebtedness to enforce
subordination as herein provided shall at any time or in any way be affected or
impaired by any act or failure to act on the part of the Company, the Holders or
the holders of the Senior Indebtedness, including without limitation any
non-compliance by the holders of the Senior Indebtedness with any of the terms,
provisions and covenants of the documents evidencing or securing the Senior
Indebtedness, or by any noncompliance by the Company or the Holders with any of
the terms, provisions and covenants of the Notes, regardless of any knowledge
thereof that any such holder of Senior Indebtedness may have or otherwise be
charged with.
8.2. COMPANY NOT TO MAKE PAYMENTS WITH RESPECT TO NOTES IN CERTAIN
CIRCUMSTANCES
No Payment or Distribution shall be made by the Company on account
of principal of or interest on the Notes, whether upon the Maturity Date, upon
repurchase or acceleration, or otherwise, if there shall have occurred and be
continuing a default with respect to any Senior Indebtedness and notice of such
default in writing or by telegram has been given to the Company by any holder or
holders of Senior Indebtedness, unless and until the Company shall have received
written notice from such holder or holders that such default or event of default
shall have been cured or waived or shall have ceased to exist or, unless in the
event of a default that does not result in the acceleration of any Senior
Indebtedness or that does not involve a payment default with respect to any
Senior Indebtedness, upon the expiration of the 60-day period following the date
of such notice of default. Following such 60-day period, the Company shall be
obligated to make any and all outstanding Payments or Distributions with respect
to the Notes.
Upon acceleration of the principal of the Notes or any payment by
the Company or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, to creditors upon any dissolution or
winding up or liquidation or reorganization of the Company, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or such other
proceedings, all amounts due or to become due upon all Senior Indebtedness shall
first be paid in full in cash, or payment thereof provided for to the
satisfaction of the holders thereof, before any Payment or Distribution is made
on account of the repurchase price or principal of or interest on the Notes; and
(subject to the power of a court of competent jurisdiction to make other
equitable provision, which shall have been determined by such court to give
effect to the rights conferred in this Section 8 upon the Senior Indebtedness
and the holders thereof with respect to the Notes or the Holders, by a lawful
plan of reorganization or readjustment under applicable law) upon any such
dissolution or winding up or liquidation or reorganization, any Payment or
Distribution by the Company or distribution of assets of the Company of any kind
or character, whether in cash, property or securities, to which the Holders
would be entitled except for the provisions of this Section 8, shall be paid by
the Company or by any receiver, trustee in bankruptcy, liquidating trustee,
agent or other Person making such Payment or Distribution directly to the
holders of Senior Indebtedness of the Company or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any
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instruments evidencing any Senior Indebtedness may have been issued, as their
respective interests may appear, to the extent necessary to pay all Senior
Indebtedness in full in cash, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness, before any Payment or
Distribution is made to the Holders.
In the event that, notwithstanding the foregoing, any Payment or
Distribution by the Company of any kind or character, whether such payment shall
be in cash, property or securities is prohibited by the foregoing, and the
Company shall have made payment to the Holders before all Senior Indebtedness is
paid in full in cash, or provision is made for such payment to the satisfaction
of the holders thereof, such Holder, then and in such event such Payment or
Distribution shall be paid over by such Holder or delivered to the holders of
Senior Indebtedness or their representative or representatives, or to the
trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, for application to the payment of all Senior Indebtedness
remaining unpaid to the extent necessary to pay all Senior Indebtedness in full
in cash, after giving effect to any concurrent Payment or Distribution to or for
the holders of such Senior Indebtedness, and, until so delivered, the same shall
be held in trust by any Holder as the property of the holders of Senior
Indebtedness.
The consolidation of the Company with, or the merger of the
Company into, another Person or the liquidation or dissolution of the Company
following the conveyance or transfer of its property as an entirety, or
substantially as an entirety, to another corporation upon the terms and
conditions provided in Section 5.7 shall not be deemed a dissolution, winding
up, liquidation or reorganization for the purpose of this Section if such other
Person shall, as a part of such consolidation, merger, conveyance or transfer,
comply with the conditions stated in Section 5.7.
The holders of Senior Indebtedness may, at any time and from time
to time, without the consent of or notice to the Holders without incurring
responsibility to the Holders and without impairing or releasing the obligations
of the Holders to the holders of the Senior Indebtedness: (i) change the manner,
place or terms of payment or change or extend the time of payment of, or renew
or alter, Senior Indebtedness, or otherwise amend in any manner Senior
Indebtedness or any instrument evidencing the same or any agreement under which
Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise
deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (iii) release any Person liable in any manner for the collection
of Senior Indebtedness; and/or (iv) exercise or refrain from exercising any
rights against the Company and any other Person.
8.3. SUBROGATION OF NOTES
After all Senior Indebtedness is paid in full and until the Notes
are paid in full, the Holders shall be subrogated (equally and ratably with all
other Indebtedness pari passu with the Notes) to the rights of holders of Senior
Indebtedness to receive distributions applicable to Senior Indebtedness to the
extent that distributions otherwise payable to the Holders have been applied to
the payment of Senior Indebtedness.
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If any Payment or Distribution to which the Holders would
otherwise have been entitled but for the provisions of this Section 8 shall have
been applied pursuant to the provisions of this Section 8 to the payment of all
amounts payable in respect of the Senior Indebtedness, then and in such case,
the Holders, as with respect to the Company, shall be entitled to receive from
the holders of such Senior Indebtedness at the time outstanding any Payments or
Distributions received by such holders of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable in respect of the Senior
Indebtedness in full in cash or, at the option of the holders of Senior
Indebtedness, cash equivalents.
8.4. NO IMPAIRMENT OF SUBORDINATION
No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company, any Holder, or by any act, or failure to act, in good faith, by any
such holder of Senior Indebtedness, or by any noncompliance by the Company or
any Holder with the terms, provisions and covenants of this Agreement regardless
of any knowledge thereof which any such holder may have or otherwise be charged
with.
8.5. SECTION 8 NOT TO PREVENT EVENTS OF DEFAULT
The failure to make a payment on account of principal of or
interest on the Notes by reason of any provision in this Section 8 shall not be
construed as preventing the occurrence of an Event of Default with respect to
such series under Section 7.1.
8.6. SECURITIES SENIOR TO SUBORDINATED INDEBTEDNESS
The indebtedness represented by the Notes will be senior and prior
in right of payment to all Subordinated Indebtedness, to the extent and in the
manner provided in such Subordinated Indebtedness.
8.7. ASSIGNMENT OF JUNIOR CLAIMS
(a) So long as the Purchaser holds a sufficient amount of Notes
such that the Purchaser constitutes a Requisite Noteholder, paragraphs (b) and
(c) of this Section 8.7 shall have no force and effect. In the event the
Purchaser shall cease to hold a sufficient amount of Notes such that the
Purchaser is no longer a Requisite Noteholder, paragraphs (b) and (c) of this
Section 8.7 shall be in effect.
(b) In the event of an insolvency proceeding with respect to the
Company, each Holder will assign to a representative of the holders of Senior
Indebtedness (as identified in writing to each Holder by the holders of Senior
Indebtedness) (the "SENIOR REPRESENTATIVE") each Holder's right, title and
interest in and to any claims such Holder has against the Company with respect
to the Notes (the "JUNIOR CLAIMS") and any security held therefor, and will
deliver to the Senior Representative from time to time any and all instruments
and documents evidencing such Junior Claims, or will have entered on such
instruments and documents such subordination legend as the Senior Representative
may reasonably request, and each Holder will execute such
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other instruments and documents as the Senior Representative may from time to
time reasonably require in connection therewith. In the event that any Junior
Claim is not evidenced by a negotiable instrument, each Holder hereby agrees
that he will use all commercially reasonably efforts to obtain an instrument or
document from the Company evidencing such Junior Claim. In the event that such
debt is not evidenced by a document, it shall nevertheless be deemed
subordinated and assigned by virtue of this Section 8.7.
(c) In the event of an insolvency proceeding with respect to the
Company, each Holder will grant to the Senior Representative irrevocable
authority in the place and stead of such Holder and in the name of such Holder
or in the Senior Representative's name but for the Senior Representative's use
and benefit, at any time or times, after any default under the terms of any
Senior Indebtedness, in the Senior Representative's discretion to demand,
collect file proofs of claim with respect to, receive (by way of dividends or
otherwise) and take any and all legal proceedings for the recovery of any and
all moneys due or to become due on account of the Junior Claims or any thereof,
and to vote, give consents and take any other steps with regard thereto. Any
and all moneys so collected or received by the Senior Representative shall be
retained indefeasibly by the Senior Representative for application to the
payment in full of any amounts owing with respect to the Senior Indebtedness
then outstanding (the "SENIOR CLAIMS"). If the Senior Representative receives
notice of any claim adverse to the rights or interests of each Holder in and to
either the Junior Claims or the Senior Claims, or any moneys held by the Senior
Representative in respect thereof, the Senior Representative shall be entitled
to retain any and all such moneys, documents and instruments evidencing such
Junior Claims and Senior Claims.
SECTION 9. AMENDMENTS AND WAIVERS
9.1. WITH CONSENT OF HOLDERS
The Company, when authorized by a resolution of the Board of
Directors of the Company and with the written consent of the Requisite
Noteholders, may amend this Agreement or the Notes, without notice to any other
Holders. The Requisite Noteholders may waive compliance by the Company with any
provision of this Agreement or the Notes without notice to any other Holder.
Without the consent of each Holder affected, however, no amendment or waiver may
(with respect to any Notes held by a non-consenting Holder of Notes):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment or waiver of any provision of this Agreement or the
Notes;
(b) reduce the principal of or change the fixed maturity of any
Note;
(c) reduce the rate of or change the time for payment of interest
on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or interest on the Notes (except a rescission of acceleration of
the Notes by the Requisite Noteholders and a waiver of the payment default that
resulted from such acceleration);
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(e) make the principal of or the interest on, any Note payable in
any manner other than that stated in this Agreement and the Notes;
(f) make any change in the provisions of this Agreement relating
to waivers of past Defaults or the rights of Holders of Notes to receive
payments of principal of or interest on the Notes;
(g) make any change to the subordination provisions of this
Agreement that adversely affect any Holder; or
(h) make any change in the foregoing amendment and waiver
provisions.
It shall not be necessary for the consent of the Holders under
this Section 9 to approve the particular form of any proposed amendment or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment or waiver under this Section 9 becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment or waiver. Any failure of the Company to mail
such notice, or any defect therein, shall not, however, in any way impair or
affect the validity of any such amendment or waiver.
In connection with any amendment to this Section 9, the Company
may offer, but shall not be obligated to offer, to any Holder who consents to
such amendment or waiver, consideration for such Holder's consent.
9.2. REVOCATION AND EFFECT OF CONSENTS
Until an amendment or waiver becomes effective, a consent to it by
a Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note.
However, any such Holder or subsequent Holder may revoke the consent as to his
Note or portion of his Note by notice to the Company received before the date on
which the Requisite Noteholders have consented (and not theretofore revoked such
consent) to the amendment or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any amendment
or waiver, which record date shall be at least ten (10) Business Days prior to
the first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment or waiver becomes effective, it shall bind
every Holder, unless it makes a change described in any of clauses (a) through
(g) of Section 9.1, in which case,
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the amendment or waiver shall bind only each Holder of a Note who has consented
to it and every subsequent Holder of a Note or portion of a Note that evidences
the same debt as the consenting Holder's Note; PROVIDED that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Note, on or after the respective due dates
expressed in such Note, or to bring suit for the enforcement of any such payment
on or after such respective dates without the consent of such Holder.
9.3. NOTATION ON OR EXCHANGE OF NOTES
If an amendment or waiver changes the terms of a Note, the Company
may require the Holder of the Note to deliver it to the Company. The Company
may place an appropriate notation on the Note about the changed terms and return
it to the Holder.
SECTION 10. DEFINITIONS
10.1 DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
"ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued by the Company after the Closing Date, whether or not
subsequently reacquired or retired by the Company, other than the Conversion
Shares; PROVIDED that such term shall exclude shares of Common Stock issued
under the Stock Option Plan and shares of Common Stock issued or issuable upon
the conversion of Notes issued pursuant to agreements dated on or about the date
of this Agreement and the warrants scheduled on the Disclosure Schedule.
"ADJUSTED CONVERSION PRICE" shall have the meaning assigned to
such term in Section 6.6(a).
"AFFILIATE" means, with respect to any referenced Person, a Person
(i) which directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, such referenced Person, (ii)
which directly or indirectly through one or more intermediaries beneficially
owns or holds 10% or more of the combined voting power of the total Voting
Securities of such referenced Person or (iii) of which 10% or more of the
combined voting power of the total Voting Securities directly or indirectly
through one or more intermediaries is beneficially owned or held by such
referenced Person, or a Subsidiary of such referenced Person. When used herein
without reference to any Person, Affiliate means an Affiliate of the Company.
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 "affiliated," controlling" and "controlled" have
meanings correlative to the foregoing.
"AGENT" means any Person authorized to act and who acts on behalf
of the Purchasers with respect to the transactions contemplated by this
Agreement, the Registration Rights Agreement or the Commitment Letter.
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"AGREEMENT" means this Convertible Subordinated Note Purchase
Agreement dated as of March 30, 1998 by and between the Company and the
Purchaser.
"APPROVED HOLDER" shall have the meaning assigned to such term in
Section 5.4(a)(1).
"APPROVED PURCHASER" shall have the meaning assigned to such term
in Section 5.4(a)(2).
"AVERAGE CLOSING SALES PRICE" as of a particular 12-month period
means the average closing sales price of the Common Stock for each Business Day
during such 12-month period. Such average shall be calculated as follows: (i)
the average of the closing sales prices of the Common Stock quoted on the Nasdaq
National Market for each Business Day during such 12-month period, or (ii) if no
such quotations are available, the average of the closing sales prices for each
Business Day during such 12-month period on the principal national securities
exchange on which the Common Stock is listed, or (iii) if not listed on any
national securities exchange, the average closing sales price for each Business
Day during such 12-month period in the over-the-counter market as reported by
the National Quotation Bureau, Incorporated or similar organization, or (iv) if
no of such sales prices are available for each Business Day in such 12-month
period, the average of the high bid and low asked quotations in the
over-the-counter market as so reported for such Business Days, or (v) if no such
quotations are available, the fair market value per share on such unreported
Business Days as determined by an independent investment banker or appraiser,
nationally recognized to be expert in making such valuations, selected by a
majority of the directors of the Company. In the event "Average Closing Sales
Price" is determined by an independent investment banker or appraiser pursuant
to clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted
to dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Average Closing Sales Price" whose fees and expenses shall
be paid by the Company. "Average Closing Sales Price" shall be the average of
the per share fair market values determined by both independent investment
bankers or appraisers.
"BANKRUPTCY LAW" means title 11, U.S. Code or any similar federal
or state law for the relief of debtors.
"BUSINESS DAY" means any day which is not a Legal Holiday.
"CAPITAL LEASE" means any lease of any property which would in
accordance with GAAP be required to be classified and accounted for on the
balance sheet of the lessee as a capital lease.
"CAPITALIZED LEASE OBLIGATION" means, with respect to any Person
for any period, any obligation of such Person to pay rent or other amounts under
a Capital Lease; the amount of
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such obligation shall be the capitalized amount thereof determined in accordance
with such principles.
"CAPITAL STOCK" means any and all shares, interests, participation
or other equivalents (however designated) of corporate stock, including without
limitation all common stock and preferred stock.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9601 ET. SEQ.).
"CHANGE OF CONTROL" means the occurrence of any of the following:
(i) the sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act); (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any Person or group (as defined above), other than Walter C. Bowen or a
Related Party, becomes the "beneficial owner" (as such term is defined in
Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all securities that such person has the
right to acquire, whether such right is currently exercisable or is exercisable
only upon the occurrence of a subsequent condition), directly or indirectly, of
more than 50% of the Fully Diluted Voting Securities of the Company (measured by
voting power rather than number of shares) and (iv) the date on which a majority
of the Board of Directors of the Company shall cease to be Continuing Directors.
"CHANGE OF CONTROL DATE" shall have the meaning set forth in
Section 5.4.
"CHANGE OF CONTROL ISSUANCE DATE" shall have the meaning set forth
in Section 5.4.
"CHANGE OF CONTROL ISSUANCE OF ADDITIONAL SHARES" shall have the
meaning set forth in Section 5.4.
"CHANGE OF CONTROL NOTICE" shall have the meaning set forth in
Section 5.4.
"CHANGE OF CONTROL PRICE" shall have the meaning set forth in
Section 5.4.
"CHANGE OF CONTROL REPURCHASE DATE" shall have the meaning set
forth in Section 5.4.
"CHANGE OF CONTROL REPURCHASE OFFER" shall have the meaning set
forth in Section 5.4.
"CHARTER DOCUMENTS" means the Articles of Organization, Articles
of Incorporation or Certificate of Incorporation and Bylaws, as amended or
restated (or both) to date, of the Company or a Subsidiary, as applicable.
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"CLOSING" shall have the meaning set forth in Section 1.2(b).
"CLOSING DATE" shall have the meaning set forth in Section 1.2(b).
"CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute or law thereto.
"COMMITMENT LETTER" means that certain Commitment Letter dated as
of the Closing Date by and between the Company, LTC Properties and LTC West,
executed concurrently herewith.
"COMMON STOCK" means the Common Stock, no par value, of the
Company.
"COMPANY" means Regent Assisted Living, Inc., an Oregon
corporation.
"COMPANY SEC DOCUMENTS" shall have the meaning set forth in
Section 3.23.
"CONVERSION RATE" shall have the meaning set forth in Section 6.2.
"CONVERSION SHARES" means the shares of Common Stock issuable upon
conversion of the Notes.
"CONVERTIBLE SECURITIES" shall have the meaning set forth in
Section 6.6(c).
"CONSOLIDATED " or "CONSOLIDATED," when used with reference to any
accounting term, means the amount described by such accounting term, determined
on a consolidated basis in accordance with GAAP, after elimination of
intercompany items.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of
any date, the sum of (i) the consolidated equity of the common stockholders of
such Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock that by its terms is not entitled to
the payment of dividends unless such dividends may be declared and paid only out
of net earnings in respect of the year of such declaration and payment, but only
to the extent of any cash received by such Person upon issuance of such
preferred stock, less (x) all write-ups (other than write-ups resulting from
foreign currency translations and write-ups of tangible assets of a going
concern business made within 12 months after the acquisition of such business)
subsequent to the Closing Date in the book value of any asset owned by such
Person or a consolidated Subsidiary of such Person, (y) all investments as of
such date in unconsolidated Subsidiaries and in Persons that are not
Subsidiaries, and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of the Company who (i) was a member of such
Board of Directors on March 30, 1998 or (ii) was nominated for election or
elected to such Board with the approval of a
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majority of the Continuing Directors who were members of such Board at the time
of such nomination or election.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"DEFAULT" means any event which is, or after notice or passage of
time would be, an Event of Default.
"DETERMINATION DATE" shall have the meaning set forth in Section
6.4.
"EFFECTIVE PRICE" of Additional Shares of Common Stock shall mean
the quotient determined by dividing the total number of Additional Shares of
Common Stock issued or sold, or deemed to have been issued or sold by the
Company under Section 6.6, into the aggregate consideration received, or deemed
to have been received by the Company for such issue under Section 6.6, for such
Additional Shares of Common Stock.
"ENVIRONMENTAL LAWS" shall have the meaning set forth in
Section 3.13.
"EQUITY INTEREST" means Capital Stock or warrants, options or
other rights to acquire Capital Stock (but excluding any debt note which is
convertible into, or exchangeable for, Capital Stock).
"EVENT OF DEFAULT" shall have the meaning set forth in
Section 7.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, from time to time, and any successor statute or law thereto.
"FAIR MARKET VALUE" of Common Stock as of a particular date means
the Weighted Average trading price of the Common Stock for the ten (10)
consecutive Business Day period immediately preceding such date. Such Weighted
Average shall be calculated as follows: (i) the Weighted Average of the sales
price of the Common Stock quoted on the Nasdaq National Market for each of such
ten (10) Business Days, or (ii) if no such quotations are available, the
Weighted Average sales price for such ten (10) Business Days on the principal
national securities exchange on which the Common Stock is listed, or (iii) if
not listed on any national securities exchange, the Weighted Average sales price
for such ten (10) Business Days in the over-the-counter market as reported by
the National Quotation Bureau, Incorporated or similar organization, or (iv) if
no of such sales prices are available for each Business Day in such ten (10)
Business Day period, the Weighted Average of the high bid and low asked
quotations in the over-the-counter market as so reported for such ten (10)
Business Days, or (v) if no such quotations are available, the fair market value
per share on such date as determined by an independent investment banker or
appraiser, nationally recognized to be expert in making such valuations,
selected by a majority of the directors of the Company; PROVIDED, HOWEVER, that
in the event of an underwritten public offering of Common Stock, "Fair Market
Value" shall mean the price to the public of such Common Stock in such
underwritten public offering. In the event "Fair Market Value" is determined by
an independent investment banker or appraiser pursuant to
41
<PAGE>
clause (v) of the foregoing sentence, such determination shall be provided to
each Holder in writing together with a fair and accurate description of the
basis for making such determination. The Requisite Holders shall be permitted
to dispute such determination by written notice to the Company within ten (10)
Business Days of receipt of such determination. In the event of such dispute,
the Requisite Holders and the Company shall work together in good faith to
mutually agree upon a second independent investment banker or appraiser to make
a determination of "Fair Market Value" whose fees and expenses shall be paid by
the Company. "Fair Market Value" shall be the average of the per share fair
market values determined by both independent investment bankers or appraisers.
"FULLY DILUTED VOTING SECURITIES" means each class of Voting
Securities of a Person and each class of securities of a Person that, at the
time of determination, can immediately subscribe for and/or convert to Voting
Securities.
"GAAP" means generally accepted accounting principles as used in
the United States of America and applied in a manner consistent with past
practices.
"HOLDER" or "HOLDERS" means the Purchaser (so long as it holds any
Notes) and any other holder of any of the Notes.
"INCORPORATED DOCUMENTS" means the following of the Company's
documents, each as filed with the SEC: (1) Form 10-K for the year ended December
31, 1997, (2) 1997 Proxy Statement dated April 10, 1997; and (3) Form 8-K dated
December 29, 1997.
"INDEBTEDNESS" means, with respect to any Person, the aggregate
amount of, without duplication, the following:
(a) all obligations for borrowed money;
(b) all obligations evidenced by bonds, debentures, notes or
other similar instruments;
(c) all obligations to pay the deferred purchase price of
property or services, except Trade Payables and obligations that do not exceed
$300,000 in the aggregate, accrued commissions and other similar accrued current
liabilities in respect of such obligations, in any case, not overdue and arising
in the ordinary course of business;
(d) all Capitalized Lease Obligations;
(e) all obligations or liabilities of others secured by a lien on
any asset owned by such Person or Persons whether or not such obligation or
liability is assumed;
(f) all obligations of such Person or Persons, contingent or
otherwise, in respect of any letters of credit or bankers' acceptances; and
(g) all guaranties.
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"INDEMNIFIED PARTIES" shall have the meaning set forth in
Section 5.6.
"INDEPENDENT AUDITORS" shall mean the independent certified public
accountants of the Company. Until December 29, 1997, the Independent Auditors
were Coopers & Lybrand, L.L.P. After such date and as of the date of the
Agreement, the Independent Auditors are KPMG Peat Marwick LLP.
"INSPECTORS" shall have the meaning set forth in Section 5.13.
"INTANGIBLES" shall have the meaning set forth in Section 3.16.
"JUNIOR CLAIMS" shall have the meaning set forth in Section 8.7.
"KEY EMPLOYEE" means Walter C. Bowen.
"KNOWLEDGE OF THE COMPANY" means to the actual knowledge of each
of the Chairman, Chief Executive Officer, Chief Financial Officer, General
Counsel, President, Treasurer and any Senior or Executive Vice President of the
Company, after due inquiry and investigation.
"LEGAL HOLIDAY" means a Saturday, Sunday or day on which banks and
trust companies in the principal place of business of the Company or in
California are not required to be open. If a payment date is a Legal Holiday,
payment may be made on the next succeeding day that is not a Legal Holiday, and
interest shall accrue for the intervening period.
"LIEN" means any mortgage, pledge, lien, taxes, encumbrance,
charge or adverse claim affecting title or resulting in a charge against real or
personal property, or note interest of any kind (including, without limitation,
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell and any filing of or agreement to
give any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"LOSSES" shall have the meaning set forth in Section 5.6.
"LTC PROPERTIES" means LTC Properties, Inc., a Maryland
corporation.
"LTC WEST" means LTC West, Inc., a Nevada corporation.
"MATERIAL ADVERSE EFFECT" means (i) any adverse effect upon the
issuance, validity or enforceability of a Note, this Agreement, the Registration
Rights Agreement or the Commitment Letter, (ii) any material adverse effect on
the results of operations, financial condition, properties, assets, business or
prospects of the Company and its Subsidiaries, taken as a whole, or (iii) any
adverse effect on the ability of the Company to fulfill its obligations under
the Notes, this Agreement, the Registration Rights Agreement or the Commitment
Letter or any document contemplated hereby or thereby.
"MATERIAL CONTRACT" shall have the meaning set forth in
Section 3.17.
43
<PAGE>
"MATURITY DATE" means March 31, 2008.
"NOTE REGISTER" shall have the meaning set forth in Section 1.3.
"NOTE" or "NOTES" shall have the meaning set forth in Section 1.1.
"OFFICERS' CERTIFICATE" means a certificate signed by any two
officers, one of whom must be the Chairman of the Board, the President, the
Treasurer or a Vice President of the Company.
"OPINION OF COUNSEL" means a written opinion from legal counsel
who is reasonably acceptable to the Purchaser.
"PAYMENT" or "DISTRIBUTION" shall have the meaning set forth in
Section 8.1.
"PERSON" means an individual, partnership, corporation, limited
liability company, trust or unincorporated organization or a government or
agency or political subdivision thereof.
"PLAN OF LIQUIDATION" means, with respect to any Person, a plan
that provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"PREFERRED STOCK" means the Series A Preferred Stock, no par
value, and the Series B Preferred Stock, no par value, of the Company.
"PROPERTY" or "PROPERTY" means any assets or property of any kind
or nature whatsoever, real, personal or mixed (including fixtures), whether
tangible or intangible, PROVIDED that the terms "Property" or "property", when
used with respect to any Person, shall not include Notes issued by such.
"PURCHASER" means the purchaser on the signature pages hereto.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement dated as of the Closing Date by and among the Company and the
Purchaser, executed concurrently herewith.
"RELATED PARTY" with respect to Walter C. Bowen means (A) any
spouse or immediate family member of such Person or (B) or trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners, owners
or Persons beneficially holding an 80% or more controlling interest of which
consist of Walter C. Bowen and/or such other Persons referred to in the
immediately preceding clause (A).
"REORGANIZATIONS" shall have the meaning set forth in Section 6.5.
44
<PAGE>
"REQUISITE NOTEHOLDERS" shall mean the holders of Notes whenever
issued to the Purchaser pursuant to this Agreement and the Notes issued to all
other purchasers pursuant to similar agreements dated on or about the date of
this Agreement with an aggregate principal amount equal to or greater than 50%
of the aggregate principal amount of all then outstanding Notes whenever issued
to the Purchaser pursuant to this Agreement and the Notes issued to all other
purchasers pursuant to similar agreements dated on or about the date of this
Agreement.
"RIGHTS" shall have the meaning assigned to such term in
Section 6.6(c).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute or law thereto.
"SENIOR CLAIMS" shall have the meaning set forth in Section 8.7.
"SENIOR INDEBTEDNESS" means the principal of, premium, if any, and
accrued interest on any other Indebtedness of the Company and all fees,
expenses, reimbursements, indemnities and other amounts payable with respect to
such Indebtedness, whether such Indebtedness is outstanding on the date of this
Agreement or thereafter created, incurred, assumed, or guaranteed by the Company
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior, or is PARI PASSU or subordinate, in
right or payment to the Notes; PROVIDED that Senior Indebtedness shall not
include (i) in the case of each Note the other Notes (ii) Indebtedness of the
Company to a Subsidiary of the Company, (iii) Indebtedness of or amounts owed by
the Company for compensation to directors or members of senior management that
has not been approved by the Compensation Committee of the Board; (iv)
Indebtedness guaranteed by the Company on behalf of any equityholder, director,
officer or employee of the Company or of any equityholder, director, officer or
employee of any of the Company's Subsidiaries, (v) any Trade Payables (including
without limitation Indebtedness incurred for the purchase of goods or materials
or for services obtained in the ordinary course of business), (vi) Indebtedness
of the Company that is subordinated by its terms in right of payment to any
other Indebtedness of the Company, and (vii) Indebtedness incurred in violation
of this Agreement.
"SENIOR REPRESENTATIVE" shall have the meaning set forth in
Section 8.7.
"SUBORDINATED INDEBTEDNESS" means the principal, premium, if any,
and interest on any Indebtedness of the Company which by its terms is expressly
subordinated in right of payment to the Notes.
"SUBSIDIARY" means, with respect to any Person (the "PARENT"), any
corporation, association or other business entity of which Notes or other
ownership interests representing more than 50% of the ordinary voting power are,
at the time as of which any determination is being made, owned or controlled by
the parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent.
45
<PAGE>
"STOCK OPTION PLAN" shall mean the Company's 1995 Stock Incentive
Plan as in effect on the Closing Date.
"SURVIVING PERSON" shall have the meaning set forth in
Section 5.7(b)(1).
"TOTAL PRICE" means, with respect to the Common Stock on any
Business Day, the product of: (x) the closing sales price of the Common Stock
quoted on the Nasdaq National Market on such Business Day, or if no such
quotations are available, on the principal national securities exchange on which
the Common Stock is listed on such Business Day, or if not listed on any
national securities exchange, in the over-the-counter market as reported by the
National Quotation Bureau, Incorporated or similar organization on such Business
Day, or if no such sales prices are available, the high bid and low asked
quotations in the over-the-counter market on such Business Day multiplied by (y)
the number of shares of Common Stock traded on such market or exchange, as
applicable, on such Business Day.
"TRADE PAYABLES" means, with respect to any Person, accounts
payable and other similar accrued current liabilities in respect of obligations
or indebtedness to trade creditors created, assumed or guaranteed by such Person
or any of its Subsidiaries in the ordinary course of business in connection with
the obtaining of property or services.
"VOTING SECURITIES" means any class of Equity Interests of a
Person pursuant to which the holders thereof have, at the time of determination,
the general voting power under ordinary circumstances to vote for the election
of directors, managers, trustees or general partners of any Person (irrespective
of whether or not at the time any other class or classes will have or might have
voting power by reason of the happening of any contingency).
"WEIGHTED AVERAGE" means, with respect to the Common Stock during
any ten (10) consecutive Business Day period, the sum of the Total Price of such
Common Stock for each Business Day during such ten (10) consecutive Business Day
period divided by ten (10).
10.2. RULES OF CONSTRUCTION
Unless the context otherwise requires
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) words in the singular include the plural, and words in the
plural include the singular;
(d) provisions apply to successive events and transactions;
(e) "herein," "hereof" and other words of similar import refer to
this Agreement as a whole and not to any particular Section or other
subdivision; and
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(f) the masculine shall include the feminine and neuter genders
as appropriate.
SECTION 11. MISCELLANEOUS
11.1. NOTICES
All notices and other communications provided for or permitted
hereunder shall be made by hand-delivery, first-class mail, telex, telecopier,
or overnight air courier guaranteeing next day delivery:
(a) if to any Purchaser at address set forth on the signature
pages hereto, with a copy to Latham & Watkins, 633 W. Fifth Street, Suite 4000,
Los Angeles, California 90071, Attention: Eva Herbst Davis, Esq.; and
(b) if to the Company, to Regent Assisted Living, Inc., 121 SW
Morrison, Suite 1000, Attention: General Counsel with a copy to Stoel Rives LLP,
900 SW Fifth Avenue, Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman,
Esq.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five (5)
Business Days after being deposited in the mail, postage prepaid, if mailed;
when receipt acknowledged, if telecopied; and the next Business Day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next day
delivery. The parties may change the addresses to which notices are to be given
by giving five days' prior notice of such change in accordance herewith.
11.2. UNDERTAKING FOR COSTS
In any suit for the enforcement of any right or remedy under this
Agreement, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
11.3. SUCCESSORS AND ASSIGNS
This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties.
11.4 COUNTERPARTS
This Agreement may be executed in any number of counterparts and
by the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
47
<PAGE>
11.5. HEADINGS
The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
11.6. GOVERNING LAW
This Agreement shall be governed by and construed in accordance
with the internal laws of the State of California.
11.7. ENTIRE AGREEMENT
This Agreement, together with the Notes, the Registration Rights
Agreement and the Commitment Letter is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein and therein. This Agreement, together with the Notes, the Registration
Rights Agreement and the Commitment Letter supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
11.8. SEVERABILITY
In the event that any one or more of the provisions contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired or affected, it
being intended that the Purchaser's rights and privileges shall be enforceable
to the fullest extent permitted by law.
11.9. TRANSFER
The Notes may not be transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of unless (a) such transfer is pursuant to an
effective registration statement under the Securities Act and any applicable
state securities laws, or (b) the Company has been furnished with a satisfactory
opinion of counsel for the Holder, at such Holder's expense, that such transfer
is exempt from the provisions of Section 5 of the Securities Act, the rules and
regulations in effect thereunder and any applicable state securities laws.
48
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties set forth below as of the date first written above.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: /s/ Walter C. Bowen
--------------------------------
Name: Walter C. Bowen
Title: President
LTC EQUITY HOLDING COMPANY, INC.,
a Nevada corporation
By: /s/ James J. Pieczynski
--------------------------------
Name: James J. Pieczynski
Title: President and Chief Financial Officer
Address:
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
49
<PAGE>
ANNEX A
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS
AND MAY NOT BE TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF UNLESS (A) SUCH TRANSFER IS PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR (B) THE
COMPANY HAS BEEN FURNISHED WITH A SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER
THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT, THE
RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE SECURITIES
LAWS.
REGENT ASSISTED LIVING, INC.
CONVERTIBLE SUBORDINATED NOTE DUE MARCH 31, 2008
Note No. $
-------- --------------
FOR VALUE RECEIVED, the undersigned, REGENT ASSISTED LIVING, INC., a
corporation organized and existing under the laws of Oregon (herein called the
"COMPANY"), hereby promises to pay to the order of _______________________ or
registered assigns ("HOLDER"), the principal sum of _______________________
DOLLARS (or so much thereof as shall remain outstanding) on March 31, 2008.
Payments are to be made as provided in the Agreement (as defined herein).
This Note is one of the Notes issued pursuant to the Convertible
Subordinated Note Purchase Agreement dated as of March 30, 1998 (the
"AGREEMENT"), by and between the Company and LTC Equity Holding Company, Inc., a
Nevada corporation, and is also entitled to the benefits thereof to the extent
provided in the Agreement. This Note is subject to (i) conversion, in whole or
in part, at the option of the Holder, pursuant to Section 6.1(a) of the
Agreement, (ii) conversion, in whole but not in part, at the option of the
Company upon the satisfaction of certain conditions pursuant to Section 6.1(b)
of the Agreement and (iii) repurchase, in whole or in part, upon a Change of
Control pursuant to Section 5.4 of the Agreement.
Upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and, at the
option of the holder, registered in the name of, the transferee. The Company
may deem and treat the person in whose name this Note is registered as the
holder and
<PAGE>
owner hereof for the purpose of receiving payments and for all other purposes
whatsoever, and the Company shall not be affected by any notice to the contrary.
If an Event of Default shall occur and be continuing, this Note may,
under certain circumstances, become or be declared due and payable in the manner
and with the effect provided in the Agreement.
Certain terms and provisions of this Note may be amended or compliance
herewith waived on the terms and provisions provided for in the Agreement.
The Note is subordinated in both right of payment and time of payment
to certain Senior Indebtedness, as defined and described in Section 8 of the
Agreement.
Capitalized terms used herein without definition shall have the
meaning set forth for such terms in the Agreement.
REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By:
-------------------------------------
Name:
Title:
2
<PAGE>
ANNEX B
FORM OF OPINION OF COMPANY COUNSEL
1. The Company and each of its Subsidiaries are corporations duly
organized and validly existing in good standing under the laws of their
respective jurisdictions of incorporation.
2. The Company and each of its Subsidiaries have all requisite power
and authority to own or hold under lease the properties it purports so to own or
hold except where the failure so to own or hold could not have a Material
Adverse Effect and to transact their respective businesses as now transacted and
proposed to be transacted.
3. The Company and each of its Subsidiaries are duly qualified as
foreign corporations and are in good standing in each jurisdiction in which the
character of the properties owned or held under lease by them or the nature of
the business transacted by them requires such qualification, except where the
failure so to be qualified or be in good standing could not have a Material
Adverse Effect.
4. The Company has taken all actions necessary to authorize it (i)
to execute, deliver and perform all of its obligations under the Agreement, the
Registration Rights Agreement and the Commitment Letter, (ii) to issue and
perform all of its obligations under the Notes and (iii) to consummate the
transactions contemplated hereby and thereby.
5. The total number of shares of Capital Stock which the Company has
authority to issue is 30,000,000 shares, consisting of 25,000,000 shares of
Common Stock and 5,000,000 shares of Preferred Stock.
6. As of March 30, 1998, there were 4,633,000 shares of Common Stock
issued and outstanding, and 1,666,667 shares of Preferred Stock issued and
outstanding. Such shares of Common Stock and Preferred Stock have been duly
authorized and were validly issued, are fully paid and nonassessable, were
issued in compliance with all federal and state securities laws, were not issued
in violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities of the Company.
7. Neither the Company nor any of its Subsidiaries has outstanding
any securities convertible into or exchangeable for any shares of Capital Stock
nor does it have outstanding any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, any Capital Stock or securities convertible into or
exchangeable for any Capital Stock other than (i) the Notes to be issued
pursuant to the Agreement or pursuant to other similar agreements dated on or
about the date of this Agreement, (ii) 1,666,667 shares of Preferred Stock
convertible into Common Stock, and (iii) options and
<PAGE>
warrants to purchase shares of Common Stock as set forth and for the numbers
of shares set forth in the Disclosure Schedule to the Agreement.
8. The Company has duly authorized and reserved for issuance the
Conversion Shares, and the Conversion Shares will, when issued, be duly and
validly issued, fully paid and nonassessable and free from all Liens.
9. Neither the execution or delivery of the Agreement, the
Registration Rights Agreement or the Commitment Letter by the Company nor the
issuance, sale or delivery of the Notes nor the performance of its respective
obligations hereunder or thereunder will:
(a) violate any provision of the Charter Documents of the
Company;
(b) violate any statute, law, rule or regulation or any
judgment, decree, order, regulation or rule of any court or governmental
authority to which the Company, any of its Subsidiaries, or any of their
respective properties may be subject;
(c) permit or cause the acceleration of the maturity of any debt
or obligation of the Company or any of its Subsidiaries;
(d) violate, or be in conflict with, or constitute a default
under, or permit the termination of, or require the consent of any Person under,
or result in the creation of any Lien upon any property of the Company or any of
its Subsidiaries under, any mortgage, indenture, loan agreement, note, debenture
or other agreement for borrowed money or any other material agreement to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries (or their respective properties) may be bound, other than
such violations, conflicts, defaults, terminations and Liens, or such failures
to obtain consents, which could not reasonably be expected to result in a
Material Adverse Effect.
10. The sale of the Notes hereunder is exempt from the registration
and prospectus delivery requirements of the Securities Act.
11. Neither the Company nor any of its Subsidiaries is an "investment
company" or a Person directly or indirectly "controlled" by or acting on behalf
of an "investment company" within the meaning of the United States Investment
Company Act of 1940, as amended.
2
<PAGE>
REGENT ASSISTED LIVING, INC.
---------------------
REGISTRATION RIGHTS AGREEMENT
---------------------
DATED AS OF MARCH 30, 1998
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. Securities Subject to this Agreement. . . . . . . . . . . . . . . . . . . .3
3. Shelf Registration; Demand Registration and Piggyback Registration. . . . .3
4. Grant of Registration Rights to Others. . . . . . . . . . . . . . . . . . .6
5. Hold-Back Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
6. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . .6
7. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9. Rule 144. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10. Participation in Underwritten Registrations. . . . . . . . . . . . . . . 14
11. Miscellaneous. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of March 30, 1998, by and between REGENT ASSISTED LIVING, INC.,
an Oregon corporation (the "Company"), and LTC EQUITY HOLDING COMPANY, INC., a
Nevada corporation (the "Purchaser").
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Section 1 hereof.
This Agreement is made pursuant to the Convertible Subordinated Note
Purchase Agreement, dated as of March 30, 1998, by and between the Company and
the Purchaser (the "Purchase Agreement"). In order to induce the Purchaser to
enter into the Purchase Agreement, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution of this Agreement
is a condition to the closing under the Purchase Agreement.
The parties hereby agree as follows:
1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
COMMON STOCK: The Common Stock, no par value, of the Company.
DEMAND REGISTRATION: See Section 3(c) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended from
time to time.
NASD: National Association of Securities Dealers, Inc.
NOTES: The Company's 7.5% Convertible Subordinated Notes due March
31, 2008.
OTHER REGISTRABLE SECURITIES: All shares of Common Stock issuable
upon conversion of Notes issued to the other purchasers pursuant to similar
agreements dated on or about the date of this Agreement.
PERSON: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
PIGGYBACK REGISTRATION: See Section 3(d) hereof.
<PAGE>
PREFERRED PURCHASE AGREEMENT: Purchase Agreement dated as of December
16, 1996, between the Company and Prudential Private Equity Investors III, L.P.,
a Delaware limited partnership.
PREFERRED REGISTRABLE SECURITIES: (i) Any Common Stock issued upon
the conversion of the Company's Series A Preferred Stock issued pursuant to the
Preferred Purchase Agreement or issued upon conversion of the Company's Series B
Preferred Stock issued pursuant to the Preferred Purchase Agreement, (ii) any
Common Stock issued upon conversion of any of the Company's Series B Preferred
Stock issued pursuant to the Preferred Purchase Agreement, (iii) any Common
Stock issued upon exercise of the warrant issued pursuant to the Preferred
Purchase Agreement and (iv) any Common Stock issued or issuable with respect to
the securities referred to in clauses (i), (ii) and (iii) above by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Preferred Registrable Security, such securities shall cease to be
Preferred Registrable Securities when they have been distributed to the public
through a broker, dealer of market maker in compliance with Rule 144 under the
Securities Act (or any similar rule then in force) or repurchased by the Company
or any subsidiary.
PROSPECTUS: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by such
Registration Statement and by all other amendments and supplements to the
prospectus, including post-effective amendments and all material incorporated by
reference in such prospectus.
REGISTRABLE SECURITIES: All shares of Common Stock issuable upon
conversion of Notes originally issued to the Purchaser; PROVIDED that a share
ceases to be a Registrable Security when it is no longer a Transfer Restricted
Security.
REGISTRATION EXPENSES: See Section 7 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company
which covers any of the Registrable Securities pursuant to the provisions of
this Agreement, including the Prospectus, amendments and supplements to such
Registration Statement, including post-effective amendments, all exhibits and
all material incorporated by reference in such Registration Statement.
SEC: The Securities and Exchange Commission.
SECURITIES ACT: The Securities Act of 1933, as amended from time to
time.
SHELF REGISTRATION: See Section 3(a) hereof.
TRANSFER RESTRICTED SECURITIES: The Registrable Securities upon
original issuance thereof, and with respect to any particular such security, so
long as such security was acquired by the holder thereof other than pursuant to
an effective registration under Section 5 of the
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Securities Act or pursuant to Rule 144; PROVIDED that a security that has ceased
to be a Transfer Restricted Security cannot thereafter become a Transfer
Restricted Security.
UNDERWRITTEN REGISTRATION or UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) REGISTRABLE SECURITIES. The securities entitled to the benefits
of this Agreement are the Registrable Securities.
(b) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to be a
holder of Registrable Securities whenever such Person owns Registrable
Securities or has the right to acquire such Registrable Securities, whether or
not such acquisition has actually been effected and disregarding any legal
restrictions upon the exercise of such right.
3. SHELF REGISTRATION; DEMAND REGISTRATION AND PIGGYBACK
REGISTRATION
(a) SHELF REGISTRATION. The Company shall file a "shelf"
registration statement on any appropriate form pursuant to Rule 415 (or similar
rule that may be adopted by the SEC) under the Securities Act (a "Shelf
Registration"), as promptly as practicable and in no event later than June 1,
1998, for the Registrable Securities (the "Shelf Registration"). The Company
agrees to use its best efforts to cause such Shelf Registration to become
effective and thereafter to keep it continuously effective, and to prevent the
happening of any event of the kind described in Section 6(k) hereof that
requires the Company to give notice pursuant to the last paragraph of Section 6
hereof, for a period of two years from the date on which the SEC declares the
Shelf Registration effective or such shorter period which will terminate when
all the Registrable Securities covered by the Shelf Registration have been sold
pursuant to such Shelf Registration.
(b) ADDITIONAL INTEREST AND REDUCTION OF CONVERSION RATE UNDER
CERTAIN CIRCUMSTANCES. If the Shelf Registration is not filed with the SEC by
June 1, 1998, or if the Shelf Registration is not declared effective by the SEC
by September 1, 1998, (i) the interest rates on the Notes affected by such
failure shall increase (effective June 1, 1998, with respect to a failure to
file the Shelf Registration, or September 1, 1998 with respect to the failure of
the Shelf Registration to be declared effective) by 50 basis points (1/2%) over
the annual interest rates then in effect and (ii) the Conversion Rate on the
Notes affected by such failure shall decrease (effective June 1, 1998, with
respect to a failure to file the Shelf Registration, or September 1, 1998 with
respect to the failure of the Shelf Registration to be declared effective) by
five percent (5%). If the Shelf Registration is not filed and declared
effective by December 1, 1998, then (i) the annual rate at which the Company
shall pay interest on the Notes shall further increase with respect to the
Notes, effective on December 1, 1998, by 50 basis points (1/2%) over the annual
interest rate then in effect and (ii) the Conversion Rate on the Notes shall
further decrease with respect to the Notes, effective on December 1, 1998, by
five percent (5%). The annual rate at which the Company shall pay interest
shall continue to increase by 50 basis points (1/2%) and the Conversion Rate
shall continue to decrease by five percent (5%) at the end of each 180-day
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<PAGE>
period thereafter, effective on the 181st day, until the Shelf Registration is
filed and declared effective by the SEC. The interest rates and the Conversion
Rate on the Notes shall return to the rates otherwise in effect on the Notes but
for the application of the preceding provisions on the date the Shelf
Registration is filed with or declared effective by the SEC, as applicable. The
Company shall notify holders of the affected Notes immediately after the
occurrence of each and every event which pursuant to this paragraph (b) results
in any increase or decrease in the interest rates payable and the Conversion
Rate on such Notes.
(c) DEMAND REGISTRATION.
(i) At any time on or after the two-year period for which the
Shelf Registration referred to in paragraph (a) of this Section 3 is terminated,
any holder of Registrable Securities holding Registrable Securities which
represent at least 50% of the aggregate of all of the Registrable Securities
(assuming conversion of all of the Notes held by such holders of Registrable
Securities) may give written notice to the Company (x) of their intention to
transfer all or part of the Registrable Securities held by them or obtained by
conversion of Notes held by them and (y) requesting the registration of said
Registrable Securities (a "Demand Registration"), and thereupon, the Company
shall on no more than one occasion, as expeditiously as possible, (A) provide
written notice to all holders of Registrable Securities who have not so
requested registration, and allow such holders the opportunity to participate in
such registration, and (B) use its best efforts to effect the registration of
all such Registrable Securities under the Securities Act, such Registration
Statement to become effective not later than three months from the date of such
request under this paragraph (c)(i). Such Registration Statement shall remain
effective until the first to occur of (A) the sale of all of the Registrable
Securities registered under such Registration Statement or (B) the date one year
following the date such Registration Statement was declared effective by the
SEC.
(ii) If, at any time prior to the effectiveness of the
Registration Statement referred to in Section 3(a)(i), the holders of
Registrable Securities holding in the aggregate a majority of the Registrable
Securities subject to such registration, the Company shall promptly withdraw
such Registration Statement prior to its effectiveness. Any holders of
Registrable Securities holding Registrable Securities which represent at least
50% of the aggregate of all of the Registrable Securities (assuming conversion
of all of the Notes held by such holders of Registrable Securities) shall have
the opportunity to again request registration pursuant to Section 3(a)(i) upon
reimbursement to the Company of all of the Company's out-of-pocket expenses
incurred in connection with the preparation of such withdrawn Registration
Statement, and, upon such reimbursement, the Company shall comply with any such
request in accordance with Section 3(a)(i).
(d) PIGGYBACK REGISTRATION.
(i) RIGHT TO PIGGYBACK. Whenever the Company proposes to
register any of its securities under the Securities Act (other than pursuant to
a Demand Registration in accordance with Section 3(c) or a Shelf Registration in
accordance with Section 3(a)) and the registration form to be used may be used
for the registration of the Registrable Securities (a
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<PAGE>
"Piggyback Registration"), the Company shall give prompt written notice to all
holders of Registrable Securities of its intention to effect such registration
and shall include in such registration (other than registrations only of shares
issued (A) for the purpose of acquiring another company or companies or (B)
pursuant to an employee benefit plan) all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within 20
days after the receipt of the Company's notice.
(ii) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback
Registration is an underwritten primary registration on behalf of the Company,
and the managing underwriters advise the Company in writing that in their
opinion the number of securities requested to be included in such registration
exceeds the number which can be sold in an orderly manner in such offering
within a price range acceptable to the Company, the Company shall include in the
registration (A) first, the securities the Company proposes to sell, (B) second,
the Preferred Registrable Securities requested to be included in such
registration, pro rata among the holders of such Preferred Registrable
Securities on the basis of the number of shares owned by each such holder, (C)
third, the Registrable Securities and the Other Registrable Securities requested
to be included in such registration, pro rata among the holders of all
Registrable Securities and all Other Registrable Securities on the basis of the
number of shares requested to be included in such registration by each such
holder, and (D) fourth, other securities requested to be included in such
registration.
(iii) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders of
the Company's securities, and the managing underwriters advise the Company in
writing that in their opinion the number of securities requested to be included
in such registration exceeds the number which can be sold in an orderly manner
in such offering within a price range acceptable to the holders initially
requesting such registration, the Company shall include in the registration (A)
first, the securities requested to be included therein by the holders requesting
such registration and the Preferred Registrable Securities requested to be
included in such registration, pro rata among the holders of such securities on
the basis of the number of shares owned by each such holder, (B) second, the
Registrable Securities and the Other Registrable Securities requested to be
included in such registration, pro rata among the holders of all Registrable
Securities and all Other Registrable Securities on the basis of the number of
shares requested to be included in such registration by each such holder, and
(C) third, other securities requested to be included in such registration.
(e) OTHER REGISTRATIONS. If the Company has previously filed a
Registration Statement with respect to the Registrable Securities pursuant to
this Section 3, and if such previous Registration Statement has not been
withdrawn or abandoned, the Company shall not file or cause to be effected any
other registration of any of its equity securities under the Securities Act
(except on Form S-8 or any successor form), whether on its own behalf or at the
request of any holder or holders of such securities, until a period of at least
90 days has elapsed from the effective date of such previous registration.
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<PAGE>
4. GRANT OF REGISTRATION RIGHTS TO OTHERS
If registration rights are granted to any holder of shares of any
class of capital stock or debt of the Company, other than a holder of
Registrable Securities or Other Registrable Securities ("Additional Registration
Rights"), then the Company shall promptly notify the holders of Registrable
Securities upon the grant of such registration rights and offer to the holders
of Registrable Securities such additional registration rights granted to such
other holders so that the terms and conditions of all registration rights
granted to the holders of Registrable Securities by this Agreement and any
subsequent agreement are at least as favorable as the registration rights
granted to such other holders in all terms and conditions. Upon receipt of such
notice and offer, the holders of Registrable Securities shall have 30 days to
provide notice to the Company that any such holder of Registrable Securities
accepts such additional registration rights. If any such other holder exercises
any Additional Registration Rights during such 30-day period, the holders of
Registrable Securities shall have the right within such 30-day period to accept
the offer, and to provide notice of the intent of any such holder of Registrable
Securities to join in any such registration, subject to the terms and conditions
of the Additional Registration Rights and this Agreement, as applicable.
5. HOLD-BACK AGREEMENTS
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDER OF REGISTRABLE SECURITIES.
Each holder of Registrable Securities whose Registrable Securities are covered
by a Registration Statement filed pursuant to Section 3 hereof agrees, if
requested by the managing underwriters in an underwritten offering, not to
effect any public sale or distribution of securities of the Company of the same
class as the securities included in such Registration Statement, including a
sale pursuant to Rule 144 under the Securities Act (except as part of such
underwritten registration), during the 10-day period prior to, and during the
90-day period beginning on, the closing date of each underwritten offering made
pursuant to such Registration Statement, to the extent timely notified in
writing by the Company or the managing underwriters; PROVIDED, HOWEVER, that
each holder of Registrable Securities shall be subject to the hold-back
restrictions of this Section 5(a) only once during each 12-month period of this
Agreement.
(b) RESTRICTIONS ON SALE OF COMMON STOCK BY THE COMPANY AND OTHERS.
In the event a holder of Registrable Securities notifies the Company in writing
of its intent to effect an underwritten offering of any Registrable Securities,
the Company agrees (1) not to effect any public or private offer, sale or
distribution of its Common Stock, including a sale pursuant to Regulation D
under the Securities Act, during the 10-day period prior to, and during the
45-day period beginning with, the effective date of a Registration Statement
filed under Section 3 to the extent timely notified in writing by a holder of
Registrable Securities or the managing underwriters (except as part of such
registration, if permitted, or pursuant to registrations on Forms S-4 or S-8 or
any successor form to such Forms).
6. REGISTRATION PROCEDURES
In connection with the Company's registration obligations pursuant to
Section 3 hereof, the Company will use its best efforts to effect such
registration to permit the sale of such
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<PAGE>
Registrable Securities in accordance with the intended method or methods of
distribution thereof, and pursuant thereto the Company will as expeditiously as
possible:
(a) prepare and file with the SEC, as soon as practicable, a
Registration Statement or Registration Statements on any appropriate form under
the Securities Act, which form shall be available for the sale of the
Registrable Securities in accordance with the intended method or methods of
distribution thereof and shall include all financial statements required by the
SEC to be filed therewith, cooperate and assist in any filings required to be
made with the NASD, and use best efforts to cause such Registration Statement to
become effective; PROVIDED that before filing a Registration Statement or
Prospectus or any amendments or supplements thereto, the Company will furnish to
the holders of the Registrable Securities covered by such Registration Statement
and the underwriters, if any, copies of all such documents proposed to be filed,
which documents will be subject to the reasonable review of such holders and
underwriters, and the Company will not file any Registration Statement or
amendment thereto or any Prospectus or any supplement thereto to which the
holders of a majority of the Registrable Securities covered by such Registration
Statement or the underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement effective for the applicable period, or such shorter
period which will terminate when all Registrable Securities covered by such
Registration Statement have been sold; cause the Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 under the Securities Act; and comply with the provisions of
the Securities Act with respect to the disposition of all securities covered by
such Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set forth in
such Registration Statement or supplement to the Prospectus; the Company shall
not be deemed to have used its best efforts to keep a Registration Statement
effective during the applicable period if it voluntarily takes any action that
would result in selling holders of the Registrable Securities covered thereby
not being able to sell such Registrable Securities during that period unless
such action is required under applicable law, PROVIDED that the foregoing shall
not apply to actions taken by the Company in good faith and for valid business
reasons, including without limitation the acquisition or divestiture of assets,
so long as the Company promptly thereafter complies with the requirements of
Section 6(k), if applicable;
(c) notify the selling holders of Registrable Securities and the
managing underwriters, if any, promptly, and (if requested by any such Person)
confirm such advice in writing, (1) when the Prospectus or any Prospectus
supplement or post-effective amendment has been filed, and, with respect to the
Registration Statement or any post-effective amendment, when the same has become
effective, (2) of any request by the SEC for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (3) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the initiation of any proceedings for that
purpose, (4) if at any time the representations and warranties of the Company
contemplated by paragraph (o) below cease to be
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<PAGE>
true and correct, (5) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event which makes any statement
made in the Registration Statement, the Prospectus or any document incorporated
therein by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading;
(d) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
(e) if requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten
offering, promptly incorporate in a Prospectus supplement or post-effective
amendment such information as the managing underwriters and the holders of a
majority of the Registrable Securities being sold agree should be included
therein relating to the plan of distribution with respect to such Registrable
Securities, including, without limitation, information with respect to the
number of Registrable Securities being sold to such underwriters, the purchase
price being paid therefor by such underwriters and with respect to any other
terms of the underwritten (or best efforts underwritten) offering of the
Registrable Securities to be sold in such offering; and make all required
filings of such Prospectus supplement or post-effective amendment as soon as
notified of the matters to be incorporated in such Prospectus supplement or
post-effective amendment;
(f) furnish to each selling holder of Registrable Securities and each
managing underwriter, without charge, at least one signed copy of the
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, all documents incorporated therein by
reference and all exhibits (including those incorporated by reference);
(g) deliver to each selling holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
as such Persons may reasonably request; the Company consents to the use of the
Prospectus or any amendment or supplement thereto by each of the selling holders
of Registrable Securities and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(h) prior to any public offering of Registrable Securities, register
or qualify or cooperate with the selling holders of Registrable Securities, the
underwriters, if any, and their respective counsel in connection with the
registration or qualification of such Registrable Securities for offer and sale
under the securities or blue sky laws of such jurisdictions as any seller or
underwriter reasonably requests in writing and do any and all other acts or
things necessary or advisable to enable the disposition in such jurisdictions of
the Registrable Securities covered by the Registration Statement; PROVIDED that
the Company will not be required to qualify generally to do business in any
jurisdiction where it is not then so qualified or to take any action
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<PAGE>
which would subject it to general service of process in any such jurisdiction
where it is not then so subject;
(i) cooperate with the selling holders of Registrable Securities and
the managing underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations and registered in such names as the managing underwriters may
request at least two business days prior to any sale of Registrable Securities
to the underwriters;
(j) use its best efforts to cause the Registrable Securities covered
by the applicable Registration Statement to be registered with or approved by
such other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof or the underwriters, if any, to consummate the
disposition of such Registrable Securities;
(k) upon the occurrence of any event contemplated by paragraph (c)(6)
above, prepare a supplement or posteffective amendment to the Registration
Statement or the related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading;
(l) cause all Registrable Securities covered by the Registration
Statement to be listed on each securities exchange on which similar securities
issued by the Company are then listed if requested by the holders of a majority
of such Registrable Securities or the managing underwriters, if any;
(m) not later than the effective date of the Registration Statement,
provide a CUSIP number for all Registrable Securities and provide the applicable
trustee(s) or transfer agent(s) with printed certificates for the Registrable
Securities which are in a form eligible for deposit with Depositary Trust
Company;
(n) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith in order to expedite or
facilitate the disposition of such Registrable Securities and in such
connection, whether or not an underwriting agreement is entered into and whether
or not the registration is an underwritten registration (1) make such
representations and warranties to the holders of such Registrable Securities and
the underwriters, if any, in form, substance and scope as are customarily made
by issuers to underwriters in primary underwritten offerings and covering
matters including, but not limited to, those set forth in the Purchase
Agreement; (2) obtain opinions of counsel to the Company and updates thereof
(which counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters, if any, and the holders of a majority
of the Registrable Securities being sold) addressed to each selling holder and
the underwriters, if any, covering the matters customarily covered in opinions
requested in underwritten offerings and such other matters as may be reasonably
requested by such holders and underwriters; (3) obtain "cold comfort" letters
and updates thereof from the Company's independent certified public accountants
addressed to
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the selling holders of Registrable Securities and the underwriters, if any, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters by underwriters in connection with primary
underwritten offerings; (4) if an underwriting agreement is entered into, the
same shall set forth in full the indemnification provisions and procedures of
Section 8 hereof with respect to all parties to be indemnified pursuant to said
Section; and (5) the Company shall deliver such documents and certificates as
may be requested by the holders of a majority of the Registrable Securities
being sold and the managing underwriters, if any, to evidence compliance with
clause (k) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company. The above shall be
done at each closing under such underwriting or similar agreement or as and to
the extent required thereunder;
(o) make available for inspection by a representative of the holders
of a majority of the Registrable Securities, any underwriter participating in
any disposition pursuant to such registration, and any attorney or accountant
retained by the sellers or underwriter, all financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors and employees to supply all information reasonably
requested by any such representative, underwriter, attorney or accountant in
connection with such registration; PROVIDED that any records, information or
documents that are designated by the Company in writing as confidential shall be
kept confidential by such Persons unless disclosure of such records, information
or documents is required by court or administrative order;
(p) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month period (or
90 days, if such period is a fiscal year) (1) commencing at the end of any
fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or (2) if not sold to underwriters
in such an offering, beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said 12-month periods; and
(q) promptly prior to the filing of any document which is to be
incorporated by reference into the Registration Statement or the Prospectus
(after initial filing of the Registration Statement), provide copies of such
document to counsel to the selling holders of Registrable Securities and to the
managing underwriters, if any, make the Company's representatives available for
discussion of such document and make such changes in such document prior to the
filing thereof as counsel for such selling holders or underwriters may
reasonably request.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
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Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 6(k) hereof, such holder
will forthwith discontinue disposition of Registrable Securities until such
holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 6(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings which are incorporated
by reference in the Prospectus, and, if so directed by the Company, such holder
will deliver to the Company (at the Company's expense) all copies, other than
permanent file copies then in such holder's possession, of the Prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the time periods
regarding the maintenance of such Registration Statement shall be extended by
the number of days during the period from and including the date of the giving
of such notice pursuant to Section 6(c)(6) hereof to and including the date when
each seller of Registrable Securities covered by such Registration Statement
shall have received the copies of the supplemented or amended prospectus
contemplated by Section 6(k) hereof or the Advice.
7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses associated with filings required to be made
with the NASD (including, if applicable, the fees and expenses of any "qualified
independent underwriter" and its counsel as may be required by the rules and
regulations of the NASD), fees and expenses of compliance with securities or
blue sky laws (including fees and disbursements of counsel for the underwriters
or selling holders in connection with blue sky qualifications of the Registrable
Securities and determination of their eligibility for investment under the laws
of such jurisdictions as the managing underwriters or holders of a majority of
the Registrable Securities being sold may designate), printing expenses
(including expenses of printing certificates for the Registrable Securities in a
form eligible for deposit with Depositary Trust Company and of printing
prospectuses), messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and for the sellers of the Registrable
Securities (subject to the provisions of Section 7(b) hereof) and of all
independent certified public accountants of the Company (including the expenses
of any special audit and "cold comfort" letters required by or incident to such
performance), underwriters (excluding discounts, commissions or fees of
underwriters, selling brokers, dealer managers or similar securities industry
professionals relating to the distribution of the Registrable Securities or
legal expenses of any Person other than the Company and the selling holders),
"road show" fees and expenses of the Company and its management, securities acts
liability insurance if the Company so desires and fees and expenses of other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses") will be borne by the Company, regardless whether the
Registration Statement becomes effective. The Company will, in any event, pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal or accounting duties), the
expense of any annual audit, the fees and expenses incurred in connection with
the listing of the securities to be registered on each securities exchange on
which similar
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securities issued by the Company are then listed, rating agency fees and the
fees and expenses of any Person, including special experts, retained by the
Company.
(b) In connection with the Shelf Registration, a Demand Registration
or a Piggyback Registration hereunder, the Company will reimburse the holders of
Registrable Securities being registered in such registration for the reasonable
fees and disbursements of not more than one counsel (or more than one counsel if
a conflict exists among such selling holders in the exercise of the reasonable
judgment of counsel for the selling holders and counsel for the Company) chosen
by the holders of a majority of such Registrable Securities.
8. INDEMNIFICATION
(a) INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and
hold harmless, to the full extent permitted by law, each holder of Registrable
Securities, its officers, directors and employees and each Person who controls
such holder (within the meaning of the Securities Act) against all losses,
claims, damages, liabilities and expenses caused by any untrue or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary Prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained in
any information furnished in writing to the Company by such holder expressly for
use therein; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or expense
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such preliminary Prospectus if (i)
such holder failed to deliver a copy of the Prospectus to the person asserting
such loss, claim, damage, liability or expense after the Company had furnished
such holder with a sufficient number of copies of the same and (ii) the
Prospectus completely corrected such untrue statement or omission; and PROVIDED,
FURTHER, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability or expense arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if such untrue statement or alleged untrue
statement, omission or alleged omission is completely corrected in an amendment
or supplement to the Prospectus and the holder of Registrable Securities
thereafter fails to deliver such Prospectus as so amended or supplemented prior
to or concurrently with the sale of the Registrable Securities to the person
asserting such loss, claim, damage, liability or expense after the Company had
furnished such holder with a sufficient number of copies of the same. The
Company will also indemnify underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution,
their officers and directors and each Person who controls such Persons (within
the meaning of the Securities Act) to the same extent as provided above with
respect to the indemnification of the holders of Registrable Securities, if
requested.
(b) INDEMNIFICATION BY HOLDER OF REGISTRABLE SECURITIES. In
connection with the Shelf Registration, a Demand Registration or a Piggyback
Registration, each holder of Registrable Securities will furnish to the Company
in writing such information and affidavits as the Company reasonably requests
for use in connection with any Registration Statement or
12
<PAGE>
Prospectus and agrees to indemnify and hold harmless, to the full extent
permitted by law, the Company, its directors and officers and each Person who
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue
statement of a material fact or any omission of a material fact required to be
stated in the Registration Statement or Prospectus or preliminary Prospectus or
necessary to make the statements therein not misleading, to the extent, but only
to the extent, that such untrue statement or omission is contained in any
information or affidavit so furnished in writing by such holder to the Company
specifically for inclusion in such Registration Statement or Prospectus. In no
event shall the liability of any selling holder of Registrable Securities
hereunder be greater in amount than the dollar amount of the proceeds received
by such holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same
extent as provided above with respect to information so furnished in writing by
such Persons specifically for inclusion in any Prospectus or Registration
Statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; PROVIDED, HOWEVER, that any Person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such Person unless (a) the
indemnifying party has agreed to pay such fees or expenses, or (b) the
indemnifying party shall have failed to assure the defense of such claim and
employ counsel reasonably satisfactory to such Person or (c) in the reasonable
judgment of any such Person, based upon advice of its counsel, a conflict of
interest may exist between such Person and the indemnifying party with respect
to such claims (in which case, if the Person notifies the indemnifying party in
writing that such Person elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such claim on behalf of such Person). If such defense is not
assumed by the indemnifying party, the indemnifying party will not be subject to
any liability for any settlement made without its consent (but such consent will
not be unreasonably withheld). No indemnifying party will be required to
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect to such
claim or litigation. An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If for any reason the indemnification provided for
in the preceding clauses (a) and (b) is unavailable to an indemnified party or
insufficient to hold it
13
<PAGE>
harmless as contemplated by the preceding clauses (a) and (b), then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect not only the relative benefits received
by the indemnified party and the indemnifying party, but also the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations, PROVIDED that no Purchaser shall be required
to contribute in an amount greater than the dollar amount of the proceeds
received by such Purchaser with respect to the sale of any securities. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
9. RULE 144
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder (or, if the Company is not required to
file such reports, it will, upon the request of any holder of Registrable
Securities made after March 30, 2000, make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 under the Securities
Act), and it will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the SEC. Upon the
request of any holder of Registrable Securities, the Company will deliver to
such holder a written statement as to whether it has complied with such
information and requirements.
10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
If any of the Registrable Securities covered by the Shelf
Registration, a Demand Registration or a Piggyback Registration are to be sold
in an underwritten offering, the investment banker or investment bankers and
manager or managers that will administer the offering will be selected by the
holders of a majority of such Registrable Securities included in such offering;
PROVIDED that such investment bankers and managers must be reasonably
satisfactory to the Company. If requested by the holders of a majority of such
Registrable Securities, the Company shall use its best efforts to make available
its senior management to participate in any "road shows" reasonably requested by
such holders.
No Person may participate in any underwritten registration hereunder
unless such Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
Nothing in this Section 10 shall be construed to create any additional rights
regarding the registration of Registrable Securities in any Person otherwise
than as set forth herein.
14
<PAGE>
11. MISCELLANEOUS
(a) REMEDIES. Remedies for breach by the Company of its obligations
to register the Registrable Securities shall be as set forth herein.
Each holder of Registrable Securities, in addition to being entitled
to exercise all rights provided herein or granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to the holders of Registrable
Securities in this Agreement or otherwise conflicts with the provisions hereof.
Other than as disclosed on Schedule 11(b) hereto, the Company has not previously
entered into any agreement with respect to its securities granting any
registration rights to any Person. The rights granted to the holders of
Registrable Securities hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of the Company's securities
under any such agreements.
(c) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least 50% of the outstanding Registrable Securities.
(d) NOTICES. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
(i) if to a holder of Registrable Securities, at the most current
address given by such holder to the Company in accordance with the
provisions of this Section 11(d), which address initially is, with respect
to the Purchaser, the address set forth next to the Purchaser's name on the
signature page of the Purchase Agreement, with a copy to Latham & Watkins,
633 West 5th Street, Suite 4000, Los Angeles, California 90071, Attention:
Eva Herbst Davis, Esq.; and
(ii) if to the Company, initially to Regent Assisted Living, Inc., 121
SW Morrison, Suite 1000, Attention: General Counsel and thereafter at such
other address, notice of which is given in accordance with the provisions
of this Section 11(d), with a copy to Stoel Rives LLP, 900 SW Fifth Avenue,
Suite 2300, Portland, Oregon 97204, Attention: Todd Bauman, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt
15
<PAGE>
acknowledged, if telecopied; and on the next business day if timely delivered to
an air courier guaranteeing overnight delivery.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent holders of Registrable Securities.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of California.
(i) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(j) ENTIRE AGREEMENT. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted by the Company with respect to
the securities sold pursuant to the Purchase Agreement. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
(k) ATTORNEYS' FEES. In any action or proceeding brought to enforce
any provision of this Agreement, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to its costs and expenses and any
other available remedy.
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company: REGENT ASSISTED LIVING, INC.,
an Oregon corporation
By: /s/ Walter C. Bowen
--------------------------------
Title: President
Purchaser: LTC EQUITY HOLDING
COMPANY, INC.,
a Nevada corporation
By: /s/ James. J. Pieczynski
--------------------------------
Title: President and Chief Financial
Officer
17
<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,
as amended (Form 10) of LTC Healthcare, Inc. dated August 21, 1998.
/s/ ERNST & YOUNG LLP
Los Angeles, California
August 21, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE LTC
HEALTHCARE, INC. ASSET GROUP'S FINANCIAL STATEMENTS INCLUDED IN LTC HEALTHCARE,
INC.'S REGISTRATION STATEMENT ON FORM 10 INCORPORATED BY REFERENCE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 6-MOS
6-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997 DEC-31-1997
DEC-31-1998
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1997 JAN-01-1997
JAN-01-1998
<PERIOD-END> DEC-31-1995 DEC-31-1996 DEC-31-1997 JUN-30-1997
JUN-30-1998
<CASH> 0 0 0 0
0
<SECURITIES> 0 0 0 0
0
<RECEIVABLES> 0 225 179 0
221
<ALLOWANCES> 0 0 0 0
0
<INVENTORY> 0 0 0 0
0
<CURRENT-ASSETS> 0 225 179 0
221
<PP&E> 0 18,172 18,172 0
18,225
<DEPRECIATION> 0 2,157 2,789 0
3,105
<TOTAL-ASSETS> 0 16,240 15,562 0
15,340
<CURRENT-LIABILITIES> 0 119 137 0
111
<BONDS> 0 0 0 0
0
0 0 0 0
0
0 0 0 0
0
<COMMON> 0 0 0 0
0
<OTHER-SE> 0 1,375 802 0
(8,329)
<TOTAL-LIABILITY-AND-EQUITY> 0 16,240 15,562 0
15,340
<SALES> 0 0 0 0
0
<TOTAL-REVENUES> 2,343 2,349 2,350 1,171
1,226
<CGS> 0 0 0 0
0
<TOTAL-COSTS> 715 1,827 2,041 1,016
1,196
<OTHER-EXPENSES> 0 0 0 0
0
<LOSS-PROVISION> 0 0 0 0
0
<INTEREST-EXPENSE> 0 0 0 0
0
<INCOME-PRETAX> 1,628 522 309 155
30
<INCOME-TAX> 633 203 120 60
12
<INCOME-CONTINUING> 995 319 189 95
18
<DISCONTINUED> 0 0 0 0
0
<EXTRAORDINARY> 0 0 0 0
0
<CHANGES> 0 0 0 0
0
<NET-INCOME> 995 319 189 95
18
<EPS-PRIMARY> 0 0 0 0
0
<EPS-DILUTED> 0 0 0 0
0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LTC
HEALTHCARE, INC.'S FINANCIAL STATEMENTS 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 FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<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>
