<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20459
---------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from ____ to ____
Commission file number 1-14151
LTC HEALTHCARE, INC.
(Exact name of Registrant as specified in its charter)
Nevada 91-1895305
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No)
300 Esplanade Drive, Suite 1860
Oxnard, California 93030
(Address of principal executive offices)
(805) 981-8655
(Registrant's telephone number, including area code)
Indicate by check mark whether Registrant (1) has filed all reports
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
(1) Yes X No
--- ---
(2) Yes No X
--- ---
Shares of Registrant's common stock, $.01 par value, outstanding at November 9,
1998 - 3,289,332 (excludes Treasury Shares of 46,550)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
LTC HEALTHCARE, INC.
FORM 10-Q
SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations . . . . . . . 4
Condensed Consolidated Statement of Cash Flows . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . 6
Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations. . . 12
PART II -- OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 16
</TABLE>
2
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30,
1998
--------------
(Unaudited)
<S> <C>
ASSETS
Real Estate Investments:
Buildings and improvements $ 61,375,900
Land 3,806,600
Accumulated depreciation (3,810,000)
-------------
Real Estate Investments, net 61,372,500
Equity Investments 2,966,900
Convertible Subordinated Debentures 8,500,000
Other Assets:
Cash and cash equivalents 32,600
Debt issue costs, net 96,900
Prepaid expenses and other assets 433,600
-------------
563,100
-------------
Total Assets $ 73,402,500
-------------
-------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Mortgage loans $ 46,642,800
Note payable to LTC Properties, Inc. 12,362,800
Accrued interest 199,700
Accrued expenses and other liabilities 512,600
-------------
Total Liabilities 59,717,900
Minority Interest 3,460,600
Commitments
Stockholders' Equity:
Preferred stock $0.01 par value: 10,000,000 shares authorized;
No shares issued and outstanding -
Common stock: $0.01 par value; 40,000,000 shares authorized;
3,335,882 shares issued 33,400
Capital in excess of par value 10,224,200
Retained earnings (33,500)
Treasury stock, at par value, 12,450 shares (100)
-------------
Total Stockholders' Equity 10,224,000
-------------
Total Liabilities and Stockholders' Equity $ 73,402,500
-------------
-------------
</TABLE>
SEE ACCOMPANYING NOTES
3
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Period from Inception
Three Months Ended (March 25, 1998) to
September 30, 1998 September 30, 1998
------------------ ---------------------
<S> <C> <C>
Revenues:
Rental income $ 423,100 $ 423,100
Interest income from convertible subordinated debentures 136,700 241,700
Other interest and dividend income 50,200 60,200
----------- -----------
Total revenues 610,000 725,000
----------- -----------
Expenses:
Interest on mortgages payable 144,100 144,100
Interest on note payable to LTC Properties, Inc. 222,200 320,700
Depreciation 89,700 89,700
Minority interest - -
General and administrative 191,400 204,000
----------- -----------
Total expenses 647,400 758,500
----------- -----------
Operating loss (37,400) (33,500)
Provision for income taxes - -
----------- -----------
Net loss $ (37,400) $ (33,500)
----------- -----------
----------- -----------
Weighted average shares outstanding 3,323,432 3,323,432
Basic net loss per share $ (0.01) $ (0.01)
----------- -----------
Diluted net loss per share $ (0.01) $ (0.01)
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES
4
<PAGE>
LTC HEALTHCARE, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Period from Inception
(March 25, 1998) to
September 30, 1998
---------------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ (33,500)
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 89,700
Net change in other assets and liabilities 285,400
-------------
Net cash provided by operating activities 341,600
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 2,001,000
Advance on note payable to LTC Properties, Inc. 8,635,200
Payments on note payable to LTC Properties, Inc. (17,668,000)
Mortgage loan borrowings 17,400,000
Principal payments on mortgage loans payable (20,600)
Other 22,600
-------------
Net cash provided by financing activities 10,370,200
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in convertible subordinated debentures (8,500,000)
Acquisition of LTC Properties, Inc. common stock (2,179,200)
-------------
Net cash used in investing activities (10,679,200)
-------------
Increase (decrease) in cash and cash equivalents 32,600
Cash and cash equivalents, beginning of period -
-------------
Cash and cash equivalents, end of period $ 32,600
-------------
-------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 144,100
Non-cash investing and financing transactions:
Contribution of net assets from LTC Properties, Inc. 10,224,000
</TABLE>
SEE ACCOMPANYING NOTES
5
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
LTC Healthcare, Inc. (the "Company"), a Nevada corporation, was incorporated on
March 20, 1998 and began operations on March 25, 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.
The Company was originally a preferred stock subsidiary of LTC Properties, Inc.
("LTC"), a Maryland corporation and real estate investment trust. On September
30, 1998, concurrently with the conversion of all shares of Company non-voting
common stock held by LTC into voting common stock of the Company, LTC completed
the spin-off of Company common stock through a taxable dividend to holders of
LTC common stock, convertible subordinated debentures and Series C Preferred
Stock (the "Distribution"). Upon completion of the Distribution, the Company
began operating as a separate public company. See Note 3. --Distribution of
LTC's Investment in the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION. The accompanying financial statements as of September
30, 1998, for the three months ended September 30, 1998 and for the period
from inception (March 25, 1998) through September 30, 1998 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.
CASH EQUIVALENTS. Cash equivalents consist of highly liquid investments with a
maturity of three months or less and are stated at cost which approximates
market.
REAL ESTATE. Real estate assets transferred to the Company from LTC are
recorded at LTC's historical cost. See Note 3. --Distribution of LTC's
Investment in the Company. Land and buildings and improvements acquired by the
Company are recorded at the Company's cost. 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 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.
INVESTMENTS IN DEBT AND EQUITY SECURITIES. Investments in debt and equity
securities are accounted for at fair value as available-for-sale securities.
Unrealized holding gains and losses resulting from changes in the fair value are
reported as a separate component of stockholders' equity and comprehensive
income.
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
6
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
percentage of increased revenue over a specified base period revenue of the
long-term care facilities, is recognized as earned.
GENERAL AND ADMINISTRATIVE EXPENSES. The Company has entered into an agreement
with LTC whereby LTC will provide 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 (the "Administrative
Services Agreement"). In exchange for these services, the Company will pay a
monthly fee equal to 25% of the aggregate amount of all wages, salaries and
bonuses paid to LTC employees and the aggregate amount of rent paid by LTC for
rental of its principal corporate offices. See Note 3. --Distribution of LTC's
Investment in the Company.
INCOME TAXES. Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax bases and book bases of assets and
liabilities at each year end based on enacted laws and statutory tax rates
applicable to the years in which the differences are expected to affect taxable
income.
CONCENTRATION OF CREDIT RISKS. As of September 30, 1998, Integrated Health
Services, Inc. ("IHS"), Sun Healthcare Group, Inc., through a wholly-owned
subsidiary, ("Sun") and Karrington Health, Inc., ("Karrington") were the
Company's largest operators. As of September 30, 1998, approximately 11%,
25% and 60% of the Company's gross real estate investments were leased to
IHS, Sun and Karrington, respectively. In addition, as of September 30,
1998, the Company's investment of $8,500,000 in Regent Assisted Living, Inc.
("Regent") convertible subordinated debentures represented 12% of the
Company's total assets. See Note 4. --Regent Convertible Subordinated
Debentures. The Company's financial position, results of operations and
liquidity could be adversely affected by financial difficulties experienced
by IHS, Sun, Karrington or Regent, including bankruptcy, insolvency or
general downturn in business, or in the event IHS, Sun, or Karrington does
not renew and/or extend its leases with the Company as they expire.
IHS, Sun, Karrington and Regent are publicly-traded companies and as such,
are subject to the reporting requirements of the Securities and Exchange
Commission. The following table contains summary information (in thousands)
for IHS, Sun, Karrington and Regent that was extracted from public reports on
file with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Six Months Ended June 30,
June 30, December 31, -------------------------
1998 1997 1998 1997
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
IHS
Total assets $5,398,583 $5,063,144 N/A N/A
Total debt 3,184,153 3,238,233 N/A N/A
Total stockholders' equity 1,469,401 1,088,161 N/A N/A
Total revenues N/A N/A $1,671,554 $918,916
Income before taxes and extraordinary items N/A N/A 134,877 46,384
Net income N/A N/A 79,577 10,126
SUN
Total assets $3,017,750 $2,826,519 N/A N/A
Total debt 1,632,973 1,799,019 N/A N/A
Total stockholders' equity 578,058 624,740 N/A N/A
Total revenues N/A N/A $1,637,011 $981,670
Income (loss) before taxes and extraordinary items N/A N/A (21,670) 47,736
Net income (loss) N/A N/A (55,652) 28,036
</TABLE>
7
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Six Months Ended June 30,
June 30, December 31, -------------------------
1998 1997 1998 1997
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
KARRINGTON
Total assets $139,849 $141,316 N/A N/A
Total debt 105,469 104,506 N/A N/A
Total stockholders' equity 20,664 26,507 N/A N/A
Total revenues N/A N/A $14,414 $7,706
Loss before taxes N/A N/A (5,843) (871)
Net loss N/A N/A (5,843) (727)
REGENT
Total assets $ 62,836 $ 75,704 N/A N/A
Total debt 42,573 56,169 N/A N/A
Total stockholders' equity 10,686 15,917 N/A N/A
Total revenues N/A N/A $10,961 $6,628
Loss before taxes N/A N/A (4,931) (565)
Net loss N/A N/A (4,931) (540)
</TABLE>
On October 19, 1998, Sunrise Assisted Living, Inc. ("Sunrise") and Karrington
announced a definitive agreement whereby Sunrise would acquire Karrington. The
acquisition, which is subject to shareholder and regulatory approval, is
expected to be completed during the first quarter of 1999.
3. DISTRIBUTION OF LTC'S INVESTMENT IN THE COMPANY
During the period from inception (March 25, 1998) to September 30, 1998, LTC
acquired 4,002 shares of Company non-voting common stock for $2,001,000 and
contributed equity investments with a book value of $787,700, 13 real estate
properties with a gross book value of $65,182,500 (net book value of
$61,462,200) that were encumbered by $29,263,400 of mortgage debt on seven of
the properties and a minority interest liability of $3,460,600, and other
related assets and liabilities with a book value of $92,700 to the Company in
exchange for an additional 36,000 shares of Company non-voting common stock and
borrowings by the Company under the unsecured line of credit provided by the LTC
of $21,395,600. During 1998, the Company borrowed an additional $8,635,200
under the unsecured line of credit. Subsequent to the contribution of the above
assets and liabilities by the LTC to the Company, the Company obtained mortgage
financing of $17,400,000 from a third-party lender on four of the unencumbered
properties. The Company utilized proceeds from the mortgage debt and cash on
hand to repay borrowings of $17,668,000 under the unsecured line of credit
provided by LTC.
On September 30, 1998, the 40,002 shares of Company non-voting common stock held
by the LTC were converted into 3,335,882 shares of Company voting common stock.
Concurrently, LTC completed the spin-off of all Company voting common stock
through a taxable dividend distribution to the holders of LTC common stock,
Cumulative Convertible Series C Preferred Stock ("Series C Preferred Stock") and
Convertible Subordinated Debentures (the "Debentures"). One share of Company
common stock was distributed to each holder of LTC common stock, Series C
Preferred Stock and Debentures for each ten shares of LTC common stock owned and
for each ten shares of LTC common stock that would have been issued upon
conversion of the Debentures and Series C Preferred Stock. Upon completion of
the Distribution, the Company began operating as a separate public company.
For book purposes, the net assets and liabilities transferred to the Company by
LTC were transferred at LTC's book value of approximately $10,224,000. The
Distribution was a taxable dividend distribution by LTC and accordingly, for tax
purposes, the net assets and liabilities were transferred at their net fair
market value of approximately $15,650,000 ($4.69 per share of Company common
stock).
8
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
The Company and LTC have entered into various agreements which, among other
things, provide for a sharing of corporate overhead under an administrative
services agreement. During the three months ended September 30, 1998 and the
period from inception (March 25, 1998) to September 30, 1998, LTC charged the
Company an administrative services fee of approximately $175,100.
4. CONVERTIBLE SUBORDINATED DEBENTURES
On March 30, 1998, the Company agreed to purchase $10,000,000 principal amount
of convertible subordinated debentures from Regent (the "Regent Debentures").
The Regent Debentures mature on March 31, 2008, bear interest at 7.5% and are
convertible into Regent common stock at $7.50 per share. Regent can require
conversion of the Regent Debentures at such time as the Regent common stock
trades at $12.00 per share or more for 30 consecutive days. As of September 30,
1998, the Company has completed the purchase of $8,500,000 principal amount of
Regent Debentures. As of September 30, 1998, the purchase price approximated
the fair value of the Regent Debentures. The Company does not anticipate
purchasing any additional Regent Debentures.
In October 1998, the Company purchased $3,000,000 face amount of Assisted Living
Concepts, Inc. ("ALC") 5.625% convertible subordinated debentures due 2003 for
approximately $2,160,000.
5. EQUITY INVESTMENTS
The Company purchased for investment purposes, 124,500 shares of LTC common
stock. The shares were purchased at a weighted average price of $17.50 per
share for a total investment amount of approximately $2,179,200. As of
September 30, 1998, the purchase price approximated the fair market value of
such shares of LTC common stock. As of September 30, 1998, the aggregate book
value of the Company's investment in LTC common stock approximated book value.
LTC transferred equity investments consisting of 69,000 shares of Regent common
stock and 30,847 shares of ALC common stock to the Company. See Note 3.
- --Distribution of LTC's Investment in the Company. As of September 30, 1998 the
aggregate book value of the Regent and ALC common stock was approximately
$787,700 which was equal to its fair market value.
Subsequent to September 30, 1998, the Company acquired 69,600 shares of LTC
common stock for an aggregate cost of approximately $1,128,600. In addition,
the Company sold its investment in Regent common stock for total proceeds of
approximately $387,400. The Company will recognize a gain of approximately
$85,500 on the sale.
6. NOTE PAYABLE TO LTC
On March 30, 1998, the Company obtained an $8,000,000 unsecured line of credit
from LTC. On May 19, 1998, the amount available under the unsecured line of
credit was increased to $20,000,000. The line of credit bears interest at 10%
and matures in March 2008. As of September 30, 1998, borrowings of $12,362,800
were outstanding under the line of credit. The Company recorded interest
expense under the unsecured line of credit of $222,200 and $320,700 for the
three months ended September 30, 1998 and for the period from inception (March
25, 1998) to September 30, 1998, respectively.
9
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
7. MORTGAGES PAYABLE
In connection with the transfer of seven real estate properties from LTC to the
Company, the Company assumed non-recourse mortgage loans totaling $29,263,400
and bearing interest at a weighted average rate of 9.1%. See Note 3.
- --Distribution of LTC's Investment in the Company.
In August 1998, the Company obtained mortgage financing of $17,400,000 from a
third-party lender on four of the unencumbered properties transferred from LTC.
The mortgage loan bears interest at 7.27% and matures in August 2008.
Total annual debt service on mortgage loans payable is approximately $4,487,000.
8. STOCKHOLDERS' EQUITY
In connection with the formation of the Company, on March 25, 1998, 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 in exchange for a $1,000 promissory note. LTC acquired an
additional 4,000 shares of non-voting common stock for $2,000,000 and 36,000
shares of non-voting common stock in exchange for the contribution of certain
assets and liabilities. On September 30, 1998, the 2 shares of voting common
stock acquired by Mr. Ishikawa were retired in return for the cancellation of
the $1,000 promissory note.
On September 30, 1998, the 40,002 shares of Company non-voting common stock held
by the LTC were converted into 3,335,882 shares of Company voting common stock.
On September 30, 1998, the date of the Distribution, the Company owned 124,500
shares of LTC common stock and as a result of the Distribution, received 12,450
shares of treasury stock. See Note 3. --Distribution of LTC's Investment in the
Company.
Subsequent to September 30, 1998, the Company's Board of Directors approved the
repurchase of up to 300,000 shares of its common stock. Purchases will be made
in the open market, or in negotiated transactions, at such times and at such
prices as management may decide. On November 9, 1998, the Company repurchased
34,100 shares of its common stock in the open market at an average price of
$2.50 per share.
9. INCOME TAXES
For federal and state income tax purposes, the Company recorded the assets and
liabilities transferred from LTC at the net fair market value which was
approximately $5,426,000 higher than their net book value at the date of
transfer. The excess of fair market value over book value was recorded as a
deferred tax asset. Sufficient taxable income must be generated in future years
to realize the tax benefit 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 was established against the deferred tax asset resulting from the
transfer of assets and liabilities from LTC and net operating loss
carryforwards. See Note 3. --Distribution of LTC's Investment in the Company.
10
<PAGE>
LTC HEALTHCARE, INC.
NOTES TO FINANCIAL STATEMENTS
10. NET LOSS PER SHARE
The Company had no dilutive securities for the three months ended September 30,
1998 or for the period from inception (March 25, 1998) to September 30, 1998.
Weighted average shares outstanding for the three months ended September 30,
1998 and for the period from inception (March 25, 1998) to September 30, 1998
were calculated assuming the conversion of 40,002 shares of non-voting common
stock held by LTC into 3,335,882 shares of voting common stock and the
acquisition of 12,450 shares of treasury stock by the Company occurred at the
beginning of each period. See Note 8. --Stockholders' Equity.
11
<PAGE>
LTC HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATING RESULTS
The Company was not formed until March 25, 1998 therefore, comparison results
with 1997 are not provided. The following table summarizes the Company's actual
results of operations for the period from inception (March 25, 1998) to
September 30, 1998 and for the three months ended September 30, 1998 and pro
forma results of operations for the three months ended September 30, 1998. Pro
forma results of operations have been adjusted to give effect to the transfer of
certain real properties and related assets and liabilities from LTC in
connection with its spin-off of the Company as if such transfer had occurred on
July 1, 1998.
<TABLE>
<CAPTION>
Pro Forma Actual
------------------ --------------------------------------------
Period from Inception
Three Months Ended Three Months Ended (March 25, 1998) to
September 30, 1998 September 30, 1998 September 30, 1998
------------------ ------------------ ---------------------
<S> <C> <C> <C>
Revenues:
Rental income $ 1,720,200 $ 423,100 $ 423,100
Interest income from Regent debentures 136,700 136,700 241,700
Other interest and dividend income 51,000 50,200 60,200
------------- ----------- -----------
Total revenues 1,907,900 610,000 725,000
------------- ----------- -----------
Expenses:
Interest on mortgages payable 990,400 144,100 144,100
Interest on note payable to LTC Properties, Inc. 271,900 222,200 320,700
Depreciation 495,300 89,700 89,700
Minority interest 85,800 - -
General and administrative 208,600 191,400 204,000
------------- ----------- -----------
Total expenses 2,052,000 647,400 758,500
------------- ----------- -----------
Operating loss (144,100) (37,400) (33,500)
Provision for income taxes - - -
------------- ----------- -----------
Net loss $ (144,100) $ (37,400) $ (33,500)
------------- ----------- -----------
------------- ----------- -----------
Weighted average shares outstanding 3,323,432 3,323,432 3,323,432
Basic net loss per share $ (0.04) $ (0.01) $ (0.01)
------------- ----------- -----------
Diluted net loss per share $ (0.04) $ (0.01) $ (0.01)
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
ACTUAL - PERIOD FROM INCEPTION (MARCH 25, 1998) TO SEPTEMBER 30, 1998 AND
THREE MONTHS ENDED SEPTEMBER 30, 1998
On August 18, 1998, LTC transferred six properties operated by Karrington to the
Company. For the period from inception (March 25, 1998) to September 30, 1998
and for the three months ended September 30, 1998 the Company recorded rental
income of $423,100 which represents rent from August 18, 1998 to September 30,
1998 on the Karrington properties. On September 30, 1998, LTC transferred the
remaining seven real estate properties which were contributed to the Company in
connection with the Distribution. No rental income was recognized on these
seven properties for the
12
<PAGE>
LTC HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
period from inception (March 25, 1998) to September 30, 1998 and for the three
months ended September 30, 1998.
Interest income from convertible subordinated debentures of $241,700 for the
period from inception (March 25, 1998) to September 30, 1998 and $136,700 for
the three months ended September 30, 1998 represents interest earned on the
Company's investment in Regent Debentures.
Other interest and dividend income of $60,200 for the period from inception
(March 25, 1998) to September 30, 1998 and $50,200 for the three months ended
September 30, 1998 primarily consists of dividends earned on the Company's
investment in LTC common stock.
Interest expense of $144,100 for the period from inception (March 25, 1998) to
September 30, 1998 and for the three months ended September 30, 1998 represents
interest at 7.27% on a mortgage loan of $17,400,000 obtained by the Company in
August 1998. Mortgage debt of $29,263,400 transferred to the Company in
connection with the Distribution was assumed on September 30, 1998 and
accordingly, no interest expense was recognized.
Interest on note payable to LTC of $320,700 for the period from inception (March
25, 1998) to September 30, 1998 and $222,200 for the three months ended
September 30, 1998 represents interest at 10% on average borrowings outstanding
under the unsecured credit line provided by LTC to the Company.
Depreciation expense of $89,700 for the period from inception (March 25, 1998)
to September 30, 1998 and for the three months ended September 30, 1998
represents depreciation from August 18, 1998 to September 30, 1998 on the six
properties operated by Karrington which were transferred to the Company by LTC
on August 18, 1998.
General and administrative expenses were $204,000 for the period from inception
(March 25, 1998) to September 30, 1998 and $191,400 for the three months ended
September 30, 1998. General and administrative expenses include a fee of
$175,100 for services provided by LTC under the administrative services
agreement.
No benefit for income taxes was recorded since the Company believes that it is
more likely than not that future taxable income will not be sufficient to
realize tax benefits associated with net operating loss carryforwards.
PRO FORMA - THREE MONTHS ENDED SEPTEMBER 30, 1998
Pro forma results of operations for the three months ended September 30, 1998
have been adjusted to give effect to the transfer of certain real properties and
related assets and liabilities from LTC in connection with its spin-off of the
Company as if such transfer had occurred on July 1, 1998. Accordingly, revenues
and operating costs have been adjusted to include the actual operations of the
13 real estate properties and other related assets and liabilities contributed
by LTC for the entire three months ended September 30, 1998 and interest on the
note payable to LTC has been adjusted to include interest expense on the net
borrowings under the unsecured line of credit in connection with the
contribution of assets as if such borrowings had occurred on July 1, 1998.
13
<PAGE>
LTC HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
In connection with the formation and capitalization of the Company, LTC provided
the Company with a $20.0 million unsecured line of credit. Borrowings
outstanding under the unsecured line of credit bear interest at 10% and mature
in 2008. As of September 30, 1998, the Company had borrowings outstanding under
the unsecured line of credit of $12,362,800.
In addition to amounts available under the unsecured line of credit, as of
September 30, 1998, the Company owns unencumbered assets consisting of
approximately $16.1 million in real estate, $8.5 million in convertible
subordinated debentures and $3.0 million in marketable equity securities.
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.
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.
As of September 30, 1998, 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.
YEAR 2000
The Company has evaluated its internal accounting and information systems
(collectively the "Systems") to assess whether it will function properly with
respect to dates in the year 2000 and beyond. Systems that are determined to be
non-compliant with the year 2000 and beyond will be upgraded or replaced.
Implementation of year 2000 compliant Systems and upgrades to existing Systems
are expected to be completed by mid-1999. The total cost associated with
modifications required to become year 2000 compliant will not be material to the
Company's financial position, results of operations or liquidity. Due to the
Company's limited reliance on complex Systems, the Company believes the year
2000 issue, as it relates to its internal Systems, will not have a material
adverse effect upon the Company's financial position, results of operations or
liquidity and as such has not developed a contingency plan.
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. Neither
we nor our lessees can be assured that the federal and state governments, upon
14
<PAGE>
LTC HEALTHCARE, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
which our lessees rely for Medicare and Medicaid revenue, will be in compliance
in a timely manner. The General Accounting Office has reported that the Health
Care Financing Administration, which runs Medicare, is behind schedule in taking
steps to deal with the year 2000 issue and that it is highly unlikely that all
of the Medicare systems will be compliant in time to ensure the delivery of
uninterrupted benefits and services into the year 2000. Due to the general
uncertainty surrounding the readiness of third-party tenants and other
third-parties, including the federal and state governments, with which the
Company and its lessees does business, the Company is unable at this time to
determine whether non-compliance with the year 2000 issue by third-parties will
have a material impact on the Company's financial position, results of
operations or liquidity.
The Company will also have year 2000 exposure in non-information technology
areas as it relates to owned properties. There is a risk that embedded chips in
elevators, security systems, electrical systems and similar technology-driven
devices may stop functioning on January 1, 2000. All of the Company's owned
properties are leased under triple-net leases and as such, the cost to repair
any of these items will be paid by the lessee.
Readers are cautioned that forward-looking statements contained in the above
discussion regarding year 2000 compliance should be read in conjunction with the
disclosure under the heading --Statement Regarding Forward Looking Disclosure.
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 operators, the amount and the timing of additional
investments and access to capital markets. See Exhibit 99 --Risk Factors for a
more comprehensive discussion of risks and uncertainties.
15
<PAGE>
PART II
LTC HEALTHCARE, INC.
OTHER INFORMATION
SEPTEMBER 30, 1998
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<S> <C>
(a) EXHIBITS
10.1 Distribution Agreement, dated as of September 30, 1998, by and
between LTC Properties, Inc. and LTC Healthcare, Inc.
10.2 Administrative Services Agreement, dated as of September 30,
1998, by and between LTC Properties, Inc. and LTC Healthcare,
Inc.
10.3 Intercompany Agreement, dated as of September 30, 1998, by and
between LTC Properties, Inc. and LTC Healthcare, Inc.
10.4 Tax Sharing Agreement, dated as of September 30, 1998, by and
between LTC Properties, Inc. and LTC Healthcare, Inc.
10.5 Amended and Restated Promissory Note, dated as of May 19, 1998,
between LTC Properties, Inc. and LTC Healthcare, Inc.
27 Financial Data Schedule
99 Risk Factors
In accordance with Item 601(b)(4)(iii) of Regulation S-K,
certain instruments pertaining to Registrant's long-term debt
have not been filed; copies thereof will be furnished to the
Securities and Exchange Commission upon request.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the three
months ended September 30, 1998.
</TABLE>
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LTC PROPERTIES, INC.
Registrant
Dated: November 12, 1998 By: /s/ JAMES J. PIECZYNSKI
--------------------------------
James J. Pieczynski
President and Chief Financial Officer
17
<PAGE>
EXHIBIT 10.1
DISTRIBUTION AGREEMENT
BY AND BETWEEN
LTC PROPERTIES, INC.
AND
LTC HEALTHCARE, INC.
DATED AS OF
September 30, 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
<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>
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (this "Agreement") is made as of this
30th day of September, 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 September 30, 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 September 15, 1998, subject to the fulfillment on or before
September 30, 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.
9
<PAGE>
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
10
<PAGE>
(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
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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
14
<PAGE>
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
15
<PAGE>
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
16
<PAGE>
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,
17
<PAGE>
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
18
<PAGE>
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
19
<PAGE>
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
20
<PAGE>
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.
21
<PAGE>
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.
22
<PAGE>
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
23
<PAGE>
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
24
<PAGE>
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}
<PAGE>
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: /s/ ANDRE C. DIMITRIADIS
---------------------------------------
Name: Andre C. Dimitriadis
Title: Chairman and Chief Executive Officer
LTC HEALTHCARE, INC.
By: /s/ JAMES J. PIECZYNSKI
---------------------------------------
Name: James J. Pieczynski
Title: President and Chief Financial Officer
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)
4
<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.
5
<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]
7
<PAGE>
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>
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
1
<PAGE>
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:
2
<PAGE>
(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
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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
6
<PAGE>
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.
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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
14
<PAGE>
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,
15
<PAGE>
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
16
<PAGE>
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.
17
<PAGE>
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.
18
<PAGE>
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,
19
<PAGE>
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
20
<PAGE>
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.
21
<PAGE>
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.
I-1
<PAGE>
(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
2
<PAGE>
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
3
<PAGE>
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.
4
<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.
5
<PAGE>
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
2
<PAGE>
periods ending on or before the Closing Date; and (ii) all federal and state
Income and Other Tax Returns of LTC for all taxable years and periods beginning
after the Closing Date. LTC shall pay, or cause to be paid, all Taxes due with
respect to Tax Returns described in this subsection (a). LTC shall be entitled
to all Tax refunds received or receivable with respect to any and all Income and
Other Taxes attributable to the LTC Assets for all taxable years and periods.
b. Healthcare shall prepare and timely file, or cause to be
prepared and timely filed, with the appropriate Taxing Authorities, all federal
and state Income and Other Tax Returns of the Healthcare Group and any member or
members thereof for taxable years and periods beginning after the Closing Date.
Healthcare shall pay, or cause to be paid, all Taxes due with respect to Tax
Returns described in this subsection (b). Healthcare shall be entitled to all
Tax refunds received or receivable with respect to any and all Income and Other
Taxes attributable to the Healthcare Assets for all taxable years and periods.
3. PAYMENTS.
a. METHOD. Unless the parties otherwise agree, all payments
made by a party pursuant to this Agreement shall be made by wire transfer to a
bank account designated from time to time by the other party. The paying party
shall also provide a notice of payment to the recipient.
b. INTEREST. If any payment is not timely paid, interest shall
accrue on the unpaid amount at the Overdue Rate. A payment will be deemed to be
timely paid only if actually received by the payee within seven (7) days of the
receipt of notice from the other party that such payment is due.
c. CHARACTERIZATION. Any payment (other than interest thereon)
made hereunder shall be treated by all parties for all purposes as a nontaxable
intercompany settlement of liabilities existing immediately before the
Distribution or, to the extent appropriate, as a non-taxable dividend
distribution or capital contribution.
4. CONTESTS AND AUDITS; INDEMNIFICATION.
a. NOTICE. Upon the receipt by LTC or Healthcare, as the case
may be, of notice of any pending or threatened Tax audit or assessment which may
affect the liability for Taxes that are subject to indemnification hereunder,
LTC or Healthcare, as the case may be, shall promptly notify the other in
writing of the receipt of such notice.
b. CONTROL AND SETTLEMENT. From and after the Closing Date,
LTC shall have full control over, and the right to represent the interests of,
LTC and all other corporations involved in or affected by any Tax audit or
administrative, judicial or other proceeding relating, in whole or in part, to
Taxes that are subject to indemnification by LTC hereunder. LTC shall have the
right to employ counsel of its choice at its expense, and shall have the
ultimate control of the contest and any settlement or other resolution thereof.
Any
3
<PAGE>
liability for Taxes established pursuant to such proceeding shall be allocated
and paid in accordance with Section 2 of this Agreement.
c. AMENDMENT OF TAX RETURNS. LTC shall have sole control over
the preparation and filing of any and all amendments to Tax Returns described in
Section 2(a).
d. INDEMNIFICATION. LTC shall indemnify and hold harmless
Healthcare and the Healthcare Group against any and all Income and Other Taxes
specifically attributable to the LTC Assets for all taxable years and periods.
Healthcare shall indemnify and hold harmless LTC against any and all Income and
Other Taxes specifically attributable to the Healthcare Assets for all taxable
years and periods.
5. COOPERATION; DOCUMENT RETENTION; CONFIDENTIALITY.
a. COOPERATION. Upon reasonable request, LTC and Healthcare
shall promptly provide (and shall cause their respective affiliates to provide)
the requesting party with such cooperation and assistance, documents, and other
information, without charge, as may be necessary or reasonably helpful in
connection with (i) the preparation and filing of any original or amended Tax
Return, (ii) the conduct of any audit, appeal, protest or other examination or
any judicial or administrative proceeding involving to any extent Taxes or Tax
Returns within the scope of this Agreement, or (iii) the verification by a party
of an amount payable hereunder to, or receivable hereunder from, another party.
Such cooperation and assistance shall include, without limitation: (a) the
provision on demand of books, records, Tax Returns, documentation or other
information relating to any relevant Tax Return; (b) the execution of any
document that may be necessary or reasonably helpful in connection with the
filing of any Tax Return, or in connection with any audit, appeal, protest,
proceeding, suit or action of the type generally referred to in the preceding
sentence, including, without limitation, the execution of powers of attorney and
extensions of applicable statutes of limitations; (c) the prompt and timely
filing of appropriate claims for refund; and (d) the use of reasonable best
efforts to obtain any documentation from a governmental authority or a third
party that may be necessary or helpful in connection with the foregoing. Each
party shall make its employees and facilities available on a mutually convenient
basis to facilitate such cooperation.
b. RETENTION. LTC and Healthcare shall retain or cause to be
retained all Tax Returns, and all books, records, schedules, workpapers, and
other documents relating thereto, which Tax Returns and other materials are
within the scope of this Agreement, until the expiration of the later of (i) all
applicable statutes of limitations (including any waivers or extensions
thereof), and (ii) any retention period required by law or pursuant to any
record retention agreement. The parties hereto shall notify each other in
writing of any waivers, extensions or expirations of applicable statutes of
limitations, and shall provide at least thirty (30) days prior written notice of
any intended destruction of the documents referred to in the preceding sentence.
A party giving such a notification shall not dispose of any of the foregoing
materials without first allowing the other party a reasonable opportunity to
copy them at such other party's expense.
4
<PAGE>
c. CONFIDENTIALITY. Except as required by law or with the
prior written consent of the other party, all Tax Returns, documents, schedules,
work papers and similar items and all information contained therein, which Tax
Returns and other materials are within the scope of this Agreement, shall be
kept confidential by the parties hereto and their representatives, shall not be
disclosed to any other person or entity and shall be used only for the purposes
provided herein.
6. MISCELLANEOUS.
a. EFFECTIVENESS. This Agreement shall be effective from and
after the Closing Date and shall survive until the expiration of all applicable
statutes of limitations with respect to taxable years and periods ending on or
before or including the Closing Date.
b. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, between the parties hereto with respect to
the subject matter hereof, so that no such external or separate agreement
relating to the subject matter of this Agreement shall have any effect or be
binding, unless the same is referred to specifically in this Agreement or is
executed by the parties after the date hereof. To the extent that the terms of
this Agreement and similar terms of the Distribution Agreement are in conflict,
this Agreement shall govern. This Agreement cancels and supersedes, as of the
Closing Date, any and all other agreements with respect to Taxes between LTC and
Healthcare.
c. SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
d. AMENDMENTS; WAIVERS. No termination, cancellation,
modification, amendment, deletion, addition or other change in this Agreement,
or any provision hereof, or waiver of any right or remedy herein provided, shall
be effective for any purpose unless such change or waiver is specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy with respect to any occurrence on one occasion
shall not be deemed a waiver of such right or remedy with respect to such
occurrence on any other occasion.
e. GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by the laws of the State of
California, without regard to
5
<PAGE>
the principles of choice of law thereof, except with respect to matters of law
concerning the internal corporate affairs of any corporate entity which is a
party to or subject of this Agreement, and as to those matters the law of the
jurisdiction under which the respective entity derives its powers shall govern.
f. NOTICES. All notices, requests, demands, statements, bills
and other communications under this Agreement shall be delivered in accordance
with Section 9.04 of the Distribution Agreement.
g. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. This Agreement shall not be assigned without the
express written consent of each of the parties hereto.
h. NO THIRD-PARTY BENEFICIARIES. This Agreement is solely for
the benefit of the parties hereto and shall not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action or other
right in excess of those existing without this Agreement.
i. TITLES AND HEADINGS. Titles and headings to sections herein
are inserted for the convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
j. PREDECESSORS AND SUCCESSORS. To the extent necessary to
give effect to the purposes of this Agreement, any reference to any corporation
shall also include any predecessor or successor thereto, by operation of law or
otherwise.
k. TAX ELECTIONS. Nothing in this Agreement is intended to
change or otherwise affect any previous tax election made by or on behalf of the
LTC Group, and LTC shall have sole discretion to make or change any and all
elections affecting the LTC Group or any member or members thereof for all
taxable years and periods ending on or before the Closing Date.
l. EXPENSES. Except as otherwise set forth in this Agreement,
all costs and expenses in connection with the preparation, execution, delivery
and implementation of this Agreement and with the consummation of the
transactions contemplated by this Agreement shall be charged to the party for
whose benefit the expenses are incurred, with any expenses which cannot be
allocated on such basis to be split equally between the parties.
m. DISPUTE RESOLUTION. Any dispute arising under this
Agreement shall be resolved by binding arbitration in the manner contemplated by
Section 9.13 of the Distribution Agreement, including the attorneys fees
provisions referred to therein.
n. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which together shall be deemed to be an original and all
of which together shall be deemed to constitute one and the same agreement.
6
<PAGE>
o. RELATIONSHIP OF PARTIES. Nothing in this Agreement shall be
deemed or construed by the parties or any third party as creating the
relationship of principal and agent, partnership or joint venture between the
parties, it being understood and agreed that no provision contained herein, and
no act of the parties, shall be deemed to create any relationship between the
parties other than the relationship set forth herein.
p. FURTHER ACTION. Healthcare and LTC each shall cooperate in
good faith and take such steps and execute such papers as may be reasonably
requested by the other party to implement the terms and provisions of this
Agreement.
q. LEGAL ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction. Without
prejudice to any rights or remedies otherwise available to any party hereto,
each party hereto acknowledges that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agrees that the obligations
of the parties hereunder shall be specifically enforceable.
[SIGNATURE PAGE FOLLOWS]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LTC PROPERTIES, INC., A MARYLAND CORPORATION.
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
LTC HEALTHCARE INC., A NEVADA CORPORATION
By: _____________________________________________
Name: ___________________________________________
Title: __________________________________________
S-1
<PAGE>
EXHIBIT 10.2
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement") is made and
entered into as of September 30, 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" -- September 15, 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)
4
<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.
5
<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]
7
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
LTC PROPERTIES, INC., a Maryland corporation
BY: /s/ ANDRE C. DIMITRIADIS
-------------------------------------------
Name: Andre C. Dimitriadis
Title: Chairman and Chief Executive Officer
LTC HEALTHCARE, INC., a Nevada corporation
By: /s/ JAMES J. PIECZYNSKI
-------------------------------------------
Name: James J. Pieczynski
Title: President and Chief Financial Officer
S-1
<PAGE>
EXHIBIT 10.3
INTERCOMPANY AGREEMENT
This INTERCOMPANY AGREEMENT (the "Agreement") is made and entered into
as of the 30th day of September, 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: /s/ ANDRE C. DIMITRIADIS
-------------------------------------------
Name: Andre C. Dimitriadis
Title: Chairman and Chief Executive Officer
LTC HEALTHCARE, INC.
By: /s/ JAMES J. PIECZYNSKI
-------------------------------------------
Name: James J. Pieczynski
Title: President and Chief Financial Officer
S-1
<PAGE>
EXHIBIT 10.4
TAX SHARING AGREEMENT
TAX SHARING AGREEMENT (the "Agreement"), dated as of September 30,
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
September 30, 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
<PAGE>
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
<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.
<PAGE>
c. CONFIDENTIALITY. Except as required by law or with the
prior written consent of the other party, all Tax Returns, documents, schedules,
work papers and similar items and all information contained therein, which Tax
Returns and other materials are within the scope of this Agreement, shall be
kept confidential by the parties hereto and their representatives, shall not be
disclosed to any other person or entity and shall be used only for the purposes
provided herein.
6. MISCELLANEOUS.
a. EFFECTIVENESS. This Agreement shall be effective from and
after the Closing Date and shall survive until the expiration of all applicable
statutes of limitations with respect to taxable years and periods ending on or
before or including the Closing Date.
b. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements, understandings, negotiations and
discussions, whether written or oral, between the parties hereto with respect to
the subject matter hereof, so that no such external or separate agreement
relating to the subject matter of this Agreement shall have any effect or be
binding, unless the same is referred to specifically in this Agreement or is
executed by the parties after the date hereof. To the extent that the terms of
this Agreement and similar terms of the Distribution Agreement are in conflict,
this Agreement shall govern. This Agreement cancels and supersedes, as of the
Closing Date, any and all other agreements with respect to Taxes between LTC and
Healthcare.
c. SEVERABILITY. In the event that one or more of the terms or
provisions of this Agreement or the application thereof to any person(s) or in
any circumstance(s) shall, for any reason and to any extent be found by a court
of competent jurisdiction to be invalid, illegal or unenforceable, such court
shall have the power, and hereby is directed, to substitute for or limit such
invalid term(s), provision(s) or application(s) and to enforce such substituted
or limited terms or provisions, or the application thereof. Subject to the
foregoing, the invalidity, illegality or enforceability of any one or more of
the terms or provisions of this Agreement, as the same may be amended from time
to time, shall not affect the validity, legality or enforceability of any other
term or provision hereof.
d. AMENDMENTS; WAIVERS. No termination, cancellation,
modification, amendment, deletion, addition or other change in this Agreement,
or any provision hereof, or waiver of any right or remedy herein provided, shall
be effective for any purpose unless such change or waiver is specifically set
forth in a writing signed by the party or parties to be bound thereby. The
waiver of any right or remedy with respect to any occurrence on one occasion
shall not be deemed a waiver of such right or remedy with respect to such
occurrence on any other occasion.
e. GOVERNING LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by the laws of the State of
California, without regard to
<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.
<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]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
LTC PROPERTIES, INC., A MARYLAND CORPORATION.
BY: /s/ ANDRE C. DIMITRIADIS
----------------------------------------
Name: Andre C. Dimitriadis
Title: Chairman and Chief Executive Officer
LTC HEALTHCARE INC., A NEVADA CORPORATION
By: /s/ JAMES J. PIECZYNSKI
----------------------------------------
Name: James J. Pieczynski
Title: President and Chief Financial Officer
S-1
<PAGE>
EXHIBIT 10.5
AMENDED AND RESTATED PROMISSORY NOTE
$20,000,000.00 Date: May 19, 1998
Oxnard, California
THIS AMENDED AND RESTATED PROMISSORY NOTE (THIS "NOTE") SUPERSEDES AND
REPLACES THAT CERTAIN PROMISSORY NOTE DATED MARCH 30, 1998 MADE BY LTC
HEALTHCARE, INC. (FORMERLY KNOWN AS LTC EQUITY HOLDING COMPANY, INC.), AS MAKER,
IN FAVOR OF LTC PROPERTIES, INC., AS PAYEE, IN THE MAXIMUM PRINCIPAL AMOUNT OF
EIGHT MILLION DOLLARS ($8,000,000.00) (THE "ORIGINAL NOTE").
In installments as herein stated, for value received, LTC HEALTHCARE, INC.,
a Nevada corporation (formerly known as LTC Equity Holding Company, Inc.)
("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 Twenty Million Dollars ($20,000,000.00), 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 Twenty Million Dollars ($20,000,000.00).
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 Twenty Million Dollars
($20,000,000.00). 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
1
<PAGE>
the immediately preceding six-month period on the principal amount
outstanding from time to time. Notwithstanding the foregoing, Maker
acknowledges and agrees that Maker shall pay to Payee on the first (1st)
Payment Date (I.E., October 1, 1998) the accrued but unpaid interest on
advances made from and including March 30, 1998 to and including September
30, 1998, including, but not limited to, accrued but unpaid interest on
advances made under the Original Note.
(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. Maker acknowledges and agrees that the
outstanding principal balance under this Note includes, without limitation, the
principal sum of Four Million Nine Hundred Thirty-Nine Thousand Dollars
($4,939,000.00) advanced by Payee to Maker between March 30, 1998 and May 18,
1998 under the Original 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: JJP
-------
MAKER
4. DEFAULT. The occurrence of any of the following shall constitute an
event of default ("Event of Default") under this Note:
2
<PAGE>
(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 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
3
<PAGE>
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 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
4
<PAGE>
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.
IN WITNESS WHEREOF, the Maker has caused this Note to be executed as of
the date first above written.
MAKER:
LTC HEALTHCARE, INC.,
A NEVADA CORPORATION
By: /s/ James J. Pieczynski
-------------------------------------
Name: JAMES J. PIECZYNSKI
-------------------------------------
Its: President and Chief Financial Officer
-------------------------------------
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LTC
HEALTHCARE, INC.'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 1998 FILED HEREWITH AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001059186
<NAME> LTC HEALTHCARE, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 33
<SECURITIES> 2967
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 65,183
<DEPRECIATION> 3,810
<TOTAL-ASSETS> 73,403
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 33
<OTHER-SE> 10,191
<TOTAL-LIABILITY-AND-EQUITY> 73,403
<SALES> 0
<TOTAL-REVENUES> 610
<CGS> 0
<TOTAL-COSTS> 647
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 144
<INCOME-PRETAX> (37)
<INCOME-TAX> 0
<INCOME-CONTINUING> (37)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (37)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
All statements, other than statements of historical facts, included in this
discussion of risk factors that address activities, events or developments that
LTC Healthcare, Inc. (the "Company") expects, believes or anticipates will or
may occur in the future, are forward looking statements. Actual events or
results may differ materially from those discussed in the forward looking
statements.
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 Properties, Inc. ("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 was 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.
POSSIBLE CONFLICTS WITH LTC
The Company Board consists 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. The executive
officers of the Company 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. 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.
The Company and LTC have entered into certain agreements providing for
(i) the orderly separation of the Company and LTC, (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
1
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
LTC is largely the same, 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 have adopted policies and procedures to be followed by
the Board of Directors of each company to address potential conflicts. Such
procedures include requiring the persons serving as directors of both
companies to abstain from voting as directors with respect to matters that
present a significant conflict of interest between the companies and require
approval of the disinterested directors of both companies with respect to the
intercompany agreement and the administrative services agreement. 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.
FAILURE OF LTC TO QUALIFY AS A REIT WOULD ALLOW LTC TO COMPETE WITH THE COMPANY
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 real estate investment trust ("REIT"), LTC is required to
focus principally on investment in certain real estate assets and is
prevented from owning certain assets and conducting certain activities that
would be inconsistent with its status as a REIT. If LTC in the future should
fail to qualify as a REIT, it would thereafter have the ability to
participate in a broader range of investments and activities that are
presented to it by the Company under the intercompany agreement. As a
result, LTC's ability to engage in non-REIT activities could (i)
significantly restrict the opportunities the Company may pursue, and/or (ii)
allow LTC to compete with the Company for non-REIT investments. Accordingly,
if LTC should fail to qualify as a REIT, that failure could have a material
adverse effect on the Company.
RELATED PARTY TRANSACTIONS
The Company and LTC entered into the intercompany agreement and the
administrative services agreement on September 30, 1998. Because LTC owned
nonvoting common stock of the
2
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
Company (representing approximately 99% of the outstanding shares of Company
Common Stock) at the time the agreements were entered into, 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.
RELIANCE ON MAJOR OPERATORS
Karrington Health, Inc., Sun Healthcare Group, Inc. (through its wholly owned
subsidiary Sunrise Healthcare Corporation) and Integrated Health Services,
Inc. are the Company's largest operators. These operators, and the Company's
other operators, manage long-term care facilities on each of the Company's
properties. The financial position of the Company may be adversely affected
by financial difficulties experienced by any of such operators, or any other
major operator of the Company, including a bankruptcy, insolvency or general
downturn in the business of any such operator, or in the event any such
operator does not renew its leases as they expire.
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 lessees is derived from
governmentally-funded reimbursement programs, such as Medicare and Medicaid.
These programs are highly
3
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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 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 lessees and
thereby adversely affect those lessees' abilities to make their lease
payments to the Company. Failure of the lessees to make their 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 billion
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.
4
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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.
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.
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.
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. 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.
5
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
ACQUISITION, DEVELOPMENT, CONSTRUCTION AND RENOVATION ACTIVITIES
ACQUIRED PROPERTIES MAY FAIL TO PERFORM AS EXPECTED AND CAPITAL EXPENDITURES
MAY EXCEED ESTIMATES. 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.
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 document.
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
6
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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. A majority 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 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
7
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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
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. The Company has 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. 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 document.
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 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
8
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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. 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
document. 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
9
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
declines in the value of the property may prevent the Company from realizing
an amount equal to its mortgage loan upon foreclosure.
The Company may participate in loans originated by other financing
institutions. As a participant, the Company may not have the sole authority
to declare a default under the mortgage or to control the property or any
foreclosure.
Any investments in junior mortgage loans which are subordinate to liens of
senior mortgages would involve additional risks, including the lack of
control over the collateral and any related foreclosure proceeding. In the
event of a default on a senior mortgage, the Company may make payments to
prevent foreclosure on the senior mortgage without necessarily improving the
Company's position with respect to the subject real property. In such event,
the Company would be entitled to share in the proceeds only after
satisfaction of the amounts due to the holder of the senior mortgage.
DISADVANTAGES OF INVESTMENTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES
INVESTMENTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES SUBJECT TO REAL ESTATE
RISKS APPLICABLE TO UNDERLYING PROPERTIES. The Company may seek to invest in
real estate-related debt instruments, which may include commercial
mortgage-backed securities. Many of the risks of investing in commercial
mortgage-backed securities reflect the risks of investing directly in the
real estate securing the underlying mortgage loans. This may be especially
true in the case of commercial mortgage securities secured by, or evidencing
an interest in, a single commercial mortgage loan or a relatively small or
less diverse pool of commercial mortgage loans.
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
10
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
repayment of principal only after all principal payments have been made on
more senior tranches and also have subordinated rights as to receipt of
interest distributions. In addition, an active secondary market for such
subordinated securities is not as well developed as the market for certain
other mortgage-backed securities. Accordingly, such subordinated commercial
mortgage-backed securities may have limited marketability and there can be no
assurance that a more efficient secondary market will develop.
LIMITATIONS ON REMEDIES UPON DEFAULT
Although the Company will have certain contractual remedies upon the default
by borrowers under certain debt instruments, such as foreclosing on the
underlying real estate or collecting rents generated therefrom, certain legal
requirements (including the risks of lender liability) may limit the ability
of the Company to effectively exercise such remedies.
The right of a mortgage lender to convert its loan position into an equity
interest may be limited or prevented by certain common law or statutory
provisions.
THIRD-PARTY BANKRUPTCY RISKS
Investments made in assets operating in workout modes or under Chapter 11 of
the Bankruptcy Code could be subordinated or disallowed, and the Company
could be liable to third parties in such circumstances. Furthermore,
distributions made to the Company in respect of such investments could be
recovered if any such distribution is found to be a fraudulent conveyance or
preferential payment. Bankruptcy laws, including the automatic stay imposed
upon the filing of a bankruptcy petition, may delay the ability of the
Company to realize on collateral for loan positions held by it or may
adversely affect the priority of such loans through doctrines such as
equitable subordination or may result in a restructure of the debt through
principles such as the "cramdown" provisions of the bankruptcy laws.
COSTS OF COMPLIANCE WITH THE INVESTMENT COMPANY ACT
The Company is currently not registered as an investment company under the
Investment Company Act of 1940, as amended (the "Investment Company Act"),
since management believes that the Company either is not within the
definition of "investment company" thereunder or, alternatively, is excluded
from regulation under the Investment Company Act by one or more exemptions.
In the future, the Company will seek to continue to conduct its operations so
as to avoid registration under the Investment Company Act. Therefore, the
assets that the Company may acquire or sell may be limited by the provisions
of the Investment Company Act. If the Company were to become an investment
company under the Investment Company Act and if it failed to qualify for an
exemption thereunder, it would be unable to conduct its business as presently
conducted which could have a material adverse effect on the Company and the
market price for the Company Common Stock.
UNINSURED LOSSES
The Company requires its lessees to carry comprehensive liability, fire,
extended coverage and rental loss insurance with respect to all of the
properties that it owns, with policy specifications,
11
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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
Under various Federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
These laws often impose such liability without regard to whether the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. The cost of any required remediation and the owner's
liability therefor as to any property is generally not limited under such
enactments and could exceed the value of the property and/or the aggregate
assets of the owner. The presence of such substances, or the failure to
properly remediate such substances, may adversely affect the owner's ability
to sell or rent such property or to borrow using such property as collateral.
Persons who arrange for the disposal or treatment of hazardous or toxic
substances also may be liable for the costs of removal or remediation of such
substances at a disposal or treatment facility, whether or not such facility
is owned or operated by such persons. Certain environmental laws govern the
removal, encapsulation or disturbance of asbestos-containing materials
("ACMs") when such materials are in poor condition, or in the event of
renovation or demolition. Such laws impose liability for release of ACMs
into the air and third parties may seek recovery from owners or operators of
real properties for personal injury associated with ACMs. The operation and
subsequent removal of certain underground storage tanks also are regulated by
Federal and state laws. In connection with the ownership (direct or
indirect), operation, management and development of real properties, the
Company may be considered an owner or operator of such properties or as
having arranged for the disposal or treatment of hazardous or toxic
substances, and, therefore, potentially liable for removal or remediation
costs, as well as certain other related costs, including governmental fines
and injuries to persons and property.
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
12
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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.
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.
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.
In addition, the stock market has experienced extreme price and volume
fluctuations which have affected the market price of many companies and which
have at times been unrelated to the operating performance of the specific
companies whose stock is traded. Broad market fluctuations and general
economic conditions may adversely affect the market price of the Company
Common Stock.
CERTAIN ANTI-TAKEOVER FEATURES AFFECTING A CHANGE IN CONTROL OF THE COMPANY
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
13
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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.
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 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
14
<PAGE>
EXHIBIT 99
LTC HEALTHCARE, INC.
RISK FACTORS
(CONTINUED)
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.
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.
15
