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Prepared by MERRILL CORPORATION

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Exhibit 10.2  

  
 

    SECURED TERM NOTE    
  

 
 

Loan Number 21-095    
  

    June 29, 2001

    FOR VALUE RECEIVED, and intending to be legally bound, the undersigned, MISSOURI RIVER
CORPORATION, a Delaware corporation ("Borrower"), promises to pay, in lawful money of the United States, to the order of  HELLER HEALTHCARE FINANCE,
 INC., a Delaware corporation, its successors and assigns ("Lender"),
the initial principal sum of ELEVEN MILLION FIVE HUNDRED THOUSAND AND 00/100 DOLLARS ($11,500,000.00), together with the additional principal sum of  FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) if such additional sum is advanced pursuant to Section 1.f. below, or so much of such aggregate
principal sum as shall have been advanced by Lender (collectively, the "Principal Sum") in accordance with the terms of this Secured Term Note (this  "Note"), together with interest and other fees as further set forth in this Note, to be paid in accordance with the terms set forth below. 

    1.  Principal and Interest.

    a.  If
not sooner repaid, Borrower promises to pay to Lender the outstanding Principal Sum on June 30, 2005 (the "Maturity
Date"). In addition, commencing on August 1, 2001 and continuing on the first day of each month thereafter, Borrower promises to make monthly payments of principal to
Lender in the amount of $35,000.00 each. In the event that the Earnout Amount described in Section 1.f. below is advanced by Lender, such monthly principal payments shall continue to equal
$35,000.00 each. 

    b.  In
addition to the repayment of the Principal Sum, Borrower promises to pay to Lender interest on the outstanding Principal Sum on a monthly basis from the date of
this Note until the Maturity Date.
Interest shall accrue at a fluctuating rate per annum compounded daily (on the basis of the actual number of days elapsed over a year of 360 days) equal to the LIBOR Rate (as hereinafter
defined) plus four percent (4.00%) (the "Base Rate"), provided that (i) after an Event of Default has occurred, such rate shall be equal to the
Base Rate plus four percent (4.00%) (the "Default Interest Rate"); and (ii) notwithstanding the foregoing, at no time shall the Base Rate be less
than eight percent (8.00%). 

    c.  For
purposes of the foregoing, the term "LIBOR Rate" means the rate published each day in the  Wall Street Journal for notes maturing three (3) months
after issuance under the caption "Money Rates, London Interbank Offered Rates (LIBOR)".
The LIBOR Rate for each month shall be fixed based upon the LIBOR Rate published prior to and in effect on the first business day of such month; provided, however, the Base Rate for June, 2001 shall
be fixed based upon the LIBOR Rate published prior to and in effect on the first business day prior to the date of this Note (the "Closing Date"). 

    d.  Accrued
interest shall be payable monthly in arrears on the first day of each month from August 1, 2001 and continuing through and including the Maturity
Date. After maturity, and until the entire Principal Sum plus any other amounts due and unpaid hereunder shall be paid in full, without limiting any of Lender's other rights and remedies, all
outstanding amounts of the Principal Sum shall bear interest, payable on demand, at the Default Interest Rate, but in no event shall the interest payable exceed the maximum lawful rate. 

    e.  Borrower
further promises to pay to Lender, within five (5) business days following demand therefor, any and all other sums and charges that may at the time
become due and payable as specified under this Note, and all reasonable costs and disbursements in connection with the preparation of this 

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Note (including Lender's attorney's fees) and the closing of the loan evidenced hereby (the "Loan"), and in the collection of any payments due under
this Note and in any action, suit or proceeding to protect, sustain or enforce the rights and remedies of Lender under this Note. 

    f.   Borrower
may request, and Lender may advance, an additional principal amount of $500,000.00 under this Note (the "Earnout
Amount"), subject to satisfaction of the following conditions (as determined by Lender in its sole discretion): (i) no default has occurred under this Note or any other
Loan Document (as hereinafter defined); (ii) no uncured default has occurred under either Facility Lease (as defined in Section 4(a)(I)(K) below); (iii) Borrower has maintained
Net Operating Income (as defined in the Schedule 1(g) attached hereto and made a part hereof by this reference) with respect to the Facilities (as defined in Section 4(a)(i)(B) below) in
a combined amount equal to at least $1,650,000.00 on an annualized basis for at least four consecutive calendar months; (iv) at the time of such request, Borrower shall demonstrate a Debt
Service Coverage Ratio (as defined in Schedule 1 (g) attached hereto) of at least 1.10 to 1.00; (v) Borrower shall pay to Lender an additional fee equal to $5,000.00 (the  "Earnout Fee");
and (vi) Borrower shall execute and deliver to Lender such amendments to this Note, the Mortgages and the other Loan Documents as
may be required by Lender to evidence and secure the Earnout Amount. 

    g.  In
consideration of Lender's agreement to make the Loan, Borrower shall pay to Lender a commitment fee equal to $115,000.00, which amount shall be payable on the
Closing Date and shall be payable from the Loan proceeds (the "Commitment Fee"). 

    h.  Amounts
borrower hereunder and subsequently repaid may not be reborrowed. 

    2.  Security; Release of Security.  Repayment of Borrower's obligations under this Note is secured by,
among other things, (a) the Collateral defined and described in Section 7 of this Note, (b) Mortgages and the other Loan Documents described in Section 4 below, and
(c) the Amendment to SNF Note and the Amendment to SNF Mortgages, both of which are described in Section 4 below. 

    3.  Prepayment; Exit Fee.  Borrower may prepay all or any part of the Principal Sum outstanding at any
time, provided Borrower gives Lender at least thirty (30) days prior written notice of its intent to prepay the Loan, and provided further that, at such time as the Loan is repaid in full or
substantially in full, whether at maturity, upon prepayment, upon acceleration or otherwise, Borrower shall pay to Lender, in addition to all outstanding principal, accrued and unpaid interest, late
charges, and all other amounts due under this Note (collectively with the Commitment Fee, the Exit Fee described in this paragraph, the "Obligations"),
an exit fee equal to (i) $115,000.00 if Borrower elects not to increase the Loan by the Earnout Amount, or (ii) $120,000.00 if Borrower elects to increase the Loan amount by the Earnout
Amount and Lender agrees to advance the Earnout Amount (such fee being hereinafter referred to as the "Exit Fee"). The Exit Fee shall be deemed earned
by Lender on the date of execution and delivery of this Note. The obligation of Borrower to pay the applicable Exit Fee is evidenced by this Note and secured by the Mortgages and the other Loan
Documents (as hereinafter defined). 

    4.  Conditions to Borrowing; Accounting of Loan Advances.

    a.  Subject
to the terms and conditions of this Note, Lender shall make available to Borrower the initial advance of the Principal Sum in immediately available funds
not later than 4:00 P.M. (Maryland time) on the business day on which the following conditions precedent are satisfied (as determined by Lender): 

    (i)  Borrower
shall have executed and delivered to Lender, or caused to be executed and delivered to Lender, the following documents (collectively, the  "Loan Documents"): 

    (A) This
Note; 

    (B) The
following security instruments (collectively, the "Mortgages"): (i) that certain Mortgage, Assignment of
Leases and Rents, Security Agreement and Fixture Filing, of even 

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date herewith made by Borrower in favor of Lender with respect to that facility known as Sunrise at Presque Isle Bay located in Erie, Pennsylvania (the "Presque Isle
Facility"); and (ii) that certain Mortgage, Assignment of Leases and Rents, Security Agreement and Fixture Filing of even date herewith made by Borrower in favor of
Lender with respect to that facility known as Sunrise at Rocky River and located in Rocky River, Ohio (the "Rocky River", and together with the Presque
Isle Facility, the "Facilities", and each a "Facility"); 

    (C) That
certain Environmental Indemnity Agreements of even date herewith made by Borrower in favor of Lender (the "Environmental Indemnity
Agreement"); 

    (D) That
certain Assignment of Permits and Licenses of even date herewith made by Borrower in favor of Lender (the  "Assignment"); 

    (E) INTENTIONALLY
DELETED. 

    (F) That
certain Amendment No. 1 to Secured Term Note of even date herewith (the "Amendment to SNF Note") made by
and among Lender, LTC-Jessup, Inc., LTC—Fort Valley, Inc. and LTC—Gardner (collectively, the "SNF Borrower")
pursuant to which the SNF Borrower shall agree to cross collateralize and cross default the loan described in that certain Secured Term Note dated December 31, 1999 made by each SNF Borrower
payable to Lender (as amended, modified and restated from time to time, the "SNF Note") in the original principal amount of $6,500,000.00 (the  "SNF Loan")
to the loan evidenced by this Note (the "Loan"); 

    (G) INTENTIONALLY
DELETED. 

    (H) Those
certain amendments to the Mortgages described in the Amendment to SNF Note (the "SNF Mortgages") pursuant to
which SNF Borrower shall grant liens and security interests in certain real and personal property to secure the Borrower's obligations hereunder; 

    (I) All
financing statements and other documents, certificates and agreements reasonably deemed necessary or appropriate by Lender to effectuate the transaction; 

    (J) Each
tenant of each Facility shall have delivered to Lender a Subordination and Attornment Agreement in form and substance satisfactory to Lender (collectively, the  "Subordination Agreement"); and

    (K) True
and complete copies of each executed lease agreement between Borrower and the applicable lessee (each a  "Tenant") of each Facility (collectively, the "Facility
Leases" and each a  "Facility Lease"), together with true and complete copies of each Guaranty made by Sunrise Assisted Living, Inc. (the  "Lease
Guarantor") in favor of Borrower to guaranty each Facility Lease (collectively, the "Lease
Guaranty"); and 

    (L) INTENTIONALLY
DELETED. 

    (I) All
other items set forth on the Lender's Closing Checklist previously delivered to Borrower. 

    (ii) All
representations, warranties and covenants contained in this Note or otherwise made in writing in connection with this Note or the other Loan Documents, by or
on behalf of Borrower shall be true and correct in all material respects. 

    (iii) No
Event of Default shall have occurred or be continuing under this Note or any other Loan Documents; and 

    (iv) Lender
shall have received Uniform Commercial Code ("UCC"), judgment and tax lien searches with the Secretary of
State and local filing offices of each jurisdiction where Borrower maintains a place of business, which searches yield results consistent with the representations and warranties contained in this
Note. 

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    b.  Borrower
hereby irrevocably authorizes Lender to disburse the proceeds of the Loan (less amounts payable by Borrower to Lender in connection with the closing of the
Loan, including the Commitment Fee) by wire transfer to such bank account as may be designated by Borrower from time to time or elsewhere if pursuant to written direction from Borrower. 

    c.  Lender
shall enter all advances of the Principal Sum as debits to a loan account in the name of Borrower and shall also record as credits in the loan account all
payments made by Borrower and all proceeds of Collateral that are indefeasibly paid to Lender, and may record in the loan account, in accordance with customary accounting practice, other debits and
credits, including interest and all charges and expenses properly chargeable to Borrower, with respect to the extension of credit contemplated by this Note. 

    d.  Lender
will account to Borrower monthly with a statement of advances, charges and payments made pursuant to this Note, and the account rendered by Lender shall be
deemed final, binding and conclusive upon Borrower absent manifest error, unless Lender is notified by Borrower in writing to the contrary within thirty (30) days of the date each such account
is mailed to Borrower. Such notice shall be deemed an objection to those items specifically objected to in the notice. 

    5.  Payment Office.  The outstanding Principal Sum, the interest on the Principal Sum, and any other
amounts payable under this Note are payable in lawful money of the United States of America at the office of Lender 500 West Monroe, Chicago, Illinois 60661 Attention: Real Estate Financial Services,
or at such other place as Lender may specify in writing to Borrower. Any payment by other than immediately available funds shall be subject to collection. Interest shall continue to accrue until the
funds by which payment is made are available to Lender for its use. Any payment stated to be due on a day on which banks in Maryland are required or permitted to be closed for business shall be due
and payable on the next business day (each such day, a "Business Day") and such extension of time shall be included in the computation of interest in
connection with such payment. Borrower agrees that, each month, (a) each Tenant shall pay Minimum Rent due to Borrower pursuant to the provisions of the applicable Facility Lease directly to
Lender; and (b) no later than 5 calendar days after Lender's receipt of the Minimum Rent, Lender shall remit to Borrower the difference between the amount delivered to Lender and the amounts
due to Lender under the Loan Documents (provided such difference is positive). In the event that Tenant fails to deliver to Lender as and when due any monthly payment of Minimum Rent, and Borrower
thereafter cures such default by advancing to Lender an amount equal to the monthly payment of principal and interest due under this Note, no later than five (5) business days after receipt by
Lender of such Loan payment, Lender shall deliver to Borrower either (1) the monthly payment of Minimum Rent (assuming Tenant subsequently delivers to Lender the delinquent payment of Minimum
Rent), or (2) written notice that Tenant has failed to deliver the delinquent payment of Minimum Rent. 

    6.  No Presentment; Acceleration.  On the Maturity Date or upon the occurrence of an Event of Default (as
defined in Section 12 below), the outstanding Principal Sum, accrued and unpaid interest on the Principal Sum, the applicable Exit Fee, all late charges and all other sums owed by Borrower to
Lender in connection with this Note or the other Loan Documents shall immediately become due and payable. Borrower hereby expressly waives any presentment for payment, demand for payment, notice of
nonpayment or dishonor, protest and notice of protest of any kind. 

    7.  Security Agreement.

    a.  This
Note shall constitute a security agreement as that term is used in the UCC and Borrower hereby grants to Lender, to secure the Obligations evidenced hereby and
the SNF Borrower's obligations to
Lender under the SNF Note), a security interest in all of the Borrower's right, title and interest (if any) in and to the following property (collectively, the  "Collateral"): 

    (i)  All
of Borrower's now-owned and hereafter acquired or arising accounts, contract rights, general intangibles, chattel paper, documents and instruments,
as such terms are defined in the 

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UCC, including, without limitation, all obligations for the payment of money arising out of Borrower's sale of goods or rendition of services
("Accounts"), accounts receivable and rights to payment of every kind and description, and all of Borrower's contract rights, including (without
limitation) its rights under the Lease Guaranty, chattel paper, documents and instruments with respect thereto, and all of Borrower's rights, remedies, security and liens, in, to and in respect of the
Accounts, including, without limitation, rights of stoppage in transit, replevin, repossession and reclamation and other rights and remedies of an unpaid vendor, lienor or secured party, guaranties or
other contracts of suretyship with respect to the Accounts, deposits or other security for the obligation of any Account Debtor, and credit and other insurance ("Account
Debtor" means any person obligated on any Account of Borrower, including without limitation, any Insurer and any Medicaid/Medicare payor); 

    (ii) All
moneys, securities and other property and the proceeds thereof, now or hereafter held or received by, in transit to, in possession of, or under the control of
Lender or a bailee or Affiliate of Lender, from or for Borrower, whether for safekeeping, pledge, custody, transmission, collection or otherwise, and all of Borrower's deposits (general or special),
balances, sums and credits with Lender at any time existing ("Affiliate" means with respect to a specified person, any person directly or indirectly
controlling, controlled by, or under common control with the specified person, including without limitation its stockholders and any affiliates. A person shall be deemed to control a corporation if
the person possesses, directly or indirectly, the power to direct or cause the direction of the management and business of the corporation whether through the ownership of voting securities, by
contract, or otherwise); 

    (iii) All
of Borrower's right, title and interest in, to and in respect of all goods relating to, or which by sale have resulted in, Accounts, including, without
limitation, all goods described in invoices or other documents or instruments with respect to, or otherwise representing or evidencing, any Account, and all returned, reclaimed or repossessed goods; 

    (iv) INTENTIONALLY
DELETED; 

    (v) All
of Borrower's now owned and hereafter acquired or arising general intangibles and other property of every kind and description with respect to, evidencing or
relating to its Accounts, accounts receivable and other rights to payment, including, but not limited to, all existing and future customer lists, choses in action, claims, books, records, ledger
cards, contracts, licenses, formulae, tax and other
types of refunds, returned and unearned insurance premiums, rights and claims under insurance policies, and computer programs, information, software, records, and data, as the same relates to the
Accounts; 

    (vi) All
of Borrower's other general intangibles (including, without limitation, any proceeds from insurance policies after payment of prior interests), patents,
unpatented inventions, trade secrets, copyrights, contract rights, goodwill, literary rights, rights to performance, rights under licenses, choses-in-action, claims,
information contained in computer media (such as data bases, source and object codes, and information therein), things in action, trademarks and trademarks applied for (together with the goodwill
associated therewith) and derivatives thereof, trade names (excluding, however, the name "LTC" and derivations thereof), including the right to make,
use, and vend goods utilizing any of the foregoing, and permits, licenses, certifications, authorizations and approvals, and the rights of Borrower thereunder, issued by any governmental, regulatory,
or private authority, agency, or entity whether now owned or hereafter acquired, together with all cash and non-cash proceeds and products thereof; 

    (vii) All
of Borrower's now owned or hereafter acquired inventory of every description which is held by Borrower for sale or lease or is furnished by Borrower under any
contract of service or is held by Borrower as raw materials, work in process or materials used or consumed in a business, 

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wherever located, and as the same may now and hereafter from time to time be constituted, together with all cash and non-cash proceeds and products thereof; 

    (viii)All
of Borrower's now owned or hereafter acquired machinery, equipment, computer equipment, tools, tooling, furniture, fixtures, goods, supplies, materials, work
in process, whether now owned or hereafter acquired, together with all additions, parts, fittings, accessories, special tools, attachments, and accessions now and hereafter affixed thereto and/or used
in connection therewith, all replacements thereof and substitutions therefor, and all cash and non-cash proceeds and products thereof; 

    (ix) All
cash and other property representing security deposits which are or may become refundable to residents of the Facilities from time to time
("Refundable Security Deposits"), together with any and all accounts in which such deposits are held; 

    (x) The
Property and/or the Mortgaged Property (as defined in the Mortgages); and 

    (xi) The
proceeds (including, without limitation, insurance proceeds) of all of the foregoing. 

    b.  Upon
the occurrence of an Event of Default under this Note or the other Loan Documents, in addition to all other rights, options, and remedies granted to Lender
under this Note, the Mortgages, the SNF Mortgages, the SNF Note, or at law or in equity, may take any of the following steps: 

    (i)  Declare
the Loan to be immediately due and payable, and or declare the SNF Loan immediately due and payable; 

    (ii) Exercise
all other rights granted to it under this Note and all rights under the UCC in effect in the applicable jurisdiction(s) and under any other applicable
law; and 

    (iii) Exercise
all rights and remedies under all Loan Documents now or hereafter in effect, including but not limited to: 

    (A) The
right to take possession of, send notices regarding, and collect directly the Collateral, with or without judicial process; 

    (B) The
right to (by its own means or with judicial assistance) enter any of Borrower's premises and take possession of the Collateral, or render it unusable, or
dispose of the Collateral on such premises in compliance with subsection (c) below, without any liability for rent, storage, utilities, or other sums, and Borrower shall not resist or interfere
with such action; and 

    (C) To
the extent applicable, the right to require Borrower at Borrower's expense to assemble all or any part of the Collateral and make it available to Lender at any
place designated by Lender. 

    c.  Borrower
agrees that a notice received by it at least five (5) days before the time of any intended public sale, or the time after which any private sale or
other disposition of the Collateral is to be made, shall be deemed to be reasonable notice of such sale or other disposition (unless a longer, non waivable period, is required by law). If permitted by
applicable law, any perishable Collateral that threatens to decline rapidly in value or that is sold on a recognized market may be sold immediately by Lender without prior notice to Borrower. At any
sale or disposition of Collateral, Lender may (to the extent permitted by applicable law) purchase all or any part of the Collateral, free from any right of redemption by Borrower, which right is
hereby waived and released. Borrower covenants and agrees not to interfere with or impose any obstacle to Lender's exercise of its rights and remedies with respect to the Collateral following an Event
of Default (provided, however, this shall not constitute a waiver of Borrower's rights and remedies at law or equity). 

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    d.  Lender shall have the right to proceed against all or any portion of the Collateral to satisfy in any order the liabilities and obligations of Borrower to Lender
under this Note and the other Loan Documents. All rights and remedies granted Lender under this Note or under any of the other Loan Documents, or otherwise available at law or in equity, shall be
deemed concurrent and cumulative, and not alternative remedies, and Lender may proceed with any number of remedies at the same time until the Principal Sum, all interest, costs, expenses and other
charges due under, and all other existing and future liabilities and obligations of Borrower to Lender under, this Note are satisfied in full. The exercise of any one right or remedy shall not be
deemed a waiver or release of any other right or remedy, and Lender, upon the occurrence of an Event of Default, may proceed against Borrower, and/or the Collateral, at any time, under any agreement,
with any available remedy and in any order. 

    8.  Sources and Uses of Funds.  The sources and uses of the transaction contemplated hereunder are as
follows: 

	Source
	 	Amount
	 	Use
	 	Amount

	

	Lender Loan	 	$	11,500,000.00	 	Cash to Borrower	 	$	11,325,000.00
	 	 	 	 	 	Heller Fee	 	$	115,000.00
	 	 	 	 	 	Heller Closing Costs	 	$	60,000.00
	

	TOTAL:	 	$	11,500,000.00	 	TOTAL:	 	$	11,500,000.00

    9.  Representations.  Borrower hereby warrants and represents to Lender that: 

    a.  Borrower
is a corporation duly organized, validly existing, and in good standing under the laws of the State of Delaware, and is in good standing as a foreign
corporation in each jurisdiction in which the character of the properties owned or leased by it or the nature of its business makes such qualification necessary, has the corporate power and authority
to own its assets and transact the business in which it is engaged, and has obtained all certificates, licenses and qualifications required under all laws,
regulations, ordinances, or orders of public authorities necessary to conduct business in which Borrower engages. 

    b.  Borrower
has full corporate power and authority to borrow the Loan and to enter into, execute, and deliver this Note, and to incur and perform its obligations under
this Note and the other Loan Documents, all of which have been duly authorized by all necessary corporate action. No consent or approval of shareholders of, or lenders to, Borrower, and no consent,
approval, filing or registration with any governmental authority is required as a condition to the validity of this Note or the other Loan Documents or the performance by Borrower of its obligations
under this Note or the other Loan Documents. 

    c.  This
Note, when issued and delivered for value received, and all other Loan Documents constitute the valid and binding obligations of Borrower, enforceable against
Borrower in accordance with their respective terms. 

    d.  The
execution and delivery by Borrower of this Note and the other Loan Documents do not, and the performance of Borrower's obligations under this Note and the other
Loan Documents will not, violate, conflict with, constitute a default under, or result in the creation of a lien or encumbrance (other than a lien, security interest, charge or other encumbrance in
favor of Lender) upon the property of Borrower under (i) any provision of Borrower's certificate of incorporation or bylaws, (ii) any provision of any law, rule or regulation applicable
to Borrower, or (iii) any of the following (A) any indenture or other agreement or instrument to which Borrower is a party or by which Borrower or its property is bound, or
(B) any judgment, order or decree of any court, arbitration tribunal, or governmental entity applicable to Borrower or Borrower's properties or assets. 

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    e.  There are no actions, suits, proceedings or investigations pending, including, without limitation, any condemnation proceeding, or, to the knowledge of Borrower,
threatened, against or adversely affecting Borrower's properties or assets or the validity or enforceability of this Note or the other Loan Documents or the ability of Borrower to perform any
obligations under this Note or the other Loan Documents. Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court, arbitration tribunal or governmental
authority having jurisdiction over Borrower. 

    f.   The
financial statements of LTC Properties, Inc. ("LTC Properties") as of March 31, 2001, certified by
the chief financial officer of LTC Properties, which were previously delivered to Lender, are true, correct and complete and fairly present the financial condition of LTC Properties and the results of
LTC Properties' operations and changes in financial condition as of the dates and for the periods referred to, and have been prepared in accordance with generally accepted accounting principles. There
are no material unrealized or anticipated liabilities, direct or indirect, fixed or contingent, of LTC Properties as of the dates of such financial statements that are not reflected in the financial
statements or the notes thereto. There has been no material adverse change in the business, properties, condition (financial or otherwise) of LTC Properties or Borrower since March 31, 2001.
Borrower's fiscal year ends on December 31 Lender acknowledges its receipt and review of LTC Properties' Form 10-Q for the period ending March 31, 2001, which
discloses, among other things, certain financial difficulties among certain of LTC Properties' lessees and borrowers. 

    g.  Borrower
is not in default under or with respect to any obligation in any respect that could be adverse to its business, operations, property or financial
condition, or that could adversely affect the ability of Borrower to perform its obligations under this Note or the other Loan Documents. No Event of Default or event that, with the giving of notice
or lapse of time, or both, could become an Event of Default, has occurred and is continuing. 

    h.  Borrower
has good and marketable title to its properties and assets, including the Collateral and the properties and assets reflected in the financial statements in
described in paragraph (f) above, subject to no lien, mortgage, pledge, encumbrance or charge of any kind, other than those encumbrances approved by Lender and set forth in the pro forma title
policies delivered to Lender by Chicago Title Insurance Company on the Closing Date (the "Permitted Encumbrances"). Borrower has not agreed or consented
to cause any of its properties or assets, whether owned now or hereafter acquired, to be subject in the future (upon the happening of a contingency or otherwise) to any lien, mortgage, pledge,
encumbrance or charge of any kind. 

    i.   Borrower
has filed, or has obtained extensions for the filing of, all federal, state and other tax returns which are required to be filed, and has paid all taxes
shown as due on those returns and all assessments, fees and other amounts due as of the date hereof. All tax liabilities of Borrower are
adequately provided for on Borrower's books. No tax liability has been asserted by the Internal Revenue Service or other taxing authority against Borrower for taxes in excess of those already paid. 

    j.   The
use of the proceeds of the Loan and Borrower's issuance of this Note will not, directly or indirectly, violate or result in a violation of the Securities Act of
1933 or the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including without limitation Regulations U, T, or X of the Board of Governors of the Federal
Reserve System. Borrower is not engaged in the business of extending credit for the purpose of the purchasing or carrying "margin stock" within the meaning of those regulations. No part of the
proceeds of the Loan will be used to purchase or carry any margin stock or to extend credit to others for such purpose. 

    k.  Borrower
is not an investment company within the meaning of the Investment Company Act of 1940, as amended, nor is it, directly or indirectly, controlled by or
acting on behalf of any Person which is an investment company within the meaning of that Act. 

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    l.   Borrower is not in violation of any statute, rule or regulation of any governmental authority (including, without limitation, any statute, rule or regulation
relating to employment practices or to environmental, occupational and health standards and controls). Borrower has obtained all licenses, permits, franchises, and other governmental authorizations
necessary for the ownership of its properties and the conduct of its business. Borrower is current with all reports and documents required to be filed with any state or federal securities commission
or similar governmental authority and is in full compliance with all applicable rules and regulations of such commissions. 

    m.  Except
as described in the ESA Reports (as hereinafter defined), to Borrower's actual knowledge based solely on its review of the ESA Reports, (i) no use,
exposure, release, generation, manufacture, storage, treatment, transportation or disposal of hazardous material has occurred or is occurring on or from any real property on which the Collateral is
located (the "Premises") which is owned, leased or otherwise occupied by Borrower, or has occurred off the Premises as a result of any action of
Borrower, (ii) all hazardous material used, treated, stored, transported to or from, generated or handled on the Premises, or off the Premises by Borrower, has been disposed of on or off the
Premises by or on behalf of Borrower in a lawful manner, (iii) there are no underground storage tanks present on or under the Premises owned or leased by Borrower, and (iv) no other
environmental, public health or safety hazards exist with respect to the Premises. Borrower covenants and agrees that any remediation reasonably required on any such property shall be promptly
undertaken and completed within a reasonable period of time, all without any cost to Lender. As used herein, "ESA Reports" means the Phase I Environmental Site Assessment reports dated June 19,
2001 and prepared by EMG with respect to each Facility and delivered to Lender and Borrower. 

    n.  The
only places of business of Borrower, and the places where it keeps and intends to keep the Collateral and records concerning the Collateral, are at the
addresses set forth in Schedule 9(n), which also lists the owner of record of each such property. 

    o.  Borrower
exclusively owns or possesses all the patents, patent applications, trademarks, trademark applications, service marks, trade names, copyrights, franchises,
licenses, and rights with respect to the foregoing necessary for the current and planned future conduct of its business, without any conflict with the rights of others. Borrower is not in default of
any obligation or undertaking with respect to such intellectual property or rights. 

    p.  LTC
Properties owns all classes of the outstanding stock of Borrower. 

    q.  Neither
this Note nor any other Loan Document nor any other agreement, document, certificate, or statement furnished to Lender by or on behalf of Borrower in
connection with the transactions contemplated hereby contains any untrue statement of material fact or omits to state a material fact necessary to make the statements contained in this Note or in the
other Loan Documents or such other documents not misleading. There is no fact known to Borrower that adversely affects or in the future may adversely affect the business, operations, affairs or
financial condition of Borrower, or any of its properties or assets. 

    r.  Borrower
does not own or hold any equity or long-term debt investments in, have any outstanding advances to, have any outstanding guarantees for the
obligations of, or have any outstanding borrowings from, any Person. Borrower is not a party to any contract or agreement, or subject to any corporate restriction, which adversely affects its
business. 

    s.  Within
five (5) years before the date of this Note, neither the business, property or assets, or operations of Borrower has been adversely affected in any
way by any casualty, strike, lockout, combination of workers, or order of the United States of America or other governmental 

–9–

 

authority, directed against Borrower. There are no pending or threatened labor disputes, strikes, lockouts, or similar occurrences or grievances against Borrower or its business. 

    t.   Within
five (5) years before the date of this Note, Borrower has not conducted business under or used any other name (whether corporate, partnership or
assumed). Borrower is the sole owner of all names listed on that Schedule and any and all business done and invoices issued in such names are Borrower's sales, business, and invoices. Each trade name
of Borrower represents a division or trading style of Borrower and not a separate Person or independent Affiliate. 

    u.  Borrower
is not engaged in any joint venture or partnership with any other Person. 

    v.  Each
Facility Lease is in full force and effect in the form attached to the Subordination Agreement. 

    10.  Affirmative Covenants.  Borrower covenants and agrees that until this Note shall be repaid in full: 

    a.  Financial Statements.  Borrower shall cause LTC Properties to furnish to Lender (i) within
fifty (50) days after the end of each quarterly fiscal period of each fiscal year of LTC Properties, consolidated statements of income, balance sheet, and cash flow of LTC Properties on
Form 10-Q as filed with the Securities and Exchange Commission, (ii) within ninety-five (95) days after the end of each fiscal year of LTC Properties,
audited consolidated statements of income, balance sheet, and cash flow of LTC Properties on Form 10-K as filed with the Securities and Exchange Commission; (iii) within
50 days after the end of each fiscal quarter, operating statements with respect to each Facility; (iv) within fifty five (55) days after the end of each quarterly fiscal period of
each fiscal year of the Lease Guarantor, consolidated statements of income, balance sheet, and cash flow of Lease Guarantor on Form 10-Q as filed with the Securities and Exchange
Commission, (v) within one hundred (100) days after the end of each fiscal year of the Lease Guarantor, audited consolidated statements of income, balance sheet, and cash flow of the
Lease Guarantor on Form 10-K as filed with the Securities and Exchange Commission; and (vi) such additional information, reports or statements as Lender may reasonably
request from time to time. In connection with the delivery of the financial statements referred to in (i) and (ii) above, Borrower will also provide a compliance certificate in a form to
be provided by Lender signed by an authorized officer stating that Borrower is in compliance with the Loan Documents and no default exists, or if any default exists, stating the nature and status
thereof, and containing such other certifications as Lender may require. 

    b.  Payments Hereunder.  Subject to Sections 5 and 10.r. hereof, Borrower will make all payments of
principal, interest, fees, and all other payments required hereunder, under this Note, and under any other agreements with Lender to which Borrower is a party, as and when due. The provisions of
Section 5 and 10.r. hereof shall not be construed to relieve the Borrower of its obligations to pay principal, interest and all other amounts due from time to time hereunder. 

    c.  Existence, Good Standing, and Compliance with Laws.  Borrower will do or cause to be done all things
necessary (i) to obtain and keep in full force and effect all corporate existence, rights, licenses, privileges, and franchises of Borrower necessary to the ownership of its property or the
conduct of its business, and comply with all applicable present and future laws, ordinances, rules, regulations, orders and decrees of any Governmental Authority having or claiming jurisdiction over
Borrower; and (ii) to maintain and protect the properties used or useful in the conduct of the operations of Borrower, in a prudent manner, including without limitation the maintenance at all
times of such insurance upon its insurable property and operations as required by law or by subsection (e) below. 

    d.  Taxes and Charges.  Borrower will (or cause Tenant to) timely file all tax reports and pay and
discharge all taxes, assessments and governmental charges or levies imposed upon Borrower, 

–10–

 

or its income or profits or upon its properties or any part thereof, before the same shall be in default and prior to the date on which penalties attach thereto, as well as all lawful claims for
labor, material, supplies or otherwise which, if unpaid, might become a lien or charge upon the properties or any part thereof of Borrower; provided,
however, that Borrower shall not be required to pay and discharge or cause to be paid and discharged any such tax, assessment, charge, levy or claim so long as the validity or
amount thereof shall be contested in good faith and by appropriate proceedings by Borrower, as determined in the reasonable judgement of Lender, and Borrower shall have set aside on their books
adequate reserve therefor; and provided further, that such deferment of payment is permissible only so long as Borrower's title to, and its right to
use, the Collateral is not adversely affected thereby and Lender's lien and priority on the Collateral are not adversely affected, altered or impaired thereby. 

    e.  Insurance.  Borrower will carry or cause to be carried adequate public liability, property, casualty,
professional liability and business interruption/loss of rents insurance with responsible companies satisfactory to Lender in such amounts and against such risks as is customarily maintained by
similar businesses and by owners of similar property in the same general area. Lender acknowledges that the insurance evidenced by the insurance certificates attached hereto as  Exhibit A shall
satisfy the requirements of this Section 10(e) and the requirements of Section 4(a) of the Mortgages. 

    f.  General Information.  Borrower will furnish to Lender such information as Lender may, from time to
time, request with respect to the business or financial affairs of Borrower, and permit any officer, employee or agent of Lender to visit and inspect any of the properties (subject to the rights of
Tenant under the Facility Leases), to examine the minute books, books of account and other records, including management letters prepared by Borrower's auditors, of Borrower, and make copies thereof
or extracts therefrom, and to discuss its and their business affairs, finances and accounts with, and be advised as to the same by, the accountants and officers of Borrower, all at such times and as
often as Lender may reasonably require. 

    g.  Maintenance of Property.  Borrower will cause each Tenant to maintain, keep and preserve the
Collateral and the Facilities in good repair, working order and condition and from time to time make all needful and proper repairs, renewals, replacements, betterments and improvements to the
Collateral and the Facilities. 

    h.  Notification of Events of Default and Adverse Developments.  Borrower promptly will notify Lender
upon obtaining actual knowledge of the occurrence of: (i) any Event of Default; (ii) any event which, with the giving of notice or lapse of time, or both, could constitute an Event of
Default; (iii) any event, development or circumstance whereby the financial statements previously furnished to Lender fail in any material respect to present fairly, in accordance with GAAP,
the financial condition and operational results of Borrower; (iv) any judicial, administrative or arbitration proceeding pending against Borrower,
and any judicial or administrative proceeding known by Borrower to be threatened against it which, if adversely decided, could adversely affect its condition (financial or otherwise) or operations
(present or prospective) or which may expose Borrower to uninsured liability of $50,000.00 or more; (v) any default claimed by any other creditor for Borrowed Money of Borrower other than
Lender; (vi) any other development in the business or affairs of Borrower which may be adverse, (vii) any default or event of default under any of the Facility Leases; in each case
describing the nature thereof and (in the case of notification under clauses (i) and (ii)) the action Borrower proposes to take with respect thereto. 

    i.  Employee Benefit Plans.  No employee benefit plan (a  "Plan") subject to the Employee Retirement Income Security Act of 1974 ("ERISA") and regulations issued
pursuant to ERISA that is maintained by Borrower or under which Borrower could have any material liability under ERISA (i) has failed to meet minimum funding standards established in
Section 302 of ERISA, 

–11–

 

(ii) has failed to substantially comply with all applicable requirements of ERISA and of the Internal Revenue Code, including all applicable rulings and regulations thereunder, or
(iii) has engaged in or been involved in a prohibited transaction (as defined in ERISA) under ERISA or under the Internal Revenue Code. Neither Borrower nor any member of a Controlled Group
that includes Borrower has not assumed, or received notice of a claim asserted against Borrower or another member of the Controlled Group for, withdrawal liability (as defined in the Multi-Employer
Pension Plan Amendments Act of 1980, as amended) with respect to any multi-employer pension plan. Borrower has timely made when due all contributions with respect to any multi-employer pension plan in
which it participates and no event has occurred triggering a material claim against Borrower for withdrawal liability with respect to any multi-employer pension plan in which Borrower participates. 

    j.  Financial Records.  Borrower shall keep current and accurate books of records and accounts in which
full and correct entries will be made of all of its business transactions, and will reflect in its financial statements adequate accruals and appropriations to reserves, all in accordance with GAAP. 

    k.  Places of Business.  Borrower shall give thirty (30) days' prior written notice to Lender of
any change in the location of any of its places of business, of the places where its records concerning its Accounts are kept, of the places where the Collateral is kept, or of the establishment of
any new, or the discontinuance of any existing, places of business. 

    l.  Business Conducted.  Borrower shall continue in the business presently conducted by it using its best
efforts to maintain its customers and goodwill. Borrower shall not engage, directly or indirectly, in any line of business substantially different from the business conducted by it immediately prior
to the Closing Date, or engage in business or lines of business which are not reasonably related thereto. 

    m.  Litigation and Other Proceedings.  Upon obtaining actual knowledge thereof, Borrower shall give
prompt notice to Lender of any threatened litigation, arbitration, or other proceeding before any Governmental Authority against or affecting Borrower if the amount claimed is more than $50,000.00. 

    n.  Licensure; Medicaid/Medicare Cost Reports.  If Borrower assumes operational control of either or both
of the Facilities, Borrower will maintain all certificates of need, provider numbers and licenses necessary to conduct its business as currently conducted, and take any steps required to comply with
any such new or additional requirements that may be imposed on providers of medical products and services. Otherwise, Borrower will cause Tenant to maintain, all certificates of need, provider numbers
and licenses necessary to conduct its business as currently conducted, and take any steps required to comply with any such new or additional requirements that may be imposed on providers of medical
products and services. 

    o.  Visits and Inspections.  Subject to the rights of Tenant under the Facility Leases, Borrower agrees
to permit representatives of Lender, from time to time, as often as may be reasonably requested, but, so long as no default has occurred, not more than four (4) times per year and only during
normal business hours, to visit and inspect the properties of Borrower, and to inspect, audit and make extracts from its books and records, and discuss with its officers, its employees and its
independent accountants, Borrower's business, assets, liabilities, financial condition, business prospects and results of operations. 

    p.  Further Assurances.  Borrower will (or shall cause Tenant to) defend its title to the Collateral
against all persons and will, upon request of the Lender, (i) furnish such further assurances of title as may reasonably be required by the Lender, (ii) deliver and execute or cause to
be delivered and executed, in form and content satisfactory to the Lender, any financing 

–12–

 

statements, notices, certificates of title, and other documents and pay the cost of filing or recording the same in all public offices deemed necessary by the Lender, as well as any recordation,
documentary, or transfer tax required by law to be paid in connection with such filing or recording, and (iii) do such other acts as the Lender may reasonably request in order to perfect,
preserve, maintain, or continue the perfection of the Lender's security interest in the Collateral and/or its priority. 

    q.  Single Purpose Entity.  Borrower will at all times continue to be a Single Purpose Entity (as
hereinafter defined). Borrower will at all times continue to comply with the provisions of its articles of incorporation and its bylaws, and with all customary formalities regarding the existence of
Borrower as a corporation. Borrower will at all times continue to accurately maintain its financial statements, accounting records and other corporate documents separate from those of any affiliate of
Borrower and any other Person. Borrower will not at any time commingle its assets with those of any affiliate of Borrower or any other Person. Borrower at all times will continue to accurately
maintain its own bank accounts and separate books of account. Borrower at all times will continue to pay its own liabilities from its own separate assets. Borrower will at all times continue to
identify itself under Borrower's own name and as a separate and distinct entity in all dealings with the public and other Persons. Borrower
will not at any time identify itself as being a division or a part of any other entity. Borrower will not at any time identify any affiliate of Borrower as being a division or part of Borrower.
Notwithstanding the foregoing to the contrary, provided no Event of Default has occurred more than two (2) times, the provisions of this Section shall not prohibit Borrower from transferring
funds to LTC Properties after payment of its obligations to Lender. 

    r.  Payment of Rent.  Borrower shall at all times direct each Tenant to pay Minimum Rent (as defined in
the Facility Leases) due to Borrower pursuant to the applicable Facility Lease directly to Lender in accordance with the provisions of the Subordination Agreement. 

11. Negative Covenants.  

    Borrower covenants and agrees that until this Note shall be repaid in full: 

    a.  Borrowing.  Borrower will not create, incur, assume or suffer to exist any liability for borrowed
money except: (i) indebtedness to Lender; (ii) indebtedness of Borrower secured by mortgages, encumbrances or liens expressly permitted by Lender; (iii) accounts payable to trade
creditors and current operating expenses (other than for borrowed money) which are recognized in Borrower's accounting system and not aged more than one hundred twenty (120) days from the
billing date or more than thirty (30) days from the due date, in each case incurred in the ordinary course of business and paid within such time period, unless the same are being contested in
good faith and by appropriate and lawful proceedings, and Borrower shall have set aside such reserves, if any, with respect thereto as are required by GAAP and deemed adequate by Borrower and its
independent accountants; and (iv) unsecured borrowings incurred in the ordinary course of its business and not exceeding $500,000 in the aggregate outstanding at any one time. Borrower will not
make prepayments on any existing or future indebtedness for borrowed money in excess of $100,000 to any third person or entity (other than Lender, to the extent permitted by this Note or any
subsequent agreement between Borrower and Lender). 

    b.  Liens and Encumbrances.  Borrower will not create, incur, assume or suffer to exist any mortgage,
pledge, lien or other encumbrance of any kind (including the charge upon property purchased under a conditional sale or other title retention agreement) upon, or any security interest in, Borrower's
ownership interest in any of the Collateral, whether now owned or hereafter acquired. 

–13–

 

    c.  Merger, Acquisition, or Sale of Assets.  Borrower will not, without prior written notice to, and the
prior written consent of Lender: (i) enter into any transaction of merger or consolidation; (ii) liquidate, wind-up or dissolve itself (or suffer any liquidation or
dissolution); (iii) convey, sell, lease, sublease, transfer or otherwise dispose of, in one transaction or a series of transactions, any of its assets, or the
capital stock of Borrower or any subsidiary of Borrower, whether now owned or hereafter acquired; or (iv) acquire by purchase or otherwise all or any substantial part of the business or assets
of, or stock or other evidence of beneficial ownership of, any Person. Borrower shall not (a) create any new ownership interest in Borrower, or (b) transfer (i) any or all of the
Mortgaged Property (as defined in the Mortgages), or any interest therein, or (ii) any ownership interest in Borrower (including any interest in the profits, losses or cash distributions in any
way relating to the Mortgaged Property or of Borrower), or (iii) the beneficial interests of LTC Properties in Borrower which would result in LTC Properties owning less than fifty one percent
of the total beneficial interests in Borrower. 

    d.  Sale and Leaseback.  Borrower will not, directly or indirectly, enter into any arrangement whereby
Borrower sells or transfers all or any part of its assets and thereupon and within one year thereafter rents or leases the assets so sold or transferred without the prior written notice to, and the
prior express written consent of, Lender, which consent shall not be unreasonably withheld. 

    e.  Dividends, Distributions, and Management Fees.  Borrower will not purchase, redeem or otherwise
acquire for value any of its outstanding stock now or hereafter outstanding, or return any capital of its stockholders, or pay any management fees or fees of a similar nature to any person other than
such amounts as may be approved by Lender from time to time. Following an Event of Default, Borrower will not make, declare or pay any dividends or distributions with respect to any of its
stockholders. Notwithstanding the foregoing, provided no Event of Default has occurred more than two (2) times, the provisions of this Section shall not prohibit Borrower from transferring
funds to LTC Properties after payment of its obligations to Lender. 

    f.  Subsidiaries.  Borrower does not have, and will not form, any subsidiary, or make any equity
investment in or any loan in the nature of an equity investment to, any other person, without the prior written consent of Lender, which consent shall not be unreasonably withheld. 

    g.  Transactions with Affiliates and Subsidiaries.  Without the prior written consent of Lender, which
consent shall not be unreasonably withheld, Borrower will not enter into any transaction, including without limitation the purchase, sale, or exchange of property, or the lending or giving of funds to
any Affiliate or subsidiary, except in the ordinary course of business and pursuant to the reasonable requirements of Borrower's business and upon terms substantially the same and no less favorable to
Borrower as it would obtain in a comparable arm's length transaction with any Person not an Affiliate or subsidiary, and so long as the transaction is not otherwise prohibited under this Note. Leases
to Affiliates with rent payments greater than the debt payments due hereunder shall be deemed arms length transactions, provided, however, the entering into any lease agreement with respect to any of
the Facilities shall be subject to Lender's consent. The term "Person" means an individual, partnership, corporation, trust, joint venture, joint stock
company, limited liability company, association, unincorporated organization, governmental authority, or any other entity. 

    h.  Change in Capital Structure.  LTC Properties and Borrower agree that there shall occur no change in
Borrower's capital structure as set forth in Section 9.p. hereof without the prior written consent of Lender, which consent shall not be unreasonably withheld. Borrower and LTC Properties agree
that LTC Properties shall not sell, transfer, pledge, hypothecate or otherwise dispose of any or all of the
capital stock of the Borrower, it being understood by both parties that Lender would not agree to make the Loan without such agreement from both Borrower and LTC Properties. 

–14–

  

    i.  Contracts and Agreements.  Borrower will not become or be a party to any contract or agreement which
would breach this Note, or breach any other instrument, agreement, or document to which Borrower is a party or by which it is or may be bound. 

    j.  Compliance with ERISA.  Borrower will not permit with respect to any Plan covered by Title IV of
ERISA any Prohibited Transaction or any Reportable Event. 

    k.  License.  In the event that Borrower ever assumes operational control of either or both Facilities
(rather than the Tenant), Borrower will not amend, alter, transfer, suspend or terminate such license in any material way, without the prior written consent of Lender. 

    l.  Use of Lender's Name.  Borrower will not use Lender's name (or the name of any of Lender's
affiliates) in connection with any of its business operations. Borrower may disclose to third parties that Borrower has a borrowing relationship with Lender. Nothing contained in this Note is intended
to permit or authorize Borrower to make any contract on behalf of Lender. 

    m.  Truth of Statements and Certificates.  Borrower will not furnish to Lender any certificate or other
document that contains any untrue statement of a material fact or that omits to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished. 

    n.  Facility Leases.  Borrower will not terminate, assign, amend, modify or declare a default under any
of the Facility Leases without the prior written consent of Lender, which consent may be withheld in Lender's sole discretion; provided, however, Lender shall respond to Borrower's written request for
consent to any proposed action of Borrower with respect to the Facility Leases within fifteen (15) business days of Lender's receipt thereof, and failure by Lender to respond (whether in
writing or verbally) within such time frame shall be construed as Lender's consent to Borrower's request. 

    12.  Events of Default.  The following events are each an "Event of
Default" under this Note: 

    a.  Borrower
fails to make any payment of principal when due or fails to make any payment of interest, fees or other amounts owed to or for the account of Lender under
this Note and such payment remains unpaid for five (5) business days after written notice to Borrower and Tenant of such failure; or 

    b.  Borrower
has made any representations or warranties in this Note, the other Loan Documents, any financial statement delivered to Lender or otherwise in connection
with this Note or the related transaction that contains any untrue statement of a material fact or omits a material fact necessary to make the statements contained in this Note or in such document or
financial statement not misleading; or 

    c.  Borrower
shall fail to perform or observe, or cause to be performed or observed, any other term, obligation, covenant, condition or agreement contained in this Note
or the other Loan Documents (i.e., other than any obligation of payment) and any such failure shall have continued for a period of thirty
(30) days after written notice of such failure; provided however: (I) if such default is a result of Tenant's failure to perform an obligation under a Facility Lease (other than a
monetary obligation to pay rent, taxes, and insurance, and other than the obligation to maintain the Facility license (as set forth in Section 10(n) above), and other than the obligation not to
commit material waste or abandonment of the Mortgaged Property), in addition to the cure period provided to Tenant to cure such default, Borrower shall have an additional cure period of fifteen
(15) days to cure such defaults before such default shall constitute an Event of Default; and (II) if such default is a result of Tenant's failure to pay taxes or insurance (provided
such failure does not result in a lapse of insurance or a lien on the Mortgaged Property), in addition to the cure period provided to Tenant in the Facility 

–15–

 

Lease, Borrower shall have an additional cure period of ten (10) days to cure such default before such default shall constitute an Event of Default; or 

    d.  Borrower
shall (i) apply for, or consent in writing to, the appointment of a receiver, trustee or liquidator; or (ii) file a voluntary petition
seeking relief under the Bankruptcy Code, or be unable, or admit in writing Borrower's inability, to pay their debts as they become due; or (iii) make a general assignment for the benefit of
creditors; or (iv) file a petition or an answer seeking reorganization or an arrangement or a readjustment of debt with creditors, apply for, take advantage, permit or suffer to exist
the commencement of any insolvency, bankruptcy, suspension of payments, reorganization, debt arrangement, liquidation, dissolution or similar event, under the law of the United States or of any state
in which Borrower is a resident; or (v) file an answer admitting the material allegations of a petition filed against Borrower in any such bankruptcy, reorganization or insolvency case or
proceeding or (vi) take any action authorizing, or in furtherance of, any of the foregoing; or 

    e.  Either
(i) an involuntary case is commenced against Borrower and the petition is not contested within ten (10) days or is not dismissed within sixty
(60) days after the commencement of the case or (ii) an order, judgment or decree shall be entered by any court of competent jurisdiction on the application of a creditor adjudicating
Borrower bankrupt or insolvent, or appointing a receiver, trustee or liquidator of Borrower or of all or substantially all of the assets of Borrower and the order, judgment or decree shall continue
unstayed and in effect for a period of sixty (60) days or shall not be discharged within ten (10) days after the expiration of any stay of such order, judgment, or decree; or 

    f.   Any
obligation of Borrower for the payment of borrowed money in excess of $100,000 in the aggregate is not paid when due or within any applicable grace period, or
such obligation becomes or is declared to be due and payable before the expressed maturity of the obligation, or there shall have occurred an event that, with the giving of notice or lapse of time, or
both, would cause any such obligation to become, or allow any such obligation to be declared to be, due and payable; or 

    g.  One
or more final judgments against Borrower or attachments against its ownership interest in its property not fully and unconditionally covered by insurance in
excess of $100,000 in the aggregate, or any attachment against the Collateral or Borrower's ownership interest in the Facilities, shall be rendered by a court of record and shall remain unpaid,
unstayed on appeal, undischarged, unbonded and undismissed for a period of twenty (20) days; or 

    h.  An
Event of Default occurs under any of the Environmental Indemnities, the Mortgages, the Subordination Agreement, the SNF Note, the SNF Mortgages or any of the
other loan documents evidencing and/or securing the SNF Loan, whether now existing or hereafter executed; or 

    i.   Borrower
ceases any material portion of its business operations as presently conducted; or 

    j.   Borrower
modifies, amends, assigns or terminates a Facility Lease without Lender's prior written consent, or Borrower declares a default under, or pursues its
remedies under, a Facility Lease without Lender's prior written consent; or 

    k.  There
shall occur a default under either Lease Guaranty, or Tenant shall fail to pay all or any portion of Minimum Rent due under the applicable Facility Lease
within the applicable cure period set forth therein. 

    13. Lender's Rights.

    a.  Upon
the occurrence of an Event of Default, Lender may, in addition to its rights and remedies set forth in Sections 6 and 7 above, proceed, to the extent permitted
by law, to protect and enforce its rights either by suit in equity or by action at law, or both, whether for the specific performance of any covenant, condition or agreement contained in this Note or
in aid of the exercise of any power granted in this Note, or proceed to enforce the payment of this Note or to enforce any other legal or equitable right of Lender, including any and all rights and
remedies of Lender under the 

–16–

 

Mortgages, the SNF Note, the SNF Mortgages, the Subordination Agreement and/or the other Loan Documents. No right or remedy in this Note, the other Loan Documents or in other agreement or instrument
to the benefit of Lender is intended to be exclusive of any other right or remedy, and each and every such right or remedy shall be cumulative and shall be in addition to every other right and remedy
given under this Note or now or hereafter existing at law or in equity or by statute or otherwise. Without limiting the generality of the foregoing, if the outstanding Principal Sum, or any of the
other obligations of Borrower to Lender shall not be paid when due, Lender shall not be required to resort to any particular security, right or remedy or to proceed in any particular order of
priority, and Lender shall have the right at any time and from time to time, in any commercially reasonable manner and in any order, to enforce its security interests with respect to the Collateral,
liens, rights and remedies, or any of them, as it deems appropriate in the circumstances, and apply the proceeds of any Collateral to such obligations of Borrower as it determines in its sole
discretion. 

    b.  If
an Event of Default has occurred as provided above and Borrower has not paid the all amounts outstanding, including all principal, together with interest accrued
on such amounts, upon demand by Lender, then Borrower shall pay to Lender interest on such outstanding amounts at a rate per annum equal to the Default Interest Rate from the date such outstanding
amounts are due until the date this Note is paid in full. Borrower promises to pay all reasonable costs of collection, including reasonable attorneys' fees, if this Note is referred to an attorney for
collection after the Event of Default. 

    14.  No Defenses.  Borrower's obligations under this Note shall not be subject to any
set-off, counterclaim or defense to payment that Borrower now has or may have in the future. 

    15.  No Waiver.  No failure or delay on the part of Lender in exercising any right, power or privilege
under this Note or the other Loan Documents, nor any course of dealing between Borrower and Lender, shall operate as a waiver of the right, power or privilege, nor shall a single or partial exercise
of any right, power or privilege preclude any other or further exercise of, or the exercise of any other, right, power or privilege. 

    16.  Writing Required.  No modification or waiver of any provisions of this Note or any other Loan
Documents, and no consent to any departure by Borrower, shall in any event be effective, without respect to any course of dealing between the parties, unless the modification or waiver shall be in a
writing executed by Lender and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice to or demand on Borrower in any case shall
thereby entitle Borrower to any other or further notice or demand in the same, similar or other circumstances. 

    17.  Usury Limitation.  Notwithstanding anything contained to the contrary in this Note, Lender shall
never be entitled to receive, collect or apply as interest any amount in excess of the maximum rate of interest permitted to be charged by applicable law. If Lender receives, collects or applies as
interest any such excess, the amount that would be excessive interest shall be applied to the reduction of the Principal Sum; and if the Principal Sum is paid in full, any remaining excess shall be
paid to Borrower. In determining whether or not the interest paid or payable in any specific case exceeds the highest
lawful rate, Lender and Borrower shall to the maximum extent permitted under applicable law: (i) characterize any non-principal payment as an expense, fee or premium rather than as
interest; and (ii) "spread" the total amount of interest throughout the entire term of the obligation so that the interest rate is deemed to have been uniform throughout the entire term. 

    18.  Notices.  Any notice or demand given under this Note shall be given by delivering it, sending by
telecopier (with a confirming copy by regular mail), or by mailing it by certified or registered mail, postage prepaid, return receipt requested, or sent by prepaid overnight courier service addressed
to Borrower at: LTC Properties, Inc., 300 Esplanade Drive, Suite 1860, Oxnard, CA 93030, Attention: Andre C. Dimitriadis, Telephone: (805) 981-8655, Telecopier:
(805) 981-8663, with a copy to the Legal 

–17–

 

Department at the same address, Telephone: (805) 981-3611, Telecopier: (805) 981-3616, or at such other place as Borrower may specify in writing to Lender. Any
notice to be given to Lender under this Note shall be given by personally delivering it, sending by telecopier (with a confirming copy by regular mail), or mailing it by certified or registered mail,
return receipt requested, or sent by prepaid overnight courier service, addressed to Lender at: Wisconsin Circle, Fourth Floor, Chevy Chase, Maryland 20815 Attention: Real Estate Portfolio Management
Group—Telephone: (301) 961-1640, Telecopier: (301) 664-9866, with a copy to Diana Pennington, Chief Counsel, Senior Living Group, Heller Financial,
c/o Akin, Gump, Strauss, Hauer & Feld, LLP, 816 Congress Avenue, Suite 1900, Austin, Texas 78701, Telephone: (512) 703-1158, Telecopier: (512)505-5487, or at such
other place as Lender may specify in writing to Borrower. Each party may designate a change of address by notice to the other given in accordance with this Section 18 at least fifteen
(15) days before such change of address is to become effective. A notice given under this Note shall be deemed received upon receipt if it is personally delivered or sent by telecopier or
overnight courier service and five (5) days after it is deposited in the U.S. mail if it is sent by certified mail, return receipt requested. 

    19.  Section Headings.  The headings of the several paragraphs of this Note are inserted solely for
convenience of reference and are not a part of and are not intended to govern, limit or aid in the construction of any term or provision. 

    20.  Severability.  If any term, provision, covenant or condition of this Note or the application of such
term, provision, covenant or condition to any party or circumstance shall be found by a court of competent jurisdiction to be, to any extent, invalid or unenforceable, the remainder of this Note and
the application of such term, provision, covenant, or condition to parties or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each
term, provision, covenant or condition shall be valid and enforced to the fullest extent permitted by law. Upon determination that any such term, provision, covenant or condition is invalid, illegal
or unenforceable, Lender may, but is not obligated to, advance funds to Borrower under this Note until Borrower and Lender amend this Note so as to effect the original intent of the parties as closely
as possible in a valid and enforceable manner. 

    21.  Survival of Terms.  All covenants, agreements, representations and warranties made in this Note or
in any financial statements delivered pursuant to this Note shall survive Borrower's execution and delivery of this Note to Lender and shall continue in full force and effect so long as this Note or
any other obligation under this Note shall be outstanding and unpaid or any other obligation of Borrower to Lender or its affiliates under this Note shall remain unperformed. 

    22.  Indemnity.  Borrower hereby agrees to indemnify and hold harmless Lender, its partners, officers,
agents and employees (collectively, "Indemnitee") from and against any liability, loss, cost, expense, claim, damage, suit, action or proceeding ever
suffered or incurred by Lender (including reasonable attorneys' fees and expenses) arising from Borrower's failure to observe, perform or discharge any of its covenants, obligations, agreements or
duties under this Note or from the breach of any of the representations or warranties contained in this Note, unless caused solely by the gross negligence or willful misconduct of Lender. In addition,
Borrower shall defend Indemnitee against and save it harmless from all claims of any Person with respect to the Collateral. Notwithstanding any contrary provision in this Agreement, the obligations of
Borrower under this Section 22 shall survive the payment in full of the all obligations under this Note and the termination of this Note. 

    23. INTENTIONALLY DELETED.

    24.  Governing Law; Consent to Jurisdiction.  THIS NOTE IS TO BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MARYLAND WITHOUT RESPECT TO ANY OTHERWISE APPLICABLE CONFLICTS-OF-LAWS PRINCIPLES, BOTH AS TO INTERPRETATION AND
PERFORMANCE, AND THE PARTIES EXPRESSLY CONSENT AND AGREE TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF  

–18–

 

 MARYLAND AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MARYLAND AND TO THE LAYING OF VENUE IN MARYLAND, WAIVING ALL CLAIMS OR DEFENSES BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER
VENUE, INCONVENIENT FORUM OR THE LIKE. BORROWER HEREBY CONSENTS TO SERVICE OF PROCESS BY MAILING A COPY OF THE SUMMONS TO BORROWER, BY CERTIFIED OR REGISTERED MAIL, POSTAGE PREPAID, TO BORROWER'S
ADDRESS SET FORTH IN SECTION 18 ABOVE. BORROWER FURTHER WAIVES ANY CLAIM FOR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY ACTION TAKEN OR OMITTED TO BE TAKEN BY LENDER IN GOOD
FAITH.

    25.  Waiver of Trial by Jury.  EACH OF BORROWER AND LENDER HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUES TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL
NOW HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY EACH OF BORROWER AND LENDER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH
INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A JURY TRIAL WOULD OTHERWISE
ACCRUE. EACH PARTY IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT THIS NOTE TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES TO THIS NOTE, SO AS TO SERVE AS CONCLUSIVE EVIDENCE
OF THE FOREGOING WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, EACH OF BORROWER AND LENDER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
THAT SUCH OTHER PARTY WILL NOT SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.

    26. Exculpation.

    a.  No
affiliate of Borrower, including all parents, subsidiaries and other affiliates of Borrower (the "Affiliates"),
including all officers and directors of the Borrower or the Affiliates shall have any responsibility or liability for the payment or performance of any obligations or duties under this Note or any
other agreement or transaction provided or contemplated in the Loan Documents. 

    b.  Subject
to subsection (c) below, Borrower shall not be personally liable to pay the Loan, or any other amount due, under the Loan Documents, and Lender
agrees to look solely to the Collateral and any other collateral heretofore, now or hereafter pledged by any party to secure the Loan. 

    c.  Notwithstanding
the exculpation set forth in subsection (b) above, LTC Properties and Borrower, jointly and severally, shall be personally liable for: 

    (i)  all
losses, damages, costs and expenses including attorneys' fees incurred by Lender as a result of (x) any failure after the occurrence and during the
continuance of any Event of Default (without benefit of any applicable grace or cure period), to apply any portion of the gross income of Borrower from the Facilities to the Loan or to customary
operating expenses of the Facilities, or (y) fraud, misappropriation of any funds deriving from the Facilities or material misrepresentation; provided, however, that LTC Properties shall only
be personally liable to Lender pursuant to this Section 26(c)(i) only to the extent of any funds received for the benefit of LTC Properties in violation of this Agreement; and 

    (ii)   for
repayment of the Loan and all other obligations of Borrower under the Loan Documents in the event of (x) any breach of the covenants of
Sections 11(c) and 11(h) of this Note pertaining to transfers of interests. 

    (iii)   INTENTIONALLY
DELETED. 

    (iv)   for
repayment of the Loan, the Exit Fee and all other obligations of Borrower under the Loan Documents in the event of (A) any breach of
the covenants of Sections 11(b) of this 

–19–

 

Note (to the extent of such lien) pertaining to additional encumbrances, (B) any change in control of Borrower, or (C) Borrower owning material assets other than the Facilities. 

    d.  Notwithstanding
the exculpation set forth in subsection (b) above, Borrower shall be personally liable for all losses, damages, costs and expenses including
attorneys' fees incurred by Lender as a result of (i) any material waste of the Facilities by Borrower, (ii) any breach of any representation, warranty, covenant or obligation concerning
Toxic Substances (as defined in the Environmental Indemnities) set forth in the Environmental Indemnities, and (iii) failure to keep the Facilities insured in accordance with the Loan
Documents. 

    The
foregoing shall in no way limit or impair the enforcement against the Collateral or any other collateral security granted by the Loan Documents of any of the Lender's and remedies
pursuant to the Loan Documents. 

    27.  Release.  So long as no Event of Default has occurred under this Note or any of the Loan Documents,
the Mortgages shall be released upon satisfaction in full of all of the following (as determined by Lender in its sole discretion): 

    a.  all
of the Borrower's obligations under this Note and the Mortgages, including (without limitation), all outstanding principal, accrued and unpaid interest and the
Exit Fee, shall be paid to Lender; 

    b.  the
outstanding principal balance of the SNF Loan shall be reduced by $1,000,000.00; 

    c.  the
outstanding principal balance of the SNF Loan shall be reduced by an additional amount equal to the scheduled installments of principal paid by Borrower under
this Note as of the release date; and 

    d.  LTC
Properties shall cause the SNF Borrowers to amend the SNF Loan to provide for monthly principal payments equal to $25,000.00 each. 

    28.  Conflicts and Inconsistencies.  In the event of any conflicts or inconsistencies between the terms
of this Note and any of the other Loan Documents, the terms of the Note shall govern and control. 

[SIGNATURES ON FOLLOWING PAGE]

–20–

 
    IN WITNESS WHEREOF, the undersigned have executed this Secured Term Note as of the day and year first above written. 

	 	 	BORROWER:
	

 	
 	

MISSOURI RIVER CORPORATION,

a Delaware corporation
	

 	
 	

By:	
 	

	 	 	 	 	Name:	 	Alex J. Chavez
	 	 	 	 	Title:	 	Senior Vice President and Treasurer

    LTC Properties, Inc. hereby joins in this Note with respect to Sections 10(a)(i), (ii) and (iv), 24, 25 and 26(c) hereof and acknowledges and
agrees the representations and covenants undertaken by LTC Properties, Inc. herein are a material inducement to Lender making this Loan to Borrower and that Lender would not be making the Loan
to Borrower without such representations and covenants.

	

 	
 	
LTC PROPERTIES, INC.

a Maryland corporation
	

 	
 	

By:	
 	

	 	 	 	 	Name:	 	Wendy L. Simpson
	 	 	 	 	Title:	 	Chief Financial Officer

–21–

 
LIST OF SCHEDULES  

	 
	 	 

	 	 	 
	Schedule 1(f) -	 	Definition of Net Operating Income and Debt Service Coverage Ratio
	Schedule 9(n) -	 	Places of Business
	Schedule 9(t) -	 	Trade Names

–22–

 
Schedule 1(f)

Definition of Net Operating Income and Debt Service Coverage Ratio

CALCULATION OF

NET OPERATING INCOME  

    "Net Operating Income" means annualized Revenue less Expenses. 

    "Revenue" means the lesser of (i) annualized Adjusted Actual Rent or (ii) annualized Monthly Effective Rent. In
determining Revenue, the occupancy factor utilized shall be the lessor of (a) actual occupancy, or (b) an assumed ninety-three percent (93%) occupancy rate. 

    "Adjusted Actual Rent" means (a) all amounts collected from tenants of the Project for the most current three (3) months,  excluding corporate apartment income,
 pet fees, redecorating fees and other income (unless specifically included below), percentage rents, nonrecurring
income and non-property related income and income from tenants (i) that are thirty (30) or more days delinquent, (ii) that are in bankruptcy (even if current),
(iii) non-residential tenants whose leases terminate within six (6) months (as adjusted for space re-leased upon terms acceptable to Lender in its sole
discretion) and (iv) that have been delinquent four (4) or more times during the past twelve (12) months, and (b) other revenue not to exceed ten percent (10%) of the
amounts included in clause (a) above for laundry, vending, parking and other occupancy payments (but excluding late fees and interest income) based upon collections for the previous twelve
(12) months. 

    "Monthly Effective Rent" means an amount equal to (x) total rent due over the term of the leases less any payments or
concessions which Lender, in its sole discretion, deems to be a rent concession, divided by (y) the total number of months in the leases. 

    "Expenses" means all actual and customary operating expenses on a stabilized accrual basis for the previous twelve (12) month
period (as reasonably adjusted by Lender), including, without limitation: (i) recurring expenses (e.g., tenant improvements, leasing commissions, carpeting replacement, appliance and drapery
replacement and such other as solely determined by Lender), (ii) real estate taxes, (iii) management fees (whether paid or not) in an amount not less than five percent (5%) of effective
gross income, and (iv) a replacement reserve (whether reserved or not) of not less than Three Hundred and No/100 Dollars ($300.00) per unit. 

    Net
Operating Income, and the elements thereof set forth above, shall be calculated in accordance with GAAP (to the extent GAAP is applicable to such calculations). The determination
by Lender of the amount of Net Operating Income shall be conclusive, absent manifest error. 

DEBT SERVICE COVERAGE RATIO  

    "Debt Service Coverage Ratio" means the ratio of rent and other payments then being paid to Borrower pursuant to each Facility Lease to Debt Service, as
hereinafter defined. "Debt Service" means the aggregate amount of all scheduled principal, interest and other payments due to Lender by Borrower pursuant to the provisions of this Note and all other
Loan Documents calculated as of the date of the requested advance of the Earnout Amount. 

–23–

 
Schedule 9(n)

Places of Business  

	1.
	300
Esplanade Drive

Suite 1860

Oxnard, California 93030

	2.
	2160
Detroit Road

Rocky River, Ohio 93030

	3.
	1012
Bayfront Parkway

Erie, Pennsylvania 16502 

–24–

QuickLinks

SECURED TERM NOTE

Loan Number 21-095Prepared by MERRILL CORPORATION

QuickLinks
 -- Click here to rapidly navigate through this document
  

 
  EXHIBIT 10.3    
  

 
 

SECOND AMENDED AND RESTATED PROMISSORY NOTE    
  

	 	 	 
	$20,000,000.00	 	Date:  June 8, 2001

Oxnard, California  

    THIS SECOND AMENDED AND RESTATED PROMISSORY NOTE (THIS "NOTE") SUPERSEDES AND REPLACES THAT CERTAIN AMENDED AND RESTATED NOTE DATED MAY
19, 1998 (THE "PRIOR AMENDED NOTE"), MADE BY LTC HEALTHCARE, INC., A NEVADA CORPORATION (FORMERLY KNOWN AS LTC EQUITY HOLDING COMPANY, INC.), AS MAKER ("MAKER"), IN FAVOR OF LTC
PROPERTIES, INC., A MARYLAND CORPORATION, AS PAYEE ("PAYEE") WHICH PRIOR AMENDED NOTE SUPERSEDED AND REPLACED THAT CERTAIN PROMISSORY NOTE DATED MARCH 30, 1998 MADE BY MAKER IN FAVOR OF PAYEE,
IN THE MAXIMUM PRINCIPAL AMOUNT OF EIGHT MILLION DOLLARS ($8,000,000.00) (THE "ORIGINAL NOTE").

    As
of the date hereof, Maker certifies, acknowledges and agrees the outstanding principal balance of the Original Note, as amended by the Prior Amended Note, is $17,385,630.01, as of
April 30, 2001. Accordingly, the principal balance under this Note, as of the date hereof, is $17,334,537.01. As of April 30, 2001, interest on the Original Note, as amended by the Prior
Amended Note, in the amount of $1,367,050.44, is past due and owing, and is grounds for the declaration of an event of default thereunder and the imposition of late charges, other fees and remedies in
accordance with such documents and applicable law. Such interest, which amount has increased in accordance with the terms of the Prior Amended Note since April 30, 2001, remains past due and
owing. Maker has requested, and Payee has agreed, to forebear from exercising Payee's rights and remedies, including the right to accelerate the Loan and the imposition of late charges, until
June 30, 2002, with respect to, and only
with respect to, the failure to pay interest past due and owing, at which time Payee shall be entitled to exercise any and all remedies available to Payee with respect to such
past due interest if not paid. Maker further certifies, acknowledges and agrees that even though Payee has agreed to forebear from exercising its rights and remedies with regard to the event of
default arising from Maker's failure to make such interest payments as and when due, Payee has not waived Payee's right to declare an event of default, and exercise all rights and remedies available
in connection with any other defaults under the Original Note, as amended by the Prior Amended Note, all of which rights are expressly reserved. Moreover, to the extent Payee accelerates the
obligations of Maker under this Note prior to June 30, 2002 as a result of an Event of Default, Change of Control or otherwise, any and all interest due and owing, and any late charges or other
fees associated therewith, shall immediately be reinstated and likewise accelerated. 

    Payee
and certain of its wholly-owned subsidiaries, as landlord, and certain wholly owned subsidiaries of Maker (hereinafter "Subsidiaries"), as lessee, are parties to certain leases.
Maker's Subsidiaries have failed to make rental payments as and when due up through June 30, 2001 under such leases in the total amount of $3,746,483.25, and has requested, and Payee has
agreed, to forbear from exercising Payee's rights and remedies under such leases with respect to such rental payments. For good and valuable consideration, including without limitation, Payee's
agreement to forbear from exercising its rights and remedies under the Original Note, as amended by the Prior Amended Note, and such leases, Maker is executing and delivering this Note to Payee and
agreeing to amend such leases as more particularly set forth in such lease amendments. 

    In
installments as herein stated, for value received, Maker hereby promises to pay to the order of Payee, at Payee's principal place of business in Oxnard, California, or such other
place as Payee may 

1

 

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 (as hereinafter defined in Section 14, 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. 

    Subject
to the limitations described in Section 4 hereof, Maker desires to obtain a secured 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 have been or will, subject to the terms hereof, 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 ten (10) 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 monthly
installments, without set-off, deduction, demand or notice of any kind or nature whatsoever, on the 1st day of each calendar month commencing on July 1, 2001 (each, a
"Payment Date"), in an amount equal to the accrued but unpaid interest for the immediately preceding one-month period on the principal amount outstanding from time to time. 

    (b)  Payments on Maturity Date.  Assuming no acceleration by Payee and no prepayment in full of the Loan
by Maker, on the Maturity Date, Maker shall pay to Payee the entire outstanding principal balance, accrued and unpaid interest and any and all other outstanding charges, fees or amounts owing to Payee
by Maker under this Note. 

    2.  Prepayments.  Maker shall have the right to prepay all or any part of the principal balance of this
Note 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.  Security Documents.  This Note is secured by, among other things, certain mortgages, assignments,
security agreements and/or other security instruments given by Maker in favor of Payee (as the same may be amended, supplemented or restated from time to time, the "Security Documents"). Reference is
made to the Security Documents for a description of the collateral provided for therein and the rights of Payee with respect to such collateral. 

    4.  Restrictive Covenants.  Maker hereby covenants and agrees with Payee that, for so long as the
obligations of Maker under this Note remain outstanding, or Payee has any obligation to make advances under the Note, Maker will comply with all of the following: 

    (a) Maker
will not, and will not permit any subsidiary of Maker to, create, assume, incur or suffer to exist any lien or encumbrance of any kind, upon all or any
portion of the Collateral (as defined in the Security Documents). 

    (b) Maker
will not use the proceeds available under this Note for any purposes other than: (i) working capital, or (ii) for such other purposes Payee, in
it sole and absolute discretion, approves in writing. 

2

 

    (c) Maker will not, and will not permit any subsidiary to, directly or indirectly, incur, create, issue, assume, purchase or suffer to exist any debt, other than debt
under this Note. 

    (d) Maker
will not, and will not permit any subsidiary to (i) lease, assign or sell all or substantially all of its property or business to any other Person (as
hereinafter defined), (ii) merge or consolidate with or into any other Person, (iii) purchase or lease or otherwise acquire all or substantially all of the assets of any other Person,
(iv) sell, transfer, pledge or otherwise dispose of capital stock in any of its subsidiaries, (v) liquidate, suspend or dissolve its business operations, (vi) change its name,
identity or corporate, partnership or other structure, or (vii) change the current principal place of business or chief executive office, in each case without the prior written consent of
Payee. 

    5.  Change of Control.  Notwithstanding anything to the contrary contained herein, upon a Change of
Control (as hereinafter defined) Payee may, in its sole discretion, declare the entire balance of principal and interest hereon immediately due and payable, together with all applicable charges and
payments due hereunder, all costs of collection, including reasonable attorneys' fees and all other costs and expenses incurred, and shall have all remedies available under the Security Documents, at
law or in equity. In addition, if Payee, in Payee's sole but good faith business judgment, believes a Change of Control is reasonably likely to occur, Payee shall be under no further obligation to
honor draw requests hereunder, whether theretofore or thereafter given. For purposes of this Note, a "Change of Control" shall mean and include (i) the sale by Maker and/or any subsidiary of
all or substantially all of the assets of Maker and its subsidiaries taken as a whole, (ii) any Acquisition by any person or any persons acting together which would constitute a "group" for
purposes of Section 13(d) of the Exchange Act (a "Group") of 30% or more of the total voting power of all classes of capital stock of the Company entitled to vote generally in the election of
the Board of Directors of the Company, (iii) any Acquisition by any person or Group of the power to elect, appoint or cause the election or appointment of at least a majority of the members of
the Board of Directors of Maker, through beneficial ownership of the capital stock or otherwise, or, (iv) a majority of the members of the Board of Directors of Maker cease to be Continuing
Directors (as hereinafter defined). As used herein, "Continuing Directors" means, as of any date of determination, any member of the Board of Directors of Maker who (i) was a member of the
Board of Directors of Maker on the date of this Note, or (ii) was nominated for election or elected to such board with the approval of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election. For the purposes of this definition, "Acquisition" of the power or properties and assets stated
in the preceding sentence means the earlier of (a) the actual possession thereof and (b) the consummation of any transaction or series of related transactions which, with the passage of
time, will give such Person or Persons that actual possession thereof. As used herein, "Person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or any agency or political subdivision thereof, or other entity. 

    6.  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 

3

 

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:                                 

                                 Maker 

    7.  Default.  The occurrence of any of the following shall constitute an event of default ("Event of
Default") under this Note: 

    (a) failure
to make any payment of principal, interest, or any other sums due hereunder within five (5) business days of the date due; 

    (b) the
occurrence of any breach or default of any other obligation of Maker, monetary or otherwise, hereunder, which breach or default (except as provided below) shall
continue for more than ten (10) calendar days after Maker has received written notice thereof from Payee; 

    (c) notwithstanding
anything to the contrary contained in this Section 7, immediately upon the breach or default of any provision of Section 4 hereof; or 

    (d) a
breach or default under the Security Documents. 

    8.  Acceleration Rights; Remedies.  Upon the occurrence of an Event of Default or Change of Control
hereunder, Payee may, in its sole discretion, declare the entire balance of principal and interest hereon immediately due and payable, together with all applicable charges and payments due hereunder,
costs of collection, including reasonable attorneys' fees and all other costs and expenses incurred, and shall have any and all remedies available under the Security Documents, at law or in equity. 

    9.  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. 

    10.  Waivers.  Maker of this Note hereby waives diligence, demand, presentment for payment, exhibit 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. 

    11.  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. 

    12.  Governing Law.  This Note shall in all respects be interpreted, enforced, and governed by and under
the internal law of the State of California without resort to choice of law principles. 

    13.  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. 

4

 

    14.  Compliance With Usury Laws.  It is the intention of the parties hereto to conform strictly to
applicable usury laws regarding the use, forbearance or detention of the indebtedness evidenced by this Note, whether such laws are not or hereafter in effect, including the laws of the Untied 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 14 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 be obligated to apply the amount of such interest to the extent it is in excess of the Maximum Amount; (iv) any interest contracted for, charge, 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 (as hereinafter defined), and the provision of this Note shall be deemed reformed, without the necessity of the execution of any new
document, so as to comply with all Applicable Usury Laws. All sums paid, or agreed to be paid, to Payee for the use, forbearance, or the detention of the indebtedness of Maker to payee evidenced by
this Note shall, to the fullest extent permitted by the Applicable Usury Laws, be amortized, pro-rated, allocated and spread throughout the full term of the indebtedness evidenced by this
Note so that the actual rate of interest does not exceed the Highest Lawful Rate in effect at any particular time during the full term thereof. As used herein, the term "Maximum Amount" means the
maximum non-usurious amount of interest which may be lawfully contracted for, charged, reserved, taken or received by Payee in connection with the indebtedness evidenced by this Note under
all applicable Usury Laws. 

    (b) If
at any time interest on the Loan, together with any fees and additional amounts payable hereunder or under any other agreements or instruments that are deemed to
constitute interest under Applicable Usury Laws (the "Additional Interest"), exceeds the Highest Lawful Rate, then the amount of interest to accrue pursuant to this Note shall be limited,
notwithstanding anything to the contrary in this Note, or any other agreement or instrument, to the amount of interest that would accrue at the Highest Lawful Rate; provided, however, that to the
fullest extent permitted by Applicable Usury Laws, any subsequent reductions in the interest rate shall not reduce the interest to accrue pursuant to this Note below the Highest Lawful Rate until the
aggregate amount of interest actually accrued pursuant to this Note, together with all Additional Interest, equals the amount of Interest which would have accrued if the Highest Lawful Rate had at all
times been in effect and such Additional Interest, if any, had been paid in full. 

    For
purposes of this Note, the term "Highest Lawful Rate' means the maximum rate of interest and other charges (if any such maximum exists) for the forbearance of the payment of
monies, if any 

5

 

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. 

    15.  Notices.  Any notice or other communication required or permitted to be given under this Note shall
be in writing and sent by United States mail, registered or certified mail, postage prepaid, return receipt requested, and addressed as follows: 

	If to Maker:	 	LTC Healthcare, Inc.
	 	 	300 Esplanade Drive, Suite 1865
	 	 	Oxnard, California 93030
	 	 	Attention:  Mr. Chris Ishikawa
	

with a copy to:	
 	

LTC Healthcare, Inc.
	 	 	300 Esplanade Drive, Suite 1865
	 	 	Oxnard, California 93030
	 	 	Attention:  Legal Department
	
If to Payee:	
 	

LTC Properties, Inc.
	 	 	300 Esplanade Drive, Suite 1860
	 	 	Oxnard, California 93030
	 	 	Attention:  Ms. Wendy Simpson
	

with a copy to:	
 	

LTC Properties, Inc..
	 	 	300 Esplanade Drive, Suite 1860
	 	 	Oxnard, California 93030
	 	 	Attention:  Legal Department

or
such other address as either party may from time to time specify in writing to the other in the manner aforesaid. If personally delivered, such notices or other communications shall be deemed
delivered upon delivery. If sent by United States mail, registered or certified mail, postage prepaid, return receipt requested, such notices or other communications shall be deemed delivered upon
delivery or refusal to accept delivery as indicated on the return receipt. 

    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:	
 	

	 	 	 	 	Name:	 	 
	 	 	 	 	       

	 	 	 	 	Its:	 	 
	 	 	 	 	     

6

QuickLinks

EXHIBIT 10.3

SECOND AMENDED AND RESTATED PROMISSORY NOTE

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