sv4

favorable prior year revenue adjustments recorded in the 2003 quarter consisting of (1) a recovery of $1.5 million in Medicaid revenues in the 2003 quarter as the outcome of a favorable court decision in the State of Ohio, and (2) $1.3 million in favorable settlements of prior year state cost reports, in excess of $1.4 million of settlements of prior year state cost reports recorded in 2004

Total increase in revenues from same facility nursing and assisted living centers

Approximate date of commencement of proposed sale to the public: Upon consummation of the exchange offer referred to herein.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. o

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o


(1)	Estimated solely for purposes of determining the registration fee.
(2)	Calculated pursuant to Rule 457(f) under the Securities Act of 1933.
(3)	Pursuant to Rule 457(n) under the Securities Act of 1933, no registration fee is required with respect to the guarantees.

The registrants hereby amend this registration statement on such date or dates as may be necessary to delay its effective date until the registrants shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


(1)	The address of each of these additional registrants is 111 West Michigan Street, Milwaukee, Wisconsin 53203. Their telephone number is (414) 908-8000.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy the securities in any state where the offer or sale is not permitted.


•	We are offering to exchange new registered 6 7/8% Senior Subordinated Notes due 2014 for all of our outstanding unregistered 6 7/8% Senior Subordinated Notes due 2014.

•	The exchange offer expires at 5:00 p.m., New York City time, on , 2004, unless we extend it.

•	The terms of the new notes to be issued are substantially identical to those of the old notes, except that the new notes will not have securities law transfer restriction and registration rights relating to the old notes and the new notes will not provide for the payment of liquidated damages under circumstances relating to the timing of the exchange offer.

•	All of our existing and future domestic significant subsidiaries, all of our existing and future domestic subsidiaries that guarantee or incur any indebtedness and any other existing and future significant subsidiaries or restricted subsidiaries that guarantee or otherwise provide direct credit support for indebtedness of ours or any of our domestic subsidiaries will fully and unconditionally guarantee the new notes.

•	All outstanding old notes that are validly tendered and not validly withdrawn will be exchanged.

•	No established trading market for the new notes currently exists. We do not intend to apply for the new notes to be listed on any securities exchange or to arrange for any automated quotation system to quote them.

•	Each broker-dealer who acquired its old notes as a result of market-making activities or other trading activities and thereafter receives new notes issued for its own account in the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such new notes issued in the exchange offer.

•	You may withdraw your tender of old notes any time before the exchange offer expires.

•	Neither we nor any subsidiary guarantor will receive any proceeds from the exchange offer.

•	The exchange of notes will not be a taxable event for U.S. federal income tax purposes.

See “Risk Factors” beginning on page 18 for a discussion of risk factors that you should consider before deciding to exchange your old notes for new notes.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

Unless the context otherwise requires, references in this prospectus to “EHSI,” “we,” “us,” “our” and “ours” refer to Extendicare Health Services, Inc. and its subsidiaries on a combined basis. When the context requires, we refer to these entities separately.

You should rely only upon the information contained in this prospectus. We have not authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Unless otherwise indicated, information contained in this prospectus concerning the long-term care industry, general expectations concerning this industry and our market positions are based on estimates prepared by us using data from various sources, including the Health Care Market Update issued in May 2003 by the Centers for Medicare and Medicaid Services, or CMS, and on assumptions made by us based on such data and our knowledge of the long-term care industry. We have not sought the consent of any of these sources to refer to their data in this prospectus. With respect to certain industry participants, we rely on press releases and public filings these participants make with the Securities and Exchange Commission. Although we believe all of this data is reliable, we have not independently verified the data and cannot guarantee its accuracy or completeness.

This prospectus contains forward-looking statements that are intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding anticipated financial performance, business strategy and management’s plans and objectives for future operations, are forward-looking statements. These forward-looking statements can be identified as such because the statements generally include words such as “expect,” “intend,” “believe,” “anticipate,” “estimate,” “plan” or “objective” or other similar expressions. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, these statements. Some, but not all, of the risks and uncertainties include those described in the “Risk Factors” section of this prospectus beginning on page 18 and the following:


	•	Medicare and Medicaid payment levels and reimbursement methodologies and the application of such methodologies and policies adopted by the government and its fiscal intermediaries;

	•	liabilities and claims asserted against us, such as resident care litigation, including our exposure to punitive damage claims and increased insurance costs;

	•	national and local economic conditions, including their effect on the ability to hire and retain qualified staff and employees and the associated costs;

	•	federal and state regulation of our business and changes in such regulations, as well as our compliance with such regulations;

	•	actions by our competitors; and

	•	our ability to maintain and increase census levels.

We will only update publicly any forward-looking statements contained in this prospectus, whether as a result of new information, future events or otherwise, to the extent required by law.

This summary highlights selected information contained elsewhere in this prospectus and may not contain all of the information that may be important to you. We encourage you to read this prospectus carefully, including “Risk Factors” and our financial statements and the notes to our financial statements included elsewhere in this prospectus.

We are one of the largest providers of long-term care and related services in the United States. Through our subsidiary network of geographically clustered facilities, we offer a continuum of healthcare services, including skilled nursing care, assisted living and related medical specialty services, such as subacute care and rehabilitative therapy. As of March 31, 2004, we operated or managed 186 long-term care facilities with 16,901 beds in 13 states, of which 147 were skilled nursing facilities with 15,030 beds and 39 were assisted living and retirement facilities with 1,871 units. We also provided consulting services to 72 facilities with 8,839 beds in five states. In addition, we operated 24 outpatient rehabilitation clinics in four states. We receive payment for our services from Medicare, Medicaid, private insurance, self pay residents and other third-party payors. For the year ended December 31, 2003, we generated total revenue of $870.4 million, and we generated EBITDA (as defined in “— Summary Consolidated Historical Financial and Operating Data”) of $99.3 million. For the three months ended March 31, 2004, we generated total revenue of $231.5 million, and we generated EBITDA of $32.3 million.

We focus on our core skilled nursing facility operations, while continuing to grow our complementary long-term care services. By emphasizing quality care of patients and by clustering several long-term care facilities together within the geographic areas we serve, our goal is to build upon our reputation as a leading provider of a full range of long-term care services in our communities and, as a result, to continue to improve our Medicare census and occupancy rate. For the three months ended March 31, 2004, our average occupancy rate was 91.3% in our skilled nursing facilities and 86.7% in our assisted living facilities. For the year ended December 31, 2003, our average occupancy rate was 91.5% in our skilled nursing facilities and 86.3% in our assisted living facilities.

According to CMS, total healthcare spending is expected to grow at an annual rate of 7.3% from 2002 through 2013. Based on these estimates, healthcare expenditures will account for $3.4 trillion, or 18.4% of the gross domestic product by 2013. Skilled nursing facility expenditures were approximately $103.7 billion in 2002, or 6.6% of total healthcare spending, representing one of the largest components of national healthcare spending. The spending related to skilled nursing facilities is expected to grow at an annual rate of 7.4% through 2013.

The long-term care industry is changing as a result of several fundamental factors, which we believe we can capitalize on. These factors include:

Aging Population. The aging of the U.S. population is a leading driver of demand for long-term care services. According to the 2000 census conducted by the U.S. Census Bureau, there were approximately 34.4 million Americans aged 65 or older, representing 12.6% of the total U.S. population. The U.S. Census Bureau has forecasted that the population of Americans aged 65 or older will increase to 53.2 million by 2020, representing 16.4% of the total U.S. population, and 78.8 million in 2050, representing 20% of the total U.S. population. Based upon these projections, the annual growth rate for persons over 65 will be 2.6% through 2020 and 1.8% through 2050, whereas the annual growth rate for persons over 85 will be 2.6% through 2020 and 6.6% through 2050. According to the August 2003 MetLife Market Survey of Nursing Home Report, or MetLife Report, in 2000, approximately 1.6 million, or 4.5%, of all persons aged 65 and over were living in a skilled nursing facility. This number is expected to increase to approximately 6.6 million, or 8.4%, of all persons aged 65 by 2050.

Supply/ Demand Imbalance. Acquisition and construction of additional skilled nursing facilities are subject to certain restrictions on supply, including legislation moratoriums on new capacity or licensing restrictions limiting the growth of services. Such restrictions on supply, coupled with an aging population, are causing a decline in the availability of long-term beds per person 85 years of age and older. Additionally, advances in medical technology are enabling the treatment of certain medical conditions outside the hospital setting. As a result, patients requiring a higher degree of monitoring, more intensive and specialized medical care, 24-hour per day nursing and a comprehensive array of rehabilitative therapies are increasing, resulting in a need for long-term care. We believe that such specialty care can be provided in skilled nursing facilities at a significantly lower cost than in traditional acute care and rehabilitation hospitals.

Cost Containment Pressures. According to the MetLife Report, the remaining life expectancy of a male age 65 has increased to 16.3 years in 2002 from 12.7 years in 1942, and the remaining life expectancy of a female age 65 has increased to 19.2 years in 2002 from 14.7 years in 1942. As the number of people over age 65 continues to grow and as advances in medicine and technology continue to increase life expectancies, the likelihood of chronic conditions requiring treatment, and the resulting healthcare costs, are expected to rise faster than the availability of resources from government-sponsored healthcare programs. In response to such rising costs, governmental and private pay sources in the United States have adopted cost containment measures that encourage reduced lengths of stay in acute care hospitals. As a result, average acute care hospital stays have been shortened, and many patients are discharged despite a continuing need for nursing or specialty healthcare services, including a higher degree of monitoring, intensive and specialized medical care, 24-hour per day nursing services and a comprehensive array of rehabilitative therapies. This trend has increased demand for long-term care, home healthcare, outpatient facilities, hospices and assisted living facilities. We believe that long-term care companies with information systems to process clinical and financial data, an integrated network and a broad range of services will be in a good position to contract with managed care or other payors.

Changing Family Dynamics. As a result of the growing number of two-income families, we believe the immediate family has become less of a primary source of care-giving for the elderly. Women, who under more traditional roles were viewed as the primary caretakers of the family, have moved back into the workforce in increasing numbers, as evidenced through their labor participation rates increasing from 38% in 1963 to 59% in 1998. At the same time, two-income families are better able to provide financial support for elderly parents to receive the care they need in a skilled nursing or assisted living facility.

According to the May 2003 CMS Healthcare Industry Market Update, the long-term care industry is fragmented, with the 10 largest skilled nursing facility companies accounting for 15.5% of the total facility beds as of April 2003. There are approximately 16,500 skilled nursing facilities certified under the Medicare and/or Medicaid program with approximately 1.8 million available beds, and during 2002, approximately 3.5 million individuals lived in skilled nursing facilities. Approximately 65% of skilled nursing facilities are operated by for-profit companies, 28% are operated by non-profit organizations and 7% are operated by local government.

Leading Provider of Long-Term Care Services. We are among the largest providers of long-term care services in the United States. As of March 31, 2004, we operated or managed 186 long-term care facilities with 16,901 beds, and we operated 24 outpatient rehabilitation clinics, compared to 22 in 2002 and 20 in 2001. We also opened two new rehabilitation clinics during 2003. Our scope of operations allows us to achieve economies of scale in purchasing and contracting with suppliers and customers. For example, through our subsidiary, Extendicare Health Network, Inc., we provide purchasing services for skilled nursing facilities in numerous states in addition to the facilities we operate or manage. Through our affiliate, Virtual Care Provider, Inc., we also provide technology support services to unaffiliated long-term

Focus on Core Business. In the past, we have successfully identified and disposed of business segments that did not fit within our core business or facilities located in states with unacceptable litigation risks. From 1998 through 2001, in response to the implementation of the Medicare Prospective Payment System, or PPS, increased litigation and insurance costs in certain states and increased operational costs resulting from changes in legislation and regulatory scrutiny, we divested under-performing skilled nursing and assisted living facilities and non-core healthcare assets. These asset divestitures primarily included the sale of our pharmacy to Omnicare, Inc. and the sales of facilities and/or the transfer of all operations in the states of Florida and Texas in 1999, 2000 and 2001. We have more recently commenced development projects, acquired facilities and undertaken management or consulting contracts to grow in states that are attractive and offer opportunities for us to expand our present base of operations. In 2003, we commenced the development of seven projects that will expand several facilities (125 beds) and add one free-standing assisted living facility (40 units), acquired one skilled nursing facility (99 beds) and approved eight future development projects that will expand or add to our assisted living facilities (329 units). During the three months ended March 31, 2004, we completed two of the seven projects that we commenced in 2003, which increased our operational capacity at one skilled nursing facility and one assisted living facility. We intend to continue to focus on operating and managing long-term care facilities. In addition, we plan to continue to review the performance of our current facilities and exit markets or sell facilities that do not meet our performance goals.

Significant Facility Ownership. We own rather than lease a majority of our properties, unlike a number of other long-term care providers. As of March 31, 2004, we owned 174 facilities, or 94.3% of the total number of facilities we operated. We believe that owning properties increases our operating flexibility by allowing us to:


	•	refurbish facilities to meet changing consumer demands;

	•	add assisted living and retirement facilities adjacent to our skilled nursing facilities;

	•	adjust licensed capacity to avoid occupancy-based rate penalties;

	•	divest facilities and exit markets at our discretion; and

	•	more directly control our occupancy costs.

Dual Medicare and Medicaid Certification. We have certified substantially all of our beds for the provision of care to both Medicare and Medicaid patients. We believe that dual certification increases the potential for higher occupancy rates by increasing the availability of beds to patients who require a specific bed certification. In addition, dual certification allows our facilities to easily shift patients from one level of care and reimbursement to another without physically moving the patient.

Experienced and Proven Management Team. Our management team has demonstrated competency in dealing with significant changes in the reimbursement environment resulting from the shift to PPS, and identifying the significant exposures and risks of operating in the extremely litigious environments in Florida and Texas. We executed a planned divestiture program that reduced our level of debt and reduced our exposure to liability claims and increased insurance costs. We have been successful in recruiting experienced management staff from our competitors to further strengthen our existing experienced executive and operating management team.

Geographic Diversity. We operate or manage facilities located in specific markets across 13 states primarily throughout the Northeast, Midwest and Northwest regions of the United States. No state contains more than 19% of our facilities or 20% of our beds. Each state is unique in terms of its competitive dynamics as well as its political and regulatory environment. Each state administers its own Medicaid program, which constitutes a significant portion of our revenue. Our diversified market scope limits our exposure to events or trends that may occur in any individual state, including changes in any

Management Focus on Key Performance Drivers. We believe that our senior management, as well as our field personnel, are proficient at focusing on the key areas that drive revenues, profits and cash flows. Our senior management has identified the following four critical drivers of operating and financial performance:


	•	improving census, particularly increasing our Medicare census;

	•	increasing cash flow from operations through expedited billing and collections and other initiatives;

	•	improving earnings from operations through control of labor and other costs; and

	•	diversifying within the long-term care industry through expansion of facilities under management and consulting agreements and expansion of our rehabilitation clinics.

Every level of management, starting with our Chief Executive Officer, devotes a significant portion of its time to improving these key performance drivers. We believe that this focused attention and commitment, along with the hard work by our employees, have resulted in substantial improvement in several of our key performance drivers.

For the three months ended March 31, 2004, total average daily census, or ADC, was 12,880, resulting in an occupancy rate of 91.2% for our skilled nursing facilities compared to an ADC of 12,875 and a 91.3% occupancy rate for our skilled nursing facilities for the same period in 2003, on a same facility basis. For the year ended December 31, 2003, total ADC increased to 12,901, resulting in an occupancy rate of 91.5% for our skilled nursing facilities. Total ADC was 1.4% higher in 2003 than the total ADC in 2002 of 12,727 (occupancy rate of 90.3%) and 3.5% higher than the total ADC in 2001 of 12,465 (occupancy rate of 87.8%), on a same facility basis. For the three months ended March 31, 2004, our Medicare ADC increased to 2,206, resulting in the percentage of Medicare residents to total residents of 17.1%. Medicare ADC increased 12.2% from the 1966 Medicare ADC for the same period last year, on a same facility basis. For 2003, our Medicare ADC increased to 1,997, resulting in a percentage of Medicare to total residents of 15.5%. Medicare ADC increased 17.5% in 2003 from 1,699 in 2002 and increased 39.9% from 1,427 in 2001, on a same facility basis. Occupancy in our assisted living facilities increased to 86.7% for the three months ended March 31, 2004, compared to 85.5% for the same period in 2003. In 2003, occupancy in our assisted living facilities occupancy increased to 86.3% compared to 83.9% in 2002 and 83.1% in 2001.

Cash flow from operations was $18.5 million for the three months ended March 31, 2004 compared to $4.5 million for the same period in 2003. This increase was primarily due to an improvement in earnings, the collection of $6.1 million of Medicare settlement receivables and a reduction of $2.5 million in payments for self-insured liabilities. Cash flow from operations was $56.0 million for the year ended December 31, 2003 compared to $38.8 million for the year ended December 31, 2002 and $82.6 million for the year ended December 31, 2001. Cash flow from operations in 2001 included an income tax recovery of $22.5 million and a lower level of payments for self-insured liability claims than in 2003 and 2002. Through consistent emphasis on admissions protocols, attention to older and larger account balances and proactive collection efforts at regional and head offices, we have improved our accounts receivable management. Average days of revenues outstanding decreased to approximately 40 days in 2003, compared to approximately 43 days in 2002 and approximately 45 days in 2001. As of March 31, 2004, average days of revenues outstanding decreased to approximately 37 days compared to approximately 40 days for the same period in 2003.

and $62.4 million during the year ended December 31, 2001, and EBITDA as a percentage of total revenues increased to 11.4% in 2003, compared to 9.9% in 2002 and 7.8% in 2001. The improvement in EBITDA resulted primarily from the implementation of a variety of strategies to control labor costs and minimize the use of temporary staff. Regular wages as a percentage of total revenues decreased to 43.8% for the three months ended March 31, 2004 compared to 45.3% for the year ended December 31, 2003, 46.5% for the year ended December 31, 2002 and 46.8% for the year ended December 31, 2001, while temporary wages as a percentage of total revenues decreased to 0.3% for the three months ended March 31, 2004 compared to 0.4% for the year ended December 31, 2003, 1.2% for the year ended December 31,2002 and 2.5% for the year ended December 31, 2001. We also improved our level of Part B Medicare revenues and increased Medicaid and Medicare rates through the admission of residents with higher levels of acuity.

Provide Quality, Clinically Based Services. Our corporate clinical services group monitors quality of care indicators and survey results and drives continuous quality improvement processes at the facility and regional levels. Focused review meetings are held on a regular basis to monitor trends in facilities and to communicate new protocols and issues within the industry. The corporate clinical services group directs an internal team of field-based quality validation specialists who are responsible for mirroring the regulatory survey process and regularly communicating with our clinical service specialists in our corporate office. On-site data is integrated with clinical indicators, facility human resource data and state regulatory outcomes to provide a detailed picture of problems, challenges and successes in achieving performance at all levels of our organization. This information pool allows us to determine best practices for duplication in similarly situated facilities. We emphasize these programs when marketing our services to acute care providers, community organizations and physicians in the communities we serve.

Increase Medicare Census. We continue to develop and implement strategies and capabilities to attract residents, with a focus on increasing Medicare census. For the three months ended March 31, 2004, Medicare payments represented approximately 30% of our total revenues, up from approximately 27% in the year ended December 31, 2003 and 22% in 1999. Senior management continually works with our regional and local management teams to develop strategies to continue to increase this percentage. Strategies, such as focused marketing efforts, standardized admissions protocols, streamlined admitting procedures, dual certification of beds and improved management communication have driven this improvement. In addition to increasing the profitability of our skilled nursing facilities, the increased Medicare census expands the market for our service-related businesses as Medicare patients utilize significant ancillary services.

Leverage Presence in Small Urban Markets. We geographically cluster our long-term care facilities and services in small urban markets in order to improve operating efficiencies and to offer our customers a broad range of long-term care and related health services, including assisted living services. Future expansion of our owned skilled nursing facility operations is anticipated to be through the selective acquisition and construction of new facilities in areas that are in close proximity to existing facilities, where management is experienced in dealing with the regulatory and reimbursement environments, where the facility can participate as an active member of the skilled nursing facility association and where the facility’s reputation is established.

Expand Asset Portfolio. We seek to expand our portfolio of skilled nursing and assisted living facilities in states where we currently operate or that offer attractive reimbursement systems. We plan to expand through both acquisitions and internal growth. Opportunities exist to add on to existing facilities and to develop new assisted living facilities in locations close to existing skilled nursing facilities. We currently employ an internal design and development team that is well-experienced in the design and construction of new facilities.

Actively Manage Our Asset Portfolio. We continually review our asset portfolio in terms of facilities’ physical condition, facilities meeting the needs of the marketplace, facilities’ financial performance and long-term outlook. When facilities do not meet our performance criteria, risks within the marketplace increase or litigation risk increases beyond acceptable limits, we exit the marketplace or sell facilities. Over the past four years, we have disposed of a number of facilities and exited two states, while improving the performance of the balance of our asset portfolio.

Increase Facilities Under Management and Consulting Services Agreements and Rehabilitation Clinics. We seek to increase the number of management and consulting contracts with third party operators. We have knowledge and expertise in both the operational and administrative aspects of the long-term care sector. We believe that the increasingly complex and administratively burdensome nature of the long-term care sector, coupled with our commitment and reputation as a leading, high-quality operator, will drive demand for new contracts. We believe this strategy is a logical extension of our business model and competencies and will drive growth without requiring substantial capital expenditures. In the year ended December 31, 2003, we continued to increase the number of facilities under management or consulting service agreements bringing the total number of facilities under such agreements to 82, compared to 61 in the year ended December 31, 2002 and 58 in the year ended December 31, 2001. As of March 31, 2004, we had 84 facilities under management or consulting service agreements.

Increase Operating Efficiency. We are focused on reducing operating costs by improving our communications systems, streamlining documentation and strengthening the formalization of procedures to approve expenditures. We have reduced the duplication of roles at the corporate and regional levels and continue to seek to improve our utilization of regional resources by adding management and consulting contracts to our existing regions, thereby enabling us to spread the overhead costs of our regional structure over a wider base of operations.

Tender Offer/ Redemption and Sale and Issuance of 2014 Notes. On April 5, 2004, we commenced a tender offer to purchase any and all of our outstanding $200.0 million 2007 Notes. Approximately $104.9 million aggregate principal amount of outstanding 2007 Notes were validly tendered in the tender offer, which we purchased for cash. Any and all of the outstanding 2007 Notes that were not tendered in the tender offer were either cancelled or redeemed for cash and cancelled as of May 24, 2004.

On April 22, 2004, we sold and issued $125 million aggregate principal amount of 2014 Notes pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended, or the Securities Act. The 2014 Notes were issued at a price of 97.5001% of par to yield 7.23%.

The net proceeds from the sale and issuance of the 2014 Notes were approximately $117.4 million, net of a $3.1 million discount and fees and expenses of $4.5 million. We used these net proceeds, together with borrowings under our amended and restated credit facility to purchase for cash approximately $104.9 million aggregate principal amount of 2007 Notes validly tendered in the tender offer and to redeem any 2007 Notes not tendered in the tender offer or cancelled prior to May 24, 2004.

The 2014 Notes are fully and unconditionally guaranteed on a senior subordinated basis, jointly and severally, by all of our existing and future domestic significant subsidiaries, all of our existing and future domestic subsidiaries that guarantee or incur any indebtedness and any other existing and future significant subsidiaries or restricted subsidiaries that guarantee or otherwise provide direct credit support for indebtedness of ours or any of our domestic subsidiaries. The 2014 Notes and guarantees are our and our subsidiary guarantors’ general unsecured obligations.

On or after May 1, 2009, we may redeem all or part of the 2014 Notes, at the redemption prices (expressed as percentages of principal amount) listed below, plus accrued and unpaid interest, if any, to

Holders of the 2007 Notes who validly tendered their 2007 Notes or whose 2007 Notes were redeemed by us received a premium that, in the aggregate, amounts to approximately $6.6 million. As a result of the tender offer, redemption and repayment of the 2007 Notes, in the second quarter of 2004, we will write off deferred finance charges of approximately $2.4 million related to the 2007 Notes and incur legal costs estimated at $0.3 million. In addition, pursuant to the termination of our existing interest rate swap and cap agreements (discussed below), we will record a gain of approximately $3.3 million which will be recognized in the second quarter of 2004. The net after tax impact to earnings will be a loss of approximately $3.9 million, which will be reflected within our accumulated deficit. Below is a summary of the loss to be reported in the second quarter of 2004.

Amendment and Restatement of Credit Facility. In connection with the April 22, 2004 closing of the sale and issuance of $125.0 million 6 7/8% Senior Subordinated Notes due 2014, or the 2014 Notes, we amended and restated our credit facility. The terms of our amended and restated credit facility include the following changes, among other things:


	•	a two year maturity extension, to June 28, 2009;

	•	an additional $50.0 million of senior secured financing on a revolving basis, resulting in total borrowing capacity of $155.0 million;

	•	an interest rate spread which ranges from LIBOR plus 2.50% per annum to 3.25% per annum or the base rate plus 1.50% per annum to 2.25% per annum, subject, in each case, to adjustments based on our senior leverage ratio;

	•	a commitment fee of 0.50% per annum on the undrawn capacity regardless of utilization;

	•	a requirement that we maintain a maximum senior leverage ratio starting at 4.25 to 1 and reducing to 4.00 to 1 in 2007;

	•	a requirement that we maintain a maximum senior secured leverage ratio starting at 2.25 to 1 and reducing to 2.00 to 1 in 2007; and

	•	changes to the collateral securing the facility to permit us to substitute certain assets with other assets.

As of March 31, 2004, we did not have any borrowings outstanding under our credit facility, but we had $33.7 million of letters of credit outstanding under our credit facility. Subsequent to March 31, 2004, we borrowed $40.0 million under our amended and restated credit facility to partially fund the redemption of any and all of the outstanding $200.0 million 9.35% Senior Subordinated Notes due 2007, or the 2007 Notes, which were not tendered in our tender offer discussed above. As of the date of this prospectus, our

borrowings under our amended and restated credit facility were less than $20 million. Based on our as adjusted capitalization and EBITDA for the three months ended March 31, 2004, all borrowings to be drawn under the amended and restated credit facility will initially bear interest at a rate per annum equal to:

and thereafter, in each case, subject to adjustments based on our senior leverage ratio.

Interest Rate Swap and Cap Agreements. In April 2004, coterminous with the sale and issuance of the 2014 Notes, we terminated our existing interest rate swap and cap agreements for an aggregate gain of $3.3 million to be recognized in the second quarter of 2004. In addition, to hedge our exposure to fluctuations in market value, we entered into two new interest rate swap agreements and two new interest rate cap agreements relating to the 9.50% Senior Notes due 2010, or the Senior Notes, and the 2014 Notes.

With respect to the Senior Notes, we entered into an interest rate swap agreement expiring July 1, 2010 with a notional amount of $150.0 million. This agreement effectively converted up to $150.0 million of fixed interest rate indebtedness into variable interest rate indebtedness. Under the terms of this interest rate swap agreement, the counterparty can call the swap at any time on or after July 1, 2006 with payments as determined under the agreement. We also entered into an interest rate cap agreement expiring July 1, 2010 with a notional amount of $150.0 million. Under this cap agreement, we paid an upfront fee of $3.5 million to the counterparty that will be amortized to interest expense over the term of the cap. We will receive a variable rate of interest equal to the excess, if any, of the six-month LIBOR rate, adjusted semi-annually, over the cap rate of 7%. We use the interest rate cap to offset possible increases in interest payments under the interest rate swap agreement expiring July 1, 2010 caused by increases in market interest rates over a certain level. Under the terms of the interest rate cap agreement, the counterparty can call the cap if the interest rate swap agreement expiring July 1, 2010 is terminated.

With respect to the 2014 Notes, we also entered into an interest rate swap agreement expiring May 1, 2014 with a notional amount of $125.0 million. This agreement effectively converted up to $125.0 million of fixed interest rate indebtedness into variable interest rate indebtedness. Under the terms of this interest rate swap agreement, the counterparty can call the swap at any time on or after May 1, 2009 with payments as determined under the agreement. We also entered into an interest rate cap agreement expiring May 1, 2014 with a notional amount of $125.0 million. Under this cap agreement, we pay a fixed rate of interest equal to 0.75% to the counterparty and receive a variable rate of interest equal to the excess, if any, of the six-month LIBOR rate, adjusted semi-annually, over the cap rate of 7%. We use the interest rate cap to offset possible increases in interest payments under the interest rate swap agreement expiring May 1, 2014 caused by increases in market interest rates over a certain level. Under the terms of the interest rate cap agreement, the counterparty can call the cap if the interest rate swap agreement expiring May 1, 2014 is terminated.

Refinancing of Loan Resulting From Acquisition of Previously Leased Facilities. On October 1, 2002, we completed a transaction in which we exercised our right to acquire seven previously leased nursing facilities in the states of Ohio and Indiana for $17.9 million. The purchase price included cash of $7.4 million and a $10.5 million interest bearing 10-year note. The interest rate on the note was subject to negotiation and failing an agreement would have been settled through arbitration. In the latter part of 2003, we prepaid $4.5 million against the note and agreed to refinance the balance of the 10-year note. On April 15, 2004 we refinanced the facilities with mortgages whose interest rates vary with LIBOR, and repaid the remaining balance of the note due to the seller.

Settlement of Medicare Receivable Issue. In April 2004, we reached a negotiated settlement with the Fiscal Intermediary, or FI, in respect of the remaining two years regarding an issue involving the allocation of overhead costs. The settlement will result in our receiving a payment of approximately $7.7 million, $6.5 million of which we received in May 2004. We will receive the balance of the payment upon

resolution of other matters concerning the cost report years under appeal. There are certain matters related to the settlement and the cost report years that were appealed that have to be resolved with the FI, which could influence the financial impact of the settlement. We anticipate that the resolution of these matters and the determination of the financial impact of the related settlement, if any, will be recorded within our financial results for the second quarter of 2004.

Settlement of Greystone Tribeca Acquisition, L.L.C. Transaction. In June 2004, we concluded the transaction with Greystone Tribeca Acquisition, L.L.C., or Greystone, by receipt of the final consideration of $10.0 million on the Vendor Take Back Note plus $2.6 million of interest, which completes the September 2000 divestiture agreement. The initial transaction in 2000 was treated as a deferred sale as a significant portion of the proceeds was contingent and we held an option to repurchase the facilities. Finalizing this transaction will result in our recognizing in the second quarter of 2004 a pre-tax gain from the sale of assets of $4.8 million and interest income of $1.6 million.

Opening of New Assisted Living Facility. On May 1, 2004, we opened a new assisted living facility (40 units) in Chippewa Falls, Wisconsin.

Acquisition of Four Nursing Facilities. On June 1, 2004, we acquired for approximately $5.0 million in cash four nursing facilities (321 beds) in Indiana.

Acquisition of Land for Development. In April 2004, we acquired for $0.3 million a piece of land adjacent to the nursing facility in Manitowoc, Wisconsin that we acquired in December 2003.

Transfer of Operations of Chippewa Falls, Wisconsin Facility. In June 2004, the Company reached a tentative agreement with the State of Wisconsin to transfer the operations of its skilled nursing facility in Chippewa Falls, Wisconsin to a new licensee in response to facility citations for survey deficiencies. The facility made no contribution to income during the first quarter of 2004. The terms of the agreement with the new licensee are currently under negotiation and have not yet been finalized. Upon finalization of the agreement, which is expected to occur during the third quarter of 2004, it is possible that the Company may be required to take a charge for asset impairment under Statement of Financial Accounting Standards No. 144.

We are an indirect wholly owned subsidiary of Extendicare Inc., a Canadian publicly traded company. Our principal executive offices are located at 111 West Michigan Street, Milwaukee, Wisconsin 53203. Our telephone number is (414) 908-8000.


		of the new notes are substantially identical to the terms of the old notes except:

		• the new notes will be issued in a transaction that will have been registered under the Securities Act;

		• the new notes will not contain securities law restrictions on transfer, and

		• the new notes will not provide for the payment of liquidated damages under circumstances relating to the timing of the exchange offer.

The Exchange Offer		We are offering to exchange $1,000 principal amount of the new notes for each $1,000 principal amount of your old notes. As of the date of this prospectus, $125,000,000 aggregate principal amount of the old notes are outstanding. For procedures for tendering, see “The Exchange Offer — Procedures for Tendering Old Notes.”

Expiration Date		This exchange offer will expire at 5:00 p.m., New York City time, on , 2004, unless we extend it.

Resales of Notes		We believe that the new notes issued pursuant to the exchange offer in exchange for old notes may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act if:

		• you are not our “affiliate” within the meaning of Rule 405 under the Securities Act;

		• you are acquiring the new notes in the ordinary course of your business;

		• you have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person or entity to participate in, a distribution of the new notes; and

		• you deliver a prospectus, as required by law, in connection with any resale of the new notes, see “Plan of Distribution,” if you are a broker- dealer that receives new notes for your own account in exchange for old notes that were acquired as a result of market-making activities or other trading activities.

		If you are an affiliate of ours, or are engaging in or intend to engage in, or have any arrangement or understanding with any person to participate in, a distribution of the new notes, then:

		• you may not rely on the applicable interpretations of the staff of the Securities and Exchange Commission;

		• you will not be permitted to tender old notes in the exchange offer; and

		• you must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the old notes.

The new notes will evidence the same debt as the old notes and will be governed by the same indenture under which the old notes were issued. The summary below describes the principal terms of the new notes. The “Description of the New Notes” section of this prospectus contains a more detailed description of the terms of the new notes.


		if any, to the date of redemption, if redeemed during the twelve-month period commencing on May 1 of the years set forth below:

For a discussion of certain risks that you should consider before deciding to exchange your old notes for new notes, see “Risk Factors.”

The following table summarizes our consolidated historical financial and operating data. You should read this table in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. The summary consolidated financial data as of March 31, 2004 and for the three-month periods ended March 31, 2004 and 2003 have been derived from our unaudited consolidated quarterly financial statements included elsewhere in this prospectus, and the summary consolidated financial data as of March 31, 2003 have been derived from our unaudited consolidated quarterly financial statements, all of which, in our opinion, reflect all adjustments necessary to present fairly the data for such periods. Interim results for the three months ended March 31, 2004 and 2003 are not necessarily indicative of results that can be expected in future periods. The summary consolidated financial data as of December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The summary consolidated financial data as of December 31, 2001 have been derived from our audited consolidated financial statements. “Operating Data” below are not directly derived from our financial statements, but have been presented to provide additional data for your analysis.


(1)	For a discussion of our operating results, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Effective October 1, 2003, CMS increased Medicare rates by 6.26% reflecting (1) a cumulative forecast correction, or administrative fix, to correct past years under-funded rate increases, which increased the federal base payment rates by 3.26%, and (2) the annual market basket increase of 3.0%. We estimated that based on the Medicare case mix for the nine-month period ended September 30, 2003, these Medicare rate increases would add approximately $18.45 per Medicare day. Based upon the Medicare case mix and census in the first quarter of 2004, the impact of the 6.26% Medicare rate increase increased our revenues by $3.7 million. Based upon the Medicare case mix and census in the first quarter of 2003, this Medicare rate increase amounts to additional annualized revenue of approximately $14.8 million going forward, which will be tempered by higher labor and other operating costs.

(2)	“EBITDA” is defined as net income (loss) before income taxes, interest expense net of interest income, depreciation and amortization, and non-cash, non-recurring (gains) and losses, including disposal of assets, provision for closure and exit costs and other items, early retirement of debt and impairment of long-lived assets. Our definition of EBITDA may not be comparable to the definition


	of EBITDA used by other companies. The following table sets forth a reconciliation of net income (loss) before income taxes to EBITDA:

We use EBITDA as a key performance indicator and EBITDA as a percentage of total revenues as a measurement of margin. We understand that EBITDA, or derivatives thereof, are customarily used by lenders, financial and credit analysts and many investors as a performance measure in evaluating healthcare acquisitions. Moreover, substantially all of our financing agreements, including the indenture governing our Senior Notes and our credit facility, contain covenants in which EBITDA is used as a measure of compliance. Thus, we use EBITDA to monitor our compliance with these financing agreements. EBITDA is a not measure of performance under generally accepted accounting principles in the United States of America, or GAAP. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared in accordance with GAAP, or as a measure of profitability or liquidity.

(3)

For the purpose of calculating the ratio of earnings to fixed charges, net income consist of earnings (loss) before income taxes, minority interest and extraordinary item, adjusted to add back interest expense, amortization of deferred financing costs and estimated interest within rental expense. Fixed charges consist of interest, amortization of deferred financing costs and estimated interest within rental expense. The ratio of earnings to fixed charges for the three-month period ended March 31, 2004 and the year ended December 31, 2003, on a pro forma basis to reflect the sale and issuance of the old notes and the application of the proceeds from that sale and issuance, was 3.52x and 2.48x, respectively. The amount of the deficiency (the amount by which fixed charges exceed earnings) for the years ended December 31, 2001, 2000 and 1999 was $39,932, $82,346 and $123,481, respectively.

You should consider carefully each of the following risks and all other information contained in this prospectus before deciding to exchange your old notes for new notes. The risks and uncertainties described below are not the only ones we face.

We depend upon reimbursement for our services by third-party payors, and changes in their reimbursement levels could adversely affect our revenues, results of operations and financial position.

Substantially all, or 76%, of our long-term and rehabilitation revenues are derived from payments received from the Medicare and Medicaid programs, with the remainder being derived from commercial insurers, managed care plans, the Department of Veteran Affairs, private individuals and third parties for whom we provide management or consulting services. In 2003, approximately 27% of our revenues were derived from Medicare and 49% from Medicaid. As of March 31, 2004, approximately 30% of our revenues were derived from Medicare and 46% from Medicaid. There are ongoing pressures from many payors to control healthcare costs and to reduce or limit increases in reimbursement rates for medical services. Governmental payment programs are subject to statutory and regulatory changes, retroactive rate adjustments, administrative or executive orders and government funding restrictions, all of which may materially change the amount of payments to us for our services.

Our revenues may be adversely affected by changes to or elimination of temporary Medicare funding provisions or reductions in Medicare rates through new rules introduced by CMS.

In 1999 the industry experienced a decline in revenues primarily attributable to declines in government reimbursement as a result of the Balanced Budget Act of 1997, or BBA. The revenue rate reductions from the BBA were partially offset by $2.7 billion in temporary relief funding enhancements received through the Balanced Budget Refinement Act of 1999, or BBRA, and the Benefits Improvement Protective Act of 2000, or BIPA. The funding enhancements implemented by BBRA and BIPA fall into two categories. The first category is Legislative Add-ons, which included a 16.66% add-on to the nursing component of the RUGs rate and a 4% base adjustment. Despite intensive lobbying by the long-term care industry, Congress did not extend these Medicare funding enhancements. On September 30, 2002, the Legislative Add-ons expired (referred to as the Medicare cliff), resulting in a reduction in Medicare rates for all long-term care providers. Based upon the Medicare case mix and census for the twelve-month period ended September 30, 2003, we estimate that the net impact of the Medicare cliff and the market basket increase received on October 1, 2002 was a reduction in revenues of approximately $16.7 million.

The second category is resource utilization groupings, or RUGs, Refinements, which involved an initial 20% add-on for 15 RUGs categories identified as having high intensity, non-therapy ancillary services. The 20% add-ons from three RUGs categories were later redistributed to 14 rehabilitation categories at an add-on rate of 6.7% each. In April 2002, CMS announced that it would delay the refinement of the RUGs categories thereby extending the related funding enhancements until September 30, 2003. In May 2003, CMS released a rule that maintained the current RUGs classification until October 1, 2004. Further to, but independent of this, Congress enacted legislation directing CMS to conduct a study on the RUGs classification system and report its recommendations by January 2005. Based upon the Medicare case mix and census for the year ended December 31, 2003, we estimate that we received an average $24.12 per resident day, which on an annualized basis amounts to $17.6 million, related to the RUGs Refinements. Based upon the Medicare case mix and census for the three months ended March 31, 2004, we estimate that we received an average $25.27 per resident day, which on an annualized basis amounts to $20.5 million, related to the RUGs Refinements. The implementation of a RUGs Refinement change, where all or part of the enhancement is discontinued, could have a significant impact on us.

In January 2003, CMS announced that the moratorium on implementing payment caps for outpatient Part B therapy services, which was scheduled to take effect on January 1, 2003, would be extended. CMS

subsequently extended the moratorium until September 1, 2003. The therapy caps were made effective from September 1, 2003 until December 8, 2003. On December 8, 2003, as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the moratorium was reinstated for an additional two-year period until December 2005. The impact of a payment cap cannot be reasonably estimated based on the information available to us at this time, however, we believe that such a cap would reduce therapy revenues.

In February 2003, CMS announced its plan to reduce its level of reimbursement for uncollectible Part A co-insurance. Under the CMS plan, the reimbursement level would be reduced to 70% over a three-year period as follows: 90% effective for the government fiscal year commencing October 1, 2003, 80% effective for the government fiscal year commencing October 1, 2004 and 70% effective for government fiscal years commencing on or after October 1, 2005. This plan is consistent with the Part A co-insurance reimbursement plan applicable to hospitals. CMS did not implement the rule change effective October 1, 2003, and continues to review the proposed plan. We estimate that, should this plan be implemented, the negative impact to our net earnings would be $1.3 million in 2004, increasing to $3.3 million in 2006.

In February 2004, the Medicare Payment Advisory Commission recommended that Congress reallocate levels of payments from rehabilitative RUGS to other RUGs categories, which may negatively impact Medicare revenues. CMS and Congress are not required to, and have not always in the past, implemented Medicare Payment Advisory Commission recommendations.

We cannot assure you that Medicare payments will remain at levels comparable to present levels or will be sufficient in the future to cover the costs allocable to patients eligible for reimbursement pursuant to such programs.

Financial pressures on state budgets will directly impact the level of available Medicaid funding and, hence, the level of available funding for inflationary increases.

A majority of states were faced with serious financial budgetary constraints in 2002 and 2003 as a result of a reduction in state revenues from the slowdown in the economy and escalation of costs dealing with the aftermath of September 11, 2001. In response, budgetary constraints were placed on Medicaid programs, which represent a significant portion of state budgets. A January 2003 study issued by the Kaiser Commission on Medicaid and the Uninsured indicated that 49 of the states had made, or planned to make, Medicaid cuts in fiscal year 2003 and 32 states have made or are planning a second round of cuts to the programs. A number of states implemented reductions or freezes in Medicaid rates, or limited their increases to below inflationary levels in 2003. The majority of the states in which we operate reduced the level of Medicaid increases to below inflationary levels in 2003.

In an effort to counter reduced state revenues, a number of states have submitted proposed state plan amendments and waivers to seek an increase in the level of federal funding for their Medicaid programs and to provide skilled nursing facilities with a revenue rate increase to offset new or increased provider taxes or state assessment fees. Such programs have been approved in the past, however, CMS announced in December 2003 that all such plans were to be reviewed in detail, and in January 2004 the General Accounting Office was contacted to review all such programs being introduced. As a result, a number of states have had to retract and resubmit their proposed plans to CMS, and others are awaiting approval.

Some of the states in which we operate, including Pennsylvania, Indiana, Oregon and Washington have submitted proposed state plan amendments and waivers, which are awaiting review and approval by CMS pertaining to the fiscal year commencing July 1, 2003. The retrospective plan amendments and waivers seek increases in the level of federal funding for the states’ Medicaid programs and, if approved, would result in providing skilled nursing facilities with a revenue rate increase to offset new or increased provider taxes. Since the plan amendments and waivers have not been approved, we have recorded revenues based upon amounts received. Because Medicaid revenues account for 52% of our skilled nursing facility revenues and 68% of our costs are wages and associated benefits to our staff, Medicaid funding restraints could have a significant negative impact on our results f from operations and cash flow.

In June 2004, CMS approved the state plan amendment and waiver submitted by the state of Oregon. We will record the net favorable impact, estimated at $0.3 million, in the second quarter of 2004.

Legislative and regulatory actions have resulted in continuing changes to Medicare and Medicaid reimbursement programs.

Medicare and Medicaid reimbursement programs are complicated and constantly changing as CMS continues to refine its programs. There are considerable administrative costs incurred in monitoring the changes made within the programs, determining the appropriate actions to be taken to respond to those changes and implementing the required actions to meet the new requirements and minimize the repercussions of the changes to our organization, reimbursement rates and costs. Examples of changes adopted by either CMS or certain states that have impacted our industry, include:


	•	the repeal of the Boren Amendment federal payment standard for Medicaid payments, which required states to provide skilled nursing facilities with reasonable and adequate reimbursement rates to cover the costs of efficiently and economically operated healthcare facilities. As a result, budget constraints may cause states to reduce Medicaid reimbursement to skilled nursing facilities or delay payments to providers;

	•	the limitation of costs being reimbursed under Medicaid reimbursement programs when operators use a certain level of agency staffing or incur leasing costs, which have an imputed lease interest cost greater than the current market rate;

	•	the establishment of a minimum occupancy requirement in certain Medicaid programs, which effectively reduces the eligible Medicaid reimbursement rate that a skilled nursing facility can receive; and

	•	the increasing number of states that have adopted policies to discontinue the reimbursement of Part A co-insurance payments for dually eligible residents.

The cost of general and professional liability claims are significant and escalating in certain states, resulting in significant increases in insurance or the availability of insurance.

The industry has experienced an increasing trend in the number and severity of litigation claims and punitive settlements. We believe that this trend is endemic to the long-term care industry and is a result of the increasing number of large judgments, including large punitive damage awards, against long-term care providers in recent years resulting in an increased awareness by plaintiffs’ lawyers of potentially large recoveries. According to a report issued by AON Risk Consultants in February 2004 on long-term care operators’ general liability and professional liability costs, such costs are seven times higher in 2003, as compared to the early 1990s. The average cost per bed for general liability and professional liability costs increased from $310 in 1992 to $2,290 in 2003. The average general and professional liability claim has more than doubled from $65,000 in 1992 to $149,000 in 2003, whereas the average number of claims per 1,000 beds has increased at an average annual rate of 13% from 4.8 in 1992 to 15.3 in 2003 in the long-term care industry. As a result, general and professional claim costs absorbed a significant percentage of the average Medicaid reimbursement rate increase for the period from 1992 to 2003. Florida and Texas are the leaders where general and professional liability claims are being incurred, however Arkansas, California, Mississippi, Tennessee and Alabama are showing similar signs. Industry sources report the average cost of a claim in Florida in 2000 was three times higher than most of the rest of the United States. Florida healthcare providers experienced three times the number of claims that were experienced by providers in most other states. As a result of the litigious environment, insurance premiums for general and professional liability claims have increased, and in certain states coverage is unavailable to skilled nursing facility operators since insurance companies have refrained from providing insurance.

We have experienced an increasing trend in the number and severity of litigation claims asserted against us, including personal injury and wrongful death claims. This has been particularly the case in Florida and Texas where we have ceased to operate skilled nursing facilities. We ceased all operations in

Florida as of December 31, 2000 and all skilled nursing facility operations in Texas as of September 30, 2001. Exclusive of claims pertaining to our past operations in Florida and Texas, the growth of claims has increased, but within our projections. We continually review requests for medical records and claims by facility and by state and use that information, along with operational performance measures, to assess whether we should dispose of additional facilities. At the present time, we have no significant divestiture plans.

As of March 31, 2004, we have provided for $43.6 million in accruals for known or potential general and professional liability claims based on claims experience and an independent actuarial review. We may need to increase our accruals in excess of the amounts we have accrued as a result of future actuarial reviews and claims that may develop. An adverse determination in legal proceedings, whether currently asserted or arising in the future, could have a material adverse effect on our business. See “Business — Insurance.”

The shortage of qualified registered nursing staff and other healthcare workers could adversely affect our ability to attract, train and retain qualified personnel and could increase operating costs.

A national shortage of nurses and other trained personnel and general inflationary pressures have forced us to enhance our wage and benefits packages in order to compete for qualified personnel. According to a survey by the American Healthcare Association issued in February 2003, there were over 96,000 vacant positions in the long-term care sector, of which 39,000 were professional nursing staff and the remainder certified nursing assistants. The survey reported that average turnover within the industry was 50%, with a 36% turnover rate for professional staff and a 71% turnover rate for certified nursing assistants. However, the report cited that these turnover and vacancy levels varied by state and location of the facility. Looking into the future, the shortage of nurses is documented by the U.S. Labor Department, which reports that there will be a 1.0 million shortfall of professional nurses by 2010. In some markets where we operate, there are shortages of healthcare workers. This is supported by a report by the North Carolina Medical Journal in March/April 2002, which reported that between 2000 and 2010 there will be a shortage of 874,000 nursing workers in the long-term care industry.

As a result of the shortage of nursing and healthcare workers, our average wage rate increased above inflationary levels in 2002 and 2003. Wages increased by approximately 3.8% in 2003 over 2002 and 6.9% in 2002 over 2001. However, overall wage costs as a percentage of total revenues have been reduced due to the wage strategies that we have implemented, particularly in 2003. In order to supplement staffing levels, we periodically are forced to utilize costly temporary help from staffing agencies, which results in wage premiums of 25% to 60%. We attempt to limit the use of temporary help from staffing agencies to maintain a higher quality of care. In 2003, we incurred temporary agency costs of $3.4 million compared to $10.2 million in 2002 and $18.4 million in 2001. During the three months ended March 31, 2004, we incurred temporary agency costs of $0.8 million compared to $1.5 million for the same period in 2003.

We conduct our business in a heavily regulated industry and our failure to comply with laws and government regulation could lead to fines and penalties.

We must comply with complex laws and regulations at the federal, state and local government levels relating to, among other things:


	•	licensure and certification;

	•	qualifications of healthcare and support personnel;

	•	maintenance of physical plant and equipment;

	•	staffing levels and quality of healthcare services;

	•	maintenance, confidentiality and security issues associated with medical records;

	•	relationships with physicians and referral sources;


	•	billing for services;

	•	operating policies and procedures; and

	•	additions or changes to facilities and services.

There are ongoing initiatives at the federal and state levels for comprehensive reforms affecting the payment for and availability of healthcare services. In addition, regulations and policies of regulatory agencies are subject to change. Aspects of some of these healthcare initiatives, such as the termination of Medicare funding improvements and limitations on Medicare coverage, other pressures to contain healthcare costs by Medicare, Medicaid and other payors, as well as increased operational requirements in the administration of Medicaid, could adversely affect our financial condition or our results of operations. Revisions to regulatory requirements, changes in scope and quality of care to residents and revisions to licensure and certification standards also could potentially have a material impact on us. In the future, different interpretations or enforcement of existing, new or amended laws and regulations could result in allegations of impropriety or illegality or could result in changes requiring capital expenditure programs and operating expenses.

If we do not comply with applicable laws and regulations, then we could be subject to liabilities, including criminal and civil penalties and exclusion of one or more of our facilities from participation in Medicare, Medicaid and other federal and state healthcare programs. If one of our facilities lost its certification under either the Medicare or Medicaid program, then it would have to cease future admissions and displace residents funded by the programs from the facility. In order to become re-certified, a facility must rectify all identified deficiencies and, over a specified period of time, pass a survey conducted by representatives of the respective program through demonstrated care and operations for residents in the facility. Until the appropriate agency has verified through the “reasonable assurance” process that the facility can achieve and maintain substantial compliance with all applicable participation requirements, the facility will not be admitted back into either the Medicare or Medicaid program. Medicare and Medicaid re-certification processes, while similar, are conducted separately. Re-certification requires considerable staff resources. The loss of certification from either program can have potentially significant financial consequences. In 1998, we operated one facility in Maryland that lost its certification under the Medicare program, and we subsequently closed the facility. In November 2000, we operated one facility in Indiana that lost its certification under the Medicare and Medicaid programs but has since been re-certified under both programs.

In June 2004, the Company reached a tentative agreement with the State of Wisconsin to transfer the operations of its skilled nursing facility in Chippewa Falls, Wisconsin to a new licensee in response to facility citations for survey deficiencies. The facility made no contribution to income during the first quarter of 2004. The terms of the agreement with the new licensee are currently under negotiation and have not yet been finalized. Upon finalization of the agreement, which is expected to occur during the third quarter of 2004, it is possible that the Company may be required to take a charge for asset impairment under Statement of Financial Accounting Standards No. 144.

If we do not achieve and maintain competitive quality of care ratings from CMS, our business may be negatively affected.

CMS provides comparative data available to the public on its web site, rating every skilled nursing facility operating in each state based upon nine quality of care indicators. These quality of care indicators include such measures as percentages of patients with infections, bedsores and unplanned weight loss. We currently monitor the comparative data posted on the web site to respond to potential consumers should questions arise. If we are unable to achieve quality of care ratings that are comparable or superior to those of our competitors, our ability to attract and retain patients could be affected and, as a result, our occupancy levels could decline.

Changes in the case mix of residents, the mix of residents by payor type and payment methodologies may significantly affect our profitability.

The sources and amounts of our patient revenues will be determined by a number of factors, including licensed bed capacity and occupancy rates of our skilled nursing facilities, average length of stay of our residents, the mix of residents by payor type (for example, Medicare versus Medicaid or private) and within the Medicare and certain Medicaid programs, the distribution of residents assessed within the RUGS. Changes that increase the percentage of Medicaid residents within our facilities can have a material adverse effect on our financial operations, especially in states whose reimbursement levels are below the cost of providing care.

If we fail to cultivate new or maintain existing relationships with the physicians in the communities in which we operate, our patient base may decrease.

Our success depends in part upon the admissions and referral practices of the physicians in the communities in which we operate and our ability to cultivate and maintain relationships with these physicians. Physicians referring patients to our facilities are not our employees and are free to refer their patients to other providers. If we are unable to successfully cultivate and maintain strong relationships with these physicians, our patient population may decline.

Our skilled nursing and assisted living facilities compete on a local and regional basis with other long-term care providers. The number of competing centers in the local market, the types of services available, quality of care, reputation, age and appearance of each center and the cost of care in each locality all affect our ability to compete successfully. The availability and quality of competing facilities significantly influence occupancy levels in assisted living facilities. There are relatively few barriers to entry in the assisted living industry and, therefore, future development of assisted living facilities in the markets we serve could limit our ability to attract and retain residents, to maintain or increase resident service fees or to expand our business. See “Business — Competition.”

State efforts to regulate the construction or expansion of healthcare providers could impair our ability to expand through construction and redevelopment.

Most of the states in which we currently operate have adopted laws to regulate expansion of skilled nursing facilities. Certificate of need laws generally require that a state agency approve certain acquisitions or physical plant changes and determine that a need exists prior to the addition of beds or services, the implementation of the physical plant changes or the incurrence of capital expenditures exceeding a prescribed amount. Some states also prohibit, restrict or delay the issuance of certificates of need. Many states have established similar certificate of need processes to regulate the expansion of assisted living facilities.

If certificates of need or other similar approvals are required in order to expand our operations, our failure or inability to obtain the necessary approvals, changes in the standards applicable to such approvals and possible delays and expenses associated with obtaining such approvals could adversely affect our ability to expand and, accordingly, to increase our revenues and earnings. We cannot assure you that we will be able to obtain a certificate of need or other regulatory approval for all future projects requiring such approval.

Many states in which we operate have implemented moratoriums on the granting of licenses for any additional skilled nursing facility beds. In these states we may only expand by acquiring existing operations and licensure rights from other skilled nursing care providers. We cannot guarantee that we will be able to find acceptable acquisition targets in these states, and as a result, we may not be able to expand in these states.

We face periodic reviews, audits and investigations under our contracts with federal and state government agencies, and these audits could have adverse findings that may negatively impact our business.

As a result of our participation in the Medicare and Medicaid programs, we are subject to various governmental reviews, audits and investigations to verify our compliance with these programs and applicable laws and regulations. Private pay sources also reserve the right to conduct audits. An adverse review, audit or investigation could result in:


	•	refunding amounts we have been paid pursuant to the Medicare or Medicaid programs or from private payors;

	•	state or federal agencies imposing fines, penalties and other sanctions on us;

	•	loss of our right to participate in the Medicare or Medicaid programs or one or more private payor networks; or

	•	damages to our reputation in various markets.

Both federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare companies and, in particular, skilled nursing facilities. The focus of these investigations includes:


	•	cost reporting and billing practices;

	•	quality of care;

	•	financial relationships with referral sources; and

	•	medical necessity of services provided.

We also are subject to potential lawsuits under a federal whistleblower statute designed to combat fraud and abuse in the healthcare industry. These lawsuits can involve significant monetary and award bounties to private plaintiffs who successfully bring these suits.

We are required to comply with laws governing the transmission and privacy of health information.

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires us to comply with standards relating to the privacy of protected health information, the exchange of health information within our company and with third parties and the security of electronic protected health information. The privacy standards became effective in April 2003, and the standards for electronic data transactions and code sets became effective in October 2003. We have implemented the new transaction and code sets with all fiscal intermediaries and the states that are currently ready to accept them. In the states where we have not implemented the new transaction and code sets as of the date of this prospectus, we are currently in the testing stages and continue to process and receive payments on a timely basis.

We established a HIPAA task force consisting of clinical, legal, financial and information services professionals to monitor our implementation of and compliance with the HIPAA standards. At this time, we believe we fully comply with the HIPAA privacy and transactions and code sets standards and will be successful in the implementation of the security standards by the required implementation date, which is currently April 21, 2005. However, our ability to comply with the transactions standards is dependent upon other third parties, including the fiscal intermediaries and state program providers also complying with the HIPAA requirements and timetables. If we fail to comply with the new standards, we could be subject to criminal penalties and civil sanctions.

We may make acquisitions and undertake management and consulting contracts that could subject us to a number of operating risks.

We anticipate that we may continue to make acquisitions of, investments in, and strategic alliances with, complementary businesses, which will enable us to provide additional services for our customer base and for adjacent markets and to expand each of our businesses geographically. In addition, we may


	•	inaccurate assessment of undisclosed liabilities;

	•	entry into markets in which we may have limited or no experience;

	•	diversion of management’s attention from our existing core business;

	•	difficulties in assimilating the acquired business or in realizing projected efficiencies and cost savings; and

	•	increasing our indebtedness and limiting our ability to access additional capital when needed.

Additionally, certain changes to our existing operation may be necessary to integrate the acquired businesses, to assimilate new employees and to implement reporting, monitoring, compliance and forecasting procedures.

If we are unable to control operating costs and generate sufficient cash flow to meet operational and financial requirements, including servicing our indebtedness, our business operations may be adversely affected.

Cost containment and lower reimbursement levels by third party payors, including federal and state governments, have had a significant impact on the healthcare industry as a whole and on our cash flows. Our operating margins continue to be under pressure because of continuing regulatory scrutiny and growth in operating expenses, such as labor costs and insurance premiums. In addition, as a result of competitive pressures, our ability to maintain operating margins through price increases to private patients is limited. If we are unable to generate sufficient cash flow to service our indebtedness, our business operations will be materially adversely affected. As of March 31, 2003, we were in compliance with the financial covenants of our credit facility, 2007 Notes and Senior Notes, and management has a strategy to remain in compliance with such covenants. However, there can be no assurance that we will comply with our financial covenant requirements in the future. If we are unable to do so, our business operations may be materially adversely affected.

If you do not exchange your old notes for the new notes offered in this exchange offer, then you will continue to be subject to the restrictions on the transfer of your old notes. Those transfer restrictions are described in the indenture governing the notes and in the legend contained on the old notes, and arose because we originally issued the old notes under exemptions from, and in transactions not subject to, the registration requirements of the Securities Act.

In general, you may offer or sell your old notes only if they are registered under the Securities Act and applicable state securities laws, or if they are offered and sold under an exemption from those requirements. We do not intend to register the old notes under the Securities Act.

If a large number of old notes are exchanged for new notes in the exchange offer, then it may be more difficult for you to sell your unexchanged old notes. Additionally, if you do not exchange your old notes in the exchange offer, then you will no longer be entitled to have those notes registered under the Securities Act. See “The Exchange Offer — Consequences of Failure to Exchange Old Notes.”

Our indebtedness could adversely affect our financial health and our ability to fulfill our obligations under the new notes.

As of March 31, 2004, our total consolidated indebtedness, after giving effect to the sale and issuance of the 2014 Notes and anticipated borrowings under our amended and restated credit facility and the


	•	making it more difficult for us to satisfy our obligations with respect to the notes;

	•	increasing our vulnerability to general adverse economic and industry conditions;

	•	requiring that a portion of our cash flow from operations be used for the payment of interest on our debt, thereby reducing our ability to use our cash flow to fund working capital, capital expenditures, acquisitions and general corporate requirements;

	•	limiting our ability to obtain additional financing to fund future working capital, capital expenditures, acquisitions and general corporate requirements;

	•	limiting our flexibility in planning for, or reacting to, changes in our business and the healthcare industry; and

	•	placing us at a competitive disadvantage to our competitors that have less indebtedness.

We and our subsidiaries may be able to incur additional indebtedness in the future, including secured indebtedness. The terms of the indenture do not fully prohibit us or our subsidiaries from doing so. If new indebtedness is added to our and our subsidiaries’ current indebtedness levels, the related risks that we and they now face could intensify.

Covenant restrictions under our amended and restated credit facility and our indentures may limit our ability to operate our business.

Our amended and restated credit facility, the indenture governing our Senior Notes and the indenture governing the 2014 Notes contain, among other things, covenants that may restrict our and our subsidiary guarantors’ ability to finance future operations or capital needs or to engage in other business activities. Our amended and restated credit facility and the indentures restrict, among other things, our ability and the ability of our subsidiaries to:


	•	incur additional indebtedness;

	•	create liens;

	•	pay dividends on or redeem capital stock;

	•	make certain investments;

	•	make restricted payments;

	•	make certain dispositions of assets;

	•	engage in certain transactions with affiliates;

	•	engage in certain business activities; and

	•	engage in mergers, consolidations and certain sales of assets.

In addition, our amended and restated credit facility requires us to maintain specified financial ratios and tests, which may require that we take action to reduce our debt or to act in a manner contrary to our business objectives. Events beyond our control, including changes in general business and economic conditions, may affect our ability to meet those financial ratios and tests. We cannot assure you that we will meet those ratios and tests or that the lenders will waive any failure to meet those ratios and tests. A breach of any of these covenants would result in a default under our amended and restated credit facility, and any resulting acceleration under the amended and restated credit facility may result in a default under our indentures. If an event of default under our amended and restated credit facility occurs, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. See “Prospectus Summary — Recent Developments — Amendment and

Our business and financial results depend on our ability to generate sufficient cash flows to service our debt or refinance our indebtedness on commercially reasonable terms.

Our ability to make payments on and to refinance our debt and to fund planned expenditures depends on our ability to generate cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors and other factors that are beyond our control. We cannot assure you that our business will generate cash flows from operations or that future borrowings will be available to us under our amended and restated credit facility in an amount sufficient to enable us to pay our debt or to fund our other liquidity needs. We cannot assure you that we will be able to refinance our borrowing arrangements or any other outstanding debt on commercially reasonable terms or at all. Refinancing our borrowing arrangements could cause us to:


	•	pay higher interest;

	•	be subject to additional or more restrictive covenants than those outlined above; and

	•	grant additional security interests in our collateral.

Our inability to generate sufficient cash flow to service our debt or refinance our indebtedness on commercially reasonable terms would have a material adverse effect on our business and results of operations.

As a holding company, we rely on payments from our subsidiaries in order for us to make payments on the notes.

We are a holding company with no significant operations of our own. Because our operations are conducted through our subsidiaries, we depend on dividends, loans, advances and other payments from our subsidiaries in order to allow us to satisfy our financial obligations. Our subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts to us, whether by dividends, loans, advances or other payments. The ability of our subsidiaries to pay dividends and make other payments to us depends on their earnings, capital requirements and general financial conditions and is restricted by, among other things, applicable corporate and other laws and regulations and future agreements to which our subsidiaries may be a party. Although our subsidiary guarantors have guaranteed the old notes, and are guaranteeing the new notes, each guarantee is subordinated to all senior debt of the relevant subsidiary guarantor.

The notes and the subsidiary guarantees will be subordinated to our and our subsidiary guarantors’ senior indebtedness.

The old notes and the subsidiary guarantees are, and the new notes and the subsidiary guarantees will be, subordinated in right of payment to all of our and our subsidiary guarantors’ senior indebtedness. The indenture governing the notes permits the incurrence of additional indebtedness, including senior indebtedness, by us and our restricted subsidiaries in the future. See “Description of the New Notes — Certain Covenants — Incurrence of Indebtedness and Issuance of Preferred Stock.” Because of the subordination provisions of the notes, in the event of our or one of our subsidiary guarantors’ bankruptcy, liquidation, reorganization or other winding up, our assets or the assets of our subsidiary guarantors will be available to pay obligations on the notes or the subsidiary guarantees only after all such senior debt has been repaid in full from such assets. There may not be sufficient assets remaining to pay amounts due on any or all of the notes or guarantees, as the case may be, that are outstanding.

In addition, all payments on the notes and the subsidiary guarantees will be prohibited in the event of a payment default on certain of our and our subsidiary guarantors’ senior indebtedness (including our Senior Notes and borrowings under our amended and restated credit facility) and may be blocked for up to 179 days each year upon the occurrence of other defaults under such indebtedness.

A court may void the subsidiary guarantees of the notes or further subordinate the subsidiary guarantees to other obligations of our subsidiary guarantors.

Although standards may vary depending upon the applicable law, generally under U.S. federal bankruptcy law and comparable provisions of state fraudulent transfer laws, a court could void all or a portion of the subsidiary guarantees of the notes or further subordinate the subsidiary guarantees to other obligations of our subsidiary guarantors. If the claims of the holders of the notes against any subsidiary guarantor were held to be unenforceable or further subordinated in favor of other creditors of that subsidiary guarantor, the other creditors would be entitled to be paid in full before any payment could be made on the notes. If one or more of the subsidiary guarantees is voided or further subordinated, we cannot assure you that after providing for all prior claims, there would be sufficient assets remaining to satisfy the claims of the holders of the notes.

We may be unable to repurchase the notes and the Senior Notes if we experience a change of control.

If we were to experience a change of control, the indentures governing the 2014 Notes and the Senior Notes require us to offer to purchase all of the outstanding notes and Senior Notes. Our failure to repay holders tendering notes upon a change of control will result in an event of default under these indentures. A change of control or an event of default under these indentures may also result in an event of default under our amended and restated credit facility, which may result in the acceleration of the indebtedness under that facility requiring us to repay that indebtedness immediately. If a change of control were to occur, we cannot assure you that we would have sufficient funds to repay debt outstanding under our amended and restated credit facility or to purchase the 2014 Notes, the Senior Notes or any other securities that we would be required to offer to purchase. We expect that we would require additional financing from third parties to fund any such purchases, and we cannot assure you that we would be able to obtain financing on satisfactory terms or at all. See “Prospectus Summary — Recent Developments — Amendment and Restatement of Credit Facility,” “Description of Other Indebtedness” and “Description of the New Notes.”

No public market exists for the notes, and any market for the notes may be illiquid.

The notes are a new issue of securities with no established trading market. We do not intend to list the notes for trading on any stock exchange or arrange for any quotation system to quote prices for them. The initial purchasers have informed us that they intend to make a market in the notes, however, they are not obligated to do so and may cease market-making activities at any time. As a result, we cannot assure you that an active trading market will develop or continue for the notes.

We sold the old notes on April 22, 2004 in transactions exempt from the registration requirements of the Securities Act. Therefore, the old notes are subject to significant restrictions on resale. In connection with the issuance of the old notes; we and our subsidiary guarantors entered into a registration rights agreement, which required that we and our subsidiary guarantors:


	•	use our reasonable best efforts to file with the Securities and Exchange Commission a registration statement under the Securities Act relating to the exchange offer and the issuance and delivery of the new notes in exchange for the old notes;

	•	use our reasonable best efforts to cause the Securities and Exchange Commission to declare the exchange offer registration statement effective under the Securities Act; and

	•	use our reasonable best efforts to consummate the exchange offer not later than 30 business days following the effective date of the exchange offer registration statement.

If you participate in the exchange offer, you will, with limited exceptions, receive new notes that are freely tradable and not subject to restrictions on transfer. You should refer to “The Exchange Offer — Resales of New Notes” for more information relating to your ability to transfer new notes.

If you are eligible to participate in the exchange offer and do not tender your old notes, you will continue to hold the untendered old notes, which will continue to be subject to restrictions on transfer under the Securities Act.

The exchange offer is intended to satisfy our exchange offer obligations under the registration rights agreement. The above summary of the registration rights agreement is not complete and is subject to, and qualified by reference to, all the provisions of the registration rights agreement. A copy of the registration rights agreement has been filed as an exhibit to the registration statement that includes this prospectus.

We are offering to exchange $125,000,000 in aggregate principal amount of our 6 7/8% Senior Subordinated Notes due 2014 that have been registered under the Securities Act for a like aggregate principal amount of our outstanding unregistered 6 7/8% Senior Subordinated Notes due 2014.

Upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal, we will accept all old notes validly tendered and not withdrawn before 5:00 p.m., New York City time, on the expiration date of the exchange offer. We will issue $1,000 principal amount of new notes in exchange for each $1,000 principal amount of outstanding old notes we accept in the exchange offer. You may tender some or all of your old notes under the exchange offer. However, the old notes are issuable in authorized denominations of $1,000 and integral multiples thereof. Accordingly, old notes may be tendered only in denominations of $1,000 and integral multiples thereof. The exchange offer is not conditioned upon any minimum amount of old notes being tendered.

The form and terms of the new notes will be the same as the form and terms of the old notes, except that:


	•	the new notes will be registered with the Securities and Exchange Commission and thus will not be subject to the restrictions on transfer or bear legends restricting their transfer;

	•	all of the new notes will be represented by global notes in book-entry form unless exchanged for notes in definitive certificated form under the limited circumstances described under “Description of the New Notes — Book-Entry, Delivery and Form;” and

	•	the new notes will not provide for registration rights and the payment of liquidated damages under circumstances relating to the timing of the exchange offer.

The new notes will evidence the same debt as the old notes and will be issued under, and be entitled to the benefits of, the indenture governing the old notes.

The new notes will accrue interest from the most recent date to which interest has been paid on the old notes or, if no interest has been paid, from the date of issuance of the old notes. Accordingly, registered holders of new notes on the record date for the first interest payment date following the completion of the exchange offer will receive interest accrued from the most recent date to which interest has been paid on the old notes or, if no interest has been paid, from the date of issuance of the old notes. However, if that record date occurs prior to completion of the exchange offer, then the interest payable on the first interest payment date following the completion of the exchange offer will be paid to the registered holders of the old notes on that record date.

In connection with the exchange offer, you do not have any appraisal or dissenters’ rights under applicable law or the indenture. We intend to conduct the exchange offer in accordance with the registration rights agreement and the applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations of the Securities and Exchange Commission. The exchange offer is not being made to, nor will we accept tenders for exchange from, holder of the old notes in any jurisdiction in which the exchange offer or the acceptance of it would not be in compliance with the securities or blue sky laws of the jurisdiction.

We will be deemed to have accepted validly tendered old notes when we have given oral or written notice of our acceptance to the exchange agent. The exchange agent will act as agent for the tendering holders for the purpose of receiving the new notes from us.

If we do not accept any tendered old notes because of an invalid tender or for any other reason, then we will return certificates for any unaccepted old notes without expense to the tendering holder as promptly as practicable after the expiration date.

The exchange offer will expire at 5:00 p.m., New York City time, on , 2004, unless we, in our sole discretion, extend the exchange offer.

If we determine to extend the exchange offer, then we will notify the exchange agent of any extension by oral or written notice and give each registered holder notice of the extension by means of a press release or other public announcement before 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.

We reserve the right, in our sole discretion, to delay accepting any old notes, to extend the exchange offer or to amend or terminate the exchange offer if any of the conditions described below under “— Conditions to the Exchange Offer” have not been satisfied or waived by giving oral or written notice to the exchange agent of the delay, extension, amendment or termination. Further, we reserve the right, in our sole discretion, to amend the terms of the exchange offer in any manner. We will notify you as promptly as practicable of any extension, amendment or termination. We will also file a post-effective amendment to the registration statement of which this prospectus is a part with respect to any fundamental change in the exchange offer.

A holder who wishes to tender old notes in the exchange offer must do either of the following:


	•	properly complete, sign and date the letter of transmittal, including all other documents required by the letter of transmittal; have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and deliver that letter of transmittal and other required documents to the exchange agent at the address listed below under “— Exchange Agent” on or before the expiration date; or


	•	if the old notes are tendered under the book-entry transfer procedures described below, transmit to the exchange agent an agent’s message, which agent’s message must be received by the exchange agent prior to 5:00 p.m., New York City time, on the expiration date.


	•	the exchange agent must receive certificates representing your old notes along with the letter of transmittal on or before the expiration date, or

	•	the exchange agent must receive a timely confirmation of book-entry transfer of the old notes into the exchange agent’s account at The Depository Trust Company, or DTC, under the procedure for book-entry transfers described below along with the letter of transmittal or a properly transmitted agent’s message, on or before the expiration date; or

	•	the holder must comply with the guaranteed delivery procedures described below.

The term “agent’s message” means a message, transmitted by a book-entry transfer facility to and received by the exchange agent and forming a part of the book-entry confirmation, which states that the book-entry transfer facility has received an express acknowledgement from the tendering participant stating that the participant has received and agrees to be bound by the letter of transmittal, and that we may enforce the letter of transmittal against the participant.

To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under “— Exchange Agent” on or before the expiration of the exchange offer. To receive confirmation of valid tender of old notes, a holder should contact the exchange agent at the telephone number listed under “— Exchange Agent.”

Any tender of old notes that is not withdrawn prior to the expiration date will constitute a binding agreement between the tendering holder and us upon the terms and subject to the conditions set forth in this prospectus and in the accompanying letter of transmittal. Only a registered holder of old notes may tender the old notes in the exchange offer. If a holder completing a letter of transmittal tenders less than all of the old notes held by that holder, then that tendering holder should fill in the applicable box of the letter of transmittal. The amount of old notes delivered to the exchange agent will be deemed to have been tendered unless otherwise indicated.

The method of delivery of old notes, the letter of transmittal and all other required documents to the exchange agent is at your election and risk. Rather than mail these items, we recommend that you use an overnight or hand delivery service. In all cases, you should allow sufficient time to assure timely delivery to the exchange agent before the expiration date. Do not send letters of transmittal or old notes to us.

Generally, an eligible institution must guarantee signatures on a letter of transmittal or a notice of withdrawal unless the old notes are tendered:


	•	by a registered holder of the old notes who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or

	•	for the account of an eligible institution.

If signatures on a letter of transmittal or a notice of withdrawal are required to be guaranteed, the guarantee must be by a firm which is:


	•	a member of a registered national securities exchange;

	•	a member of the National Association of Securities Dealers, Inc.;

	•	a commercial bank or trust company having an office or correspondent in the United States; or

	•	another “eligible guarantor institution” within the meaning of Rule 17Ad-15 under the Securities Exchange Act.

If the letter of transmittal is signed by a person other than the registered holder of any outstanding old notes, the original notes must be endorsed or accompanied by appropriate powers of attorney. The power of attorney must be signed by the registered holder exactly as the registered holder(s) name(s) appear(s) on the old notes and an eligible guarantor institution must guarantee the signature on the power of attorney.

If the letter of transmittal, or any old notes or powers of attorney are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, these persons should so indicate when signing. Unless waived by us, they should also submit evidence satisfactory to us of their authority to so act.

If you wish to tender old notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee, you should promptly instruct the registered holder to tender on your behalf. If you wish to tender on your behalf, you must, before completing the procedures for tendering old notes, either register ownership of the old notes in your name or obtain a properly completed bond power from the registered holder. The transfer of registered ownership may take considerable time.

We will determine in our sole discretion all questions as to the validity, form, eligibility, including time of receipt, and acceptance of old notes tendered for exchange. Our determination will be final and binding on all parties. We reserve the absolute right to reject any and all tenders of old notes not properly tendered or old notes our acceptance of which might, in the judgment of our counsel, be unlawful. We also reserve the absolute right to waive any defects, irregularities or conditions of tender as to any particular old notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of old notes must be cured within the time period we determine. Neither we, the exchange agent nor any other person will incur any liability for failure to give you notification of defects or irregularities with respect to tenders of your old notes.


	•	any new notes that the holder receives will be acquired in the ordinary course of its business;

	•	the holder has no arrangement or understanding with any person or entity to participate in the distribution of the new notes;

	•	if the holder is not a broker-dealer, that it is not engaged in and does not intend to engage in the distribution of the new notes;

	•	if the holder is a broker-dealer that will receive new notes for its own account in exchange for old notes that were acquired as a result of market-making activities or other trading activities, that it will deliver a prospectus, as required by law, in connection with any resale of those new notes (see “Plan of Distribution”); and

	•	the holder is not our “affiliate,” as defined in Rule 405 of the Securities Act, or, if the holder is our affiliate, it will comply with any applicable registration and prospectus delivery requirements of the Securities Act.

If any holder or any such other person is our “affiliate,” or is engaged in or intends to engage in or has an arrangement or understanding with any person to participate in a distribution of the new notes to be acquired in the exchange offer, then that holder or any such other person:


	•	may not rely on the applicable interpretations of the staff of the Securities and Exchange Commission;

	•	is not entitled and will not be permitted to tender old notes in the exchange offer; and

	•	must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction.

Each broker-dealer who acquired its old notes as a result of market-making activities or other trading activities and thereafter receives new notes issued for its own account in the exchange offer, must acknowledge that it will deliver a prospectus in connection with any resale of such new notes issued in the exchange offer. The letter of transmittal states that by so acknowledging and by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. See “Plan of Distribution” for a discussion of the exchange and resale obligations of broker-dealers in connection with the exchange offer.

Any broker-dealer that acquired old notes directly from us may not rely on the applicable interpretations of the staff of the Securities and Exchange Commission and must comply with the registration and prospectus delivery requirements of the Securities Act (including being named as a selling securityholder) in connection with any resales of the old notes or the new notes.

Upon satisfaction of all conditions to the exchange offer, we will accept, promptly after the expiration date, all old notes properly tendered and will issue the new notes promptly after acceptance of the old notes.

For purposes of the exchange offer, we will be deemed to have accepted properly tendered old notes for exchange when we have given oral or written notice of that acceptance to the exchange agent. For each old note accepted for exchange, you will receive a new note having a principal amount equal to that of the surrendered old note.

In all cases, we will issue new notes for old notes that we have accepted for exchange under the exchange offer only after the exchange agent timely receives:


	•	certificates for your old notes or a timely confirmation of book-entry transfer of your old notes into the exchange agent’s account at DTC; and

	•	a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent’s message.

If we do not accept any tendered old notes for any reason set forth in the terms of the exchange offer or if you submit old notes for a greater principal amount than you desire to exchange, we will return the unaccepted or non-exchanged old notes without expense to you. In the case of old notes tendered by book-entry transfer into the exchange agent’s account at DTC under the book-entry procedures described below, we will credit the non-exchanged old notes to your account maintained with DTC.

We understand that the exchange agent will make a request within two business days after the date of this prospectus to establish accounts for the old notes at DTC for the purpose of facilitating the exchange offer, and any financial institution that is a participant in DTC’s system may make book-entry delivery of old notes by causing DTC to transfer the old notes into the exchange agent’s account at DTC in accordance with DTC’s procedures for transfer. Although delivery of old notes may be effected through book-entry transfer at DTC, the exchange agent must receive a properly completed and duly executed letter of transmittal with any required signature guarantees, or an agent’s message in lieu of a letter of transmittal, and all other required documents at its address listed below under “— Exchange Agent” on or before the expiration date, or if you comply with the guaranteed delivery procedures described below, within the time period provided under those procedures.

If you wish to tender your old notes and your old notes are not immediately available, or you cannot deliver your old notes, the letter of transmittal or any other required documents or comply with DTC’s procedures for transfer before the expiration date, then you may participate in the exchange offer if:


	•	the tender is made through an eligible guarantor institution;

	•	before the expiration date, the exchange agent receives from the eligible guarantor institution a properly completed and duly executed notice of guaranteed delivery, substantially in the form provided by us, by facsimile transmission, mail or hand delivery, containing:


	—	the name and address of the holder and the principal amount of old notes tendered;

	—	a statement that the tender is being made thereby; and

	—	a guarantee that within three New York Stock Exchange trading days after the expiration date, the certificates representing the old notes in proper form for transfer or a book-entry confirmation and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent; and


	•	the exchange agent receives the properly completed and executed letter of transmittal as well as certificates representing all tendered old notes in proper form for transfer, or a book-entry confirmation, and all other documents required by the letter of transmittal within three New York Stock Exchange trading days after the expiration date.

You may withdraw your tender of old notes at any time before the exchange offer expires.

For a withdrawal to be effective, the exchange agent must receive a written notice of withdrawal at its address listed below under “— Exchange Agent.” The notice of withdrawal must:


	•	specify the name of the person who tendered the old notes to be withdrawn;

	•	identify the old notes to be withdrawn, including the principal amount, or, in the case of old notes tendered by book-entry transfer, the name and number of the DTC account to be credited, and otherwise comply with the procedures of DTC; and

	•	if certificates for old notes have been transmitted, specify the name in which those old notes are registered if different from that of the withdrawing holder.

If you have delivered or otherwise identified to the exchange agent the certificates for old notes, then, before the release of these certificates, you must also submit the serial numbers of the particular certificates to be withdrawn and a signed notice of withdrawal with the signatures guaranteed by an eligible institution, unless the holder is an eligible institution.

We will determine in our sole discretion all questions as to the validity, form and eligibility, including time of receipt, of notices of withdrawal. Our determination will be final and binding on all parties. Any old notes so withdrawn will be deemed not to have been validly tendered for purposes of the exchange offer. We will return any old notes that have been tendered but that are not exchanged for any reason to the holder, without cost, as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. In the case of old notes tendered by book-entry transfer into the exchange agent’s account at DTC, the old notes will be credited to an account maintained with DTC for the old notes. You may retender properly withdrawn old notes by following one of the procedures described under “— Procedures for Tendering Old Notes” at any time on or before the expiration date.

Notwithstanding any other term of the exchange offer, we will not be required to accept for exchange, or to exchange new notes for, any old notes if in our reasonable judgment:


	•	the new notes to be received will not be tradable by the holder, without restriction under the Securities Act and the Securities Exchange Act and without material restrictions under the blue sky or securities laws of substantially all of the states of the United States;

	•	the exchange offer, or the making of any exchange by a holder of old notes, would violate any applicable law or applicable interpretation by the staff of the Securities and Exchange Commission; or

	•	any action or proceeding is instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer which, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer.

The conditions listed above are for our sole benefit and we may assert them regardless of the circumstances giving rise to any condition. Subject to applicable law, we may waive these conditions in our discretion in whole or in part at any time and from time to time. If we waive these conditions, then we intend to continue the exchange offer for at least five business days after the waiver. If we fail at any time to exercise any of the above rights, the failure will not be deemed a waiver of those rights, and those rights will be deemed ongoing rights which may be asserted at any time and from time to time.

We will not accept for exchange any old notes tendered, and will not issue new notes in exchange for any old notes, if at that time a stop order is threatened or in effect with respect to the registration statement of which this prospectus is a part or the qualification of the indentures under the Trust Indenture Act of 1939.

U.S. Bank, N.A. is the exchange agent for the exchange offer. You should direct any questions and requests for assistance and requests for additional copies of this prospectus, the letter of transmittal or the notice of guaranteed delivery to the exchange agent addressed as follows:


	By Hand, Overnight Mail, Courier, or Registered or Certified Mail:

	U.S. Bank National Association
	60 Livingston Ave
	St. Paul, MN 55107
	Attention: Specialized Finance

	By Facsimile:

	(651) 495-8158
	Attention: Specialized Finance

Delivery of the letter of transmittal to an address other than as listed above or transmission via facsimile other than as listed above will not constitute a valid delivery of the letter of transmittal.

We will pay the expenses of the exchange offer. We will not make any payments to brokers, dealers or others soliciting acceptances of the exchange offer. We are making the principal solicitation by mail; however, our officers and employees may make additional solicitations by facsimile transmission, e-mail, telephone or in person. You will not be charged a service fee for the exchange of your old notes, but we may require you to pay any transfer or similar government taxes in certain circumstances.

You will be obligated to pay any transfer taxes applicable to the transfer of the old notes pursuant to the exchange offer.

We will record the new notes in our accounting records at the same carrying values as the old notes, which is the aggregate principal amount of the old notes, as reflected in our accounting records on the date of exchange. Accordingly, we will not recognize any gain or loss for accounting purposes in connection with the exchange offer.

Based on interpretations of the staff of the Securities and Exchange Commission, as set forth in no-action letters to third parties, we believe that new notes issued under the exchange offer in exchange for old notes may be offered for resale, resold and otherwise transferred by any old note holder without further registration under the Securities Act and without delivery of a prospectus that satisfies the requirements of Section 10 of the Securities Act if:


	•	the holder is not our “affiliate” within the meaning of Rule 405 under the Securities Act;

	•	the new notes are acquired in the ordinary course of the holder’s business; and

	•	the holder does not intend to participate in a distribution of the new notes.

Any holder who exchanges old notes in the exchange offer with the intention of participating in any manner in a distribution of the new notes must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction.

This prospectus may be used for an offer to resell, resale or other transfer of new notes. With regard to broker-dealers, only broker-dealers that acquired the old notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives new notes for its own account in exchange for old notes, where the old notes were acquired by the broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. Please see “Plan of Distribution” for more details regarding the transfer of new notes.

Holders who desire to tender their old notes in exchange for new notes registered under the Securities Act should allow sufficient time to ensure timely delivery. Neither we nor the exchange agent is under any duty to give notification of defects or irregularities with respect to the tenders of old notes for exchange.

Old notes that are not tendered or are tendered but not accepted will, following the consummation of the exchange offer, continue to be subject to the provisions in the indenture regarding the transfer and exchange of the old notes and the existing restrictions on transfer set forth in the legend on the old notes and in the offering memorandum, dated April 15, 2004, relating to the old notes. Except in limited circumstances with respect to the specific types of holders of old notes, we will have no further obligation to provide for the registration under the Securities Act of such old notes. In general, old notes, unless registered under the Securities Act, may not be offered or sold except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. We do not anticipate that we will take any action to register the untendered old notes under the Securities Act or under any state securities laws.

Upon completion of the exchange offer, holders of the old notes will not be entitled to any further registration rights under the registration rights agreement, except under limited circumstances.

Old notes that are not exchanged in the exchange offer will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits their holders have under the indenture relating to the old notes and the new notes. Holders of the new notes and any old notes that remain outstanding after consummation of the exchange offer will vote together as a single class for purposes of determining whether holders of the requisite percentage of the class have taken certain actions or exercised certain rights under the indenture.

This exchange offer is intended to satisfy our obligations under the registration rights agreement entered into in connection with the issuance of the old notes. Neither we nor any subsidiary guarantor will receive any proceeds from the issuance of the new notes. In consideration for issuing the new notes as contemplated by this prospectus, we will receive the old notes in like principal amount, the terms of which are identical in all material respects to the new notes. The old notes surrendered in exchange for the new notes will be retired and canceled and cannot be reissued. Accordingly, the issuance of the new notes will not result in any increase or decrease in our indebtedness.

We used the net proceeds of approximately $117.4 million, net of a $3.1 million discount and fees and expenses of $4.5 million, from the sale and issuance of the old notes, together with borrowings under our amended and restated credit facility to purchase for cash approximately $104.9 million aggregate principal amount of 2007 Notes validly tendered in the tender offer and to redeem any 2007 Notes not tendered in the tender offer or cancelled prior to May 24, 2004.

The following table sets forth the cash and cash equivalents and our consolidated capitalization as of March 31, 2004 on an actual basis and as adjusted to give effect to the sale and issuance of the 2014 Notes and the application of the proceeds therefrom and the borrowings under our amended and restated credit facility. You should read this table in conjunction with our audited consolidated financial statements and the related notes to the audited consolidated financial statements included elsewhere in this prospectus. See “Use of Proceeds,” “Summary Consolidated Historical Financial and Operating Data,” “Selected Consolidated Historical Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Other Indebtedness.”


(1)	As of March 31, 2004, we had available borrowings under our credit facility of $105.0 million and $33.7 million of letters of credit outstanding under our credit facility. As discussed in “Prospectus Summary — Recent Developments — Amendment and Restatement of Credit Facility,” in connection with the sale and issuance of the 2014 Notes, we amended and restated our credit facility to provide, among other things, an additional $50.0 million of senior secured financing on a revolving basis.

(2)	In February 2004, we prepaid in full two industrial development revenue bonds totaling $13.0 million.

(3)	As of March 31, 2004, Extendicare Inc., our parent company, held $27.9 million of our 2007 Notes. These 2007 Notes were repaid on May 24, 2004.

(4)	Holders of the 2007 Notes who tendered their 2007 Notes or whose 2007 Notes were redeemed received a premium that in aggregate amounted to approximately $6.6 million. As a result of the tender offer, redemption and repayment of the 2007 Notes, in the second quarter of 2004, we will write off deferred finance charges of approximately $2.4 million related to the 2007 Notes and incur legal costs estimated at $0.3 million. In addition, pursuant to the termination of our existing interest rate swap and cap agreements, we will record a gain of approximately $3.3 million which will be recognized in the second quarter of 2004. The net after tax impact to earnings will be a loss of


	approximately $3.9 million, which will be reflected within our accumulated deficit. Below is a summary of the loss to be reported in the second quarter of 2004.

The following table summarizes our selected consolidated historical financial data, which you should read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. The selected consolidated financial data as of March 31, 2004 and for the three-month periods ended March 31, 2004 and 2003 have been derived from our unaudited consolidated quarterly financial statements included elsewhere in this prospectus, and the selected consolidated financial data as of March 31, 2003 have been derived from our unaudited consolidated quarterly financial statements, all of which, in our opinion, reflect all adjustments necessary to present fairly the data for such periods. Interim results for the three months ended March 31, 2004 and 2003 are not necessarily indicative of results that can be expected in future periods. The selected consolidated financial data as of December 31, 2003 and 2002 and for each of the years in the three-year period ended December 31, 2003 have been derived from our audited consolidated financial statements included elsewhere in this prospectus. The selected consolidated financial data as of December 31, 2001, 2000 and 1999 and for each of the years in the two-year period ended December 31, 2000 have been derived from our audited consolidated financial statements.


(1)	Revenues have been restated for consistency to reflect therapy services within skilled nursing facilities.

(2)	Total debt includes long-term debt and current maturities of long-term debt.

During the years 1998 through 2001, we went through a divestiture phase and ceased operating skilled nursing facilities in Florida and Texas due to the litigious environment. Since that time, we have been able to focus on our key business goals to improve our financial strength and operating results. During 2003, and moving forward, our key business goals are to:


	•	strengthen both Medicare and total average daily census;

	•	improve operating cash flow;

	•	actively improve our asset portfolio through renovation, expansion or acquisition of facilities or, where appropriate, to divest facilities that fail to meet our performance goals;

	•	diversify within the long-term care industry in the areas of rehabilitative clinics and management, consulting, accounting and purchasing services; and

	•	manage resident care liability claim settlements.

The concentrated focus on our key business goals and the hard work of our employees resulted in the 2003 results representing a break through year. Improvement in total census (1.4%) and Medicare census (17.5%), along with a focus on operating costs, resulted in an increase of revenues of $55.3 million and a $25.7 million improvement in net income before income taxes. The increase was in spite of a reduction of $12.8 million in revenues resulting from the Medicare rate decreases implemented in October 2002. Though we are encouraged by the positive actions taken by CMS in providing an “administrative fix” (see “— Legislative Actions Affecting Revenues”) in October 2003 to correct past years under-funded rate increases, we continue to be cautious of future potential CMS actions that could result in the discontinuance of temporary enhancements through the implementation of a RUGs Refinement change.

In the first quarter of 2004, we continued to improve Medicare average daily census, while our total census remained comparable to the prior year. We completed two of the seven renovation projects in the first quarter of 2004, which increased operational capacity at one skilled nursing and one assisted living facility. In May 2004, we opened a new (40 units) assisted living facility. The remaining projects continue to be on schedule, one of which is to be completed in 2004 and the three other projects in early 2005. We also have approved eight additional development projects to be completed in 2005 or later that will expand or add 329 units to our assisted living facilities. In June we acquired for approximately $5.0 million in cash four nursing facilities (321 beds) in Indiana.

We initiated and completed after the end of the first quarter of 2004 several transactions that will improve our operating cash flow and cash resources. In April 2004, we sold and issued $125.0 million aggregate principal amount of 2014 Notes. The net proceeds from the sale and issuance of the 2014 Notes were approximately $117.4 million, net of a $3.1 million discount and fees and expenses of $4.5 million. We used these net proceeds, together with borrowings under our amended and restated credit facility to purchase for cash approximately $104.9 million aggregate principal amount of 2007 Notes validly tendered in the tender offer that we commenced on April 5, 2004 and to redeem any 2007 Notes not tendered in the tender offer or cancelled prior to May 24, 2004. See “Prospectus Summary — Recent Developments — Tender Offer/ Redemption and Sale and Issuance of 2014 Notes” for more information regarding the sale and issuance of the 2014 Notes. In addition, in April 2004, coterminous with the sale and issuance of the 2014 Notes, we terminated our existing interest rate swap and cap agreements for an aggregate gain of $3.3 million to be recognized in the second quarter of 2004. In addition, to hedge our exposure to fluctuations in market value, we entered into two new interest rate swap agreements and two new interest rate cap agreements relating to the Senior Notes, and the 2014 Notes. See “Prospectus Summary — Recent Developments — Interest Rate Swap and Cap Agreements” for more information regarding our interest rate swap and cap agreements. As a result of our debt refinancing, we will lower our long-term debt from $380.2 million as of March 31, 2004 to $320.1 million; and reduce our weighted average interest

In February 2004, we received prepayment in full of $4.4 million of notes receivable from Tandem Health Care, Inc. or Tandem. In January 2004, we negotiated and subsequently received a cash settlement of $5.6 million for all remaining years of a Medicare settlement receivable involving a staffing cost matter. In April 2004, we reached a negotiated settlement with our FI, on one Medicare settlement receivable issue that will result in our receiving a payment of approximately $7.7 million, $6.5 million of which we received in May 2004. We will receive the balance of the payment upon resolution of other matters concerning the cost report years under appeal. See “Prospectus Summary — Recent Developments — Settlement of Medicare Receivable Issue” for more information about this Medicare settlement. In June 2004, we concluded the transaction with Greystone by receipt of the final consideration of $10.0 million on the Vendor Take Back Note plus $2.6 million of interest, which completes the September 2000 divestiture agreement. See “Prospectus Summary — Recent Developments — Settlement of Greystone Tribeca Acquisition, L.L.C. Transaction” for more information about this settlement.

We operate in a competitive marketplace and depend substantially on revenues derived from governmental third-party payors, with the remainder of our revenues derived from commercial insurers, managed care plans, and private individuals. The on-going pressures from the Medicare and Medicaid programs, along with other payors seeking to control costs and/or limit reimbursement rates for medical services, are but one of the business risks that we face. We also operate in a heavily regulated industry, subject to the scrutiny of federal and state regulators. Each of our facilities must comply with regulations regarding staffing levels, resident care standards, occupational health and safety, resident confidentiality, billing and reimbursement, environmental and biological and other standards. Government agencies have steadily increased their enforcement activity over the past several years. As a result, we are continually allocating increased resources to ensure compliance with applicable regulations and to respond to inspections, investigations and/or enforcement actions. Federal law requires each state to have a Medicaid Fraud Control Unit, which is responsible for investigating provider fraud and resident abuse. We are aware of investigations by these units in Kentucky and Wisconsin. The investigations have not been sufficiently developed to enable us to predict an outcome.

We derive revenues by providing routine and ancillary healthcare services to residents in our network of facilities. Long-term healthcare services provided to our residents include services such as nursing care, assisted living and related medical services, such as subacute care. We also derive revenues by providing rehabilitative therapy to outside third parties at our rehabilitation clinics and earn management and consulting revenues from other long-term care organizations.

Skilled Nursing Facilities. Within our skilled nursing facilities, we generate our revenue from Medicare, Medicaid and private pay sources. Medicaid rates are generally lower than rates earned from Medicare, private, commercial insurance and other sources, and therefore, an important performance measurement is “quality mix,” which is defined as revenues or census earned from payor sources other than from Medicaid programs. The following table sets forth our Medicare, Medicaid and private pay sources of revenue of our skilled nursing facilities by percentage of total revenue and the level of quality

Skilled Nursing and Assisted Living Facilities. Within our assisted living facilities, we generate our revenue primarily from private pay sources, with a small portion earned from Medicaid where states offer such programs. The following table sets forth our Medicare, Medicaid and private pay sources of revenues for all skilled nursing and assisted living facilities by percentage of total revenue and the level of quality mix.

Other Revenues. We derive outpatient therapy revenues by providing rehabilitation therapy services to outside third parties at our clinics. The revenue sources are primarily HMOs and commercial insurance (31%), workers’ compensation (24%), Medicare (21%), Medicaid (10%) and other sources, including self-pay clients (14%). Management and consulting fees are paid directly from the long-term care organizations that we contract with to provide services.

BBRA and Temporary Funding Enhancements. Prior to October 1, 2002, the incremental Medicare relief packages received from BBRA, and BIPA, provided a total of $2.7 billion in temporary Medicare funding enhancements to the long-term care industry. The funding enhancements implemented by BBRA and BIPA fall into two categories. The first category is Legislative Add-ons, which included a 16.66% add-on to the nursing component of the RUGs rate and a 4% base adjustment. The second category is RUGs Refinements which involved an initial 20% add-on for 15 RUGs categories identified as having high intensity, non-therapy ancillary services. The 20% add-ons from three RUGs categories were later redistributed to 14 rehabilitation categories at an add-on rate of 6.7% each.

Medicare Cliff — October 1, 2002. The Legislative Add-ons expired on September 30, 2002, hereafter referred to as the “Medicare cliff,” resulting in a reduction of Medicare funding for our skilled nursing facilities. Based on the Medicare case mix and census over the nine months ended September 30, 2002, we received an estimated average rate of $31.22 per resident day relating to the Legislative Add-ons. Offsetting this, on October 1, 2002 long-term care providers received a 2.6% market basket increase in

Medicare rates. The impact of these two items in the three months ended December 31, 2002 resulted in a net decline in our average rate of $23.64 per patient day. Based upon the Medicare case mix and census in the fourth quarter of 2002, the net impact of the Medicare cliff and the market basket increase reduced our revenues by approximately $3.9 million. Based upon the Medicare case mix and census during the nine months ended September 30, 2003, the net impact of the Medicare cliff and the market basket increase reduced our revenues by approximately $12.8 million as compared to the nine-month period ended September 30, 2002. This was partially offset by RUGs improvement, which increased revenues by $2.7 million over the nine months ended September 30, 2003. Based upon the Medicare case mix and census for the twelve-month period ended September 30, 2003, the net impact of the Medicare cliff and the market basket increase reduced our revenues by $16.7 million.

Administrative Fix — October 1, 2003. Effective October 1, 2003, CMS increased Medicare rates by 6.26% reflecting (1) a cumulative forecast correction, or administrative fix, to correct past years under-funded rate increases, which increased the federal base payment rates by 3.26%, and (2) the annual market basket increase of 3.0%. We estimated that based on the Medicare case mix for the nine-month period ended September 30, 2003, these Medicare rate increases would add approximately $18.45 per Medicare day. Based on the Medicare case mix and census for the year ended December 31, 2003, the 6.26% Medicare rate increase amounts to additional annualized revenue of approximately $13.4 million going forward, which will be tempered by higher labor and other operating costs. Based upon the Medicare case mix and census in the first quarter of 2004, the impact of the 6.26% Medicare rate increase increased our revenues by $3.7 million, offset by higher labor and other operating costs. In order to maintain their commitment to Senator Grassley and CMS in providing the administrative fix, in October 2003 the Alliance for Quality Nursing Home Care (which is a membership of large long-term care providers) and the American Health Care Association announced their support to spend the administrative fix over the next fiscal period on direct care and services for residents. In October 2003, CMS published notice to skilled nursing facilities that within future cost reports, it will require confirmation that the administrative fix funding was spent on direct patient care and related expenses.

Future Medicare Changes. With respect to the RUGs Refinements, in April 2002, CMS announced that it would delay the refinement of the RUGs categories thereby extending the related funding enhancements until September 30, 2003. In May 2003, CMS released a rule that maintained the current RUGs classifications until October 1, 2004. Further to, but independent of this, Congress enacted legislation directing CMS to conduct a study on the resource utilization grouping classification system and report its recommendations by January 2005. Based upon the Medicare case mix and census for the year ended December 31, 2003, we estimate that we received an average $24.12 per resident day, which on an annualized basis amounts to $17.6 million related to the RUGs Refinements. Based upon the Medicare case mix and census for the three months ended March 31, 2004, we estimate that we received an average $25.27 per resident day, which on an annualized basis amounts to $20.5 million related to the RUGs Refinements. The implementation of a RUGs Refinement change, where all or part of the enhancement is discontinued, could have a significant impact on us.

In January 2003, CMS announced that the moratorium on implementing payment caps for outpatient Part B therapy services, which was scheduled to take effect on January 1, 2003, would be extended. CMS subsequently extended the moratorium until September 1, 2003. The therapy caps were made effective from September 1, 2003 until December 8, 2003. On December 8, 2003, as a result of the Medicare Prescription Drug, Improvement and Modernization Act of 2003, the moratorium was reinstated for an additional two-year period until December 2005. The impact of a payment cap cannot be reasonably estimated based on the information available to us at this time, however, such a cap would reduce therapy revenues.

In February 2003, CMS announced its plan to reduce its level of reimbursement for uncollectible Part A co-insurance. Under the plan announced by CMS, the reimbursement level would be reduced to 70% over a three year period as follows: 90% effective for the government fiscal year commencing October 1, 2003, 80% effective for the government fiscal year commencing October 1, 2004 and 70% effective for government fiscal years commencing on or after October 1, 2005. This plan is consistent with the Part A

co-insurance reimbursement plan applicable to hospitals. CMS did not implement the rule change effective October 1, 2003, and continues to review the proposed plan. We estimate that, should this plan be implemented, the negative impact to our net earnings would be $1.3 million in 2004, increasing to $3.3 million in 2006.

Medicaid Rates Subject to CMS Approval. Some of the states in which we operate, including Pennsylvania, Indiana, Oregon and Washington, have submitted proposed state plan amendments and waivers pertaining to the fiscal year commencing July 1, 2003, which are awaiting review and approval by CMS. The retrospective plan amendments and waivers seek to increase the level of federal funding for the states’ Medicaid programs and, if approved, would result in providing skilled nursing facilities with revenue rate increases to offset new or increased provider taxes. Since the plan amendments and waivers have not been approved, we have recorded revenues based upon amounts received. In Pennsylvania, should CMS approve the State’s plan amendment and waiver as submitted, incremental earnings, net of the provider tax, of $2.8 million could be recorded in 2004 pertaining to the nine-month period ended March 31, 2004. Without approval, we could record a negative adjustment to earnings of up to $4.5 million in 2004 pertaining to this same nine-month period. In Indiana, approval of the original amendment and waiver submitted could result in the recording of net incremental earnings of $2.3 million in 2004 pertaining to the nine-month period ended March 31, 2004, and there would be no impact if the plan were not approved. In Washington, the state has proceeded to implement the provider tax and fund the incremental Medicaid rates, while seeking approval from CMS on their proposal. If the plan is not approved, a retroactive negative adjustment of no greater than $0.5 million to earnings may be required. In June 2004, CMS approved the state plan amendment and waiver submitted by the state of Oregon. We will record the net favorable financial impact estimated at $0.3 million in the second quarter of 2004. For the remaining states, we anticipate that amendments will be made to the original plans submitted to CMS and cannot, therefore, predict the outcome of these plan submissions or their impact on us and our results of operations. Based upon the final CMS approved state plan amendments and waivers, changes in Medicaid rates and any associated provider taxes could result in adjustments to earnings for the period from July 1, 2003 to March 31, 2004.

Medicare average daily census for the three months ended March 31, 2004, or the 2004 quarter, increased to 2,206 from 1,966 for the three months ended March 31, 2003, or 2003 quarter, on a same facility basis, representing a 12.2% increase over 2003. Total average daily census for the 2004 quarter increased slightly to 12,880 from 12,875 for 2003 quarter on a same facility basis. The improvement in Medicare census was the direct result of a number of our initiatives, including the implementation of consistent admission practices, the Medicare certification of all our nursing facility beds and senior management’s focus on census, all of which drove the improved financial results for the 2004 quarter.

Our financial results include the operations of one newly acquired facility in Wisconsin that was purchased on December 31, 2003. On February 12, 2004, we acquired a skilled nursing facility in Washington, which we had previously leased, for $1.4 million. In the 2004 quarter, we completed for a total cost of $3.5 million two development projects involving additions to existing facilities adding 16 units to one assisted living facility in Kentucky and 20 nursing beds to one nursing facility in Wisconsin. We also commenced managing two new nursing facilities and transferred management responsibilities to another long-term care provider while retaining consulting services for nine facilities.

In March 2004, we concluded the evaluation of two nursing facilities that operate adjacent to one another in Indiana, both of which require capital renovations. After evaluation of the respective operations, we made a decision, subject to State of Indiana approval, to consolidate the two operations into one renovated facility, which upon completion will accommodate all residents within both facilities, however, decrease the total available nursing beds by 46. The consolidation of the two operations is expected to be

In February 2004, Tandem refinanced two of its skilled nursing facilities, and we subsequently received prepayment in full of $4.4 million of notes receivable held in respect of certain properties. In February 2004, we prepaid in full two Industrial Development Revenue Bonds totaling $13.0 million. The repayment of this debt resulted in a charge to earnings of $0.4 million to write off deferred financing costs.

See “Prospectus Summary — Recent Developments” for information regarding events subsequent to the 2004 quarter.

The most significant event in 2003 was the continued improvement in total census, particularly Medicare census. Total ADC increased to 12,901 in 2003 from 12,727 in 2002 and 12,465 in 2001 on a same facility basis, representing a 1.4% increase over 2002 and 3.5% over 2001. Medicare ADC increased to 1,997 in 2003 from 1,699 in 2002 and 1,427 in 2001 on a same facility basis, representing a 17.5% increase over 2002, and 39.9% over 2001. The improvement in census was the direct result of a number of our initiatives, including the implementation of consistent admission practices, the Medicare certification of all our skilled nursing facility beds and senior management’s focus on census, all of which drove the improved financial results for the 2003 fiscal year.

The October 2003 Medicare rate increase, which included an administrative fix of 3.26% in addition to the market basket increase of 3%, was partial recognition by CMS of past under-funding of the industry.

On December 31, 2003, we acquired a skilled nursing facility (99 beds) in Manitowoc, Wisconsin for $4.1 million. During 2003, we commenced seven new developments involving additions to two nursing facilities (38 beds), additions to four assisted living facilities (87 units) and the construction of one new free-standing assisted living facility (40 units). One of the developments, with 16 assisted living units, opened in February 2004. Three of the developments are expected to be completed later in 2004, with the remaining three developments to be completed in 2005. In late 2003, we also approved for development, but did not commence, the expansion of, or addition to, eight assisted living facilities totaling 329 units for an approximate cost of $36.3 million. None of these projects will be completed in 2004.

Issuance of Senior Notes. On June 28, 2002, we completed a private placement of $150.0 million of our Senior Notes, which were issued at a discount of 0.25% of par to yield 9.54%. In January 2003, we completed the offer to exchange our Senior Notes that have been registered under the Securities Act for the Senior Notes issued in June 2002. The terms of the registered Senior Notes are identical to the terms of the privately placed Senior Notes issued in June 2002 and are guaranteed by all of our existing and future active subsidiaries.

We used the proceeds of $149.6 million to pay $8.3 million of related fees and expenses, retire $130.8 million of debt (consisting of $124.5 million outstanding under the previous credit facility and $6.3 million of other debt), and the remainder for general corporate purposes.

We had hedged a portion of our previous variable-rate long-term debt through an interest rate swap agreement with a notional amount of $25.0 million maturing in February 2003. Upon refinancing of the debt, we terminated this swap agreement with a cash payment of $0.6 million. The retirement of the previous credit facility resulted in the write-off of deferred financing charges and a loss from the early retirement of debt totaling $2.8 million ($1.7 million after tax).

Purchase of Previously-Leased Facilities. In October 2002, we purchased three skilled nursing facilities in Ohio and four skilled nursing facilities in Indiana that we previously leased for an aggregate purchase price of $17.9 million. The purchase price consisted of $7.4 million in cash and a $10.5 million ten-year interest-bearing note. The interest rate interest rate on the note was subject to negotiation and failing agreement the issued would have been settled through arbitration. In the latter part of 2003, we prepaid $4.5 million against the note and agreed to refinance the 10-year note. On April 15, 2004, we refinanced the facilities with mortgages that have interest rates varying with LIBOR, and repaid the remaining balance of the note due to the seller.

Loss on Disposal of Assets, Provision for Closure and Exit Costs, and Impairment of Long-lived Assets. During the period 1998 through 2001, in response to the implementation of Medicare PPS, increased litigation and insurance costs in certain states and increased operational costs resulting from changes in legislation and regulatory scrutiny, we divested under-performing skilled nursing and assisted living facilities and non-core healthcare assets. These asset divestitures primarily included the sale of our pharmacy to Omnicare, Inc., and the sales of facilities and/or the transfer of all skilled nursing facility operations in the states of Florida and Texas in 1999, 2000 and 2001. With the exception of our assisted living facilities in Texas, we ceased to operate facilities in Florida and Texas through transactions primarily involving Tandem, Greystone, Senior Health Properties — South, Inc., or Senior Health — South, and Senior Health Properties — Texas, Inc., or Senior Health — Texas. As a result of this strategy, for the years 2002 and 2001, we recorded significant:


	•	loss (gain) on the disposal of assets;

	•	provisions for closure and exit costs; and

	•	loss on the impairment of long-lived assets.

Below is a summary of the significant transactions in 2002 and 2001 that resulted in the above provisions, gains and losses.

In May 2002, Tandem exercised its option to purchase seven properties in Florida that it leased from us for gross proceeds of $28.6 million, consisting of cash of $15.6 million and $13.0 million in 8.5% five-year notes. We applied $12.4 million of the proceeds to reduce our bank debt. Until this date, Tandem operated these facilities under a lease agreement with a purchase option. The carrying value of the seven facilities was $21.5 million. As a result, we recorded a gain on the sale of assets of $4.0 million, inclusive of the deferred gain of $2.2 million from the sale of two leased facilities in April 2001. The transaction also involved the conversion of $1.9 million in preferred shares received in the April 2001 transaction into $1.9 million 8.5% notes, due April 2006.

In May 2002, we recorded a provision for closure and exit costs relating to divested Florida operations of $5.3 million relating to cost report settlement issues and the settlement of claims with suppliers and employees.

In 2001, we recorded a loss on disposal of assets of $1.0 million and a provision for closure and exit costs and other items of $23.2 million, totaling $24.2 million, as discussed below:


	•	In September 2001, we transferred all 17 of our skilled nursing facilities (1,421 beds) in Texas to Senior Health-Texas resulting in a pre-tax loss of $1.8 million. As outlined under “— Significant Assets and Liabilities — Assets, Liabilities and Contingencies Resulting from Divestiture Program,” we now lease or sublease 16 of these facilities in Texas to Senior Health-Texas;

	•	We recorded provisions totaling $2.2 million relating to the closure and/or sale of three skilled nursing properties for $2.0 million and a loss on another property for $0.2 million; and

	•	We recorded additional provisions of $20.2 million relating to our previously sold operations, of which $19.0 million related to the skilled nursing facilities in Florida. This $19.0 million consisted of an $11.0 million provision related to Florida claims for years prior to 2001 based upon an actuarial review of resident liability costs and an $8.0 million provision for Florida closure and exit


		costs. The $11.0 million provision was the result of an increase in the estimate of the incurred but not yet reported claims and an increase in the frequency and severity of claims.

In April 2001, Tandem exercised its option to purchase two leased properties in Florida for gross proceeds of $11.4 million. The proceeds we received consisted of cash of $7.0 million, a $2.5 million 8.5% interest-bearing five-year note and $1.9 million in 9% cumulative dividend preferred shares, mandatorily redeemable after five years. The carrying value of the two facilities on our books was $9.2 million. Tandem continued to operate seven skilled nursing facilities under a lease agreement with us, with an option to purchase these facilities at any time, which Tandem exercised in May 2002. We deferred a potential gain on the sale of these assets of $2.2 million because a significant portion of the proceeds had not been received (SFAS No. 66) and the ultimate determination of the gain was dependent on Tandem exercising some or all of the remaining purchase options available to it. We applied $4.0 million of the net proceeds to reduce our term bank debt.

Assets, Liabilities and Contingencies Resulting from Divestiture Program. As a result of the divestiture programs in Florida and Texas, we received cash proceeds and notes, and we retained interest in, or ownership of, certain skilled nursing home properties and entered into ongoing consulting service agreements with operators in these two states. As of March 31, 2004, we:


	•	held an interest, through $30.0 million in contingent notes, in 15 long-term facilities with Greystone;

	•	held $17.0 million in notes due from Tandem ($13.0 million due in May 2007 and $4.0 due in December 2007) and $7.0 million in non-current amounts receivable from Senior Health — South and Senior Health — Texas; and

	•	owned six leased skilled nursing home properties in Florida and four leased skilled nursing home properties in Texas with a net book value of $15.4 million, and subleased another 12 properties in Texas.

In September 2000, we disposed of 15 long-term care facilities in Florida to Greystone for initial cash proceeds of $30.0 million and contingent consideration in the form of a $10.0 million Vendor Take Back Note and two other contingent and interest bearing notes. The three notes have an aggregate potential value of up to $30.0 million plus interest and would have been retired out of proceeds from the sale or refinancing of the facilities by Greystone. For the period September 2000 through March 2004, we retained the right of first refusal to repurchase the facilities. We also retained an option to repurchase the facilities until March 2003, however, we elected not to place an offer to repurchase the facilities. Upon maturity of the notes in March 2004, unless the facilities are sold or refinanced, we were entitled to receive the $10.0 million Vendor Take Back Note and accrued interest pursuant to the terms of the vendor take back and other contingent notes. The notes were due in March 2004, however, repayment of the notes and interest was delayed due to negotiations with Greystone. In 2000, the option to repurchase along with the significant portion of the sales price being contingent, resulted in the disposition being accounted for as a deferred sale in accordance with SFAS No. 66. Accordingly, there was no gain or loss recorded on the initial transaction. The fixed assets have been classified as “Assets held under Divestiture Agreement,” and as of March 31, 2004 had a net book value of $33.7 million. As of December 31, 2003, we anticipated the final consideration would be received in 2004 and, therefore, the “Assets held under Divestiture Agreement” were classified as a current asset of December 31, 2003, and we ceased depreciating these assets as of January 1, 2004. In June 2004, we concluded the transaction with Greystone by receipt of the final consideration of $10.0 million on the Vendor Take Back Note plus $2.6 million of interest, which completes the September 2000 divestiture agreement. The finalization of this transaction will result in the recognition of a pre-tax gain from the sale of assets of $4.8 million and interest income of $1.6 million in the second quarter of 2004. See “Prospectus Summary — Recent Developments — Settlement of Greystone Tribeca Acquisition, L.L.C. Transaction” for further information about this settlement.

We lease six Florida properties to Senior Health — South with lease expiration dates in December 2006. We lease four Texas properties to Senior Health — Texas with lease expiration dates in September 2006 and sublease 12 Texas properties to Senior Health — Texas with sublease expiration dates in February 2012. In addition, we provide on-going consulting services to Senior Health — South and Senior Health — Texas and earn rental income from the operators of these facilities. As of March 31, 2004, we had $7.0 million in non-current accounts receivable due from Senior Health — Texas and Senior Health — South. As a result, our earnings and cash flow can be influenced by the financial stability of these unrelated companies.

We have recorded provisions for all estimated future costs related to operations that we disposed of. Those estimates were made at the time of disposition, recorded in a divested operations liability account and can be subject to revisions which may impact our future earnings. On an on-going basis we review the levels of our overall reserves for losses related to our Florida and Texas operations, which reserves were initially established when we decided to exit these states. During 2002, as a result of events that became known to us then, we concluded that we should increase our overall reserves by $5.3 million for cost report and other settlements with the State of Florida and other Medicare fiscal intermediaries, collection of receivables and settlement of claims with suppliers and employees. During 2003, we settled certain Medicare and Medicaid claims and charged to the divested operations liability account approximately $1.3 million.

We entered into a preferred provider agreement with Omnicare, Inc. pursuant to the disposition of our pharmacy operations in 1998. The terms of the preferred provider agreement enabled Omnicare to execute pharmacy service agreements and consulting service agreements with all of our skilled nursing facilities. In connection with its agreements to provide pharmacy services, Omnicare has requested arbitration for an alleged lost profits claim related to our disposition of assets, primarily in Florida. Damage amounts, if any, cannot be reasonably estimated based on information available at this time. An arbitration hearing for this matter has not yet been scheduled. We believe we have interpreted correctly and complied with the terms of the preferred provider agreement; however, we cannot assure you that other claims will not be made with respect to the agreement.

Medicare and Medicaid Settlement Receivables. As of March 31, 2004, we are pursuing settlement of a number of outstanding Medicare and Medicaid receivable balances, which in aggregate, have a net book value of $32.1 million. For Medicare revenues earned prior to the implementation of PPS and Medicaid programs with a retrospective reimbursement system, differences between revenues that we ultimately expect to be realized from these programs and amounts received are reflected as accounts receivable, or as accrued liabilities when payments have exceeded revenues that we ultimately expect to receive. For Medicare pre-PPS claims, normally such issues are resolved during the audit process, however, we record general provisions for disagreements that require settlement through a formal appeal process.

For a specific staffing cost issue, a settlement of the first year of seven specific claim years was reached prior to the January 2003 Provider Reimbursement Review Board, or PRRB, hearing. During 2003, we continued to negotiate the remaining years in dispute with the FI. In January 2004, we negotiated and subsequently received a cash settlement of $5.6 million for all remaining years of the staffing cost settlement matter. The settlement resulted in no significant adjustment to the recorded receivable balance.

For another specific issue involving the allocation of overhead costs, the first of three specific claim years was presented to the PRRB at a hearing in January 2003. The hearing procedures were discontinued after the parties negotiated a methodology for resolution of the claim. The negotiated settlement for this and other issues relating to the 1996 cost report year resulted in no adjustment to the recorded receivable balance, and we subsequently collected $3.0 million from the FI. For the remaining two specific claim years, in April 2004, we reached a negotiated settlement with the FI that will result in our receipt of approximately $7.7 million, $6.5 million of which we will receive by May, 2004, and the balance of which we will receive upon conclusion of resolution of other matters concerning the cost report years under

appeal. There are certain matters related to the settlement and cost report years that were appealed that have to be resolved with the FI, which could influence the financial impact of the settlement. We anticipate that the resolution of these matters and the determination of the financial impact of the settlement, if any, will be recorded within the second quarter of 2004.

We have a hearing scheduled in September 2004 on a director of nursing staff cost issue involving a claim for $3.8 million. We continue to work on the balance of other Medicare claims with the FI and on an on-going basis with each of the states in respect of Medicaid receivables.

Self-Insured Liabilities. We have $43.6 million in accruals for self-insured liabilities with respect to general and professional liability claims as of March 31, 2004. We have estimated that approximately $18.0 million of this liability will be paid within the next twelve months. The majority of the liability balance was accrued during the period that we operated in Florida and Texas. In 2003 and 2002 respectively, we accrued $6.0 million and $5.3 million. In 2001, we provided an additional accrual of $11.0 million attributable to potential claims for incidents in Florida and Texas. The total expense for 2001 was $29.2 million.

We manage our business through monitoring certain key performance indicators. The most important key performance indicators are:

Census is defined as the number of residents occupying a bed (or unit in the case of an assisted living facility).

ADC is the number of residents occupying a bed over a period of time, divided by the number of days in that period.

Occupancy is measured as the percentage of census relative to the total available resident beds. Total available resident beds is the number of beds (or units in the case of an assisted living facility) available for occupancy multiplied by the number of days in the period.

Quality mix is the measure of the level of non-Medicaid census. In most states, Medicaid is the most unattractive payor source as rates are the lowest of all payor types.

The average revenue rate by each payor source influences our focus and marketing efforts to place certain resident payor types and in certain states varies based on the acuity of care required by a resident. The change in revenue rates is largely dictated by CMS and state governments.

EBITDA is defined as net income (loss) before income taxes, interest expense net of interest income, depreciation and amortization, and non-cash, non-recurring (gains) and losses, including disposal of assets, provision for closure and exit costs and other items, early retirement of debt and impairment of long-lived assets. EBITDA is not a measure of performance under generally accepted accounting principles in the United States of America, or GAAP. We use EBITDA as a key performance indicator and EBITDA expressed as a percentage of total revenues as a measurement of margin. We understand that EBITDA, or

derivatives thereof, are customarily used by lenders, financial and credit analysts, and many investors as a performance measure in evaluating healthcare acquisitions. Moreover, substantially all of our financing agreements, including the indenture governing our Senior Notes and our credit facility, contain covenants in which EBITDA is used as a measure of compliance. Thus, we use EBITDA to monitor our compliance with these financing agreements. EBITDA should not be considered in isolation or as a substitute for net income, cash flows from operating activities and other income or cash flow statement data prepared with GAAP, or as a measure of profitability or liquidity.

Our strategy involves the belief that our success is influenced by the level of ownership of the facilities we operate. We monitor the percentage of facilities owned as opposed to leased.

Number of Facilities Under Operation, Management and Consulting and Other Operating Units

We monitor the number of facilities under operation, facilities under management or consulting contracts and number of rehabilitation clinics.

In order to compare our performance between periods, we determine the amounts of the key performance indicators for all of our facilities, as well as the facilities that we operated in all reported periods, or same facility operations. Set forth below, we provide an analysis of our key performance indicators in total, and where appropriate, on a same facility basis and discuss the significant trends during the period 2001 through 2003 and the significant trends when comparing the three months ended March 31, 2004 to the three months ended March 31, 2003. The same facility basis figures exclude our December acquisition of the new skilled nursing facility in Manitowoc, Wisconsin.

The following table sets forth the ADC, by type of payor, and the quality mix for all of our skilled nursing facilities.

The following table sets forth for the three months ended March 31, 2004 and 2003 the ADC, by type of payor and percentage of ADC by payor type for all of our skilled nursing facilities, presented on a same-facility basis, and showing the percentage change in ADC between years.

On a same facility basis, total ADC remained virtually unchanged between the 2004 quarter and the 2003 quarter. On a same facility basis, Medicare ADC increased 12.2% between the 2004 quarter and the 2003 quarter. As a result, the percentage of Medicare ADC to all payor sources increased to 17.1% in the 2004 quarter, as compared to 15.3% in the 2003. The improvement in census was the direct result of a number of initiatives, including an implementation of consistent admission practices, the Medicare certification of all nursing facility beds, and senior management’s focus on census, all of which drive the improved financial results for 2004.

The following table sets forth for the years ended December 31, 2003, 2002 and 2001 the ADC, by type of payor and percentage of ADC by payor type for all of our skilled nursing facilities, presented on a same facility basis, and showing the percentage change in ADC between years.

On a same facility basis, total ADC increased 1.4% between 2003 and 2002 and 3.5% between 2003 and 2001. On a same facility basis, Medicare ADC increased 17.5% between 2003 and 2002 and 39.9% between 2003 and 2001. As a result, the percentage of Medicare ADC to all payor sources increased to 15.5% in 2003, as compared to 13.4% in 2002 and 11.4% in 2001. The improvement in census was the direct result of a number of initiatives, including an implementation of consistent admission practices, the Medicare certification of all skilled nursing facility beds and senior management’s focus on census, all of which drove the improved financial results for 2003.

All Skilled Nursing and Assisted Living Facilities — Occupancy and Number of Facilities Under Operation

The following table sets forth occupancy percentages, ADC and operational resident capacity for all of our skilled nursing and assisted living facilities in total for the three months ended March 31, 2004 and 2003.

The following table sets forth occupancy percentages, ADC and operational resident capacity for all of our skilled nursing and assisted living facilities in total for the years ended December 31, 2003, 2002 and 2001.

The following table sets forth occupancy percentages, ADC and operational resident capacity for all of our skilled nursing and assisted living facilities on a same facility basis for the three months ended March 31, 2004 and 2003.

Occupancy percentages increased within the assisted living facilities to 86.7% in the 2004 quarter from 85.5% in the 2003 quarter. The improvement in occupancy within the assisted living facilities was due to the implementation of regional marketing personnel to assist local managers in improving their marketing efforts and changes in management personnel in certain facilities.

Occupancy percentages in our skilled nursing facilities increased to 91.5% in 2003 from 90.3% in 2002 and 87.8% in 2001 due to the increases in ADC discussed above. The divestiture of our skilled nursing facilities in Texas in September 2001 resulted in the change in occupancy percentage in the 2001 year. However, there was a reduction of approximately 110 available beds (impacting the occupancy percentage by 0.7%) between 2001 and 2002 as licensed beds were reduced in certain facilities in certain states.

Occupancy percentages increased within the assisted living facilities to 86.3% in 2003 from 83.9% in 2002 and 83.1% in 2001. The improvement in occupancy within the assisted living facilities was due to the implementation of regional marketing personnel to assist local managers in improving their marketing efforts and changes in management personnel in certain facilities.

The percentage of facilities owned increased in 2002 due to the purchase of the seven previously leased facilities in Indiana and Ohio. The total number of facilities under operation changed as the result of our divestiture of facilities in Texas (in September 2001), the closure of one assisted living facility and conversion of another assisted living facility into a skilled nursing facility (in 2003) and our acquisition of one skilled nursing facility on December 31, 2003. The percentage of facilities owned increased in the 2004 quarter due to the purchase of a previously leased facility in the State of Washington.

Skilled Nursing Facilities — Average Revenue per Resident Day by Payor Source

The following table sets forth the average revenue per resident day by payor source, including the impact of prior year revenue adjustments.

During 2003, we recorded a provision for $4.0 million pertaining to individual Medicare claims in dispute with the FI for the cost report years 1996 through 1998. Of the $4.0 million provision, $1.3 million pertains to discontinued operations and therefore was applied to the previously accrued balance. The net adjustment of $2.7 million resulted in a reduction of revenues during 2003. Offsetting this, we recorded a recovery of $4.2 million in Medicaid revenues resulting from a favorable court decision in Ohio relating to the recovery of alleged government overpayments for adjudicated Medicaid cost report periods. In 2002 and 2001, we recorded prior period Medicaid revenue adjustments pursuant to the settlement of state cost reports.

During the 2004 quarter we recorded prior period Medicaid revenue adjustments of $1.3 million pursuant to the settlement of state cost reports. During the 2003 quarter, we recorded prior period Medicaid revenue adjustments of $2.7 million, which included a recovery of $1.5 million in Medicaid revenues resulting from a favorable court decision in the State of Ohio relating to the recovery of alleged government overpayments for adjudicated Medicaid cost report periods.

The following table sets forth for the three months ended March 31, 2004 and 2003 the average revenue rate by payor source, excluding the above-mentioned revenue adjustments, and the percentage changes between years. In addition, the Medicare — Part A rate is also reported.

Comparing the 2004 quarter to the same period in 2003, the Medicare rate increased 9.0% of which 6.26% was the result of the October 2003 Medicare rate increase that included an administrative fix of 3.26%. The balance of the increase is attributable to an increase in the acuity and level of rehabilitative residents admitted.

The following table sets forth for the years ended December 31, 2003, 2002 and 2001 the average revenue rate by payor source, excluding the above-mentioned revenue adjustments, and the percentage

In 2002, the Medicare cliff, net of the market basket increase, decreased the average Medicare — Part A rate by $23.64 per Medicare resident day, and therefore, the total average Medicare rate effective October 2002. On an annualized basis, the net impact for 2002 was $5.96 per Medicare day. The acuity of residents decreased by approximately $1.14 per Medicare day, however, this was more than offset by an increase in the level of Part B Medicare revenues of $4.21 per Medicare day.

In 2003, the Medicare cliff revenue reductions, net of the market basket increase, estimated at $23.64 per Medicare resident day, continued through the nine-month period ended September 30, 2003. On an annualized basis, the net impact for 2003 as compared to 2002 was $17.68 per Medicare day. However, on October 1, 2003, Medicare rates increased by 6.26%, or $18.45 per Medicare resident day, reflecting the administrative fix and the annual market basket increases. On an annualized basis, this increased our Medicare rate by $4.65 per Medicare day. In addition, we improved Medicare rates from the admission of higher acuity residents (approximately $6.66 per Medicare day) and increased the level of Part B Medicare revenues (approximately $1.45 per Medicare day).

For private and other payor sources, we experienced a 7.6% increase in rates from 2002 to 2003, as compared to a 3.9% increase from 2001 to 2002. The increase was primarily due to the shift of lower paying private pay residents into Medicare and increases in rates received from HMOs.

Average Medicaid revenue per resident day increased 4.2% in 2003 relative to 2002 and 4.8% in 2002 relative to 2001. For a number of states, the increase in average Medicaid revenue per resident day was primarily attributable to increases in acuity of care levels and funding for increased state assessment fees and taxes.

The following table sets forth a reconciliation of net income before taxes and EBITDA.

EBITDA as a percentage of total revenues increased to 11.4% in 2003 from 9.9% in 2002 and 7.8% in 2001. The increase was attributable to the improvement in total census (1.4%) and Medicare census (17.5%) and reductions in general and administrative expenses (approximately $2.1 million) and certain operating costs. The operating costs that decreased as a percentage of total revenues were premiums from the usage of agency staffing, wage premiums paid to staff and specific supply costs.

EBITDA, as a percentage of total revenues, increased to 13.9% in the 2004 quarter from 9.9% in the 2003 quarter. The increase was attributable to the improvement in Medicare census (12.2%) and reductions in certain operating costs as a percentage of revenues, primarily wages and benefits.

The following table sets forth details of our revenues and earnings as a percentage of total revenues:

Revenues in the 2004 quarter increased $20.1 million, or 9.5%, to $231.5 million from $211.4 million in the 2003 quarter. Outpatient therapy and other revenues increased by $0.5 million in the 2004 quarter due to increased lease revenue and management and consulting revenue.

Revenues from skilled nursing and assisted living facilities increased $19.6 million in the 2004 quarter compared to the 2003 quarter including $1.6 million as a result of the acquisition of a facility in

Operating and general and administrative costs increased $8.6 million, or 4.6%, in the 2004 quarter compared to the 2003 quarter, including $1.2 million as a result of the acquisition of a facility in Manitowoc, Wisconsin facility on December 31, 2003. Operating and general and administrative costs on a same facility basis increased $7.4 million. This increase was attributable to the following:

Lease costs were unchanged at $2.3 million for both the 2004 quarter and the 2003 quarter. Depreciation and amortization decreased $0.5 million to $8.7 million in the 2004 quarter compared to $9.2 million in the 2003 quarter. This decrease included a decrease of $0.6 million as a result of the

Interest expense, net of interest income, decreased $1.2 million to $6.7 million for the 2004 quarter compared to $7.9 million for the 2003 quarter. The weighted average interest rate of all long-term debt increased to 7.79% during the 2004 quarter compared to approximately 7.74% during the 2003 quarter. Interest income was $0.9 million higher in the 2004 quarter than in the 2003 quarter primarily due to $1.0 million in interest income from Greystone that was previously not recognized. The average debt level decreased to $384.7 million during the 2004 quarter compared to $398.1 million during the 2003 quarter.

In March 2004, we concluded the evaluation of two nursing facilities in Indiana and made a decision, subject to State of Indiana approval, and after renovation to one of the two facilities, to consolidate the two operations into one. As a result of the decision to close the one facility, we have recorded a provision of $1.6 million for impairment of long-lived assets.

The loss on the early retirement of debt in the 2004 quarter of $0.4 million was due to the extinguishment in February 2004 of two industrial development revenue bonds totaling $13.0 million.

Income tax expense for the 2004 quarter was $5.6 million compared to $1.5 million for the 2003 quarter. Our effective tax rate was 37.6% for the 2004 quarter as compared to 40.2% for the 2003 quarter. The decrease in the effective tax rate resulted from current and prior year state deferred income tax benefits and the impact of permanent items between the two years. When we assess the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and record a valuation allowance, if required. The ultimate realization of deferred tax assets depends upon us generating future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies when we make this assessment.

Net earnings for the 2004 quarter were $9.3 million compared to $2.3 million for the 2003 quarter. The improvement in net earnings was due to the reasons described in this section “The 2004 Quarter Compared with the 2003 Quarter.”

We insure certain risks, including comprehensive general liability, property coverage, excess workers’ compensation and employer’s liability insurance, with Laurier Indemnity Company and Laurier Indemnity Ltd., affiliated insurance subsidiaries of Extendicare Inc. We recorded approximately $2.8 million and $2.6 million of expenses for this purpose for the 2004 quarter and 2003 quarter, respectively. Also, for the 2004 quarter, we recorded a credit to expense of $1.0 million relating to prior year workers’ compensation policies with Laurier Indemnity Company.

We purchase computer hardware and software support services from Virtual Care Provider, Inc., an affiliated subsidiary of Extendicare Inc. Expenses related to these services were $1.2 million and $1.7 million for the 2004 quarter and 2003 quarter, respectively.

Revenues in 2003 increased $55.3 million, or 6.8%, to $870.4 million from $815.1 million in 2002. Outpatient therapy and other revenues decreased by $0.7 million in 2003 due to lower rental income resulting from the sale of facilities in 2002 that we previously leased to a third party, partially offset by growth of our outpatient therapy operations.

Revenues from skilled nursing and assisted living facilities increased $56.0 million in 2003 compared to 2002. This increase was attributable to the following:

Operating and general and administrative costs increased $38.0 million, or 5.2%, in 2003 compared to 2002. This increase was attributable to the following:

Lease costs decreased $1.5 million when comparing years as a result of the purchase of previously leased facilities in 2002. Depreciation and amortization decreased $0.2 million to $37.4 million in 2003 compared to $37.6 million in 2002.

Interest expense, net of interest income, decreased $2.5 million to $29.8 million for 2003 compared to $32.3 million for 2002. The weighted average interest rate of all long-term debt decreased to 7.76% during 2003 compared to approximately 7.81% during 2002. Interest income was $2.8 million higher in 2003 than 2002, primarily due to $1.3 million in interest income that was previously not recognized and increased interest income from our interest rate swap and cap agreements. The average debt level increased to $397.7 million during 2003 compared to $387.2 million during 2002.

Income tax expense for 2003 was $12.0 million compared to $3.2 million for 2002. Our effective tax rate was 37.3% for 2003 as compared to 49.2% for 2002. The decrease in the effective tax rate resulted from the reversal of current and prior year state deferred income tax benefits, the non-recognition of tax benefits in certain states in 2002 and the impact of permanent items between the two years. When we assess the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and record a valuation allowance, if required. The ultimate realization of deferred tax assets depends upon us generating future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies when we make this assessment.

Net earnings for 2003 were $20.1 million compared to $3.2 million for 2002. The improvement in net earnings was due to the reasons described herein above.

We insure certain risks, including comprehensive general liability, property coverage, excess workers’ compensation and employer’s liability insurance, with Laurier Indemnity Company and Laurier Indemnity Ltd., affiliated insurance subsidiaries of Extendicare Inc., our Canadian parent. We recorded approximately $10.7 million and $9.9 million of expenses for this purpose for 2003 and 2002, respectively.

We purchase computer hardware and software support services from Virtual Care Provider, Inc., an affiliated subsidiary of Extendicare Inc. Expenses related to these services were $6.9 million and $7.9 million for 2003 and 2002, respectively.

Revenues in 2002 increased by $21.0 million, or 2.6%, to $815.1 million, from $794.1 million in 2001. The increase in revenues included a $56.1 million increase in revenues from skilled nursing and assisted living facilities and other businesses operated during both 2002 and 2001, or same facility operations, and an increase of $0.5 million from other revenue, partially offset by a decrease of $35.6 million in revenues from divested skilled nursing facilities.

Operating and general and administrative costs increased $6.8 million, or 1.0%, between years, of which $11.6 million was a decrease in expenses for general liability insurance and liability claims (primarily related to our divestiture of our Texas skilled nursing facilities) and $32.9 million related to reduced operating costs attributable to skilled nursing facilities divested during 2001. Operating and general and administrative costs on a same facility basis increased $51.3 million, or a 7.8%, and included increases of:

Depreciation and amortization decreased $3.2 million to $37.6 million for 2002 compared to $40.8 million for 2001. This decrease was primarily a result of a $2.4 million decrease relating to the adoption of SFAS No. 142, “Goodwill and Other Intangible Assets,” which requires that goodwill no longer be amortized to earnings. The remaining $0.8 million decrease was primarily a result of divestitures.

Lease costs decreased $3.9 million when comparing periods, including $2.0 million as a result of divestitures, $0.5 million as a result of the purchase of previously leased facilities and $1.4 million relating to other facilities that we continue to operate.

Interest expense, net of interest income, decreased $3.3 million to $32.3 million for 2002 compared to $35.6 million for 2001. This decrease was primarily due to (1) net interest income of $2.1 million from interest rate swaps and (2) lower market interest rates during 2002 prior to the issuance, on June 28, 2002, of our Senior Notes, the proceeds of which were used to refinance floating-rate debt. The decrease was also due to a reduction in the average debt level to $387.2 million during 2002 compared to $406.5 million during 2001, resulting from our use of divestiture proceeds and an income tax refund during 2001 to reduce bank debt balances. The weighted average interest rate of all long-term debt decreased to 7.81% during 2002 compared to 8.44% during 2001.

When our management commits us to a plan for disposal of assets, we adjust assets held for disposal to the lower of the assets’ carrying value or the fair value less selling costs. In September 2001, we formally decided to lease all owned, and sublease all leased, skilled nursing facilities in Texas. As a result of the transaction, and based on the terms of the lease with Senior Health-Texas, we recorded in 2001 a provision of $1.7 million for impairment of Texas skilled nursing properties in accordance with Statement of Financial Accounting Standards No. 121, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.”

Loss (Gain) on Disposal of Assets and Provision for Closure and Exit Costs and Other Items

For 2002, we recorded a gain on disposal of assets of $4.0 million relating to the sale of seven properties in Florida to Tandem and a provision for closure and exit costs of $5.3 million. The gain of $4.0 million includes a deferred gain of $2.2 million from the April 2001 sale of two other properties to Tandem. The provision for closure and exit costs related to an increase in the overall disposition reserve for cost report and other settlements with Florida and Texas and other Medicare fiscal intermediaries, collection of receivables, and settlement of claims with suppliers and employees.

For 2001, we recorded a loss on disposal of assets of $1.0 million and a provision for closure and exit costs and other items of $23.2 million. On September 30, 2001, we transferred all Texas skilled nursing facilities to Senior Health-Texas. As a result of the Texas transaction, as well as the closure and sale of one skilled nursing facility and two other properties in Wisconsin, we provided $3.7 million for related disposal and closure costs. We also made additional provisions of $20.5 million relating to previously ceased operations, including $19.0 million related to the skilled nursing facilities in Florida. This $19.0 million consisted of an $11.0 million provision related to Florida claims for years prior to 2001 based upon an actuarial review of resident liability costs, and an $8.0 million provision for Florida closure and exit costs.

The loss on early retirement of debt in 2002 of $2.8 million was due to the early extinguishment in June 2002 of our debt using proceeds from the issuance of the Senior Notes. The loss on early retirement

Income tax expense for 2002 was $3.1 million compared to an income tax benefit of $12.5 million for 2001. Our effective tax rate was 49.2% for 2002 as compared to 31.3% for 2001. The increase in the effective tax rate results from the impact of certain permanent adjustments that increased the effective rate when applied to pre-tax earnings compared to decreasing the effective rate when applied to pre-tax loss for 2001 and the reversal of current and prior year state deferred income tax benefits. When we assess the realizability of deferred tax assets, we consider whether it is more likely than not that some portion or all of the deferred tax assets will not be realized and record a valuation allowance, if required. The ultimate realization of deferred tax assets depends upon us generating future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies when we make this assessment.

Net earnings for 2002 were $3.2 million compared to a net loss of $27.5 million for 2001. Net earnings prior to loss (gain) on disposal of assets, provision for closure and exit costs and other items, loss on early retirement of debt and loss on impairment of long-lived assets, after applicable income tax effect, was $5.6 million for 2002 compared to a net loss of $11.0 million for 2001. The fluctuation was caused by the reasons noted above.

We insure certain risks, including comprehensive general liability, property coverage and excess workers’ compensation/employer’s liability insurance, with Laurier Indemnity Company and Laurier Indemnity Ltd., affiliated insurance subsidiaries of Extendicare Inc., our Canadian parent. We recorded approximately $9.9 million of expenses for this purpose for 2002 and $5.7 million for 2001.

Overview of Changes in Liquidity — Three Months Ended March 31, 2004 Compared to Three Months Ended March 31, 2003

We had cash and cash equivalents of $47.9 million at March 31, 2004 and $48.9 million at December 31, 2003. We generated cash flow of $18.5 million from operating activities for the 2004 quarter compared with $4.5 million in the 2003 quarter. We used cash flow of $7.2 million for investing activities in the 2004 quarter as compared to $4.4 million in the 2003 quarter. We used cash flow of $12.2 million for financing activities in the 2004 quarter as compared to providing cash flow of $0.4 million from financing activities in the 2003 quarter.

The increase in cash flow from operating activities of $14.0 million in the 2004 quarter compared to the 2003 quarter was primarily due to an improvement in earnings, the collection in the 2004 quarter of $6.1 million of Medicare settlement receivables, and a reduction of $2.5 million in payments for self-insured liabilities.

Our working capital decreased $0.7 million from $55.8 million at December 31, 2003 to $55.1 million at March 31, 2004.

Accounts receivable at March 31, 2004 were $93.9 million compared with $95.3 million at December 31, 2003, representing a decrease of $1.4 million. The reduction in accounts receivable included a $2.5 million decrease within the nursing operations offset by an increase of $1.0 million in interest income due from Greystone and a $0.1 million increase in outpatient therapy receivables. Within the nursing operations, billed patient care and other receivables increased $2.6 million while, based on Medicare and Medicaid cost reports, third-party payor settlement receivables decreased $5.1 million.

The decrease in settlement receivables of $5.1 million from December 31, 2003 to March 31, 2004 included decreases of $6.0 million from the collection of Medicare settlements and $2.3 million from the collection of Medicare co-insurance amounts. These decreases were partially offset by an increase of $2.7 million relating to revenue in the 2004 quarter for anticipated Medicare reimbursement for uncollectible co-insurance amounts and an increase of $0.5 million from Medicaid cost report settlements.

Property and equipment increased $0.9 million from December 31, 2003 to a total of $449.6 million at March 31, 2004. The increase was the result of (1) total capital expenditures of $10.7 million, which included $3.8 million from construction of new developments and $1.5 million from the February 2004 acquisition of a previously-leased nursing facility in Washington, plus (2) other items of $0.2 million. This increase was partially offset by depreciation expense of $8.4 million and a provision for impairment of long-lived assets of $1.6 million.

Total long-term debt, including both current and long-term maturities of debt, totaled $380.2 million at March 31, 2004. This represents a decrease of $12.7 million from December 31, 2003, including a decrease of $13.0 million due to the prepayment of Industrial Development Revenue Bonds.

Cash used in investing activities was $7.2 million for the 2004 quarter compared to $4.4 million for the 2003 quarter. The change of $2.8 million was due to payments for acquisitions of $2.1 million in the 2004 quarter, payments for new construction projects of $3.8 million in the 2004 quarter, an increase in the 2004 quarter compared to the 2003 quarter of $0.6 million in purchases of property and equipment, and an increase in other non-current assets of $0.7 million, partially offset by the collection of note receivables of $4.4 million.

Cash used in financing activities was $12.2 million for the 2004 quarter compared to $0.4 million provided from financing activities for the comparable 2003 quarter. The change of $12.6 million primarily related to a $13.0 million prepayment of Industrial Development Revenue Bonds.

Overview of Changes in Liquidity — Year Ended December 31, 2003 Compared To Year Ended December 31, 2002

We had cash and cash equivalents of $48.9 million at December 31, 2003 and $24.4 million at December 31, 2002. We generated cash flow of $56.0 million from operating activities for the year ended December 31, 2003 compared with $38.8 million in the comparable 2002 period and $82.6 million in 2001. We used cash flow of $26.8 million for investing activities in 2003 as compared to $22.4 million in 2002 and $16.8 million in 2001. We used cash flow of $4.8 million for financing activities in 2003 as compared to providing cash flow of $7.5 million from financing activities in 2002 and using cash flow of $66.6 million for financing activities in 2001. The table below sets forth a summary of the significant sources and uses of cash:

The increase in cash flow from operating activities of $17.2 million in 2003 compared to 2002 was primarily due to an improvement in earnings and changes in working capital of $12.3 million and a reduction of $4.9 million in payments for self-insured liabilities.

Our working capital increased $25.9 million from $29.9 million at December 31, 2002 to $55.8 million at December 31, 2003. The increase included a $24.5 million increase in cash and a $10.0 million decrease in the current portion of accrual for self-insured liabilities. These increases in working capital were partially offset by an $8.7 million decrease in amounts due from our shareholder and affiliates.

Accounts receivable at December 31, 2003 were $95.3 million compared with $96.0 million at December 31, 2002, representing a decrease of $0.7 million. The reduction in accounts receivable included a $1.7 million decrease in interest due from non-affiliated long-term care operators, offset by an increase of $0.6 million in outpatient therapy receivables and a $0.5 million increase within the nursing operations. Within the nursing operations, billed patient care and other receivables increased $5.8 million while third-party payor settlement receivables, based on Medicare and Medicaid cost reports, decreased $5.3 million.

The decrease in settlement receivables of $5.3 million from December 31, 2002 to December 31, 2003 included decreases of $3.9 million from collection of Medicare settlements, $7.6 million for collections of Medicare co-insurance amounts and a $4.3 million reclassification from Medicaid accrued liabilities. These decreases were partially offset by an increase of $10.5 million relating to revenue in the 2003 period for anticipated Medicare reimbursement for uncollectible co-insurance amounts.

Property and equipment decreased $4.4 million from December 31, 2002 to a total of $448.7 million at December 31, 2003. The decrease was the result of depreciation expense of $33.8 million and asset disposals of $0.1 million. These decreases were partially offset by total capital expenditures of $29.5 million, including $4.3 million from construction of new developments and $4.1 million from the acquisition of a skilled nursing facility in Wisconsin in December 2003.

Total long-term debt, including both current and long-term maturities of debt, totaled $392.9 million at December 31, 2003. This represents a decrease of $5.2 million from December 31, 2002, due to repayments of long-term debt.

Cash used in investing activities was $26.8 million for 2003 compared to $22.4 million for 2002. The change of $4.4 million was due to proceeds in 2002 from the sale of property and equipment of $14.3 million, a decrease in payments for acquisitions of $13.8 million when comparing periods, payments for new construction projects of $4.3 million in 2003, an increase in 2003 of $2.4 million in purchases of property and equipment and an increase in 2003 in the collection of other non-current assets of $2.8 million.

Cash used in financing activities was $4.8 million for 2003 compared to $7.5 million provided from financing activities for 2002. The change of $12.3 million primarily related to $4.5 million of early debt repayments in 2003 and the payoff of debt in June 2002 using proceeds from the issuance of new debt as described below.

The weighted average interest rate of all of our long-term debt (including the effects of the interest rate swap and cap agreements discussed below) was 7.70%, 7.52% and 7.71% as of March 31, 2004 and December 31, 2003 and December 31, 2002, respectively. Our long-term debt instruments have maturities ranging from 2004 to 2014.

On June 28, 2002, we refinanced all outstanding indebtedness under our then existing credit facility with the proceeds from the issuance of $150.0 million of our 2010 Senior Notes.

The subsidiary guarantees of the 2010 Senior Notes are full and unconditional, and joint and several, and any of our subsidiaries that do not guarantee the 2010 Senior Notes are minor. There are no significant restrictions on the ability of us to obtain funds from our subsidiaries by loan or dividend.

The indenture governing the 2010 Senior Notes contains customary covenants and events of default. Under this indenture, we are also restricted from incurring indebtedness if the fixed charge coverage ratio, determined on a pro forma basis, is less than or equal to 2.0 to 1. Our fixed charge coverage ratio is currently in excess of this minimum requirement. The fixed charge coverage ratio is defined under our 2010 Senior Notes agreement, and is represented by a ratio of consolidated cash flow to fixed charges. In general, fixed charges consist of interest expense, including capitalized interest, amortization of fees related to debt financing and rent expense deemed to be interest, and consolidated cash flow is net income prior to the aforementioned fixed charges, and prior to income taxes and losses on disposal of assets.

In October 2003, the 2010 Senior Notes were upgraded by Standard & Poor’s Ratings Services, or S&P, from “B-” to “B,” and the credit facility was upgraded from “BB-” to “BB.” In April 2004, the 2010 Senior Notes were upgraded by Moody’s Investors Service from “B2” to “B1.”

As of March 31, 2004, we had $200.0 million of 2007 Notes outstanding. The 2007 Notes are unsecured obligations subordinated in right of payment to all of our existing and future senior indebtedness, which includes all borrowings under our credit facility as well as all indebtedness not refinanced by our credit facility.

As of March 31, 2004, Extendicare Inc., our parent company, held $27.9 million of our 2007 Notes. These 2007 Notes were repaid on May 24, 2004. In October 2003, the 2007 Notes were upgraded by S&P from “CCC+” to “B-.”

As discussed in “Prospectus Summary — Recent Developments — Tender Offer/ Redemption and Sale and Issuance of 2014 Notes,” in connection with the sale and issuance of the 2014 Notes, we used the net proceeds therefrom, together with borrowings under our amended and restated credit facility to purchase for cash approximately $104.9 million aggregate principal amount of 2007 Notes validly tendered in the tender offer and to redeem any 2007 Notes not tendered in the tender offer or cancelled prior to May 24, 2004.

On June 28, 2002, we entered into a credit facility that provides senior secured financing of up to $105.0 million on a revolving basis. As of March 31, 2004, we did not have any borrowings outstanding under this credit facility, but we had $33.7 million of letters of credit outstanding thereunder. The credit facility will terminate on June 28, 2007. As of December 31, 2003 and continuing through March 31, 2004, based upon financial performance, borrowings drawn under the credit facility bear interest, at our option, at an annual rate equal to:


	•	Extendicare Holdings, Inc., our direct parent;

	•	each of our current and future domestic subsidiaries excluding certain inactive subsidiaries; and

	•	any other current or future foreign subsidiaries that guarantee or otherwise provide direct credit support for any U.S. debt obligations of ours or any of our domestic subsidiaries.

Our obligations under the credit facility are secured by a perfected, first priority security interest in certain of our tangible and intangible assets and all of our and our subsidiary guarantors’ capital stock. The credit facility is also secured by a pledge of 65% of the voting stock of our and our subsidiary guarantors’ foreign subsidiaries, if any. Our credit facility contains customary covenants and events of default and is subject to various mandatory prepayments and commitment reductions. The credit facility requires that we comply with various financial covenants, on a consolidated basis including:


	•	a minimum fixed charge coverage ratio of 1.10 to 1 and increasing to 1.20 to 1 in 2005;

	•	a minimum tangible net worth that started at 85% of our tangible net worth at March 31, 2002 and increases by 50% of our net income for each fiscal quarter plus 100% of any additional equity we raise;

	•	a maximum senior leverage ratio of 4.25 to 1 and reducing to 4.00 to 1 in 2005; and

	•	a maximum senior secured leverage ratio of 1.75 to 1 and reducing to 1.50 to 1 in 2005.

As discussed in “Prospectus Summary — Recent Developments — Amendment and Restatement of Credit Facility,” in connection with the sale and issuance of the 2014 Notes, we amended and restated our current credit facility to, among other things, extend its term by two years, until June 28, 2009, and provide an additional $50.0 million of senior secured financing on a revolving basis.

To hedge our exposure to fluctuations in the market value of the 2010 Senior Notes, we entered into a five-year interest rate swap agreement with a notional amount of $150.0 million. The agreement effectively converted up to $150.0 million of our fixed interest rate indebtedness into variable interest rate indebtedness. Under the terms of the interest rate swap agreement, the counterparty can call the swap upon 30 days notice.

Also in June 2002, we entered into a five-year interest rate cap agreement with a notional amount of $150.0 million. Under this cap agreement, we pay a fixed rate of interest equal to 0.24% and receive a variable rate of interest equal to the excess, if any, of the one-month LIBOR rate, adjusted monthly, over the cap rate of 7%. We use the interest rate cap to offset possible increases in interest payments under the interest rate swap agreement caused by increases in market interest rates over a certain level and also as a cash flow hedge to effectively limit increases in interest payments under our variable-rate debt obligations. Under the terms of the interest rate swap agreement, the counterparty can call the swap upon 30 days notice. For additional information regarding the termination of the interest rate swap and cap agreements, and the two new interest rate swap and cap agreements that we entered into, see “Events of 2004 — Subsequent to 2004 Quarter.”

As of March 31, 2004, we held cash and cash equivalents of $47.9 million. The majority of excess cash is held in Certificate of Deposits, or CDs, that are invested for periods of less than 90 days. We forecast on a regular basis monthly cash flows to determine the investment periods of CDs and monitor daily the incoming and outgoing expenditures to ensure available cash is invested on a daily basis.

We believe that our cash from operations and anticipated growth, together with other available sources of liquidity, including borrowings available under our credit facility, will be sufficient for the foreseeable future to fund anticipated capital expenditures and make required payments of principal and interest on our debt, including payments due on the notes and obligations under our credit facility.

As of December 31, 2003, principal payments on long-term debt due within the next five years and thereafter are as follows:

After giving effect to the April 2004 sale and issuance of the 2014 Notes, the repurchase or redemption of our 2007 Notes and anticipated borrowings under our amended and restated credit facility, long-term debt due in 2007 will decrease to $4.2 million, and long-term debt due after 2008 will increase to $326.7 million.

At December 31, 2003, we were committed to making the following minimum rental payments under non-cancelable operating leases:

Set forth below is a table showing the estimated timing of payments under the contractual obligations as of December 31, 2003:

After giving effect to the April 2004 sale and issuance of the 2014 Notes, the repurchase or redemption of our 2007 Notes and anticipated borrowings under our amended and restated credit facility, contractual obligations due in three to five years will decrease to $12.8 million, and contractual obligations due in more than five years will increase to $344.1 million.

At March 31, 2004, we made or were committed to make capital expenditures in respect of seven new developments, which will add 165 beds during 2004 and 2005. Two of these projects, adding 32 beds, were completed during the 2004 quarter. The total expected cost of these seven projects is $15.2 million, of which $4.3 million was expended in 2003, $3.6 million was expended 2004, and $6.8 million is committed to be expended on these projects. Approximately $0.5 million of the planned amounts for these projects has not yet been committed.

We also approved eight new assisted living facility developments that will add 329 units and have an approximate cost of $36.3 million. As of March 31, 2004, $0.2 million has been expended and $1.5 million is committed to be expended for these developments. These new developments are scheduled to open in 2005 and later.

At March 31, 2004, we accrued provisions for settlement of self-insured liabilities of $43.6 million in respect of general and professional liability claims. Claim payments were $3.1 million and $5.6 million for the 2004 quarter and 2003 quarter, respectively. The accrual for self-insured liabilities includes estimates of the cost of both reported claims and claims incurred but not yet reported. We exited the skilled nursing facility markets of the highly litigious States of Florida and Texas in 2000 and 2001, respectively. As a result, accruals for general and professional liabilities have declined significantly from the 2001 level. We estimate that $18.0 million of the total $43.6 million liability will be paid within the next fiscal year. The timing of payments is not directly within our control, therefore estimates are subject to change in the future. We believe we have provided sufficient provisions as of March 31, 2004.

We use interest rate swaps to hedge the fair value of our debt obligations and interest rate caps as a cash flow hedge of our variable-rate debt and also to offset possible increases in variable-rate payments under our interest rate swap related to increases in market interest rates.

We also have market risk relating to investments in stock and stock warrants that we obtained in connection with the 1998 sale of our pharmacy operations. In effect, these holdings can be considered contingent purchase price proceeds whose value, if any, may not be realized for several years. These stock and warrant holdings are subject to various trading and exercise limitations. We intend to hold them until we believe the market opportunity is appropriate to trade or exercise the holdings.

We monitor the markets to adequately determine the appropriate market timing to sell or otherwise act with respect to our stock and warrant holdings in order to maximize their value. With the exception of the above holdings, we do not enter into derivative instruments for any purpose other than cash flow hedging purposes. That is, we do not speculate using derivative instruments and do not engage in trading activity of any kind.

The table below presents principal, or notional, amounts and related weighted average interest rates by year of maturity for our debt obligations and interest rate swaps as of March 31, 2004:

The above table incorporates only those exposures that existed as of March 31, 2004 and does not consider those exposures or positions that could arise after that date or future interest rate movements. As a result, the information presented above has limited predictive value. Our ultimate results with respect to interest rate fluctuations will depend upon the exposures that occur, our hedging strategies at the time and interest rate movements.

As a result of our April 2004 sale and issuance of the 2014 Notes, our termination of our existing interest rate swap and cap agreements, our entering into two new interest rate swap agreement and two new interest rate cap agreements, and our amending and restating our credit facility, the percentage of fixed to variable rate debt will change.

Our consolidated financial statements have been prepared in conformity with GAAP. For a full discussion of our accounting policies as required by GAAP, refer to the accompanying notes to the consolidated financial statements. We consider the accounting policies discussed below to be critical to an understanding of our financial statements because their application requires significant judgment and reliance on estimations of matters that are inherently uncertain. Specific risks related to these critical accounting policies are described below.

Revenues and Accounts Receivable. We derive our revenues primarily from providing long-term healthcare services in the skilled nursing and assisted living facilities we operate. Skilled nursing facility revenue results from the payment for services and products from federal and state-funded cost reimbursement programs as well as private pay residents. More than 75% of our skilled nursing facility revenues are derived from services provided under various federal or state medical assistance programs. We derive assisted living facility revenue primarily from private pay residents in the period in which we provide services and at rates we establish based upon the services provided and market conditions in the area of operation.

We recognize skilled nursing facility revenues in the period in which we provide services and/or deliver products at established rates less contractual adjustments. Contractual adjustments include differences between our established billing rates and amounts estimated by management as reimbursable under various reimbursement formulas or contracts in effect. Estimation differences between final settlements and amounts recorded in previous years are reported as adjustments to revenues in the period such settlements are determined. Due to the complexity of the laws and regulations governing the federal and state reimbursement programs, there is a possibility that recorded estimates may change by a material amount.

We record accounts receivable at the net realizable value we expect to receive from federal and state reimbursement programs, other third-party payors or individual residents. We also estimate which receivables may be collected within one year and reflect those not expected to be collected within one year as non-current. We continually monitor and adjust our allowances associated with these receivables. We record allowances for bad debts from other third-party payors or from individual patients based upon a specific assessment of an account’s collection risk and our historical experience by payor type. If circumstances change, for instance due to economic downturn, resulting in higher than expected defaults or denials, our estimates of the recoverability of our receivables could be reduced by a material amount. Our allowance for doubtful accounts for current accounts receivable totaled $12.2 million at March 31, 2004 and $11.7 and $9.3 million at December 31, 2003 and 2002, respectively.

Medicare and Medicaid Settlement Receivables. For Medicare revenues earned prior to the implementation of PPS and Medicaid programs with a retrospective reimbursement system, differences between revenues that we ultimately expect to realize and amounts received are reflected as settlement accounts receivable, or as accrued liabilities when payments have exceeded revenues that we ultimately expect to realize.

The Medicare program, prior to January 1, 1999, was a cost-based reimbursement program under which skilled nursing facilities received interim payments for each facility’s respective reimbursable costs, which could be subject to adjustment based upon the submission of a year-end cost report and certain cost limits. The year-end cost report would be subject to audit by our FI and could lead to ongoing discussions with the FI, which are normally resolved during the audit process, and therefore, no provisions are required. For unresolved items involving differences of opinion, such items can be settled through a formal appeal process, which results in the provider filing an appeal with the PRRB of the CMS. Should this occur, a general provision for Medicare receivables may be provided for disagreements.

Similarly for states that operate under a retrospective reimbursement system under which interim payments are subject to audits, we have to evaluate and determine the amount of potential settlement accounts receivable or payable.

We periodically review the settlement accounts receivable and the general contractual allowance for settlement of amounts in dispute and adjust the balances accordingly based upon known facts at the time. An adjustment to settlement receivable amount and recorded revenues would occur upon resolution of issues in dispute or upon issues being settled at the PRRB. Since certain issues are significant in amounts, the resolution could have a material impact on our financial statements. In addition, we estimate the portion of the Medicaid and Medicare accounts receivable that are collectible within the next 12 months

and classify this amount as a current asset. Accounts receivable from both Medicare and Medicaid state programs, net of a general contractual allowance, totaled $32.1 million as of March 31, 2004 and $37.2 million and $46.3 million as of December 31, 2003 and 2002, respectively. Of the total net Medicare and Medicaid settlement receivable balance as of March 31, 2004, $6.2 million is expected to be substantially collected within one year and included within accounts receivable as a current asset. Our contractual allowance for current and non-current Medicare and Medicaid settlement accounts receivable totaled $14.0 million as of March 31, 2004 and $14.0 million and $15.4 million as of December 31, 2003 and 2002, respectively.

We record property and equipment at cost less accumulated depreciation and amortization. We depreciate and amortize these assets using a straight-line method based upon the estimated lives of the assets. Goodwill represents the cost of the acquired net assets in excess of their fair market values. Effective January 1, 2002, we adopted SFAS No. 142 and no longer amortize goodwill and intangible assets with indefinite useful lives. Instead, we test for impairment at least annually, whereas prior to 2002, these assets were amortized using a straight-line method over a period of no more than 40 years. Other intangible assets, consisting of the cost of leasehold rights, are deferred and amortized over the term of the lease including renewal options. We periodically assess the recoverability of long-lived assets, including property and equipment, goodwill and other intangibles, when there are indications of potential impairment based upon the estimates of undiscounted future cash flows. The amount of any impairment is calculated by comparing the estimated fair market value with the carrying value of the related asset. We consider such factors as current results, trends and future prospects, current market value and other economic and regulatory factors in performing these analyses.

A substantial change in the estimated future cash flows for these assets could materially change the estimated fair values of these assets, possibly resulting in an additional impairment. Changes that may impact future cash flows include, but are not limited to, competition in the marketplace, changes in Medicare and Medicaid rates, increases in wages or other operating costs, increased litigation and insurance costs and increased operational costs resulting from changes in legislation and regulatory scrutiny. As detailed in Note 14 to our consolidated financial statements, losses from asset impairments and disposals and provisions for closure and exit costs and other items have totaled $1.3 million and $25.9 million in 2002 and 2001, respectively.

Insurance coverage for patient care liability and other risks has become increasingly difficult to obtain. We insure certain risks with affiliated insurance subsidiaries of Extendicare Inc. and third-party insurers. The insurance policies cover comprehensive general and professional liability, property coverage, workers’ compensation and employer’s liability insurance in amounts and with such coverage and deductibles as we deem appropriate, based on the nature and risks of our business, historical experiences, availability and industry standards. We self-insure for health and dental claims, in certain states for workers’ compensation and employer’s liability, and since January 2000, for general and professional liability claims.

We accrue our self-insured liabilities based upon past trends and information received from an independent actuary. We regularly evaluate the appropriateness of the carrying value of the self-insured liabilities through an independent actuarial review. Our estimate of the accrual for general and professional liability costs is significantly influenced by assumptions, which are limited by the uncertainty of predicting future events and assessments regarding expectations of several factors. Such factors include, but are not limited to: the frequency and severity of claims, which can differ materially by jurisdiction; coverage limits of third-party reinsurance; the effectiveness of the claims management process; and the outcome of litigation.

Changes in our level of retained risk, and other significant assumptions that underlie our estimate of self-insured liabilities, could have a material effect on the future carrying value of the self-insured

liabilities. For example, in 2000, we experienced adverse claims development. In 2000, our per claim retained risk increased significantly for general and professional liability coverage mainly due to the level of risks associated with our Florida and Texas operations. We no longer operate skilled nursing or assisted living facilities in Florida or nursing operations in Texas. However, as a result of the increase in the frequency and severity of claims, in 2001, we recorded a provision of $29.2 million for resident care liability including an $11.0 million provision relating to disposed operations. Our accrual for self-insured liabilities totaled $43.6 million as of March 31, 2004 and $45.1 million and $55.1 million as of December 31, 2003 and 2002, respectively.

Our results of operations are included in the consolidated federal tax return of Extendicare Holdings, Inc., our U.S. parent company. Accordingly, federal current and deferred income taxes payable (or receivable) are transferred to our parent company. Deferred tax assets and liabilities are recognized to reflect the expected future tax consequences attributed to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. We measure deferred tax assets and liabilities using enacted tax rates expected to apply to taxable income in the years in which we expect those temporary differences to be recovered or settled. We establish a valuation allowance based upon our estimate of whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon us generating future taxable income during the periods in which those temporary differences become deductible. We consider the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Our valuation allowance for net state deferred tax assets totaled $19.0 million as of March 31, 2004 and $19.0 million and $21.0 million as of December 31, 2003 and 2002, respectively.

According to CMS, total healthcare spending is expected to grow at an annual rate of 7.3% from 2002 through 2013. By these estimates, healthcare expenditures will account for $3.4 trillion, or 18.4% of the gross domestic product by 2013. Skilled nursing facility expenditures were approximately $103.7 billion in 2002, or 6.6% of total healthcare spending, representing one of the largest components of national healthcare spending. The spending related to skilled nursing facilities is expected to grow at an annual rate of 7.4% through 2013.

The long-term care industry is changing as a result of several fundamental factors, which we believe we can capitalize on. These factors include:

Aging Population. The aging of the U.S. population is a leading driver of demand for long-term care services. According to the 2000 census conducted by the U.S. Census Bureau, there were approximately 34.4 million Americans aged 65 or older, representing 12.6% of the total U.S. population. The U.S. Census Bureau has forecasted that the population of Americans aged 65 or older will increase to 53.2 million by 2020, representing 16.4% of the total U.S. population, and 78.8 million in 2050, representing 20% of the total U.S. population. Based upon these projections, the annual growth rate for persons over 65 will be 2.6% through 2020, and 1.8% through 2050, whereas the annual growth rate for persons over 85 will be 2.6% through 2020, and 6.6% through 2050. According to the August 2003 MetLife Market Survey of Nursing Home Report, or MetLife report, in 2000, approximately 1.6 million, or 4.5%, of all persons aged 65 and over were living in a skilled nursing facility. This number is expected to increase to approximately 6.6 million, or 8.4%, of all persons aged 65 by the year 2050.

Cost Containment Pressures. According to the MetLife Report, the remaining life expectancy of a male age 65 has increased to 16.3 years in 2002 from 12.7 years in 1942, and the remaining life

expectancy of a female age 65 has increased to 19.2 years in 2002 from 14.7 years in 1942. As the number of people over age 65 continues to grow and as advances in medicine and technology continue to increase life expectancies, the likelihood of chronic conditions requiring treatment, and the resulting healthcare costs, are expected to rise faster than the availability of resources from government-sponsored healthcare programs. In response to such rising costs, governmental and private pay sources in the United States have adopted cost containment measures that encourage reduced lengths of stay in acute care hospitals. As a result, average acute care hospital stays have been shortened, and many patients are discharged despite a continuing need for nursing or specialty healthcare services, including a higher degree of monitoring, intensive and specialized medical care, 24-hour per day nursing services and a comprehensive array of rehabilitative therapies. This trend has increased demand for long-term care, home healthcare, outpatient facilities, hospices and assisted living facilities. We believe that long-term care companies with information systems to process clinical and financial data, an integrated network and a broad range of services will be in a good position to contract with managed care or other payors.

Changing Family Dynamics. As a result of the growing number of two-income families, in our opinion the immediate family has become less of a primary source of care-giving for the elderly. Women, who under more traditional roles were viewed as the primary caretakers of the family, have moved back into the workforce in increasing numbers as evidenced through their labor participation rates increasing from 38% in 1963 to 59% in 1998. At the same time, two-income families are better able to provide financial support for elderly parents to receive the care they need in a skilled nursing or assisted living facility.

the development of seven projects that will expand several facilities (125 beds) and add one free-standing assisted living facility (40 units), acquired one skilled nursing facility (99 beds) and approved eight future development projects that will expand or add to our assisted living facilities (329 units). During the three months ended March 31, 2004, we completed two of the seven projects that we commenced in 2003, which increased our operational capacity at one skilled nursing facility and one assisted living facility. We intend to continue to focus on operating and managing long-term care facilities. In addition, we plan to continue to review the performance of our current facilities and exit markets or sell facilities that do not meet our performance goals. At the present time, we have no significant divestiture plans.


	•	refurbish facilities to meet changing consumer demands;

	•	add assisted living and retirement facilities adjacent to our skilled nursing facilities;

	•	adjust licensed capacity to avoid occupancy-based rate penalties;

	•	divest facilities and exit markets at our discretion; and

	•	more directly control our occupancy costs.


	•	improving census, particularly increasing our Medicare census;

	•	increasing cash flow from operations through expedited billing and collections and other initiatives;

	•	improving earnings from operations through control of labor and other costs; and

	•	diversifying within the long-term care industry through expansion of facilities under management and consulting agreements and expansion of our rehabilitation clinics.

For the three months ended March 31, 2004, total average daily census, or ADC, was 12,880, resulting in an occupancy rate of 91.2% for our skilled nursing facilities compared to an ADC of 12,875 and a 91.3% occupancy rate for our skilled nursing facilities for the same period in 2003, on a same facility basis. For the year ended December 31, 2003, total ADC increased to 12,901, resulting in an occupancy rate of 91.5% for our skilled nursing facilities. Total ADC was 1.4% higher in 2003 than the total ADC in 2002 of 12,727 (occupancy rate of 90.3%) and 3.5% higher than the total ADC in 2001 of 12,465 (occupancy rate of 87.8%), on a same facility basis. For the three months ended March 31, 2004, our Medicare ADC increased to 2,206, resulting in the percentage of Medicare residents to total residents of 17.1%. Medicare ADC increased 12.2% from the 1966 Medicare ADC for the same period last year, on a same facility basis. For 2003, Medicare ADC increased to 1,997, resulting in a percentage of Medicare to total residents of 15.5%. Medicare ADC increased 17.5% in 2003 from 1,699 in 2002 and increased 39.9% from 1,427 in 2001, on a same facility basis. Assisted living facilities occupancy increased to 86.7% for the three months ended March 31, 2004, compared to 85.5% for the same period in 2003. Assisted living facilities occupancy increased to 86.7% for the three months ended March 31, 2004, compared to 85.5% for the same period in 2003. Assisted living facilities occupancy increased to 86.3% in 2003 compared to 83.9% in 2002 and 83.1% in 2001.

Cash flow from operations was $18.5 million for the three months ended March 31, 2004 as compared to $4.5 million for the same period in 2003. This increase was primarily due to an improvement in earnings, the collection of $6.1 million of Medicare settlement receivables and a reduction of $2.5 million in payments for self-insured liabilities. Cash flow from operations was $56.0 million for the year ended December 31, 2003 as compared to $38.8 million for the year ended December 31, 2002 and $82.6 million for the year ended December 31, 2001. Cash flow from operations in 2001 included an income tax recovery of $22.5 million and a lower level of payments for self-insured liability claims than in 2003 and 2002. Through consistent emphasis on admissions protocols, attention to older and larger account balances and proactive collection efforts at regional and head offices, we have improved our accounts receivable management. Average days of revenues outstanding decreased to approximately 40 days in 2003, compared to approximately 43 days in 2002 and approximately 45 days in 2001. As of March 31, 2004, average days of revenues outstanding decreased to approximately 37 days compared to approximately 40 days for the same period in 2003.

We monitor earnings from operations by focusing on EBITDA (as defined in “— Summary Consolidated Historical Financial and Operating Data”) and EBITDA expressed as a percentage of total revenues. EBITDA increased to $32.3 million during the three months ended March 31, 2004 compared to $20.8 million during the three months ended March 31, 2003. EBITDA increased to $99.3 million during the year ended December 31, 2003, compared to $80.4 million during the year ended December 31, 2002 and $62.4 million during the year ended December 31, 2001, and EBITDA as a percentage of total revenues increased to 11.4% in 2003, compared to 9.9% in 2002 and 7.8% in 2001. The improvement in EBITDA resulted primarily from the implementation of a variety of strategies to control labor costs and minimize the use of temporary staff. Regular wages as a percentage of total revenues decreased to 43.8% for the three months ended March 31, 2004 compared to 45.3% for the year ended December 31, 2003, 46.5% for the year ended December 31, 2002 and 46.8% for the year ended December 31, 2001, while temporary wages as a percentage of total revenues decreased to 0.3% for the three months ended March 31, 2004 compared to 0.4% for the year ended December 31, 2003, 1.2% for the year ended December 31, 2002 and 2.5% for the year ended December 31, 2001. We also improved our level of Part B Medicare revenues and increased Medicaid and Medicare rates through the admission of residents with higher levels of acuity.

competencies and will drive growth without requiring substantial capital expenditures. In the year ended December 31, 2003, we continued to increase the number of facilities under management or consulting service agreements bringing the total number of facilities under such agreements to 82, compared to 61 in the year ended December 31, 2002 and 58 in the year ended December 31, 2001. As of the three months ended March 31, 2004, we had 84 facilities under management or consulting service agreements.

We have centralized various functions, which are provided from our corporate office, and direct our operations from five regional offices in close proximity to our facilities. The regional office staff are responsible for overseeing all operational aspects of our facilities, including resident care, rehabilitative services, recruitment and personnel matters, compliance with state regulatory requirements, marketing and sales activities, internal control and accounting support and participation in state associations. At our corporate offices, staff members are responsible for the development and implementation of corporate-wide policies pertaining to resident care, employee hiring, training and retention, marketing initiatives and strategies, accounting and finance functions, including billing and collection, accounts payable, payroll, general finance and accounting, tax planning and compliance, and providing overall strategic direction.

Our operations are organized into a number of different direct and indirect wholly owned subsidiaries. Operating policies and procedures are substantially the same in each subsidiary. Several of our subsidiaries own and operate a significant number of our total portfolio of facilities. No single facility generates more than 2% of total revenues. Our skilled nursing facility operations represent the largest portion of our business, comprising more than 92% of our revenues. Below is a summary of each of our business operations.

We provide a broad range of long-term nursing care, including skilled nursing services, subacute care and rehabilitative therapy services, to assist patients in the recovery from acute illness or injury. We provide nursing care and therapy services to persons who do not require the more extensive and specialized services of a hospital. Our skilled nursing facilities employ registered nurses, licensed practical nurses, therapists, certified nursing assistants and qualified healthcare aides who provide care as prescribed by each resident’s attending physician. All of our skilled nursing facilities provide daily dietary services, social services and recreational activities, as well as basic services such as housekeeping and laundry.

In our assisted living facilities, we provide residential accommodations, activities, meals, security, housekeeping and assistance in the activities of daily living to seniors who require some support, but not the level of nursing care provided in a skilled nursing facility. Our retirement communities provide activities, security, transportation, special amenities, comfortable apartments, housekeeping services and meals. Our assisted living facilities enhance the value of an existing skilled nursing facility in situations where the two facilities operate side by side. This allows us to better serve the communities in which we operate by providing a broader continuum of services. Most of our assisted living facilities are within close proximity to our skilled nursing facilities.

The term “assisted living facility” encompasses a broad spectrum of senior living services and care options, which include independent living, assisted living and different levels of skilled nursing care. Independent living is designed to meet the needs of seniors who choose to live in an environment surrounded by their peers where they receive services such as housekeeping, meals and activities but are not reliant on assistance with activities of daily living (for example, bathing, eating and dressing). Assisted living meets the needs of seniors who seek housing with supportive care and services or who are receiving rehabilitative services. We offer both independent living and assisted living services in our assisted living facilities.

We apply our operating expertise and knowledge in long-term care by providing either full management services or selected consulting services to third parties.

Through our wholly owned subsidiary, Partners Health Group, LLC, we provide full management services utilizing our experienced professionals who have considerable knowledge and expertise in both the operational and administrative aspects of the long-term care industry. Under our full management contracts, we consult on all aspects of operating a long-term care facility, including the areas of nursing, dietary, laundry and housekeeping. Contracts are generally structured on a fee-for-service basis and generally have terms ranging from one to five years.

Through our wholly owned subsidiary, Fiscal Services Group, LLC, we provide selected consulting services, which include selected accounting or cost reimbursement services. Accounting services can include billing, accounts receivable tracking, payroll, invoice processing, financial reporting, tax and cost reimbursement services. Contracts are generally structured on a fee-for-service basis and generally have terms ranging from one to five years.

In addition, Virtual Care Provider, Inc., a wholly owned subsidiary of our Canadian parent, Extendicare Inc. provides information technology services to us and unrelated third parties on a fee-for-services basis.

Through Extendicare Health Network, Inc., one of our wholly owned subsidiaries, we provide purchasing services for skilled nursing facilities in numerous states, as well as to the facilities we own or manage. We offer substantial cost reductions for members of the purchasing group through the contractual

We operate rehabilitative therapy clinics within three wholly owned subsidiaries, The Progressive Step Corporation, Health Poconos, Inc. and Adult Services Unlimited, Inc. As of March 31, 2004, we operated 24 outpatient rehabilitation clinics: 12 in Pennsylvania, one in Ohio, two in Texas and nine in Wisconsin. These clinics provide services to outpatients requiring physical, occupational and/or speech-language therapy. In addition, our Pennsylvania clinics provide respiratory and psychological and social services.

We provide rehabilitative therapy services on both an inpatient and outpatient basis. We have expanded all of our skilled nursing facilities’ therapy units, with some facilities offering 1,500 to 5,000 square feet of therapy space. We have developed therapy programs to provide patient-centered, outcome-oriented subacute and rehabilitative care. At the majority of our facilities, we employ physical, occupational and/or speech-language therapists who provide rehabilitative therapy services to both inpatient and outpatient clients.


	•	personal contacts that we have in the long-term care industry;

	•	information made available to us and that we make available to others through state and nationally-based associations; and

	•	investment and financing firms and brokers.

All acquisitions and undertakings of new contracts for management and consulting services involve a process of due diligence in which the operational, building and financial aspects of the transactions are investigated.

We estimate that, for skilled nursing facilities only, Medicare and Medicaid accounted for approximately 32.7% and 49.5% of our revenues, respectively, for the 2004 quarter compared to 28.8% and 52.6% of revenues for the 2003 quarter. These payors have set maximum reimbursement levels for payments for nursing services and products. The healthcare policies and programs of these agencies have been subject to changes in payment methodologies during the past several years. There can be no assurance that future changes will not reduce reimbursements for nursing services from these payors. Below is a description of each of the major payors.

Medicaid. Medicaid is a state-administered program financed by state funds and matching federal funds, providing health insurance coverage for certain persons in financial need, regardless of age, and that may supplement Medicare benefits for financially needy persons aged 65 and older. Medicaid reimbursement formulas are established by each state with the approval of the federal government in accordance with federal guidelines. Generally, 50% of the funds available under these programs are provided by the federal government under a matching program. Medicaid programs currently exist in all of the states in which we operate skilled nursing facilities. These programs vary in certain respects from state to state.

In August 1997, the Budget Act was signed into law and broadened the authority of states to develop their own standards for the establishment of rates. The law requires each state to use a public process for establishing proposed rates whereby the methodology and justification of rates used are available for public review and comment. Due to the economic slowdown and costs attributable to September 11, 2001, many states have had to restrain their budgets, of which Medicaid represents a significant portion.

The states in which we operate currently use cost-based or price-based reimbursement systems. Under cost-based reimbursement systems, the facility is reimbursed for the reasonable direct and indirect allowable costs it incurs in providing routine resident care services as defined by the program. In certain states, efficiency incentives are provided and facilities may be subject to cost ceilings. Reasonable costs normally include certain allowances for administrative and general costs, as well as the cost of capital or investment in the facility, which may be transformed into a fair rental or cost of capital charge for property and equipment. The price-based or modified price-based systems pay a provider at a certain payment rate irrespective of the provider’s cost to deliver the care. Price-based or modified price-based systems may use various methods, such as state averages from a specific base year, to determine the base cost, which could be subject to inflationary increases.

The reimbursement formulas employed by the state may be categorized as prospective or retrospective in nature. Under a prospective cost-based system, per diem rates are established based upon the historical cost of providing services during a prior year, adjusted to reflect factors such as inflation and any additional service required to be performed. Many of the prospective payment systems under which we operate contain an acuity measurement system, which adjusts rates based on the care needs of the resident. Retrospective systems operate similar to the pre-PPS Medicare program where skilled nursing facilities are paid on an interim basis for services provided, subject to adjustments based on allowable costs, which are generally submitted on an annual basis.

Medicare — Part A and Part B. Medicare is a federally funded health-insurance program providing health insurance coverage for persons aged 65 and older, who have been disabled for at least two consecutive years or who have end-stage renal disease. Medicare provides health insurance benefits in two parts:


	•	Part A — Hospital insurance, which provides reimbursement for inpatient services for hospitals, skilled nursing facilities and certain other healthcare providers and patients requiring daily professional skilled nursing and other rehabilitative care. Coverage in a skilled nursing facility is limited for a period up to 100 days, if medically necessary, after a qualifying hospital stay. Medicare pays for the first 20 days of stay in a skilled nursing facility in full and the next 80 days above a daily coinsurance amount, after the individual has qualified for Medicare coverage by a three-day hospital stay.

	•	Part B — Supplemental Medicare insurance, which requires the beneficiary to pay monthly premiums will cover physician services and other outpatient services, such as physical, occupational and speech therapy services, enteral nutrition, certain medical items and X-ray services received outside of a Part A covered inpatient stay.

Under Medicare — Part A, the skilled nursing facility is reimbursed based upon the acuity level of the Medicare resident. Acuity is determined by classifying the resident into one of 44 resource utilization grouping categories based upon the nature of the resident’s condition and services needed. CMS adjusts the Medicare rates for the 44 resource utilization grouping categories on an annual basis on October 1 each year and inflates the resource utilization grouping rates based upon an inflation factor referred to as the “market basket.” Whereas under Medicare — Part B, the skilled nursing facility is reimbursed based upon defined “fees screen” rates established by CMS.

Private Pay and Other. Private pay and other sources consist of individuals or parties with contractual obligations to the residents such as private insurance companies, HMOs, PPOs, other charge-based payment sources, HMO Medicare risk plans, Blue Cross and the Department of Veterans Affairs.

Assisted living facility revenue is primarily derived from private pay residents at rates we establish based upon the services we provide and market conditions in the area of operation. Approximately 40 states provide or have approval to provide Medicaid reimbursement for board and care services provided in assisted living facilities.

We derive outpatient therapy revenues by providing rehabilitation therapy services to outside third parties at our clinics. The revenue sources are primarily HMO’s and commercial insurance (31%), workers compensation (24%), Medicare (21%), Medicaid (10%) and other sources, including self-pay clients (14%).

Management and consulting fees are paid directly from the long-term care organizations with which we contract to provide services.

Our “Commitment to Residents” emphasizes our corporate-wide philosophy of treating residents with dignity and respect, a philosophy that we implement and monitor through rigorous standards that we periodically assess and update.

We have established a Medical Advisory Board, which is comprised of a medical director representing each of our regions. The purpose of the Medical Advisory Board is to review and attest to our key clinical protocols, to review and clarify roles and responsibilities of medical directors at our facilities and to improve communication between medical directors and our facilities.

Our corporate clinical services department establishes corporate nursing and quality of life standards, monitors issues and trends in the industry and implements our policies and procedures. Training programs are developed at the corporate level and implemented throughout the company as required. In addition, the corporate clinical services department conducts, as required, periodic pre-survey and post-survey reviews.

At a regional level, our area directors of care management lead a department that is primarily responsible for establishing care and service standards, policies and procedures and auditing care and service delivery systems. They also provide direction and training for all levels of the staff within the skilled nursing facilities and assisted living facilities. Our area directors of care management develop programs and standards for all professional disciplines and services provided to our customers, including nursing, dietary, social services, activities, ethical practices, mental health services, behavior management, quality validation and continuous quality improvement.

We participate on a national level in the Quality First Initiative, which is voluntary national program whose members include major long-term care providers. The objectives of the Quality First Initiative are to discuss and promote awareness to assist members adhere to current regulations, promote clinical outcomes and improve consumer satisfaction and publicly demonstrate our commitment to quality care.

Employee training at all levels is an integral part of our on-going efforts to improve and maintain our service quality. Each new skilled nursing facility administrator and assisted living facility manager or director of nursing is required to attend a week of company-provided training to ensure that he or she understands all aspects of skilled nursing facility operations, including clinical, management and business operations. We conduct additional training for these individuals and all other staff on a regional or local basis. For department heads and senior professional nursing staff, we provide a modular based supervisory training program, which is taken over a twelve-month period and is conducted within each of our facilities.

As of March 31, 2004, we employed approximately 18,500 people, including approximately 3,600 registered and licensed practical nurses, 7,300 nursing assistants, 2,000 therapists, 4,200 dietary, domestic, maintenance and other staff and 1,400 administrative employees who work at our corporate offices and facilities. As one of the largest employers within the long-term care industry, we have been subject to the organizational efforts of certain unions. As of March 31, 2004, approximately 11% of our employees located in 33 of our skilled nursing and assisted living facilities are represented by various labor unions.

We have approximately 36 collective bargaining agreements, 25 of which expire within 12 months of June 1, 2004, among seven unions covering approximately 2,100 employees. To date, our facilities have never experienced any material work stoppage, and we believe that we have a good relationship with all of our employees. However, we cannot predict the effect continued union representation or organization activities will have on our future operations.

The national shortage of nurses and other trained personnel have required us to adjust our wage and benefits packages to compete in the healthcare marketplace. We compete for such employees with other healthcare providers within the long-term care industry and the broader healthcare sector. We also compete with various industries for certified nursing assistants and other lower-wage employees. We have been successful in reducing the level of temporary staff, for which we have to pay a premium and may reduce the quality of care. However, we continue to face challenges in recruiting and retaining qualified personnel. We also are subject to increasing levels of reference checks and criminal background checks on our hired staff to ensure that they are suitable for the functions they will perform within our facilities. Our inability to control labor availability and costs could have a material adverse effect on our future operating results.

Most of our long-term care facilities are located in smaller urban communities. We focus our marketing efforts predominantly at the local level. We believe that residents selecting a long-term care facility are strongly influenced by word-of-mouth and referrals from physicians, hospital discharge planners, community leaders, neighbors and family members. The administrator of each long-term care facility is, therefore, a key element of our marketing strategy. Each administrator is responsible for developing relationships with potential referral sources. Administrators are supported by a regional team of marketing personnel who establish the overall marketing strategy, develop relationships with HMO and PPO organizations and provide marketing direction with training and community specific promotional materials. Our goal is to be the provider of choice in the communities we serve.

The long-term care industry in the United States is highly competitive with companies offering a variety of similar services. We face local and regional competition from other healthcare providers, including for-profit and not-for-profit organizations, hospital-based nursing units, rehabilitation hospitals, home health agencies, medical supplies and services agencies and rehabilitative therapy providers. Newer assisted living facilities may attract potential and existing residents. Significant competitive factors affecting the placement of residents in skilled nursing and assisted living facilities include quality of care, services offered, reputation, physical appearance, location and, in the case of private-pay residents, cost of the services.

Our group purchasing and management and consulting services groups compete with similar operations in the long-term care industry.

We also compete with other providers in the acquisition and development of additional facilities. Other competitors may accept a lower rate of return, and therefore, present significant price competition. Also, tax-exempt not-for-profit organizations may finance acquisitions and capital expenditures on a tax-exempt basis or receive charitable contributions unavailable to us.

At March 31, 2004, we operated 174 long-term care facilities with 15,932 beds in 13 states, of which 140 were skilled nursing facilities with 14,217 beds and 34 were assisted living facilities with 1,715 units. We also managed 12 long-term care facilities with 969 beds, of which 7 were skilled nursing facilities with 813 beds and five were assisted living facilities with 156 units. In addition, we provided consulting services for 72 long-term care facilities with 8,839 beds. We also owned long-term care properties of which 10 were skilled nursing properties with 1,065 beds that were leased and operated by unrelated skilled nursing facility providers. We also retained an interest in, but did not operate, 11 nursing properties with 1,435 beds and four assisted living properties with 135 units. At March 31, 2004, we also operated 24


(1)	Options exercisable solely by us range from one to nine years, the average being four years. We retain an option to purchase the leased property for five of the 11 leased properties. For lease payment information, please see Note 15 to our consolidated financial statements.

(2)	Consulting services provided to the facilities listed include billing, accounts receivable tracking, invoice processing, payroll, financial reporting and cost reimbursements services.

(3)	We own 10 skilled nursing properties held under lease arrangements with two unrelated long-term care operators whose terms include an option to purchase the properties. Senior Health Properties — South, Inc. leases six properties whose terms mature on December 31, 2006. Senior Health Properties — Texas, Inc. leases four properties whose terms mature on September 30, 2006. In addition, Senior Health Properties — Texas, Inc. subleases 12 leased facilities whose terms mature in February 2012. The facilities we lease to Senior Health Properties — South, Inc. and Senior Health Properties — Texas, Inc. are included in the facilities for which we provide consulting services.

(4)	As of March 31, 2004, we retained an interest in 11 skilled nursing facilities with 1,435 beds and four assisted living facilities with 135 units in Florida pursuant to the Greystone divestiture agreement. Pursuant to this agreement we retain contingent consideration in the form of a $10.0 million Vendor Take Back Note and two other contingent interest bearing notes, which have an aggregate potential value of up to $30.0 million plus interest. See Note 5 to our consolidated financial statements.

The number of skilled nursing beds and assisted living units identified in the above table and throughout this report represents the approximate number of operational beds and units that we currently use. The number of operational beds and units is subject to periodic changes and can be less than the licensed number of beds approved by the state due to market and other factors.

Various federal, state and local governmental authorities in the United States regulate the provision of institutional care and healthcare services. Though we believe our operations comply with the laws governing our industry, we cannot guarantee that we will be in absolute compliance with all regulations at all times. Failure to comply may result in significant penalties, including exclusion from the Medicare and Medicaid programs, which could have a material adverse effect on our business. We cannot assure you that governmental authorities will not impose additional restrictions on our activities that might adversely affect our business. In addition to the information presented below, see “Risk Factors.”

Skilled nursing facilities, assisted living facilities and other healthcare businesses are subject to licensure and other state and local regulatory requirements. In addition, in order for a skilled nursing facility to be approved for payment under the Medicare and Medicaid reimbursement programs, it must meet the participation requirements of the Social Security Act and related regulations. The regulatory requirements for skilled nursing facility licensure and participation in Medicare and Medicaid generally prescribe standards relating to provision of services, resident rights, staffing, employee training, physical environment and administration. Skilled nursing and assisted living facilities are generally subject to unannounced annual inspections by state or local authorities for purposes of licensure and in the case of skilled nursing facilities, for purposes of certification under Medicare and Medicaid. These surveys will also confirm whether a skilled nursing facility continues to meet Medicare and Medicaid participation standards. As of March 31, 2004, all of our skilled nursing facilities are licensed under applicable state laws and all of our skilled nursing facilities are certified to participate in either the Medicare program, the Medicaid program or both. For subsequent developments, see “Prospectus Summary — Recent Developments.”

Skilled Nursing Facility Regulation. CMS has established regulations to implement survey, certification and enforcement procedures. The survey process is intended to review the actual provision of care and services, with an emphasis on resident outcomes, to determine whether the care provided meets

the assessed needs of the individual residents. Surveys are generally conducted on an unannounced annual basis by state survey agencies. Remedies are assessed for cited deficiencies based upon the scope and severity of the cited deficiencies. The regulations specify that the remedies are intended to motivate facilities to return to compliance and to facilitate the removal of chronically poor performing facilities from the Medicare or Medicaid programs. Remedies range from:


	•	directed plans of correction, directed in-service training and state monitoring for minor deficiencies;

	•	denial of Medicare or Medicaid reimbursement for existing residents or new admissions and civil money penalties up to $3,000 per day for deficiencies that do not immediately jeopardize resident health and safety; and

	•	appointment of temporary management, termination from the program and civil monetary penalties of up to $10,000 for one or more deficiencies that immediately jeopardize resident health or safety.

The regulations allow state survey agencies to identify alternative remedies that must be approved by CMS prior to implementation.

Facilities with acceptable regulatory histories generally are given an opportunity to correct deficiencies by a date certain, usually within six months. CMS will continue payments and refrain from imposing sanctions within the correction period, unless the facility does not return to compliance within the specified time period. Facilities with deficiencies that immediately jeopardize resident health and safety and those that are classified as poor performing facilities are not given an opportunity to correct their deficiencies prior to the assessment of remedies. From time to time, we receive notices from federal and state regulatory agencies alleging deficiencies for failing to comply with components of the regulations. While we do not always agree with the positions taken by the agencies, we review all such notices and take corrective action when appropriate. Due to the fact that the regulatory process provides us with limited appeal rights, many alleged deficiencies are not challenged even if we do not agree with the allegation.

While we try to comply with all applicable regulatory requirements, from time to time some of our skilled nursing facilities have been sanctioned as a result of deficiencies cited by the CMS or state survey agencies. In November 2000, we operated one facility in Indiana that lost its certification under the Medicare and Medicaid programs, but that facility has since been recertified under both programs. We cannot assure you that we will not be sanctioned in the future.

Federal law requires each state to have a Medicaid Fraud Control Unit, which is responsible for investigating provider fraud and resident abuse in Medicaid funded facilities. We are aware of investigations by these units in Kentucky and Wisconsin. The investigations have not been sufficiently developed to enable us to predict an outcome.

The CMS Nursing Home Quality Initiative. In April 2002, CMS launched the Nursing Home Quality Initiative to provide consumers with comparative information about nursing home quality measures, which rates every skilled nursing facility on nine quality of care indicators. These quality of care indicators include such measures as percentages of patients with infections, bedsores and unplanned weight loss, and this comparative data is available to the public on the CMS web site. We believe that, though the information is important to share with the public and can drive improvements in quality of care in the long-term care industry, the data can be influenced by the level of care and nature of admissions that a particular facility may admit, in addition to the quality of care. Based upon the success of the pilot program conducted in Colorado, Florida, Maryland, Ohio, Rhode Island and Washington, CMS expanded the program nationwide to all other states in November 2002.

Acquisition and construction of additional skilled nursing facilities are subject to state regulation. Most of the states in which we currently operate have adopted laws to regulate expansion of skilled nursing facilities. Certificate of need laws generally require that a state agency approve certain acquisitions or physical plant changes and determine that a need exists prior to the addition of beds or services, the

implementation of the physical plant changes or the incurrence of capital expenditures exceeding a prescribed amount. Some states also prohibit, restrict or delay the issuance of certificates of need or have moratoriums on the addition of licensed bed capacity. In addition, in most states the reduction of beds or the closure of a facility requires approval by the appropriate state regulatory agency. Our skilled nursing facility expansions comply with all state regulations regarding expansion. Prior to engaging in any regulated expansion project, we obtain certificates of need, if required by law. If we decide to reduce beds or close a facility, we could be adversely affected by a failure to obtain or a delay in obtaining required regulatory approval. To the extent that a certificate of need or other similar approvals are required for expansion of our operations either through facility acquisitions, construction of new facilities, additions to existing facilities, expansion or provision of new services or other changes or to the extent expansion in licensed bed capacity is otherwise restricted, our expansion proposals could be adversely affected by an inability to obtain the necessary approvals, changes in the standards applicable to such approvals and possible delays and expenses associated with obtaining such approvals.

Acquisition, construction and operation of assisted living facilities are subject to less stringent regulation than skilled nursing facilities, and, in the absence of uniform federal regulations, states develop their own regulations. The majority of states have implemented regulations regarding the acquisition, construction and operation of assisted living facilities. Virtually every state has a licensure process, registration process or some other form of regulation that may apply to assisted living providers. Depending on the level of services that an assisted living provider supplies, the provider may be required to obtain a license. Licensure regulations may be based on admission and discharge criteria and the variety and type of services provided. Many states require that potential operators submit building plans and receive state approval prior to construction of an assisted living facility. The approval process when certificates of need are involved is more of a clearance process, however, assisted living facilities must meet a stringent set of building construction and design regulations including the Life Safety Code (NFPA101). State regulators conduct inspections of assisted living facilities on a periodic basis that are similar to their inspections of skilled nursing facilities in most cases. As of March 31, 2004, our assisted living facilities are compliant in all material respects with applicable state licensure, building construction and design regulations.

Because we participate in federal and state healthcare programs, we are subject to a variety of federal and state laws that are intended to prevent healthcare fraud and abuse. These laws are punishable by criminal and/or civil sanctions, including, in some instances, exclusion from participation in federal health programs, including Medicare, Medicaid and Department of Veterans Affairs health programs. These laws, which include, but are not limited to, anti-kickback laws, false claims laws, physician self-referral laws and federal criminal healthcare fraud laws are discussed in further detail below. Management believes that we have been and continue to be in substantial compliance with all of these laws as they apply to us.

We believe our billing practices, operations and compensation and financial arrangements with referral sources and others materially comply with applicable federal and state requirements. However, we cannot assure you that a governmental authority will not interpret such requirements in a manner inconsistent with our interpretation and application. If we fail to comply, even inadvertently, with any of these requirements, we could be required to alter our operations and/or refund payments to the government. In addition, we could be subject to significant penalties. Even if we successfully defend against any action against us for violating these laws or regulations, we would likely be forced to incur significant legal expenses and divert our management’s attention from the operation of our business. Any of these actions, individually or in the aggregate, could have a material adverse effect on our business and financial results. We cannot reasonably predict whether enforcement activities will increase at the federal or state level or the effect of any such increase on our business.

The illegal remuneration provisions of the Social Security Act make it a felony to solicit, receive, offer to pay or pay any kickback, bribe or rebate in return for referring a resident for any item or service or in return for purchasing, leasing, ordering, recommending or arranging for any good, facility, service or item for which payment may be made under the federal healthcare programs. A violation of the illegal

Recognizing that the law is broad and may technically prohibit beneficial arrangements, the Office of Inspector General of the Department of Health and Human Services developed regulations addressing those types of business arrangements that will not be subject to scrutiny under the law. These safe harbors describe activities that may technically violate the act but are not to be considered illegal when carried on in conformance with the regulations. For example, the safe harbors cover activities such as contracting with physicians or other individuals that have the potential to refer business to us that would ultimately be billed to a federal health program. Failure to qualify for safe harbor protection does not mean that an arrangement is illegal. Rather, the arrangement must be analyzed under the anti-kickback statute to determine whether there is an intent to pay or receive remuneration in return for referrals. Conduct and business arrangements that do not fully satisfy one of the safe harbors may result in increased scrutiny by government enforcement authorities. In addition, some states have anti-kickback laws that may apply regardless of whether a federal healthcare program is involved. Although our business arrangements may not always satisfy all the criteria of a safe harbor, we believe that as of March 31, 20034 our operations are in material compliance with federal and state anti-kickback laws.

Under the federal “Stark II” law, physicians are prohibited from making a referral to an entity for the furnishing of designated health services, including therapy services for which Medicare or Medicaid may pay, if the physician, or an immediate family member of the physician, has a financial relationship, including ownership interests and compensation arrangements, with that entity and the relationship fails to meet a statutory or regulatory exception to the rule. The penalties for violating this act include denial of payment, additional financial penalties and exclusion from participating in federal health programs. In addition, a number of states have enacted their own versions of self-referral laws.

The Federal False Claims Act and similar state statutes prohibit presenting a false or misleading claim for payment under a federal program. Violations can result in significant civil penalties, treble damages and exclusion from participation in federal programs. Liability arises, primarily, when an entity knowingly submits a false claim for reimbursement to the federal government. However, enforcement over the past few years has expanded the traditional scope of this act to cover quality of care issues, especially in the skilled nursing facility industry. In addition to the civil provisions of the False Claims Act, the federal government may use several other criminal statutes to prosecute persons who submit false or fraudulent claims for payment to the federal government.

Federal law provides that practitioners, providers and related persons may not participate in most federal healthcare programs, including the Medicare and Medicaid programs, if the individual or entity has been convicted of a criminal offense related to the delivery of an item or service under these programs or if the individual or entity has been convicted under state or federal law, of a criminal offense relating to neglect or abuse of residents in connection with the delivery of a healthcare item or service. Other individuals or entities may be, but are not required to be, excluded from such programs under certain circumstances, including the following:


	•	conviction related to fraud;

	•	conviction relating to obstruction of an investigation;

	•	conviction relating to a controlled substance;

	•	licensure revocation or suspension;

	•	exclusion or suspension from state or other federal healthcare programs;

	•	filing claims for excessive charges or unnecessary services or failure to furnish medically necessary services;


	•	ownership or control by an individual who has been excluded from the Medicaid and/or Medicare programs, against whom a civil monetary penalty related to the Medicaid and/or Medicare programs has been assessed or who has been convicted of the crimes; and

	•	the transfer of ownership or control interest in an entity to an immediate family or household member in anticipation of, or following, a conviction, assessment or exclusion from the Medicare or Medicaid programs.

Office of the Inspector General. The Office of Inspector General, or OIG, amongst other priorities, identifies and eliminates fraud, abuse and waste in certain federal healthcare programs. The OIG has implemented a nationwide program of audits, inspections and investigations and from time to time issues “fraud alerts” to segments of the healthcare industry on particular practices that are vulnerable to abuse. The fraud alerts inform healthcare providers of potentially abusive practices or transactions that are subject to criminal activity and reportable to the OIG.

An increasing level of resources have been devoted to investigation of allegations of fraud and abuse in the Medicare and Medicaid programs, and federal and state regulatory authorities are taking an increasingly strict view of the requirements imposed on healthcare providers by the Social Security Act and Medicare and Medicaid programs.

A major anti-fraud demonstration project, “Operation Restore Trust,” or ORT, was announced in 1995 by the OIG, which guaranteed funding for fraud and abuse activities and coordinated efforts among multiple federal and state agencies. A primary purpose for ORT is to scrutinize the activities of healthcare providers who are reimbursed under the Medicare and Medicaid programs. Initial investigation efforts have focused on skilled nursing facilities, home health and hospice agencies and durable medical equipment suppliers in Texas, Florida, New York, Illinois and California. In May 1997, the Department of Health and Human Services announced that ORT would be expanded in the future to include several other types of healthcare services and several additional states, with the intent that it will ultimately be a nationwide operation. Over the longer term, ORT’s enforcement actions could include criminal prosecutions, suit for civil penalties and/or Medicare, Medicaid or federal healthcare program exclusions. Prior to our November 1997 acquisition of Arbor Healthcare Company, one of its subsidiary’s facilities was charged with inadequately documented therapy services. Following this investigation, Arbor adopted measures to strengthen its documentation relating to reimbursable services. While we do not believe that we are the target of any such investigation under ORT, we cannot assure you that we will not become the target of such an investigation in the future, and if we are investigated, that we will not expend substantial amounts to cooperate with any such investigation or to defend allegations that may arise from such investigation. If a government agency finds that any of our practices fail to comply with the anti-fraud provisions, our business could be materially adversely affected.

Cross Decertification and De-Licensure. In some circumstances, if one facility is convicted of abusive or fraudulent behavior, then other facilities under common control or ownership may be decertified from participating in Medicaid or Medicare programs. Executive Order 12549 prohibits any corporation or facility from participating in federal contracts if it or its principals have been barred, suspended, ineligible or have been voluntarily excluded from participating in federal contracts. In addition, some state regulations provide that all facilities under common control or ownership licensed within a state may be de-licensed if any one or more of the facilities are de-licensed. To date, neither we nor our subsidiaries have experienced any cross-decertifications and none of our subsidiaries’ facilities have been de-licensed.

There are ongoing initiatives at the federal and state levels for comprehensive reforms affecting the payment for and availability of healthcare services. Aspects of some of these healthcare initiatives, such as the termination of Medicare funding improvements and limitations on Medicare coverage, other pressures to contain healthcare costs by Medicare, Medicaid and other payors, as well as increased operational requirements in the administration of Medicaid, could adversely affect us. We cannot predict the ultimate

Some federal and state laws govern the handling and disposal of medical, infectious and hazardous waste. If an entity fails to comply with those laws or the related regulations, the entity could be subject to fines, criminal penalties and other enforcement actions. Federal regulations established by the Occupational Safety and Health Administration impose additional requirements on us with regard to protecting employees from exposure to blood borne pathogens. We have developed policies for the handling and disposal of medical, infectious and hazardous waste to assure that each of our facilities complies with those laws and regulations. We incur ongoing operational costs to comply with environmental laws and regulations. However, we have not had to make any material capital expenditures to comply with such laws and regulations. As of March 31, 2004, we believe that we substantially comply with applicable laws and regulations governing these requirements.

As a result of fires in long-term care facilities in recent years, states are reconsidering the laws governing the requirement for facilities to have sprinklers systems. In February 2004, the American Health Care Association reaffirmed its position taken in October 2003 that skilled nursing facilities nationwide be required to implement sprinkler systems, provided that federal funding and/or low-cost financing is made available for the installation of such systems. We currently have approximately 20 facilities without sprinkler systems, and in November 2003, we announced our intention to implement sprinkler systems in the remaining facilities by December 2005 at an estimated cost of $3.0 million.

The Health Insurance Portability and Accountability Act of 1996, or HIPAA, requires us to comply with standards for the exchange of health information within our company and with third parties and protect the confidentiality and security of health data. More specifically, HIPAA calls for:


	•	standardization of electronic patient health, administrative and financial data;

	•	unique health identifiers for individuals, employers, health plans and healthcare providers;

	•	privacy standards protecting the privacy of individually identifiable health information; and

	•	security standards protecting the confidentiality and integrity of individually identifiable health information.

The Department of Health and Human Services has released three rules to date mandating the use of new standards with respect to certain healthcare transactions and health information.

The first rule established privacy standards and was released in December 2000 and then further revised in August 2002. Most entities covered under HIPAA were required to implement the privacy standards by April 2003. The privacy standards are designed to protect the privacy of certain individually identifiable health information. As a result, we have updated our policies and procedures, conducted training for our employees on the new standards and implemented procedures to report violations of the new policies. We believe we are in compliance with the privacy standards.

The second rule established standards for electronic data transactions and code sets, as were outlined in the final regulations of August 2000. These standards are designed to allow entities to exchange medical, billing and other information and to process transactions in a more effective manner electronically. Originally, the new transactions and code sets standards were required to be implemented in October 2002, however for providers filing an extension, the implementation date became October 2003. Due to a number of fiscal intermediaries and states not being ready to implement the rule, CMS announced in September 2003 that providers could have a further extension to the implementation date, provided that they were working toward implementation, and directed all fiscal intermediaries and states not to impair the processing of claims and payments to healthcare providers working toward the directive.

We have implemented the new transaction and code sets with fiscal intermediaries and the states that are currently ready to accept the new transaction and code sets. In the states where we have not implemented the new transaction and code sets, we are currently in the testing stages and continue to process and receive payments on a timely basis. We believe we are in compliance with the transaction and code sets standards.

The third rule, issued in 2003, governs the security of health information. Compliance with the security regulations is required by April 21, 2005. The security regulations apply only to electronic protected health information, and have four main objectives to:


	•	ensure the confidentiality, integrity and availability of protected health information that a covered entity creates, receives, maintains or transmits electronically;

	•	protect against any reasonably anticipated hazards that might threaten the security or integrity of electronic protected health information;

	•	protect against any unauthorized use or disclosure of electronic protected health information that can be reasonably anticipated; and

	•	ensure that the covered entity’s workforce complies with the full range of security measures.

Although HIPAA was intended to ultimately reduce administrative expenses and burdens faced within the healthcare industry, it is generally agreed that the implementation of this law will result in additional costs to all healthcare organizations in the short term. We established a HIPAA task force consisting of clinical, legal, financial and information services professionals to work on the project and monitor the implementation and compliance to the standards and procedural changes within our organization. At this time, we believe we fully comply with the HIPAA privacy and transactions standards and will be successful in the implementation of the security rules by the required implementation dates.

Our Corporate Compliance Program was developed to ensure that we achieve our goal of providing a level of service in a manner consistent with all applicable state and federal laws and regulations and our internal standards of conduct. Our Corporate Compliance Program incorporates the elements included in the OIG guidance. As part of our Corporate Compliance Program, our employees must acknowledge their responsibility to comply with relevant laws, regulations and policies, including our Corporate Compliance Program. We have a Corporate Compliance Officer responsible for administering our Corporate Compliance Program who reports to the Board of Extendicare Inc. and our Chief Executive Officer.

We currently maintain insurance policies for property coverage, workers’ compensation and employer’s liability insurance in amounts and with such coverage and deductibles as we believe adequate based on availability, the nature and risks of our business, historical experience and industry standards. These policies are obtained through both affiliated subsidiaries of Extendicare Inc. and third-party insurers. We self-insure for health and dental claims, workers’ compensation and employer’s liability in certain states. Management believes that as of March 31, 2004 our skilled nursing facilities, assisted living facilities and rehabilitation therapy clinics were adequately insured.

As a result of limited availability from third-party insurers or availability at an excessive cost or deductible, since January 2000, we generally self insure for comprehensive general and professional liability (including malpractice insurance for our health providers, assistants and other staff, as it relates to their respective duties performed on our behalf) up to a certain amount per incident. In January 2000, our retained risk for general and professional liability coverage increased significantly resulting in us providing accruals based upon past claims and actuarial estimates of the ultimate cost to settle claims. Those risks were significantly reduced when we ceased operation of all Florida facilities in 2000 and Texas skilled nursing facilities in the fourth quarter of 2001. As of March 31, 2004, we have provided for $43.6 million

in accruals for known or potential general and professional liability claims based on claims experience and an independent actuarial review. Based upon such claims experience and independent actuarial review, we believe that our accrual is adequate to cover any losses from general and professional liability claims. General and professional liability claims are the most volatile and significant of the risks that we self-insure.

We are defendants in actions against us from time to time in connection with our operations and due to the nature of our business. These actions may include civil or criminal actions from personal injury and wrongful death suits arising out of allegation of professional malpractice brought against us, one or more of our facilities or the individuals who work at particular facilities. We are unable to predict the ultimate outcome of pending litigation and other investigations. We cannot assure you that claims will not arise that are in excess of our insurance coverage, are not covered by our insurance coverage or result in punitive damages being assessed against us. In addition, we cannot assure you that the U.S. Department of Justice, CMS or other regulatory agencies will not initiate investigations related to our businesses in the future. A successful claim against us that is not covered by, or is in excess of, our insurance could have a material adverse effect on our financial condition and results of operations. Claims against us, regardless of their merit or eventual outcome, would require management to devote time to matters unrelated to the operation of our business and, due to publicity, may also have a material adverse effect on our ability to attract residents or expand our operations.

We have experienced an increasing trend in the number and severity of litigation claims asserted against us. We believe that this trend is endemic to the long-term care industry and is a result of the increasing number of large judgments, including large punitive damage awards, against long-term care providers in recent years resulting in an increased awareness by plaintiffs’ lawyers of potentially large recoveries. This has been particularly the case in Florida and Texas, where we have operated skilled nursing facilities. As a result of the litigious environment, insurance coverage for general and professional liability claims has increased and in certain states become unavailable to operators where insurance companies have refrained from providing insurance. There can be no assurance that we will not be liable for claims in excess of the amounts provided or for punitive damages awarded in such litigation cases. We also believe that there has been, and will continue to be, an increase in governmental investigations of long-term care providers, particularly in the area of Medicare/ Medicaid false claims as well as an increase in enforcement actions resulting from these investigations. Adverse determinations in legal proceedings or governmental investigations, whether currently asserted or arising in the future, could have a material adverse effect on us.

As referred to in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” pursuant to the disposition of our pharmacy operations in 1998, we entered into a preferred provider agreement with Omnicare, Inc., or Omnicare. The terms of the preferred provider agreement enabled Omnicare to execute pharmacy service agreements and consulting service agreements with all of our skilled nursing facilities. In 2001, we and Omnicare brought a matter to arbitration involving “per diem” pricing rates billed for managed care residents. This matter was subsequently settled, and the settlement amount is reflected within our financial results. We are currently negotiating the pricing of drugs for Medicare residents and should this matter not be settled, the matter will be taken to arbitration. In addition, in connection with its agreements to provide pharmacy services, Omnicare has requested arbitration for an alleged lost profits claim related to our disposition of assets, primarily in Florida. Damage amounts, if any, cannot be reasonably estimated based on information available to us at this time. We and Omnicare continue to discuss the claim, and should we fail to resolve the matter, the claim will be taken to an arbitration hearing. An arbitration hearing has not been scheduled. We believe that we have interpreted correctly and complied with the terms of the agreement, however, there can be no assurance that we will prevail at any arbitration hearing, or that other claims will not be made with respect to the agreement.

The following table sets forth information with respect to our executive officers and directors:

Mel Rhinelander is our Chairman and Chief Executive Officer and one of our directors. He has been with us and our affiliated companies since 1977 and has served in a number of senior management positions. Mr. Rhinelander has been President of Extendicare Inc. since August 1999, a director since May 2000 and its Chief Executive Officer since August 2000. He has been an officer of our company since 1989 and a director since 1998. He has been our Chief Executive Officer since December 1999 and Chairman of our Board of Directors since August 2000.

Mark W. Durishan has been our Chief Financial Officer, Treasurer and one of our Vice Presidents and directors since joining us in August 1999. At that time he also joined Extendicare Inc. Prior to joining us, Mr. Durishan was Senior Vice-President of Finance and Operations for Blue Cross and Blue Shield of Minnesota where he served in such capacity from 1995 to 1998. From 1991 to 1995, Mr. Durishan was Chief Financial Officer of Graduate Health System of Philadelphia, a healthcare corporation encompassing seven hospitals, a 100,000-member HMO, a captive insurance company and a home health agency. During his career, Mr. Durishan was a partner at Coopers & Lybrand responsible for the Philadelphia and Washington healthcare consulting offices. Mr. Durishan has over 34 years of experience in the healthcare industry.

Philip W. Small was appointed Executive Vice President and Chief Operating Officer on February 19, 2004. He joined us and Extendicare Inc. in June 2001 as our Senior Vice President, Strategic Planning. He was appointed to our Board of Directors on December 31, 2001. Prior to joining us, Mr. Small served 15 years at Beverly Enterprises Corporation, Fort Smith, Arkansas, in various financial capacities, the most recent being Executive Vice President, Strategic Planning and Operations Support and acting Chief Financial Officer. His prior experience includes serving as Director, Reimbursement for HCA Management Company of Atlanta, Georgia. Mr. Small has over 22 years of experience in the healthcare industry.

Richard L. Bertrand is our Senior Vice President, Development. Mr. Bertrand joined us in 1983 as our Vice President of Finance and has over 28 years of experience in the healthcare industry. From 1983 to 1995 he served as our Vice President of Finance and later as our Senior Vice President of Finance and Chief Financial Officer. Beginning in 1995, Mr. Bertrand served as our Senior Vice President, Reimbursement and later as our Senior Vice President, Development. Prior to joining us, Mr. Bertrand served as Vice President and Controller of Extendicare from 1977 to 1983. Prior to that, he was a staff accountant and supervisor with the accounting firm of Thorne Riddell from 1972 to 1976.

Roch Carter was appointed our Vice President, General Counsel and Assistant Secretary in January 1998. He joined us in 1974 as Legal Counsel and he was subsequently appointed our General Counsel in 1985. Prior to joining us, Mr. Carter was an attorney with the U.S. Attorney’s office in Milwaukee.

Douglas J. Harris joined us in December 1999 as our Vice President and Controller and has over 23 years of experience in the healthcare industry. From 1994 through 1999, Mr. Harris was the Managing Director of Extendicare (U.K.) Limited. Mr. Harris has been with us and Extendicare Inc.’s affiliated companies since 1981 and has held positions in various financial capacities. Prior to joining us, Mr. Harris was an audit supervisor with KPMG.

L. William Wagner joined us in 1987 as Vice President of Human Resources. Prior to joining us, Mr. Wagner was Vice President of Human Resources for ARA Living Centers and Director of Personnel for General Foods Corp. Mr. Wagner has 20 years of experience in the healthcare industry and over 26 years of human resources experience.

The following summary compensation table details compensation information for the three fiscal years ended December 31, 2003, 2002 and 2001 for each of our Chief Executive Officer and the four other most highly compensated executive officers (collectively, the “named executive officers”).


(1)	The aggregate amount of perquisites and other benefits for each named executive officer is less than the lesser of $50,000 or 10% of total annual salary and bonus. In the case of M.A. Rhinelander, the amount is comprised of car allowance and flexible account.

(2)	For M.A. Rhinelander these amounts reflect premiums paid by EHSI for term life insurance and long-term disability. All other compensation, in the case of M.W. Durishan, R.L. Bertrand, P.W. Small and D.K. Howe, includes payments for life insurance and long-term disability premiums and contributions to a deferred compensation plan and a defined contribution retirement plan. The amount of salary and/or bonus deferred by the named executive officer is included within the figures set forth in the “Salary” and/or “Bonus” columns in the above table. EHSI’s contribution is included within


	the “All Other Compensation” column. The amounts contributed by the officer and EHSI’s matching portion contributed to the deferred compensation plan are as follows:


(3)	P.W. Small was appointed Executive Vice President and Chief Operating Officer on February 19, 2004. Mr. Small commenced employment with EHSI in June 2001, and his compensation for the years 2001 through 2003 was received in connection with his position as Senior Vice President, Strategic Planning held during that time.

We maintain a non-qualified, deferred compensation plan (consisting of individual agreements), which is offered to all highly compensated employees as prescribed by the Internal Revenue Service. The maximum amount of annual compensation that may be deferred is 10% of the employee’s base salary, excluding any bonus. We match up to 50% of the amount deferred, and the combined amount earns interest at the prime rate. Our matching payment, plus interest, vests to the employee over eight years. Amounts deferred and vested matching amounts are payable upon the death, disability or termination of the employee. Amounts deferred are not guaranteed, are “at risk” and are subject to our ability to make the scheduled payments. Our deferred compensation liabilities are unfunded and unsecured.

We provide an executive retirement program for certain of our key officers and executives. Under the program we contribute 10% of the participant’s base salary into an account to be invested in certain mutual funds at the participant’s discretion. The amounts in the executive retirement program vest upon certain events which are specified in the participant’s executive retirement program plan, and by discretionary actions by the board of directors of Extendicare Inc. A graduated vesting schedule applies for some program participants if we terminate the participant. Any funds that we invest or assets that we acquire pursuant to the program continue to be a part of our general funds. No party, other than EHSI, has any interest in such funds. To the extent that any participant acquires a right to receive payment from us under the executive retirement program, such right shall be no greater than the right of any unsecured general creditor of ours. We expense the amounts we fund into the executive retirement program on a monthly basis. Amounts held within this executive retirement program accounts are not guaranteed, are “at risk” and are subject to our ability to make the scheduled payments. Our executive retirement program liability is unfunded and unsecured.

Extendicare Inc.’s stock option plan provides for the grant, from time to time, at the discretion of Extendicare Inc.’s board of directors, to certain directors, officers and employees of the Extendicare Inc. group of companies, of options to purchase subordinate voting shares of Extendicare Inc. for cash. The plan provides that the exercise price of any options granted not be less than the closing price (or, if there is no closing price, the simple average of the bid and ask price) for the subordinate voting shares as quoted on the Toronto Stock Exchange on the trading day prior to the date of grant. It also permits

options to be exercised for a period not to exceed either five or ten years from the date of grant, as determined by the Extendicare Inc. board of directors at the time the option is granted. The options vest equally over the first four years and the plan contains provisions for appropriate adjustments in the event of corporate reorganizations of Extendicare Inc.

At December 31, 2003, a total of 4,382,975 subordinate voting shares of Extendicare Inc. were reserved under the plan, of which 2,297,250 subordinate voting shares were subject to outstanding options and 2,085,725 were available for grant.

The following table summarizes stock options granted during 2003 to our named executive officers under the Extendicare Inc. stock option plan:

These amounts do not represent the present value of the options. The amounts shown represent what would be received upon exercise five years after the date of grant, assuming certain rates of stock price appreciation during the entire period. Actual gains, if any, on stock option exercises are dependent on future performance of the Extendicare Inc. common stock and overall market conditions. In addition, actual gains depend upon whether, and the extent to which, the options actually vest.

The following table summarizes options exercised during 2003 and option values at December 31, 2003 for our named executive officers.


Note:	The closing price of the Extendicare Inc. subordinate voting shares on the Toronto Stock Exchange on December 31, 2003 was Cdn $13.25.

Effective 2003, the fair value of the options granted of subordinate voting shares of Extendicare Inc. to our executives of are expensed as a payroll cost on our records. In 2003, the amount of the payroll costs associated with the options granted was $48,000.

M.A. Rhinelander and R.L. Bertrand are covered by retirement arrangements established by Extendicare Inc. The arrangements provide for a benefit of 4% of the best three consecutive years of base salary for each year of service to a maximum of 15 years and 1% per year thereafter. These arrangements provide a maximum benefit guarantee of 60% of base salary after 15 years of service and 70% after 25 years of service. Normal retirement age is 60 years, or 55 years with our consent. We have consented to Mr. Rhinelander retiring with full benefits at age 55. Retirement benefits are payable as an annuity over the lifetime of the executive with a portion continuing to be paid to the executive’s spouse after the death of the executive. As of December 31, 2002, projected years of credited service at retirement for each of Messrs. Rhinelander and Bertrand is 35 years.

Estimated annual benefits payable upon retirement of the specified compensation and years of credited service classifications are as shown in the following table:

M.W. Durishan, P.W. Small and D.K. Howe are not participants in these arrangements, but rather, are participants in a money purchase, 401(K) plan and a deferred compensation plan established for U.S. executives.

M.A. Rhinelander has a termination of employment arrangement with Extendicare Inc. that provides for one month of salary for each year of service up to a maximum of 24 months’ severance.

Our board of directors is comprised solely of certain of our executive officers. The human resources committee of the Extendicare Inc. board of directors performs the functions of a compensation committee for Extendicare Inc. and its subsidiaries, including us. The following six outside and unrelated directors served as members of the committee: Derek H.L. Buntain, Sir Graham Day, David M. Dunlap, Michael J.L. Kirby, Frederick B. Ladly and J. Thomas MacQuarrie, Q.C. None of these committee members are our directors or officers, or directors or officers of any of our subsidiaries.

We are an indirect wholly owned subsidiary of Extendicare Inc. Certain operating expenses are allocated between Extendicare Inc. and its subsidiaries. We insure certain risks, including comprehensive general liability, property coverage and excess workers’ compensation/employer’s liability insurance, with Laurier Indemnity Company and Laurier Indemnity Ltd., affiliated insurance subsidiaries of Extendicare Inc. We recorded approximately $2.8 million and $2.6 million of expenses for this purpose in the three months ended March 31, 2004 and 2003, respectively. Also in the three months ended March 31, 2004, we recorded a credit to expense of $1.0 million relating to prior year workers’ compensation policies with Laurier Indemnity Company.

In January 2001, we established an arrangement for computer hardware and software support services with Virtual Care Provider, Inc., or VCP, an affiliated subsidiary of Extendicare Inc. Expenses related to these services were $1.2 million and $1.7 million for the three months ended March 31, 2004 and 2003, respectively, and at March 31, 2004 and December 31, 2003 and 2002, we had a non-interest bearing loan payable to Extendicare Holdings, Inc., our immediate parent, in the amount of approximately $3.5 million with no specific due date. We used the proceeds of the loan for working capital.

For federal tax purposes we file as part of a consolidated group of companies, of which Extendicare Holdings is the parent. Extendicare Holdings (a subsidiary of Extendicare Inc.) holds all of Extendicare Inc.’s U.S. operations, including EHSI. We have a tax sharing arrangement with Extendicare Holdings pursuant to which we had payables of $10.2 million and $7.8 million at March 31, 2004 and December 31, 2003, respectively. Under this tax sharing arrangement, a U.S. consolidated income tax return is filed by Extendicare Holdings and, for purposes of determining each member’s share of the tax liability in such return, each member of the affiliated group computes its separate U.S. income tax liability for regular income tax purposes (but not for alternative minimum tax purposes) as if it had filed a separate U.S. income tax return. Such amount is reflected as a federal income tax expense and as an intercompany payable to Extendicare Holdings on each member’s separate financial statements. If a member incurs a net operating loss, such net operating loss is tax benefited (for regular tax purposes only) in the year the net operating loss is incurred. Such amount is reflected as a reduction in federal income tax expense and as an intercompany receivable from Extendicare Holdings on each member’s separate financial statements. Similarly, the federal income tax receivable and payable is recorded on the separate financial statement of Extendicare Holdings. Each member’s separate intercompany balances are transferred to Extendicare Holdings through the intercompany payable and receivable account.

In addition to the amounts discussed in the preceding two paragraphs, we had non-interest bearing current amounts due to (from) affiliates as follows:

As of March 31, 2004, Extendicare Inc. and/or one of its wholly owned subsidiaries held $27.9 million, or 14.0%, of our outstanding 2007 Notes. These 2007 Notes were repaid on May 24, 2004. On May 25, 2004, Extendicare Inc. purchased at market value all 125,000 shares of Omnicare, Inc. stock held by us for $4.9 million. In addition, Extendicare Inc. and VCP transferred $22.9 million to us as an intercompany loan and payment of intercompany accounts.

Our credit facility is governed by a credit agreement among us, Extendicare Holdings, Inc., Lehman Commercial Paper Inc., as administrative agent, and the several lenders from time to time party to the credit agreement. Our credit facility is a senior secured revolving credit facility providing for loans of up to $105.0 million. The credit facility will terminate on June 28, 2007. As a senior obligation, the credit facility is senior in right of payment to the notes. The credit facility will be used for our working capital needs and other general corporate purposes. The following description is a summary of the material provisions of our current credit facility. It does not include all of the provisions of the credit agreement and the ancillary agreements required thereby.

In connection with the sale and issuance of the 2014 Notes, we amended and restated the credit facility to, among other things, extend its term by two years, until June 28, 2009, and provide an additional $50.0 million of senior secured financing on a revolving basis. Some of the other principal terms of the amended and restated credit facility are described under “Prospectus Summary — Recent Developments — Amendment and Restatement of Credit Facility.”

As of September 30, 2003, and continuing through December 31, 2003, based upon financial performance, the annual interest rate was:


	•	LIBOR plus 3.25%; or

	•	the Base Rate, as defined in the credit facility (generally the published prime rate), plus 2.25%.

These rates are subject to adjustments based on our senior leverage ratio. The spread over LIBOR ranges from 3.00% per annum to 4.00% per annum, and the spread over the Base Rate ranges from 2.00% per annum to 3.00% per annum.

In addition to paying interest on outstanding principal under the credit facility, we are required to pay a commitment fee to the lenders in respect of the unutilized commitments under the facility. The commitment fee is payable quarterly in arrears at a rate ranging from 0.50% per annum to 0.75% per annum, depending on the extent to which we make use of the credit facility.

In connection with the amendment and restatement of our credit facility and based upon our adjusted capitalization and EBITDA for the three months ended March 31, 2004, all borrowings to be drawn under the amended and restated credit facility after April 22, 2004 will initially bear interest at a rate per annum equal to:


	•	the Eurodollar rate plus 2.75%; or

	•	the Base Rate, as defined in the credit facility (generally the published prime rate), plus 1.75%.

For additional information regarding the interest rate under our amended and restated credit facility see “Prospectus Summary — Recent Developments — Amendment and Restatement of Credit Facility.”

Our obligations under the credit facility are fully, unconditionally and irrevocably guaranteed on a joint and several basis by:


	•	Extendicare Holdings, Inc., our direct parent;

	•	each of our current and future domestic subsidiaries, excluding certain inactive subsidiaries; and


	•	any other current or future foreign subsidiaries that guarantee or otherwise provide direct credit support for any U.S. debt obligations of ours or any of our domestic subsidiaries.

In addition, the credit facility is secured by a perfected first priority security interest in certain of our tangible and intangible assets, including substantially all of our personal property such as accounts receivable, inventory, equipment and intangibles; by mortgages on the real estate associated with 105 of our facilities; and by all of our and our subsidiary guarantors’ capital stock. The credit facility is also secured by a pledge of 65% of the voting stock of our and our subsidiary guarantors’ foreign subsidiaries, if any.

All or any portion of the outstanding loans under the credit facility may be prepaid at any time, and commitments may be terminated in whole or in part at our option without premium or penalty. The credit facility is subject to mandatory prepayments from the net cash proceeds received by us in connection with the incurrence of other indebtedness, from net cash proceeds of some asset sales, from amounts recovered by us in connection with casualty losses and condemnation events, and from purchase price refunds received by us in connection with acquisitions.

The credit facility requires that we comply with various financial covenants, on a consolidated basis, including:


	•	a minimum fixed charge coverage ratio starting at 1.10 to 1 and increasing to 1.20 to 1 in 2005;

	•	a minimum tangible net worth starting at 85% of our tangible net worth at March 31, 2002 and increasing by 50% of our net income for each fiscal quarter plus 100% of any additional equity we raise;

	•	a maximum senior leverage ratio starting at 4.25 to 1 and reducing to 4.00 to 1 in 2005; and

	•	a maximum senior secured leverage ratio starting at 1.75 to 1 and reducing to 1.50 to 1 in 2005.

In connection with the amendment and restatement of our credit facility, our maximum senior leverage ratio after April 22, 2004 starts at 2.25 to 1 and reduces to 2.00 to 1 in 2005.

The credit facility contains a number of covenants that, among other things, restrict our ability and that of our parent and certain of our subsidiaries to:


	•	dispose of assets;

	•	incur additional indebtedness;

	•	incur guarantee obligations;

	•	repay or amend certain terms of other indebtedness, including the Senior Notes and the 2014 Notes;

	•	pay certain restricted payments and dividends;

	•	create liens on assets;

	•	make investments, loans or advances;

	•	engage in mergers or consolidations;

	•	make capital expenditures;

	•	enter into new lines of business; or


	•	engage in some transactions with subsidiaries and affiliates and otherwise restrict corporate activities.

The credit facility also contains other usual and customary negative and affirmative covenants.

The credit facility contains events of default including, subject to customary cure periods and materiality thresholds:


	•	failure to make payments when due;

	•	material inaccuracies of representations and warranties;

	•	breach of covenants;

	•	certain cross-defaults and cross-accelerations;

	•	events of insolvency, bankruptcy or similar events;

	•	certain judgments against us;

	•	certain occurrences with respect to employee benefit plans;

	•	failure to remain eligible or participate in Medicaid or Medicare programs;

	•	failure of guarantees to remain in effect;

	•	failure of certain liens and security documents to remain enforceable;

	•	the occurrence of an event of default under any mortgage;

	•	the 2007 Notes or guarantees of the 2007 Notes cease to be subordinated to the obligations under the credit facility and the credit facility guarantees; and

	•	the occurrence of a change in control.

If such a default occurs, the lenders under the credit facility would be entitled to take various actions, including all actions permitted to be taken by a secured creditor, the acceleration of amounts due under the credit facility and requiring that all such amounts be immediately paid in full.

We issued $200.0 million aggregate principal amount of 2007 Notes under an indenture dated as of December 2, 1997 among us, the guarantors (as defined in the indenture) and The Bank of Nova Scotia Trust Company of New York, as trustee, in connection with our acquisition of Arbor Health Care Company. The 2007 Notes mature on December 15, 2007 and are callable on or after December 15, 2003 at 103.117% of par. Interest on the 2007 Notes accrues at the rate of 9.35% per year and is payable semiannually on each June 15 and December 15 to the persons who are registered holders at the close of business on the May 31 or November 30 preceding the applicable interest payment date.

In connection with sale and issuance of the 2014 Notes, we used the net proceeds from such sale and issuance, which were approximately $117.4 million, net of a $3.1 million discount and fees and expenses of $4.5 million, together with borrowings under our amended and restated credit facility to purchase for cash approximately $104.9 million aggregate principal amount of 2007 Notes validly tendered in the tender offer and to redeem any 2007 Notes not tendered in the tender offer or cancelled prior to May 24, 2004.

We issued $150.0 million aggregate principal amount of Senior Notes under an indenture dated as of June 28, 2002 among us, the subsidiary guarantors (as defined in the indenture) and U.S. Bank, N.A., as trustee. The Senior Notes mature on July 1, 2010. Interest on the Senior Notes accrues at the rate of

On or prior to July 1, 2005, we may redeem up to 35% of the aggregate principal amount of Senior Notes issued under the indenture at a redemption price of 109.500% of par, plus accrued and unpaid interest on the Senior Notes to the redemption date, with the net cash proceeds of certain equity offerings.

On or after July 1, 2006, we may redeem all or a part of the Senior Notes at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest on the Senior Notes redeemed to the applicable redemption date, if redeemed during the twelve-month period beginning on July 1 of the years indicated below:

If we experience a change of control, as defined in the indenture governing the Senior Notes, each holder of the Senior Notes has the right to require that we purchase all or any part of such holder’s Senior Notes at a purchase price equal to 101% of par, plus accrued and unpaid interest on the Senior Notes purchased to the date of purchase.

The indenture governing the Senior Notes contains, among other things, covenants limiting the incurrence of indebtedness, the issuance of preferred stock, the payment of certain dividends and other restricted payments, certain sales of assets, restrictions on the payment of dividends and certain other payments by certain subsidiaries, the issuance and sale of capital stock of certain subsidiaries, the creation of liens, certain transactions with affiliates, certain sale and leaseback transactions and certain mergers and consolidations.

The following events would constitute an event of default under the indenture governing the Senior Notes:


	•	the failure for 30 days to pay interest when due on the Senior Notes;

	•	the failure to pay principal of or premium, if any, when due on the Senior Notes;

	•	the failure to comply with the covenants contained in the indenture governing the Senior Notes within the time periods specified;

	•	default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any indebtedness for money borrowed by us or any of our restricted subsidiaries (or the payment of which is guaranteed by us or any of our restricted subsidiaries) if that default:


	•	is caused by a payment default on such indebtedness prior to the expiration of the grace period provided in such indebtedness on the date of such default; or

	•	results in the acceleration of such indebtedness prior to its express maturity,

and, in each case, the principal amount of any such indebtedness, together with the principal amount of any other such indebtedness under which there has been a payment default or the maturity of which has been so accelerated, aggregates $20.0 million or more;


	•	failure to pay final judgments (to the extent not fully covered by insurance) aggregating in excess of $20.0 million, which judgments are not paid, discharged or stayed for a period of 60 consecutive days;

	•	except as permitted by the indenture governing the Senior Notes, any subsidiary guarantee of the Senior Notes is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any subsidiary guarantor, or any person acting on behalf of any subsidiary guarantor, denies or disaffirms its obligations under its subsidiary guarantee of the Senior Notes; and

	•	certain events of bankruptcy or insolvency described in the indenture governing the Senior Notes.

In connection with some of our acquisitions and related improvements, we have borrowed the proceeds of industrial development revenue bonds issued by various cities in Minnesota and one city in Pennsylvania that cover the purchase price of such acquired businesses. As of March 31, 2004, approximately $20.2 million of these bonds were outstanding and senior to our outstanding long-term indebtedness, including the 2014 Notes and our Senior Notes. In February 2004, we prepaid two industrial development revenue bonds totaling $13.0 million. The bonds mature between 2008 and 2014 and have interest rates between 1.15% and 6.25%. Two of the bonds with principal amounts aggregating $19.0 million are secured by irrevocable letters of credit totaling $19.6 million.

As of March 31, 2004, we had $10.4 million of other senior debt, including mortgage notes that are senior to our outstanding long-term indebtedness, including the 2014 Notes and the Senior Notes. The mortgage notes have interest rates ranging from 3.00% to 10.50% and mature from 2004 through 2012. The remaining indebtedness is related to capital leases, promissory notes and other obligations.

We issued the old and we will issue the new notes under an indenture among us, the Subsidiary Guarantors and U.S. Bank, N.A., as trustee. We refer to the old notes and the new notes collectively as the notes. The terms of the notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939.

The following description is a summary of the material provisions of the indenture. It does not include all of the provisions of the indenture. We urge you to read the indenture because it, and not this description, define your rights as Holders of the notes. Copies of the indenture are available as set forth below under “— Additional Information.” Certain defined terms used in this description but not defined below under “— Certain Definitions” have the meanings assigned to them in the indenture. In this description, “we,” “us” and “our” refer only to Extendicare Health Services, Inc. and not to any of its subsidiaries.

The registered Holder of a note will be treated as its owner for all purposes. Only registered Holders will have rights under the indenture.


	•	our general unsecured obligations;

	•	subordinated in right of payment to all of our existing and any future Senior Debt, including Indebtedness outstanding under our Credit Agreement and the Senior Notes;

	•	pari passu in right of payment with all of our existing and any of our future senior subordinated Indebtedness;

	•	senior in right of payment to any of our future Subordinated Indebtedness; and

	•	guaranteed by all of our existing and future domestic Significant Subsidiaries, all of our existing and future Domestic Subsidiaries that guarantee or incur any Indebtedness and any other existing and future Significant Subsidiaries or Restricted Subsidiaries that guarantee or otherwise provide direct credit support for Indebtedness of ours or any of our Domestic Subsidiaries.

Each Subsidiary Guarantee of the notes is, and each subsidiary guarantee of the new notes will be:


	•	a general unsecured obligation of that Subsidiary Guarantor;

	•	subordinated in right of payment to all existing and any future Senior Debt of that Subsidiary Guarantor, including Guarantees of the Credit Agreement and the Senior Notes;

	•	pari passu in right of payment with all existing and any future senior subordinated Indebtedness of that Subsidiary Guarantor; and

	•	senior in right of payment to any future Subordinated Indebtedness of that Subsidiary Guarantor.

As of the date of the indenture, all of our existing subsidiaries will be “Restricted Subsidiaries.” However, under the circumstances described below under “ — Certain Covenants — Designation of Restricted and Unrestricted Subsidiaries,” we will be permitted to designate certain of our subsidiaries as “Unrestricted Subsidiaries.” Unrestricted Subsidiaries will not be subject to many of the restrictive covenants in the indenture and will not guarantee the notes.

As of March 31, 2004, we had approximately $179.0 million of Senior Debt outstanding on a consolidated basis, approximately $29.3 million of which was secured. As of March 31, 2004, we had

available borrowings under our credit facility of $105.0 million and $33.7 million of letters of credit outstanding under our credit facility. As indicated above and as discussed in detail below under “— Subordination,” payments on the old notes and under the old Subsidiary Guarantees is, and payments on the new notes and under the new Subsidiary Guarantees will be, subordinated to the prior payment in full of Senior Debt. The indenture will permit us and the Subsidiary Guarantors to incur additional Senior Debt, subject to the covenant described under “— Certain Covenants — Incurrence of Indebtedness and Issuance of Preferred Stock.”

We will initially issue $125.0 million in aggregate principal amount of new notes in exchange for a like amount of old notes. We may issue additional notes from time to time after this offering. Any offering of additional notes is subject to the covenant described under “— Certain Covenants — Incurrence of Indebtedness and Issuance of Preferred Stock.” The notes and any additional notes subsequently issued under the indenture will be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. We will issue notes in denominations of $1,000 and integral multiples of $1,000. The notes will mature on May 1, 2014.

Interest on the notes will accrue at the rate of 6 7/8% per annum and will be payable semi-annually in arrears on May 1 and November 1, commencing on November 1, 2004. We will make each interest payment to the Holders of record on the immediately preceding April 15 and October 15.

Interest on the notes will accrue from the date of original issuance of the old notes or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

If a Holder has given wire transfer instructions to us, we will pay all principal, interest and premium, if any, on that Holder’s notes in accordance with those instructions. All other payments on notes will be made at the office or agency of the paying agent and registrar within the City and State of New York unless we elect to make interest payments by check mailed to the Holders at their address set forth in the register of Holders.

The trustee will initially act as paying agent and registrar. We may change the paying agent or registrar without prior notice to the Holders of the notes, and we or any of our Subsidiaries may act as paying agent or registrar.

A Holder may transfer or exchange notes in accordance with the indenture. The registrar and the trustee may require a Holder to furnish appropriate endorsements and transfer documents in connection with a transfer of notes. Holders will be required to pay all taxes due on transfer. We are not required to transfer or exchange any note selected for redemption. Also, we are not required to transfer or exchange any note for a period of 15 days before a selection of notes to be redeemed.

The old notes are, and the new notes will be, guaranteed by all of our existing and future domestic Significant Subsidiaries, all of our existing and future Domestic Subsidiaries that guarantee or incur any Indebtedness and any other existing and future Significant Subsidiaries or Restricted Subsidiaries that guarantee or otherwise provide direct credit support for Indebtedness of ours or any of our Domestic Subsidiaries. These Subsidiary Guarantees are and will be joint and several obligations of the Subsidiary Guarantors. Each Subsidiary Guarantee is and will be subordinated to the prior payment in full of all

Senior Debt of that Subsidiary Guarantor. The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee and will be limited as necessary to prevent that Subsidiary Guarantee from constituting a fraudulent conveyance under applicable law, after giving effect to all other obligations of that Subsidiary Guarantor including its guarantee of all obligations under the Credit Agreement and the Senior Notes. See “Risk Factors — Risks Relating to the Offering — A court may void the guarantees of the notes or further subordinate the guarantees to other obligations of our subsidiary guarantors.”

A Subsidiary Guarantor may not sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person), another Person, other than us or another Subsidiary Guarantor, unless:


	(1) immediately after giving effect to that transaction, no Default or Event of Default exists; and

	(2) either:


	(a) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger assumes all the obligations of that Subsidiary Guarantor under the indenture, its Subsidiary Guarantee and the registration rights agreement pursuant to agreements satisfactory to the trustee; or

	(b) the Net Proceeds of such sale or other disposition are applied in accordance with the provisions of the indenture relating to Asset Sales.


	(1) in connection with any sale or other disposition of all or substantially all of the assets of that Subsidiary Guarantor (including by way of merger or consolidation) to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of ours, if the sale or other disposition complies with the provisions of the indenture relating to Asset Sales;

	(2) in connection with any sale of all of the Capital Stock of a Subsidiary Guarantor to a Person that is not (either before or after giving effect to such transaction) a Subsidiary of ours, if the sale complies with the provisions of the indenture relating to Asset Sales; or

	(3) if we designate any Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted Subsidiary in accordance with the applicable provisions of the indenture.

The payment of principal, interest and premium, if any, on the notes and the Subsidiary Guarantees will be subordinated to the prior payment in full in cash of all of our and the Subsidiary Guarantors’ Senior Debt, as the case may be, including Senior Debt incurred after the date of the indenture.

The holders of Senior Debt will be entitled to receive payment in full in cash of all Obligations due in respect of Senior Debt (including interest after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Debt) before the Holders of notes will be entitled to receive any payment with respect to the notes (except that Holders of notes may receive and retain Permitted Junior Securities and payments made from the trust described under “— Legal Defeasance and Covenant Defeasance”), in the event of any distribution to creditors of us or the relevant Subsidiary Guarantor:


	(1) in a liquidation or dissolution of us or the relevant Subsidiary Guarantor;

	(2) in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to us or the relevant Subsidiary Guarantor or our or its respective property;

	(3) in an assignment for the benefit of creditors; or

	(4) in any marshaling of our or the relevant Subsidiary Guarantor’s assets and liabilities.

We also may not make any payment in respect of the notes (except in Permitted Junior Securities or from the trust described under “— Legal Defeasance and Covenant Defeasance”) if:


	(1) a payment default on Designated Senior Debt occurs and is continuing beyond any applicable grace period; or

	(2) any other default occurs and is continuing on any series of Designated Senior Debt that permits holders of that series of Designated Senior Debt to accelerate its maturity and the trustee receives a notice of such default (a “Payment Blockage Notice”) from us or (a) with respect to Designated Senior Debt arising under the Credit Agreement, from the agent for the lenders thereunder, (b) with respect to Designated Senior Debt arising under the Senior Notes, from the trustee for the holders thereof or (c) with respect to any other Designated Senior Debt, from the holders of any such Designated Senior Debt.


	(1) in the case of a payment default, upon the earlier of the date on which such default is cured or waived or such Designated Senior Debt has been discharged or paid in full in cash; and

	(2) in the case of a nonpayment default, upon the earliest of (a) the date on which such nonpayment default is cured or waived, (b) 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated, (c) the date on which such payment blockage period shall have been terminated by written notice to the trustee by the party initiating such payment blockage period or (d) the date on which such Designated Senior Debt has been discharged or paid in full in cash.


	(1) 360 days have elapsed since the delivery of the immediately prior Payment Blockage Notice; and

	(2) all scheduled payments of principal, interest and premium and Liquidated Damages, if any, on the notes that have come due have been paid in full in cash.

No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the trustee will be, or can be made, the basis for a subsequent Payment Blockage Notice unless such default has been cured or waived for a period of not less than 90 days.

If the trustee or any Holder of the notes receives a payment in respect of the notes (except in Permitted Junior Securities or from the trust described under “— Legal Defeasance and Covenant Defeasance”) when:


	(1) the payment is prohibited by these subordination provisions; and

	(2) the trustee or the Holder has actual knowledge that the payment is prohibited;

the trustee or the Holder, as the ease may be, will hold the payment in trust for the benefit of the holders of Senior Debt. Upon the proper written request of the holders of Senior Debt, the trustee or the Holder, as the case may be, will deliver the amounts in trust to the holders of Senior Debt or their proper representative.

We or the trustee must promptly notify holders of Senior Debt if payment of the notes is accelerated because of an Event of Default.

The old Subsidiary Guarantee of each Subsidiary Guarantor is, and the new Subsidiary Guarantee of each Subsidiary Guarantor will be, subordinated to Senior Debt of such Subsidiary Guarantor to the same extent and in the same manner as the notes are subordinated to our Senior Debt. Payments under the old Subsidiary Guarantee of each Subsidiary Guarantor are, and payments under the new Subsidiary Guarantee of each Subsidiary Guarantor will be, subordinated to the prior payment in full in cash of all Indebtedness under the Credit Agreement, the Senior Notes and all other Senior Debt of such Guarantor,

As a result of the subordination provisions described above, in the event of our bankruptcy, liquidation or reorganization, Holders of notes may recover less ratably than creditors of us or the Subsidiary Guarantors who are holders of Senior Debt. See “Risk Factors — Risks Relating to the Offering — The notes and the subsidiary guarantees will be subordinated to our and our subsidiary guarantors’ senior indebtedness.”

On or prior to May 1, 2007, we may on one or more occasions redeem up to 35% of the aggregate principal amount of notes issued under the indenture at a redemption price of 106.875% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the redemption date, with the net cash proceeds of any Qualified Equity Offering; provided that:


	(1) at least 65% of the aggregate principal amount of notes issued under the indenture remains outstanding immediately after the occurrence of such redemption (excluding notes held by us and our Subsidiaries); and

	(2) the redemption occurs within 120 days of the date of the closing of such Qualified Equity Offering.

Except pursuant to the preceding paragraph, the notes will not be redeemable at our option prior to May 1, 2009.

On or after May 1, 2009, we may redeem all or a part of the notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest, if any, on the notes redeemed, to the applicable redemption date, if redeemed during the twelve-month period beginning on May 1 of the years indicated below:

We are not required to make mandatory redemption or sinking fund payments with respect to the notes.

If a Change of Control occurs, each Holder of notes will have the right to require us to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that Holder’s notes pursuant to a Change of Control Offer on the terms set forth in the indenture. In the Change of Control Offer, we will Offer a Change of Control Payment in cash equal to 101% of the aggregate principal amount of notes repurchased plus accrued and unpaid interest and Liquidated Damages, if any, on the notes repurchased, to the date of purchase. Subject to compliance with the provisions of the third succeeding paragraph, within 30 days following any Change of Control, we will mail a notice to the trustee and each Holder describing the transaction or transactions that constitute the Change of Control and offering to repurchase notes on the Change of Control Payment Date specified in the notice, which date will be no earlier than 30 days and no later than 60 days from the date such notice is mailed, pursuant to the procedures required by the indenture and described in such notice. We will comply with the requirements of Rule 14e-1 under

the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the indenture, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the Change of Control provisions of the indenture by virtue of such conflict.


	(1) accept for payment all notes or portions of notes properly tendered and not withdrawn pursuant to the Change of Control Offer;

	(2) deposit with the paying agent an amount equal to the Change of Control Payment in respect of all notes or portions of notes properly tendered and not withdrawn; and

	(3) deliver or cause to be delivered to the trustee the notes properly accepted together with an officers’ certificate stating the aggregate principal amount of notes or portions of notes being purchased by us.

The paying agent will promptly mail to each Holder of notes properly tendered and not withdrawn the Change of Control Payment for such notes, and the trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new note equal in principal amount to any unpurchased portion of the notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple of $1,000.

Prior to complying with any of the provisions of this “Change of Control” covenant, but in any event within 90 days following a Change of Control, we will either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of notes required by this covenant. We will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

The provisions described above that require us to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, the indenture does not contain provisions that permit the Holders of the notes to require that we repurchase or redeem the notes in the event of a takeover, recapitalization or similar transaction.

We will not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in the indenture applicable to a Change of Control Offer made by us and purchases all notes properly tendered and not withdrawn under the Change of Control Offer.

The definition of Change of Control includes a phrase relating to the direct or indirect sale, lease, transfer, conveyance or other disposition of “all or substantially all” of our properties or assets and the properties or assets of our Subsidiaries taken as a whole. Although there is a limited body of case law interpreting the phrase “substantially all,” there is no precise established definition of the phrase under applicable law. Accordingly, the ability of a Holder of notes to require us to repurchase its notes as a result of a sale, lease, transfer, conveyance or other disposition of less than all of our assets and the assets of our Subsidiaries taken as a whole to another Person or group may be uncertain.

We will not, and will not permit any of our Restricted Subsidiaries to, consummate an Asset Sale unless:


	(1) we (or the Restricted Subsidiary, as the case may be) receive consideration at the time of the Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of


	(evidenced by a resolution of our Board of Directors set forth in an officer’s certificate delivered to the trustee);

	(2) if we (or the Restricted Subsidiary, as the case may be) receive consideration at the time of the Asset Sale greater than $7.5 million, the fair market value of the assets sold or otherwise disposed of is determined by Parent’s Board of Directors (such determination to be evidenced by a resolution set forth in an officer’s certificate delivered to the trustee) or in a written opinion issued by an independent appraisal firm or financial advisor of national standing; and

	(3) at least 75% of the consideration received in the Asset Sale by us or such Restricted Subsidiary is in the form of cash, Cash Equivalents or Replacement Assets.

For purposes of this provision only, each of the following will be deemed to be cash:


	(a) any liabilities of ours or any of our Restricted Subsidiaries, as shown on our or such Restricted Subsidiary’s most recent balance sheet (other than contingent liabilities and liabilities that are by their terms subordinated to the notes or any Restricted Subsidiary’s Subsidiary Guarantee), that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases us or such Restricted Subsidiary from further liability;

	(b) any securities, notes or other obligations received by us or any such Restricted Subsidiary from such transferee that are contemporaneously, subject to ordinary settlement periods, converted by us or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; and

	(c) any Designated Non-Cash Consideration received by us or any of our Restricted Subsidiaries in the Asset Sale.

Within 365 days after the receipt of any Net Proceeds from an Asset Sale, we and our Restricted Subsidiaries may apply those Net Proceeds at our option:


	(1) to repay our or any Restricted Subsidiary’s Indebtedness (other than Subordinated Indebtedness);

	(2) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business (or enter into a definitive agreement committing us or one of our Restricted Subsidiaries to make such purchase within six months of the date of such agreement; provided that if such agreement is terminated, we or such Restricted Subsidiary may invest such Net Proceeds prior to the end of such 365-day period, or if later, prior to the end of the six-month period referred to in this clause (2)); or

	(3) to acquire other long-term assets or to make a capital expenditure, in each case, that are used or useful in a Permitted Business (or enter into a definitive agreement committing us or one of our Restricted Subsidiaries to make such acquisition or expenditure within six months of the date of such agreement; provided that if such agreement is terminated, we or such Restricted Subsidiary may invest such Net Proceeds prior to the end of such 365-day period, or if later, prior to the end of the six-month period referred to in this clause (3)).

Pending the final application of any Net Proceeds, we may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by the indenture.

Any Net Proceeds from Asset Sales that are not applied or invested within such 365-day period will constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $15.0 million, not later than 30 days after such date, we will make an offer (which offer may be made at any time within such 365 or 30-day periods) to all Holders of notes and Additional Notes, if any, and all holders of other Indebtedness that is pari passu with the notes containing provisions similar to those set forth in the indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an “Asset Sale Offer”), to purchase, on a pro rata basis, the maximum principal amount of notes and Additional Notes, if any, and such other pari passu Indebtedness equal in amount to the Excess Proceeds remaining after an asset sale offer required to be commenced prior to the Asset Sale Offer (and not just the amount thereof

that exceeds $15.0 million). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, in accordance with the procedures set forth in the indenture, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, we may use those Excess Proceeds for any purpose not otherwise prohibited by the indenture. If the aggregate principal amount of notes and Additional Notes, if any, and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds remaining after an asset sale offer required to be commenced prior to the Asset Sale Offer, the trustee will select the notes and Additional Notes, if any, and other pari passu Indebtedness to be purchased as described below under “Selection and Notice.” Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.

We will comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of the indenture, we will comply with the applicable securities laws and regulations and will not be deemed to have breached our obligations under the Asset Sale provisions of the indenture by virtue of such conflict.

The agreements governing our outstanding Senior Debt currently prohibit us from purchasing any notes, and also provide that certain change of control or asset sale events with respect to us would constitute a default under these agreements. Any future credit agreements or other agreements relating to Senior Debt to which we become a party may contain similar restrictions and provisions. In the event a Change of Control or Asset Sale occurs at a time when we are prohibited from purchasing notes, we could seek the consent of our senior lenders to the purchase of notes or could attempt to refinance the borrowings that contain such prohibition. If we do not obtain such a consent or repay such borrowings, we will remain prohibited from purchasing notes. In such case, our failure to purchase tendered notes would constitute an Event of Default under the indenture which would, in turn, constitute a default under such Senior Debt. In such circumstances, the subordination provisions in the indenture would likely restrict payments to the Holders of notes. See “Risk Factors — Risks Related to the Offering — We may be unable to purchase the notes and the Senior Notes if we experience a change of control.”

If less than all of the notes are to be redeemed or purchased at any time, the trustee will select notes for redemption or purchase as follows:


	(1) if the notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the notes are listed; or

	(2) if the notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such method as the trustee deems fair and appropriate.

No notes of $1,000 or less can be redeemed in part. Notices of redemption will be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each Holder of notes to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the notes or a satisfaction and discharge of the indenture. Notices of redemption may not be conditional.

If any note is to be redeemed in part only, the notice of redemption that relates to that note will state the portion of the principal amount of that note that is to be redeemed. A new note in principal amount equal to the unredeemed portion of the original note will be issued in the name of the Holder of notes upon cancellation of the original note. Notes called for redemption become due on the date fixed for redemption. On and after the redemption date, interest ceases to accrue on notes or portions of them called for redemption.

We will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly:


	(1) declare or pay any dividend or make any other payment or distribution on account of our Equity Interests (including, without limitation, any payment in connection with any merger or consolidation in which we are involved) or to the direct or indirect holders of our Equity Interests in their capacity as such (other than dividends or distributions payable solely in our Equity Interests (other than Disqualified Stock) or to us);

	(2) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation in which we are involved) any of our Equity Interests;

	(3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness, except (A) a payment of interest or principal at the Stated Maturity thereof or (B) Subordinated Indebtedness acquired in anticipation of satisfying a sinking fund obligation, principal installment or payment of principal upon final maturity of such Subordinated Indebtedness, in each case acquired within one year of the date of the sinking fund obligation, principal installment or payment of principal upon maturity; or

	(4) make any Restricted Investment

(all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as “Restricted Payments”), unless, at the time of and after giving effect to such Restricted Payment:


	(a) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment;

	(b) we would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant; and

	(c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by us and our Restricted Subsidiaries after the date of the indenture (excluding Restricted Payments permitted by clauses (2) and (3) of the next paragraph), is less than the sum, without duplication, of:


	(I) 50% of our Consolidated Net Income for the period (taken as one accounting period) from April 1, 2002 to the end of our most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus

	(II) 100% of the aggregate net cash proceeds received by us (including the fair market value of any Permitted Business or assets used or useful in a Permitted Business to the extent acquired in consideration of Equity Interests of ours (other than Disqualified Stock)) since the date of the indenture as a contribution to our common equity capital or from the issue or sale of Equity Interests of ours (other than Disqualified Stock) or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of ours that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of ours); plus

	(III) to the extent that any Restricted Investment that was made after the date of the indenture is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash


	return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment.

So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit:


	(1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions of the indenture;

	(2) the redemption, repurchase, retirement, defeasance or other acquisition of any Subordinated Indebtedness or of any of our Equity Interests by conversion into, or by an exchange for, shares of our Equity Interests (other than Disqualified Stock), or in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to any of our Restricted Subsidiaries) of, our Equity Interests (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (c)(II) of the preceding paragraph;

	(3) the defeasance, redemption, repurchase or other acquisition of Subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness;

	(4) the payment of any dividend by a Restricted Subsidiary of ours to the holders of its Equity Interests on a pro rata basis;

	(5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of ours or any Restricted Subsidiary of ours held by any member of our (or any of our Restricted Subsidiaries’) management pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $2.5 million in any twelve-month period; and

	(6) other Restricted Payments in an aggregate amount since the date of the indenture not to exceed $25.0 million.

The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by us or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this covenant will be determined by our Board of Directors, whose resolutions with respect thereto will be delivered to the trustee. The Board of Directors’ determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $5.0 million. Not later than the date of making any Restricted Payment, we will deliver to the trustee an officers’ certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this “Restricted Payments” covenant were computed, together with a copy of any fairness opinion or appraisal required by the indenture.

We will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness (including Acquired Debt), and we will not issue any Disqualified Stock and will not permit any of our Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that we may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and any of our Subsidiary Guarantors may incur Indebtedness (including Acquired Debt), if the Fixed Charge Coverage Ratio for our most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.00 to 1,

determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the preferred stock or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period.

The first paragraph of this covenant will not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”):


	(1) our incurrence of additional Indebtedness and letters of credit under Credit Facilities and Guarantees thereof by the Subsidiary Guarantors; provided that the aggregate principal amount of all Indebtedness of ours and our Subsidiary Guarantors incurred pursuant to this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of us and our Subsidiary Guarantors thereunder) does not exceed an amount equal to $200.0 million;

	(2) the incurrence by us and our Restricted Subsidiaries of the Existing Indebtedness;

	(3) the incurrence by us of Indebtedness represented by the notes to be issued on the date of the indenture (and the related exchange notes to be issued pursuant to the Registration Rights Agreement) and the incurrence by the Subsidiary Guarantors of the Subsidiary Guarantees of those notes (and the related exchange notes);

	(4) the incurrence by us or any of our Subsidiary Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in our business or the business of such Subsidiary Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (4), not to exceed 5.0% of Consolidated Tangible Assets at any time outstanding;

	(5) the incurrence by us or any of our Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was incurred under the first paragraph of this covenant or clauses (2), (3) or (10) of this paragraph;

	(6) the incurrence by us or any of our Restricted Subsidiaries of intercompany Indebtedness owed to us or any of the Subsidiary Guarantors; provided, however, that:


	(a) if we are the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the notes;

	(b) if a Subsidiary Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of such Subsidiary Guarantor’s Subsidiary Guarantee; and

	(c) (i) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than us or a Subsidiary Guarantor and (ii) any sale or other transfer of any such Indebtedness to a Person that is not either us or a Subsidiary Guarantor will be deemed, in each case, to constitute an incurrence of such Indebtedness by us or such Subsidiary Guarantor, as the case may be, that was not permitted by this clause (6);


	(7) the incurrence by us or any of our Restricted Subsidiaries of Hedging Obligations that are incurred in the normal course of business for the purpose of fixing or hedging currency, commodity or interest rate risk (including with respect to any floating rate Indebtedness that is permitted by the terms of the indenture to be outstanding in connection with the conduct of our respective businesses and not for speculative purposes);

	(8) the guarantee by us or any of the Subsidiary Guarantors of our Indebtedness or Indebtedness of one of our Restricted Subsidiaries that was permitted to be incurred by another provision of this covenant;


	(9) the incurrence by our Unrestricted Subsidiaries of Non-recourse Debt; provided, however, that if any such Indebtedness ceases to be Non-recourse Debt of an Unrestricted Subsidiary, such event will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of ours that was not permitted by this clause (9); and

	(10) the incurrence by us or any of our Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (10), not to exceed $35.0 million (which amount may be incurred, in whole or in part, under any of the Credit Facilities); provided that no more than $15.0 million of such additional Indebtedness shall be incurred by Restricted Subsidiaries that are not Subsidiary Guarantors.

Our Indebtedness currently outstanding under the Credit Agreement is incurred pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of this covenant.

For purposes of determining compliance with this covenant, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (10) above as of the date of incurrence thereof or is entitled to be incurred pursuant to the first paragraph of this covenant, we will, in our sole discretion, at the time the proposed Indebtedness is incurred, (x) classify all or a portion of that item of Indebtedness on the date of its incurrence under either the first paragraph of this covenant or under any category of Permitted Debt, (y) reclassify at a later date all or a portion of that or any other item of Indebtedness as being or having been incurred in any manner that complies with this covenant and (z) elect to comply with this covenant and the applicable definitions in any order.

For purposes of determining compliance with any dollar-denominated restriction on the incurrence of Indebtedness denominated in a foreign currency, the dollar-equivalent principal amount of such Indebtedness incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was incurred.

We will not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of ours and senior in any respect in right of payment to the notes; provided, however, that no Indebtedness of ours will be deemed to be contractually subordinated in right of payment solely by virtue of being unsecured. No Subsidiary Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to the Senior Debt of such Subsidiary Guarantor and senior in any respect in right of payment to such Subsidiary Guarantor’s Subsidiary Guarantee; provided, however, that no Indebtedness of a Subsidiary Guarantor will be deemed to be contractually subordinated in right of payment solely by virtue of being unsecured.

Indebtedness will be deemed to have been incurred by the survivor of a merger, at the time of such merger and, with respect to an acquired Subsidiary, at the time of such acquisition.

We will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or trade payables on any asset now owned or hereafter acquired or any proceeds therefrom, or assign or convey any right to receive income therefrom, except Permitted Liens; provided, however, that:


	(1) in the case of Liens securing Subordinated Indebtedness, the notes must be secured by a Lien on such property (including Capital Stock of a Restricted Subsidiary), assets, proceeds, income or profit that is senior in priority to such Liens; and


	(2) in the case of Liens securing Senior Subordinated Indebtedness, the notes must be equally and ratably secured by a Lien on such property (including Capital Stock of a Restricted Subsidiary), assets, proceeds, income or profit.

We will not, and will not permit any of our Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:


	(1) pay dividends or make any other distributions on or in respect of its Capital Stock to us or any of our Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to us or any other of our Restricted Subsidiaries;

	(2) make any loans or advances to us or any other of our Restricted Subsidiaries; or

	(3) sell, lease or transfer any of its properties or assets to us or any other of our Restricted Subsidiaries; or

	(4) guarantee our obligations.

However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of:


	(1) agreements as in effect on the date of the indenture or subsequent agreements relating to our Indebtedness or Indebtedness of any Subsidiary Guarantor and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date of the indenture;

	(2) the indenture, the notes and the Subsidiary Guarantees;

	(3) applicable law;

	(4) any instrument governing Indebtedness or Capital Stock of a Person acquired by us or any of our Restricted Subsidiaries as in effect at the time of such acquisition, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of the indenture to be incurred;

	(5) customary non-assignment provisions in leases entered into in the ordinary course of business;

	(6) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (3) of the preceding paragraph;

	(7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition;

	(8) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;

	(9) Liens securing Indebtedness otherwise permitted to be incurred under the provisions of the “Liens” covenant that limit the right of the debtor to dispose of the assets subject to such Liens; and


	(10) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business.

We may not, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not we are the surviving corporation) or (2) sell, assign, transfer, convey or otherwise dispose of all or substantially all of our properties or assets and the properties or assets of our Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless:


	(a) either: (x) we are the surviving corporation; or (y) the Person formed by or surviving any such consolidation or merger (if other than us) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia;

	(b) the Person formed by or surviving any such consolidation or merger (if other than us) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all of our obligations under the notes and the indenture pursuant to a supplemental indenture reasonably satisfactory to the trustee;

	(c) immediately after such transaction no Default or Event of Default exists;

	(d) we or the Person formed by or surviving any such consolidation or merger (if other than us), or to which such sale, assignment, transfer, conveyance or other disposition has been made will, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, (i) be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant or (ii) our Fixed Charge Coverage Ratio, or the Fixed Charge Coverage Ratio of the surviving Person if we are not the continuing obligor under the indenture, shall not be less than our Fixed Charge Coverage Ratio immediately prior to such transaction and any related financing transactions; and

	(e) we, or the Person formed by or surviving any such consolidation or merger (if other than us), or to which such sale, assignment, transfer, conveyance or other disposition has been made, will have delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that such transaction and any supplemental indenture entered into in connection therewith complies with all of the terms of this covenant and that all conditions precedent provided for in this covenant relating to such transaction or series of transactions have been complied with.

In addition, we may not, directly or indirectly, lease all or substantially all of our properties or assets, in one or more related transactions, to any other Person.

The Person formed by or surviving any consolidation or merger (if other than us) will succeed to, and be substituted for, and may exercise every right and power of ours under the indenture, but, in the case of a lease of all or substantially all our assets, we will not be released from the obligation to pay the principal of and interest on the notes.

Our Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by us and our Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph of the “Restricted Payments” covenant or Permitted Investments, as determined by us. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted

We will not, and will not permit any of our Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of our or our Restricted Subsidiaries’ respective properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an “Affiliate Transaction”), unless:


	(1) the Affiliate Transaction is on terms that are no less favorable to us or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by us or such Restricted Subsidiary with a Person that is not an Affiliate; and

	(2) we deliver to the trustee:


	(a) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million, a resolution of our Board of Directors set forth in an officers’ certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of our Board of Directors or Parent’s Board of Directors, or, if there are no disinterested members of the approving Board of Directors at the time, a written opinion issued by an independent appraisal firm or financial advisor of national standing that such Affiliate Transaction is fair to us or such Restricted Subsidiary, as the case may be, from a financial point of view; and

	(b) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, a written opinion issued by an independent financial advisor of national standing that such Affiliate Transaction is fair to us or such Restricted Subsidiary, as the case may be, from a financial point of view.

The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph:


	(1) transactions between or among us and/or our Restricted Subsidiaries;

	(2) transactions with a Person that is an Affiliate of ours solely because we own an Equity Interest in such Person;

	(3) advances to our officers or officers of any of our Restricted Subsidiaries in the ordinary course of business to provide for the payment of reasonable expenses incurred by such persons in the performance of their responsibilities to us or such Restricted Subsidiary or in connection with any relocation;

	(4) sales of Equity Interests (other than Disqualified Stock) to Affiliates of ours;

	(5) fees and compensation paid to and indemnity provided on behalf of directors, officers or employees of the Company or any Restricted Subsidiary of ours in the ordinary course of business;

	(6) any employment agreement that is in effect on the date of the indenture and any such employment agreement entered into by us or any of our Restricted Subsidiaries after the date of the indenture in the ordinary course of our business or the business of such Restricted Subsidiary;

	(7) any Restricted Payment that is not prohibited by the “Restricted Payments” covenant;

	(8) any sale, conveyance or other transfer of accounts receivable and other related assets customarily transferred in a Securitization Transaction;


	(9) payment of premiums to and the receipt of proceeds of insurance from, Laurier Indemnity Company and Laurier Indemnity Company, Ltd.;

	(10) payments to or receipts from Extendicare Holdings, Inc. pursuant to any tax sharing agreement entered into for the purpose of preparing a consolidated tax return of Extendicare Holdings, Inc.;

	(11) payments to or receipts from Virtual Care Provider, Inc. in connection with the provision of technology services to third parties pursuant to the terms of management, consulting or other similar agreements; and

	(12) transactions pursuant to the services agreement between us and Virtual Care Provider, Inc. relating to certain services provided by us and Virtual Care Provider, Inc. to each other as in effect on the date the notes are first issued.

If we or any of our Restricted Subsidiaries acquires or creates another domestic Significant Subsidiary or any other Domestic Subsidiary that guarantees or incurs any Indebtedness or any other Significant Subsidiary or Restricted Subsidiary that guarantees or otherwise provides direct credit support for Indebtedness of ours or any of our Domestic Subsidiaries after the date of the indenture, then that newly acquired or created Significant Subsidiary, Domestic Subsidiary or other Restricted Subsidiary will execute and deliver to the trustee a supplemental indenture providing for a Subsidiary Guarantee and deliver an opinion of counsel satisfactory to the trustee within 10 business days of the date on which it was acquired or created; provided, however, that the foregoing will not apply to Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance with the indenture for so long as they continue to constitute Unrestricted Subsidiaries.

We will not, and will not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to us and our Subsidiaries taken as a whole.

Whether or not required by the SEC, so long as any notes are outstanding, we will furnish to the trustee and Holders of notes, within the time periods specified in the SEC’s rules and regulations:


	(1) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if we were required to file such Forms, including a “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and, with respect to the annual information only, a report on the annual financial statements by our certified independent accountants; and

	(2) all current reports that would be required to be filed with the SEC on Form 8-K if we were required to file such reports.

If we have designated any of our Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding paragraph will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of the financial condition and results of operations of us and our Restricted Subsidiaries separate from the financial condition and results of operations of our Unrestricted Subsidiaries.

In addition, following the consummation of the exchange Offer contemplated by the registration rights agreement, whether or not required by the SEC, we will file a copy of all of the information and reports referred to in clauses (1) and (2) above with the SEC for public availability within the time periods

specified in the SEC’s rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. In addition, we and the Subsidiary Guarantors have agreed that, for so long as any notes remain outstanding, we will furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

We will be deemed to have furnished such reports to the trustee and Holders of notes if we have filed such reports with the SEC via the EDGAR filing system and such reports are publicly available.


	(1) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the notes (whether or not prohibited by the subordination provisions of the indenture);

	(2) default in payment when due of the principal of or premium, if any, on the notes (whether or not prohibited by the subordination provisions of the indenture);

	(3) failure by us or any of our Restricted Subsidiaries to comply with the “Restricted Payments,” “Incurrence of Indebtedness and Issuance of Preferred Stock” or “Merger, Consolidation or Sale of Assets” covenants;

	(4) failure by us or any of our Restricted Subsidiaries for 30 days after notice to comply with the provisions described under the headings “Repurchase at the Option of Holders — Asset Sales” and “Repurchase at the Option of Holders — Change of Control;”

	(5) failure by us or any of our Restricted Subsidiaries for 60 days after notice to comply with any other covenant or agreement in the indenture or the notes;

	(6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by us or any of our Restricted Subsidiaries (or the payment of which is guaranteed by us or any of our Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the indenture, if that default:


	(a) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “Payment Default”); or

	(b) results in the acceleration of such Indebtedness prior to its express maturity,

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more;


	(7) failure by us or any of our Restricted Subsidiaries to pay final judgments (to the extent not fully covered by insurance) aggregating in excess of $20.0 million, which judgments are not paid, discharged or stayed for a period of 60 consecutive days;

	(8) except as permitted by the indenture, any Subsidiary Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, denies or disaffirms its obligations under its Subsidiary Guarantee; and

	(9) certain events of bankruptcy or insolvency described in the indenture with respect to us or any of our Significant Subsidiaries.

In the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to us, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together, would constitute a Significant Subsidiary, all outstanding notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the trustee or the Holders of at least 25% in principal amount of the then outstanding notes may declare all the notes to be due and payable immediately.

Holders of the notes may not enforce the indenture or the notes except as provided in the indenture. Subject to certain limitations, Holders of a majority in principal amount of the then outstanding notes may direct the trustee in its exercise of any trust or power. The trustee may withhold from Holders of the notes notice of any continuing Default or Event of Default if it determines that withholding notes is in their interest, except a Default or Event of Default relating to the payment of principal or interest or Liquidated Damages, if any.

The Holders of a majority in aggregate principal amount of the notes then outstanding by notice to the trustee may on behalf of the Holders of all of the notes waive any existing Default or Event of Default and its consequences under the indenture except a continuing Default or Event of Default in the payment of interest or Liquidated Damages, if any, on, or the principal of, the notes.

In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by us or on our behalf with the intention of avoiding payment of the premium that we would have had to pay if we then had elected to redeem the notes pursuant to the optional redemption provisions of the indenture, an equivalent premium will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the notes. If an Event of Default occurs prior to May 1, 2009 by reason of any willful action (or inaction) taken (or not taken) by us or on our behalf with the intention of avoiding the prohibition on redemption of the notes prior to May 1, 2009, then the premium specified in the indenture will also become immediately due and payable to the extent permitted by law upon the acceleration of the notes.

We are required to deliver to the trustee annually a statement regarding compliance with the indenture. Upon becoming aware of any Default or Event of Default, we are required to deliver to the trustee a statement specifying such Default or Event of Default.

No director, Officer, employee, incorporator or stockholder of ours or of any Subsidiary Guarantor, as such, will have any liability for any obligations of ours or of the Subsidiary Guarantors under the notes, the indenture, the Subsidiary Guarantees, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of notes by accepting a note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the notes. The waiver may not be effective to waive liabilities under the federal securities laws.

We may, at our option and at any time, elect to have all of our obligations discharged with respect to the outstanding notes and all obligations of the Subsidiary Guarantors discharged with respect to their Subsidiary Guarantees (“Legal Defeasance”) except for:


	(1) the rights of Holders of outstanding notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on such notes when such payments are due from the trust referred to below;

	(2) our obligations with respect to the notes concerning issuing temporary notes, registration of notes, mutilated, destroyed, lost or stolen notes and the maintenance of an office or agency for payment and money for security payments held in trust;


	(3) the rights, powers, trusts, duties and immunities of the trustee, and our and the Subsidiary Guarantors’ obligations in connection therewith; and

	(4) the Legal Defeasance provisions of the indenture.

In addition, we may, at our option and at any time, elect to have our obligations and the obligations of the Subsidiary Guarantors released with respect to certain covenants that are described in the indenture (“Covenant Defeasance”) and thereafter any omission to comply with those covenants will not constitute a Default or Event of Default with respect to the notes. In the event Covenant Defeasance occurs, certain events (not including non-payment, bankruptcy, receivership, rehabilitation and insolvency events) described under “— Events of Default and Remedies” will no longer constitute an Event of Default with respect to the notes.


	(1) we must irrevocably deposit with the trustee, in trust, for the benefit of the Holders of the notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized Firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding notes on the Stated Maturity or on the applicable redemption date, as the case may be, and we must specify whether the notes are being defeased to maturity or to a particular redemption date;

	(2) in the case of Legal Defeasance, we must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that (a) we have received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel will confirm that, the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

	(3) in the case of Covenant Defeasance, we must deliver to the trustee an opinion of counsel reasonably acceptable to the trustee confirming that the Holders of the outstanding notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

	(4) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);

	(5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (excluding the indenture) to which we or any of our Subsidiaries is a party or by which we or any of our Subsidiaries is bound;

	(6) we must deliver to the trustee an officers’ certificate stating that the deposit was not made by us with the intent of preferring the Holders of notes over our other creditors with the intent of defeating, hindering, delaying or defrauding our creditors or others; and

	(7) we must deliver to the trustee an officers’ certificate and an opinion of counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

Except as provided in the next two succeeding paragraphs, the indenture or the notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the

notes, including Additional Notes, if any, then outstanding voting as a single class (including, without limitation, consents obtained in connection with a purchase of, or tender Offer or exchange Offer for notes), and any existing Default or Event of Default except a continuing Default or Event of Default in the payment of interest or Liquidated Damages, if any, on, or the principal of, the notes or compliance with any provision of the indenture or the notes may be waived with the consent of the Holders of a majority in principal amount of the notes, including Additional Notes, if any, then outstanding voting as a single class (including, without limitation, consents obtained in connection with a purchase of, or tender Offer or exchange Offer for notes).

Without the consent of each Holder affected, an amendment or waiver may not (with respect to any notes held by a non-consenting Holder):


	(1) reduce the principal amount of notes whose Holders must consent to an amendment, supplement or waiver;

	(2) reduce the principal of or change the fixed maturity of any note or alter the provisions with respect to the redemption of the notes;

	(3) make any change in the provisions of the indenture described above under the heading “— Repurchase at the Option of Holders;”

	(4) reduce the rate of or change the time for payment of interest on any note;

	(5) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Liquidated Damages, if any, on the notes (except a rescission of acceleration of the notes by the Holders of at least a majority in aggregate principal amount of the notes and a waiver of the payment default that resulted from such acceleration);

	(6) make any note payable in money other than that stated in the notes;

	(7) make any change in the provisions of the indenture relating to waivers of past Defaults or the rights of Holders of notes to receive payments of principal of, or interest or premium or Liquidated Damages, if any, on the notes;

	(8) waive a redemption payment with respect to any note;

	(9) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee or the indenture, except in accordance with the terms of the indenture;

	(10) make any change to the subordination provisions of the indenture (including applicable definitions) that would adversely affect the Holders of the notes; or

	(11) make any change in the preceding amendment and waiver provisions.

Notwithstanding the preceding, without the consent of any Holder of notes, we, the Subsidiary Guarantors and the trustee may amend or supplement the indenture or the notes:


	(1) to cure any ambiguity, defect or inconsistency;

	(2) to provide for uncertificated notes in addition to or in place of certificated notes;

	(3) to provide for the assumption by a successor corporation of our obligations under the indenture in the case of a merger or consolidation or sale of all or substantially all of our assets;

	(4) to make any change that would provide any additional rights or benefits to the Holders of notes or that does not adversely affect the legal rights under the indenture of any such Holder; or

	(5) to make any change to comply with any requirement of the SEC in order to effect or maintain the qualification of the indenture under the Trust Indenture Act.

The Credit Agreement restricts our ability to modify or amend the terms of the notes, except for amendments that would extend the dates for payment or reduce the amount of principal or rate of interest on the notes.

The indenture will be discharged and will cease to be of further effect as to all notes issued thereunder, when:


	(a) all notes that have been authenticated, except lost, stolen or destroyed notes that have been replaced or paid and notes for whose payment money has been deposited in trust and thereafter repaid to us, have been delivered to the trustee for cancellation; or

	(b) all notes that have not been delivered to the trustee for cancellation have become due and payable by reason of the mailing of a notice of redemption or otherwise or will become due and payable within one year, and we have irrevocably deposited or caused to be deposited with the trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, noncallable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the notes not delivered to the trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of maturity or redemption;


	(2) no Default or Event of Default has occurred and is continuing on the date of the deposit or will occur as a result of the deposit and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which we or any Subsidiary Guarantor is a party or by which we or any Subsidiary Guarantor is bound;

	(3) we have paid or caused to be paid all sums payable by us under the indenture; and

	(4) we have delivered irrevocable instructions to the trustee under the indenture to apply the deposited money and/or proceeds from non-callable Government Securities toward the payment of the notes at maturity or the redemption date, as the case may be.

In addition, we must deliver an officers’ certificate and an opinion of counsel to the trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.

If the trustee becomes a creditor of ours or of any Subsidiary Guarantor, the indenture limits its right to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest, it must (i) eliminate such conflict within 90 days, (ii) apply to the SEC for permission to continue or (iii) resign.

The Holders of a majority in principal amount of the then outstanding notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy available to the trustee, subject to certain exceptions. The indenture provides that in case an Event of Default occurs and is continuing, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any Holder of notes, unless such Holder has Offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense.

Anyone who receives this prospectus may obtain a copy of the indenture without charge by writing to us at the address set forth in the “Prospectus Summary” section of this prospectus.

The new notes will be issued in fully registered book entry form, and will be represented by one or more global notes in minimum denominations of $1,000 and integral multiples of $1,000 in excess of $1,000. All Holders of new notes who exchanged their old notes in the exchange offer will hold their interests through the global notes regardless of whether they purchased their interests pursuant to Rule 144A under the Securities Act or Regulation S.

The global notes will be deposited upon issuance with the trustee as custodian for The Depository Trust Company (“DTC”), in New York, New York, and registered in the name of Cede & Co., as nominee of DTC (such nominee being referred to herein as the “Global Note Holder”), in each case for credit to an account of a direct or indirect participant in DTC as described below.

Except as set forth below, the global notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the global notes may not be exchanged for notes in certificated form except in the limited circumstances described below. See “— Exchange of Global Notes for Certificated Notes.” Except in the limited circumstances described below, owners of beneficial interests in the global notes will not be entitled to receive physical delivery of notes in certificated form.

Transfers of beneficial interests in the global notes will be subject to the applicable rules and procedures of DTC and its direct or indirect participants (including, if applicable, those of the Euroclear System (“Euroclear”) and Clearstream Banking S.A. (“Clearstream”) through which Holders of the old notes issued pursuant to Regulation S initially held such notes), which may change from time to time.

The following description of the operations and procedures of DTC, Euroclear and Clearstream are provided solely as a matter of convenience. These operations and procedures are solely within the control of the respective settlement systems and are subject to changes by them. We take no responsibility for these operations and procedures and urge investors to contact the system or their participants directly to discuss these matters.

DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the “Participants”) and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the initial purchasers), banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly (collectively, the “Indirect Participants”). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests in, and transfers of ownership interests in, each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.


	(1) upon deposit of the Global Notes, DTC will credit the accounts of Participants designated by the initial purchasers with portions of the principal amount of the Global Notes; and

	(2) ownership of these interests in the Global Notes will be shown on, and the transfer of ownership of these interests will be effected only through, records maintained by DTC (with respect


	to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interest in the Global Notes).

Investors in the Rule 144A Global Notes who are Participants in DTC’s system may hold their interests therein directly through DTC. Investors in the Rule 144A Global Notes who are not Participants may hold their interests therein indirectly through organizations (including Euroclear and Clearstream) which are Participants in such system. Investors in the Regulation S Global Notes must initially hold their interests therein through Euroclear or Clearstream, if they are participants in such systems, or indirectly through organizations that are participants in such systems. After the expiration of the Restricted Period (but not earlier), investors may also hold interests in the Regulation S Global Notes through Participants in the DTC system other than Euroclear and Clearstream. Euroclear and Clearstream will hold interests in the Regulation S Global Notes on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositories, which are Morgan Guaranty Trust Company of New York, Brussels Office, as operator of Euroclear, and Citibank, N.A., as operator of Clearstream. All interests in a Global Note, including those held through Euroclear or Clearstream, may be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream may also be subject to the procedures and requirements of such systems. The laws of some states require that certain Persons take physical delivery in definitive form of securities that they own. Consequently, the ability to transfer beneficial interests in a Global Note to such Persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a Person having beneficial interests in a Global Note to pledge such interests to Persons that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests.

Except as described below, owners of interest in the Global Notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or “Holders” thereof under the indenture for any purpose.

Payments in respect of the principal of, and interest and premium and Liquidated Damages, if any, on a Global Note registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered Holder under the indenture. Under the terms of the indenture, we and the trustee will treat the Persons in whose names the notes, including the Global Notes, are registered as the owners of the notes for the purpose of receiving payments and for all other purposes. Consequently, neither we, the trustee nor any agent of ours or the trustee has or will have any responsibility or liability for:


	(1) any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to or payments made on account of beneficial ownership interest in the Global Notes or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in the Global Notes; or

	(2) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.

DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date unless DTC has reason to believe it will not receive payment on such payment date. Each relevant Participant is credited with an amount proportionate to its beneficial ownership of an interest in the principal amount of the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or us. Neither we nor the trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the notes, and we and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

Subject to the transfer restrictions set forth under “Notice to Investors,” transfers between Participants in DTC will be effected in accordance with DTC’s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream will be effected in accordance with their respective rules and operating procedures.

Subject to compliance with the transfer restrictions applicable to the notes described herein, crossmarket transfers between the Participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC’s rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counterparty in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary to take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may not deliver instructions directly to the depositories for Euroclear or Clearstream.

DTC has advised us that it will take any action permitted to be taken by a Holder of notes only at the direction of one or more Participants to whose account DTC has credited the interests in the Global Notes and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the notes, DTC reserves the right to exchange the Global Notes for legended notes in certificated form, and to distribute such notes to its Participants.

Although DTC, Euroclear and Clearstream have agreed to the foregoing to facilitate transfers of interests in the Rule 144A Global Notes and the Regulation S Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and may discontinue such procedures at any time. Neither we nor the trustee nor any of their respective agents will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

A Global Note is exchangeable for definitive notes in registered certificated form (“Certificated Notes”) if:


	(1) DTC (a) notifies us that it is unwilling or unable to continue as depositary for the Global Notes and we fail to appoint a successor depositary or (b) has ceased to be a clearing agency registered under the Exchange Act; or

	(2) there has occurred and is continuing a Default or Event of Default with respect to the notes.

In addition, beneficial interests in a Global Note may be exchanged for Certificated Notes upon prior written notice given to the trustee by or on behalf of DTC in accordance with the indenture. In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests in Global Notes will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend referred to in “Notice to Investors,” unless that legend is not required by applicable law.

Certificated Notes may not be exchanged for beneficial interests in any Global Note unless the transferor first delivers to the trustee a written certificate (in the form provided in the indenture) to the effect that such transfer will comply with the appropriate transfer restrictions applicable to such notes. See “Notice to Investors.”

Prior to the expiration of the Restricted Period, beneficial interests in the Regulation S Global Note may be exchanged for beneficial interests in the Rule 144A Global Note only if:


	(1) such exchange occurs in connection with a transfer of the notes pursuant to Rule 144A; and

	(2) the transferor first delivers to the trustee a written certificate (in the form provided in the indenture) to the effect that the notes are being transferred to a Person:


	(a) who the transferor reasonably believes to be a qualified institutional buyer within the meaning of Rule 144A;

	(b) purchasing for its own account or the account of a qualified institutional buyer in a transaction meeting the requirements of Rule 144A; and

	(c) in accordance with all applicable securities laws of the states of the United States and other jurisdictions.

Beneficial interest in a Rule 144A Global Note may be transferred to a Person who takes delivery in the form of an interest in the Regulation S Global Note, whether before or after the expiration of the Restricted Period, only if the transferor first delivers to the trustee a written certificate (in the form provided in the indenture) to the effect that such transfer is being made in accordance with Rule 903 or 904 of Regulation S or Rule 144 (if available) and that, if such transfer occurs prior to the expiration of the Restricted Period, the interest transferred will be held immediately thereafter through Euroclear or Clearstream.

Transfers involving exchanges of beneficial interests between the Regulation S Global Notes and the Rule 144A Global Notes will be effected in DTC by means of an instruction originated by the trustee through the DTC Deposit/ Withdrawal at Custodian System. Accordingly, in connection with any such transfer, appropriate adjustments will be made to reflect a decrease in the principal amount of the Regulation S Global Note and a corresponding increase in the principal amount of the Rule 144A Global Note or vice versa, as applicable. Any beneficial interest in one of the Global Notes that is transferred to a Person who takes delivery in the form of an interest in the other Global Note will, upon transfer, cease to be an interest in such Global Note and will become an interest in the other Global Note and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interest in such other Global Note for so long as it remains such an interest. The policies and practices of DTC may prohibit transfers of beneficial interests in the Regulation S Global Note prior to the expiration of the Restricted Period.

We will make payments in respect of the notes represented by the Global Notes (including principal, premium, if any, interest and Liquidated Damages, if any) by wire transfer of immediately available funds to the accounts specified by the Global Note Holder. We will make all payments of principal, interest and premium and Liquidated Damages, if any, with respect to Certificated Notes by wire transfer of immediately available funds to the accounts specified by the Holders of Certificated Notes or, if no such account is specified, by mailing a check to each such Holder’s registered address. The notes represented by the Global Notes are expected to be eligible to trade in the PORTAL Market^SM and to trade in DTC’s Same-Day Funds Settlement System, and any permitted secondary market trading activity in such notes will, therefore, be required by DTC to be settled in immediately available funds. We expect that secondary trading in any Certificated Notes will also be settled in immediately available funds.

Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for a full disclosure of all such terms, as well as any other capitalized terms used herein for which no definition is provided.


	(1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and

	(2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

“Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings.

“Asset Sale” means the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, (x) a sale and leaseback, (y) the issuance, sale or other transfer of any Equity Interests in any of our Unrestricted Subsidiaries, and (z) the receipt of proceeds of insurance paid on account of the loss of or damage to any asset and awards of compensation for any asset taken by condemnation, eminent domain or similar proceeding, and including the receipt of proceeds of business interruption insurance) in each case, in one or a series of related transactions that have a fair market value in excess of $2.0 million or for Net Proceeds in excess of $2.0 million; provided that the sale, conveyance or other disposition of all or substantially all of the assets of us and our Restricted Subsidiaries taken as a whole will be governed by the provisions of the indenture described above under “— Repurchase at the Option of Holders — Change of Control” and/or the provisions described above under “— Merger, Consolidation or Sale of Assets” and not by the provisions of the “Asset Sales” covenant.

Notwithstanding the preceding, the following items will not be deemed to be Asset Sales:


	(1) the sale, lease or other disposition of equipment, inventory, accounts receivable or other assets or rights in the ordinary course of business;

	(2) a transfer of assets or rights by us to a Subsidiary Guarantor or by a Subsidiary Guarantor of ours to us or to another Subsidiary Guarantor of ours;

	(3) an issuance of Equity Interests by a Subsidiary Guarantor to us or to another Subsidiary Guarantor of ours;

	(4) a Restricted Payment or Permitted Investment that is permitted by the “Restricted Payments” covenant;

	(5) the sale of property or equipment that has become worn out, obsolete or damaged;

	(6) the sale or other disposition of Cash Equivalents;

	(7) the sale of accounts receivable pursuant to a Securitization Transaction; or

	(8) the designation of any Restricted Subsidiary as an Unrestricted Subsidiary or the contribution to the capital of any Unrestricted Subsidiary in accordance with the provisions described under “Designation of Restricted and Unrestricted Subsidiaries.”

“Attributable Debt” in respect of a sale and leaseback transaction means, at the time of determination, the greater of (a) the fair value of the property subject to such arrangement (as determined in good faith by our Board of Directors) or (b) the present value (discounted at the interest rate borne by the notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such sale and leaseback transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended.


	(1) with respect to a corporation, the board of directors of the corporation;

	(2) with respect to a partnership, the board of directors of the general partner of the partnership; and

	(3) with respect to any other Person, the board or committee of such Person serving a similar function.

“Capital Lease Obligation” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP.


	(1) in the case of a corporation, any and all shares, including common stock and preferred stock;

	(2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

	(3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and

	(4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person.


	(1) United States dollars;

	(2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than six months from the date of acquisition;

	(3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers’ acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of “B” or better;

	(4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;

	(5) commercial paper having the highest rating obtainable from Moody’s Investors Service, Inc. or Standard & Poor’s Rating Services and in each case maturing within six months after the date of acquisition; and

	(6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition.


	(1) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of our assets to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a “Group”), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the indenture);

	(2) the approval by the holders of our Capital Stock of any plan or proposal for the liquidation or dissolution of us (whether or not otherwise in compliance with the provisions of the indenture);


	(3) any Person or Group (other than Parent or any direct or indirect wholly owned Subsidiary of Parent) becomes the owner, directly or indirectly, beneficially or of record, of shares representing more than 35% of the aggregate ordinary voting power represented by our issued and outstanding Capital Stock on a fully-diluted basis;

	(4) the replacement of a majority of Parent’s or our Board of Directors over a two-year period from the directors who constituted Parent’s or our Board of Directors, as applicable, at the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of Parent’s or our Board of Directors, as applicable, then still in Office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved; or

	(5) we consolidate with, or merge with or into, any Person, or any Person consolidates with, or merges with or into, us, in any such event pursuant to a transaction in which any of our outstanding Voting Stock or the outstanding Voting Stock of such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where our Voting Stock outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance).

“Consolidated Cash Flow” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus:


	(1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus

	(2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus

	(3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus

	(4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus

	(5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business,

“Consolidated Net Income” means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:


	(1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;

	(2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; and

	(3) the cumulative effect of a change in accounting principles will be excluded.

In addition, notwithstanding the foregoing, for the purposes of the covenant described under “— Certain Covenants — Restricted Payments” only, there shall be excluded from Consolidated Net Income any nonrecurring charges relating to any premium or penalty paid, write off or deferred finance costs or other charges in connection with redeeming or retiring any Indebtedness at or prior to its Stated Maturity.

“Consolidated Tangible Assets” means the total assets, less goodwill and other intangibles, shown on our most recent consolidated balance sheet, determined on a consolidated basis in accordance with GAAP less all write-ups (other than write-ups in connection with acquisitions) subsequent to the date of the indenture in the book value of any asset (except any such intangible assets) owned by us or any of our Restricted Subsidiaries.

“Credit Agreement” means that certain Second Amended and Restated Credit Agreement, dated as of the date of the indenture, by and among us, the Subsidiary Guarantors, Lehman Commercial Paper Inc., as administrative agent, and the lenders party thereto, including any related notes, guarantees, security and collateral documents, instruments and agreements executed in connection therewith.

“Credit Facilities” means one or more debt facilities or agreements (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other lenders providing for revolving credit loans, term loans, notes, receivables Financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured, restated or refinanced (including any agreement to extend the maturity thereof and adding additional borrowers or guarantors) in whole or in part from time to time under the same or any other agent, lender or group of lenders and including increasing the amount of available borrowings thereunder; provided that such increase is permitted by the “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant above.

“Default” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

“Designated Non-Cash Consideration” means the fair market value of total consideration received by us or any of our Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-Cash Consideration pursuant to an officer’s certificate, setting forth the basis of such valuation, executed by our principal executive Officer and principal financial Officer, less the amount of cash or Cash Equivalents received in connection with the Asset Sale; provided, however, the total amount of Designated Non-Cash Consideration outstanding at one time does not exceed the greater of $15.0 million and 2.5% of Consolidated Tangible Assets.

“Designated Senior Debt” means (i) any Indebtedness outstanding under the Credit Agreement, (ii) any Indebtedness represented by the Senior Notes and (iii) any other Senior Debt permitted by the indenture, the principal amount of which is $25.0 million or more and that has been designated by us as “Designated Senior Debt.”

“Disqualified Stock” means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require us to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that we may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with the “Restricted Payments” covenant.

“Domestic Subsidiary” means any Restricted Subsidiary of ours that was formed under the laws of the United States or any state of the United States or the District of Columbia.

“Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

“Existing Indebtedness” means Indebtedness of us and our Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of the indenture, until such amounts are repaid.

“Fixed Charges” means, with respect to any specified Person for any period, the sum, without duplication, of:


	(1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus

	(2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus

	(3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or secured by a Lien on assets of such Person, whether or not such Guarantee or Lien is called upon; plus

	(4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries other than dividends on Equity Interests payable solely in Equity Interests of such Person (other than Disqualified Stock) or to such Person or one of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP.

“Fixed Charge Coverage Ratio” means, with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the reference period for which the Fixed Charge

Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock, and the use of the proceeds therefrom as if the same had occurred at the beginning of the applicable four-quarter reference period; provided, however, that the Fixed Charges of such Person attributable to interest on any Indebtedness under a revolving credit facility computed on a pro forma basis will be computed based on the average daily balance of such Indebtedness during the four-quarter reference period and using the interest rate in effect at the end of such period.


	(1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, subsequent to the commencement of the applicable four-quarter reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of such period, including any Consolidated Cash Flow and any pro forma expense and cost reductions that have occurred or are reasonably expected to occur, in the reasonable judgment of our chief financial officer (regardless of whether those cost savings or operating improvements could then be reflected in pro forma financial statements in accordance with Regulation S-X promulgated under the Securities Act or any other regulation or policy of the SEC related thereto);

	(2) the Consolidated Cash Flow attributable to discontinued operations as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date will be excluded; and

	(3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of the indenture.

“Guarantee” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.

“Hedging Obligations” means, with respect to any specified Person, the obligations of such Person under:


	(1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements;

	(2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates; and

	(3) foreign exchange contracts, currency swap agreements or other agreements or arrangements designed to protect such Person against fluctuations in currency values.

“Indebtedness” means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:


	(1) in respect of borrowed money;

	(2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

	(3) in respect of banker’s acceptances;

	(4) representing Capital Lease Obligations;

	(5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or

	(6) representing any Hedging Obligations;

if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.


	(1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; and

	(2) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness.

“Investments” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that Investments shall not be deemed to include extensions of trade credit by us or any of our Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices. If we or any of our Subsidiaries sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of ours such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of ours, we will be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of the “Restricted Payments” covenant. The acquisition by us or any of our Subsidiaries of a Person that holds an Investment in a third Person will be deemed to be an Investment by us or such Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of the “Restricted Payments” covenant.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any Financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.

“Net Income” means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:


	(1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and

	(2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).

“Net Proceeds” means the aggregate cash proceeds received by us or any of our Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration, including Designated Non-Cash Consideration, deemed to be cash pursuant to the provisions of “Repurchase at the Option of Holders — Asset Sales,” received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Senior Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP.


	(1) as to which neither we nor any of our Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender;

	(2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the notes) of ours or any of our Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and

	(3) as to which the lenders have been notified in writing that they will not have any recourse to our stock or assets or the stock or assets of any of our Restricted Subsidiaries.

“Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

“Parent” means Extendicare, Inc., a corporation organized under the laws of Canada.

“Permitted Business” means the lines of business conducted by us and our Restricted Subsidiaries on the date of the indenture and the businesses reasonably related thereto within the healthcare services sector.


	(1) any Investment in us or in one of our Wholly Owned Restricted Subsidiaries;

	(2) any Investment outstanding as of the date hereof;

	(3) any Investment in Cash Equivalents;

	(4) loans and advances to employees and officers of us and our Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $2.5 million at any one time outstanding;


	(5) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers’ compensation, performance and other similar deposits;

	(6) any Investment by us or any of our Restricted Subsidiaries in a Person engaged in a Permitted Business, if as a result of such Investment:


	(a) such Person becomes one of our Wholly Owned Restricted Subsidiaries; or

	(b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, us or one of our Wholly Owned Restricted Subsidiaries;


	(7) any Investment made as a result of the receipt of non-cash consideration (including Designated Non-Cash Consideration) from an Asset Sale that was made pursuant to and in compliance with the covenant described above under “— Repurchase at the Option of Holders — Asset Sales;”

	(8) any acquisition of assets, Equity Interests or other securities solely in exchange for the issuance of our Equity Interests (other than Disqualified Stock);

	(9) any Investments received in compromise of obligations of such Persons incurred in the ordinary course of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer;

	(10) Hedging Obligations;

	(11) any Investment made in a Special Purpose Vehicle in connection with a Securitization Transaction or to provide adequate capital to a Special Purpose Vehicle in anticipation of one or more Securitization Transactions; and

	(12) other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (12) that are at the time outstanding, not to exceed $25.0 million.


	(1) Equity Interests in us or any Subsidiary Guarantor; or

	(2) debt securities that are subordinated (to substantially the same extent as, or to a greater extent than, the notes and the Subsidiary Guarantees are subordinated to Senior Debt under the indenture) to all Senior Debt and any debt securities issued in exchange for Senior Debt.


	(1) Liens securing Senior Debt, where such Indebtedness was permitted by the terms of the indenture to be incurred;

	(2) Liens in favor of us or the Subsidiary Guarantors;

	(3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with us or any Restricted Subsidiary of ours; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with us or such Restricted Subsidiary;

	(4) Liens on property existing at the time of acquisition of the property by us or any of our Restricted Subsidiaries; provided that such Liens were in existence prior to the contemplation of such acquisition;

	(5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature;


	(6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of the second paragraph of the “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant covering only the assets acquired with such Indebtedness;

	(7) Liens existing on the date of the indenture;

	(8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor;

	(9) pledges or deposits in the ordinary course of business to secure lease obligations or nondelinquent obligations under workers’ compensation, unemployment insurance or similar legislation;

	(10) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with our business or assets or the business or assets of any of our Subsidiaries incurred in the ordinary course of business;

	(11) Liens to secure Hedging Obligations; and

	(12) Liens incurred by us or any Restricted Subsidiary of ours with respect to obligations that do not exceed $20.0 million at any one time outstanding.

“Permitted Refinancing Indebtedness” means any Indebtedness of ours or any of our Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of ours or any of our Restricted Subsidiaries (other than intercompany Indebtedness); provided that:


	(1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith);

	(2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded;

	(3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the notes on terms at least as favorable to the Holders of notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and

	(4) such Indebtedness is incurred either by us or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded.

Notwithstanding the foregoing, any Indebtedness incurred under Credit Facilities pursuant to the covenant described under “— Certain Covenants — Incurrence of Indebtedness and Issuance of Preferred Stock” shall be subject only to the refinancing provision in the definition of Credit Facilities and not pursuant to the requirements set forth in the definition of Permitted Refinancing Indebtedness.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

“Qualified Equity Offering” means any underwritten public or any private Offering of our Capital Stock (excluding Disqualified Stock) or any of Parent’s Capital Stock (excluding Disqualified Stock), in the latter case, only to the extent that the net cash proceeds therefrom are contributed to our common or non-redeemable preferred equity capital.

“Replacement Assets” means any properties or assets used or useful in a Permitted Business.

“Restricted Investment” means an Investment other than a Permitted Investment.

“Restricted Subsidiary” of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary.

“Securitization Transaction” means any sale, conveyance or other disposition by us or any of our Restricted Subsidiaries of any accounts receivable or any interest therein to a Special Purpose Vehicle.


	(1) all Indebtedness of ours or of any Subsidiary Guarantor outstanding under Credit Facilities and all Hedging Obligations with respect thereto;

	(2) any Indebtedness represented by the Senior Notes;

	(3) any other Indebtedness of ours or of any Subsidiary Guarantor permitted to be incurred under the terms of the indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the notes or any Subsidiary Guarantee; and

	(4) all Obligations with respect to the items listed in the preceding clauses (1), (2) and (3).

Notwithstanding anything to the contrary in the preceding, Senior Debt will not include:


	(1) any liability for federal, state, local or other taxes owed or owing by us;

	(2) any Indebtedness of ours to any of our Subsidiaries or other Affiliates;

	(3) any trade payables; or

	(4) the portion of any Indebtedness that is incurred in violation of the indenture.

“Senior Subordinated Indebtedness” means (i) with respect to us, the notes and any other Indebtedness of ours that specifically provides that such Indebtedness is to have the same rank as the notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of ours which is not Senior Debt and (ii) with respect to any Subsidiary Guarantor, the Subsidiary Guarantees and any other Indebtedness of such Subsidiary Guarantor that specifically provides that such Indebtedness is to have the same rank as the Subsidiary Guarantees in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of such Subsidiary Guarantor which is not Senior Debt.

“Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of the indenture.

“Special Purpose Vehicle” means a bankruptcy-remote entity or trust or other special purpose entity which is formed by us, any Subsidiary of ours or any other Person for the purpose of, and engages in no material business other than, acting as a buyer in a Securitization Transaction or other similar transactions of accounts receivable or other similar assets, Financing the purchases it makes as such a buyer and realizing, directly or indirectly, on such accounts receivable or other similar assets.

“Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness (including, without limitation, a scheduled repayment or a scheduled sinking fund payment), the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay,

“Subordinated Indebtedness” means any Indebtedness (whether outstanding on the Issue Date or thereafter incurred) that is subordinated or junior in right of payment to the notes or the Subsidiary Guarantees pursuant to a written agreement, executed by the Person to whom such Indebtedness is owed, to that effect.


	(1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and

	(2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof).

“Subsidiary Guarantee” means the Guarantee of the notes by each of the Subsidiary Guarantors pursuant to the indenture and any additional Guarantee of the notes to be executed by any Subsidiary of ours pursuant to the covenant described above under “— Certain Covenants — Additional Subsidiary Guarantees.”

“Subsidiary Guarantors” means all of our existing and future domestic Significant Subsidiaries, all of our existing and future Domestic Subsidiaries that guarantee or incur any Indebtedness and any other existing and future Significant Subsidiaries or Restricted Subsidiaries that guarantee or otherwise provide direct credit support for Indebtedness of ours or any of our Domestic Subsidiaries.

“Unrestricted Subsidiary” means any Subsidiary of ours (or any successor to any of them) that is designated by our Board of Directors as an Unrestricted Subsidiary pursuant to a board resolution, but only to the extent that such Subsidiary:


	(1) has no Indebtedness other than Non-Recourse Debt;

	(2) is not party to any agreement, contract, arrangement or understanding with us or any Restricted Subsidiary of ours unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to us or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of ours;

	(3) is a Person with respect to which neither we nor any of our Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s Financial condition or to cause such Person to achieve any specified levels of operating results;

	(4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of ours or any of our Restricted Subsidiaries; and

	(5) has at least one director on its Board of Directors that is not a director or executive Officer of ours or any of our Restricted Subsidiaries and has at least one executive Officer that is not a director or executive Officer of ours or any of our Restricted Subsidiaries.

Any designation of a Subsidiary of ours as an Unrestricted Subsidiary will be evidenced to the trustee by filing with the trustee a certified copy of the board resolution giving effect to such designation and an officers’ certificate certifying that such designation complied with the preceding conditions and was permitted by the “Restricted Payments” covenant. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary will be

deemed to be incurred by a Restricted Subsidiary of ours as of such date and, if such Indebtedness is not permitted to be incurred as of such date under the “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, we will be in default of such covenant. Our Board of Directors may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by one of our Restricted Subsidiaries of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under the “Incurrence of Indebtedness and Issuance of Preferred Stock” covenant, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; (2) no Default or Event of Default would be in existence following such designation; and (3) such Subsidiary executes and delivers to the trustee a supplemental indenture providing for a Subsidiary Guarantee.

“Voting Stock” of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person.

“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:


	(1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by

	(2) the then outstanding principal amount of such Indebtedness.

THIS SUMMARY IS OF A GENERAL NATURE AND IS INCLUDED HEREIN SOLELY FOR INFORMATIONAL PURPOSES. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED AS BEING, LEGAL OR TAX ADVICE. NO REPRESENTATION WITH RESPECT TO THE CONSEQUENCES TO ANY PARTICULAR PURCHASER OF THE NEW NOTES IS MADE. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES.

The following is a summary of certain material U.S. federal income tax consequences of the exchange offer to holders of the old notes. The discussion does not consider the aspects of the ownership and disposition of the old notes or the new notes. A discussion of the U.S. federal income tax consequences of holding and disposing of the notes is contained in the offering memorandum with respect to the old notes.

The following summary deals only with notes held as capital assets by purchasers at the issue price who are U.S. holders and not with special classes of holders, such as dealers in securities or currencies, financial institutions, partnerships or other entities treated as partnerships for U.S. federal income tax purposes, life insurance companies, tax-exempt entities, persons holding old notes as part of a hedge, conversion, constructive sale transaction, straddle or other risk reduction strategy, and persons whose functional currency is not the U.S. dollar. Persons considering exchanging old notes for new notes should consult their own tax advisors concerning these matters and as to the tax treatment under foreign, state and local tax laws and regulations. We cannot provide any assurance that the Internal Revenue Service will not challenge the conclusions stated below. We have not sought and will not seek a ruling from the Internal Revenue Service on any of the matters discussed below.

This summary is based upon the Internal Revenue Code of 1986, Treasury Regulations, Internal Revenue Service rulings and pronouncements and judicial decisions now in effect, all of which are subject to change at any time. Changes in this area of law may be applied retroactively in a manner that could cause the income tax consequences to vary substantially from the consequences described below, possibly adversely affecting a U.S. holder. The authorities on which this discussion is based are subject to various interpretations, and it is therefore possible that the federal income tax treatment of the purchase, ownership and disposition of the notes may differ from the treatment described below.

The exchange of old notes for the new notes under the terms of the exchange offer should not constitute a taxable exchange. As a result:


	•	A holder should not recognize taxable gain or loss as a result of exchanging old notes for the new notes under the terms of the exchange offer;

	•	The holder’s holding period of the new notes should include the holding period of the old notes exchanged for the new notes; and

	•	A holder’s adjusted tax basis in the new notes should be the same as the adjusted tax basis, immediately before the exchange, of the old notes exchanged for the new notes.

If you are a broker-dealer and hold old notes for your own account as a result of market-making activities or other trading activities and you receive new notes in exchange for old notes in the exchange offer, then you may be a statutory underwriter and must acknowledge that you will deliver a prospectus in connection with any resale of these new notes. This prospectus, as it may be amended or supplemented from time to time, may be used by a broker-dealer in connection with resales of new notes received in exchange for old notes where such old notes were acquired as a result of market-making activities or other trading activities. We acknowledge and, unless you are a broker-dealer, you must acknowledge that you are not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in a distribution of new notes. We have agreed that we will make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale.

Neither we nor any subsidiary guarantor will receive any proceeds in connection with the exchange offer or any sale of new notes by broker-dealers. New notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the new notes or a combination of these methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealers or the purchasers of any such new notes. Any broker-dealer that resells new notes that were received by it for its own account pursuant to the exchange offer and any broker-dealer that participates in a distribution of such new notes may be deemed to be an “underwriter” within the meaning of the Securities Act and any profit on any such resale of new notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver, and by delivering, a prospectus, a broker-dealer will not be deemed to admit that it is an “underwriter” within the meaning of the Securities Act. See “The Exchange Offer — Resales of New Notes.”

Foley & Lardner LLP, Milwaukee, Wisconsin, will issue an opinion about some legal matters with respect to the new notes and the new guarantees.

The consolidated financial statements of Extendicare Health Services, Inc. and subsidiaries as of December 31, 2003 and 2002, and for each of the years in the three-year period ended December 31, 2003 and the related financial statement schedule have been included herein in reliance upon the reports of KPMG LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing. The KPMG reports refer to the Company’s change in its method of accounting for goodwill effective January 1, 2002.

We file annual, quarterly and current reports and other information with the Commission. You may read and copy any document we file at the Commission’s public reference room at 450 Fifth Street, N.W., Washington, D.C. Please call the Commission at 1-800-SEC-0330 for further information on the public reference room. Our Commission filings are also available to the public at the Commission’s web site at http://www.sec.gov.

Our parent company, Extendicare Inc., maintains a website at www.extendicare.com. Our annual report on Form 10-K, our quarterly reports on Form 10-Q and certain other of our Commission filings are available free of charge from the Extendicare website. You can also contact our Communications

We are not including the information contained on, or available through, Extendicare’s website, as part of, or incorporating such information by reference into, this prospectus.

The accompanying notes are an integral part of these condensed consolidated financial statements.

Extendicare Health Services, Inc. and its subsidiaries (hereafter referred to as the “Company”, unless the context requires otherwise) operates in one reporting segment, nursing and assisted living facilities, throughout the United States. The Company is an indirect wholly owned subsidiary of Extendicare Inc. (“Extendicare”), a Canadian publicly traded company.

The accompanying condensed consolidated financial statements as of, and for the three months ended March 31, 2004 and 2003 are unaudited and have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and the footnotes required by accounting principles generally accepted in the United States of America for complete statements. In the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. The condensed consolidated balance sheet information as of December 31, 2003 has been derived from audited financial statements.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s most significant estimates include the recoverability of long-lived assets, and provisions for bad debts, Medicaid and Medicare revenue rate settlements, self-insured general and professional liability claims, facility closure accruals, workers compensation accruals, self-insured health and dental claims and income taxes. Actual results could differ from those estimates.

The accompanying financial statements include the accounts of the Company and its majority-owned subsidiaries. All transactions between Extendicare and its majority owned subsidiaries have been eliminated.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2003 contained in the Company’s Annual Report on Form 10-K. Certain reclassifications have been made to the 2003 condensed consolidated financial statements to conform to the presentation for 2004.

On February 12, 2004, the Company acquired a skilled nursing facility in Washington, which was previously leased, for $1.4 million.

The Company completed two development projects involving additions to existing facilities. In February 2004, the Company opened 16 units in an assisted living facility in Kentucky and in March 2004, opened 20 nursing beds in a skilled nursing facility in Wisconsin.

On December 31, 2003 the Company acquired one skilled nursing facility (99 beds) in Wisconsin for $4.1 million in cash.

initial cash proceeds of $30.0 million and contingent consideration in the form of a $10.0 million Vendor Take Back note and two other contingent and interest bearing notes. The three notes have an aggregate potential value of up to $30.0 million plus interest. The notes were due in March 2004 and would have been retired out of the proceeds from the sale or refinancing of the facilities by Greystone. For the period September 2000 through March 2004, the Company retained the right of first refusal to repurchase the facilities. The Company also retained an option to repurchase the facilities until March 2003; however, the Company elected not to place an offer to repurchase the facilities. Upon maturity of the notes in March 2004, unless the facilities were sold or refinanced, the Company was entitled to receive the $10.0 million Vendor Take Back note and accrued interest pursuant to the terms of the Vendor Take Back and other contingent notes.

In 2000, the option to repurchase along with the significant portion of the sales price being contingent, resulted in the disposition being accounted for as a deferred sale in accordance with SFAS No. 66 and, accordingly, there was no gain or loss recorded on the initial transaction. The fixed assets have been classified as “Assets held under Divestiture Agreement”, and as of March 31, 2004, had a net book value of $33.7 million. As of December 31, 2003 the Company anticipated the final consideration to be received in 2004, and therefore the “Assets held under Divestiture Agreement” have been classified as a current asset as of December 31, 2003, and the Company ceased depreciating these assets as of January 1, 2004. Upon receipt of the final consideration, the Company will record the disposition of the assets and a gain based upon the difference between the total consideration received and the net book value of the Assets Held under the Divestiture Agreement.

The initial cash proceeds of $30.0 million have been classified in the balance sheet as “Deposits held under Divestiture Agreement.” Consistent with the reclassification of the Assets Held under Divestiture Agreement, the Deposits held under Divestiture Agreement have been classified as a current liability as of December 31, 2003 and March 31, 2004.

For additional information pertaining to Assets (and Deposits Held) Under Divestiture Agreement, refer to Note — Subsequent Events.

For Medicare revenues earned prior to the implementation of Medicare Prospective Payment System (“PPS”) on January 1, 1999 and for Medicaid programs with a retrospective reimbursement system, differences between revenues that the Company ultimately expects to realize from these programs and amounts received are reflected as accounts receivable, or as accrued liabilities when payments have exceeded revenues that the Company ultimately expects to realize. At March 31, 2004, accounts receivable from both Medicare and Medicaid state programs, net of a general contractual allowance, totaled $32.1 million (December 31, 2003 — $37.2 million). This amount includes $6.2 million (December 31, 2003 — $11.3 million), that is expected to be substantially collected within one year and is included within accounts receivable as a current asset. The remaining balance of $25.9 million (December 31, 2003 — $25.9 million) is reported within “Other Assets.” The Company is pursuing collection of a number of outstanding Medicare and Medicaid settlement issues.

For a specific staffing cost issue, a settlement of the first year of seven specific claim years was reached prior to the January 2003 Provider Reimbursement Review Board (“PRRB”) hearing, and during

2003 the Company continued to negotiate the remaining years in dispute with the Fiscal Intermediary (“FI”). In January 2004, the Company negotiated and subsequently received a cash settlement of $5.6 million. The settlement did not result in a significant adjustment from the recorded receivable balance.

For another specific Medicare receivable issue involving the allocation of overhead costs, the first of three specific claim years was presented to the PRRB at a hearing in January 2003. The hearing procedures were discontinued after the parties negotiated a methodology for resolution of the claim for one of the years in dispute. The negotiated settlement for this and other issues relating to the 1996 cost report year, resulted in no adjustment to the recorded receivable balance, and the Company subsequently collected $3.0 million from the FI. For the remaining two specific claim years, the Company continued to negotiate with the FI and failing a negotiated settlement, was prepared to proceed to a PRRB hearing scheduled in April 2004.

The Company has a hearing scheduled in September 2004 for another Medicare receivable issue in dispute involving a Director of Nursing staff cost issue in the amount of $3.8 million.

The Company holds $21.4 million in notes receivable due from Tandem Health Care Inc. (“Tandem”). For $17.4 million of the notes that resulted from the sale of properties in 2001 and 2002, the notes are due between April 2006 and May 2007. In February 2004, Tandem refinanced two of its nursing facilities and the Company subsequently received prepayment in full of $4.4 million of the notes receivable held in respect of these properties. The Company also holds a $4.0 million note from Tandem that, along with the $3.7 indemnification escrow funds, is due in December 2007.

For additional information pertaining to Medicare and Medicaid Settlement Receivables, refer to Note 8 — Subsequent Events.

Long-term debt consisted of the following as of March 31, 2004 and December 31, 2003:

On June 28, 2002, the Company completed a private placement of $150 million of its 9.5% Senior Notes due July 1, 2010 (the “2010 Senior Notes”), which were issued at a discount of 0.25% of par to yield 9.54%. In January 2003, the Company completed its offer to exchange new 9.5% Senior Notes due 2010 that have been registered under the Securities Act of 1933 for the Notes issued in June 2002. The terms of the new 2010 Senior Notes are identical to the terms of the 2010 Senior Notes issued in June 2002 and are guaranteed by all existing and future active subsidiaries of the Company. Also on June 28, 2002, the Company entered into an interest rate swap agreement and an interest rate cap agreement. See Note 6 for the terms of the swap and cap agreements.

Concurrent with the sale of the 2010 Senior Notes, the Company established a new five-year $105 million senior secured revolving credit facility (the “Credit Facility”) that is used to back letters of credit and for general corporate purposes. Borrowings under the Credit Facility bear interest, at the Company’s option, at the Eurodollar rate or the prime rate, plus applicable margins, depending upon the Company’s leverage ratio. As of March 31, 2004 and December 31, 2003, the Company had no borrowings from the Credit Facility. The unused portion of the Credit Facility, that is available for working capital and corporate purposes, after reduction for outstanding letters of credit of $33.7 million, was $71.3 million as of March 31, 2004.

The Credit Facility is secured by a perfected, first priority security interest in certain tangible and intangible assets and all of the Company’s capital stock and the capital stock of the Company’s subsidiary guarantors. The Credit Facility is also secured by a pledge of 65% of the voting shares of the voting stock of the Company and the Company’s subsidiary guarantor’s foreign subsidiaries, if any. The credit facility contains customary covenants and events of default and is subject to various mandatory prepayment and commitment reductions.

The 2010 Senior Notes and the Credit Facility contain a number of covenants, including: restrictions on the payment of dividends by the Company; limitations on capital expenditures, investments, redemptions of the Company’s common stock and changes of control of the Company; as well as financial covenants, including fixed charge coverage, debt leverage, and tangible net worth ratios. The Company is required to make mandatory prepayments of principal upon the occurrence of certain events, such as certain asset sales and certain issuances of securities. The Company is permitted to make voluntary prepayments at any time under the Credit Facility. The 2010 Senior Notes are redeemable at the option of the Company starting on July 1, 2006. The redemption prices, if redeemed during the 12-month period beginning on July 1 of the year indicated, are as follows:

The Company is in compliance with all of the financial covenants as of March 31, 2004.

The Company has no independent assets or operations, the guarantees of the 2010 Senior Notes are full and unconditional, and joint and several, and any of the Company’s subsidiaries that do not guarantee the 2010 Senior Notes are minor. There are no significant restrictions on the ability of the Company to obtain funds from its subsidiaries by loan or dividend.

In December 1997, the Company issued $200 million of 9.35% Senior Subordinated Notes due 2007 (the “2007 Notes”). The 2007 Notes are unsecured senior subordinated obligations of the Company subordinated in right of payment to all existing and future senior indebtedness of the Company, which includes all borrowings under the Credit Facility as well as all indebtedness not refinanced by the Credit

Facility. At March 31, 2004, Extendicare Inc. held $27.9 million of the 2007 Notes. The 2007 Notes mature on December 15, 2007. Interest on the 2007 Notes is payable semi-annually.

The 2007 Notes are redeemable at the option of the Company. The redemption prices, if redeemed during the 12-month period beginning on December 15 of the year indicated, are as follows:

For additional information pertaining to the Company’s line of credit and long-term debt, refer to Note 8 — Subsequent Events.

After the issuance of the 2010 Senior Notes in June 2002, all but $32 million of the Company’s outstanding debt obligations have fixed interest rates. In June 2002, the Company entered into an interest rate swap (used to hedge the fair value of fixed-rate debt obligations) with a notional amount of $150 million maturing in December 2007. Under this swap, the Company pays a variable rate of interest equal to the one-month London Interbank Borrowing Rate (“LIBOR”) (1.09% as of March 31, 2004), adjustable monthly, plus a spread of 4.805% and receives a fixed rate of 9.35%. Under the terms of the interest rate swap, the counterparty can call the swap upon 30 days notice. This swap is designated as a fair value hedge and, as a result, changes in the market value of the swap had no impact on the income statement during 2003 or 2004.

Also in June 2002, the Company entered into an interest rate cap with a notional amount of $150 million maturing in December 2007. Under this cap, the Company pays a fixed rate of interest equal to 0.24% and receives a variable rate of interest equal to the excess, if any, of the one-month LIBOR rate, adjusted monthly, over the cap rate of 7%. Under the terms of the interest rate cap, the counterparty can call the cap upon 30 days notice. A portion of the interest rate cap with a notional amount of $19 million is designated as a hedging instrument (cash-flow hedge) to effectively limit possible increases in interest payments under variable-rate debt obligations. The remainder of the interest rate cap with a notional amount of $131 million is used to offset increases in variable-rate interest payments under the interest rate swap to the extent one-month LIBOR exceeds 7%. This portion of the interest rate cap is not designated as a hedging instrument under SFAS 133.

the cash-flow hedges is a liability recorded in other long-term liabilities, which was $0.1 million as of March 31, 2004. A gain of $40,000 (net of income tax effect) was credited to AOCI for the three months ended March 31, 2004. The fair value of the portion of the interest rate cap not designated as a hedging instrument is a liability recorded in other long-term liabilities, which was $0.7 million as of March 31, 2004. None of the gains or losses in AOCI (net of income tax effect) related to the interest rate cap are expected to be reclassified into interest expense as a yield adjustment of the hedged debt obligation.

For additional information pertaining to the Company’s accounting for derivative instruments and hedging activities, refer to Note 8 — Subsequent Events.

The Company operates two nursing facilities that are adjacent to each other in Indiana, both of which require capital renovations. After evaluation of the respective operations, in March 2004 the Company made a decision, subject to State of Indiana approval, to consolidate the two operations into one renovated facility. Upon completion of the renovations, the refurbished facility will accommodate all residents within both facilities, however, the total available beds will be decreased by 46. The consolidation of the two operations is expected to be complete by March 2005. As a result of the decision to close the one facility, the Company recorded a provision of $1.6 million for impairment of long-lived assets.

Reserves for divested operations and facility closures primarily relate to provisions for the settlement of Medicare and Medicaid claims and other amounts with third parties. The settlement of such amounts depends on actions by those third parties and negotiations by the Company, and therefore may not be resolved within the next or several years. Below is a summary of activity of the accrued liabilities balance relating to divested operations and facility closures:


(1)	In 2002, provisions include a provision for closure and exit costs of $5.3 million and selling expenses of $1.2 million relating to the sale of Florida assets.

(2)	In 2003, provisions include the write-off of $1.3 million of previously accrued Medicare claims receivable relating to discontinued operations.

On April 5, 2004, the Company commenced a tender offer to purchase any and all of its outstanding $200 million 2007 Notes. Approximately 61% of the 2007 Notes (which represents the percentage of 2007 Notes not owned by Extendicare Inc.) were tendered in the tender offer and repaid on April 22, 2004. The Company intends to redeem the 2007 Notes not tendered in the tender offer on May 24, 2004.

On April 22, 2004, the Company issued $125 million aggregate principal amount of 6.875% Senior Subordinated Notes due May 1, 2014 (the “2014 Notes”), pursuant to Rule 144A and Regulation S under the Securities Act of 1933, as amended. The 2014 Notes were issued at a price of 97.5001% of par to yield 7.23%.

The net proceeds from the issuance of the 2014 Notes were approximately $117.4 million (net of a discount of $3.1 million and fees and expenses of $4.5 million). The Company used a portion of these net proceeds to purchase for cash approximately $104.9 million aggregate principal amount of the 2007 Notes tendered in the tender offer and it intends to use the remaining net proceeds, to, among other things, redeem any 2007 Notes not tendered in the tender offer and to pay related fees and expenses of the tender offer and redemption.

The 2014 Notes are fully and unconditionally guaranteed on a senior subordinated basis by all of the Company’s existing and future domestic significant subsidiaries, all of the Company’s existing and future domestic subsidiaries that guarantee or incur any indebtedness and any other existing and future significant subsidiaries or restricted subsidiaries that guarantee or otherwise provide direct credit support for indebtedness of the Company or any of its domestic subsidiaries. The 2014 Notes and guarantees are general unsecured obligations of the Company and the Company’s subsidiaries.

On or after May 1, 2009, the Company may redeem all or part of the 2014 Notes, at the redemption prices (expressed as percentages of principal amount) listed below, plus accrued and unpaid interest, if any, to the date of redemption, if redeemed during the twelve-month period commencing on May 1 of the years set forth below:

Subject to the conditions of the tender offer, the holders of the 2007 Notes who validly tendered their 2007 Notes or whose 2007 Notes were redeemed by the Company are entitled to the premium that, in the aggregate, amounts to approximately $6.6 million. As a result of the tender offer, redemption and repayment of the 2007 Notes, in the second quarter of 2004, the Company will write-off deferred finance charges of approximately $2.4 million related to the 2007 Notes and incur legal costs estimated at $0.3 million. In addition, pursuant to termination of the Company’s existing interest rate swap and cap agreements (discussed below), the Company will record a gain of approximately $3.3 million which will be recognized in the second quarter of 2004. The net after tax impact to “Accumulated Deficit” is a loss of

approximately $3.9 million. Below is a summary of the adjustment to the Company’s “Accumulated Deficit” account:

In connection with the offering of the 2014 Notes, the Company amended and restated its current credit facility. The terms of the amended and restated credit facility included the following changes, among other things:


	•	a two year maturity extension, to June 28, 2009;

	•	an additional $50.0 million of senior secured financing on a revolving basis, resulting in total borrowing capacity of $155.0 million;

	•	an interest rate spread which ranges from the Eurodollar rate plus 2.50% per annum to 3.25% per annum or the base rate plus 1.50% per annum to 2.25% per annum, subject, in each case, to adjustments based on the Company’s senior leverage ratio;

	•	a commitment fee of 0.50% per annum on the undrawn capacity regardless of utilization;

	•	a requirement that the Company maintain a maximum senior leverage ratio starting at 4.25 to 1 and reducing to 4.00 to 1 in 2007;

	•	a requirement that the Company maintain a maximum senior secured leverage ratio starting at 2.25 to 1 and reducing to 2.00 to 1 in 2007; and

	•	changes to the collateral securing the facility to permit the Company to substitute certain assets with other assets.

The Company expects to borrow approximately $30.0 million under the amended and restated credit facility to partially fund the redemption of any and all of the outstanding $200.0 million 2007 Notes. Under the credit facility, “EBITDA” is defined as net income (loss) before income taxes, interest expense net of interest income, depreciation and amortization, and non-cash, non-recurring (gains) and losses, including disposal of assets, provision for closure and exit costs and other items, early retirement of debt and impairment of long-lived assets. Based on the Company’s adjusted capitalization and EBITDA for the quarter ended March 31, 2004, all borrowings to be drawn under the amended and restated credit facility will initially bear interest at a rate per annum equal to:

and thereafter, in each case, subject to adjustments based on our senior leverage ratio.

In April 2004, coterminous with the issuance of the 2014 Notes, the Company terminated its existing interest rate swap and cap agreements for an aggregate gain of approximately $3.3 million to be recognized in the second quarter of 2004. This swap was a hedge against the 2007 Notes. In addition, to hedge the Company’s exposure to fluctuations in market value, on April 22, 2004, the Company entered into two new interest rate swap agreements and two new interest rate cap agreements relating to the 2010 Senior Notes and the 2014 Notes.

With respect to the 2010 Senior Notes, the Company entered into an interest rate swap agreement expiring July 1, 2010 with a notional amount of $150.0 million. This agreement effectively converted up to $150.0 million of fixed interest rate indebtedness into variable interest rate indebtedness. Under the terms of this interest rate swap agreement, the counterparty can call the swap at any time on or after July 1, 2006 with payments as determined under the agreement. The Company also entered into an interest rate cap agreement expiring July 1, 2010 with a notional amount of $150.0 million. Under this cap agreement, the Company paid on April 22, 2004 an upfront fee of $3.5 million to the counterparty that will be amortized to interest expense over the term of the cap. The Company will receive a variable rate of interest equal to the excess, if any, of the six-month LIBOR rate, adjusted semi-annually, over the cap rate of 7%. The Company uses the interest rate cap to offset possible increases in interest payments under the interest rate swap agreement expiring July 1, 2010 caused by increases in market interest rates over a certain level. Under the terms of the interest rate cap agreement, the counterparty can call the cap if the interest rate swap agreement expiring July 1, 2010 is terminated.

With respect to the 2014 Notes, on April 22, 2004, the Company entered into an interest rate swap agreement expiring May 1, 2014 with a notional amount of $125.0 million. This agreement effectively converted up to $125.0 million of fixed interest rate indebtedness into variable interest rate indebtedness. Under the terms of this interest rate swap agreement, the counterparty can call the swap at any time on or after May 1, 2009 with payments as determined under the agreement. The Company also entered into an interest rate cap agreement expiring May 1, 2014 with a notional amount of $125.0 million. Under this cap agreement, the Company pays a fixed rate of interest equal to 0.75% to the counterparty and receives a variable rate of interest equal to the excess, if any, of the six-month LIBOR rate, adjusted semi-annually, over the cap rate of 7%. The Company uses the interest rate cap to offset possible increases in interest payments under the interest rate swap agreement expiring May 1, 2014 caused by increases in market interest rates over a certain level. Under the terms of the interest rate cap agreement, the counterparty can call the cap if the interest rate swap agreement expiring May 1, 2014 is terminated.

Refinancing of Loan Resulting From Acquisition of Previously-leased Facilities

On October 1, 2002 the Company completed a transaction in which it exercised its right to acquire seven previously-leased nursing facilities in the states of Ohio and Indiana for $17.9 million. The purchase price included cash of $7.4 million and a $10.5 million interest bearing 10-year note. The interest rate on the note was subject to negotiation and failing an agreement would have been settled through arbitration. In the latter part of 2003, the Company prepaid $4.5 million against the note and agreed to refinance the balance of the 10-year note. On April 15, 2004 the Company refinanced the facilities with mortgages whose interest rates vary with LIBOR, and repaid the remaining balance of the note due to the seller.

In April 2004, we reached a negotiated settlement with the Fiscal Intermediary in respect of the remaining two years regarding an issue involving the allocation of overhead costs. The settlement will result in the payment of approximately $7.7 million to the Company, of which $6.5 million will be received in May 2004 and the balance upon conclusion of resolution of other matters concerning the cost

report years under appeal. There are certain matters related to the settlement and cost report years that were appealed that have to be resolved with the FI, which could influence the financial impact of the settlement. The Company anticipates that the resolution of these matters and the determination of the financial impact of the settlement, if any, will be recorded within the second quarter of 2004 financial results.

In April 2004, the Company concluded negotiations with Greystone and as a result will receive the final consideration of $10.0 million on the Vendor Take Back note plus $2.6 million of interest, and therefore complete the September 2000 Divestiture Agreement. The interest payment was received on April 29, 2004 and the $10.0 million note payment will be received in June 2004. The initial transaction in 2000 was treated as a deferred sale, as a significant portion of the proceeds was contingent, and the Company held an option to repurchase the facilities. The finalization of this transaction will result in the recognition in the second quarter of 2004 of a pre-tax gain from the sale of assets of $4.8 million and interest income of $1.6 million.

On May 1, 2004, the Company opened a new assisted living facility (40 units) in Chippewa Falls, Wisconsin.

As of March 31, 2004, the Company had capital expenditure purchase commitments outstanding of approximately $8.6 million. During the first quarter of 2004, the Company completed and opened an addition to a nursing facility (20 beds) and an addition to an assisted living facility (16 units) with a total cost of approximately $3.5 million. In addition, the Company has entered into construction agreements for additions to one nursing facility (18 beds), additions to three assisted living facilities (71 units) and the construction of one free-standing assisted living facility (40 units), which was opened on May 1, 2004. The Company expects one of the remaining four projects to be completed in 2004 and the other three projects

in early 2005. The total cost of these five projects is approximately $11.7 million and purchase commitments of $6.8 million are outstanding.

The Company has also approved eight additional development projects, which are expected to be completed in 2005 or later, that will expand or add to our assisted living facilities (329 units). The total cost of these eight projects is approximately $36.3 million and $1.5 million of purchase commitments are outstanding.

The Company insures certain risks with affiliated insurance subsidiaries of Extendicare Inc. and third-party insurers. The insurance policies cover comprehensive general and professional liability (including malpractice insurance) for the Company’s health providers, assistants and other staff as it relates to their respective duties performed on the Company’s behalf, property coverage, workers’ compensation and employers’ liability in amounts and with such coverage and deductibles as determined by the Company, based on the nature and risk of its businesses, historical experiences, availability and industry standards. The Company also self insures for health and dental claims, in certain states for workers’ compensation and employers’ liability and for general and professional liability claims. Self-insured liabilities with respect to general and professional liability claims are included within the accrual for self-insured liabilities.

The Company and its subsidiaries are defendants in actions brought against them from time to time in connection with their operations. While it is not possible to estimate the final outcome of the various proceedings at this time, such actions generally are resolved within amounts provided.

The U.S. Department of Justice and other federal agencies are increasing resources dedicated to regulatory investigations and compliance audits of healthcare providers. The Company is diligent to address these regulatory efforts.

In 1998, the Company disposed of its pharmacy operations to Omnicare, Inc. Subsequently, the Company entered into a Preferred Provider Agreement, the terms of which enabled Omnicare to execute Pharmacy Service Agreements and Consulting Service Agreements with all of the Company’s skilled nursing facilities. Under the terms of the agreement, the Company secured “per diem” pricing arrangements for pharmacy supplies for the first four years of the Agreement, which period expired December 2002. The Preferred Provider Agreement contains a number of provisions that involve sophisticated calculations to determine the “per diem” pricing during this first four-year period. Under the “per diem” pricing arrangement, pharmacy costs fluctuate based upon occupancy levels in the facilities. The “per diem” rates were established assuming a declining “per diem” value over the initial four years of the contract to coincide with the phase-in of the Medicare PPS rates. Omnicare has subsequently asserted that “per diem” rates for managed care and Medicare beneficiaries are subject to an upward adjustment based upon a comparison of per diem rates to pricing models based on Medicaid rates.

In 2001, the Company and Omnicare brought a matter to arbitration involving a “per diem” pricing rate billed for managed care residents. This matter was subsequently settled and amounts reflected in the financial results. The parties are currently negotiating the pricing of drugs for Medicare residents for the years 2001 and 2002, and should this matter not be settled, the matter will be taken to arbitration. Provisions for settlement of this claim are included within the financial statements.

assets, primarily in Florida. Damage amounts, if any, cannot be reasonably estimated based on information available at this time. An arbitration hearing has not yet been scheduled. The Company believes it has interpreted correctly and has complied with the terms of the Preferred Provider Agreement; however, there can be no assurance that other claims will not be made with respect to the agreement.

All providers are subject to surveys and inspections by state and federal authorities to ensure compliance with applicable laws and licensure requirements of the Medicare and Medicaid programs. The survey process is intended to review the actual provision of care and services, and remedies for assessed deficiencies can be levied based upon the scope and severity of the cited deficiencies. Remedies range from the assessment of fines to the withdrawal of payments under the Medicare and Medicaid programs. Should a deficiency not be addressed through a plan of correction, a facility can be decertified from the Medicare and Medicaid program. As of March 31, 2004, the Company has certain facilities under plans of correction. While it is not possible to estimate the final outcome of the required corrective action, the Company has accrued for known costs.

The Company’s earnings are highly contingent on Medicare and Medicaid funding rates, and the effective management of staffing and other costs of operations that are strictly monitored through state and federal regulatory authorities. The Company is unable to predict whether the federal or any state government will adopt changes in their reimbursement systems, or if adopted and implemented, what effect such initiatives would have on the Company. Limitations on Medicare and Medicaid reimbursement for healthcare services are continually proposed. Changes in applicable laws and regulations could have an adverse effect on the levels of reimbursement from governmental, private and other sources.

Prior to October 1, 2002, the incremental Medicare relief packages received from the Balanced Budget Refinement Act (“BBRA”) and the Benefits Improvement and Protection Act (“BIPA”) provided a total of $2.7 billion in temporary Medicare funding enhancements to the long-term care industry. The funding enhancements implemented by the BBRA and BIPA fall into two categories. The first category is “Legislative Add-ons” which included a 16.66% add-on to the nursing component of the Resource Utilization Groupings (“RUGs”) rate and the 4% base adjustment. On September 30, 2002, the Legislative Add-ons expired, or “Medicare Cliff”, resulting in a reduction in Medicare rates for all long-term care providers and a reduction of approximately $16.7 million per annum in Medicare funding for the Company.

The second category is “RUGs Refinements” which involves an initial 20% add-on for 15 RUGs categories identified as having high intensity, non-therapy ancillary services. The 20% add-ons from three RUGs categories were later redistributed to 14 rehabilitation categories at an add-on rate of 6.7% each. In April 2002, the Centers for Medicare and Medicaid Services (“CMS”) announced that it would delay the refinement of the RUGs categories thereby extending the related funding enhancements until September 30, 2003. In May 2003, CMS released a rule to maintain the current RUGs classification until October 1, 2004. Further to, but independent of this, Congress enacted legislation directing CMS to conduct a study on the RUGs classification system and report its recommendations by January 2005. The implementation of a RUGs Refinement change, where all or part of the enhancement is discontinued, could have a significant impact on the Company. Based upon the Medicare case mix and census for the quarter ended March 31, 2004, the Company estimates that it received an average $25.27 per resident day, which on an annualized basis amounts to $20.5 million related to the RUGs Refinements.

In February 2003, CMS announced its plan to reduce its level of reimbursement for uncollectible Part A co-insurance. Under current law, skilled nursing facilities are reimbursed 100% for any bad debts incurred. Under the plan announced by CMS, the reimbursement level would be reduced to 70% over a three year period as follows: 90% effective for the government fiscal year commencing October 1, 2003; 80% for the government fiscal year commencing October 1, 2004; and 70% for the government fiscal year commencing October 1, 2005 and thereafter. This plan is consistent with the Part A co-insurance reimbursement plan applicable to hospitals. CMS did not implement the rule change effective October 1, 2003, and continues to review the proposed plan. The Company estimates that should this plan be implemented, the negative impact on net earnings would be $1.3 million in 2004, increasing to $3.3 million in 2006.

As of March 31, 2004, the States of Pennsylvania, Indiana, Oregon and Washington have proposed state plan amendments and waivers pertaining to the fiscal year commencing July 1, 2003 that are awaiting review and approval by CMS. As the state plan amendments and waivers have not been approved, the Company has recorded revenues based upon amounts received. Based upon the final and CMS approved state plan amendments and waivers, changes in Medicaid rates and any associated provider taxes could result in adjustments to earnings for the period from July 1, 2003 to March 31, 2004.

Through the divestiture program in Texas and Florida, the Company has assumed notes from the purchasers and retained ownership of certain nursing home properties, which the Company leases to other unrelated long-term care providers. In aggregate, as of March 31, 2004, the Company had $17.0 million in notes and $7.0 million in non-current amounts receivable due from unrelated long-term care providers in Florida and Texas; and owns $15.4 million in nursing home properties in Texas and Florida. For the three months ended March 31, 2004 and 2003, the Company earned $1.6 million and $1.4 million, respectively, in management and consulting fees, and $0.6 million and $0.4 million, respectively, in rental revenue from unrelated long-term care operators that were operating in properties owned by the Company as of March 31, 2004. As a result, the earnings and cash flow of the Company can be influenced by the financial stability of these unrelated long-term operators.

The Company is attempting to settle a number of outstanding Medicare and Medicaid receivables. Normally such items are resolved during an annual audit process and no provision is required. However, where differences exist between the Company and the FI, the Company may record a general provision. The Company continues to negotiate on the remaining issues and when appropriate seek resolution from the PRRB. No adjustment to the receivable amount can be determined until negotiations are concluded on a majority of issues that are involved in the cost reporting years under appeal. Though the Company remains confident that it will successfully settle the issues, an unsuccessful conclusion could negatively impact the Company’s earnings and cash flow. As of March 31, 2004 and December 31, 2003 the Company had $46.1 million and $51.2 million, respectively, of gross Medicare and Medicaid settlement receivables with a related contractual allowance of $14.0 million at both dates. The net amount receivable represents the Company’s estimate of the amount collectible on Medicare and Medicaid prior period cost reports.

The Company had $43.6 million and $45.1 million in accruals for self-insured liabilities as of March 31, 2004 and December 31, 2003, respectively. Though the Company has been successful in exiting from the states of Texas and Florida and limiting future exposure to general liability claims in these states, the timing and eventual settlement costs for these claims cannot be precisely defined.

We have audited the accompanying consolidated balance sheets of Extendicare Health Services, Inc. and subsidiaries (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholder’s equity, and cash flows for each of the years in the three-year period ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Extendicare Health Services, Inc. and subsidiaries as of December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 of the consolidated financial statements, the Company changed its method of accounting for goodwill effective January 1, 2002.

The accompanying notes are an integral part of these consolidated financial statements.

Extendicare Health Services, Inc. and its subsidiaries (hereafter referred to as the “Company”) operates, in one reporting segment, nursing and assisted living facilities, throughout the United States. The Company is an indirect wholly owned subsidiary of Extendicare Inc. (“Extendicare”), a Canadian publicly traded company.

At December 31, 2003, the Company operated or managed 154 nursing facilities with capacity for 15,945 beds and 39 assisted living facilities with 1,865 units. Through its nursing centers, the Company provides nursing, rehabilitative and other specialized medical services and, in the assisted living facilities, the Company provides varying levels of assistance with daily living activities to residents. The Company also provides consulting services to 61 nursing facilities (7,483 beds) and two assisted living facilities (186 units).

In addition, at December 31, 2003, the Company owned 10 nursing facilities (1,065 beds), which were leased to and operated by two unrelated nursing home providers, and retained an interest in (but did not operate) 11 nursing facilities (1,435 beds) and 4 assisted living facilities (135 units) under a Divestiture Agreement (see Note 5).

The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s most significant estimates include provision for bad debts, provision for Medicaid and Medicare revenue rate settlements, recoverability of long-lived assets, provision for general liability, facility closure accruals, workers’ compensation accruals and self-insured health and dental claims. Actual results could differ from those estimates.

The consolidated financial statements include those of the Company and subsidiaries the Company controls. All significant intercompany accounts and transactions with subsidiaries have been eliminated from the consolidated financial statements.

Cash and cash equivalents include unrestricted cash and short-term investments less bank overdrafts and outstanding checks. Short-term investments, comprised of money market instruments, have a maturity of 90 days or less from their date of purchase and are stated at cost, which approximates net realizable value. For purposes of the Consolidated Statements of Cash Flows, the Company considers all cash and highly liquid investments that have a maturity of 90 days or less to be cash equivalents.

Accounts receivable are recorded at the net realizable value expected to be received from federal and state assistance programs, other third-party payors or from individual residents. Receivables from government agencies represent the only concentrated group of accounts receivable for the Company.

The Company had approximately 23%, 24% and 25% as of December 31, 2003, 2002 and 2001, respectively, in accounts receivable derived from services provided under various federal (Medicare) programs and 40%, 41% and 38% as of the same dates derived from services provided under various state

medical assistance programs (Medicaid). Management does not believe there are any credit risks associated with these government agencies other than possible funding delays. Accounts receivable other than from government agencies consist of receivables from various payors that are subject to differing economic conditions and do not represent any concentrated credit risks to the Company.

The Company periodically evaluates the adequacy of its allowance for doubtful accounts by conducting a specific account review of amounts in excess of predefined target amounts and aging thresholds, which vary by payor type. Provisions are considered based upon the evaluation of the circumstances for each of these specific accounts. In addition, the Company has established a standard allowance requirement percentage which is based upon historical collection trends for each payor type, and its understanding of the nature and collectibility of these receivables. Accounts receivable that the Company specifically estimates to be uncollectible, based upon the above process, are fully reserved for in the allowance for doubtful accounts until they are written-off or collected.

Property and equipment are stated at cost less accumulated depreciation and amortization. Provisions for depreciation and amortization are computed using the straight-line method at rates based upon the following estimated useful lives:

Construction in progress includes pre-acquisition costs and other direct costs related to acquisition, development and construction of properties, including interest, which are capitalized until the facility is opened. Depreciation of the facility, including interest capitalized, is commenced the month after the facility is opened and based upon the useful life of the asset, as outlined above. Leased nursing facility assets held under Option Agreements are stated at cost less accumulated depreciation. Provisions for depreciation of leased facilities are computed as outlined above.

Computer software is included within furniture and equipment and amortized over a five-year period. Approximately $118,000, $739,000 and $1,118,000 of costs included in furniture and equipment associated with developing or obtaining internal-use software were capitalized during the years ended December 31, 2003, 2002 and 2001, respectively, and are being amortized over three years.

Maintenance and repairs are charged to expense as incurred. When property or equipment is retired or disposed, the cost and related accumulated depreciation and amortization are removed from the accounts and the resulting gain or loss is included in the results of operations.

Leases that substantially transfer all of the benefits and risks of ownership of property to the Company, or otherwise meet the criteria for capitalizing a lease under accounting principles generally accepted in the United States of America, are accounted for as capital leases. An asset is recorded at the time a capital lease is entered into together with its related long-term obligation to reflect its purchase and financing. Property and equipment recorded under capital leases are depreciated on the same basis as previously described. Rental payments under operating leases are expensed as incurred.

Goodwill represents the cost of acquired net assets in excess of their fair market values. As of January 1, 2002, the Company adopted the Statement of Financial Accounting Standards (“SFAS”) issued by the Financial Accounting Standards Board (“FASB”) No. 142, “Goodwill and Other Intangible Assets” which requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually in accordance with the provisions of SFAS No. 142. As a result, the amortization of goodwill and intangible assets with an indefinite life ceased upon adoption of the Statement. SFAS No. 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144. If an intangible asset is identified as having an indefinite useful life, the Company is required to test the intangible asset for impairment in accordance with the provisions of SFAS No. 142 (see paragraph (g) below for more information).

Prior to January 2002, goodwill and other intangible assets were amortized using the straight-line method over a period of no more than forty years in connection with the acquisitions of long-term care facilities. As of January 1, 2002 the Company had unamortized goodwill in the amount of $72.1 million (cost of $83.3 million less accumulated amortization of $11.2 million), which were subject to the provisions of SFAS No. 142. Upon adoption of SFAS No. 142 and in December 2003, the Company reviewed goodwill for impairment and these tests indicated that no impairment existed. No assurance can be given that impairment will not exist in the future.

The following table shows what net income would have been had SFAS No. 142 been applied in the comparable prior year periods:

Other intangible assets, consisting of the costs of acquiring leasehold rights are deferred and amortized over the term of the lease including renewal options.

The Company periodically assesses the recoverability of long-lived assets, including property and equipment, in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. This statement requires that all long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying value of an asset to the undiscounted future cash flows expected to be generated by the asset. If the carrying value of an asset exceeds its estimated undiscounted future cash flows, an impairment provision is recognized to the extent of the excess amount. Assets to be disposed of are reported at the lower of the carrying amount or the fair value of the asset, less all associated costs of disposition. In addition, SFAS No. 144 requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. Management considers such factors as current results, trends and future prospects, current market value, and other economic and regulatory factors, in performing these analyses.

Assets held under Divestiture Agreement (see Note 5) are stated at cost less accumulated depreciation. Provisions for depreciation are computed as outlined above in Note 2(d).

The Company has settlement accounts receivable due from the federal Medicare program, and certain state Medicare programs with retrospective reimbursement systems. The Medicare program, prior to the implementation of the Prospective Payment System (“PPS”) on January 1, 1999, was a cost-based reimbursement program under which nursing facilities received interim payments for each facility’s respective reimbursable costs, which could be subject to adjustment based upon the submission of a year-end cost report and certain cost limits. The year-end cost report would be subject to audit by the Company’s Fiscal Intermediary (“FI”) and could lead to ongoing discussions with the FI regarding the treatment of various items related to prior years’ cost reports. Normally items are resolved during the audit process and no provisions are required. For items involving differences of opinion between the Company and the FI regarding cost report methods, such items can be settled through a formal appeal process. Should this occur, a general provision for Medicare receivables may be provided for disagreements, which result in the provider filing an appeal with the Provider Reimbursement Review Board (“PRRB”) of the Centers for Medicare and Medicaid Services (“CMS”). Similarly, for states that operate under a retrospective reimbursement system under which interim payments are subject to audits, the Company evaluates and determines the amount of potential settlement accounts receivable or payable. The Company periodically reviews the accounts receivable and the general contractual allowance for settlement of amounts in dispute, and adjusts its balances accordingly based upon known facts at the time. An adjustment to settlement receivable amount and recorded revenues would occur upon, resolution of issues in dispute, or upon issues being settled at the PRRB. In addition, the Company estimates the portion of the Medicaid and Medicare settlement accounts receivable that are estimated to be collectible within the next 12 months and classifies this amount as a current asset.

Notes receivables are stated at the face value of the note. The Company monitors the payment of interest due on the notes and, where provided within the terms of the notes, reviews the financial statements of the company owing the amount to assess the ultimate collectibility of the notes. Should circumstances arise that the collectibility of the note is doubtful, an allowance will be reflected against the note receivable.

Direct loan origination costs are recorded as deferred financing costs and amortized over the life of the related debt using the effective interest method.

Debt service and capital expenditure trust funds and other investment holdings, which are comprised of fixed interest securities, equity securities, and liquid money market investments, are considered to be available-for-sale and accordingly, are reported at fair value. Fair values are based on quoted market prices. Unrealized gains and losses, net of related tax effects, are reported within Accumulated Other Comprehensive Income (“AOCI”) as a separate component of shareholder’s equity. A decline in the market value of any security below cost that is deemed other than temporary is charged to earnings, resulting in the establishment of a new cost basis for the security. The cost basis of the debt service trust funds approximates fair value. Realized gains and losses for securities classified as available-for-sale are included in the results of operations and are derived using the specific identification method for determining the cost of securities sold. Interest income is recognized when earned.

Nursing facility revenue results from the payment for services and products from federal and state-funded cost reimbursement programs as well as private pay residents. Revenues are recorded in the period in which services and products are provided at established rates less contractual adjustments. Contractual

adjustments include differences between the Company’s established billing rates and amounts estimated by management as reimbursable under various reimbursement formulas or contracts in effect. Estimation differences between final settlements and amounts recorded in previous years are reported as adjustments to revenues in the period such settlements are determined. Refer also to Note 13.

Assisted living facility revenue is primarily derived from private pay residents in the period in which the services are provided and at rates established by the Company based upon the services provided and market conditions in the area of operation.

All derivative instruments are recorded on the balance sheet at their respective fair values in accordance with SFAS No. 133 and SFAS No. 138. On the date the derivative contract is entered into, the Company designates the derivative as either a hedge of the fair value of a recognized asset or liability (“fair value hedge”) or a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). The Company assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedge items. When it is determined that a derivative is not highly effective as a hedge or that it has ceased to be a highly effective hedge, the Company discontinues the hedge accounting prospectively.

The Company discontinues hedge accounting prospectively when it is determined that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative expires or is sold, terminated, or exercised, or because management determines that designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued because it is determined that the derivative no longer qualifies as an effective fair-value hedge, the Company continues to carry the derivative on the balance sheet at its fair value, and no longer adjusts the hedged asset or liability for changes in fair value. In all other situations in which hedge accounting is discontinued, the Company continues to carry the derivative at its fair value on the balance sheet, and recognizes any changes in its fair value in earnings.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Certain reclassifications have been made to the 2002 and 2001 consolidated financial statements to conform to the presentation for 2003.

In December 2003, the FASB issued revised SFAS No. 132, which revised employers’ disclosures about pension plans and other postretirement plans. The disclosures required by SFAS No. 132 are included in Note 12.

In November 2002, the FASB issued FASB Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Direct Guarantees of Indebtedness of Others.” FIN 45 clarifies that a guarantor is required to recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN 45 also elaborates on the disclosures to be made by a guarantor about its obligations under certain guarantees that it has issued. The recognition and measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements for interim or annual periods ending after December 15, 2002. The Company has no guarantees as defined in FIN 45.

In July 2002, the FASB issued SFAS No. 146, “Accounting for Exit and Disposal Activities.” The provisions of SFAS No. 146 modify the accounting for the costs of exit and disposal activities by requiring that liabilities for these activities be recognized when the liability is incurred. Previous accounting literature permitted recognition of some exit and disposal liabilities at the date of commitment to an exit plan. The provisions of this statement are effective for exit or disposal activities initiated after December 31, 2002. The Company has not initiated any exit or disposal activities after December 31, 2002 and thus SFAS No. 146 has had no impact on the Company’s financial statements.

In May 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13 and Technical Corrections.” The most significant provision of SFAS No. 145 addresses the termination of extraordinary item treatment for gains and losses on early retirement of debt. The Company adopted the provisions of this standard beginning on January 1, 2003 and has modified the presentation of its year 2002 and 2001 results by recording the loss on early retirement of debt in earnings before income taxes.

On December 31, 2003 the Company acquired one skilled nursing facility (99 beds) in Wisconsin for $4.1 million in cash. The Company has a letter of intent to purchase an adjacent parcel of land for $0.3 million, which is anticipated to be purchased in the first quarter of 2004.

On October 1, 2002 the Company completed a transaction, which exercised its right to acquire seven previously-leased nursing facilities in the states of Ohio and Indiana for $17.9 million. The purchase included cash of $7.4 million and a $10.5 million interest-bearing 10-year note. Negotiation of the interest rate continues with the seller who holds the note and failing any agreement will be settled through arbitration. In the latter part of 2003, the Company prepaid $4.5 million against the note and agreed to refinance the 10-year note. As of December 31, 2003, should the Company not proceed to refinance the facilities, the interest rate would be settled through the re-opening of arbitration with the seller.

In September 2000, the Company disposed of eleven Florida nursing facilities (1,435 beds) and four Florida assisted living facilities (135 units) to Greystone Tribeca Acquisition, L.L.C. (“Greystone”) for initial cash proceeds of $30.0 million and contingent consideration in the form of a $10.0 million Vendor Take Back note and two other contingent and interest bearing notes. The three notes have an aggregate

potential value of up to $30.0 million plus interest. The notes are due in March 2004 and may be retired at any time out of the proceeds from the sale or refinancing of the facilities by Greystone. For the period September 2000 through March 2004, the Company retained the right of first refusal to repurchase the facilities. The Company also retained an option to repurchase the facilities until March 2003; however, the Company elected not to place an offer to repurchase the facilities. Upon maturity of the notes in March 2004, unless the facilities are sold or refinanced, the Company is entitled to receive the $10.0 million Vendor Take Back note and accrued interest pursuant to the terms of the Vendor Take Back and other contingent notes.

As at December 31, 2003 the Company anticipated the final consideration to be received in 2004, and therefore the “Assets held under Divestiture Agreement” have been classified as a current asset as of December 31, 2003. Upon receipt of the final consideration, the Company will record the disposition of the assets and a gain based upon difference of the total consideration received and net book value of the Assets Held under the Divestiture Agreement.

The initial cash proceeds of $30.0 million have been classified in the balance sheet as “Deposits held under Divestiture Agreement” (refer to Note 12). Consistent to the reclassification of the Assets Held under Divestiture Agreement, the Deposits held under Divestiture Agreement have been classified as a current liability as of December 31, 2003.

Property and equipment and related accumulated depreciation and amortization as of December 31 is as follows:

Included within property and equipment are properties leased to unrelated operators (refer to Note 15).

Aggregate amortization expense for leasehold rights for the years ended December 31, 2003 and 2002 was $1.1 million and $1.3 million, respectively. Estimated amortization expense for the next five years is $1.1 million in 2004, $1.1 million in 2005, $577,000 in 2006, $194,000 in 2007 and $21,000 in 2008.

For Medicare revenues earned prior to the implementation of PPS, and Medicaid programs with a retrospective reimbursement system, differences between revenues that the Company ultimately expects to realize from these programs and amounts received are reflected as accounts receivable; or as accrued liabilities when payments have exceeded revenues that the Company ultimately expects to realize. Accounts receivable from both Medicare and Medicaid state programs, net of a general contractual allowance, at December 31, 2003 totaled $37.2 million (2002 — $46.3 million). Of the total net Medicare and Medicaid settlement receivable balance, $11.3 million (2002 — $16.6 million) is expected to be substantially collected within one year and included within accounts receivable as a current asset. The balance of $25.9 million (2002 — $29.7 million), is reported within “Other Assets”. The Company is pursuing collection of a number of outstanding Medicaid and Medicare settlement issues.

For one specific Medicare receivable issue, which concerns fiscal years prior to the implementation of the PPS and involves the allocation of overhead costs, the first of three specific claim years was presented to the Provider Reimbursement Review Board (“PRRB”) at a hearing in January 2003. The hearing procedures were discontinued after the parties negotiated a methodology for resolution of the claim for one of the years in dispute. The negotiated settlement for this and other issues relating to the 1996 cost report year, resulted in no adjustment to the recorded receivable balance, and the Company subsequently collected $3.0 million from the FI. For the remaining two specific claim years, the Company continues to negotiate with the FI for the recovery of $11.5 million. Failing a negotiated settlement, the Company will proceed to file an appeal with the PRRB. A PRRB hearing has been scheduled in April 2004, for one of the two remaining years under appeal.

For another specific issue involving a staffing cost matter, a settlement of the first year of seven specific claim years was reached prior to the January 2003 PRRB hearing, and during 2003 the Company continued to negotiate the remaining years in dispute with the FI. In January 2004, the Company negotiated all remaining years that resulted in a cash settlement of $5.6 million to be received in the first

quarter of 2004. The settlement will result in no significant adjustment from the recorded receivable balance.

The Company also has a hearing scheduled in September 2004 on a Director of Nursing staff cost issue involving a claim for $3.8 million.

In the third and fourth quarters of 2003, the Company made a provision for $2.2 million and $1.8 million, respectively, pertaining to individual claims in dispute with the FI for the cost report years 1996 through 1998. Of the $1.8 million fourth quarter provision, $1.3 million pertains to discontinued operations, and therefore, was applied to the previously accrued divested operations liability balance (refer to Note 10). The net adjustment of $2.7 million resulted in a reduction of revenues during 2003.

The Company holds $21.4 million in notes receivable due from Tandem Health Care, Inc. (“Tandem”). For $17.4 million of the notes that resulted from the sale of properties in 2001 and 2002, the notes are due between April 2006 and May 2007. A $4.0 million note, along with the $3.7 million indemnification escrow funds (included in Other Assets and Other Long-term Liabilities) is due on December 2007. All interest payments remain current.

The Company holds 1.5 million in Omnicare Inc. (“Omnicare”) warrants, which are valued in accordance with the Black-Scholes method and had an original attributed cost of $4.0 million pursuant to the Omnicare divestiture in 1998. The warrants have an option price of $48.00 per share and expire in September 2005. The market value of an Omnicare share as of December 31, 2003 was $40.39.

Accumulated amortization of deferred financing costs as of December 31, 2003 and 2002 was $5.9 million and $4.5 million, respectively.

On June 28, 2002, the Company completed a private placement of $150 million of its 9.5% Senior Notes due July 1, 2010 (the “Senior Notes”), which were issued at a discount of 0.25% of par to yield 9.54%. In January 2003, the Company completed its offer to exchange new 9.5% Senior Notes due 2010

that have been registered under the Securities Act of 1933 for the Notes issued in June 2002. The terms of the new Senior Notes are identical to the terms of the Senior Notes issued in June 2002 and are guaranteed by all existing and future active subsidiaries of the Company.

The Company used the proceeds of $149.6 million from the Senior Notes to pay related fees and expenses of $8.3 million, to retire $124.5 million of indebtedness outstanding under its previous credit facility and Term Loans, to refinance $6.3 million of other debt, and for general corporate purposes. The retirement of the previous credit facility resulted in a loss on early retirement of debt of $2.8 million ($1.7 million after income taxes). Also on June 28, 2002, the Company entered into an interest rate swap agreement and an interest rate cap agreement. See Note 16 for the terms of the swap and cap agreements.

Concurrent with the sale of the Senior Notes, the Company established a new five-year $105 million senior secured revolving credit facility (the “Credit Facility”) that is used to back letters of credit and for general corporate purposes. Borrowings under the Credit Facility bear interest, at the Company’s option, at the Eurodollar rate or the prime rate, plus applicable margins, depending upon the Company’s leverage ratio. As of December 31, 2003 the Company had no borrowings from the Revolving Credit Facility. The unused portion of the Revolving Credit Facility, that is available for working capital and corporate purposes, after reduction for outstanding letters of credit of $45.3 million, was $59.7 million as of December 31, 2003.

The Credit Facility is secured by a perfected, first priority security interest in certain tangible and intangible assets and all of the Company and the Company’s subsidiary capital stock. The Credit Facility is also secured by a pledge of 65% of the voting shares of the voting stock of the Company and the Company’s subsidiary guarantor’s foreign subsidiaries, if any. The credit facility contains customary covenants and events of default and is subject to various mandatory prepayments and commitment reductions.

The Senior Notes and the Credit Facility contain a number of covenants, including: restrictions on the payment of dividends by the Company; limitations on capital expenditures, investments, redemptions of the Company’s common stock and changes of control of the Company; as well as financial covenants, including fixed charge coverage, debt leverage, and tangible net worth ratios. The Company is required to make mandatory prepayments of principal upon the occurrence of certain events, such as certain asset sales and certain issuances of securities. The Company is permitted to make voluntary prepayments at any time under the Credit Facility. The Senior Notes are redeemable at the option of the Company starting on July 1, 2006. The redemption prices, if redeemed during the 12-month period beginning on July 1 of the year indicated, are as follows:

The Company is in compliance with all of the financial covenants as of December 31, 2003.

The Company has no independent assets or operations, the guarantees of the Senior Notes are full and unconditional, and joint and several, and any of the Company’s subsidiaries that do not guarantee the Senior Notes are minor. There are no significant restrictions on the ability of the Company to obtain funds from its subsidiaries by loan or dividend.

In December 1997, the Company issued $200 million of 9.35% Senior Subordinated Notes due 2007 (the “Senior Subordinated Notes”). The Senior Subordinated Notes are unsecured senior subordinated obligations of the Company subordinated in right of payment to all existing and future senior indebtedness of the Company, which includes all borrowings under the Credit Facility as well as all indebtedness not

refinanced by the Credit Facility. At December 31, 2003, Extendicare Inc. held $27.9 million of the Senior Subordinated Notes. The Senior Subordinated Notes mature on December 15, 2007. Interest on the Senior Subordinated Notes is payable semi-annually.

The Senior Subordinated Notes are redeemable at the option of the Company. The redemption prices, if redeemed during the 12-month period beginning on December 15 of the year indicated, are as follows:

Principal payments on long-term debt due within the next five years and thereafter are as follows (dollars in thousands):

Interest paid in 2003, 2002 and 2001 was $32.7 million, $26.2 million and $35.5 million, respectively.

Reserves for divested operations and facility closures primarily relate to provisions for the settlement of Medicare and Medicaid claims and other amounts with third parties. The settlement of such amounts are dependent on actions by those third parties and negotiations by the Company, and therefore may not be resolved within the next or several years.

Below is a summary of activity of the accrued liabilities balance relating to divested operations and facility closures:


(1)	In 2002, provisions include a provision for closure and exit costs of $5.3 million and selling expenses of $1.2 million relating to the sale of assets to Tandem.

(2)	In 2003, provisions include the write-off of $1.3 million of previously accrued Medicare claims receivable relating to discontinued operations (refer to Note 13(c)).

The Company insures certain risks with affiliated insurance subsidiaries of Extendicare, and certain third-party insurers. The insurance policies cover comprehensive general and professional liability, workers’ compensation and employer’s liability insurance in amounts and with such coverage and deductibles as the Company deems appropriate, based on the nature and risks of its business, historical experiences, availability and industry standards. The Company also self-insures for health and dental claims, in certain states for workers’ compensation and employer’s liability. As a result of limited availability from third party insurers or availability at an excessive cost or deductible, since January 2000, the Company self-insures for comprehensive general and professional liability (including malpractice exposure arising from duties performed on the Company’s behalf by professional staff, assistants and other staff) up to a certain amount per incident. Self-insured liabilities with respect to general and professional liability claims are included within the Accrual for Self-insured Liabilities. The Company’s accrual for self-insured health and dental claims, and workers’ compensation are included in accrued liabilities (see Note 10).

Management regularly evaluates the appropriateness of the carrying value of the self-insured liability through an independent actuarial review. General and professional liability claims are the most volatile and significant of the risks for which the Company self-insures. Management’s estimate of the accrual for general and professional liability costs is significantly influenced by assumptions, which are limited by the uncertainty of predicting future events, and assessments regarding expectations of several factors. Such factors include, but are not limited to: the frequency and severity of claims, which can differ materially by jurisdiction; coverage limits of third-party reinsurance; the effectiveness of the claims management process; and the outcome of litigation. In addition, the Company estimates the amount of general and professional liability claims it will pay in the subsequent year and classifies this amount as a current liability.

In 2000, the Company experienced adverse claims development resulting in an increase in the accrual for self-insured liabilities. Consequently, as of January 1, 2000 the Company’s per claim retained risk increased significantly for general and professional liability coverage mainly due to the level of risk

associated with Florida and Texas operations. As of January 1, 2001, the Company no longer operated nursing and assisted living facilities in Florida and as of October 1, 2001 ceased nursing operations in Texas, thereby reducing the level of exposure to future litigation in these litigious states. However, as a result of an increase in the frequency and severity of claims the Company recorded an additional $11.0 million provision (refer to Note 14) to increase its accrual for resident care liability in the third quarter of 2001. This additional accrual was based upon an independent actuarial review and was largely attributable to potential claims for incidents in Florida and Texas prior to the Company’s cessation of operations in those states. Changes in the Company’s level of retained risk, and other significant assumptions that underlie management’s estimates of self-insured liabilities, could have a material effect on the future carrying value of the self-insured liabilities as well as the Company’s operating results and liquidity.

As noted in Note 5, the Company disposed of eleven Florida nursing facilities (1,435 beds) and four Florida assisted living facilities (135 units) to Greystone for initial cash proceeds of $30.0 million and contingent consideration in the form of a Vendor Take Back Note and two other contingent and interest-bearing notes. The three notes have an aggregate potential value of up to $30.0 million plus interest. The disposition is being accounted for as a deferred sale in accordance with SFAS 66 and therefore, the initial cash proceeds have been classified as “Deposits held under the Divestiture Agreement”.

The Company maintains an unfunded deferred compensation plan offered to all corporate employees defined as highly compensated by the Internal Revenue Service Code in which participants may defer up to 10% of their base salary. The Company will match up to 50% of the amount deferred. The Company also maintains non-qualified deferred compensation plans covering certain executive employees. Expense incurred for Company contributions under such plans were $609,000, $361,000 and $278,000 in 2003, 2002 and 2001, respectively.

The Company maintains defined contribution retirement 401(k) savings plans, which are made available to substantially all of the Company’s employees. The Company pays a matching contribution of 25% of every qualifying dollar contributed by plan participants, net of any forfeitures. Expenses incurred by the Company related to the 401(k) savings plans were $0.8 million, $1.3 million and $1.3 million in 2003, 2002 and 2001, respectively. The Company also maintains a money purchase plan for two facilities in which the Company pays amounts based upon the plan participants worked hours and an agreed fixed hourly rate. Expenses incurred by the Company related to the money purchase plan were $90,000, $96,000 and $54,000 in 2003, 2002 and 2001, respectively.

Effective April 2003, the Company participates in a multi-employer defined-benefit pension plan for its employees in three facilities. The Company made contributions of $32,000 to this plan in 2003.

The Company derived approximately 27%, 26% and 24% of its revenues from services provided under various federal (Medicare) and approximately 49%, 50% and 51% of its revenues from services provided under various state medical assistance programs (Medicaid) in 2003, 2002 and 2001, respectively. The Medicare program and most state Medicaid programs pay each participating facility on a prospectively-set per diem rate for each resident, which is based on the resident’s acuity. Most Medicaid programs fund participating facilities using a case-mix system, paying prospectively set rates.

The Balanced Budget Act (“BBA”) that was signed into law in August 1997 resulted in the implementation of a Prospective Payment System (“PPS”) for skilled nursing facility funding certified under the Medicare program effective January 1, 1999. The PPS establishes a federal per diem rate for virtually all covered services. The provisions of the BBA provided that for skilled nursing facilities in operation prior to 1996, the federal per diem rate would be phased in over a four-year period ending January 1, 2002. In November 1999, the Balanced Budget Relief Act (“BBRA”) was passed to allow each skilled nursing facility to apply to adopt the full federal rate effective January 1, 2000 or to continue to phase in to the federal rate over the next three years. Effective January 2002, all skilled nursing facilities are reimbursed at the full federal rate.

With respect to the Medicaid program, the BBA repealed the federal payment standard that required state Medicaid programs to pay rates that were reasonable and adequate to meet the costs necessary to efficiently and economically operate skilled nursing facilities. As a result, states have considerable flexibility in establishing payment rates for Medicaid services provided after October 1, 1997.

b) Balanced Budget Refinement Act of 1999 (“BBRA”) and Benefits Improvement and Protection Act of 2000 (“BIPA”)

As a result of the industry coming under financial pressure due to the implementation of PPS and other BBA of 1997 provisions, Congress passed two acts to provide some relief to the industry, namely the BBRA of 1999 and the BIPA of 2000. These laws contained additional funding provisions to assist providers as they adjusted to PPS for an interim period. The BBRA of 1999 increased the rate by 20% for 15 Resource Utilization Groups III (“RUGs”) categories identified as having intensity non-therapy ancillary services deemed to be underfunded. The BBRA of 1999 also provided for a 4% increase to all RUGs categories on October 1, 2000. The BIPA of 2000 increased the nursing component of the federal rate by 16.66% and replaced the 20% add-on to the three RUGs categories with a 6.7% add-on for all 14 rehabilitative RUGs categories.

The funding enhancements implemented by the BBRA and BIPA fall into two categories. The first category is “Legislative Add-ons” which included a 16.66% add-on to the nursing component of the RUGs rate and a 4% base adjustment. The second category is “RUGs Refinements” which involves an initial 20% add-on for 15 RUGs categories identified as having high intensity, non-therapy ancillary services. The 20% add-ons from three RUGs categories were later redistributed to 14 rehabilitation categories at an add-on rate of 6.7% each.

On September 30, 2002 the Legislative Add-ons expired, hereafter referred to as the “Medicare Cliff”, resulting in a reduction in Medicare funding for all skilled nursing facilities. The Company estimates that based upon the Medicare case mix and census for the nine months ended September 30, 2002, it received an average rate of $31.22 per resident day related to the Legislative Add-ons. This decline in Medicare rates was partially offset by a 2.6% market basket increase received on October 1, 2002. For the nine months ended September 30, 2002 the average daily Medicare Part A rate was $311.55. For the three months ended December 31, 2002, or fourth quarter of 2002, the average daily Medicare Part A rate was $287.91. Based upon the Medicare case mix and census in the fourth quarter of 2002, the net impact of the Medicare Cliff and market basket increase was a reduction of revenues of approximately $3.9 million. For the nine months ended September 30, 2003 the average daily Medicare Part A rate was $292.93, as compared to $311.55 for the nine months ended September 30, 2002. Based upon the Medicare case mix and census for the nine months ended September 30, 2003, the net impact of the Medicare Cliff and market basket increase was a reduction of revenues of approximately $12.8 million, as compared to the nine months ended September 30, 2002. The loss of revenues was partially offset by a RUGs improvement which increased revenues by $2.7 million over the nine-month period ended September 30, 2003 as compared to the nine months ended September 30, 2002. Based upon the Medicare case mix and census for the twelve months ended October 1, 2002 to September 30, 2003 the net impact of the Medicare Cliff and market basket increase was a reduction of revenues of $16.7 million.

Effective October 1, 2003 the Centers for Medicare and Medicaid Services (“CMS”) increased Medicare rates by 6.26% reflecting (1) a cumulative forecast correction (“Administrative Fix”), to correct past years under-funded rate increases, which increased the Federal base payment rates by 3.26%, and (2) the annual market basket increase of 3.0%. The Company estimated that based on the Medicare case mix for the nine month period ended September 30, 2003, this Medicare rate increase would add approximately $18.45 per Medicare day. Based upon the Medicare case mix and census in the fourth quarter of 2003, the impact of the 6.26% Medicare rate increase resulted in $3.5 million in increased revenues. Based on the Medicare case mix and census for the year ended December 31, 2003, this Medicare rate increase amounts to additional annualized revenue of approximately $13.4 million going forward, which will be tempered by higher labor and other operating costs. In order to maintain their commitment to Senator Grassley and CMS in providing the Administrative Fix, in October 2003 the Alliance for Quality Nursing Home Care (which is a membership of large long-term care providers) and the American Health Care Association (“AHCA”) announced its support to spend the Administrative Fix over the next fiscal period on direct care and services for its residents. In October 2003 CMS published notice to skilled nursing facilities that within future cost reports, it will require confirmation that the Administrative Fix funding was spent on direct patient care and related expenses.

With respect to the RUGs Refinements, in April 2002 CMS announced that it would delay the refinement of the RUGs categories thereby extending the related funding enhancements until September 30, 2003. In May 2003, CMS released a rule to maintain the current RUGs classification until October 1, 2004. Further to, but independent of this, Congress enacted legislation directing CMS to conduct a study on the RUGs classification system and report its recommendations by January 2005. The implementation of a RUGs Refinement change, where all or part of the enhancement is discontinued, could have a significant impact on the Company. Based upon the Medicare case mix and census for the

year ended December 31, 2003, the Company estimates that it received an average $24.12 per resident day, which on an annualized basis amounts to $17.6 million related to the RUGs Refinements.

c) Revenue Adjustments and Provisions (Recovery) for Outstanding Medicare and Medicaid Receivables

In respect of Medicare cost reporting periods prior to the implementation of PPS, the Company has ongoing discussions with its FI regarding the treatment of various items related to prior years’ cost reports. Normally items are resolved during the audit process and no provisions are required. For items involving differences of opinion between the Company and the FI regarding cost report methods, such items can be settled through a formal appeal process. Should this occur, a general provision for Medicare receivables may be provided for disagreements, which result in the provider filing an appeal with the PRRB of the CMS. Estimated differences between the final settlement and amounts recorded in previous years are reported as adjustments to revenues in the period.

In respect of Medicaid in states that utilize retrospective reimbursement systems, nursing facilities are paid on an interim basis for services provided, subject to adjustments based upon allowable costs, which are generally submitted in cost reports on an annual basis. In these states, revenues are subject to adjustments as a result of cost report settlements with the state.

During 2003, the Company recorded a provision for $4.0 million, pertaining to individual Medicare claims in dispute with the FI for the cost report years 1996 through 1998 (refer to Note 8). Of the $4.0 million provision, $1.3 million pertains to discontinued operations, and therefore, was applied to the previously accrued divested operations liability balance (refer to Note 10). The net adjustment of $2.7 million resulted in a reduction of revenues during 2003. Offsetting this, the Company recorded a recovery of $4.2 million in Medicaid revenues resulting from a favorable court decision in the State of Ohio relating to the recovery of alleged government overpayments for adjudicated Medicaid cost report periods.

As at December 31, 2003, the States of Pennsylvania, Indiana, Oregon, and Washington have submitted proposed state plan amendments and waivers, which are awaiting review and approval by CMS pertaining to the fiscal year commencing July 1, 2003. The retrospective plan amendments and waivers seek an increase in the level of federal funding for the Medicaid programs, and would result in providing nursing facilities with revenue rate increases to offset new or increased provider taxes. As the plan amendments and waivers have not been approved, the Company has recorded revenues based upon amounts received. Based upon the final and CMS approved plan amendments and waivers, changes in the Medicaid rates and any associated provider taxes could result in adjustments to earnings for the six month period July 1, 2003 to December 31, 2003.

In response to the implementation of Medicare Prospective Payment System (PPS), increased litigation and insurance costs in certain states, and increased operational costs resulting from changes in legislation and regulatory scrutiny, during the period of 1998 through 2001, the Company focused on the divestiture of under-performing nursing and assisted living facilities and the divestiture of non-core healthcare assets. These asset divestitures primarily included the sale of the Company’s pharmacy operation to Omnicare, Inc. in 1998 and the sale of facilities and/or transfer of all operations in the States of Florida and Texas in 1999, 2000 and 2001. With the exception of the Company’s assisted living facilities in Texas, the Company ceased to operate facilities in the States of Florida and Texas through transactions primarily involving Tandem, Greystone, Senior Health Properties — South, Inc. (“Senior

Health-South”) and Senior Health Properties — Texas, Inc. (“Senior Health-Texas”). As a result of this strategy, for the years ended 2002 and 2001, the Company has recorded the significant items as follows:

Below is a summary of the significant transactions that resulted in the above provisions, gains and losses.

In May 2002, Tandem exercised its option to purchase seven leased properties in Florida from the Company for gross proceeds of $28.6 million, consisting of cash of $15.6 million and $13.0 million in 8.5% five-year notes (net proceeds of $25.5 million). The Company applied $12.4 million of the proceeds to reduce bank debt. Until this date, Tandem operated these facilities under a lease agreement with a purchase option. The carrying value of the seven facilities was $21.5 million. As a result, the Company recorded a gain on the sale of the asset of $4.0 million, inclusive of the deferred gain of $2.2 million from the sale of two leased nursing facilities in April 2001. The transaction also involved the conversion of $1.9 million in preferred shares received in the April 2001 transaction into $1.9 million 8.5% notes, due in April 2006.

In addition, in May 2002, the Company recorded a provision for closure and exit costs relating to the divested Florida operations of $5.3 million relating to cost report settlement issues, and the settlement of claims with suppliers and employees.

In 2001, the Company recorded a loss on disposal of assets of $1.0 million and a provision for closure and exit costs and other items of $23.2 million, totaling $24.2 million as discussed below:


	•	In September 2001, the Company transferred (via license transfer) all nursing facilities in Texas to Senior Health-Texas resulting in a pre-tax loss of $1.8 million and recorded a loss on another property for $0.2 million. The transfer involved 17 skilled nursing facilities, with a capacity of 1,421 residents, of which 13 facilities are subleased to Senior Health-Texas and the remainder leased to Senior Health-Texas on a five-year term from the Company. Senior Health-Texas will operate the subleased facilities for their remaining lease terms, one of which expired in October 2001, and the remainder will expire through February 2012. In November 2001, the landlord of the subleased nursing facility for which the lease term expired in October 2001 assumed operational responsibility for the facility and the Company provided consulting services to the landlord for a five-month period. The annual rental income from Senior Health-Texas is approximately $3.9 million per annum, or $1.8 million in excess of the Company’s current annual lease costs, and will escalate in alignment to the existing lease and in alignment with Medicaid rate increases for the owned facilities. Senior Health-Texas has the right to first refusal on the purchase of the four owned facilities;

	•	The Company recorded provisions totaling $2.2 million relating to the closure and/or sale of three nursing properties for $2.0 million, and another property for $0.2 million; and

	•	The Company made additional provisions of $20.2 million relating to previously sold operations, of which $19.0 million relates to the nursing facilities in Florida. This $19.0 million consists of an $11.0 million provision related to Florida claims for years prior to 2001 based upon an actuarial review of resident liability costs and an $8.0 million provision for Florida closure and exit costs. The


		$11.0 million provision was the result of an increase in the estimate of the incurred but not yet reported claims and an increase in the frequency and severity of claims incurred by the Company.

In April 2001, Tandem exercised its option to purchase two leased nursing properties in Florida for gross proceeds of $11.4 million. The proceeds consisted of cash of $7.0 million, a $2.5 million interest-bearing five-year note and $1.9 million in cumulative dividend preferred shares, redeemable after five years. The Company’s carrying value of the two facilities was $9.2 million. Tandem continued to operate seven nursing facilities under a lease agreement with the Company, with an option to purchase these facilities, which Tandem exercised in May 2002. In accordance with Statement of Financial Accounting Standards No. 66 (SFAS No. 66), the Company deferred a potential gain on the sale of these assets of $2.2 million because a significant portion of the proceeds had not been received and the ultimate determination of the gain was dependent on Tandem exercising some or all of the remaining purchase options available to it. For these reasons, the Company did not record any gain or loss on the sale until May 2002 as described above. The Company applied $4.0 million of the net cash proceeds to further reduce its term bank debt.

The following summarizes the components of the loss (gain) on the sale of assets:

The provision for closure and exit costs and other items is summarized as follows:

The Company records impairment losses recognized for long-lived assets used in operations when indicators of impairment are present and the estimated undiscounted future cash flows do not appear to be sufficient to recover the assets’ carrying amounts. The impairment loss is measured by comparing the fair value of the asset to its carrying amount. In addition, once management has committed the organization to

a plan for disposal, assets held for disposal are adjusted to the lower of the assets’ carrying value and the fair value less costs to sell. Accordingly, management has estimated the future cash flows of each facility and reduced the carrying value to the estimated fair value less costs to sell, where appropriate.

In September 2001 the Company made a formal decision to divest of its nursing facilities (but not assisted living facilities) in Texas and completed a transaction through which the Company ceased operating these facilities. This transaction resulted in the Company leasing all four owned facilities and subleasing the remaining 13 nursing facilities to a third party operator. As a result of the transaction, in 2001 the Company recorded a provision of $1.7 million for impairment of these remaining Texas properties, which all related to leasehold rights and leasehold improvements on the facilities.

The following reconciles the loss from asset impairment, disposals and other items to that reported in the cash flow statements. The provision for general and professional liability costs is removed as it is already reflected in the line item provision for self-insured liabilities as an item not involving cash.

As a lessee, the Company, at December 31, 2003, was committed under non-cancelable operating leases requiring future minimum rentals as follows:

Operating lease costs were $9.1 million, $10.6 million and $14.6 million in 2003, 2002 and 2001, respectively. These leases expire on various dates extending to the year 2013 and in many cases contain renewal options.

As a lessor, at December 31, 2003, the Company leases 10 nursing properties (1,065 beds) to two unrelated operators in Florida and in Texas. The leases are accounted for as operating leases and both operators have an option to purchase the facilities during the term. The lease of six nursing properties to Senior Health-South expires in December 2006, and the Company earns rental income (based upon the net operating cash flow of the properties), which on average cannot exceed $2.0 million per annum. Rental income earned during 2003 totaled $0.3 million (2002 — $0.5 million; 2001 — $0.5 million) under this lease. Senior Health-Texas leases four nursing properties for a term that expires in September 2006, and subleases another 12 properties until February 2012, all in Texas. The annual rental income during 2003 totaled $3.9 million (2002 — $3.8 million; 2001 — $0.5 million) or $1.8 million in excess of the Company’s annual lease cost. The cost and accumulated depreciation of facilities under operating lease arrangements included in Property and Equipment (refer to Note 6) as of December 31, 2003 and December 31, 2002 are as follows:

Prior to the issuance of the Senior Notes in June 2002, the Company had variable-rate long-term debt of approximately $124.5 million, which exposed the Company to variability in interest payments due to changes in interest rates. The Company hedged a portion of its variable-rate debt through interest rate swaps designated as cash-flow hedges with a notional amount of $25 million maturing in February 2003 under which the Company received variable interest rate payments and made fixed-rate interest payments. When the Company issued the fixed-rate Senior Notes, in June 2002, it terminated these interest rate swaps with a cash payment of $0.6 million, and recorded a loss on early retirement of debt.

After the issuance of the Senior Notes, all but $32 million of the Company’s outstanding debt obligations have fixed interest rates. In June 2002, the Company entered into an interest rate swap (used to hedge the fair value of fixed-rate debt obligations) with a notional amount of $150 million maturing in December 2007. Under this swap, the Company pays a variable rate of interest equal to the one-month London Interbank Borrowing Rate (“LIBOR”) (1.1625% as of December 31, 2003), adjustable monthly, plus a spread of 4.805% and receives a fixed rate of 9.35%. Under the terms of the interest rate swap, the counterparty can call the swap upon 30 days notice. This swap is designated as a fair value hedge and, as a result, changes in the market value of the swap are recorded in other comprehensive income, and as such had no impact on the Company’s income statement during 2002 or 2003.

is designated as a hedging instrument (cash-flow hedge) to effectively limit possible increases in interest payments under variable-rate debt obligations. The remainder of the interest rate cap with a notional amount of $118 million is used to offset increases in variable-rate interest payments under the interest rate swap to the extent one-month LIBOR exceeds 7%. This portion of the interest rate cap is not designated as a hedging instrument under SFAS 133.

The Company assesses interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities. The Company maintains risk management control systems to monitor interest rate cash flow risk attributable to both the Company’s outstanding or forecasted debt obligations as well as the Company’s offsetting hedge positions. The risk management control systems involve the use of analytical techniques, including cash flow sensitivity analysis, to estimate the expected impact of changes in interest rates on the Company’s future cash flows.

Changes in the fair value of a derivative that is highly effective and that is designated and qualifies as a fair-value hedge, along with the loss or gain on the hedged asset or liability of the hedged item that is attributable to the hedged risk, are recorded in earnings. Changes in the fair value of cash flow hedges are reported as AOCI as a component of Shareholder’s Equity. Changes in the fair value of the portion of the interest rate cap not designated as a hedging instrument is reported in earnings. As of December 31, 2003, the fair value of the interest rate swap designated as a fair value hedge is an asset of $4.2 million and is offset by a liability of $4.2 million relating to the change in market value of the hedged item (long-term debt obligations). The fair value of the cash-flow hedges is a liability recorded in other long-term liabilities of $0.2 million as of December 31, 2003, and the gain credited to AOCI (net of income tax effect) for 2003 was $32,000. The fair value of the portion of the interest rate cap not designated as a hedging instrument, which was $0.6 million as of December 31, 2003, is recorded as a liability recorded in other long-term liabilities. During 2004, none of the gains or losses in AOCI (net of income tax effect) related to the interest rate cap are expected to be reclassified into interest expense as a yield adjustment of the hedged debt obligation.

The Company as of December 31, 2003 had capital expenditure purchase commitments outstanding of approximately $9.2 million. In addition, the Company has entered into construction agreements for additions to two nursing facilities (38 beds), additions to four assisted living facilities (87 units) and the construction of one free-standing assisted living facility (40 units). Four of these seven projects are expected to be completed in 2004, with the remainder to be completed in early 2005. The total approximate cost of the projects is $15.2 million and $6.1 million is committed to be spent in 2004 and 2005 in respect of these capital projects.

As discussed in Note 11, the Company insures certain risks with affiliated insurance subsidiaries of Extendicare and third-party insurers. The insurance policies cover comprehensive general and professional liability (including malpractice insurance) for the Company’s health providers, assistants and other staff as

it relates to their respective duties performed on the Company’s behalf, property coverage, workers’ compensation and employers’ liability in amounts and with such coverage and deductibles as determined by the Company, based on the nature and risk of its businesses, historical experiences, availability and industry standards. The Company also self insures for health and dental claims, in certain states for workers’ compensation and employers’ liability and for general and professional liability claims. Self-insured liabilities with respect to general and professional liability claims are included within the accrual for self-insured liabilities.

All providers are subject to surveys and inspections by state and federal authorities to ensure compliance with applicable laws and licensure requirements of the Medicare and Medicaid programs. The survey process is intended to review the actual provision of care and services, and remedies for assessed deficiencies can be levied based upon the scope and severity of the cited deficiencies. Remedies range from the assessment of fines to the withdrawal of payments under the Medicare and Medicaid programs. Should a deficiency not be addressed through a plan of correction, a facility can be decertified from the Medicare and Medicaid program. As of December 31, 2003, the Company has certain facilities under plans of correction. While it is not possible to estimate the final outcome of the required corrective action, the Company has accrued for known costs.

In 2001, the Company and Omnicare brought a matter to arbitration, involving a “per diem” pricing rate billed for managed care residents. This matter was subsequently settled and amounts reflected in the financial results. The parties are currently negotiating the pricing of drugs for Medicare residents for the years 2001 and 2002, and should this matter not be settled, the matter will be taken to arbitration. Provisions for settlement of this claim is included within the financial statements.

In 2002, in connection with its agreements to provide pharmacy services to the Company, Omnicare, Inc. has requested arbitration for an alleged lost profits claim related to the Company’s disposition of assets, primarily in Florida. Damage amounts, if any, cannot be reasonably estimated based on information available at this time. An arbitration hearing has not yet been scheduled. The Company believes it has interpreted correctly and has complied with the terms of the Preferred Provider Agreement; however, there can be no assurance that other claims will not be made with respect to the agreement.

The following is a summary of the Company’s transactions with Extendicare and its affiliates in 2003, 2002 and 2001:

The Company insures certain risks with affiliated insurance subsidiaries of Extendicare. The cost of general and professional liability premiums was the most significant insurance expense charged to the Company by the affiliates. The consolidated statements of operations for 2003, 2002 and 2001 include intercompany insurance premium expenses of $10.7 million, $9.9 million and $5.7 million, respectively. The 2001 figure is net of favorable actuarial adjustments for prior years under its retroactively-rated workers’ compensation coverage in the amount of $0.9 million.

During 2001 and 2000, Extendicare and/or one of its wholly owned subsidiaries acquired $19.0 million and $8.9 million, respectively, of the Company’s Senior Subordinated Notes. As of December 31, 2003, Extendicare held $27.9 million (14.0%) of the Company’s outstanding Senior Subordinated Notes.

In January 2001, the Company established an agreement for computer hardware and software support services with Virtual Care Provider, Inc. (“VCP”), an affiliated subsidiary of Extendicare. The annual cost of services was $5.7 million for 2003 (2002 — $6.8 million; 2001 — $6.5 million).

Transactions affecting these accounts were general and professional liability insurance charges, accrued liability claims from an affiliate and working capital advances to an affiliate in 2003, 2002 and 2001, and charges (payments) from (to) shareholder and affiliates for income taxes in each of the three years.

At December 31, 2003, 2002 and 2001 the Company had a $3.5 million non-interest bearing payable with no specific due date to a subsidiary company of Extendicare.

The Company’s results of operations are included in the consolidated federal tax return of its U.S. parent company. Accordingly, federal current and deferred income taxes payable are transferred to the Company’s parent company. The provisions for income taxes have been calculated as if the Company was a separately taxed entity for each of the periods presented in the accompanying consolidated financial statements.

Total income taxes for the years ended December 31, 2003, 2002 and 2001 were allocated as follows:

The income tax expense (benefit) on income (loss) before income taxes consists of the following for the year ended December 31:

During 2002, the Company reported a reclassification of $5.9 million from deferred to current income tax benefit, reflecting a new federal tax law enacted in March 2002 retroactive to 2001, which extended the net operating loss carryback period to five years from two years.

The differences between the effective tax rates on earnings before provision for income taxes and the United States federal income tax rate are as follows:

The Company received payments of $1.4 million, $0.7 million and $22.5 million for federal income taxes from its U.S. parent in 2003, 2002 and 2001, respectively and made payments of $7.7 million in 2003 to its U.S. parent for federal income taxes.

The components of the net state deferred tax assets and liabilities as of December 31 are as follows:

The Company paid state income taxes of $539,000, $699,000 and $326,000 in 2003, 2002 and 2001, respectively. As of December 31, 2003 the Company had $65.4 million of total net operating loss carryforwards available for state income tax financial reporting purposes, which expire from 2004 to 2023. As of December 31, 2003, the Company had $164 million of capital loss carryforwards for state income tax purposes which expire in 2004. Because the realizability of these losses is uncertain, the operating loss and capital loss carryforwards are offset by a valuation allowance.

The valuation allowance for state deferred tax assets as of December 31, 2003 and 2002 was $19.1 million and $21.0 million, respectively. The net change in the total valuation allowance for the years ended December 31, 2003 and 2002 was a decrease of $1.9 million and an increase of $0.8 million, respectively. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Management believes it is more likely than not the Company will realize the benefits of these deductible differences, net of the valuation allowances.

The accumulated balances for each classification of comprehensive income are as follows:

The related tax effects allocated to each component of other comprehensive income are as follows:

The Company’s earnings are highly contingent on Medicare and Medicaid funding rates, and the effective management of staffing and other costs of operations which are strictly monitored through state and federal regulatory authorities. The Company is unable to predict whether the federal or any state government will adopt changes in their reimbursement systems, or if adopted and implemented, what effect such initiatives would have on the Company. Limitations on Medicare and Medicaid reimbursement for healthcare services are continually proposed. Changes in applicable laws and regulations could have an adverse effect on the levels of reimbursement from governmental, private and other sources.

The incremental Medicare relief packages received from BBRA and BIPA, as outlined in note 13(b), provided a total of $2.7 billion in temporary Medicare funding enhancements to the long-term care industry. The funding enhancements implemented by the BBRA and BIPA fall into two categories. The first category is “Legislative Add-ons” which included a 16.66% add-on to the nursing component of the RUGs rate and the 4% base adjustment. On September 30, 2002 the Legislative Add-ons expired, or “Medicare Cliff”, resulting in a reduction in Medicare rates for all long-term care providers. Based upon the Medicare case mix and census for the twelve month period October 1, 2002 to September 30, 2003 the Company estimates that the net impact of the Medicare Cliff and market basket increase was a reduction of revenues of approximately $16.7 million.

The second category is “RUGs Refinements” which involves an initial 20% add-on for 15 RUGs categories identified as having high intensity, non-therapy ancillary services. The 20% add-ons from three RUGs categories were later redistributed to 14 rehabilitation categories at an add-on rate of 6.7% each. In April 2002 CMS announced that it would delay the refinement of the RUGs categories thereby extending the related funding enhancements until September 30, 2003. In May 2003, CMS released a rule to maintain the current RUGs classification until October 1, 2004. Further to, but independent of this, Congress enacted legislation directing CMS to conduct a study on the RUGs classification system and report its recommendations by January 2005. The implementation of a RUGs Refinement change, where all or part of the enhancement is discontinued, could have a significant impact on the Company. Based upon the Medicare case mix and census for the year ended December 31, 2003 the Company estimates that it received an average $24.12 per resident day, which on an annualized basis amounts to $17.6 million related to the RUGs Refinements.

In February 2003, CMS announced its plan to reduce its level of reimbursement for uncollectible Part A co-insurance. Under current law, skilled nursing facilities are reimbursed 100% for any bad debts incurred. Under the plan announced by CMS, the reimbursement level would be reduced to 70% over a three year period as follows: 90% effective for the government fiscal year commencing October 1, 2003; 80% for the government fiscal year commencing October 1, 2004; and 70% for the government fiscal year commencing October 1, 2005 and thereafter. This plan is consistent with the bad debt reimbursement plan for hospitals. CMS did not implement the rule change effective October 1, 2003, and continues to review the proposed plan. The Company estimates that should this plan be implemented, the negative impact on net earnings would be $1.3 million in 2004, increasing to $3.3 million in 2006.

As at December 31, 2003, the States of Pennsylvania, Indiana, Oregon, and Washington have submitted proposed state plan amendments and waivers, which are awaiting review and approval by CMS pertaining to the fiscal year commencing July 1, 2003. Refer to note 12 (c) for further information. As the state plan amendments and waivers have not been approved, the Company has recorded revenues based upon amounts received. Based upon the final and CMS approved state plan amendments and waivers, changes in Medicaid rates and any associated provider taxes could result in adjustment to earnings for the six month period commencing July 1, 2003 to December 31, 2003.

Through the divestiture program in Texas and Florida, the Company has assumed notes from the purchasers and retained ownership of certain nursing home properties, which the Company leases to other unrelated long-term care providers. In aggregate, as of December 31, 2003, the Company has $21.4 million in notes and $6.9 million in non-current amounts receivable due from unrelated long-term care providers in Florida and Texas; and owns $15.8 million in nursing home properties in Texas and Florida. In 2003, the Company earned $5.7 million in annual management and consulting fees, and $2.1 million in rental revenue from properties owned as at December 31, 2003 from unrelated long-term operators. As a result, the earnings and cash flow of the Company can be influenced by the financial stability of these unrelated long-term operators.

settlement for the remainder of the six years. There will be no significant adjustment to the recorded receivable balance as a result of the January 2004 negotiated settlement of the staffing cost issue. Further negotiations continue on the remaining two years under appeal for the $11.5 million overhead cost issue, which failing resolution, the issue will be heard by the PRRB. A PRRB hearing has been scheduled in April 2004 for one of the two remaining years under appeal. A PRRB hearing has been scheduled in September 2004 for a Director of Nursing cost issue involving two cost reporting periods totaling $3.8 million. The Company continues to negotiate on the remaining issues and when appropriate seek resolution from the PRRB. No adjustment to the receivable amount can be determined until negotiations are concluded on a majority of issues that are involved in the cost reporting years under appeal. Though the Company remains confident that it will successfully settle the issues, an unsuccessful conclusion could negatively impact the Company’s earnings and cash flow. As of December 31, 2003 the Company had $51.2 million in gross Medicare and Medicaid settlement receivables with a related allowance for doubtful accounts of $14.0 million. The net amounts receivable represents the Company’s estimate of the amount collectible on Medicare and Medicaid prior period cost reports.

The Company entered into a Preferred Provider Agreement with Omnicare, Inc. pursuant to the divestiture of its pharmacy operation in 1998. In connection with its agreement to provide pharmacy services, Omnicare has requested arbitration for an alleged lost profits claim relating to the Company’s disposition of assets, primarily in Florida. Damage amounts, if any cannot be reasonably estimated based on information available at this time. An arbitration hearing for this matter has not been scheduled. The Company believes that it has interpreted correctly and complied with the terms of the Preferred Provider Agreement; however there can be no assurances that this claim will not be successful or other claims arise.

The Company is subject to surveys and inspections by state and federal authorities to ensure compliance with applicable laws and licensure requirements of the Medicare and Medicaid programs. The survey process is intended to review the actual provision of care and services, and remedies for assessed deficiencies can be levied based upon the scope and severity of the cited deficiencies. Remedies range from the assessment of fines to the withdrawal of payments under the Medicare and Medicaid programs. Should a deficiency not be addressed through the plan of correction, a facility can be decertified from the Medicare and Medicaid program. As of December 31, 2003 the Company has certain facilities under a plan of correction. While it is not possible to estimate the final outcome of the required corrective action, the Company has accrued for known costs.

The Company has $45.1 million in accruals for self-insured liabilities as of December 31, 2003. Though the Company has been successful in exiting from the states of Texas and Florida and limiting future exposure to general liability claims in these states, the timing and eventual settlement costs for these claims cannot be precisely defined.

The Company has a high level of indebtedness with debt service obligations totaling $392.9 million in borrowings at December 31, 2003 representing 59.6% of total capitalization (defined as total long-term liabilities plus total equity), compared to a similar ratio of 61.7% at December 31, 2002. As a result, the degree to which the Company is leveraged could have important consequences, including, but not limited to the following:


	•	a substantial portion of the Company’s cash flow from operations would be dedicated to the payment of principal and interest on the Company’s indebtedness, thereby reducing the funds available for other purposes;


	•	the Company’s ability to obtain additional financing within its current Credit Facility for working capital, capital expenditures, acquisitions or other purposes may be limited; and

	•	certain of the Company’s borrowings are at variable rates of interest, which exposes the Company to the risk of higher interest rates.

The Company expects to satisfy the required payments of principal and interest on indebtedness from cash flow from operations. However, the Company’s ability to generate sufficient cash flow from operations depends on a number of internal and external factors, including factors beyond the Company’s control such as prevailing industry conditions. There can be no assurance that cash flow from operations will be sufficient to enable the Company to service its debt and meet other obligations.

The Company is in compliance with all of the financial covenants as of December 31, 2003. While management has a strategy to remain in compliance, there can be no assurance that the Company will meet future covenant requirements. The Company’s available bank lines can be affected by its ability to remain in compliance, or if not, would depend upon management’s ability to amend the covenant or refinance the debt.

The estimated fair values of the Company’s financial instruments at December 31 are as follows:

The fair value of non-current accounts receivable, which are anticipated to be collected beyond one year, are estimated based on discounted cash flows at estimated current borrowing rates.

Other assets consist of debt service and capital expenditure trust funds and other financial instruments, the fair values of which are estimated based on market prices from the same or similar issues of the underlying investments.

The fair value of long-term debt is estimated based on approximate borrowing rates currently available to the Company for debt equal to the existing debt maturities. For other long-term liabilities, principally refundable escrows, it is not practicable to estimate fair value.

The fair values of the interest rate swap and cap are based on the quoted market prices as provided by the financial institution which is a counterparty to the arrangements.

The fair value of deferred compensation, other long-term liabilities and long-term due to affiliate are estimated to be equal to their carrying value.

The following is a summary of the quarterly results of operations for the years ended December 31, 2003 and 2002 (in thousands):

Under the provisions of Section 145 of the Delaware General Corporation Law, Extendicare Health Services, Inc. (the “Company”) is required to indemnify any present or former officer or director against expenses reasonably incurred by the officer or director in connection with legal proceedings in which the officer or director becomes involved by reason of being an officer or director if the officer or director is successful in the defense of such proceedings. Section 145 also provides that the Company may indemnify an officer or director in connection with a proceeding in which he or she is not successful in defending if it is determined that the officer or director acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company or, in the case of a criminal action, if it is determined that the officer or director had no reasonable cause to believe his or her conduct was unlawful. Liabilities for which an officer or director may be indemnified include amounts paid in satisfaction of settlements, judgments, fines and other expenses (including attorneys’ fees) incurred in connection with such proceedings. In a stockholder derivative action, no indemnification may be paid in respect of any claim, issue or matter as to which the officer or director has been adjudged to be liable to the Company (except for expenses allowed by a court).

Pursuant to the provisions of Article VIII of the Company’s By-Laws, the Company is required to indemnify officers or directors to a greater extent than under the current provisions of Section 145 of the Delaware General Corporation Law. Except with respect to stockholder derivative actions, the Company’s By-Laws generally state that an officer or director will be indemnified against expenses, judgements, fines and amounts paid in settlement reasonably incurred by the officer or director in connection with any threatened, pending or completed proceeding, provided that (i) such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, and (ii) with respect to criminal actions, such officer or director had no reasonable cause to believe his conduct was unlawful. With respect to stockholder derivative actions, the Company’s By-Laws generally state that an officer or director will be indemnified against expenses reasonably incurred by the officer or director in connection with the defense or settlement of any threatened, pending or completed action or suit provided that such officer or director acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification (except for indemnification allowed by a court) will be made with respect to any claim, issue or matter as to which such officer or director has been adjudged to be liable to the Company and its stockholders. The Company’s By-Laws also provide that expenses for the defense of any action for which indemnification may be available will be advanced by the Company under certain circumstances.

Additionally, pursuant to the Company’s Restated Certificate of Incorporation, a director is not personally liable to the Company or any of its stockholders for monetary damages for breach of his or her fiduciary duty as a director, except for liability resulting from (i) any breach of the director’s duty of loyalty to the Company or its stockholders; (ii) acts or omissions not in good faith or which involve intentional misconduct or knowing violation of law; (iii) violation of Section 174 of the Delaware General Corporation Law, which generally hold directors liable for unlawful dividends, stock purchases or stock redemptions in the event of the Company’s dissolution or insolvency; or (iv) any transaction from which the director derived an improper personal benefit.

The indemnification provided by the Delaware General Corporation Law and the Company’s Restated Certificate or Incorporation and By-Laws is not exclusive of any other rights to which a director or officer of the Company may be entitled. The Company also carries directors’ and officers’ liability insurance.

The laws of the states or other jurisdictions of incorporation or organization and/or the provisions of the articles or certificates of incorporation or organization (or their equivalent) and the bylaws of substantially all of the subsidiary guarantors listed in the “Table of Additional Registrants” (the

The Exchange and Registration Rights Agreement contains provisions under which the holders of the notes agree to indemnify the officers, directors and controlling persons of the Company and each of the Subsidiary Guarantors against certain liabilities, including liabilities under the Securities Act of 1933 or to contribute to payments the officers and directors may be required to make with respect to such liabilities.

(a) Exhibits. The exhibits listed in the accompanying Exhibit Index are filed (except where otherwise indicated) as part of this Registration Statement.

(b) Financial Statement Schedules. Schedule II — Valuation and Qualifying Accounts and the related Report of Independent Registered Public Accounting Firm are filed herewith as Exhibit 99.1. All other schedules are omitted because they are not applicable or not required, or because the required information is shown either in the consolidated financial statements or in the notes thereto.


	(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:


	(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

	(ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement;

	(iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.


	(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

	(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrants pursuant to the foregoing provisions, or otherwise, the Registrants have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by a Registrant of expenses incurred or paid by a director, officer or controlling person of a Registrant in the successful defense of any action, suit or proceeding) is asserted by such

director, officer or controlling person in connection with the securities being registered, each of the Registrants will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

(c) Each of the undersigned Registrants hereby undertakes to respond to requests for information that is incorporated by reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request.

(d) Each of the undersigned Registrants hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective.

Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Milwaukee, State of Wisconsin, on June 25, 2004.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	JACKSON HEIGHTS REHABILITATION CENTER, LLC

	By: EXTENDICARE HOMES, INC.,
	as sole member


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	FIR LANE TERRACE CONVALESCENT CENTER, INC., as sole member

	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	FIR LANE TERRACE CONVALESCENT CENTER, INC., as sole member

	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	PARTNERS HEALTH GROUP, LLC,


	as sole member of
	Partners Health Group — Florida, LLC


	By:	EXTENDICARE HEALTH NETWORK, INC.,


	as sole member of
	Partners Health Group, LLC


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	PARTNERS HEALTH GROUP, LLC,


	as sole member of
	Partners Health Group — Louisiana, LLC


	By:	EXTENDICARE HEALTH NETWORK, INC.,


	as sole member of
	Partners Health Group, LLC


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	PARTNERS HEALTH GROUP, LLC,


	as sole member of
	Partners Health Group — Texas, LLC


	By:	EXTENDICARE HEALTH NETWORK, INC.,


	as sole member of
	Partners Health Group, LLC


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


	By:	/s/ MELVIN A. RHINELANDER



	Melvin A. Rhinelander
	Chairman of the Board and
	Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.


*	The schedules and exhibits to this document are not being filed herewith. The registrant agrees to furnish supplementally a copy of any such schedule or exhibit to the Securities and Exchange Commission.

EX-3.89 2 c86082exv3w89.txt ARTICLES OF ORGANIZATION OF PRAIRIE VILLAGE CARE EXHIBIT 3.89 ARTICLES OF ORGANIZATION The undersigned, desiring to form a Limited Liability Company (hereinafter referred to as "LLC") pursuant to the Indiana Business Flexibility Act. Indiana Code 23-18-1-1, et. seq. as amended, executed the following Articles of Organization: ARTICLE I. NAME AND PRINCIPAL OFFICE Name of LLC: Prairie Village Care, LLC. The address of the principal office of the LLC is: 111 W. Michigan Street, Milwaukee, WI 53203-2903. ARTICLE II. REGISTERED OFFICE AND AGENT The name and street address of the LLC's Registered Agent and Registered Office for service of process are: Corporation Service Company, 251 East Ohio Street, Suite 500, Indianapolis, IN 46204. ARTICLE III. DISSOLUTION The Limited Liability Company is perpetual until dissolution. ARTICLE IV. MANAGEMENT The Limited Liability Company will be managed by its members. In Witness Whereof, the undersigned executes these Articles of Organization and verifies, subject to penalties of perjury, that the statements contained herein are true. This 10th day of March, 2004. /s/ Roch Carter ----------------------------------- Roch Carter This instrument was prepared by Roch Carter, 111 W. Michigan St., Milwaukee, WI 53203-2903. EX-3.90 3 c86082exv3w90.txt ARTICLES OF ORGANIZATION OF SCOTT VILLA CARE, LLC EXHIBIT 3.90 ARTICLES OF ORGANIZATION The undersigned, desiring to form a Limited Liability Company (hereinafter referred to as "LLC") pursuant to the Indiana Business Flexibility Act. Indiana Code 23-18-1-1, et. seq. as amended, executed the following Articles of Organization: ARTICLE I. NAME AND PRINCIPAL OFFICE Name of LLC: Scott Villa Care, LLC. The address of the principal office of the LLC is: 111 W. Michigan Street, Milwaukee, WI 53203-2903. ARTICLE II. REGISTERED OFFICE AND AGENT The name and street address of the LLC's Registered Agent and Registered Office for service of process are: Corporation Service Company, 251 East Ohio Street, Suite 500, Indianapolis, IN 46204. ARTICLE III. DISSOLUTION The Limited Liability Company is perpetual until dissolution. ARTICLE IV. MANAGEMENT The Limited Liability Company will be managed by its members. In Witness Whereof, the undersigned executes these Articles of Organization and verifies, subject to penalties of perjury, that the statements contained herein are true. This 10th day of March, 2004. /s/ Roch Carter ----------------------------------- Roch Carter This instrument was prepared by Roch Carter, 111 W. Michigan St., Milwaukee, WI 53203-2903. EX-3.91 4 c86082exv3w91.txt ARTICLES OF ORGANIZATION OF SWISS VILLA CARE, LLC EXHIBIT 3.91 ARTICLES OF ORGANIZATION The undersigned, desiring to form a Limited Liability Company (hereinafter referred to as "LLC") pursuant to the Indiana Business Flexibility Act. Indiana Code 23-18-1-1, et. seq. as amended, executed the following Articles of Organization: ARTICLE I. NAME AND PRINCIPAL OFFICE Name of LLC: Swiss Villa Care, LLC. The address of the principal office of the LLC is: 111 W. Michigan Street, Milwaukee, WI 53203-2903. ARTICLE II. REGISTERED OFFICE AND AGENT The name and street address of the LLC's Registered Agent and Registered Office for service of process are: Corporation Service Company, 251 East Ohio Street, Suite 500, Indianapolis, IN 46204. ARTICLE III. DISSOLUTION The Limited Liability Company is perpetual until dissolution. ARTICLE IV. MANAGEMENT The Limited Liability Company will be managed by its members. In Witness Whereof, the undersigned executes these Articles of Organization and verifies, subject to penalties of perjury, that the statements contained herein are true. This 10th day of March, 2004. /s/ Roch Carter ----------------------------------- Roch Carter This instrument was prepared by Roch Carter, 111 W. Michigan St., Milwaukee, WI 53203-2903. EX-3.92 5 c86082exv3w92.txt ARTICLES OF INCORPORATION OF VILLA PINES CARE, LLC EXHIBIT 3.92 STATE OF WISCONSIN DEPARTMENT OF FINANCIAL INSTITUTIONS DIVISION OF CORPORATE AND CONSUMER SERVICES ARTICLES OF ORGANIZATION -- LIMITED LIABILITY COMPANY Executed by the undersigned for the purpose of forming a Wisconsin limited liability company under Ch. 183 of the Wisconsin Statutes: Article 1. Name of the limited liability company: Villa Pines Care, LLC Article 2. The limited liability company is organized under Ch. 183 of the Wisconsin Statutes. Article 3. Name of the initial registered agent: Roch Carter Article 4. Street address of the initial 111 W. Michigan St. registered office: Milwaukee, WI 53203-2903 Article 5. Management of the limited liability company shall be vested in its members. Article 6. Name and complete address of each organizer: Roch Carter 111 W. Michigan Street Milwaukee, WI 53203-2903 /s/ Roch Carter - -------------------------------------------- Organizer's signature This document was drafted by Roch Carter. EX-3.93 6 c86082exv3w93.txt ARTS. OF ORGANIZATION OF STAR PURCHASING SERVICES EXHIBIT 3.93 STATE OF WISCONSIN DEPARTMENT OF FINANCIAL INSTITUTIONS DIVISION OF CORPORATE AND CONSUMER SERVICES ARTICLES OF ORGANIZATION -- LIMITED LIABILITY COMPANY Executed by the undersigned for the purpose of forming a Wisconsin limited liability company under Ch. 183 of the Wisconsin Statutes: Article 1. Name of the limited liability company: Star Purchasing Services, LLC Article 2. The limited liability company is organized under Ch. 183 of the Wisconsin Statutes. Article 3. Name of the initial registered agent: Roch Carter Article 4. Street address of the initial 111 W. Michigan St. registered office: Milwaukee, WI 53203-2903 Article 5. Management of the limited liability company shall be vested in its members. Article 6. Name and complete address of each organizer: Hugh S. McManus 111 W. Michigan Street Milwaukee, WI 53203-2903 /s/ Hugh S. McManus - ----------------------------------------------------- Organizer's signature This document was drafted by Hugh S. McManus. EX-4.4 7 c86082exv4w4.txt SECOND AMENDED AND RESTATED CREDIT AGREEMENT EXHIBIT 4.4 EXECUTION COPY ================================================================================ $155,000,000 SECOND AMENDED AND RESTATED CREDIT AGREEMENT AMONG EXTENDICARE HOLDINGS, INC., EXTENDICARE HEALTH SERVICES, INC. AS BORROWER, THE SEVERAL LENDERS FROM TIME TO TIME PARTIES HERETO, LEHMAN BROTHERS INC., AS ARRANGER U.S. BANK, NATIONAL ASSOCIATION, AS SYNDICATION AGENT, GENERAL ELECTRIC CAPITAL CORPORATION, RESIDENTIAL FUNDING CORPORATION AND LASALLE BANK NATIONAL ASSOCIATION, AS CO-DOCUMENTATION AGENTS AND LEHMAN COMMERCIAL PAPER INC., AS ADMINISTRATIVE AGENT DATED AS OF APRIL 22, 2004 ================================================================================ TABLE OF CONTENTS

- i -

- ii -

- iii -

- iv - SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of April 22, 2004, among EXTENDICARE HOLDINGS, INC., a Wisconsin corporation ("Holdings"), EXTENDICARE HEALTH SERVICES, INC., a Delaware corporation (the "Borrower"), the several banks and other financial institutions or entities from time to time parties to this Agreement (the "Lenders"), LEHMAN BROTHERS INC., as advisor, lead arranger and book manager (in such capacity, the "Arranger"), U.S. BANK, NATIONAL ASSOCIATION, as syndication agent (in such capacity, the "Syndication Agent"), GENERAL ELECTRIC CAPITAL CORPORATION, RESIDENTIAL FUNDING CORPORATION and LASALLE BANK NATIONAL ASSOCIATION, as Co-Documentation Agents (in such capacity, the "Co-Documentation Agents"), and LEHMAN COMMERCIAL PAPER INC. ("LCPI"), as administrative agent (in such capacity, the "Administrative Agent"). W I T N E S S E T H: WHEREAS, the Borrower and Holdings are parties to the Amended and Restated Credit Agreement, dated as of June 28, 2002 (as amended, supplemented or otherwise modified prior to the date hereof, the "Existing Credit Agreement"), with the lenders parties thereto (the "Existing Lenders"), Lehman Commercial Paper Inc., as administrative agent, and others; WHEREAS, the Borrower has requested that the Existing Credit Agreement be amended and restated as set forth below, to provide for, among other things, an increase in the Total Revolving Credit Commitments; and WHEREAS, it is the intent of the parties hereto that this Agreement not constitute a novation of the obligations and liabilities existing under the Existing Credit Agreement and which remain outstanding or evidence repayment of any such obligations and liabilities and that this Agreement amend and restate in its entirety the Existing Credit Agreement and re-evidence the obligations of the Borrowers outstanding thereunder and evidence the obligations of the Borrower in respect of the increased amount of the Total Revolving Credit Commitments; NOW, THEREFORE, in consideration of the premises and the agreements hereinafter set forth, the parties hereto hereby agree that, on the Closing Date, the Existing Credit Agreement will be amended and restated in its entirety as follows: SECTION 1. DEFINITIONS 1.1 Defined Terms. As used in this Agreement, the terms listed in this Section 1.1 shall have the respective meanings set forth in this Section 1.1. "Adjustment Date": as defined in the Pricing Grid. "Administrative Agent": as defined in the preamble hereto. "Affiliate": as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, either to (a) vote 10% or more of the securities having ordinary voting power for the election of directors (or persons 2 performing similar functions) of such Person or (b) direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Agents": the collective reference to the Syndication Agent, the Co-Documentation Agents and the Administrative Agent. "Aggregate Exposure": with respect to any Lender at any time, an amount equal to (a) until the Closing Date, the amount of such Lender's Revolving Credit Commitment at such time and (b) thereafter, the amount of such Lender's Revolving Credit Commitment then in effect or, if the Revolving Credit Commitments have been terminated, the amount of such Lender's Revolving Extensions of Credit then outstanding. "Aggregate Exposure Percentage": with respect to any Lender at any time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure at such time to the sum of the Aggregate Exposures of all Lenders at such time. "Agreement": this Second Amended and Restated Credit Agreement, as amended, supplemented, restated or otherwise modified from time to time. "Applicable Margin": the rates per annum determined from time to time pursuant to the Pricing Grid. "Application": an application, in such form as the relevant Issuing Lender may specify from time to time, requesting such Issuing Lender to issue a Letter of Credit. "Arranger": as defined in the preamble hereto. "Asset Sale": any Disposition of Property or series of related Dispositions of Property (excluding any such Disposition permitted by clause (a), (b), (c), (d), (e) or (g) of Section 7.5) which yields gross proceeds to the Borrower or any of its Subsidiaries (valued at the initial principal amount thereof in the case of non-cash proceeds consisting of notes or other debt securities and valued at fair market value in the case of other non-cash proceeds) in excess of $1,000,000. "Assignee": as defined in Section 10.6(c). "Assignor": as defined in Section 10.6(c). "Available Revolving Credit Commitment": with respect to any Lender at any time, an amount equal to the excess, if any, of (a) such Lender's Revolving Credit Commitment then in effect over (b) such Lender's Revolving Extensions of Credit then outstanding. "Base Rate": for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall mean the prime lending rate as set forth on the British Banking Association Telerate Page 5 (or such other comparable page as may, in the opinion of the Administrative Agent, replace such page for the purpose of displaying such rate), as in effect form time to time. Any 3 change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective as of the opening of business on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. "Base Rate Loans": Loans for which the applicable rate of interest is based upon the Base Rate. "Benefited Lender": as defined in Section 10.7. "Board": the Board of Governors of the Federal Reserve System of the United States (or any successor). "Borrower": as defined in the preamble hereto. "Borrowing Date": any Business Day specified by the Borrower as a date on which the Borrower requests the Lenders to make Loans hereunder. "Borrowing Notice": with respect to any request for a borrowing of Loans hereunder, a notice from the Borrower, substantially in the form of, and containing the information prescribed by, Exhibit K, delivered to the Administrative Agent. "Business Day": (a) for all purposes other than as covered by clause (b) below, a day other than a Saturday, Sunday or other day on which commercial banks in New York City are authorized or required by law to close and (b) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Loans, any day which is a Business Day described in clause (a) and which is also a day for trading by and between banks in Dollar deposits in the interbank eurodollar market. "Capital Expenditures": for any period, with respect to any Person, the aggregate of all expenditures by such Person for the acquisition or leasing (pursuant to a capital lease) of fixed or capital assets or additions to equipment (including replacements, capitalized repairs and improvements during such period) which are required to be capitalized under GAAP on a balance sheet of such Person. "Capital Lease Obligations": with respect to any Person, the obligations of such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP; and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock": any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation) and any and all warrants, rights or options to purchase any of the foregoing. "Cash Equivalents": (a) marketable direct obligations issued by, or unconditionally guaranteed by, the United States Government or issued by any agency thereof 4 and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition; (b) certificates of deposit, time deposits, eurodollar time deposits or overnight bank deposits having maturities of six months or less from the date of acquisition issued by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof having combined capital and surplus of not less than $500,000,000; (c) commercial paper of an issuer rated at least A-2 by Standard & Poor's Ratings Services ("S&P") or P-2 by Moody's Investors Service, Inc. ("Moody's"), or carrying an equivalent rating by a nationally recognized rating agency, if both of the two named rating agencies cease publishing ratings of commercial paper issuers generally, and maturing within six months from the date of acquisition; (d) repurchase obligations of any Lender or of any commercial bank satisfying the requirements of clause (b) of this definition, having a term of not more than 30 days with respect to securities issued or fully guaranteed or insured by the United States government; (e) securities with maturities of one year or less from the date of acquisition issued or fully guaranteed by any state, commonwealth or territory of the United States, by any political subdivision or taxing authority of any such state, commonwealth or territory or by any foreign government, the securities of which state, commonwealth, territory, political subdivision, taxing authority or foreign government (as the case may be) are rated at least A by S&P or A by Moody's; (f) securities with maturities of six months or less from the date of acquisition backed by standby letters of credit issued by any Lender or any commercial bank satisfying the requirements of clause (b) of this definition; and (g) shares of money market mutual or similar funds which invest exclusively in assets satisfying the requirements of clauses (a) through (f) of this definition. "Change of Control": the occurrence of any of the following events: (a) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), shall become, or obtain rights (whether by means of warrants, options or otherwise) to become, the "beneficial owner" (as defined in Rules 13(d)-3 and 13(d)-5 under the Exchange Act), directly or indirectly, of more than 35% of the outstanding common stock of the Parent; (b) the board of directors of the Parent shall cease to consist of a majority of Continuing Directors; (c) the Parent shall cease to own and control, of record and beneficially, directly or indirectly, a majority of each class of outstanding Capital Stock of Holdings free and clear of all Liens (except Liens created by the Guarantee and Collateral Agreement); (d) Holdings shall cease to own and control, of record and beneficially, directly, 100% of each class of outstanding Capital Stock of the Borrower free and clear of all Liens (except Liens created by the Guarantee and Collateral Agreement); or (e) a Specified Change of Control. "Closing Date": the date on which the conditions precedent set forth in Section 5.1 shall have been satisfied, which date shall be not later than April 22, 2004. "Code": the Internal Revenue Code of 1986, as amended from time to time. "Collateral": all Property of the Loan Parties, now owned or hereafter acquired, upon which a Lien is created or purported to be created by any Security Document. "Commonly Controlled Entity": an entity, whether or not incorporated, that is under common control with the Borrower within the meaning of Section 4001 of ERISA or is 5 part of a group that includes the Borrower and that is treated as a single employer under Section 414 of the Code. "Compliance Certificate": a certificate duly executed by a Responsible Officer, substantially in the form of Exhibit B. "Confidential Information Memorandum": the Confidential Information Memorandum dated May 2002, as updated by the slide presentation dated March 18, 2004, and furnished to the Lenders. "Consent and Confirmation": the Consent and Confirmation, substantially in the form of Exhibit K, to be executed and delivered by Holdings, the Borrower and each Subsidiary Guarantor on the Closing Date. "Consolidated EBITDA": of any Person for any period, Consolidated Net Income of such Person and its Subsidiaries for such period plus, without duplication and to the extent reflected as a charge in the statement of such Consolidated Net Income for such period, the sum of (a) income tax expense, (b) Consolidated Interest Expense of such Person and its Subsidiaries, amortization or write-off of debt discount and debt issuance costs and commissions, discounts and other fees and charges associated with Indebtedness, (c) depreciation and amortization expense, (d) amortization of intangibles (including, but not limited to, goodwill) and organization costs, (e) any extraordinary, unusual (including increases to actuarial reserves for the Transferred Properties) or non-recurring expenses or losses (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, losses on sales of assets outside of the ordinary course of business), (f) any other non-cash charges including write-off of goodwill or write-down of fixed asset values and (g) any write-down of warrants of Omnicare held by the Borrower on March 31, 2002 and minus, without duplication and to the extent included in the statement of such Consolidated Net Income for such period, the sum of (a) interest income (except to the extent deducted in determining Consolidated Interest Expense), (b) any extraordinary, unusual or non-recurring income or gains (including, whether or not otherwise includable as a separate item in the statement of such Consolidated Net Income for such period, gains on the sales of assets outside of the ordinary course of business), (c) income tax credits and (d) any other non-cash income, all as determined on a consolidated basis; provided, that for purposes of calculating Consolidated EBITDA of the Borrower and its Subsidiaries for any period, (i) the Consolidated EBITDA of any Person, or any assets constituting a business unit, acquired by the Borrower or its Subsidiaries during such period shall be included on a pro forma basis for such period (assuming the consummation of such acquisition and the incurrence or assumption of any Indebtedness in connection therewith occurred on the first day of such period) if the consolidated balance sheet of such acquired Person and its consolidated Subsidiaries, or such business unit, as at the end of the period preceding the acquisition of such Person, or such business unit, and the related consolidated statements of income and stockholders' equity and of cash flows for the period in respect of which Consolidated EBITDA is to be calculated (x) have been previously provided to the Administrative Agent and the Lenders and (y) either (1) have been reported on without a qualification arising out of the scope of the audit by independent certified public accountants of nationally recognized standing or (2) have been found acceptable by the Administrative Agent, (ii) the Consolidated EBITDA of any Person, or attributable to the assets constituting a business 6 unit, Disposed of by the Borrower or its Subsidiaries during such period (including the Transferred Properties, in the case of calculation of Consolidated EBITDA of the Borrower and its Subsidiaries for any period which includes any date on or prior to the date of Disposition of the Transferred Properties) shall be excluded for such period (assuming the consummation of such Disposition and the repayment of any Indebtedness in connection therewith occurred on the first day of such period) and (iii) the Consolidated EBITDA attributable to any Non-Recourse Subsidiary or any assets that secure Permitted Non-Recourse Debt shall be excluded from Consolidated EBITDA of the Borrower and its Subsidiaries. In addition, changes in accounting principles affecting financial covenants within such testing period shall be reversed so as to nullify such affect. "Consolidated EBITDAR": of any Person for any period, the Consolidated EBITDA of such Person for such period, plus Consolidated Lease Expense of such Person for such period; provided, that in determining Consolidated EBITDAR of the Borrower and its Subsidiaries for any period which includes any date on or prior to the date of Disposition of the Transferred Properties, all amounts specified in the foregoing definition that are attributable to the Transferred Properties shall not be included. "Consolidated Fixed Charge Coverage Ratio": for any period, the ratio of (a) Consolidated EBITDAR of the Borrower and its Subsidiaries for such period minus Consolidated Maintenance Capital Expenditures of the Borrower and its Subsidiaries for such period to (b) Consolidated Fixed Charges for such period. "Consolidated Fixed Charges": for any period, the sum (without duplication) of (a) Consolidated Interest Expense of the Borrower and its Subsidiaries for such period, (b) Consolidated Lease Expense of the Borrower and its Subsidiaries for such period and (c) scheduled payments made during such period on account of principal of Indebtedness of the Borrower or any of its Subsidiaries; provided, that in determining Consolidated Fixed Charges for any period which includes any date on or prior to the date of Disposition of the Transferred Properties, all amounts specified in the foregoing definition that are attributable to the Transferred Properties shall not be included. "Consolidated Growth Capital Expenditures": for any period, all Capital Expenditures of the Borrower and its Subsidiaries for such period representing the purchase price for, or other costs associated with the acquisition, construction or expansion of, a facility owned or operated by the Borrower or any Subsidiary; provided, that in determining Consolidated Growth Capital Expenditures for any period which includes any date on or prior to the date of Disposition of the Transferred Properties, all Capital Expenditures that are attributable to the Transferred Properties shall not be included. "Consolidated Interest Expense": of any Person for any period, total cash interest expense (excluding that attributable to Capital Lease Obligations and any amounts for amortization of costs relative to previous financings, including, with respect to the Borrower, breakage costs associated with the repayment of loans and termination of swap agreements in connection with the Existing Credit Agreement) of such Person and its Subsidiaries for such period with respect to all outstanding Indebtedness of such Person and its Subsidiaries (including, without limitation, all commissions, discounts and other fees and charges owed by 7 such Person with respect to letters of credit and bankers' acceptance financing and net costs of such Person under Hedge Agreements in respect of interest rates to the extent such net costs are allocable to such period in accordance with GAAP). "Consolidated Lease Expense": of any Person for any period, the aggregate amount of fixed and contingent rentals payable by such Person and its Subsidiaries for such period with respect to leases of real and personal property, determined on a consolidated basis in accordance with GAAP, provided, that payments in respect of Capital Lease Obligations shall not constitute Consolidated Lease Expense. "Consolidated Maintenance Capital Expenditures": for any period, all Capital Expenditures of the Borrower and its Subsidiaries for such period, other than Consolidated Growth Capital Expenditures; provided, that in determining Consolidated Maintenance Capital Expenditures for any period which includes any date on or prior to the date of Disposition of the Transferred Properties, all Capital Expenditures that are attributable to the Transferred Properties shall not be included. "Consolidated Net Income": of any Person for any period, the consolidated net income (or loss) of such Person and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP; provided, that in calculating Consolidated Net Income of the Borrower and its consolidated Subsidiaries for any period, there shall be excluded (a) the income (or deficit) of any Person accrued prior to the date it becomes a Subsidiary of the Borrower or is merged into or consolidated with the Borrower or any of its Subsidiaries, (b) the income (or deficit) of any Person (other than a Subsidiary of the Borrower) in which the Borrower or any of its Subsidiaries has an ownership interest, except to the extent that any such income is actually received by the Borrower or such Subsidiary in the form of dividends or similar distributions, (c) the undistributed earnings of any Subsidiary of the Borrower to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary is not at the time permitted by the terms of any Contractual Obligation (other than under any Loan Document) or Requirement of Law applicable to such Subsidiary, (d) in determining Consolidated Net Income of the Borrower and its Subsidiaries for any period which includes the date of Disposition of the Transferred Properties, the amount of consolidated net income attributable to the Transferred Properties for such period shall not be included and (e) in determining Consolidated Net Income of the Borrower and its Subsidiaries for any period, the consolidated net income for such period attributable to any Non-Recourse Subsidiary or any assets that secure Permitted Non-Recourse Debt shall be excluded. "Consolidated Senior Debt": all Consolidated Total Debt other than (a) the Senior Subordinated Notes and (b) Permitted Non-Recourse Debt. "Consolidated Senior Leverage Ratio": as at the last day of any period of four consecutive fiscal quarters of the Borrower, the ratio of (a) Consolidated Senior Debt on such day to (b) Consolidated EBITDA of the Borrower and its Subsidiaries for such period. "Consolidated Senior Secured Leverage Ratio": as at the last day of any period of four consecutive fiscal quarters of the Borrower, the ratio of (a) the amount of all Consolidated 8 Senior Debt on such day other than unsecured Indebtedness to (b) Consolidated EBITDA of the Borrower and its Subsidiaries for such period. "Consolidated Tangible Net Worth": at any date, the difference of (a) all amounts that would, in conformity with GAAP, be included on a consolidated balance sheet of the Borrower and its Subsidiaries under stockholders' equity at such date (excluding either write-ups or write-downs of the Transferred Properties or consideration received in respect thereto) minus (b) the amounts included on such consolidated balance sheet for goodwill, trade names, trademarks, patents, unamortized debt discount and expense and other like intangible assets. "Consolidated Total Debt": at any date, the aggregate principal amount of all Indebtedness of the Borrower and its Subsidiaries at such date, determined on a consolidated basis in accordance with GAAP. "Continuing Directors": the directors of the Parent on the Closing Date, and each other director of the Parent, if, in each case, such other director's nomination for election to the board of directors of the Parent is recommended by the nominating committee of the board of directors of the Parent. "Contractual Obligation": as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its Property is bound. "Control Agreement": (a) with respect to each Deposit Account, a control agreement, in form and substance reasonably satisfactory to the Administrative Agent, providing (i) for the Administrative Agent to have "control" (within the meaning of Section 9-104 of the applicable Uniform Commercial Code) of such Deposit Account and (ii) that the Administrative Agent will not exercise any remedies thereunder except during the continuance of an Event of Default and (b) with respect to each Securities Account, a control agreement, in form and substance reasonably satisfactory to the Administrative Agent, providing (i) for the Administrative Agent to have "control" (within the meaning of Section 9-106 of the applicable Uniform Commercial Code) of such Securities Account and (ii) that the Administrative Agent will not exercise any remedies thereunder except during the continuance of an Event of Default. "Control Investment Affiliate": as to any Person, any other Person that (a) directly or indirectly, is in control of, is controlled by, or is under common control with, such Person and (b) is organized by such Person primarily for the purpose of making equity or debt investments in one or more companies. For purposes of this definition, "control" of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise. "Default": any of the events specified in Section 8, whether or not any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Deposit Account": each "deposit account" (as defined in Section 9-102 of the New York Uniform Commercial Code) in respect of which the Borrower or any of its Subsidiaries (other than any Excluded Foreign Subsidiary) is the depositor. 9 "Derivatives Counterparty": as defined in Section 7.6. "Disposition": with respect to any Property, any sale, lease, sale and leaseback, assignment, conveyance, transfer or other disposition thereof; and the terms "Dispose" and "Disposed of" shall have correlative meanings. "Dollars" and "$": lawful currency of the United States of America. "Domestic Subsidiary": any Subsidiary of the Borrower organized under the laws of any jurisdiction within the United States of America. "Environmental Laws": any and all laws, rules, orders, regulations, statutes, ordinances, guidelines, codes, decrees, or other legally enforceable requirements (including, without limitation, common law) of any international authority, foreign government, the United States, or any state, local, municipal or other governmental authority, regulating, relating to or imposing liability or standards of conduct concerning protection of the environment or of human health, or employee health and safety, as has been, is now, or may at any time hereafter be, in effect. "Environmental Permits": any and all permits, licenses, approvals, registrations, notifications, exemptions and other authorizations required under any Environmental Law. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time. "Eurocurrency Reserve Requirements": for any day, the aggregate (without duplication) of the maximum rates (expressed as a decimal fraction) of reserve requirements in effect on such day (including, without limitation, basic, supplemental, marginal and emergency reserves) under any regulations of the Board or other Governmental Authority having jurisdiction with respect thereto dealing with reserve requirements prescribed for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Board) maintained by a member bank of the Federal Reserve System. "Eurodollar Base Rate": with respect to each day during each Interest Period, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on Page 3750 of the Telerate screen as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on Page 3750 of the Telerate screen (or otherwise on such screen), the "Eurodollar Base Rate" for purposes of this definition shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Administrative Agent. "Eurodollar Loans": Loans for which the applicable rate of interest is based upon the Eurodollar Rate. "Eurodollar Rate": with respect to each day during each Interest Period, a rate per annum determined for such day in accordance with the following formula (rounded upward to the nearest 1/100th of 1%): 10 Eurodollar Base Rate ----------------------------------------- 1.00 - Eurocurrency Reserve Requirements "Eurodollar Tranche": the collective reference to Eurodollar Loans under any Facility the then current Interest Periods with respect to all of which begin on the same date and end on the same later date (whether or not such Loans shall originally have been made on the same day). "Event of Default": any of the events specified in Section 8, provided that any requirement for the giving of notice, the lapse of time, or both, has been satisfied. "Excluded Foreign Subsidiaries": any Foreign Subsidiary in respect of which either (a) the pledge of all of the Capital Stock of such Subsidiary as Collateral or (b) the guaranteeing by such Subsidiary of the Obligations, would, in the good faith judgment of the Borrower, result in adverse tax consequences to the Borrower. "Existing Credit Agreement": as defined in the recitals to this Agreement. "Existing Lenders": as defined in the recitals to this Agreement. "Existing Letters of Credit": the letters of credit described in Annex B. "Existing Mortgagee Title Policies": the collective reference to each of those certain existing mortgagee policies of title insurance issued to the Administrative Agent pursuant to the Existing Credit Agreement in respect of each of the Mortgaged Properties. "Existing Mortgages": the collective reference to each existing deed of trust and mortgage listed on Schedule 1.1(b), in each case, as amended, assigned or otherwise modified from time to time, delivered pursuant to the Existing Credit Agreement in respect of each of the Mortgaged Properties. "Existing Revolving Credit Loans": revolving credit loans made by the Existing Lenders to the Borrower pursuant to the Existing Credit Agreement. "Existing Senior Subordinated Note Indenture": the Indenture entered into by the Borrower in connection with the issuance of the Existing Senior Subordinated Notes, together with all instruments and other agreements entered into by the Borrower or such Subsidiaries in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. "Existing Senior Subordinated Notes": the Borrower's 9.35% Senior Subordinated Notes due 2007 in the aggregate principal amount of $200,000,000. "Federal Funds Effective Rate": for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the 11 average of the quotations for the day of such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by it. "Foreign Subsidiary": any Subsidiary of the Borrower that is not a Domestic Subsidiary. "FQ1", "FQ2 ", "FQ3", and "FQ4": when used with a numerical year designation, means the first, second, third or fourth fiscal quarters, respectively, of such fiscal year of the Borrower. (e.g., FQ4 2004 means the fourth fiscal quarter of the Borrower's 2004 fiscal year, which ends December 31, 2004). "Funding Office": the office specified from time to time by the Administrative Agent as its funding office by notice to the Borrower and the Lenders. "GAAP": generally accepted accounting principles in the United States of America as in effect from time to time. "Governmental Authority": any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantee and Collateral Agreement": the Amended and Restated Guarantee and Collateral Agreement, dated as of June 28, 2002, made by Holdings, the Borrower and each Subsidiary Guarantor in favor of the Administrative Agent, a copy of which is attached as Exhibit A, as the same may be amended, supplemented or otherwise modified from time to time. "Guarantee Obligation": as to any Person (the "guaranteeing person"), any obligation of (a) the guaranteeing person or (b) another Person (including, without limitation, any bank under any letter of credit), if to induce the creation of such obligation of such other Person the guaranteeing person has issued a reimbursement, counterindemnity or similar obligation, in either case guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligations (the "primary obligations") of any other third Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, any obligation of the guaranteeing person, whether or not contingent, (i) to purchase any such primary obligation or any Property constituting direct or indirect security therefor, (ii) to advance or supply funds (1) for the purchase or payment of any such primary obligation or (2) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase Property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided, however, that the term Guarantee Obligation shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation of any guaranteeing person shall be deemed to be the lower of (a) an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guarantee Obligation is made and (b) the maximum amount for which such guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, unless such primary 12 obligation and the maximum amount for which such guaranteeing person may be liable are not stated or determinable, in which case the amount of such Guarantee Obligation shall be such guaranteeing person's maximum reasonably anticipated liability in respect thereof as determined by the Borrower in good faith. "Guarantors": the collective reference to Holdings and the Subsidiary Guarantors. "Healthcare Laws" means, collectively, any and all federal, state or local laws, rules, regulations and administrative manuals, orders, guidelines and requirements issued under or in connection with Medicare, Medicaid or any government payment program or any law governing the licensure of or regulating healthcare providers, professionals, facilities or payors or otherwise governing or regulating the provision of, or payment for, medical services. "Hedge Agreements": all interest rate or currency swaps, caps or collar agreements, foreign exchange agreements, commodity contracts or similar arrangements entered into by the Borrower or its Subsidiaries providing for protection against fluctuations in interest rates, currency exchange rates, commodity prices or the exchange of nominal interest obligations, either generally or under specific contingencies and not for speculative purposes. For avoidance of doubt, Hedge Agreements shall include any interest rate swap or similar agreement that provides for the payment by the Borrower or any of its Subsidiaries of amounts based upon a floating rate in exchange for receipt by the Borrower or such Subsidiary of amounts based upon a fixed rate. "HIPAA" means the Health Insurance Portability and Accountability Act of 1996, as the same may be amended, modified or supplemented from time to time, and any successor statute thereto, and any and all rules or regulations promulgated from time to time thereunder. "Inactive Subsidiaries": the Subsidiaries listed on Schedule 1.1(c). "Indebtedness": of any Person at any date, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of Property or services (other than trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property), (e) all Capital Lease Obligations of such Person, (f) all obligations of such Person, contingent or otherwise, as an account party or applicant under acceptance, letter of credit or similar facilities, (g) all obligations of such Person, contingent or otherwise, to purchase, redeem, retire or otherwise acquire for value any Capital Stock of such Person, (h) all Guarantee Obligations of such Person in respect of obligations of the kind referred to in clauses (a) through (g) above; (i) all obligations of the kind referred to in clauses (a) through (h) above secured by (or for which the holder of such obligation has an existing right, contingent or otherwise, to be secured by) any Lien on Property (including, without limitation, accounts and contract rights) owned by such 13 Person, whether or not such Person has assumed or become liable for the payment of such obligation and (j) for the purposes of Section 8(e) only, all obligations of such Person in respect of Hedge Agreements. "Indemnified Liabilities": as defined in Section 10.5. "Indemnitee": as defined in Section 10.5. "Insolvency": with respect to any Multiemployer Plan, the condition that such Plan is insolvent within the meaning of Section 4245 of ERISA. "Insolvent": pertaining to a condition of Insolvency. "Intellectual Property": the collective reference to all rights, priorities and privileges relating to intellectual property, whether arising under United States, multinational or foreign laws or otherwise, including, without limitation, copyrights, copyright licenses, patents, patent licenses, trademarks, trademark licenses, technology, know-how and processes, and all rights to sue at law or in equity for any infringement or other impairment thereof, including the right to receive all proceeds and damages therefrom. "Interest Payment Date": (a) as to any Base Rate Loan, the last day of each March, June, September and December to occur while such Loan is outstanding and the final maturity date of such Loan, (b) as to any Eurodollar Loan having an Interest Period of three months or shorter, the last day of such Interest Period, (c) as to any Eurodollar Loan having an Interest Period longer than three months, each day that is three months, or a whole multiple thereof, after the first day of such Interest Period and the last day of such Interest Period and (d) as to any Loan (other than any Base Rate Loan), the date of any repayment or prepayment made in respect thereof. "Interest Period": as to any Eurodollar Loan, (a) initially, the period commencing on the borrowing or conversion date, as the case may be, with respect to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower in its notice of borrowing or notice of conversion, as the case may be, given with respect thereto; and (b) thereafter, each period commencing on the last day of the next preceding Interest Period applicable to such Eurodollar Loan and ending one, two, three or six months thereafter, as selected by the Borrower by irrevocable notice to the Administrative Agent not less than three Business Days prior to the last day of the then current Interest Period with respect thereto; provided that, all of the foregoing provisions relating to Interest Periods are subject to the following: (i) if any Interest Period would otherwise end on a day that is not a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding Business Day; 14 (ii) any Interest Period that would otherwise extend beyond the Revolving Credit Termination Date, shall end on the Revolving Credit Termination Date; and (iii) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period. "Investments": as defined in Section 7.8. "Issuing Lender": initially, LaSalle Bank National Association, and thereafter any Lender from time to time designated by the Borrower as an Issuing Lender with the consent of such Lender and the Administrative Agent. "L/C Commitment": $155,000,000. "L/C Fee Payment Date": the last day of each March, June, September and December and the last day of the Revolving Credit Commitment Period. "L/C Obligations": at any time, an amount equal to the sum of (a) the aggregate then undrawn and unexpired amount of the then outstanding Letters of Credit and (b) the aggregate amount of drawings under Letters of Credit that have not then been reimbursed pursuant to Section 3.5. "L/C Participants": with respect to any Letter of Credit, the collective reference to all the Lenders other than the Issuing Lender that issued such letter of Credit. "Lehman Entity": any of Lehman Commercial Paper Inc. or any of its affiliates (including Syndicated Loan Funding Trust). "Lender Addendum": with respect to any initial Lender, a Lender Addendum, substantially in the form of Exhibit I, to be executed and delivered by such Lender on the Closing Date as provided in Section 10.17. "Lenders": as defined in the preamble hereto. "Letters of Credit": as defined in Section 3.1(a). "Lien": any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge or other security interest or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement and any capital lease having substantially the same economic effect as any of the foregoing). "Loan": as defined in Section 2.1. 15 "Loan Documents": this Agreement, the Security Documents, the Applications and the Notes. "Loan Parties": Holdings, the Borrower and each Subsidiary of the Borrower that is a party to a Loan Document. "Material Adverse Effect": a material adverse effect on (a) the condition (financial or otherwise), operations, business, assets, liabilities or prospects of Holdings, the Borrower and its Subsidiaries taken as a whole, (b) the ability of any Loan Party to perform any material obligation under any Loan Document to which it is a party or (c) the material rights or remedies of the Agents or the Lenders hereunder or thereunder. "Material Environmental Amount": an amount or amounts payable by the Borrower and/or any of its Subsidiaries, in the aggregate in excess of $1,000,000, for: costs to comply with any Environmental Law; costs of any investigation, and any remediation, of any Material of Environmental Concern; and compensatory damages (including, without limitation damages to natural resources), punitive damages, fines, and penalties pursuant to any Environmental Law. "Material Subsidiary": any Subsidiary other than an Inactive Subsidiary. "Materials of Environmental Concern": any gasoline or petroleum (including crude oil or any fraction thereof) or petroleum products, polychlorinated biphenyls, urea-formaldehyde insulation, asbestos, pollutants, contaminants, radioactivity, and any other substances or forces of any kind, whether or not any such substance or force is defined as hazardous or toxic under any Environmental Law, that is regulated pursuant to or could give rise to liability under any Environmental Law. "Moody's": as defined in the definition of "Cash Equivalents" in this Section 1.1. "Mortgages": the collective reference to (a) the Existing Mortgages and (b) each of the Mortgage Amendments. "Mortgage Amendments": each of the amendments to any mortgage or deed of trust executed and delivered by any Loan Party, substantially in the form of Exhibit D (with such changes thereto as shall be advisable under the law of the jurisdiction in which such mortgage or deed of trust is to be recorded as the Administrative Agent on or before the Closing Date shall reasonably determine is necessary to maintain the priority of the first mortgage Lien encumbering the relevant Mortgaged Property). "Mortgaged Property": the real properties listed on Schedule 1.1(a). "Multiemployer Plan": a Plan that is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Net Cash Proceeds": (a) in connection with any Asset Sale or any Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents (including any such proceeds received by way of deferred payment of principal pursuant to a note or installment 16 receivable or purchase price adjustment receivable or otherwise, but only as and when received) of such Asset Sale or Recovery Event, net of reasonable attorneys' fees, accountants' fees, investment banking fees, amounts required to be applied to the repayment of Indebtedness secured by a Lien expressly permitted hereunder on any asset which is the subject of such Asset Sale or Recovery Event (other than any Lien pursuant to a Security Document) and other customary fees and expenses actually incurred in connection therewith and net of taxes paid or reasonably estimated to be payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing arrangements), (b) in connection with any issuance or sale of equity securities or debt securities or instruments or the incurrence of loans, the cash proceeds received from such issuance or incurrence, net of reasonable attorneys' fees, investment banking fees, accountants' fees, underwriting discounts and commissions and other customary fees and expenses actually incurred in connection therewith and (c) in connection with any Purchase Price Refund, the cash amount thereof, net of any expenses incurred in the collection thereof. "Non-Excluded Taxes": as defined in Section 2.15(a). "Non-Recourse Debt": Indebtedness (a) as to which none of Holdings, the Borrower nor any of its Subsidiaries (other than the Non-Recourse Subsidiary that is the obligor on such Indebtedness) (i) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (ii) is directly or indirectly liable (as a guarantor or otherwise), or (iii) constitutes the lender; (b) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against any Non-Recourse Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Obligations) of Holdings, the Borrower or any of its Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; (c) as to which the lenders thereunder will not have any recourse to the Capital Stock or assets of Holdings, the Borrower or any of Subsidiaries (other than the Non-Recourse Subsidiary that is the obligor on such Indebtedness); and (d) the Net Cash Proceeds of which are used to finance the purchase of Property used in the business of the Borrower and its Subsidiaries or improvements made to such Property. "Non-Recourse Subsidiary": any Subsidiary that incurs Non-Recourse Debt and that has no material Property other than the Property that was purchased or improved with the proceeds of such Non-Recourse Debt. "Non-U.S. Lender": as defined in Section 2.15(d). "Obligations": the unpaid principal of and interest on (including, without limitation, interest accruing after the maturity of the Loans and Reimbursement Obligations and interest accruing after the filing of any petition in bankruptcy, or the commencement of any insolvency, reorganization or like proceeding, relating to the Borrower, whether or not a claim for post-filing or post-petition interest is allowed in such proceeding) the Loans, the Reimbursement Obligations and all other obligations and liabilities of Holdings and the Borrower or any Subsidiary to the Administrative Agent or to any Lender or any Qualified Counterparty, whether direct or indirect, absolute or contingent, due or to become due, or now existing or hereafter incurred, which may arise under, out of, or in connection with, this 17 Agreement, any other Loan Document, the Letters of Credit, any Specified Hedge Agreement or any other document made, delivered or given in connection herewith or therewith, whether on account of principal, interest, reimbursement obligations, fees, indemnities, costs, expenses (including, without limitation, all fees, charges and disbursements of counsel to the Administrative Agent or to any Lender that are required to be paid by the Borrower pursuant hereto) or otherwise; provided, that (i) obligations of the Borrower or any Subsidiary under any Specified Hedge Agreement shall be secured and guaranteed pursuant to the Security Documents only to the extent that, and for so long as, the other Obligations are so secured and guaranteed and (ii) any release of Collateral or Guarantors effected in the manner permitted by this Agreement shall not require the consent of holders of obligations under Specified Hedge Agreements. "Omnicare": Omnicare, Inc., a Delaware corporation. "Other Taxes": any and all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document. "Parent": Extendicare Inc., a Canadian limited company. "Participant": as defined in Section 10.6(b). "Payment Office": the office specified from time to time by the Administrative Agent as its payment office by notice to the Borrower and the Lenders. "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA (or any successor). "Permitted Non-Recourse Debt": Non-Recourse Debt permitted to be incurred by Section 7.2. "Person": an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity of whatever nature. "Plan": at a particular time, any employee benefit plan that is covered by ERISA and in respect of which the Borrower or a Commonly Controlled Entity is (or, if such plan were terminated at such time, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Pricing Grid": the pricing grid attached hereto as Annex A. "Pro Forma Balance Sheet": as defined in Section 4.1(a). "Projections": as defined in Section 6.2(c). 18 "Property": any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Capital Stock. "Purchase Price Refund": any amount received by Holdings, the Borrower or any Subsidiary as a result of a purchase price adjustment or similar event in connection with any acquisition of Property by Holdings, the Borrower or any Subsidiary. "Qualified Counterparty": with respect to any Specified Hedge Agreement, any counterparty thereto that, at the time such Specified Hedge Agreement was entered into, was a Lender or an affiliate of a Lender. "Recovery Event": any settlement of or payment in respect of any property or casualty insurance claim or any condemnation proceeding relating to any asset of Holdings, the Borrower or any of its Subsidiaries. "Register": as defined in Section 10.6(d). "Regulation H": Regulation H of the Board as in effect from time to time. "Regulation U": Regulation U of the Board as in effect from time to time. "Reimbursement Obligation": the obligation of the Borrower to reimburse each Issuing Lender pursuant to Section 3.5 for amounts drawn under Letters of Credit issued by such Issuing Lender. "Reinvestment Deferred Amount": with respect to any Reinvestment Event, the aggregate Net Cash Proceeds received by Holdings, the Borrower or any of its Subsidiaries in connection therewith that are not applied to prepay the Revolving Credit Loans pursuant to Section 2.7(b) as a result of the delivery of a Reinvestment Notice. "Reinvestment Event": any Asset Sale, Purchase Price Refund or Recovery Event in respect of which the Borrower has delivered a Reinvestment Notice. "Reinvestment Notice": a written notice executed by a Responsible Officer stating that no Default or Event of Default has occurred and is continuing and that the Borrower (directly or indirectly through a Subsidiary) intends and expects to use all or a specified portion of the Net Cash Proceeds of an Asset Sale, Purchase Price Refund or Recovery Event to acquire assets (other than inventory) useful in its business. "Reinvestment Prepayment Amount": with respect to any Reinvestment Event, the Reinvestment Deferred Amount relating thereto less any amount expended prior to the relevant Reinvestment Prepayment Date to acquire assets (other than inventory) useful in the Borrower's business. "Reinvestment Prepayment Date": with respect to any Reinvestment Event, the earlier of (a) the date occurring one year after such Reinvestment Event and (b) the date on which the Borrower shall have determined not to, or shall have otherwise ceased to, acquire 19 assets (other than inventory) useful in the Borrower's business with all or any portion of the relevant Reinvestment Deferred Amount. "Related Fund": with respect to any Lender, any fund that (a) invests in commercial loans and (b) is managed or advised by the same investment advisor as such Lender, by such Lender or an Affiliate of such Lender. "Reorganization": with respect to any Multiemployer Plan, the condition that such plan is in reorganization within the meaning of Section 4241 of ERISA. "Reportable Event": any of the events set forth in Section 4043(c) of ERISA, other than those events as to which the thirty day notice period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of PBGC Reg. Section 4043. "Required Lenders": at any time, the holders of more than 66-2/3% of the Total Revolving Credit Commitments then in effect or, if the Revolving Credit Commitments have been terminated, the Total Revolving Extensions of Credit then outstanding. "Requirement of Law": as to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its Property is subject. "Responsible Officer": the chief executive officer, senior vice president, vice president or chief financial officer of the Borrower, but in any event, with respect to financial matters, the chief financial officer of the Borrower. "Restricted Payments": as defined in Section 7.6. "Revolving Credit Commitment": as to any Lender, the obligation of such Lender, if any, to make Revolving Credit Loans and participate in Letters of Credit, in an aggregate principal and/or face amount not to exceed the amount set forth under the heading "Revolving Credit Commitment" on the Lender Addendum delivered by such Lender, or, as the case may be, in the Assignment and Acceptance pursuant to which such Lender became a party hereto, as the same may be changed from time to time pursuant to the terms hereof. The original aggregate amount of the Total Revolving Credit Commitments is $155,000,000. "Revolving Credit Commitment Period": the period from and including the Closing Date to the Revolving Credit Termination Date. "Revolving Credit Note": as defined in Section 2.3. "Revolving Credit Percentage": as to any Lender at any time, the percentage which such Lender's Revolving Credit Commitment then constitutes of the Total Revolving Credit Commitments (or, at any time after the Revolving Credit Commitments shall have expired or terminated, the percentage which the aggregate amount of such Lender's Revolving 20 Extensions of Credit then outstanding constitutes of the amount of the Total Revolving Extensions of Credit then outstanding). "Revolving Credit Termination Date": June 28, 2009. "Revolving Extensions of Credit": as to any Lender at any time, an amount equal to the sum of (a) the aggregate principal amount of all Loans made by such Lender then outstanding, and (b) the aggregate amount of such Lender's participating interests in the L/C Obligations then outstanding (or, in the case of each Issuing Lender, such Issuing Lender's interest remaining in such L/C Obligations after giving effect to the grant of participating interests therein to the other Lenders pursuant to Section 3.4). "SEC": the Securities and Exchange Commission (or successors thereto or an analogous Governmental Authority). "Secured Parties": as defined in the Guarantee and Collateral Agreement. "Securities Account": each "securities account" (as defined in Section 8-501 of the New York Uniform Commercial Code) in respect of which the Borrower or any of its Subsidiaries (other than any Excluded Foreign Subsidiary) is the holder of the securities entitlements carried in such securities account. "Security Documents": the collective reference to the Guarantee and Collateral Agreement, the Control Agreements, the Mortgages and all other security documents hereafter delivered to the Administrative Agent granting a Lien on any Property of any Person to secure the obligations and liabilities of any Loan Party under any Loan Document. "Senior Note Indenture": the Indenture entered into by the Borrower in connection with the issuance of the Senior Notes, together with all instruments and other agreements entered into by the Borrower or such Subsidiaries in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. "Senior Notes": the Borrower's unsecured 9.50% Senior Notes, due 2010, in the aggregate principal amount of $150,000,000. "Senior Subordinated Note Indenture": the Indenture entered into by the Borrower in connection with the issuance of the Senior Subordinated Notes, together with all instruments and other agreements entered into by the Borrower or such Subsidiaries in connection therewith, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 7.9. "Senior Subordinated Notes": the Borrower's 6 7/8% Senior Subordinated Notes, due 2014, in the aggregate principal amount of $125,000,000. "Single Employer Plan": any Plan that is covered by Title IV of ERISA, but which is not a Multiemployer Plan. 21 "S&P": as defined in the definition of "Cash Equivalents" in this Section 1.1. "Solvent": with respect to any Person, as of any date of determination, (a) the amount of the "present fair saleable value" of the assets of such Person will, as of such date, exceed the amount of all "liabilities of such Person, contingent or otherwise", as of such date, as such quoted terms are determined in accordance with applicable federal and state laws governing determinations of the insolvency of debtors, (b) the present fair saleable value of the assets of such Person will, as of such date, be greater than the amount that will be required to pay the liability of such Person on its debts as such debts become absolute and matured, (c) such Person will not have, as of such date, an unreasonably small amount of capital with which to conduct its business, and (d) such Person will be able to pay its debts as they mature. For purposes of this definition, (i) "debt" means liability on a "claim", and (ii) "claim" means any (x) right to payment, whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y) right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured or unmatured, disputed, undisputed, secured or unsecured. "Specified Change of Control": a "Change of Control", or like event, as defined in the Senior Subordinated Note Indenture or in the Senior Note Indenture. "Specified Hedge Agreement": any Hedge Agreement entered into by (a) the Borrower or any of its Subsidiaries and (b) any Person that, at the time such Hedge Agreement is entered into, is a Qualified Counterparty. "Subsidiary": as to any Person, a corporation, partnership, limited liability company or other entity of which shares of stock or other ownership interests having ordinary voting power (other than stock or such other ownership interests having such power only by reason of the happening of a contingency) to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of the Borrower. "Subsidiary Guarantor": each Material Subsidiary of the Borrower other than any Excluded Foreign Subsidiary. "Total Revolving Credit Commitments": at any time, the aggregate amount of the Revolving Credit Commitments then in effect. "Total Revolving Extensions of Credit": at any time, the aggregate amount of the Revolving Extensions of Credit of the Lenders outstanding at such time. "Transferee": as defined in Section 10.15. "Transferred Properties": the collective reference to (a) all of the Borrower's Texas nursing home operations (seventeen nursing homes with capacity of 1,421 residents) 22 transferred to affiliates of Senior Health Properties-Texas, Inc. and (b) all of the Borrower's Florida facilities (32 facilities with 3,427 beds) disposed of or leased through a series of transactions, including fifteen facilities transferred to Greystone Tribeca Acquisition LLC, nine facilities leased and subsequently sold to Tandem Health Care, Inc. and six facilities leased to Senior Health Properties-South, Inc. "Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar Loan. "Wholly Owned Subsidiary": as to any Person, any other Person all of the Capital Stock of which (other than directors' qualifying shares required by law) is owned by such Person directly and/or through other Wholly Owned Subsidiaries. "Wholly Owned Subsidiary Guarantor": any Subsidiary Guarantor that is a Wholly Owned Subsidiary of the Borrower. 1.2 Other Definitional Provisions. (a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the other Loan Documents or any certificate or other document made or delivered pursuant hereto or thereto. (b) As used herein and in the other Loan Documents, and any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in Section 1.1 and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (d) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms. (e) All calculations of financial ratios set forth in Section 7.1 and the calculation of the Consolidated Senior Leverage Ratio for purposes of determining the Applicable Margin shall be calculated to the same number of decimal places as the relevant ratios are expressed in and shall be rounded upward if the number in the decimal place immediately following the last calculated decimal place is five or greater. For example, if the relevant ratio is to be calculated to the hundredth decimal place and the calculation of the ratio is 5.126, the ratio will be rounded up to 5.13. SECTION 2. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS 2.1 Revolving Credit Commitments. (a) Subject to the terms and conditions hereof, the Lenders severally agree to make revolving credit loans ("Loans") to the Borrower from time to time during the Revolving Credit Commitment Period in an aggregate principal amount at any one time outstanding for each Lender which, when added to such Lender's Revolving Credit Percentage of the sum of the L/C Obligations then outstanding, does not exceed the amount of such Lender's Revolving Credit Commitment. During the Revolving 23 Credit Commitment Period the Borrower may use the Revolving Credit Commitments by borrowing, prepaying the Loans in whole or in part, and reborrowing, all in accordance with the terms and conditions hereof. The Loans may from time to time be Eurodollar Loans or Base Rate Loans, as determined by the Borrower and notified to the Administrative Agent in accordance with Sections 2.5 and 2.8, provided that no Loan shall be made as a Eurodollar Loan after the day that is one month prior to the Revolving Credit Termination Date. (b) Pursuant to the Existing Credit Agreement, the Existing Lenders made Existing Revolving Credit Loans to the Borrower; from and after the Closing Date, any Existing Revolving Credit Loans outstanding on the Closing Date shall constitute Loans under this Agreement until repaid in accordance with this Agreement. (c) The Borrower shall repay all outstanding Loans on the Revolving Credit Termination Date (or on such earlier date on which the Loans become due and payable pursuant to Section 8). 2.2 Procedure for Revolving Credit Borrowing. The Borrower may borrow under the Revolving Credit Commitments on any Business Day during the Revolving Credit Commitment Period, provided that the Borrower shall deliver to the Administrative Agent a Borrowing Notice (which Borrowing Notice must be received by the Administrative Agent prior to (a) 12:00 Noon, New York City time, three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Loans, or (b) 1:00 p.m., New York City time, one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans). Each borrowing of Loans under the Revolving Credit Commitments shall be in an amount equal to (x) in the case of Base Rate Loans, $1,000,000 or a whole multiple thereof (or, if the then aggregate Available Revolving Credit Commitments are less than $1,000,000, such lesser amount) and (y) in the case of Eurodollar Loans, $3,000,000 or a whole multiple of $1,000,000 in excess thereof. Upon receipt of any such Borrowing Notice from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Each Lender will make its Revolving Credit Percentage of the amount of each borrowing of Loans available to the Administrative Agent for the account of the Borrower at the Funding Office prior to 1:00 p.m., New York City time, on the Borrowing Date requested by the Borrower in funds immediately available to the Administrative Agent. Such borrowing will then be made available to the Borrower by the Administrative Agent in like funds as received by the Administrative Agent. 2.3 Repayment of Loans; Evidence of Debt. (a) The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of the appropriate Lender, the then unpaid principal amount of each Loan of such Lender on the Revolving Credit Termination Date (or on such earlier date on which the Loans become due and payable pursuant to Section 8). The Borrower hereby further agrees to pay interest on the unpaid principal amount of the Loans from time to time outstanding from the date hereof until payment in full thereof at the rates per annum, and on the dates, set forth in Section 2.10. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing indebtedness of the Borrower to such Lender resulting from each Loan of such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time under this Agreement. 24 (c) The Administrative Agent, on behalf of the Borrower, shall maintain the Register pursuant to Section 10.6(d), and a subaccount therein for each Lender, in which shall be recorded (i) the amount of each Loan made hereunder and any Note evidencing such Loan, the Type of such Loan and each Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Borrower to each Lender hereunder and (iii) both the amount of any sum received by the Administrative Agent hereunder from the Borrower and each Lender's share thereof. (d) The entries made in the Register and the accounts of each Lender maintained pursuant to Section 2.3(b) shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations of the Borrower therein recorded; provided, however, that the failure of any Lender or the Administrative Agent to maintain the Register or any such account, or any error therein, shall not in any manner affect the obligation of the Borrower to repay (with applicable interest) the Loans made to the Borrower by such Lender in accordance with the terms of this Agreement. (e) The Borrower agrees that, upon the request to the Administrative Agent by any Lender, the Borrower will promptly execute and deliver to such Lender a promissory note of the Borrower evidencing any Loans of such Lender, substantially in the form of Exhibit G ("Revolving Credit Note"), with appropriate insertions as to date and principal amount; provided, that delivery of Revolving Credit Notes shall not be a condition precedent to the occurrence of the Closing Date or the making of the Loans on the Closing Date. 2.4 Commitment Fees, etc. (a) The Borrower agrees to pay to the Administrative Agent for the account of each Lender a commitment fee for the period from and including the Closing Date to the last day of the Revolving Credit Commitment Period, computed at the rate of 0.50% per annum on the average daily amount of the Available Revolving Credit Commitment of such Lender during the period for which payment is made, payable quarterly in arrears on the last day of each March, June, September and December and on the Revolving Credit Termination Date, commencing on the first of such dates to occur after the date hereof. (b) The Borrower agrees to pay to the Administrative Agent the fees in the amounts and on the dates from time to time agreed to in writing by the Borrower and the Administrative Agent. 2.5 Termination or Reduction of Revolving Credit Commitments. The Borrower shall have the right, upon not less than three Business Days' notice to the Administrative Agent, to terminate the Revolving Credit Commitments or, from time to time, to reduce the aggregate amount of the Revolving Credit Commitments; provided that no such termination or reduction of Revolving Credit Commitments shall be permitted if, after giving effect thereto and to any prepayments of the Loans made, or terminations or expirations of Letters of Credit occurring, on the effective date thereof, the Total Revolving Extensions of Credit would exceed the Total Revolving Credit Commitments. Any such reduction shall be in an amount equal to (i) $1,000,000, or a whole multiple thereof or (ii) the then aggregate Available Revolving Credit Commitments, and shall reduce permanently the Revolving Credit Commitments then in effect. 25 2.6 Optional Prepayments. (a) The Borrower may at any time and from time to time prepay the Loans, in whole or in part, without premium or penalty (except as otherwise provided herein), upon irrevocable notice delivered to the Administrative Agent at least three Business Days prior thereto in the case of Eurodollar Loans and no later than 10:00 a.m. on the date of prepayment in the case of Base Rate Loans, which notice shall specify the date and amount of such prepayment, and whether such prepayment is of Eurodollar Loans or Base Rate Loans; provided, that if a Eurodollar Loan is prepaid on any day other than the last day of the Interest Period applicable thereto, the Borrower shall also pay any amounts owing pursuant to Section 2.16. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. If any such notice is given, the amount specified in such notice shall be due and payable on the date specified therein, together with (except in the case of Base Rate Loans) accrued interest to such date on the amount prepaid. Partial prepayments of Loans shall be in an aggregate principal amount of $1,000,000 or a whole multiple thereof or the aggregate principal amount of the Loans, or the applicable Eurodollar Tranche thereof, then outstanding. 2.7 Mandatory Prepayments and Commitment Reductions. (a) Unless the Required Lenders shall otherwise agree, if any Indebtedness shall be incurred by Holdings, the Borrower or any of its Subsidiaries (excluding any Indebtedness incurred in accordance with Section 7.2 as in effect on the date of this Agreement), then on the date of such incurrence, the Loans shall be prepaid (without any automatic reduction of Revolving Credit Commitments), by an amount equal to the amount of the Net Cash Proceeds of such incurrence. The provisions of this Section do not constitute a consent to the incurrence of any Indebtedness by Holdings, the Borrower or any of its Subsidiaries. (b) Unless the Required Lenders shall otherwise agree, if on any date Holdings, the Borrower or any of its Subsidiaries shall receive Net Cash Proceeds from any Asset Sale, Purchase Price Refund or Recovery Event then, unless a Reinvestment Notice shall be delivered in respect thereof, on the date of receipt by Holdings, the Borrower or any of its Subsidiaries of such Net Cash Proceeds, the Loans shall be prepaid (without any automatic reduction of Revolving Credit Commitments) by an amount equal to the amount of such Net Cash Proceeds; provided, that, notwithstanding the foregoing, (i) the aggregate Net Cash Proceeds of Asset Sales and Recovery Events that may be excluded from the foregoing requirement pursuant to a Reinvestment Notice shall not exceed $20,000,000 in any fiscal year of the Borrower and (ii) on each Reinvestment Prepayment Date the Loans shall be prepaid (without any automatic reduction of Revolving Credit Commitments) by an amount equal to the Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event. The provisions of this Section do not constitute a consent to the consummation of any Disposition not permitted by Section 7.5. 2.8 Conversion and Continuation Options. (a) The Borrower may elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving the Administrative Agent at least two Business Days' prior irrevocable notice of such election, provided that any such conversion of Eurodollar Loans may be made only on the last day of an Interest Period with respect thereto. The Borrower may elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election (which notice shall specify the length of the initial Interest Period therefor), provided that no Base Rate Loan may be converted into a Eurodollar Loan (i) 26 when any Event of Default has occurred and is continuing and the Administrative Agent has, or the Required Lenders have, determined in its or their sole discretion not to permit such conversions or (ii) after the date that is one month prior to the Revolving Credit Termination Date. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. (b) The Borrower may elect to continue any Eurodollar Loan as such upon the expiration of the then current Interest Period with respect thereto by giving irrevocable notice to the Administrative Agent at least three Business Days' prior to such election, in accordance with the applicable provisions of the term "Interest Period" set forth in Section 1.1, of the length of the next Interest Period to be applicable to such Loans, provided that no Eurodollar Loan may be continued as such (i) when any Event of Default has occurred and is continuing and the Administrative Agent has, or the Required Lenders have, determined in its or their sole discretion not to permit such continuations or (ii) after the date that is one month prior to the Revolving Credit Termination Date, and provided, further, that if the Borrower shall fail to give any required notice as described above in this paragraph or if such continuation is not permitted pursuant to the preceding proviso, such Loans shall be converted automatically to Base Rate Loans on the last day of such then expiring Interest Period. Upon receipt of any such notice the Administrative Agent shall promptly notify each Lender thereof. 2.9 Minimum Amounts and Maximum Number of Eurodollar Tranches. Notwithstanding anything to the contrary in this Agreement, all borrowings, conversions, continuations and optional prepayments of Eurodollar Loans and all selections of Interest Periods shall be in such amounts and be made pursuant to such elections so that, (a) after giving effect thereto, the aggregate principal amount of the Eurodollar Loans comprising each Eurodollar Tranche shall be equal to $3,000,000 or a whole multiple of $1,000,000 in excess thereof and (b) no more than eight Eurodollar Tranches shall be outstanding at any one time. 2.10 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall bear interest for each day during each Interest Period with respect thereto at a rate per annum equal to the Eurodollar Rate determined for such day plus the Applicable Margin in effect for such day. (b) Each Base Rate Loan shall bear interest for each day on which it is outstanding at a rate per annum equal to the Base Rate in effect for such day plus the Applicable Margin in effect for such day. (c) (i) If all or a portion of the principal amount of any Loan or Reimbursement Obligation shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), all outstanding Loans and Reimbursement Obligations (whether or not overdue) (to the extent legally permitted) shall bear interest at a rate per annum that is equal to (x) in the case of the Loans, the rate that would otherwise be applicable thereto pursuant to the foregoing provisions of this Section plus 2% or (y) in the case of Reimbursement Obligations, the rate applicable to Base Rate Loans plus 2%, and (ii) if all or a portion of any interest payable on any Loan or Reimbursement Obligation or any commitment fee or other amount payable hereunder shall not be paid when due (whether at the stated maturity, by acceleration or otherwise), such overdue amount shall bear interest at a rate per annum equal to the rate then applicable to Base Rate Loans plus 2%, in each case, with respect to clauses (i) and (ii) above, 27 from the date of such non-payment until such amount is paid in full (after as well as before judgment). (d) Interest shall be payable in arrears on each Interest Payment Date, provided that interest accruing pursuant to paragraph (c) of this Section shall be payable from time to time on demand. 2.11 Computation of Interest and Fees. (a) Interest, fees, commissions payable pursuant hereto shall be calculated on the basis of a 360-day year for the actual days elapsed, except that, with respect to Base Rate Loans on which interest is calculated on the basis of the Prime Rate, the interest thereon shall be calculated on the basis of a 365- (or 366-, as the case may be) day year for the actual days elapsed. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of each determination of a Eurodollar Rate. Any change in the interest rate on a Loan resulting from a change in the Base Rate or the Eurocurrency Reserve Requirements shall become effective as of the opening of business on the day on which such change becomes effective. The Administrative Agent shall as soon as practicable notify the Borrower and the Lenders of the effective date and the amount of each such change in interest rate. (b) Each determination of an interest rate by the Administrative Agent pursuant to any provision of this Agreement shall be conclusive and binding on the Borrower and the Lenders in the absence of manifest error. The Administrative Agent shall, at the request of the Borrower, deliver to the Borrower a statement showing the quotations used by the Administrative Agent in determining any interest rate pursuant to Section 2.10(a). 2.12 Inability to Determine Interest Rate. If prior to the first day of any Interest Period: (a) the Administrative Agent shall have determined (which determination shall be conclusive and binding upon the Borrower) that, by reason of circumstances affecting the relevant market, adequate and reasonable means do not exist for ascertaining the Eurodollar Rate for such Interest Period, or (b) the Administrative Agent shall have received notice from the Required Lenders that the Eurodollar Rate determined or to be determined for such Interest Period will not adequately and fairly reflect the cost to such Lenders (as conclusively certified by such Lenders) of making or maintaining their affected Loans during such Interest Period, the Administrative Agent shall give telecopy or telephonic notice thereof to the Borrower and the relevant Lenders as soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans requested to be made on the first day of such Interest Period shall be made as Base Rate Loans, (y) any Loans that were to have been converted on the first day of such Interest Period to Eurodollar Loans shall be continued as Base Rate Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last day of the then current Interest Period with respect thereto, to Base Rate Loans. Until such notice has been withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made or continued as such, nor shall the Borrower have the right to convert Loans to Eurodollar Loans. 28 2.13 Pro Rata Treatment and Payments. (a) Each borrowing by the Borrower from the Lenders hereunder, each payment by the Borrower on account of any commitment fee or Letter of Credit fee, and any reduction of the Revolving Credit Commitments of the Lenders, shall be made pro rata according to the respective Revolving Credit Percentages of the Lenders. (b) Each payment (including each prepayment) by the Borrower on account of principal of and interest on the Loans shall be made pro rata according to the respective outstanding principal amounts of the Loans then held by the Lenders. Each payment in respect of Reimbursement Obligations in respect of any Letter of Credit shall be made to the Issuing Lender that issued such Letter of Credit for the account of the Lenders, if any, which participated in such Letter of Credit pursuant to Section 3.4(a). (c) The application of any payment of Loans (including optional and mandatory prepayments) shall be made, first, to Base Rate Loans and, second, to Eurodollar Loans. Each payment of the Loans (except in the case of Base Rate Loans) shall be accompanied by accrued interest to the date of such payment on the amount paid. (d) All payments (including prepayments) to be made by the Borrower hereunder, whether on account of principal, interest, fees or otherwise, shall be made without setoff or counterclaim and shall be made prior to 12:00 Noon, New York City time, on the due date thereof to the Administrative Agent, for the account of the relevant Lenders, at the Payment Office, in Dollars and in immediately available funds. Any payment made by the Borrower after 12:00 Noon, New York City time, on any Business Day shall be deemed to have been on the next following Business Day. The Administrative Agent shall distribute such payments to the Lenders promptly upon receipt in like funds as received. If any payment hereunder (other than payments on the Eurodollar Loans) becomes due and payable on a day other than a Business Day, such payment shall be extended to the next succeeding Business Day. If any payment on a Eurodollar Loan becomes due and payable on a day other than a Business Day, the maturity thereof shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such payment into another calendar month, in which event such payment shall be made on the immediately preceding Business Day. In the case of any extension of any payment of principal pursuant to the preceding two sentences, interest thereon shall be payable at the then applicable rate during such extension. (e) Unless the Administrative Agent shall have been notified in writing by any Lender prior to a borrowing that such Lender will not make the amount that would constitute its share of such borrowing available to the Administrative Agent, the Administrative Agent may assume that such Lender is making such amount available to the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower a corresponding amount. If such amount is not made available to the Administrative Agent by the required time on the Borrowing Date therefor, such Lender shall pay to the Administrative Agent, on demand, such amount with interest thereon at a rate equal to the daily average Federal Funds Effective Rate for the period until such Lender makes such amount immediately available to the Administrative Agent. A certificate of the Administrative Agent submitted to any Lender with respect to any amounts owing under this paragraph shall be conclusive in the absence of manifest error. If such Lender's share of such borrowing is not made available to the Administrative Agent by such Lender within three Business Days after such Borrowing Date, the 29 Administrative Agent shall also be entitled to recover such amount with interest thereon at the rate per annum applicable to Base Rate Loans, on demand, from the Borrower. (f) Unless the Administrative Agent shall have been notified in writing by the Borrower prior to the date of any payment due to be made by the Borrower hereunder that the Borrower will not make such payment to the Administrative Agent, the Administrative Agent may assume that the Borrower is making such payment, and the Administrative Agent may, but shall not be required to, in reliance upon such assumption, make available to the Lenders their respective pro rata shares of a corresponding amount. If such payment is not made to the Administrative Agent by the Borrower within three Business Days after such due date, the Administrative Agent shall be entitled to recover, on demand, from each Lender to which any amount which was made available pursuant to the preceding sentence, such amount with interest thereon at the rate per annum equal to the daily average Federal Funds Effective Rate. Nothing herein shall be deemed to limit the rights of the Administrative Agent or any Lender against the Borrower or the rights of the Borrower against any Lender. 2.14 Requirements of Law. (a) If the adoption of or any change in any Requirement of Law or in the interpretation or application thereof or compliance by any Lender with any request or directive (whether or not having the force of law) from any central bank or other Governmental Authority made subsequent to the date hereof: (i) shall subject any Lender to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any Application or any Eurodollar Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Non-Excluded Taxes covered by Section 2.15 and changes in the rate of tax on the overall net income of such Lender); (ii) shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, deposits or other liabilities in or for the account of, advances, loans or other extensions of credit by, or any other acquisition of funds by, any office of such Lender that is not otherwise included in the determination of the Eurodollar Rate hereunder; or (iii) shall impose on such Lender any other condition; and the result of any of the foregoing is to increase the cost to such Lender, by an amount which such Lender deems to be material, of making, converting into, continuing or maintaining Eurodollar Loans or issuing or participating in Letters of Credit, or to reduce any amount receivable hereunder in respect thereof, then, in any such case, the Borrower shall promptly pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such increased cost or reduced amount receivable. If any Lender becomes entitled to claim any additional amounts pursuant to this Section, it shall promptly notify the Borrower (with a copy to the Administrative Agent) of the event by reason of which it has become so entitled. 30 (b) If any Lender shall have determined that the adoption of or any change in any Requirement of Law regarding capital adequacy or in the interpretation or application thereof or compliance by such Lender or any corporation controlling such Lender with any request or directive regarding capital adequacy (whether or not having the force of law) from any Governmental Authority made subsequent to the date hereof shall have the effect of reducing the rate of return on such Lender's or such corporation's capital as a consequence of its obligations hereunder or under or in respect of any Letter of Credit to a level below that which such Lender or such corporation could have achieved but for such adoption, change or compliance (taking into consideration such Lender's or such corporation's policies with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time, after submission by such Lender to the Borrower (with a copy to the Administrative Agent) of a written request therefor, the Borrower shall pay to such Lender such additional amount or amounts as will compensate such Lender or such corporation for such reduction. (c) A certificate setting forth in reasonable detail calculations as to any additional amounts payable pursuant to this Section submitted by any Lender to the Borrower (with a copy to the Administrative Agent) shall be conclusive in the absence of manifest error. The obligations of the Borrower pursuant to this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.15 Taxes. (a) All payments made by the Borrower under this Agreement shall be made free and clear of, and without deduction or withholding for or on account of, any present or future income, stamp or other taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now or hereafter imposed, levied, collected, withheld or assessed by any Governmental Authority, excluding net income taxes and franchise taxes (imposed in lieu of net income taxes) imposed on any Agent or any Lender as a result of a present or former connection between such Agent or such Lender and the jurisdiction of the Governmental Authority imposing such tax or any political subdivision or taxing authority thereof or therein (other than any such connection arising solely from such Agent's or such Lender's having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or any other Loan Document). If any such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-Excluded Taxes") or any Other Taxes are required to be withheld from any amounts payable to any Agent or any Lender hereunder, the amounts so payable to such Agent or such Lender shall be increased to the extent necessary to yield to such Agent or such Lender (after payment of all Non-Excluded Taxes and Other Taxes) interest or any such other amounts payable hereunder at the rates or in the amounts specified in this Agreement; provided, however, that the Borrower shall not be required to increase any such amounts payable to any Lender with respect to any Non-Excluded Taxes (i) that are attributable to such Lender's failure to comply with the requirements of paragraph (d) or (e) of this Section or (ii) that are United States withholding taxes imposed on amounts payable to such Lender at the time such Lender becomes a party to this Agreement, except to the extent that such Lender's assignor (if any) was entitled, at the time of assignment, to receive additional amounts from the Borrower with respect to such Non-Excluded Taxes pursuant to this paragraph (a). (b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law. 31 (c) Whenever any Non-Excluded Taxes or Other Taxes are payable by the Borrower, as promptly as possible thereafter the Borrower shall send to the Administrative Agent for the account of the relevant Agent or Lender, as the case may be, a certified copy of an original official receipt received by the Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Administrative Agent the required receipts or other required documentary evidence, the Borrower shall indemnify the Agents and the Lenders for any incremental taxes, interest or penalties that may become payable by any Agent or any Lender as a result of any such failure. The agreements in this Section shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. (d) Each Lender (or Transferee) that is not a citizen or resident of the United States of America, a corporation, partnership or other entity created or organized in or under the laws of the United States of America (or any jurisdiction thereof), or any estate or trust that is subject to federal income taxation regardless of the source of its income (a "Non-U.S. Lender") shall deliver to the Borrower and the Administrative Agent (or, in the case of a Participant, to the Lender from which the related participation shall have been purchased) two copies of either U.S. Internal Revenue Service Form W-8BEN or Form W-8ECI, or, in the case of a Non-U.S. Lender claiming exemption from U.S. federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest" a statement substantially in the form of Exhibit I and a Form W-8BEN, or any subsequent versions thereof or successors thereto properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or a reduced rate of, U.S. federal withholding tax on all payments by the Borrower under this Agreement and the other Loan Documents. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of any Participant, on or before the date such Participant purchases the related participation). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Each Non-U.S. Lender shall promptly notify the Borrower at any time it determines that it is no longer in a position to provide any previously delivered certificate to the Borrower (or any other form of certification adopted by the U.S. taxing authorities for such purpose). Notwithstanding any other provision of this paragraph, a Non-U.S. Lender shall not be required to deliver any form pursuant to this paragraph that such Non-U.S. Lender is not legally able to deliver. (e) A Lender that is entitled to an exemption from or reduction of non-U.S. withholding tax under the law of the jurisdiction in which the Borrower is located, or any treaty to which such jurisdiction is a party, with respect to payments under this Agreement shall deliver to the Borrower (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate, provided that such Lender is legally entitled to complete, execute and deliver such documentation and in such Lender's reasonable judgment such completion, execution or submission would not materially prejudice the legal position of such Lender. 2.16 Indemnity. The Borrower agrees to indemnify each Lender for, and to hold each Lender harmless from, any loss or expense that such Lender may sustain or incur as a 32 consequence of (a) default by the Borrower in making a borrowing of, conversion into or continuation of Eurodollar Loans after the Borrower has given a notice requesting the same in accordance with the provisions of this Agreement, (b) default by the Borrower in making any prepayment after the Borrower has given a notice thereof in accordance with the provisions of this Agreement or (c) the making of a prepayment or conversion of Eurodollar Loans on a day that is not the last day of an Interest Period with respect thereto. Such indemnification may include an amount equal to the excess, if any, of (i) the amount of interest that would have accrued on the amount so prepaid, or not so borrowed, converted or continued, for the period from the date of such prepayment or of such failure to borrow, convert or continue to the last day of such Interest Period (or, in the case of a failure to borrow, convert or continue, the Interest Period that would have commenced on the date of such failure) in each case at the applicable rate of interest for such Loans provided for herein (excluding, however, the Applicable Margin included therein, if any) over (ii) the amount of interest (as reasonably determined by such Lender) that would have accrued to such Lender on such amount by placing such amount on deposit for a comparable period with leading banks in the interbank Eurodollar market. A certificate setting forth in reasonable detail calculations as to any amounts payable pursuant to this Section submitted to the Borrower by any Lender shall be conclusive in the absence of manifest error. This covenant shall survive the termination of this Agreement and the payment of the Loans and all other amounts payable hereunder. 2.17 Illegality. Notwithstanding any other provision herein, if the adoption of or any change in any Requirement of Law or in the interpretation or application thereof shall make it unlawful for any Lender to make or maintain Eurodollar Loans as contemplated by this Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans, continue Eurodollar Loans as such and convert Base Rate Loans to Eurodollar Loans shall forthwith be canceled and (b) such Lender's Loans then outstanding as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on the respective last days of the then current Interest Periods with respect to such Loans or within such earlier period as required by law. If any such conversion of a Eurodollar Loan occurs on a day which is not the last day of the then current Interest Period with respect thereto, the Borrower shall pay to such Lender such amounts, if any, as may be required pursuant to Section 2.16. 2.18 Change of Lending Office. Each Lender agrees that, upon the occurrence of any event giving rise to the operation of Section 2.14, 2.15(a) or 2.17 with respect to such Lender, it will, if requested by the Borrower, use reasonable efforts (subject to overall policy considerations of such Lender) to designate another lending office for any Loans affected by such event with the object of avoiding the consequences of such event; provided, that such designation is made on terms that, in the sole judgment of such Lender, cause such Lender and its lending office(s) to suffer no economic, legal or regulatory disadvantage, and provided, further, that nothing in this Section shall affect or postpone any of the obligations of any Borrower or the rights of any Lender pursuant to Section 2.14, 2.15(a) or 2.17. 2.19 Replacement of Lenders under Certain Circumstances. The Borrower shall be permitted to replace any Lender that (a) requests reimbursement for amounts owing pursuant to Section 2.14 or 2.15 or gives a notice of illegality pursuant to Section 2.17 or (b) defaults in its obligation to make Loans hereunder, with a replacement financial institution; provided that (i) such replacement does not conflict with any Requirement of Law, (ii) no Event 33 of Default shall have occurred and be continuing at the time of such replacement, (iii) prior to any such replacement, such Lender shall have taken no action under Section 2.18 so as to eliminate the continued need for payment of amounts owing pursuant to Section 2.14 or 2.15 or to eliminate the illegality referred to in such notice of illegality given pursuant to Section 2.17, (iv) the replacement financial institution shall purchase, at par, all Loans and other amounts owing to such replaced Lender on or prior to the date of replacement, (v) the Borrower shall be liable to such replaced Lender under Section 2.16 (as though Section 2.16 were applicable) if any Eurodollar Loan owing to such replaced Lender shall be purchased other than on the last day of the Interest Period relating thereto, (vi) the replacement financial institution, if not already a Lender, shall be reasonably satisfactory to the Administrative Agent, (vii) the replaced Lender shall be obligated to make such replacement in accordance with the provisions of Section 10.6 (provided that the Borrower shall be obligated to pay the registration and processing fee referred to therein), (viii) the Borrower shall pay all additional amounts (if any) required pursuant to Section 2.14 or 2.15, as the case may be, in respect of any period prior to the date on which such replacement shall be consummated, and (ix) any such replacement shall not be deemed to be a waiver of any rights that the Borrower, the Administrative Agent or any other Lender shall have against the replaced Lender. SECTION 3. LETTERS OF CREDIT 3.1 L/C Commitment. (a) Prior to the Closing Date, the Issuing Lenders have issued the Existing Letters of Credit under the Existing Credit Agreement which, from and after the Closing Date, shall constitute Letters of Credit hereunder. Subject to the terms and conditions hereof, each Issuing Lender, in reliance on the agreements of the other Lenders set forth in Section 3.4(a), agrees to issue letters of credit (the letters of credit issued on and after the Closing Date pursuant to this Section 3, together with any Existing Letters of Credit, collectively, the "Letters of Credit") for the account of the Borrower on any Business Day during the Revolving Credit Commitment Period in such form as may be approved from time to time by such Issuing Lender; provided, that no Issuing Lender shall have any obligation to issue any Letter of Credit if, after giving effect to such issuance, (i) the L/C Obligations would exceed the L/C Commitment or (ii) the aggregate amount of the Available Revolving Credit Commitments would be less than zero. Each Letter of Credit shall (i) be in form and substance reasonably acceptable to the Issuing Lender, (ii) be denominated in Dollars and (iii) expire no later than the earlier of (x) the first anniversary of its date of issuance and (y) the date which is five Business Days prior to the Revolving Credit Termination Date; provided that any Letter of Credit with a one-year term may provide for the renewal thereof for additional one-year periods (which shall in no event extend beyond the date referred to in clause (y) above). (b) No Issuing Lender shall at any time be obligated to issue any Letter of Credit hereunder if such issuance would conflict with, or cause such Issuing Lender or any L/C Participant to exceed any limits imposed by, any applicable Requirement of Law. 3.2 Procedure for Issuance of Letter of Credit. The Borrower may from time to time request that an Issuing Lender issue a Letter of Credit by delivering to such Issuing Lender at its address for notices specified herein (with a copy to the Administrative Agent) an Application therefor, completed to the satisfaction of such Issuing Lender, and such other certificates, documents and other papers and information as such Issuing Lender may request. 34 Upon receipt of any Application, an Issuing Lender will process such Application and the certificates, documents and other papers and information delivered to it in connection therewith in accordance with its customary procedures and shall promptly issue the Letter of Credit requested thereby by issuing the original of such Letter of Credit to the beneficiary thereof or as otherwise may be agreed to by such Issuing Lender and the Borrower (but in no event shall any Issuing Lender be required to issue any Letter of Credit earlier than three Business Days after its receipt of the Application therefor and all such other certificates, documents and other papers and information relating thereto). Promptly after issuance by an Issuing Lender of a Letter of Credit, such Issuing Lender shall furnish a copy of such Letter of Credit to the Borrower. Each Issuing Lender shall promptly give notice to the Administrative Agent of the issuance of each Letter of Credit issued by such Issuing Lender (including the amount thereof). 3.3 Fees and Other Charges. (a) The Borrower will pay a fee on the aggregate drawable amount of all outstanding Letters of Credit at a per annum rate equal to the Applicable Margin then in effect with respect to Eurodollar Loans under the Revolving Credit Facility, which fee shall be shared ratably among the Lenders in accordance with their respective Revolving Credit Percentages and shall be payable quarterly in arrears on each L/C Fee Payment Date after the issuance date. In addition, the Borrower shall pay to the relevant Issuing Lender for its own account a fronting fee on the aggregate drawable amount of all outstanding Letters of Credit issued by it at a per annum rate agreed upon by the Borrower and such Issuing Lender, which fee shall be payable quarterly in arrears on each L/C Fee Payment Date after the Issuance Date. (b) In addition to the foregoing fees, the Borrower shall pay or reimburse each Issuing Lender for such normal and customary costs and expenses as are incurred or charged by such Issuing Lender in issuing, negotiating, effecting payment under, amending or otherwise administering any Letter of Credit. 3.4 L/C Participations. (a) Effective on the date of issuance thereof, each Issuing Lender irrevocably agrees to grant and hereby grants to each L/C Participant, and, to induce each Issuing Lender to issue Letters of Credit hereunder, each L/C Participant irrevocably agrees to accept and purchase and hereby accepts and purchases from each Issuing Lender, on the terms and conditions hereinafter stated, for such L/C Participant's own account and risk, an undivided interest equal to such L/C Participant's Revolving Credit Percentage in each Issuing Lender's obligations and rights under each Letter of Credit issued by such Issuing Lender hereunder and the amount of each draft paid by such Issuing Lender thereunder. Each L/C Participant unconditionally and irrevocably agrees with each Issuing Lender that, if a draft is paid under any Letter of Credit issued by such Issuing Lender for which such Issuing Lender is not reimbursed in full by the Borrower in accordance with the terms of this Agreement, such L/C Participant shall pay to such Issuing Lender upon demand at such Issuing Lender's address for notices specified herein an amount equal to such L/C Participant's Revolving Credit Percentage of the amount of such draft, or any part thereof, that is not so reimbursed. (b) If any amount required to be paid by any L/C Participant to an Issuing Lender pursuant to Section 3.4(a) in respect of any unreimbursed portion of any payment made by such Issuing Lender under any Letter of Credit is paid to such Issuing Lender within three Business Days after the date such payment is due, such L/C Participant shall pay to such Issuing 35 Lender on demand an amount equal to the product of (i) such amount, times (ii) the daily average Federal Funds Effective Rate during the period from and including the date such payment is required to the date on which such payment is immediately available to such Issuing Lender, times (iii) a fraction the numerator of which is the number of days that elapse during such period and the denominator of which is 360. If any such amount required to be paid by any L/C Participant pursuant to Section 3.4(a) is not made available to such Issuing Lender by such L/C Participant within three Business Days after the date such payment is due, such Issuing Lender shall be entitled to recover from such L/C Participant, on demand, such amount with interest thereon calculated from such due date at the rate per annum applicable to Base Rate Loans. A certificate of such Issuing Lender submitted to any L/C Participant with respect to any such amounts owing under this Section shall be conclusive in the absence of manifest error. (c) Whenever, at any time after an Issuing Lender has made payment under any Letter of Credit and has received from any L/C Participant its pro rata share of such payment in accordance with Section 3.4(a), such Issuing Lender receives any payment related to such Letter of Credit (whether directly from the Borrower or otherwise, including proceeds of collateral applied thereto by such Issuing Lender), or any payment of interest on account thereof, such Issuing Lender will distribute to such L/C Participant its pro rata share thereof; provided, however, that in the event that any such payment received by such Issuing Lender shall be required to be returned by such Issuing Lender, such L/C Participant shall return to such Issuing Lender the portion thereof previously distributed by such Issuing Lender to it. 3.5 Reimbursement Obligation of the Borrower. The Borrower agrees to reimburse each Issuing Lender, on each date on which such Issuing Lender notifies the Borrower of the date and amount of a draft presented under any Letter of Credit and paid by such Issuing Lender, for the amount of (a) such draft so paid and (b) any taxes, fees, charges or other costs or expenses incurred by such Issuing Lender in connection with such payment (the amounts described in the foregoing clauses (a) and (b) in respect of any drawing, collectively, the "Payment Amount"). Each such payment shall be made to such Issuing Lender at its address for notices specified herein in lawful money of the United States of America and in immediately available funds. Interest shall be payable on each Payment Amount from the date of the applicable drawing until payment in full at the rate set forth in (i) until the second Business Day following the date of the applicable drawing, Section 2.10(b) and (ii) thereafter, Section 2.10(c). Each drawing under any Letter of Credit shall (unless an event of the type described in clause (i) or (ii) of Section 8(f) shall have occurred and be continuing with respect to the Borrower, in which case the procedures specified in Section 3.4 for funding by L/C Participants shall apply) constitute a request by the Borrower to the Administrative Agent for a borrowing pursuant to Section 2.2 of Base Rate Loans. The Borrowing Date with respect to such borrowing shall be the first date on which a borrowing of Loans could be made, pursuant to Section 2.2, if the Administrative Agent had received a notice of such borrowing at the time the Administrative Agent receives notice from the relevant Issuing Lender of such drawing under such Letter of Credit. 3.6 Obligations Absolute. The Borrower's obligations under this Section 3 shall be absolute and unconditional under any and all circumstances and irrespective of any setoff, counterclaim or defense to payment that the Borrower may have or have had against any Issuing Lender, any beneficiary of a Letter of Credit or any other Person. The Borrower also 36 agrees with each Issuing Lender that such Issuing Lender shall not be responsible for, and the Borrower's Reimbursement Obligations under Section 3.5 shall not be affected by, among other things, the validity or genuineness of documents or of any endorsements thereon, even though such documents shall in fact prove to be invalid, fraudulent or forged, or any dispute between or among the Borrower and any beneficiary of any Letter of Credit or any other party to which such Letter of Credit may be transferred or any claims whatsoever of the Borrower against any beneficiary of such Letter of Credit or any such transferee. No Issuing Lender shall be liable for any error, omission, interruption or delay in transmission, dispatch or delivery of any message or advice, however transmitted, in connection with any Letter of Credit, except for errors or omissions found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Issuing Lender. The Borrower agrees that any action taken or omitted by an Issuing Lender under or in connection with any Letter of Credit issued by it or the related drafts or documents, if done in the absence of gross negligence or willful misconduct and in accordance with the standards of care specified in the Uniform Commercial Code of the State of New York, shall be binding on the Borrower and shall not result in any liability of such Issuing Lender to the Borrower. 3.7 Letter of Credit Payments. If any draft shall be presented for payment under any Letter of Credit, the relevant Issuing Lender shall promptly notify the Borrower of the date and amount thereof. The responsibility of the relevant Issuing Lender to the Borrower in connection with any draft presented for payment under any Letter of Credit, in addition to any payment obligation expressly provided for in such Letter of Credit issued by such Issuing Lender, shall be limited to determining that the documents (including each draft) delivered under such Letter of Credit in connection with such presentment appear on their face to be in conformity with such Letter of Credit. 3.8 Applications. To the extent that any provision of any Application related to any Letter of Credit is inconsistent with the provisions of this Section 3, the provisions of this Section 3 shall apply. SECTION 4. REPRESENTATIONS AND WARRANTIES To induce the Agents and the Lenders to enter into this Agreement and to make the Loans and issue or participate in the Letters of Credit, Holdings and the Borrower hereby jointly and severally represent and warrant to each Agent and each Lender that: 4.1 Financial Condition. (a) The unaudited pro forma consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at December 31, 2003 (including the notes thereto) (the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished to each Lender, has been prepared giving effect (as if such events had occurred on such date) to (i) the Loans to be made and the Senior Subordinated Notes to be issued on the Closing Date and the use of proceeds thereof and (ii) the payment of fees and expenses in connection with the foregoing. The Pro Forma Balance Sheet has been prepared based on the best information available to the Borrower as of the date of delivery thereof, and presents fairly on a pro forma basis the estimated financial position of Borrower and its consolidated Subsidiaries as at December 31, 2003, assuming that the events specified in the preceding sentence had actually occurred at such date. 37 (b) The audited consolidated balance sheets of the Borrower as at December 31, 2002 and December 31, 2003, and the related consolidated statements of income and of cash flows for the fiscal years ended on such dates, reported on by and accompanied by an unqualified report from KPMG LLP, present fairly the consolidated financial condition of the Borrower as at such date, and the consolidated results of its operations and its consolidated cash flows for the respective fiscal years then ended. The unaudited consolidated balance sheet of the Borrower as at March 31, 2004, and the related unaudited consolidated statements of income and cash flows for the three-month period ended on such date, present fairly the consolidated financial condition of the Borrower as at such date, and the consolidated results of its operations and its consolidated cash flows for the three-month period then ended (subject to normal year-end audit adjustments). All such financial statements, including the related schedules and notes thereto, have been prepared in accordance with GAAP applied consistently throughout the periods involved (except as approved by the aforementioned firm of accountants and disclosed therein). The Borrower and its Subsidiaries do not have any material Guarantee Obligations, contingent liabilities and liabilities for taxes, or any long-term leases or unusual forward or long-term commitments, including, without limitation, any interest rate or foreign currency swap or exchange transaction or other obligation in respect of derivatives, that are not reflected in the most recent financial statements referred to in this paragraph. During the period from December 31, 2003 to and including the date hereof there has been no Disposition by the Borrower of any material part of its business or Property. 4.2 No Change. Since December 31, 2003 there has been no development or event that has had or could reasonably be expected to have a Material Adverse Effect. 4.3 Corporate Existence; Compliance with Law. Each of Holdings, the Borrower and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has the corporate power and authority, and the legal right, to own and operate its Property, to lease the Property it operates as lessee and to conduct the business in which it is currently engaged, (c) is duly qualified as a foreign corporation and in good standing under the laws of each jurisdiction where its ownership, lease or operation of Property or the conduct of its business requires such qualification and (d) is in compliance with all Requirements of Law except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.4 Corporate Power; Authorization; Enforceable Obligations. Each Loan Party has the corporate power and authority, and the legal right, to make, deliver and perform the Loan Documents to which it is a party and, in the case of the Borrower, to borrow hereunder. Each Loan Party has taken all necessary corporate or other action to authorize the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of the Borrower, to authorize the borrowings on the terms and conditions of this Agreement. No consent or authorization of, filing with, notice to or other act by or in respect of, any Governmental Authority or any other Person is required in connection with the Acquisition, the borrowings hereunder or the execution, delivery, performance, validity or enforceability of this Agreement or any of the other Loan Documents, except (i) consents, authorizations, filings and notices described in Schedule 4.4, which consents, authorizations, filings and notices have been obtained or made and are in full force and effect and (ii) the filings referred to in Section 4.21. Each Loan Document has been duly executed and delivered on behalf of each Loan Party that is 38 a party thereto. This Agreement constitutes, and each other Loan Document upon execution will constitute, a legal, valid and binding obligation of each Loan Party that is a party thereto, enforceable against each such Loan Party in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles (whether enforcement is sought by proceedings in equity or at law). 4.5 No Legal Bar. The execution, delivery and performance of this Agreement and the other Loan Documents, the issuance of Letters of Credit, the borrowings hereunder and the use of the proceeds thereof will not violate any Requirement of Law or any Contractual Obligation of Holdings, the Borrower or any of its Subsidiaries and will not result in, or require, the creation or imposition of any Lien on any of their respective properties or revenues pursuant to any Requirement of Law or any such Contractual Obligation (other than the Liens created by the Security Documents). No Requirement of Law or Contractual Obligation applicable to the Borrower or any of its Subsidiaries could reasonably be expected to have a Material Adverse Effect. 4.6 No Material Litigation. No litigation, investigation or proceeding of or before any arbitrator or Governmental Authority is pending or, to the knowledge of Holdings or the Borrower, threatened by or against Holdings, the Borrower or any of its Subsidiaries or against any of their respective properties or revenues (a) with respect to any of the Loan Documents or any of the transactions contemplated hereby or thereby, or (b) that could reasonably be expected to have a Material Adverse Effect. 4.7 No Default. Neither Holdings, the Borrower nor any of its Subsidiaries is in default under or with respect to any of its Contractual Obligations in any respect that could reasonably be expected to have a Material Adverse Effect. No Default or Event of Default has occurred and is continuing. 4.8 Ownership of Property; Liens. Each of Holdings, the Borrower and its Subsidiaries has title in fee simple to, or a valid leasehold interest in, all its real property, and good title to, or a valid leasehold interest in, all its other Property, and none of such Property is subject to any Lien except as permitted by Section 7.3. 4.9 Intellectual Property. Holdings, the Borrower and each of its Subsidiaries owns, or is licensed to use, all Intellectual Property necessary for the conduct of its business as currently conducted. No material claim has been asserted and is pending by any Person challenging or questioning the use of any Intellectual Property or the validity or effectiveness of any Intellectual Property, nor does Holdings or the Borrower know of any valid basis for any such claim. The use of Intellectual Property by Holdings, the Borrower and its Subsidiaries does not infringe on the rights of any Person in any material respect. 4.10 Taxes. Each of Holdings, the Borrower and each of its Subsidiaries has filed or caused to be filed all Federal, state and other material tax returns that are required to be filed and has paid all taxes shown to be due and payable on said returns or on any assessments made against it or any of its Property and all other taxes, fees or other charges imposed on it or any of its Property by any Governmental Authority (other than any the amount or validity of 39 which are currently being contested in good faith by appropriate proceedings and with respect to which reserves in conformity with GAAP have been provided on the books of Holdings, the Borrower or its Subsidiaries, as the case may be); and no tax Lien has been filed, and, to the knowledge of Holdings and the Borrower, no claim is being asserted, with respect to any such tax, fee or other charge. 4.11 Federal Regulations. No part of the proceeds of any Loans will be used for "purchasing" or "carrying" any "margin stock" within the respective meanings of each of the quoted terms under Regulation U as now and from time to time hereafter in effect or for any purpose that violates the provisions of the Regulations of the Board. If requested by any Lender or the Administrative Agent, the Borrower will furnish to the Administrative Agent and each Lender a statement to the foregoing effect in conformity with the requirements of FR Form G-3 or FR Form U-1 referred to in Regulation U. 4.12 Labor Matters. There are no strikes or other labor disputes against Holdings, the Borrower or any of its Subsidiaries pending or, to the knowledge of Holdings or the Borrower, threatened that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. Hours worked by and payment made to employees of Holdings, the Borrower and its Subsidiaries have not been in violation of the Fair Labor Standards Act or any other applicable Requirement of Law dealing with such matters that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect. All payments due from Holdings, the Borrower or any of its Subsidiaries on account of employee health and welfare insurance that (individually or in the aggregate) could reasonably be expected to have a Material Adverse Effect if not paid have been paid or accrued as a liability on the books of Holdings, the Borrower or the relevant Subsidiary. 4.13 ERISA. Neither a Reportable Event nor an "accumulated funding deficiency" (within the meaning of Section 412 of the Code or Section 302 of ERISA) has occurred during the five-year period prior to the date on which this representation is made or deemed made with respect to any Plan, and each Plan has complied in all material respects with the applicable provisions of ERISA and the Code. No termination of a Single Employer Plan has occurred, and no Lien in favor of the PBGC or a Plan has arisen, during such five-year period. The present value of all accrued benefits under each Single Employer Plan (based on those assumptions used to fund such Plans) did not, as of the last annual valuation date prior to the date on which this representation is made or deemed made, exceed the value of the assets of such Plan allocable to such accrued benefits by a material amount. Neither the Borrower nor any Commonly Controlled Entity has had a complete or partial withdrawal from any Multiemployer Plan that has resulted or could reasonably be expected to result in a material liability under ERISA, and neither the Borrower nor any Commonly Controlled Entity would become subject to any material liability under ERISA if the Borrower or any such Commonly Controlled Entity were to withdraw completely from all Multiemployer Plans as of the valuation date most closely preceding the date on which this representation is made or deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. 4.14 Investment Company Act; Other Regulations. No Loan Party is an "investment company", or a company "controlled" by an "investment company", within the meaning of the Investment Company Act of 1940, as amended. No Loan Party is subject to 40 regulation under any Requirement of Law (other than Regulation X of the Board) which limits its ability to incur Indebtedness under this Agreement and the other Loan Documents. 4.15 Material Subsidiaries. (a) The Subsidiaries listed on Schedule 4.15 constitute all the Material Subsidiaries of the Borrower at the date hereof. Schedule 4.15 sets forth as of the Closing Date the name and jurisdiction of incorporation of each Material Subsidiary and, as to each Material Subsidiary, the percentage of each class of Capital Stock owned by each Loan Party. (b) As of the Closing Date, there are no outstanding subscriptions, options, warrants, calls, rights or other agreements or commitments (other than stock options granted to employees or directors and directors' qualifying shares) of any nature relating to any Capital Stock of Holdings, the Borrower or any Subsidiary, except as disclosed on Schedule 4.15. 4.16 Use of Proceeds. The proceeds of the Loans, and the Letters of Credit, shall be used for working capital needs and general corporate purposes of the Borrower and its Subsidiaries. 4.17 Environmental Matters. Other than exceptions to any of the following that could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect: (a) The Borrower and its Subsidiaries: (i) are, and within the period of all applicable statutes of limitation have been, in compliance with all applicable Environmental Laws; (ii) hold all Environmental Permits (each of which is in full force and effect) required for any of their current or intended operations or for any property owned, leased, or otherwise operated by any of them; (iii) are, and within the period of all applicable statutes of limitation have been, in compliance with all of their Environmental Permits; and (iv) reasonably believe that: each of their Environmental Permits will be timely renewed and complied with, without material expense; any additional Environmental Permits that may be required of any of them will be timely obtained and complied with, without material expense; and compliance with any Environmental Law that is or is expected to become applicable to any of them will be timely attained and maintained, without material expense. (b) Materials of Environmental Concern are not present at, on, under, in, or about any real property now or formerly owned, leased or operated by the Borrower or any of its Subsidiaries, or at any other location (including, without limitation, any location to which Materials of Environmental Concern have been sent for re-use or recycling or for treatment, storage, or disposal) which could reasonably be expected to (i) give rise to liability of the Borrower or any of its Subsidiaries under any applicable Environmental Law or otherwise result in costs to the Borrower or any of its Subsidiaries, or (ii) interfere with the Borrower's or any of its Subsidiaries' continued operations, or (iii) impair the fair saleable value of any real property owned or leased by the Borrower or any of its Subsidiaries. (c) There is no judicial, administrative, or arbitral proceeding (including any notice of violation or alleged violation) under or relating to any Environmental Law to which the Borrower or any of its Subsidiaries is, or to the knowledge of the Borrower or any of its 41 Subsidiaries will be, named as a party that is pending or, to the knowledge of the Borrower or any of its Subsidiaries, threatened. (d) Neither the Borrower nor any of its Subsidiaries has received any written request for information, or been notified that it is a potentially responsible party under or relating to the federal Comprehensive Environmental Response, Compensation, and Liability Act or any similar Environmental Law, or with respect to any Materials of Environmental Concern. (e) Neither the Borrower nor any of its Subsidiaries has entered into or agreed to any consent decree, order, or settlement or other agreement, or is subject to any judgment, decree, or order or other agreement, in any judicial, administrative, arbitral, or other forum for dispute resolution, relating to compliance with or liability under any Environmental Law. (f) Neither the Borrower nor any of its Subsidiaries has assumed or retained, by contract or operation of law, any liabilities of any kind, fixed or contingent, known or unknown, under any Environmental Law or with respect to any Material of Environmental Concern. 4.18 Compliance With Health Care Laws. Without limiting the generality of Section 4.3(c) or any other representation or warranty made herein, to the Borrower's knowledge, the healthcare facilities operated by the Borrower and its Subsidiaries, and each of its licensed employees in the exercise of their respective duties on behalf of such facilities, is in compliance with all applicable statutes, laws, ordinances, rules and regulations of any governmental authority with respect to regulatory matters primarily relating to patient healthcare (including without limitation Section 1128B(b) of the Social Security Act, as amended, 42 U.S.C. Section 1320a-7(b) (Criminal Penalties Involving Medicare or State Health Care Programs), commonly referred to as the "Federal Anti-Kickback Statute," and the Social Security Act, as amended, Section 1877, 42 U.S.C Section 1395nn (Prohibition Against Certain Referrals), commonly referred to as "Stark Statute") except to the extent that the failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. The Borrower and each of its Subsidiaries has maintained in all material respects all records required to be maintained by the Joint Commission on Accreditation of Healthcare Organizations, the Food and Drug Administration, Drug Enforcement Agency and State Boards of Pharmacy and the federal and state Medicare and Medicaid programs as required by the Healthcare Laws and, to the knowledge of the Borrower, there are no presently existing circumstances or violations of Healthcare Laws which are, in the aggregate, reasonably likely to result in a Material Adverse Effect. The Borrower and its Subsidiaries and the owners of the facilities and other businesses managed by the Borrower or its Subsidiaries have such permits, licenses, franchises, certificates and other approvals or authorizations of governmental or regulatory authorities as are necessary under applicable law to own their respective properties and to conduct their respective business (including without limitation such permits as are required under such federal, state and other health care laws, and under such HMO or similar licensure laws and such insurance laws and regulations, as are applicable thereto) except to the extent that the failure to obtain or possess such approvals or authorizations could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 42 4.19 HIPAA Compliance. To the extent that and for so long as the Borrower is a "covered entity" within the meaning of HIPAA, the Borrower (a) has undertaken or will promptly undertake all necessary surveys, audits, inventories, reviews, analyses and/or assessments (including any necessary risk assessments) of all areas of its business and operations required by HIPAA and/or that could be adversely affected by the failure of the Borrower to be HIPAA Compliant (as defined below); (b) has developed or will promptly develop a detailed plan and time line for becoming HIPAA Compliant (a "HIPAA Compliance Plan"); and (c) has implemented or will implement those provisions of such HIPAA Compliance Plan in all material respects necessary to ensure that the Borrower is or becomes HIPAA Compliant. For purposes hereof, "HIPAA Compliant" shall mean that the Borrower (i) is or will be in compliance with each of the applicable requirements of the so-called "Administrative Simplification" provisions of HIPAA on and as of each date that any part thereof, or any final rule or regulation thereunder, becomes effective in accordance with its or their terms, as the case may be (each such date, a "HIPAA Compliance Date") and (ii) is not and could not reasonably be expected to become, as of any date following any such HIPAA Compliance Date, the subject of any civil or criminal penalty, process, claim, action or proceeding, or any administrative or other regulatory review, survey, process or proceeding (other than routine surveys or reviews conducted by any government health plan or other accreditation entity) that could reasonably be expected to have a Material Adverse Effect. 4.20 Accuracy of Information, etc. No statement or information contained in this Agreement, any other Loan Document, the Confidential Information Memorandum or any other document, certificate or statement furnished to the Administrative Agent or the Lenders or any of them, by or on behalf of any Loan Party for use in connection with the transactions contemplated by this Agreement or the other Loan Documents, contained as of the date such statement, information, document or certificate was so furnished (or, in the case of the Confidential Information Memorandum, as of the date of this Agreement), any untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements contained herein or therein not misleading. The projections and pro forma financial information contained in the materials referenced above are based upon good faith estimates and assumptions believed by management of the Borrower to be reasonable at the time made, it being recognized by the Lenders that such financial information as it relates to future events is not to be viewed as fact and that actual results during the period or periods covered by such financial information may differ from the projected results set forth therein by a material amount. There is no fact known to any Loan Party that could reasonably be expected to have a Material Adverse Effect that has not been expressly disclosed herein, in the other Loan Documents, in the Confidential Information Memorandum or in any other documents, certificates and statements furnished to the Agents and the Lenders for use in connection with the transactions contemplated hereby and by the other Loan Documents. 4.21 Security Documents. (a) The Guarantee and Collateral Agreement is effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legal, valid and enforceable security interest in the Collateral described therein and proceeds thereof. In the case of the Pledged Stock described in the Guarantee and Collateral Agreement, any stock certificates representing such Pledged Stock having been delivered to the Administrative Agent, and in the case of the other Collateral described in the Guarantee and Collateral Agreement, financing statements in appropriate form having been filed in the offices 43 specified on Schedule 4.21(a)-1 and such other filings as are specified on Schedule 3 to the Guarantee and Collateral Agreement having been completed, the Guarantee and Collateral Agreement constitutes a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in such Collateral and the proceeds thereof, as security for the Obligations (as defined in the Guarantee and Collateral Agreement), in each case prior and superior in right to any other Person (except, in the case of Collateral other than Pledged Stock, Liens permitted by Section 7.3). Schedule 4.21(a)-2 lists each UCC Financing Statement that names any Loan Party as debtor and will remain on file after the Closing Date. Schedule 4.21(a)-3 lists each UCC Financing Statement that names any Loan Party as debtor and will be terminated on or prior to the Closing Date; and on or prior to the Closing Date, the Borrower will have delivered to the Administrative Agent, or caused to be filed, duly completed UCC termination statements in respect of each UCC Financing Statement listed in Schedule 4.21(a)-3. (b) Each of the Mortgages, as amended by the relevant Mortgage Amendment, is effective to create in favor of the Administrative Agent, for the benefit of the Secured Parties, a legally valid and enforceable Lien on the Mortgaged Properties described therein and proceeds thereof, and when the Mortgage Amendments are filed in the offices set forth in Schedule 4.21(b), each Mortgage (as amended by such Mortgage Amendment) shall continue to constitute a fully perfected Lien on, and security interest in, all right, title and interest of the Loan Parties in the Mortgaged Properties and the proceeds thereof, as security for the Obligations (as defined in the relevant Mortgage), in each case prior and superior in right to any other Person (other than Persons holding Liens or other encumbrances or rights permitted by the relevant Mortgage). 4.22 Solvency. Each Loan Party is, and after giving effect to the transactions contemplated hereby and the incurrence of all Indebtedness and obligations being incurred in connection herewith and therewith will be and will continue to be, Solvent. 4.23 Senior Indebtedness. The Obligations and the obligations of each Subsidiary Guarantor under the Guarantee and Collateral Agreement constitute "Designated Senior Debt" under and as defined in the Senior Subordinated Note Indenture and "Designated Senior Indebtedness" under and as defined in the Existing Senior Subordinated Note Indenture. 4.24 Regulation H. No Mortgage encumbers improved real property which is located in an area that has been identified by the Secretary of Housing and Urban Development as an area having special flood hazards and in which flood insurance has been made available under the National Flood Insurance Act of 1968 (except any Mortgaged Properties as to which such flood insurance as required by Regulation H has been obtained and is in full force and effect as required by this Agreement). 4.25 Deposit Accounts and Securities Accounts. Schedule 4.25 lists all Deposit Accounts and Securities Accounts in existence on the Closing Date, after giving effect to the transactions to be effected on the Closing Date. 4.26 Reimbursement From Third Party Payors. Each of the Borrower and its Subsidiaries is in compliance with the written material reimbursement policies, rules and regulations of third party payors such as Medicare, Medicaid, private insurance companies, 44 health maintenance organizations, preferred provider organizations, managed care systems and other third party payors, including, without limitation, adjustments under any capitation arrangement, fee schedule, discount formula or cost-based reimbursement the failure to comply with which would be reasonably likely to have a Material Adverse Effect. 4.27 Fraud and Abuse. Neither the Borrower nor any Subsidiary, nor any stockholder, officer or director, acting on behalf of the Borrower or any Subsidiary, has engaged on behalf of the Borrower or any Subsidiary in any of the following, except where there would likely be no Material Adverse Effect: (a) knowing and willfully making or causing to be made a false statement or representation of a material fact in any applications for any benefit or payment under Medicare or Medicaid programs; (b) knowing and willfully making or causing to be made any false statement or representation of a material fact for use in determining rights to any benefit or payment under Medicare or Medicaid programs; (c) any knowing and willful failure by the Borrower or any Subsidiary to disclose to the appropriate government contractor any material overpayment or other improper payment received from the Medicare and Medicaid program; or (iv) any knowing and willful violation of the Federal and State anti-kick-back or fraud and abuse laws, the regulations promulgated thereunder. 4.28 Inactive Subsidiaries. None of the Inactive Subsidiaries (a) is engaged in any material business operations, (b) holds any material assets or (c) guarantees, or otherwise provides direct credit support (including a Lien on its assets) for, Indebtedness of the Borrower or any of its Subsidiaries. SECTION 5. CONDITIONS PRECEDENT 5.1 Conditions to Closing Date and Initial Extension of Credit. The occurrence of the Closing Date and the agreement of each Lender to make the initial extension of credit requested to be made by it hereunder are subject to the satisfaction of the following conditions precedent: (a) Loan Documents. The Administrative Agent shall have received (i) this Agreement, executed and delivered by a duly authorized officer of Holdings and the Borrower, (ii) the Consent and Confirmation, executed and delivered by a duly authorized officer of Holdings, the Borrower and each Subsidiary Guarantor, (iii) to the extent not previously delivered to the Administrative Agent pursuant to the Existing Credit Agreement, any Control Agreements requested pursuant to the Section 6.9(d) and (iv) a Lender Addendum executed and delivered by each Lender and accepted by the Borrower. (b) Pre-Closing Transactions. The following shall have occurred: (i) the Borrower shall have received at least $125,000,000 in gross cash proceeds from the issuance of the Senior Subordinated Notes; and (ii) the Borrower shall have paid, redeemed or repurchased in full all of the Existing Senior Subordinated Notes tendered in connection 45 with a tender for all such notes, and a supplemental indenture (in form and substance reasonably satisfactory to the Administrative Agent) to the Existing Senior Subordinated Note Indenture, pursuant to which the restrictive covenants under the Existing Senior Subordinated Note Indenture are deleted, shall been executed and delivered and shall have become operative in accordance with its terms. (c) Pro Forma Balance Sheet; Financial Statements. The Lenders shall have received, in each case in form and substance satisfactory to the Lenders, (i) the Pro Forma Balance Sheet, (ii) audited consolidated financial statements of the Borrower for the 2002 and 2003 fiscal years and (iii) unaudited interim consolidated financial statements of the Borrower for each fiscal quarterly period ended subsequent to the date of the latest applicable financial statements delivered pursuant to clause (ii) of this paragraph as to which such financial statements are available. (d) Approvals. All governmental and third party approvals necessary in connection with the continuing operations of Holdings, the Borrower and its Subsidiaries and the transactions contemplated hereby shall have been obtained and be in full force and effect. (e) Related Agreements. The Administrative Agent shall have received (in a form reasonably satisfactory to the Administrative Agent), true and correct copies, certified as to authenticity by the Borrower, of (i) the Senior Subordinated Note Indenture and the Existing Senior Subordinated Note Indenture, (ii) the Senior Note Indenture, (iii) the supplemental indenture referred to in Section 5.1(b)(ii) and (iv) such other documents or instruments as may be reasonably requested by the Administrative Agent, including, without limitation, a copy of any other debt instrument, security agreement or other material contract to which the Loan Parties may be a party. (f) Fees. The Lenders and the Administrative Agent shall have received all fees required to be paid, and all expenses for which invoices have been presented (including reasonable fees, disbursements and other charges of counsel to the Agents), on or before the Closing Date. All such amounts will be paid with proceeds of Loans made on the Closing Date and will be reflected in the funding instructions given by the Borrower to the Administrative Agent on or before the Closing Date. (g) Business Plan. The Lenders shall have received a satisfactory business plan for fiscal years 2004-2008 and a satisfactory written analysis of the business and prospects of the Borrower and its Subsidiaries for the period from the Closing Date through 2009. (h) Lien Searches. If reasonably requested by the Administrative Agent, the Administrative Agent have received the results of a recent lien search with respect to each Loan Party (i) in the state of incorporation or formation of such Loan Party, (ii) in the state in which the chief executive office of such Loan Party is located, (iii) in each state in which such Loan Party is authorized to conduct business and (iv) in any other jurisdiction in which Uniform Commercial Code financing statement or other filings or recordations should be made to evidence or perfect security interests in all material assets of the Loan Party (excluding real 46 properties which are not, and fixtures not relating to, Mortgaged Properties), and such search shall reveal no liens on any of the assets of the Loan Parties, except for Liens permitted by Section 7.3. (i) Environmental Matters. If reasonably requested by the Administrative Agent, the Administrative Agent shall have received, with a copy for each Lender, completed environmental questionnaires prepared internally with respect to each of the Mortgaged Properties. (j) Closing Certificate. The Administrative Agent shall have received a certificate of each Loan Party, dated the Closing Date, in form reasonably satisfactory to the Administrative Agent and containing the representations and items included in Exhibit C, with appropriate insertions and attachments. (k) Legal Opinions. The Administrative Agent and requesting Lenders shall have received an executed legal opinion of Foley & Lardner, counsel to Holdings, the Borrower and its Subsidiaries, substantially in the form of Exhibit F. Such legal opinion shall cover such other matters incident to the transactions contemplated by this Agreement as the Administrative Agent may reasonably require. (l) Pledged Stock; Stock Powers; Acknowledgment and Consent; Pledged Notes. The Administrative Agent shall have received, (i) to the extent not previously delivered pursuant to the Existing Credit Agreement, (A) the certificates representing the shares of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement, together with an undated stock power for each such certificate executed in blank by a duly authorized officer of the pledgor thereof and (B) each promissory note pledged pursuant to the Guarantee and Collateral Agreement endorsed (without recourse) in blank (or accompanied by an executed transfer form in blank satisfactory to the Administrative Agent) by the pledgor thereof and (ii) an Acknowledgment and Consent, substantially in the form of Annex II to the Guarantee and Collateral Agreement, duly executed by any issuer of Capital Stock pledged pursuant to the Guarantee and Collateral Agreement that is not itself a party to the Guarantee and Collateral Agreement. (m) Existing Mortgages; Existing Mortgagee Title Insurance Policies. The Administrative Agent shall have received satisfactory evidence that each Existing Mortgage, as amended by the relevant Mortgage Amendment, will continue to secure the Obligations to the same extent, and with the same priority, as such Existing Mortgage secured the obligations of the Borrower and its Affiliates under the Existing Credit Agreement. The Administrative Agent shall have received in respect of each of the Existing Mortgagee Title Policies an endorsement from the issuing title insurance company which shall (i) insure that the Mortgage insured thereby (as amended) shall continue to be a valid first Lien on the Mortgaged Property encumbered thereby as of the effective date of such Existing Mortgagee Title Policy, to the same extent and with the same priority as such Existing Mortgagee Title Policy insured the Existing Mortgage; (ii) name the Administrative Agent for the benefit of the Secured Parties as the insured thereunder; and (iii) be in form and substance reasonably satisfactory to the Administrative Agent; provided, that any such endorsements not received by the Administrative Agent on or 47 before the Closing Date shall be provided to the Administrative Agent within thirty (30) days of the Closing Date. (n) Filings, Registrations and Recordings. Each document (including, without limitation, any Uniform Commercial Code financing statement) required by the Security Documents or under law or reasonably requested by the Administrative Agent to be filed, registered or recorded in order to reflect the creation in favor of the Administrative Agent, for the benefit of the Secured Parties, of a perfected Lien on the Collateral described therein, prior and superior in right to any other Person (other than with respect to Liens expressly permitted by Section 7.3), shall have been filed, registered or recorded or shall have been delivered to the Administrative Agent in proper form for filing, registration or recordation. (o) Flood Insurance. If requested by the Administrative Agent, the Administrative Agent shall have received (A) a policy of flood insurance that (1) covers any parcel of improved real property that is encumbered by any Mortgage (2) is written in an amount not less than the outstanding principal amount of the indebtedness secured by such Mortgage that is reasonably allocable to such real property or the maximum limit of coverage made available with respect to the particular type of property under the National Flood Insurance Act of 1968, whichever is less, and (3) will remain in force until the maturity of the indebtedness secured by such Mortgage and (B) confirmation that the Borrower has received the notice required pursuant to Section 208(e)(3) of Regulation H of the Board. (p) Insurance. The Administrative Agent shall have received insurance certificates satisfying the requirements of Section 5.3 of the Guarantee and Collateral Agreement. (q) Affidavits. If requested by the Administrative Agent, the Administrative Agent shall have received: (i) an affidavit from Borrower, in form and substance reasonably acceptable to the Administrative Agent, certifying that since the delivery of real property surveys identified on Schedule 5.1(q)(i) attached hereto to the Loan Parties for each of the Mortgaged Properties in connection with the Existing Credit Agreement, no changes have occurred or improvements have been made to the Mortgaged Properties that would adversely affect or limit the coverage available to the Loan Parties under the Existing Mortgagee Title Policies as endorsed by the issuing title insurance company; (ii) an affidavit from Borrower, in form and substance reasonably acceptable to the Administrative Agent, certifying that no changes have occurred to the environmental condition of each of the Mortgaged Properties since the execution by Borrower of each of the environmental affidavits identified on Schedule 5.1(q)(ii) attached hereto and delivered to the Loan Parties in connection with the Existing Credit Agreement; and (iii) any other affidavits or certifications that may be reasonably requested by the Administrative Agent or the issuing title company necessary to insure the first priority Lien of each of the Mortgages. 5.2 Conditions to Each Extension of Credit. The agreement of each Lender to make any extension of credit requested to be made by it hereunder on any date (including, without limitation, its initial extension of credit) is subject to the satisfaction of the following conditions precedent: 48 (a) Representations and Warranties. Each of the representations and warranties made by any Loan Party in or pursuant to the Loan Documents shall be true and correct on and as of such date as if made on and as of such date. (b) No Default. No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the extensions of credit requested to be made on such date. Each borrowing by and issuance of a Letter of Credit on behalf of the Borrower hereunder shall constitute a representation and warranty by the Borrower as of the date of such extension of credit that the conditions contained in this Section 5.2 have been satisfied. SECTION 6. AFFIRMATIVE COVENANTS Holdings and the Borrower hereby jointly and severally agree that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, each of Holdings and the Borrower shall and shall cause each of its Subsidiaries to: 6.1 Financial Statements. Furnish to each Agent and each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year of the Borrower, a copy of the audited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such year and the related audited consolidated statements of income and of cash flows for such year, setting forth in each case in comparative form the figures as of the end of and for the previous year, reported on without a "going concern" or like qualification or exception, or qualification arising out of the scope of the audit, by KPMG LLP or other independent certified public accountants of nationally recognized standing; and (b) as soon as available, but in any event not later than 45 days after the end of each of the first three quarterly periods of each fiscal year of the Borrower, the unaudited consolidated balance sheet of the Borrower and its consolidated Subsidiaries as at the end of such quarter and the related unaudited consolidated statements of income and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures as of the end of and for the corresponding period in the previous year, certified by a Responsible Officer as being fairly stated in all material respects (subject to normal year-end audit adjustments); all such financial statements to be complete and correct in all material respects and to be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods (except as approved by such accountants or officer, as the case may be, and disclosed therein). 6.2 Certificates; Other Information. Furnish to each Agent and each Lender, or, in the case of clause (h), to the relevant Lender: 49 (a) concurrently with the delivery of the financial statements referred to in Section 6.1(a), a certificate of the independent certified public accountants reporting on such financial statements stating that in making the examination necessary therefor no knowledge was obtained of any Default or Event of Default, except as specified in such certificate (it being understood that such certificate shall be limited to the items that independent certified public accountants are permitted to cover in such certificates pursuant to their professional standards and customs of the profession); (b) concurrently with the delivery of any financial statements pursuant to Section 6.1, (i) a certificate of a Responsible Officer stating that, to the best of such Responsible Officer's knowledge, each Loan Party during such period has observed or performed all of its covenants and other agreements, and satisfied every condition, contained in this Agreement and the other Loan Documents to which it is a party to be observed, performed or satisfied by it, and that such Responsible Officer has obtained no knowledge of any Default or Event of Default except as specified in such certificate and (ii) in the case of quarterly or annual financial statements, (x) a Compliance Certificate containing all information and calculations necessary for determining compliance by Holdings, the Borrower and its Subsidiaries with the provisions of this Agreement referred to therein as of the last day of the fiscal quarter or fiscal year of the Borrower, as the case may be, (y) a list of any Intellectual Property acquired by any Loan Party since the date of the most recent list delivered pursuant to this clause (y) (or, in the case of the first such list so delivered, since the Closing Date) and (z) a list of any UCC financing statements or other filings specified in such Compliance Certificate as being required to be delivered therewith; (c) as soon as available, and in any event no later than 45 days after the end of each fiscal year of the Borrower, a detailed consolidated budget for the following fiscal year (including a projected consolidated balance sheet of the Borrower and its Subsidiaries as of the end of the following fiscal year, and the related consolidated statements of projected cash flow, projected changes in financial position and projected income), and, as soon as available, significant revisions, if any, of such budget and projections with respect to such fiscal year (collectively, the "Projections"), which Projections shall in each case be accompanied by a certificate of a Responsible Officer stating that such Projections are based on reasonable estimates, information and assumptions and that such Responsible Officer has no reason to believe that such Projections are incorrect or misleading in any material respect; (d) within 45 days after the end of each fiscal quarter of the Borrower, a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, as compared to the portion of the Projections covering such periods and to the comparable periods of the previous year; (e) no later than 10 Business Days prior to the effectiveness thereof, copies of substantially final drafts of any proposed amendment, supplement, waiver or other modification with respect to the Senior Subordinated Note Indenture or the Senior Note Indenture; (f) within five days after the same are sent, copies of all financial statements and reports that Holdings or the Borrower sends to the holders of any class of its debt securities 50 or public equity securities and, within five days after the same are filed, copies of all financial statements and reports that Holdings or the Borrower may make to, or file with, the SEC; (g) as soon as possible and in any event within 10 days of obtaining knowledge thereof: (i) any development, event, or condition that, individually or in the aggregate with other developments, events or conditions, could reasonably be expected to result in the payment by the Borrower and its Subsidiaries, in the aggregate, of a Material Environmental Amount; and (ii) any notice that any governmental authority may deny any application for an Environmental Permit sought by, or revoke or refuse to renew any Environmental Permit held by, the Borrower; and (h) promptly, such additional financial and other information as any Lender may from time to time reasonably request. 6.3 Payment of Obligations and Compliance with Agreements. Pay, discharge or otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all its material obligations of whatever nature, except where the amount or validity thereof is currently being contested in good faith by appropriate proceedings and reserves in conformity with GAAP with respect thereto have been provided on the books of Holdings, the Borrower or its Subsidiaries, as the case may be; and comply with its obligations under the other Loan Documents. 6.4 Conduct of Business and Maintenance of Existence, etc. (a) (i) Preserve, renew and keep in full force and effect its corporate or other existence and (ii) take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business, except, in each case, as otherwise permitted by Section 7.4 and except, in the case of clause (ii) above, to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (b) comply with all Contractual Obligations and Requirements of Law, except to the extent that failure to comply therewith could not, in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.5 Maintenance of Property; Insurance. (a) Keep all Property and systems useful and necessary in its business in good working order and condition, ordinary wear and tear excepted and (b) maintain with financially sound and reputable insurance companies insurance on all its Property in at least such amounts and against at least such risks (but including in any event public liability, product liability and business interruption) as are usually insured against in the same general area by companies engaged in the same or a similar business. 6.6 Inspection of Property; Books and Records; Discussions. (a) Keep proper books of records and account in which full, true and correct entries in conformity with GAAP and all Requirements of Law shall be made of all dealings and transactions in relation to its business and activities and (b) permit representatives of any Lender to visit and inspect its corporate offices and examine and make abstracts from any of its books and records at any reasonable time upon reasonable prior notice and as often as may reasonably be desired and to discuss the business, operations, properties and financial and other condition of Holdings, the Borrower and its Subsidiaries with officers and employees of Holdings, the Borrower and its Subsidiaries and with its independent certified public accountants. 51 6.7 Notices. Promptly give notice to the Administrative Agent and each Lender of: (a) the occurrence of any Default or Event of Default; (b) any (i) default or event of default under any Contractual Obligation of Holdings, the Borrower or any of its Subsidiaries or (ii) litigation, investigation or proceeding which may exist at any time between Holdings, the Borrower or any of its Subsidiaries and any Governmental Authority, that in either case, if not cured or if adversely determined, as the case may be, could reasonably be expected to have a Material Adverse Effect; (c) any litigation or proceeding affecting Holdings, the Borrower or any of its Subsidiaries in which the amount involved is $2,500,000 or more and not covered by insurance or in which injunctive or similar relief is sought; (d) the following events, as soon as possible and in any event within 30 days after the Borrower knows or has reason to know thereof: (i) the occurrence of any Reportable Event with respect to any Plan, a failure to make any required contribution to a Plan, the creation of any Lien in favor of a Plan or any withdrawal from, or the termination, Reorganization or Insolvency of, any Multiemployer Plan or (ii) the institution of proceedings or the taking of any other action by the PBGC or the Borrower or any Commonly Controlled Entity or any Multiemployer Plan with respect to the withdrawal from, or the termination, Reorganization or Insolvency of, any Plan; and (e) any development or event that has had or could reasonably be expected to have a Material Adverse Effect. Each notice pursuant to this Section shall be accompanied by a statement of a Responsible Officer setting forth details of the occurrence referred to therein and stating what action Holdings, the Borrower or the relevant Subsidiary proposes to take with respect thereto. 6.8 Environmental Laws. (a) Comply in all material respects with, and ensure compliance in all material respects by all tenants and subtenants, if any, with, all applicable Environmental Laws, and obtain and comply in all material respects with and maintain, and ensure that all tenants and subtenants obtain and comply in all material respects with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws. (b) Conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws and promptly comply in all material respects with all lawful orders and directives of all Governmental Authorities regarding Environmental Laws. 6.9 Additional Collateral, etc. (a) With respect to any Property acquired after the Closing Date by Holdings, the Borrower or any of its Material Subsidiaries (other than (w) any real property, (x) any property described in paragraph (b) or paragraph (d) of this Section, (y) any Property subject to a Lien expressly permitted by Section 7.3(g) and (z) Property acquired by an Excluded Foreign Subsidiary) as to which the Administrative Agent, for the 52 benefit of the Secured Parties, does not have a perfected Lien, promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a security interest in such Property and (ii) take all actions necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in such Property, including without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent. (b) With respect to (i) any new Material Subsidiary (other than an Excluded Foreign Subsidiary) created or acquired after the Closing Date (which, for the purposes of this paragraph, shall include any existing Subsidiary that ceases to be an Excluded Foreign Subsidiary), by Holdings, the Borrower or any of its Subsidiaries, (ii) any Excluded Foreign Subsidiary which becomes a guarantor of or provides direct credit support with respect to any Indebtedness of Holdings, the Borrower or any Domestic Subsidiary or (iii) any Inactive Subsidiary which ceases to qualify as an Inactive Subsidiary pursuant to Section 7.18 (such Subsidiary thereafter to be deemed a Material Subsidiary for all purposes of this Agreement), promptly (A) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Capital Stock of such Subsidiary that is owned by Holdings, the Borrower or any of its Subsidiaries, (B) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated stock powers, in blank, executed and delivered by a duly authorized officer of Holdings, the Borrower or such Subsidiary, as the case may be, (C) cause such Subsidiary (1) to become a party to the Guarantee and Collateral Agreement and (2) to take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Secured Parties a perfected first priority security interest in the Collateral described in the Guarantee and Collateral Agreement with respect to such Subsidiary, including, without limitation, the filing of Uniform Commercial Code financing statements in such jurisdictions as may be required by the Guarantee and Collateral Agreement or by law or as may be requested by the Administrative Agent, and (D) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (c) Subject to Section 6.9(b)(ii), with respect to any new Excluded Foreign Subsidiary created or acquired after the Closing Date by Holdings, the Borrower or any of its Subsidiaries (other than any Subsidiary which is an Excluded Foreign Subsidiary), promptly (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement or such other documents as the Administrative Agent deems necessary or advisable in order to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in the Capital Stock of such new Subsidiary that is owned by Holdings, the Borrower or any of its Subsidiaries (other than any Excluded Foreign Subsidiaries), (provided that in no event shall more than 65% of the total outstanding Capital Stock of any such new Excluded Foreign Subsidiary be required to be so pledged), (ii) deliver to the Administrative Agent the certificates representing such Capital Stock, together with undated 53 stock powers, in blank, executed and delivered by a duly authorized officer of Holdings, the Borrower or such Subsidiary, as the case may be, and take such other action as may be necessary or, in the opinion of the Administrative Agent, desirable to perfect the Lien of the Administrative Agent thereon, and (iii) if requested by the Administrative Agent, deliver to the Administrative Agent legal opinions relating to the matters described above, which opinions shall be in form and substance, and from counsel, reasonably satisfactory to the Administrative Agent. (d) If at any time after the Closing Date, any Loan Party establishes, or any new Subsidiary (other than a Foreign Subsidiary) created or acquired after the Closing Date holds, a Deposit Account or Securities Account (other than (x) any Deposit Accounts into which proceeds of Medicare or Medicaid Receivables (as defined in the Guarantee and Collateral Agreement) are directly deposited by the obligor thereof, (y) any Deposit Accounts or Securities Accounts constituting ordinary course operating accounts holding cash and Investment Property (as defined in the Guarantee and Collateral Agreement) in an amount (with the value of such Investment Property being determined in accordance with GAAP) not exceeding $100,000 for any such Deposit Account or Securities Account and not exceeding $2,500,000 in the aggregate for all such Deposit Accounts and Securities Accounts, in each case excluding Deposit Accounts described in clause (x) above, and (z) any Securities Account containing Investment Property (as defined in the Guarantee and Collateral Agreement) the value of which (determined in accordance with GAAP) does not exceed $100,000) or obtains, or holds, Letter-of-Credit Rights which do not constitute Supporting Obligations (as defined in the Guarantee and Collateral Agreement) (other than any such Letter of Credit Rights the value of which does not exceed $100,000 in the aggregate), promptly but in any event within 45 days after the establishment or obtaining of such Deposit Account, Securities Account or Letter-of-Credit Right, or the creation or acquisition of such Subsidiary, (i) execute and deliver to the Administrative Agent such amendments to the Guarantee and Collateral Agreement as the Administrative Agent deems necessary or advisable to grant to the Administrative Agent, for the benefit of the Secured Parties, a perfected first priority security interest in such Deposit Account, Securities Account or Letter-of-Credit Rights and (ii) take such actions necessary or advisable to grant to the Administrative Agent for the benefit of the Secured Parties a perfected first priority security interest in such Deposit Account, Securities Account or Letter-of-Credit Rights, including actions to cause the Administrative Agent to obtain "control" (within the meaning of the applicable Uniform Commercial Code) thereof. 6.10 Further Assurances. From time to time execute and deliver, or cause to be executed and delivered, such additional instruments, certificates or documents, and take such actions, as the Administrative Agent may reasonably request for the purposes of implementing or effectuating the provisions of this Agreement and the other Loan Documents, or of more fully perfecting or renewing the rights of the Administrative Agent and the Lenders with respect to the Collateral (or with respect to any additions thereto or replacements or proceeds thereof or with respect to any other property or assets hereafter acquired by the Borrower or any Subsidiary which may be deemed to be part of the Collateral) pursuant hereto or thereto. Upon the exercise by the Administrative Agent or any Lender of any power, right, privilege or remedy pursuant to this Agreement or the other Loan Documents which requires any consent, approval, recording, qualification or authorization of any Governmental Authority, the Borrower will execute and deliver, or will cause the execution and delivery of, all applications, certifications, instruments and other documents and papers that the Administrative Agent or such Lender may be required 54 to obtain from the Borrower or any of its Subsidiaries for such governmental consent, approval, recording, qualification or authorization. 6.11 Use of Proceeds. Use the proceeds of the Loans, and the Letters of Credit, for working capital needs and general corporate purposes of the Borrower and its Subsidiaries. SECTION 7. NEGATIVE COVENANTS Holdings and the Borrower hereby jointly and severally agree that, so long as the Commitments remain in effect, any Letter of Credit remains outstanding or any Loan or other amount is owing to any Lender or any Agent hereunder, each of Holdings and the Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly: 7.1 Financial Condition Covenants. (a) Consolidated Senior Leverage Ratio. Permit the Consolidated Senior Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter:

(b) Consolidated Senior Secured Leverage Ratio. Permit the Consolidated Senior Secured Leverage Ratio as at the last day of any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to exceed the ratio set forth below opposite such fiscal quarter:

(c) Consolidated Fixed Charge Coverage Ratio. Permit the Consolidated Fixed Charge Coverage Ratio for any period of four consecutive fiscal quarters of the Borrower ending with any fiscal quarter set forth below to be less than the ratio set forth below opposite such fiscal quarter: 55

(d) Maintenance of Consolidated Tangible Net Worth. Permit Consolidated Tangible Net Worth on any date of determination to be less than the sum of (i) 85% the amount of Consolidated Tangible Net Worth at the end of FQ1 2002, plus (ii) 50% of Consolidated Net Income for each fiscal quarter, commencing with FQ2 2002 and ending with the fiscal quarter most recently ended prior to the date of determination, in which Consolidated Net Income was positive, plus (iii) 100% of the aggregate Net Cash Proceeds of any issuance and sale after March 31, 2002 of the Capital Stock of the Borrower or any contribution to the equity of the Borrower after March 31, 2002. 7.2 Limitation on Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, except: (a) Indebtedness of any Loan Party pursuant to any Loan Document; (b) Indebtedness of the Borrower to any Subsidiary and of any Wholly Owned Subsidiary Guarantor to the Borrower or any other Subsidiary provided such Indebtedness is subordinated to the Obligations; (c) Indebtedness (including, without limitation, Capital Lease Obligations) secured by Liens permitted by Section 7.3(g) in an aggregate principal amount not to exceed $5,000,000 at any one time outstanding; (d) Indebtedness outstanding on the date hereof and listed on Schedule 7.2(d) and any refinancings, refundings, renewals or extensions thereof (without any increase in the principal amount thereof or any shortening of the maturity of any principal amount thereof); (e) Guarantee Obligations made in the ordinary course of business by the Borrower or any of its Subsidiaries of obligations of the Borrower or any Subsidiary Guarantor; (f) Indebtedness in respect of the Senior Notes in an aggregate principal amount not to exceed $150,000,000; (g) Indebtedness in respect of the Senior Subordinated Notes in an aggregate principal amount not to exceed $125,000,000 and any Indebtedness outstanding under the Existing Senior Subordinated Notes after giving effect to the transactions described in Section 5.1(b)(ii); (h) Non-Recourse Debt in an aggregate principal amount at any time outstanding not exceeding (i) $50,000,000, at any time when the senior, unsecured, non credit-enhanced debt of the Borrower is rated lower than either B1 or BB- by Moody's or S&P, 56 respectively, and (ii) $75,000,000, at any time when the senior, unsecured, non credit-enhanced debt of the Borrower is rated at least as high as B1 and BB- by Moody's and S&P, respectively; (i) [Reserved]; and (j) additional Indebtedness of the Borrower or any of its Subsidiaries in an aggregate principal amount (for the Borrower and all Subsidiaries) not to exceed $5,000,000 at any one time outstanding. 7.3 Limitation on Liens. Create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, except for: (a) Liens for taxes not yet due or which are being contested in good faith by appropriate proceedings, provided that adequate reserves with respect thereto are maintained on the books of the Borrower or its Subsidiaries, as the case may be, in conformity with GAAP; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or that are being contested in good faith by appropriate proceedings; (c) pledges or deposits in connection with workers' compensation, unemployment insurance and other social security legislation; (d) deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, and letters of credit issued in lieu of or in support of any of the foregoing, in each case incurred in the ordinary course of business; (e) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business that, in the aggregate, are not substantial in amount and which do not in any case materially detract from the value of the Property subject thereto or materially interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (f) Liens in existence on the date hereof listed on Schedule 7.3(f), securing Indebtedness permitted by Section 7.2(d), provided that no such Lien is spread to cover any additional Property after the Closing Date and that the amount of Indebtedness secured thereby is not increased; (g) Liens securing Indebtedness of the Borrower or any other Subsidiary incurred pursuant to Section 7.2(c) to finance the acquisition of fixed or capital assets, provided that (i) such Liens shall be created substantially simultaneously with the acquisition of such fixed or capital assets, (ii) such Liens do not at any time encumber any Property other than the Property financed by such Indebtedness and (iii) the amount of Indebtedness secured thereby is not increased; (h) Liens in favor of the Administrative Agent created pursuant to the Security Documents; 57 (i) any interest or title of a lessor under any lease entered into by the Borrower or any other Subsidiary in the ordinary course of its business and covering only the assets so leased; (j) [Reserved]; (k) Liens securing Permitted Non-Recourse Debt; provided, that such Liens encumber only the assets financed with the proceeds of such Permitted Non-Recourse Debt and the Capital Stock of any Non-Recourse Subsidiary created to incur such Permitted Non-Recourse Debt; and (l) Liens not otherwise permitted by this Section 7.3 so long as (i) neither (A) the aggregate outstanding principal amount of the obligations secured thereby nor (B) the aggregate fair market value (determined, in the case of each such Lien, as of the date such Lien is incurred) of the assets subject thereto exceeds (as to the Borrower and all Subsidiaries) $5,000,000 at any one time and (ii) such Liens do not attach to any Receivables (as defined in the Guarantee and Collateral Agreement) or Mortgaged Property. 7.4 Limitation on Fundamental Changes. Enter into any merger, consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or Dispose of all or substantially all of its Property or business, except that: (a) any Subsidiary of the Borrower may be merged or consolidated with or into the Borrower (provided that the Borrower shall be the continuing or surviving corporation) or with or into any Subsidiary Guarantor (provided that (i) the Subsidiary Guarantor shall be the continuing or surviving corporation or (ii) simultaneously with such transaction, the continuing or surviving corporation shall become a Subsidiary Guarantor and the Borrower shall comply with Sections 6.9 and 6.10 in connection therewith); and (b) any Subsidiary of the Borrower may Dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Borrower or any Subsidiary Guarantor. 7.5 Limitation on Disposition of Property. Dispose of any of its Property (including, without limitation, receivables and leasehold interests), whether now owned or hereafter acquired, or, in the case of any Subsidiary, issue or sell any shares of such Subsidiary's Capital Stock to any Person, except: (a) the Disposition of obsolete or worn out property in the ordinary course of business; (b) (i) the sale of inventory in the ordinary course of business and (ii) the leasing, as lessor, of facilities in the ordinary course of business under leases providing to the lessor lease income that contributes to Consolidated EBITDA an amount substantially equivalent to the contribution of such facilities to Consolidated EBITDA if such facilities were operated by the Borrower; (c) Dispositions permitted by Section 7.4(b); 58 (d) the sale or issuance of any Subsidiary's Capital Stock to the Borrower or any Subsidiary Guarantor; (e) the Disposition in the ordinary course of business of Cash Equivalents and other investment securities; (f) the Disposition of Property of the Borrower or any Subsidiary in an asset swap; provided, (i) that the amount of Consolidated EBITDA attributable to any Property so Disposed of by the Borrower or any Subsidiary, for the period of four consecutive fiscal quarters most recently ended prior to the date of such Disposition, does not exceed $5,000,000 and (ii) the amount of Consolidated EBITDA attributable to the Property acquired by the Borrower or any Subsidiary in such asset swap, for the period of four consecutive fiscal quarters most recently ended prior to the date of such Disposition, is not less than 90% of the Consolidated EBITDA for such period of the asset swapped by the Borrower or such Subsidiary; (g) the Disposition of Transferred Properties of the Borrower and its Subsidiaries in transactions resulting in the receipt by the Borrower and its Subsidiaries of the fair market value of the Transferred Properties, it being understood that the Disposition of the Transferred Properties for the purchase price contained in option purchase agreements existing on June 28, 2002 and previously disclosed to the Administrative Agent shall constitute fair market value; (h) the Disposition of notes or other non-cash consideration received as consideration in connection with Dispositions permitted pursuant to clause (g) of this Section; (i) the Disposition of other assets in sales for fair market value; provided, that (i) the aggregate amount of Net Cash Proceeds of such Dispositions shall not exceed, while this Agreement is in effect (A) $60,000,000, so long as, at the time of any Disposition pursuant to this clause (a), the Consolidated Senior Secured Leverage Ratio is not at least 0.50 lower than the maximum Consolidated Senior Secured Leverage Ratio permitted pursuant to Section 7.1(b) at the time of such Disposition or (B) $100,000,000, so long as, at the time of any Disposition pursuant to this clause (b), the Consolidated Senior Secured Leverage Ratio is at least 0.50 lower than the maximum Consolidated Senior Secured Leverage Ratio permitted pursuant to Section 7.1(b) at the time of such Disposition and (ii) not more than 75% of the Net Cash Proceeds of all such Dispositions shall be attributable to Dispositions of Properties subject to the Existing Mortgages; and (j) any Recovery Event, provided, that the requirements of Section 2.7(b) are complied with in connection therewith. 7.6 Limitation on Restricted Payments. Declare or pay any dividend on, or make any payment on account of, or set apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any Capital Stock of Holdings, the Borrower or any Subsidiary, whether now or hereafter outstanding, or make any other distribution in respect thereof, either directly or indirectly, whether in cash or property or in obligations of Holdings, the Borrower or any Subsidiary, or enter into any derivatives or other transaction with any financial institution, commodities or stock exchange or clearinghouse (a 59 "Derivatives Counterparty") obligating Holdings, the Borrower or any Subsidiary to make payments to such Derivatives Counterparty as a result of any change in market value of any such Capital Stock (collectively, "Restricted Payments"), except that: (a) any Subsidiary may make Restricted Payments to the Borrower or any Subsidiary Guarantor; and (b) the Borrower may make disbursements to Holdings to permit Holdings to (i) pay corporate overhead expenses incurred in the ordinary course of business and/or to pay dividends to the Parent to pay Holdings' proportionate share of corporate overhead expenses of the Parent incurred in the ordinary course of business, not to exceed $5,000,000 in any fiscal year without the consent of the Administrative Agent (such consent not to be unreasonably withheld) and (ii) pay any taxes which are due and payable by Holdings and the Borrower as part of a consolidated group; provided, that the amount of such taxes allocated to the Borrower shall be determined on an arms' length basis. 7.7 Limitation on Capital Expenditures. Make or commit to make any Capital Expenditure, except (a) Consolidated Maintenance Capital Expenditures of the Borrower and its Subsidiaries in the ordinary course of business, (b) Capital Expenditures made with the proceeds of any Reinvestment Deferred Amount and (c) Consolidated Growth Capital Expenditures to the extent permitted by Section 7.8(h). 7.8 Limitation on Investments. Make any advance, loan, extension of credit (by way of guaranty or otherwise) or capital contribution to, or purchase any Capital Stock, bonds, notes, debentures or other debt securities of, or any assets constituting an ongoing business from, or make any other investment in, any other Person (all of the foregoing, "Investments"), except: (a) extensions of trade credit in the ordinary course of business consistent with past practice; (b) investments in Cash Equivalents; (c) Investments arising in connection with the incurrence of Indebtedness permitted by Section 7.2(b) and (e); (d) (i) advances for business expenses to employees of Holdings, the Borrower or any Subsidiaries of the Borrower in the ordinary course of business (including, without limitation, for travel, entertainment and relocation expenses) and (ii) loans to employees of Holdings, the Borrower or any Subsidiaries of the Borrower in an aggregate amount for Holdings, the Borrower and Subsidiaries of the Borrower not to exceed $2,500,000 at any one time outstanding; (e) Investments in assets (other than inventory) useful in the Borrower's business made by the Borrower or any of its Subsidiaries with the proceeds of any Reinvestment Deferred Amount; 60 (f) Investments (other than those relating to the incurrence of Indebtedness permitted by Section 7.8(c)) by Holdings, the Borrower or any of its Subsidiaries in the Borrower or any Person that, prior to such Investment, is a Subsidiary Guarantor; (g) [Reserved]; and (h) in addition to Investments otherwise expressly permitted by this Section the Borrower or any of its Subsidiaries, may make Investments and may make Consolidated Growth Capital Expenditures; provided, (i) all such Investments and Consolidated Growth Capital Expenditures shall be for the acquisition or improvement of assets (including Capital Stock of another Person) to be used in the same type of business that the Borrower and its Subsidiaries are engaged in on the date of this Agreement, (ii) such Investments and Consolidated Growth Capital Expenditures shall not be limited at any time when the Consolidated Senior Leverage Ratio is less than 3.00 to 1.00, (iii) the aggregate amount of all such Investments and Consolidated Growth Capital Expenditures at any time when the Consolidated Senior Leverage Ratio is greater than 3.00 to 1.00 shall not exceed (A) $20,000,000 for any particular such Investment or Consolidated Growth Capital Expenditure or (B) an aggregate amount for all such Investments and Consolidated Growth Capital Expenditures while this Agreement is in effect of $60,000,000 plus, at any time when the Consolidated Senior Secured Leverage Ratio is at least 0.25 lower than the maximum level permitted at such time, an additional amount, not exceeding $30,000,000 in the aggregate, equal to the aggregate Net Cash Proceeds of Asset Sales consummated after the Closing Date and (iv) after giving effect to such Investment no Default or Event of Default shall have occurred and be continuing. 7.9 Limitation on Optional Payments and Modifications of Debt Instruments, etc. (a) Make any optional or voluntary payment, prepayment, repurchase or redemption of, or otherwise voluntarily or optionally defease, the Senior Subordinated Notes or the Senior Notes, or segregate funds for any such payment, prepayment, repurchase, redemption or defeasance, or enter into any derivative or other transaction with any Derivatives Counterparty obligating Holdings, the Borrower or any Subsidiary to make payments to such Derivatives Counterparty as a result of any change in market value of the Senior Subordinated Notes or the Senior Notes, (b) repurchase or redeem any or all of the Senior Notes or the Senior Subordinated Notes upon occurrence of a Specified Change of Control, (c) amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Senior Subordinated Notes or the Senior Notes (other than any such amendment, modification, waiver or other change which (i) would extend the maturity or reduce the amount of any payment of principal thereof, reduce the rate or extend the date for payment of interest thereon or relax any covenant or other restriction applicable to Holdings, the Borrower or any of its Subsidiaries and (ii) does not involve the payment of a consent fee), (d) amend, modify or otherwise change, or consent or agree to any amendment, modification, waiver or other change to, any of the terms of the Existing Senior Subordinated Note Indenture, (e) designate any Indebtedness (other than the Obligations) as "Designated Senior Indebtedness" for the purposes of the Senior Subordinated Note Indenture or (f) amend its certificate of incorporation in any manner determined by the Administrative Agent to be adverse to the Lenders. 7.10 Limitation on Transactions with Affiliates. Enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of 61 any service or the payment of any management, advisory or similar fees, with any Affiliate (other than Holdings, the Borrower or any Subsidiary Guarantor) unless such transaction is (a) otherwise permitted under this Agreement, (b) in the ordinary course of business of Holdings, the Borrower or such Subsidiary, as the case may be, and (c) upon fair and reasonable terms no less favorable to Holdings, the Borrower or such Subsidiary, as the case may be, than it would obtain in a comparable arm's length transaction with a Person that is not an Affiliate. 7.11 [Reserved] 7.12 Limitation on Changes in Fiscal Periods. Permit the fiscal year of the Borrower to end on a day other than December 31 or change the Borrower's method of determining fiscal quarters. 7.13 Limitation on Negative Pledge Clauses. Enter into or suffer to exist or become effective any agreement that prohibits or limits the ability of Holdings, the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of its Property or revenues, whether now owned or hereafter acquired, to secure the Obligations or, in the case of any guarantor, its obligations under the Guarantee and Collateral Agreement, other than (a) this Agreement and the other Loan Documents, (b) the Senior Subordinated Note Indenture and the Senior Note Indenture, and (c) any agreements governing any purchase money Liens or Permitted Non-Recourse Indebtedness or Capital Lease Obligations otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby). 7.14 Limitation on Restrictions on Subsidiary Distributions. Enter into or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (a) make Restricted Payments in respect of any Capital Stock of such Subsidiary held by, or pay any Indebtedness owed to, the Borrower or any other Subsidiary, (b) make Investments in the Borrower or any other Subsidiary or (c) transfer any of its assets to the Borrower or any other Subsidiary, except for such encumbrances or restrictions existing under or by reason of (i) any restrictions existing under the Loan Documents, (ii) any restrictions with respect to a Subsidiary imposed pursuant to an agreement that has been entered into in connection with the Disposition of all or substantially all of the Capital Stock or assets of such Subsidiary, (iii) any restrictions in any agreements governing any purchase money Indebtedness or Capital Lease Obligations or Permitted Non-Recourse Indebtedness otherwise permitted hereby (in which case, any prohibition or limitation shall only be effective against the assets financed thereby) and (iv) any restrictions in any agreements governing Indebtedness of Foreign Subsidiaries otherwise permitted hereby (in which case, any restrictions shall only be effective against such Foreign Subsidiary and its Foreign Subsidiaries). 7.15 Limitation on Lines of Business. Enter into any business, either directly or through any Subsidiary, except for those businesses in which the Borrower and its Subsidiaries are engaged on the date of this Agreement or that are reasonably related thereto. 7.16 Limitation on Activities of Holdings. In the case of Holdings, notwithstanding anything to the contrary in this Agreement or any other Loan Document, (a) hold any assets other than the Capital Stock of the Borrower and the other direct Subsidiaries of 62 Holdings, (b) have any liabilities other than (i) the liabilities under the Loan Documents, (ii) tax liabilities in the ordinary course of business, (iii) Investments permitted under Section 7.8(f) and (iv) corporate, administrative and operating expenses in the ordinary course of business and (c) engage in any business other than (i) owning the Capital Stock of the Borrower and its other Subsidiaries and activities incidental or related thereto and (ii) acting as a Guarantor and pledging the Capital Stock of the Borrower to the Administrative Agent, for the benefit of the Secured Parties, pursuant to the Guarantee and Collateral Agreement. 7.17 Limitation on Hedge Agreements. Enter into any Hedge Agreement other than Hedge Agreements entered into in the ordinary course of business, and not for speculative purposes, to protect against changes in interest rates, commodity prices or foreign exchange rates. 7.18 Limitation on Activities of Inactive Subsidiaries. In the case of each Inactive Subsidiary, (a) engage in any material business operations, (b) guarantee, or otherwise provide direct credit support (including a Lien on its assets) for, Indebtedness of Holdings, the Borrower or any of its Subsidiaries, (c) own assets having a fair market value which, when added to the assets of all other Inactive Subsidiaries, exceeds 5% of the fair market value of consolidated assets of the Borrower and its Subsidiaries or (d) have Consolidated EBITDA which, when added to the Consolidated EBITDA of all other Inactive Subsidiaries, constitutes more than 5% of the Consolidated EBITDA of the Borrower and its Subsidiaries. SECTION 8. EVENTS OF DEFAULT If any of the following events shall occur and be continuing: (a) The Borrower shall fail to pay any principal of any Loan or Reimbursement Obligation when due in accordance with the terms hereof; or the Borrower shall fail to pay any interest on any Loan or Reimbursement Obligation, or any other amount payable hereunder or under any other Loan Document, within five days after any such interest or other amount becomes due in accordance with the terms hereof or thereof; or (b) Any representation or warranty made or deemed made by any Loan Party herein or in any other Loan Document or that is contained in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement or any such other Loan Document shall prove to have been inaccurate in any material respect on or as of the date made or deemed made or furnished; or (c) (i) Any Loan Party shall default in the observance or performance of any agreement contained in clause (i) or (ii) of Section 6.4(a) (with respect to Holdings and the Borrower only), Section 6.7(a) or Section 7, or in Section 5 of the Guarantee and Collateral Agreement or (ii) an "Event of Default" under and as defined in any Mortgage shall have occurred and be continuing; or (d) Any Loan Party shall default in the observance or performance of any other agreement contained in this Agreement or any other Loan Document (other than as 63 provided in paragraphs (a) through (c) of this Section), and such default shall continue unremedied for a period of 30 days; or (e) Holdings, the Borrower or any of its Material Subsidiaries shall (i) default in making any payment of any principal of any Indebtedness (including, without limitation, any Guarantee Obligation, but excluding the Loans and Reimbursement Obligations) on the scheduled or original due date with respect thereto; or (ii) default in making any payment of any interest on any such Indebtedness beyond the period of grace, if any, provided in the instrument or agreement under which such Indebtedness was created; or (iii) default in the observance or performance of any other agreement or condition relating to any such Indebtedness or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or beneficiary of such Indebtedness (or a trustee or agent on behalf of such holder or beneficiary) to cause, with the giving of notice if required, such Indebtedness to become due prior to its stated maturity or to become subject to or mandatory offer to purchase by the obligor thereunder or (in the case of any such Indebtedness constituting a Guarantee Obligation) to become payable; provided, that a default, event or condition described in clause (i), (ii) or (iii) of this paragraph (e) shall not at any time constitute an Event of Default unless, at such time, one or more defaults, events or conditions of the type described in clauses (i), (ii) and (iii) of this paragraph (e) shall have occurred and be continuing with respect to Indebtedness, individually or in the aggregate, the outstanding principal amount of which exceeds in the aggregate $5,000,000; or (f) (i) Holdings, the Borrower or any of its Material Subsidiaries shall commence any case, proceeding or other action (A) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets, or Holdings, the Borrower or any of its Material Subsidiaries shall make a general assignment for the benefit of its creditors; or (ii) there shall be commenced against Holdings, the Borrower or any of its Material Subsidiaries any case, proceeding or other action of a nature referred to in clause (i) above that (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of 60 days; or (iii) there shall be commenced against Holdings, the Borrower or any of its Material Subsidiaries any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; or (iv) Holdings, the Borrower or any of its Material Subsidiaries shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (i), (ii), or (iii) above; or (v) Holdings, the Borrower or any of its Material Subsidiaries shall generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due; or 64 (g) Any Person shall engage in any "prohibited transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code) involving any Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302 of ERISA), whether or not waived, shall exist with respect to any Plan, or any Lien in favor of the PBGC or a Plan shall arise on the assets of the Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur with respect to, or proceedings shall commence to have a trustee appointed, or a trustee shall be appointed, to administer or to terminate, any Single Employer Plan, which Reportable Event or commencement of proceedings or appointment of a trustee is, in the reasonable opinion of the Required Lenders, likely to result in the termination of such Plan for purposes of Title IV of ERISA, (iv) any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion of the Required Lenders shall be likely to, incur any liability in connection with a withdrawal from, or the Insolvency or Reorganization of, a Multiemployer Plan or (vi) any other event or condition shall occur or exist with respect to a Plan; and in each case in clauses (i) through (vi) above, such event or condition, together with all other such events or conditions, if any, could, in the sole judgment of the Required Lenders, reasonably be expected to have a Material Adverse Effect; or (h) One or more judgments or decrees shall be entered against Holdings, the Borrower or any of its Material Subsidiaries involving for Holdings, the Borrower and its Subsidiaries taken as a whole a liability (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) of $5,000,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within 30 days from the entry thereof; or (i) Any of the Security Documents shall cease, for any reason (other than by reason of the express release thereof pursuant to Section 10.15), to be in full force and effect, or any Loan Party or any Affiliate of any Loan Party shall so assert, or any Lien created by any of the Security Documents shall cease to be enforceable and of the same effect and priority purported to be created thereby; or (j) The guarantee contained in Section 2 of the Guarantee and Collateral Agreement shall cease, for any reason (other than by reason of the express release thereof pursuant to Section 10.15), to be in full force and effect or any Loan Party or any Affiliate of any Loan Party shall so assert; or (k) Any Change of Control shall occur; or (l) The Senior Subordinated Notes, the Existing Senior Subordinated Notes or the guarantees of any thereof shall cease, for any reason, to be validly subordinated to the Obligations or the obligations of the Subsidiary Guarantors under the Guarantee and Collateral Agreement, as the case may be, as provided in the Senior Subordinated Note Indenture or the Existing Senior Subordinated Note Indenture, as the case may be, or any Loan Party, any Affiliate of any Loan Party, the trustee in respect of the Senior Subordinated Notes or the Existing Senior Subordinated Notes or the holders of at least 25% in aggregate principal amount of the Senior Subordinated Notes or the Existing Senior Subordinated Notes shall so assert; or 65 (m) The Borrower or any Subsidiary, to the extent, if any, presently participating or required by law to participate, in Medicaid or Medicare programs is excluded from or shall otherwise fail to be eligible for any reason to participate in Medicaid or Medicare programs or to accept assignments or rights to reimbursement under Requirements of Law applicable to Medicaid or Medicare, such failure could reasonably be expected to have a Material Adverse Effect, and such failure shall also continue beyond the completion of any appeal process diligently pursued by the Borrower or such Subsidiary in good faith; then, and in any such event, (A) if such event is an Event of Default specified in clause (i) or (ii) of paragraph (f) above with respect to the Borrower, automatically the Revolving Credit Commitments shall immediately terminate and the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) shall immediately become due and payable, and (B) if such event is any other Event of Default, either or both of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower declare the Revolving Credit Commitments to be terminated forthwith, whereupon the Commitments shall immediately terminate; and (ii) with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower, declare the Loans hereunder (with accrued interest thereon) and all other amounts owing under this Agreement and the other Loan Documents (including, without limitation, all amounts of L/C Obligations, whether or not the beneficiaries of the then outstanding Letters of Credit shall have presented the documents required thereunder) to be due and payable forthwith, whereupon the same shall immediately become due and payable; and (C) the Administrative Agent shall have the rights and remedies provided to it under the Guarantee and Collateral Agreement or at law or equity, including rights and remedies provided under the Uniform Commercial Code. In the case of all Letters of Credit with respect to which presentment for honor shall not have occurred at the time of an acceleration pursuant to this paragraph, the Borrower shall at such time deposit in a cash collateral account opened by the Administrative Agent an amount equal to the aggregate then undrawn and unexpired amount of such Letters of Credit. Amounts held in such cash collateral account shall be applied by the Administrative Agent to the payment of drafts drawn under such Letters of Credit, and the unused portion thereof after all such Letters of Credit shall have expired or been fully drawn upon, if any, shall be applied to repay other obligations of the Borrower hereunder and under the other Loan Documents. After all such Letters of Credit shall have expired or been fully drawn upon, all Reimbursement Obligations shall have been satisfied and all other obligations of the Borrower hereunder and under the other Loan Documents shall have been paid in full, the balance, if any, in such cash collateral account shall be returned to the Borrower (or such other Person as may be lawfully entitled thereto). SECTION 9. THE AGENTS 9.1 Appointment. Each Lender hereby irrevocably designates and appoints the Agents as the agents of such Lender under this Agreement and the other Loan Documents, and each Lender irrevocably authorizes each Agent, in such capacity, to take such action on its 66 behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers and perform such duties as are expressly delegated to such Agent by the terms of this Agreement and the other Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in this Agreement, no Agent shall have any duties or responsibilities, except those expressly set forth herein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against any Agent. 9.2 Delegation of Duties. Each Agent may execute any of its duties under this Agreement and the other Loan Documents by or through agents or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. No Agent shall be responsible for the negligence or misconduct of any agents or attorneys-in-fact selected by it with reasonable care. 9.3 Exculpatory Provisions. Neither any Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with this Agreement or any other Loan Document (except to the extent that any of the foregoing are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from its or such Person's own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by any Loan Party or any officer thereof contained in this Agreement or any other Loan Document or in any certificate, report, statement or other document referred to or provided for in, or received by the Agents under or in connection with, this Agreement or any other Loan Document or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document or for any failure of any Loan Party to perform its obligations hereunder or thereunder. The Agents shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party. 9.4 Reliance by Agents. Each Agent shall be entitled to rely, and shall be fully protected in relying, upon any instrument, writing, resolution, notice, consent, certificate, affidavit, letter, telecopy, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including, without limitation, counsel to the Loan Parties), independent accountants and other experts selected by such Agent. The Agents may deem and treat the payee of any Note as the owner thereof for all purposes unless such Note shall have been transferred in accordance with Section 10.6 and all actions required by such Section in connection with such transfer shall have been taken. Each Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement) as it deems appropriate or it shall first be indemnified to its satisfaction by the Lenders against any and all liability and expense that may be incurred by it by reason of taking or continuing to take any such action. Each Agent shall in all cases be fully 67 protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans. 9.5 Notice of Default. No Agent shall be deemed to have knowledge or notice of the occurrence of any Default or Event of Default hereunder unless such Agent shall have received notice from a Lender, Holdings or the Borrower referring to this Agreement, describing such Default or Event of Default and stating that such notice is a "notice of default". In the event that the Administrative Agent shall receive such a notice, the Administrative Agent shall give notice thereof to the Lenders. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be reasonably directed by the Required Lenders (or, if so specified by this Agreement, all Lenders or any other instructing group of Lenders specified by this Agreement); provided that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable in the best interests of the Lenders. 9.6 Non-Reliance on Agents and Other Lenders. Each Lender expressly acknowledges that neither any of the Agents nor any of their respective officers, directors, employees, agents, attorneys-in-fact or affiliates have made any representations or warranties to it and that no act by any Agent hereafter taken, including any review of the affairs of a Loan Party or any affiliate of a Loan Party, shall be deemed to constitute any representation or warranty by any Agent to any Lender. Each Lender represents to the Agents that it has, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates and made its own decision to make its Loans hereunder and enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon any Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigation as it deems necessary to inform itself as to the business, operations, property, financial and other condition and creditworthiness of the Loan Parties and their affiliates. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, no Agent shall have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, property, condition (financial or otherwise), prospects or creditworthiness of any Loan Party or any affiliate of a Loan Party that may come into the possession of such Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 9.7 Indemnification. The Lenders severally agree to indemnify each Agent in its capacity as such (to the extent not reimbursed by Holdings or the Borrower and without limiting the obligation of Holdings or the Borrower to do so), ratably according to their respective Aggregate Exposure Percentages in effect on the date on which indemnification is 68 sought under this Section (or, if indemnification is sought after the date upon which the Commitments shall have terminated and the Loans shall have been paid in full, ratably in accordance with such Aggregate Exposure Percentages immediately prior to such date), for, and to save each Agent harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever that may at any time (including, without limitation, at any time following the payment of the Loans) be imposed on, incurred by or asserted against such Agent in any way relating to or arising out of, the Commitments, this Agreement, any of the other Loan Documents or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby or any action taken or omitted by such Agent under or in connection with any of the foregoing; provided that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements that are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from such Agent's gross negligence or willful misconduct. The agreements in this Section shall survive the payment of the Loans and all other amounts payable hereunder. 9.8 Agent in Its Individual Capacity. Each Agent and its affiliates may make loans to, accept deposits from and generally engage in any kind of business with any Loan Party as though such Agent were not an Agent. With respect to its Loans made or renewed by it and with respect to any Letter of Credit issued or participated in by it, each Agent shall have the same rights and powers under this Agreement and the other Loan Documents as any Lender and may exercise the same as though it were not an Agent, and the terms "Lender" and "Lenders" shall include each Agent in its individual capacity. 9.9 Successor Administrative Agent. The Administrative Agent may resign as Administrative Agent upon 10 days' notice to the Lenders and the Borrower. If the Administrative Agent shall resign as Administrative Agent under this Agreement and the other Loan Documents, then the Required Lenders shall appoint from among the Lenders a successor agent for the Lenders, which successor agent shall (unless an Event of Default under Section 8(a) or Section 8(f) with respect to the Borrower shall have occurred and be continuing) be subject to approval by the Borrower (which approval shall not be unreasonably withheld or delayed), whereupon such successor agent shall succeed to the rights, powers and duties of the Administrative Agent, and the term "Administrative Agent" shall mean such successor agent effective upon such appointment and approval, and the former Administrative Agent's rights, powers and duties as Administrative Agent shall be terminated, without any other or further act or deed on the part of such former Administrative Agent or any of the parties to this Agreement or any holders of the Loans. If no successor agent has accepted appointment as Administrative Agent by the date that is 10 days following a retiring Administrative Agent's notice of resignation, the retiring Administrative Agent's resignation shall nevertheless thereupon become effective, and the Lenders shall assume and perform all of the duties of the Administrative Agent hereunder until such time, if any, as the Required Lenders appoint a successor agent as provided for above. The Syndication Agent may, at any time, by notice to the Lenders and the Administrative Agent, resign as Syndication Agent hereunder, whereupon the duties, rights, obligations and responsibilities of the Syndication Agent hereunder shall automatically be assumed by, and inure to the benefit of, the Administrative Agent, without any further act by the Syndication Agent, the Administrative Agent or any Lender. After any retiring Agent's 69 resignation as Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. 9.10 Authorization to Release Liens and Guarantees. The Administrative Agent is hereby irrevocably authorized by each of the Lenders to effect any release of Liens or guarantee obligations contemplated by Section 10.15. 9.11 The Arranger; the Syndication Agent; the Co-Documentation Agents. None of the Arranger, the Syndication Agent or any Co-Documentation Agent, in their respective capacities as such, shall have any duties or responsibilities, or incur any liability, under this Agreement and the other Loan Documents. 9.12 The Administrative Agent and the Secured Parties. Notwithstanding that the Administrative Agent is named in one or more of the Security Documents as agent for Qualified Counterparties as well as for the Lenders, each Lender agrees, on behalf of itself and any affiliate thereof that may at any time be a Qualified Counterparty under any Specified Hedge Agreement, that the Administrative Agent (i) shall have no duty or obligation whatsoever to any Qualified Counterparty under any Specified Hedge Agreement, and (ii) shall have no duty or obligation to any Qualified Counterparty under any Security Documents other than the obligation to deliver to such Qualified Counterparty its ratable share (as determined by the Administrative Agent) of any proceeds received by the Administrative Agent under the Security Documents upon the exercise by the Administrative Agent of its remedies thereunder. Without limiting the generality of the foregoing, each Lender agrees, on behalf of itself and any affiliate thereof that may at any time be a Qualified Counterparty under any Specified Hedge Agreement, that (i) the Administrative Agent shall incur no liability to any Qualified Counterparty as a result of any release by the Administrative Agent of any Collateral or Guarantors under any Security Document or any other action or inaction by the Administrative Agent under any Security Document and (ii) the Administrative Agent shall be entitled to the same exculpations and protections, in respect of the Qualified Counterparties, as it is entitled to with respect to the Lenders pursuant to the other provisions of this Section 9 (other than Section 9.7), mutatis mutandis. SECTION 10. MISCELLANEOUS 10.1 Amendments and Waivers. Neither this Agreement or any other Loan Document, nor any terms hereof or thereof may be amended, supplemented or modified except in accordance with the provisions of this Section 10.1. The Required Lenders and each Loan Party party to the relevant Loan Document may, or (with the written consent of the Required Lenders) the Agents and each Loan Party party to the relevant Loan Document may, from time to time, (a) enter into written amendments, supplements or modifications hereto and to the other Loan Documents (including amendments and restatements hereof or thereof) for the purpose of adding any provisions to this Agreement or the other Loan Documents or changing in any manner the rights of the Lenders or of the Loan Parties hereunder or thereunder or (b) waive, on such terms and conditions as may be specified in the instrument of waiver, any of the requirements of this Agreement or the other Loan Documents or any Default or Event of Default 70 and its consequences; provided, however, that no such waiver and no such amendment, supplement or modification shall: (i) forgive the principal amount or extend the final scheduled date of maturity of any Loan or Reimbursement Obligation, reduce the stated rate of any interest or fee payable hereunder or extend the scheduled date of any payment thereof, or increase the amount or extend the expiration date of any the Revolving Credit Commitment of any Lender, in each case without the consent of each Lender directly affected thereby; (ii) amend, modify or waive any provision of this Section or reduce any percentage specified in the definition of Required Lenders, consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement and the other Loan Documents, release all or substantially all of the Collateral or release all or substantially all of the Guarantors from their guarantee obligations under the Guarantee and Collateral Agreement, in each case without the consent of all Lenders; (iii) amend, modify or waive any provision of Section 9 or any other provision of this Agreement which directly affects the rights or obligations of any Agent, in either case without the consent of each Agent directly affected thereby; (iv) amend, modify or waive any provision of Section 2.13(a) or (b) without the consent of each Lender directly affected thereby; or (v) amend, modify or waive any provision of Section 3 without the consent of each relevant Issuing Lender. Any such waiver and any such amendment, supplement or modification shall apply equally to each of the Lenders and shall be binding upon the Loan Parties, the Lenders, the Agents and all future holders of the Loans. In the case of any waiver, the Loan Parties, the Lenders and the Agents shall be restored to their former position and rights hereunder and under the other Loan Documents, and any Default or Event of Default waived shall be deemed to be cured and not continuing; but no such waiver shall extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. Any such waiver, amendment, supplement or modification shall be effected by a written instrument signed by the parties required to sign pursuant to the foregoing provisions of this Section; provided, that delivery of an executed signature page of any such instrument by facsimile transmission shall be effective as delivery of a manually executed counterpart thereof. For the avoidance of doubt, this Agreement and any other Loan Document may be amended (or amended and restated) with the written consent of the Required Lenders, the Administrative Agent and each Loan Party to each relevant Loan Document (x) to add one or more additional credit facilities to this Agreement and to permit the extensions of credit from 71 time to time outstanding thereunder and the accrued interest and fees in respect thereof (collectively, the "Additional Extensions of Credit") to share ratably in the benefits of this Agreement and the other Loan Documents with the Revolving Extensions of Credit and the accrued interest and fees in respect thereof and (y) to include appropriately the Lenders holding such credit facilities in any determination of the Required Lenders; provided that any proposed Additional Extensions of Credit which, when added to the Total Revolving Credit Commitments then in effect, would cause the Total Revolving Credit Commitments, or if the Additional Extensions of Credit shall include term loans, the sum of the Total Revolving Credit Commitments and such term loans, to exceed $250,000,000 shall require the written consent of Lenders holding 90% or more of the Total Revolving Credit Commitments then in effect. 10.2 Notices. All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three Business Days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, addressed (a) in the case of Holdings, the Borrower and the Agents, as follows and (b) in the case of the Lenders, as set forth in an administrative questionnaire delivered to the Administrative Agent or on Schedule I to the Lender Addendum to which such Lender is a party or, in the case of a Lender which becomes a party to this Agreement pursuant to an Assignment and Acceptance, in such Assignment and Acceptance or (c) in the case of any party, to such other address as such party may hereafter notify to the other parties hereto: Holdings: Extendicare Holdings, Inc. 111 West Michigan Street Milwaukee, Wisconsin 53203-290 Attention: President with a copy to: Extendicare Holdings, Inc. 111 West Michigan Street Milwaukee, Wisconsin 53203-290 Attention: General Counsel The Borrower: Extendicare Health Services, Inc. 111 West Michigan Street Milwaukee, Wisconsin 53203-290 Attention: President with a copy to: Extendicare Holdings, Inc. 111 West Michigan Street Milwaukee, Wisconsin 53203-290 Attention: General Counsel 72 The Administrative Agent: Lehman Commercial Paper Inc. 745 Seventh Avenue New York, New York 10019 Attention: Diane Albanese Telecopy: (212) 526-6643 Telephone: (212) 526-6590 Issuing Lender: As notified by such Issuing Lender to the Administrative Agent and the Borrower provided that any notice, request or demand to or upon the any Agent, any Issuing Lender or any Lender shall not be effective until received. 10.3 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of any Agent or any Lender, any right, remedy, power or privilege hereunder or under the other Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 10.4 Survival of Representations and Warranties. All representations and warranties made herein, in the other Loan Documents and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of the Loans and other extensions of credit hereunder. 10.5 Payment of Expenses. Each of Holdings and the Borrower agrees (a) to pay or reimburse the Administrative Agent for all its reasonable out-of-pocket costs and expenses incurred in connection with the syndication of the Revolving Credit Commitments (other than fees payable to syndicate members) and the development, preparation and execution of, and any amendment, supplement or modification to, this Agreement and the other Loan Documents and any other documents prepared in connection herewith or therewith, and the consummation and administration of the transactions contemplated hereby and thereby, including, without limitation, the reasonable fees and disbursements and other charges of counsel to the Administrative Agent and the charges of Intralinks, (b) to pay or reimburse each Lender and the Agents for all their costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement, the other Loan Documents and any other documents prepared in connection herewith or therewith, including, without limitation, the fees and disbursements of counsel (including the allocated fees and disbursements and other charges of in-house counsel) to each Lender and of counsel to the Agents, (c) to pay, indemnify, or reimburse each Lender and the Agents for, and hold each Lender and the Agents harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation or administration of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement, the other Loan Documents and any such other documents, and (d) to pay, indemnify or reimburse each Lender, 73 each Agent, their respective affiliates, and their respective officers, directors, trustees, employees, advisors, agents and controlling persons (each, an "Indemnitee") for, and hold each Indemnitee harmless from and against any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement, the other Loan Documents and any such other documents, including, without limitation, any of the foregoing relating to the use of proceeds of the Loans or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of Holdings, the Borrower any of its Subsidiaries or any of the Properties and the fees and disbursements and other charges of legal counsel in connection with claims, actions or proceedings by any Indemnitee against the Borrower hereunder (all the foregoing in this clause (d), collectively, the "Indemnified Liabilities"), provided, that Holdings and the Borrower shall have no obligation hereunder to any Indemnitee with respect to Indemnified Liabilities to the extent such Indemnified Liabilities are found by a final and nonappealable decision of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. No Indemnitee shall be liable for any damages arising from the use by unauthorized persons of Information or other materials sent through electronic, telecommunications or other information transmission systems that are intercepted by such persons or for any special, indirect, consequential or punitive damages in connection with the Revolving Credit Commitments. Without limiting the foregoing, and to the extent permitted by applicable law, the Borrower agrees not to assert and to cause its Subsidiaries not to assert, and hereby waives and agrees to cause its Subsidiaries so to waive, all rights for contribution or any other rights of recovery with respect to all claims, demands, penalties, fines, liabilities, settlements, damages, costs and expenses of whatever kind or nature, under or related to Environmental Laws, that any of them might have by statute or otherwise against any Indemnitee. All amounts due under this Section shall be payable not later than 30 days after written demand therefor. Statements payable by the Borrower pursuant to this Section shall be submitted to the Borrower at its address set forth in Section 10.2, or to such other Person or address as may be hereafter designated by the Borrower in a notice to the Administrative Agent. The agreements in this Section shall survive repayment of the Loans and all other amounts payable hereunder. 10.6 Successors and Assigns; Participations and Assignments. (a) This Agreement shall be binding upon and inure to the benefit of Holdings, the Borrower, the Lenders, the Agents, all future holders of the Loans and their respective successors and assigns, except that Holdings and the Borrower may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agents and each Lender. (b) Any Lender may, without the consent of the Borrower, in accordance with applicable law, at any time sell to one or more banks, financial institutions or other entities (each, a "Participant") participating interests in any Loan owing to such Lender, any Commitment of such Lender or any other interest of such Lender hereunder and under the other Loan Documents. In the event of any such sale by a Lender of a participating interest to a Participant, such Lender's obligations under this Agreement to the other parties to this Agreement shall remain unchanged, such Lender shall remain solely responsible for the performance thereof, such Lender shall remain the holder of any such Loan for all purposes under this Agreement and the other Loan Documents, and the Borrower and the Agents shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this 74 Agreement and the other Loan Documents. In no event shall any Participant under any such participation have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would require the consent of all Lenders pursuant to Section 10.1. The Borrower agrees that if amounts outstanding under this Agreement and the Loans are due or unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall, to the maximum extent permitted by applicable law, be deemed to have the right of setoff in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Lender under this Agreement, provided that, in purchasing such participating interest, such Participant shall be deemed to have agreed to share with the Lenders the proceeds thereof as provided in Section 10.7(a) as fully as if such Participant were a Lender hereunder. The Borrower also agrees that each Participant shall be entitled to the benefits of Sections 2.14, 2.15 and 2.16 with respect to its participation in the Commitments and the Loans outstanding from time to time as if such Participant were a Lender; provided that, in the case of Section 2.15, such Participant shall have complied with the requirements of said Section, and provided, further, that no Participant shall be entitled to receive any greater amount pursuant to any such Section than the transferor Lender would have been entitled to receive in respect of the amount of the participation transferred by such transferor Lender to such Participant had no such transfer occurred. (c) Any Lender (an "Assignor") may, in accordance with applicable law and upon written notice to the Administrative Agent, at any time and from time to time assign to any Lender or any affiliate, Related Fund or Control Investment Affiliate thereof or, with the consent of the Borrower, the Agents and each Issuing Lender (which, in each case, shall not be unreasonably withheld or delayed) (provided that no such consent need be obtained by any Lehman Entity), to an additional bank, financial institution or other entity (an "Assignee") all or any part of its rights and obligations under this Agreement pursuant to an Assignment and Acceptance, substantially in the form of Exhibit E, executed by such Assignee and such Assignor (and, where the consent of the Borrower the Agents or the Issuing Lender is required pursuant to the foregoing provisions, by the Borrower and such other Persons) and delivered to the Administrative Agent for its acceptance and recording in the Register; provided that no such assignment to an Assignee (other than any Lender or any affiliate thereof) shall be in an aggregate principal amount of less than $5,000,000 (other than in the case of an assignment of all of a Lender's interests under this Agreement), unless otherwise agreed by the Borrower and the Administrative Agent. Upon such execution, delivery, acceptance and recording, from and after the effective date determined pursuant to such Assignment and Acceptance, (x) the Assignee thereunder shall be a party hereto and, to the extent provided in such Assignment and Acceptance, have the rights and obligations of a Lender hereunder with Commitments and/or Loans as set forth therein, and (y) the Assignor thereunder shall, to the extent provided in such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of an Assignor's rights and obligations under this Agreement, such Assignor shall cease to be a party hereto, except as to Section 2.14, 2.15 and 10.5 in respect of the period prior to such effective date). Notwithstanding any provision of this Section, the consent of the Borrower shall not be required for any assignment that occurs at any time when any Event of Default shall have occurred and be continuing. For purposes of the 75 minimum assignment amounts set forth in this paragraph, multiple assignments by two or more Related Funds shall be aggregated. (d) The Administrative Agent shall, on behalf of the Borrower, maintain at its address referred to in Section 10.2 a copy of each Assignment and Acceptance delivered to it and a register (the "Register") for the recordation of the names and addresses of the Lenders and the Commitment of, and principal amount of the Loans owing to, each Lender from time to time. The entries in the Register shall be conclusive, in the absence of manifest error, and the Borrower, each Agent and the Lenders shall treat each Person whose name is recorded in the Register as the owner of the Loans and any Notes evidencing such Loans recorded therein for all purposes of this Agreement. Any assignment of any Loan, whether or not evidenced by a Note, shall be effective only upon appropriate entries with respect thereto being made in the Register (and each Note shall expressly so provide). Any assignment or transfer of all or part of a Loan evidenced by a Note shall be registered on the Register only upon surrender for registration of assignment or transfer of the Note evidencing such Loan, accompanied by a duly executed Assignment and Acceptance; thereupon one or more new Notes in the same aggregate principal amount shall be issued to the designated Assignee, and the old Notes shall be returned by the Administrative Agent to the Borrower marked "canceled". The Register shall be available for inspection by the Borrower or any Lender (with respect to any entry relating to such Lender's Loans) at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an Assignor and an Assignee (and, in any case where the consent of any other Person is required by Section 10.6(c), by each such other Person) together with payment to the Administrative Agent of a registration and processing fee of $3,500 (treating multiple, simultaneous assignments by or to two or more Related Funds as a single assignment) (except that no such registration and processing fee shall be payable (y) in connection with an assignment by or to a Lehman Entity or (z) in the case of an Assignee which is already a Lender or is an affiliate or Related Fund of a Lender or a Person under common management with a Lender), the Administrative Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the effective date determined pursuant thereto record the information contained therein in the Register and give notice of such acceptance and recordation to the Borrower. On or prior to such effective date, the Borrower, at its own expense, upon request, shall execute and deliver to the Administrative Agent (in exchange for the Revolving Credit Note of the assigning Lender) a new Revolving Credit Note to the order of such Assignee in an amount equal to the Revolving Credit Commitment assumed or acquired by it pursuant to such Assignment and Acceptance and, if the Assignor has retained a Revolving Credit Commitment upon request, a new Revolving Credit Note to the order of the Assignor in an amount equal to the Revolving Credit Commitment retained by it hereunder. Such new Note or Notes shall be dated the Closing Date and shall otherwise be in the form of the Note or Notes replaced thereby. (f) For avoidance of doubt, the parties to this Agreement acknowledge that the provisions of this Section concerning assignments of Loans and Notes relate only to absolute assignments and that such provisions do not prohibit assignments creating security interests in Loans and Notes, including, without limitation, any pledge or assignment by a Lender of any Loan or Note to any Federal Reserve Bank in accordance with applicable law. 76 (g) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Loan that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Loan and (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Loan, the Granting Lender shall be obligated to make such Loan pursuant to the terms hereof. The making of a Loan by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Loan were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any state thereof. In addition, notwithstanding anything to the contrary in this Section 10.6(g), any SPC may (A) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Loans to the Granting Lender, or with the prior written consent of the Borrower and the Administrative Agent (which consent shall not be unreasonably withheld) to any financial institutions providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Loans, and (B) disclose on a confidential basis any non-public information relating to its Loans to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC; provided that non-public information with respect to the Borrower may be disclosed only with the Borrower's consent which will not be unreasonably withheld. This paragraph (g) may not be amended without the written consent of any SPC with Loans outstanding at the time of such proposed amendment. 10.7 Adjustments; Set-off. (a) Except to the extent that this Agreement provides for payments to be allocated to a particular Lender or to the Lenders under a particular Facility, if any Lender (a "Benefitted Lender") shall at any time receive any payment of all or part of the Obligations owing to it, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 8(f), or otherwise), in a greater proportion than any such payment to or collateral received by any other Lender, if any, in respect of such other Lender's Obligations, such Benefitted Lender shall purchase for cash from the other Lenders a participating interest in such portion of each such other Lender's Obligations, or shall provide such other Lenders with the benefits of any such collateral, as shall be necessary to cause such Benefitted Lender to share the excess payment or benefits of such collateral ratably with each of the Lenders; provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefitted Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. (b) In addition to any rights and remedies of the Lenders provided by law, each Lender shall have the right, without prior notice to Holdings or the Borrower, any such notice 77 being expressly waived by Holdings and the Borrower to the extent permitted by applicable law, upon any amount becoming due and payable by Holdings or the Borrower hereunder (whether at the stated maturity, by acceleration or otherwise), to set off and appropriate and apply against such amount any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Lender or any branch or agency thereof to or for the credit or the account of Holdings or the Borrower, as the case may be. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such setoff and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such setoff and application. 10.8 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed signature page of this Agreement or of a Lender Addendum by facsimile transmission shall be effective as delivery of a manually executed counterpart hereof. A set of the copies of this Agreement signed by all the parties shall be lodged with the Borrower and the Administrative Agent. 10.9 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 10.10 Integration. This Agreement and the other Loan Documents represent the entire agreement of Holdings, the Borrower, the Agents, the Arranger and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Arranger, any Agent or any Lender relative to subject matter hereof not expressly set forth or referred to herein or in the other Loan Documents. 10.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. 10.12 Submission To Jurisdiction; Waivers. Each of Holdings and the Borrower hereby irrevocably and unconditionally: (a) submits for itself and its Property in any legal action or proceeding relating to this Agreement and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof; (b) consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or 78 proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same; (c) agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to Holdings or the Borrower, as the case may be at its address set forth in Section 10.2 or at such other address of which the Administrative Agent shall have been notified pursuant thereto; (d) agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and (e) waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages. 10.13 Acknowledgments. Each of Holdings and the Borrower hereby acknowledges that: (a) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents; (b) neither the Arranger, any Agent nor any Lender has any fiduciary relationship with or duty to Holdings or the Borrower arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Arranger, the Agents and the Lenders, on one hand, and Holdings and the Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and (c) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Arranger, the Agents and the Lenders or among Holdings, the Borrower and the Lenders. 10.14 Confidentiality. Each of the Agents and the Lenders agrees to keep confidential all non-public information provided to it by any Loan Party pursuant to this Agreement that is designated by such Loan Party as confidential; provided that nothing herein shall prevent any Agent or any Lender from disclosing any such information (a) to the Arranger, any Agent, any other Lender or any affiliate of any thereof, (b) to any Participant or Assignee (each, a "Transferee") or prospective Transferee that agrees in writing to maintain such information as confidential on terms substantially similar to those contained in this Section 10.14, (c) to any of its employees, directors, agents, attorneys, accountants and other professional advisors, (d) to any financial institution that is a direct or indirect contractual counterparty in swap agreements or such contractual counterparty's professional advisor (so long as such contractual counterparty or professional advisor to such contractual counterparty agrees to be bound by the provisions of this Section), (e) upon the request or demand of any Governmental Authority having jurisdiction over it, (f) in response to any order of any court or other Governmental Authority or as may otherwise be required pursuant to any Requirement of Law, (g) in connection with any litigation or similar proceeding, (h) that has been publicly disclosed other than in breach of this Section, (i) to the National Association of Insurance Commissioners or any similar organization or 79 any nationally recognized rating agency that requires access to information about a Lender's investment portfolio in connection with ratings issued with respect to such Lender or (j) in connection with the exercise of any remedy hereunder or under any other Loan Document. 10.15 Release of Collateral and Guarantee Obligations. (a) Notwithstanding anything to the contrary contained herein or in any other Loan Document, upon request of the Borrower in connection with any Disposition of Property permitted by the Loan Documents, the Administrative Agent shall (without notice to, or vote or consent of, any Lender, or any affiliate of any Lender that is a party to any Specified Hedge Agreement) take such actions as shall be required to release its security interest in any Collateral being Disposed of in such Disposition, and to release any guarantee obligations under any Loan Document of any Person being Disposed of in such Disposition, to the extent necessary to permit consummation of such Disposition in accordance with the Loan Documents. (b) Notwithstanding anything to the contrary contained herein or any other Loan Document, when all Obligations (other than obligations in respect of any Specified Hedge Agreement) have been paid in full, all Commitments have terminated or expired and no Letter of Credit shall be outstanding, upon request of the Borrower, the Administrative Agent shall (without notice to, or vote or consent of, any Lender, or any affiliate of any Lender that is a party to any Specified Hedge Agreement) take such actions as shall be required to release its security interest in all Collateral, and to release all guarantee obligations under any Loan Document, whether or not on the date of such release there may be outstanding Obligations in respect of Specified Hedge Agreements. Any such release of guarantee obligations shall be deemed subject to the provision that such security interests and guarantee obligations shall automatically be reinstated if after such release any portion of any payment in respect of the Obligations guaranteed thereby shall be rescinded or must otherwise be restored or returned upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of the Borrower or any Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any Guarantor or any substantial part of its property, or otherwise, all as though such payment had not been made. (c) Notwithstanding anything to the contrary contained herein or in any other Loan Document, on any date after the Closing Date, upon the request of the Borrower the Administrative Agent shall (without notice to, or vote or consent of, any Lender, or any affiliate of any Lender that is party to any Specified Hedge Agreement) take such actions as shall be required to release its interest in one or more Existing Mortgages securing facilities operating up to an aggregate of 750 licensed skilled nursing beds and/or assisted living facility units in order to permit the Disposition of such facilities or the incurrence of Permitted Non-Recourse Debt in respect of such facility. 10.16 Accounting Changes. In the event that any "Accounting Change" (as defined below) shall occur and such change results in a change in the method of calculation of financial covenants, standards or terms in this Agreement, then the Borrower and the Administrative Agent agree to enter into negotiations in order to amend such provisions of this Agreement so as to equitably reflect such Accounting Change with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such Accounting Change as if such Accounting Change had not been made. Until such time as such an amendment 80 shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders, all financial covenants, standards and terms in this Agreement shall continue to be calculated or construed as if such Accounting Change had not occurred. "Accounting Change" refers to any change in accounting principles required by the promulgation of any rule, regulation, pronouncement or opinion by the Financial Accounting Standards Board of the American Institute of Certified Public Accountants or, if applicable, the SEC. 10.17 Delivery of Lender Addenda. Each initial Lender shall become a party to this Agreement by delivering to the Administrative Agent a Lender Addendum duly executed by such Lender, the Borrower and the Administrative Agent. 10.18 WAIVERS OF JURY TRIAL. HOLDINGS, THE BORROWER, THE AGENTS AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN. 81 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. EXTENDICARE HOLDINGS, INC. By: ------------------------------------ Name: Title: EXTENDICARE HEALTH SERVICES, INC. By: ------------------------------------ Name: Title: LEHMAN BROTHERS INC., as Arranger By: ------------------------------------ Name: Title: LEHMAN COMMERCIAL PAPER INC., as Administrative Agent By: ------------------------------------ Name: Title: U.S. BANK NATIONAL ASSOCIATION, as Syndication Agent By: ------------------------------------ Name: Title: 82 GENERAL ELECTRIC CAPITAL CORPORATION as a Co-Documentation Agent By: ------------------------------------ Name: Title: RESIDENTIAL FUNDING CORPORATION as a Co-Documentation Agent By: ------------------------------------ Name: Title: LASALLE BANK NATIONAL ASSOCIATION, as a Co-Documentation Agent By: ------------------------------------ Name: Title: EX-4.5 8 c86082exv4w5.txt PURCHASE AGREEMENT EXHIBIT 4.5 EXECUTION VERSION EXTENDICARE HEALTH SERVICES, INC. $125,000,000 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 PURCHASE AGREEMENT April 15, 2004 Lehman Brothers Inc. Piper Jaffray & Co. ABN AMRO Incorporated c/o Lehman Brothers Inc. 745 Seventh Avenue, 19th Floor New York, New York 10019 Ladies and Gentlemen: Extendicare Health Services, Inc., a Delaware corporation (the "COMPANY"), proposes to issue and sell to the several Initial Purchasers named in Schedule 1 hereto (the "INITIAL PURCHASERS") $125,000,000 aggregate principal amount of its 6 7/8% Senior Subordinated Notes due 2014 (the "NOTES") guaranteed (the "GUARANTEES") by the Company's domestic subsidiaries signatory hereto (collectively, the "SUBSIDIARY GUARANTORS") pursuant to the terms of an indenture (the "INDENTURE"), to be dated as of April 22, 2004, among the Company, the Subsidiary Guarantors and U.S. Bank, N.A., as trustee (the "TRUSTEE"). The Notes will be offered and sold to you pursuant to an exemption from the registration requirements under the Securities Act of 1933, as amended (the "SECURITIES ACT"). The Company has prepared a preliminary offering memorandum, dated April 9, 2004 (as amended or supplemented, the "PRELIMINARY OFFERING MEMORANDUM"), and will prepare a final offering memorandum (as amended or supplemented, the "OFFERING MEMORANDUM"), to be dated April 15, 2004, relating to the Company, the Notes and the Guarantees. Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Securities Act, the Notes (and all securities issued in exchange therefor or in substitution therefor) shall bear substantially the following legend: THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION, UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED 1 INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (A) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WERE THE OWNERS OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (B) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (I) TO THE COMPANY, (II) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (III) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (IV) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (V) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (IV) OR (V) TO REQUIRE THAT AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, THE TRUSTEE AND THE REGISTRAR IS COMPLETED AND DELIVERED BY THE TRANSFEROR. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. You have advised the Company that you will make offers and sales (the "EXEMPT RESALES") of the Notes purchased hereunder on the terms set forth in the Offering Memorandum solely to (i) persons whom you reasonably believe to be "qualified institutional buyers" as defined in Rule 144A under the Securities Act ("QIBs") and (ii) outside the United States to 2 persons other than U.S. persons in offshore transactions meeting the requirements of Regulation S under the Securities Act ("REGULATION S") (such persons specified in clauses (i) and (ii) being referred to herein as the "ELIGIBLE PURCHASERS"). As used herein, the terms "offshore transaction," "United States" and "U.S. person" have the respective meanings given to them in Regulation S. You will offer the Notes to Eligible Purchasers initially at a price equal to 97.5001% of the principal amount thereof. Thereafter, the offering price may be changed at any time without notice. In connection with the offering of the Notes, the Company and the Subsidiary Guarantors will enter into an amended and restated credit facility in the amount of up to $155.0 million pursuant to a second amended and restated credit agreement among Extendicare Holdings, Inc., the Company, the Subsidiary Guarantors, Lehman Commercial Paper Inc., as the administrative agent, and the other lenders thereto (the "NEW CREDIT FACILITY") to amend and restate the credit agreement, dated as of June 28, 2002, among Extendicare Holdings, Inc., the Company, the Subsidiary Guarantors, Lehman Commercial Paper Inc., as the administrative agent, and the other lenders thereto (the "EXISTING CREDIT FACILITY"). The net proceeds from the sale of the Notes will be used to refinance all the Company's $200.0 million outstanding 9.35% Senior Subordinated Notes Due 2007 and to pay related fees and expenses, as described in the "Use of Proceeds" section of the Offering Memorandum. The entering into of the New Credit Facility, the offering of the Notes and the use of the net proceeds from the sale of the Notes as provided in the "Use of Proceeds" section of the Offering Memorandum are collectively referred to herein as the "TRANSACTIONS." Holders (including subsequent transferees) of the Notes will have the registration rights set forth in the registration rights agreement (the "REGISTRATION RIGHTS AGREEMENT") among the Company, the Subsidiary Guarantors and the Initial Purchasers, to be dated as of the Closing Date (as defined below), in the form of Exhibit A hereto, for so long as such Notes constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company and the Subsidiary Guarantors will agree to file with the Securities and Exchange Commission (the "COMMISSION") under the circumstances set forth therein, (i) a registration statement under the Securities Act (the "EXCHANGE OFFER REGISTRATION STATEMENT") relating to a separate series of the Company's 6 7/8% Senior Subordinated Notes due 2014 (the "EXCHANGE NOTES") to be offered in exchange for the Notes (such offer to exchange being referred to collectively as the "REGISTERED EXCHANGE OFFER") and (ii) if required by the terms of the Registration Rights Agreement, a shelf registration statement pursuant to Rule 415 under the Securities Act (the "SHELF REGISTRATION STATEMENT") relating to the resale by certain holders of the Notes, and to use their reasonable best efforts to cause such Registration Statements to be declared effective. This Agreement, the Notes, the Exchange Notes, the Guarantees, the Exchange Note Guarantees (as defined below), the Indenture and Registration Rights Agreement are hereinafter referred to collectively as the "OPERATIVE DOCUMENTS." This is to confirm the agreements concerning the purchase of the Notes from the Company by the Initial Purchasers. SECTION 1. Representations, Warranties and Agreements of the Company and the Subsidiary Guarantors. The Company and the Subsidiary Guarantors, jointly and severally, represent, warrant and agree that: 3 (a) The Preliminary Offering Memorandum and the Offering Memorandum have been or will be prepared by the Company and Subsidiary Guarantors for use by the Initial Purchasers in connection with the Exempt Resales. No order or decree preventing the use of the Preliminary Offering Memorandum or the Offering Memorandum, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act has been issued and no proceeding for that purpose has commenced or is pending or, to the knowledge of the Company and Subsidiary Guarantors, is contemplated. (b) The Preliminary Offering Memorandum and the Offering Memorandum as of their respective dates did not, and the Offering Memorandum as of the Closing Date will not, contain an untrue statement of a material fact or omit to state a material fact necessary, in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements in or omissions from the Preliminary Offering Memorandum and the Offering Memorandum made in reliance upon and in conformity with information relating to the Initial Purchasers furnished to the Company in writing by or on behalf of the Initial Purchasers expressly for use therein, as specifically identified in Section 8(e) hereof. (c) The Company and each of the Subsidiary Guarantors (i) have been duly organized or formed, are validly existing and are in good standing under the laws of their respective jurisdictions of organization, and (ii) are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, except where the failure to so qualify or to be in good standing would not have a material adverse effect on the general affairs, management, consolidated financial position, shareholders' equity, results of operations, business or prospects of the Company and its subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT"). The Company and each of the Subsidiary Guarantors have all power and authority necessary to own or hold their respective properties and to conduct the businesses in which they are engaged, and none of the subsidiaries of the Company, other than Extendicare Homes, Inc., Northern Health Facilities, Inc., Extendicare Health Network, Inc., Extendicare Health Facility Holdings, Inc. and Extendicare Health Facilities, Inc., is a "significant subsidiary," as such term is defined in Rule 405 under the Securities Act. (d) The Subsidiary Guarantors constitute all of the active subsidiaries of the Company and each of the Company's other subsidiaries are individually and in the aggregate inactive and immaterial. (e) The Company has an authorized capitalization as set forth in the Offering Memorandum. All of the issued shares of capital stock of the Company have been duly and validly authorized and issued and are fully paid and non-assessable; and all of the issued shares of capital stock and limited partner or limited liability company interests of each of the Subsidiary Guarantors have been duly and validly authorized and issued and are fully paid and non-assessable (except, in the case of such Subsidiary Guarantors that are Wisconsin corporations, for certain statutory liabilities that may be imposed by 4 Section 180.0622(2)(b) of the Wisconsin Business Corporation Law for unpaid employee wages) and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, other than liens, encumbrances, equities or claims under the Existing Credit Facility and contemplated under the New Credit Facility or otherwise described in the Offering Memorandum, and none of such shares of capital stock, or limited partner or limited liability company interests were issued in violation of preemptive or other similar rights arising by operation of law, under the charter and bylaws of the Company or under any agreement to which the Company or any Subsidiary Guarantor is a party or otherwise. (f) Each of the Company and the Subsidiary Guarantors has all requisite power and authority to execute, deliver and perform its respective obligations under this Agreement and each of the other Operative Documents to which it is a party. (g) This Agreement has been duly and validly authorized, executed and delivered by the Company and the Subsidiary Guarantors. (h) The Registration Rights Agreement has been duly and validly authorized by the Company and each of the Subsidiary Guarantors, and when duly executed by the proper officers of the Company and each of the Subsidiary Guarantors (assuming due authorization, execution and delivery by the Initial Purchasers) and delivered by the Company and each of the Subsidiary Guarantors, will constitute a legal, valid and binding agreement of the Company and each of the Subsidiary Guarantors, enforceable against the Company and each of the Subsidiary Guarantors in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity), and except that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto. (i) The Indenture has been duly and validly authorized by the Company and each of the Subsidiary Guarantors, and when duly executed by the proper officers of the Company and each of the Subsidiary Guarantors (assuming due authorization, execution and delivery by the Trustee) and delivered by the Company and each of the Subsidiary Guarantors, will constitute a legal, valid and binding agreement of the Company and each of the Subsidiary Guarantors enforceable against the Company and each of the Subsidiary Guarantors in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). No qualification of the Indenture under the Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT"), is required in connection with the offer and sale of the Notes contemplated hereby or in connection with the Exempt Resales. The Indenture 5 conforms to the requirements of the Trust Indenture Act and the rules and regulations thereunder applicable to an indenture that is qualified thereunder. (j) The Notes have been duly and validly authorized by the Company and when duly issued by the Company in accordance with the terms of the Indenture and, assuming due authentication of the Notes by the Trustee, when delivered to the Initial Purchasers against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). (k) The Guarantees have been duly and validly authorized by each of the Subsidiary Guarantors and when duly endorsed on the Notes in accordance with the terms of the Indenture and, assuming due authentication of the Notes by the Trustee, upon delivery to the Initial Purchasers against payment therefor in accordance with the terms hereof will constitute legal, valid and binding obligations of each of the Subsidiary Guarantors entitled to the benefits of the Indenture and enforceable against each of the Subsidiary Guarantors in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). (l) The Exchange Notes have been duly and validly authorized by the Company and if and when duly issued by the Company in accordance with the terms of the Indenture and, assuming due authentication of the Exchange Notes by the Trustee, if and when delivered in accordance with the Registered Exchange Offer contemplated by the Registration Rights Agreement, will constitute legal, valid and binding obligations of the Company entitled to the benefits of the Indenture and enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). (m) The guarantees of the Exchange Notes (the "EXCHANGE NOTE GUARANTEES") have been duly and validly authorized by each of the Subsidiary Guarantors and if and when duly endorsed on the Exchange Notes in accordance with the terms of the Indenture and, assuming due authentication of the Exchange Notes by the Trustee, if and when the Exchange Notes are delivered in accordance with the Registered 6 Exchange Offer contemplated by the Registration Rights Agreement, will constitute legal, valid and binding obligations of each of the Subsidiary Guarantors entitled to the benefits of the Indenture and enforceable against each of the Subsidiary Guarantors in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). (n) The Company and the Subsidiary Guarantors have all requisite corporate power and authority to enter into (A) the New Credit Facility and (B) any and all other agreements and instruments ancillary to or entered into in connection with the transaction contemplated by the New Credit Facility (items (A) and (B) are referred to collectively as the "CREDIT DOCUMENTS"). (o) Each of the New Credit Facility and the other Credit Documents has been duly and validly authorized by the Company and the Subsidiary Guarantors, to the extent they are a party thereto, and when duly executed by the proper officers of the Company and each of the Subsidiary Guarantors (assuming due authorization, execution and delivery by the other parties thereto) and delivered by the Company and each of the Subsidiary Guarantors, to the extent they are a party thereto, will constitute a legal, valid and binding agreement of each of the Company and the Subsidiary Guarantors, enforceable against the Company and each of the Subsidiary Guarantors in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). As of December 31, 2003, after giving effect to the closing of the sale of the Notes, the receipt by the Company of the proceeds therefrom, the closing of the New Credit Facility, anticipated borrowings of $30.0 million under the New Credit Facility, the $45.3 million of letters of credit outstanding under the New Credit Facility and the application of the proceeds from the Notes and the New Credit Facility as described under the caption "Use of Proceeds" in the Offering Memorandum, the Company would have had $79.7 million of borrowings available to it under the New Credit Facility. All representations and warranties made by the Company in the New Credit Facility and the other Credit Documents will be true and correct in all material respects as of the date thereof. (p) The Indenture, the Notes, the Guarantees, the Registration Rights Agreement and the Credit Documents conform in all material respects to the descriptions thereof in the Offering Memorandum. (q) The execution, delivery and performance of this Agreement, the other Operative Documents, the New Credit Facility and the other Credit Documents by the Company and the Subsidiary Guarantors and the consummation of the Transactions will not conflict with or result in a breach or violation of any of the terms or provisions of, or 7 constitute a default under, (i) any indenture, mortgage, deed of trust, loan agreement or other agreement, license or instrument to which the Company or any of the Subsidiary Guarantors is a party or by which the Company or any of the Subsidiary Guarantors is bound or to which any of the property or assets of the Company or any of the Subsidiary Guarantors is subject, (ii) the provisions of the charter or bylaws of the Company or the charter, bylaws or other organizational documents of any of the Subsidiary Guarantors or (iii) any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of the Subsidiary Guarantors or any of their properties or assets, except, in the case of clauses (i) and (iii) for such conflicts, breaches, violations or defaults that would not have a Material Adverse Effect. Except as may be required in connection with (1) the registration of the Notes, the Exchange Notes, the Guarantees and/or the Exchange Note Guarantees under the Securities Act in accordance with the Registration Rights Agreement, (2) qualification of the Indenture under the Trust Indenture Act, (3) compliance with the securities or blue sky laws of various jurisdictions and (4) filings required by the terms of the Credit Documents, no consent, approval, authorization or order of, or filing or registration with, any such court or governmental agency or body is required for the execution, delivery and performance of this Agreement, any of the other Operative Documents, the New Credit Facility and the other Credit Documents by the Company and the Subsidiary Guarantors and the consummation of the Transactions. (r) The financial statements (including the related notes and supporting schedules) included in the Offering Memorandum comply as to form in all material respects with the requirements of Regulation S-X under the Securities Act and present fairly the financial condition and results of operations and cash flows of the entities purported to be shown thereby, at the dates and for the periods indicated, and have been prepared in conformity with generally accepted accounting principles applied on a consistent basis throughout the periods involved. The other financial data, selected pro forma ratios, operating data and statistical information and data, including EBITDA (as defined in the Offering Memorandum), included in the Offering Memorandum is presented fairly and has been prepared on a basis consistent with such financial statements and the books and records of the Company. (s) Except as set forth in the Offering Memorandum, there are no legal or governmental proceedings pending to which the Company or any of the Subsidiary Guarantors is a party or of which any property or assets of the Company or any of the Subsidiary Guarantors is the subject which, if determined adversely to the Company or any of the Subsidiary Guarantors, would have a Material Adverse Effect, and to the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or others. (t) Except as set forth in the Offering Memorandum, there are no contracts, agreements or understandings between the Company and/or the Subsidiary Guarantors and any person granting such person the right to require the Company or the Subsidiary Guarantors to file a registration statement under the Securities Act with respect to any securities of the Company or the Subsidiary Guarantors owned or to be owned by such person or to require the Company or the Subsidiary Guarantors to include such securities 8 in the securities to be registered pursuant to the Exchange Offer Registration Statement or the Shelf Registration Statement or in any securities registered or to be registered pursuant to any other registration statement filed by or required to be filed by the Company or the Subsidiary Guarantors under the Securities Act. (u) Except as disclosed in the Offering Memorandum, since the date of the latest audited consolidated financial statements of the Company included in the Offering Memorandum, none of the Company or the Subsidiary Guarantors has incurred any liability or obligation, direct or contingent, or entered into any transaction, in each case not in the ordinary course of business, that is material to the Company or the Subsidiary Guarantors, taken as a whole, and there has not occurred, to the knowledge of the Company and the Subsidiary Guarantors, any development or event involving a Material Adverse Effect and, except as disclosed in or contemplated by the Offering Memorandum, there has been no (i) dividend or distribution of any kind declared, paid or made by the Company or its affiliates on any class of its respective capital stock, (ii) issuance of securities by the Company or its affiliates (other than the Notes and the Guarantees offered thereby or pursuant to an issuance by the Company or its affiliates of options to purchase the capital stock of the Company or its affiliates) or (iii) material increase in short-term or long-term debt of the Company or the Subsidiary Guarantors. (v) The Company is in full compliance with the reporting requirements of Section 13 or 15(d) of the Exchange Act. All reports filed by the Company with the Commission pursuant to Section 13 or 15(d) of the Exchange Act comply as to form with the Exchange Act and the rules and regulations of the Commission thereunder and when filed did not include any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading. (w) The Company and each Subsidiary Guarantor (i) makes and keeps accurate books and records and (ii) maintains a system of internal accounting controls sufficient to provide reasonable assurance that (A) transactions are executed in accordance with management's authorization, (B) transactions are recorded as necessary to permit preparation of its financial statements in conformity with generally accepted accounting principles and to maintain accountability for its assets, (C) access to its assets is permitted only in accordance with management's authorization and (D) the recorded accountability for its assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (x) KPMG LLP, who have certified certain financial statements of the Company, whose report appears in the Offering Memorandum and who have delivered the initial letter referred to in Section 7(j) hereof, are independent public accountants under rule 101 of the AICPA's Code of Professional Conduct and its interpretations and rulings. (y) The statistical and market-related data included in the Offering Memorandum are based on or derived from sources that the Company and the subsidiaries believe to be reliable and accurate. 9 (z) Except as disclosed in or specifically contemplated by the Offering Memorandum, each of the Company and the Subsidiary Guarantors has such permits, licenses, patents, franchises, certificates of need and other approvals or authorizations of governmental or regulatory authorities ("PERMITS") as are necessary under applicable law to own its properties and to conduct its businesses in the manner described in the Offering Memorandum, except where the failure to have any such Permit would not, individually or in the aggregate, have a Material Adverse Effect; each of the Company and the Subsidiary Guarantors has fulfilled and performed all of its obligations with respect to the Permits, except where the failure to so fulfill and/or perform such obligations would not have a Material Adverse Effect; and, except as disclosed in or specifically contemplated by the Offering Memorandum, no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other impairment of the rights of the holder of any such Permit, except where any such revocations, terminations or impairments would not, individually or in the aggregate, have a Material Adverse Effect. Except as disclosed in or specifically contemplated by the Offering Memorandum, none of the Permits contains any restriction that is materially burdensome (other than such burdens as are common or customary to such Permits) to any of the Company or the Subsidiary Guarantors. (aa) The Company and each of the Subsidiary Guarantors carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar businesses in similar industries. (bb) The Company and each of the Subsidiary Guarantors own or possess adequate rights to use all patents, patent applications, trademarks, service marks, trade names, trademark registrations, service mark registrations, copyrights and licenses necessary for the conduct of their respective businesses and have no reason to believe that the conduct of their respective businesses will conflict with, and have not received any notice of any claim of conflict with, any such rights of others, and the Company and the Subsidiary Guarantors are not aware of any pending or threatened claim to the contrary or any pending or threatened challenge by any other person to the rights of the Company and the Subsidiary Guarantors with respect to the foregoing which, if determined adversely to any of the Company or the Subsidiary Guarantors, would have a Material Adverse Effect. (cc) There are no contracts or other documents which would be required to be described in a prospectus included in or filed as an exhibit to a registration statement on Form S-1 under the Securities Act that have not been described in the Offering Memorandum or filed with the Commission. (dd) No relationship, direct or indirect, exists between or among the Company and the Subsidiary Guarantors, on the one hand, and the directors, officers, shareholders, customers or suppliers of the Company or the Subsidiary Guarantors, on the other hand, which would be required to be described in a prospectus included in a registration statement on Form S-1 under the Securities Act that is not described in the Offering Memorandum. 10 (ee) No labor disturbance by the employees of the Company or any of the Subsidiary Guarantors exists or, to the knowledge of the Company, is imminent which would have a Material Adverse Effect. (ff) The Company is in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any material liability; the Company has not incurred and does not expect to incur any material liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "CODE"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (gg) The Company and the Subsidiary Guarantors have filed all federal, state and local income and franchise tax returns required to be filed through the date hereof, other than those being contested in good faith, and paid all taxes due thereon, other than those being contested in good faith, and no tax deficiency has been determined adversely to the Company or any of the Subsidiary Guarantors, nor does the Company have any knowledge of any tax deficiency which, if determined adversely to the Company or any of the Subsidiary Guarantors, would have a Material Adverse Effect. (hh) Neither the Company nor any of the Subsidiary Guarantors (i) is in violation of its charter, bylaws or other organizational documents, (ii) is in default, and no event has occurred which, with notice or lapse of time or both, would constitute such a default, in the due performance or observance of any term, covenant or condition contained in any material indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which it is a party or by which it is bound or to which any of its properties or assets is subject, except for such defaults that would not have a Material Adverse Effect, or (iii) is in violation of any law, ordinance, governmental rule, regulation or court decree to which it or its property or assets may be subject, except for such violations that would not have a Material Adverse Effect. (ii) Neither the Company nor any of the Subsidiary Guarantors, nor any current director or officer, or to the Company's knowledge, any current agent, employee or other person associated with or acting on behalf of the Company or any of the Subsidiary Guarantors, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. 11 (jj) Neither the Company nor the Subsidiary Guarantors has stored, disposed of, generated, manufactured, refined, transported, handled or treated toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances or other similar materials ("HAZARDOUS MATERIALS") and, to the knowledge of the Company, there has been no storage, disposal, generation, manufacture, refinement, transportation, handling or treatment of Hazardous Materials by any other person at, upon or from any of the properties now owned or leased by the Company or the Subsidiary Guarantors in violation of any applicable law, ordinance, rule, regulation, order, judgment, decree or permit which could reasonably be expected to have, individually or in the aggregate with all such violations and remedial actions, a Material Adverse Effect; there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or any of the Subsidiary Guarantors or with respect to which the Company or any of the Subsidiary Guarantors have knowledge, which could reasonably be expected to have, individually or in the aggregate with all such spills, discharges, leaks, emissions, injections, escapes, dumpings and releases, a Material Adverse Effect; and the terms "hazardous wastes," "toxic wastes," "hazardous substances," "solid wastes" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. (kk) The Company and each of the Subsidiary Guarantors have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them, in each case, free and clear of all liens, encumbrances and defects except such as are existing under the Existing Credit Facility and contemplated under the New Credit Facility or otherwise described in the Offering Memorandum or such as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiary Guarantors; and all assets held under lease by the Company and the Subsidiary Guarantors are held by them under valid, subsisting and enforceable leases, with such exceptions as are not material and do not interfere with the use made and proposed to be made of such assets by the Company and the Subsidiary Guarantors. (ll) Immediately after the consummation of the Transactions, the fair value and present fair saleable value of the assets of the Company and each of the Subsidiary Guarantors (each on a consolidated basis) will exceed the sum of its stated liabilities and identified contingent liabilities; none of the Company nor any of the Subsidiary Guarantors (each on a consolidated basis) is, nor will any of the Company or any of the Subsidiary Guarantors (each on a consolidated basis) be, after giving effect to the execution, delivery and performance of this Agreement and the other Operative Documents and the New Credit Facility and the other Credit Documents and the consummation of the Transactions, (A) left with unreasonably small capital with which to carry on its business as it is proposed to be conducted, (B) unable to pay its debts (contingent or otherwise) as they mature or (C) otherwise insolvent. (mm) Neither the Company nor any Subsidiary Guarantor is, or, as of the Closing Date after giving effect to the Transactions and the application of the proceeds as 12 described in the Offering Memorandum under the section entitled "Use of Proceeds," will be, an "investment company" within the meaning of such term under the Investment Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"). (nn) Except as set forth in the Offering Memorandum, neither the Company nor any of the Subsidiary Guarantors nor, to the knowledge of the Company, any other person who has a direct or indirect ownership or control interest in the Company or any of the Subsidiary Guarantors or who is an officer, director, agent or managing employee of the Company or any Subsidiary Guarantor: (1) has engaged in any activities which are prohibited, or are cause for criminal or civil penalties and/or mandatory or permissive exclusion from Medicare or Medicaid, under Section 1320a-7, 1320a-7a, 1320a-7b, or 1395nn of Title 42 of the United States Code, the federal TRICARE statute, the Federal False Claims Act 31 U.S.C.Section 3729-3733, or the regulations promulgated pursuant to such statutes or regulations or related state or local statutes or by generally recognized professional standards of care or conduct; (2) has had a civil monetary penalty assessed against it under Section 1128A of the Social Security Act ("SSA"); (3) is currently excluded from participation under the Medicare program or a Federal Health Care Program (as that term is defined in SSA Section 1128(B)(f)); or (4) has been convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of the categories of offenses described in SSA Section 1128(a) and (b)(1), (2) and (3). (oo) Neither the Company nor any other affiliate (as defined in Rule 501(b) of Regulation D under the Securities Act ("REGULATION D")) of the Company has directly, or through any agent (provided that no representation is made as to the Initial Purchasers or any person acting on their behalf), (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or could be integrated with the offering and sale of the Notes and the Guarantees in a manner that would require the registration of the Notes and the Guarantees under the Securities Act or (ii) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D, including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising) in connection with the offering of the Notes and the Guarantees. Neither the Company nor any Subsidiary Guarantor has offered, sold or issued any securities, or securities that are convertible into other securities, with terms that are substantially similar to the Notes and the Guarantees during the six-month period preceding the date of the Offering Memorandum, including any sales pursuant to Section 4(2) of the Securities Act or Regulation D or Regulation S under the Securities Act. (pp) Each of the Preliminary Offering Memorandum and the Offering Memorandum and each amendment or supplement thereto, as of its date, contains the information specified in, and meets the requirements of, Rule 144A(d)(4) under the Act. (qq) Neither the Company nor any Subsidiary Guarantor has distributed and, prior to the later to occur of the Closing Date and completion of the distribution of the Notes and the Guarantees, will not distribute any offering material in connection with the 13 offering and sale of the Notes other than the Preliminary Offering Memorandum and the Offering Memorandum. (rr) When issued and delivered pursuant to this Agreement, the Notes will not be of the same class (within the meaning of Rule 144A under the Securities Act) as securities of the Company that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a U.S. automated inter-dealer quotation system. (ss) Assuming (i) that your representations and warranties in Section 2 of this Agreement are true, (ii) compliance by you with the covenants set forth herein and (iii) that each of the Eligible Purchasers is a QIB or a person who acquires the Notes and the Guarantees outside the United States in an "offshore transaction" and is not a "U.S. person" (within the meaning of Rule 904 of Regulation S), it is not necessary in connection with the purchase of the Notes and the Guarantees and the offer and initial resale of the Notes and the Guarantees by you in the manner contemplated by this Agreement and the Offering Memorandum, to register the Notes and the Guarantees under the Securities Act or to qualify the Indenture under the Trust Indenture Act. (tt) None of the Company, any Subsidiary Guarantor or any of their affiliates or any person acting on their behalf (provided that no representation is made as to the Initial Purchasers or any person acting on their behalf) has engaged or will engage in any directed selling efforts within the meaning of Rule 902(c) of Regulation S with respect to the Notes, and the Company, the Subsidiary Guarantors and their other affiliates and all persons acting on their behalf (provided that no representation is made as to the Initial Purchasers or any person acting on their behalf) have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering of the Notes outside of the United States and, in connection therewith, the Offering Memorandum will contain the disclosure required by Rule 902(g). The sales of the Notes pursuant to Regulation S are not part of a plan or scheme to evade the registration provision of the Securities Act. (uu) The Notes sold in reliance on Regulation S will be represented upon issuance by a temporary global security that may not be exchanged for definitive securities until the expiration of the 40-day restricted period referred to in Rule 903(b)(2) of the Securities Act and only upon certification of beneficial ownership of such Notes by non-U.S. persons or U.S. persons who purchased such Notes in transactions that were exempt from the registration requirements of the Securities Act. (vv) In connection with the distribution of the Notes and the Guarantees, neither the Company nor any of its subsidiaries has taken or will take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the Notes and the Guarantees to facilitate the sale or resale of the Notes and the Guarantees. 14 (ww) No "nationally recognized statistical rating organization" as such term is defined for purposes of Rule 436(g)(2) under the Securities Act (i) has imposed (or has informed the Company that it is considering imposing) any condition (financial or otherwise) on the Company's retaining any rating assigned as of the date hereof to the Company or any of their respective securities or (ii) has indicated to the Company that it is considering (A) the downgrading, suspension or withdrawal of, or any review for a possible change that does not indicate the direction of the possible change in, any rating so assigned or (B) any negative change in the outlook for any rating of the Company. (xx) The Company has not taken, and will not take, any action that might cause this Agreement or the issuance or sale of the Notes and the Guarantees to violate Regulation T (12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12 C.F.R. Part 224) of the Board of Governors of the Federal Reserve System. (yy) The Company and each Subsidiary Guarantor understands that the Initial Purchaser and, for purposes of the opinions to be delivered to the Initial Purchaser pursuant to Section 7 hereof, counsel to the Company and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and hereby consents to such reliance. SECTION 2. Representations, Warranties and Agreements of the Initial Purchasers. Each of the Initial Purchasers, severally and not jointly, represents and warrants to, and agrees with, the Company and the Subsidiary Guarantors, that: (a) Such Initial Purchaser is a QIB with such knowledge and experience in financial and business matters as are necessary in order to evaluate the merits and risks of an investment in the Notes and the Guarantees. (b) Such Initial Purchaser (i) is not acquiring the Notes and the Guarantees with a view to any distribution thereof or with any present intention of offering or selling any of the Notes and the Guarantees in a transaction that would violate the Securities Act or any state securities laws or any other applicable jurisdiction; (ii) in connection with the Exempt Resales, will solicit offers to buy the Notes and the Guarantees only from, and will offer to sell the Notes and the Guarantees only to, the Eligible Purchasers in accordance with this Agreement and on the terms contemplated by the Offering Memorandum; and (iii) will not offer or sell the Notes and the Guarantees, nor has it offered or sold the Notes and the Guarantees by, or otherwise engaged in, any form of general solicitation in connection with the offering of the Notes and the Guarantees. (c) The Notes and the Guarantees have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. Such Initial Purchaser represents that it has not offered, sold or delivered the Notes and the Guarantees, and will not offer, sell or deliver the Notes and the Guarantees (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering of the Notes and the Guarantees and the 15 Closing Date (such period, the "DISTRIBUTION COMPLIANCE PERIOD"), within the United States or to, or for the account or benefit of U.S. persons, except in accordance with Rule 144A under the Securities Act. Accordingly, such Initial Purchaser represents and agrees that neither it, its affiliates nor any persons acting on its behalf have engaged or will engage in any directed selling efforts within the meaning of Rule 902(c) of Regulation S with respect to the Notes and the Guarantees, and its affiliates and all persons acting on its behalf have complied and will comply with the offering restrictions requirements of Regulation S. (d) Such Initial Purchaser agrees that, at or prior to confirmation of a sale of Notes and Guarantees (other than a sale pursuant to Rule 144A), it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Notes and Guarantees from them during the Distribution Compliance Period a confirmation or notice substantially to the following effect: "The Notes covered hereby have not been registered under the Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering or the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act, and in connection with any subsequent sale by you of the Notes covered hereby in reliance on Regulation S during the period referred to above to any distributor, dealer or person receiving a selling concession, fee or other remuneration, you must deliver a notice substantially to the foregoing effect. Terms used above have the meanings assigned to them in Regulation S." (e) All offers and sales of the Notes and the Guarantees by such Initial Purchaser pursuant to Regulation S are and will be "offshore transactions" within the meaning of Regulation S and are not and will not be part of a plan or scheme to evade the registration provisions of the Securities Act. (f) Such Initial Purchaser (i) has not offered or sold, and prior to the six months after the date of the issue of the Notes will not offer or sell, any Notes to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995, (ii) has complied with and will comply with all applicable provisions of the Financial Services and Markets Act 2000, or the FSMA, with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom and (iii) has only communicated or caused to be communicated and will only communicate and cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA would not apply to the Company. 16 (g) Such Initial Purchaser understands that the Company and, for purposes of the opinions to be delivered to you pursuant to Section 7 hereof, counsel to the Company and counsel to the Initial Purchasers will rely upon the accuracy and truth of the foregoing representations and hereby consents to such reliance. The terms used in this Section 2 that have meanings assigned to them in Regulation S are used herein as so defined. SECTION 3. Purchase of the Notes and the Guarantees by the Initial Purchasers. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to sell the Notes (and cause the Subsidiary Guarantors to issue the Guarantees) to the several Initial Purchasers and each of the Initial Purchasers, severally and not jointly, agrees to purchase the amount of Notes set opposite that Initial Purchaser's name in Schedule 1 hereto. Each Initial Purchaser will purchase such aggregate principal amount of Notes at an aggregate purchase price equal to 95.0001% of the principal amount thereof (the "PURCHASE PRICE"). The Company shall not be obligated to deliver any of the Notes to be delivered on the Closing Date, except upon payment for all the Notes and the Guarantees to be purchased on the Closing Date as provided herein. SECTION 4. Delivery of and Payment for the Notes and the Guarantees. (a) Delivery of and payment for the Notes and the Guarantees shall be made at the offices of Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, at 9:00 A.M., New York City time, on the fifth full business day following the date of this Agreement or at such other date or place as shall be determined by agreement between Lehman Brothers and the Company. This date and time are sometimes referred to as the "CLOSING DATE." (b) On the Closing Date, one or more Notes in definitive form, registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), having an aggregate principal amount corresponding to the aggregate principal amount of the Notes (collectively, the "GLOBAL NOTES"), shall be delivered by the Company to the Initial Purchasers against payment by the Initial Purchasers of the purchase price thereof by wire transfer of immediately available funds as the Company may direct by written notice delivered to you no later than two business days prior to the Closing Date. The Global Notes in definitive form shall be made available to the Initial Purchasers for inspection not later than 2:00 p.m. on the business day prior to the Closing Date. SECTION 5. Further Agreements of the Company. The Company agrees: (a) To advise you promptly and, if requested by you, to confirm such advice in writing, (i) of the issuance by the Commission or any state securities commission of any stop order suspending the qualification or exemption from qualification of the Notes and the Guarantees for offering or sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose by the Commission or any state securities commission or other regulatory authority, and (ii) the happening of any event that makes 17 any statement of a material fact made in the Preliminary Offering Memorandum or the Offering Memorandum untrue or which requires the making of any additions to or changes in the Preliminary Offering Memorandum or Offering Memorandum in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The Company shall use all reasonable efforts to prevent the issuance of any stop order or order suspending the qualification or exemption of the Notes and the Guarantees under any state securities or blue sky laws and, if at any time any state securities commission shall issue any stop order suspending the qualification or exemption of the Notes and the Guarantees under any state securities or blue sky laws, the Company shall use all reasonable efforts to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish to you without charge, as many copies of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments or supplements thereto, as you may reasonably request. The Company consents to the use of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments and supplements thereto required pursuant to this Agreement, by you in connection with the Exempt Resales that are in compliance with this Agreement. (c) Not to amend or supplement the Offering Memorandum prior to the Closing Date or during the period referred to in (d) below unless you shall previously have been advised of, and shall not have reasonably objected to, such amendment or supplement within a reasonable time, but in any event not longer than three days after being furnished a copy of such amendment or supplement. The Company shall promptly prepare, upon any reasonable request by you, any amendment or supplement to the Offering Memorandum that may be necessary or advisable in connection with Exempt Resales. (d) If, in connection with any Exempt Resales or market making transactions after the date of this Agreement and prior to the consummation of the Registered Exchange Offer, any event shall occur that, in the judgment of the Company or in your judgment or the judgment of counsel to you, makes any statement of a material fact in the Offering Memorandum untrue or that requires the making of any additions to or changes in the Offering Memorandum in order to make the statements in the Offering Memorandum, in the light of the circumstances at the time that the Offering Memorandum is delivered to prospective Eligible Purchasers, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with applicable law, the Company will promptly notify you of such event and prepare an appropriate amendment or supplement to the Offering Memorandum so that, at the time that the Offering Memorandum is delivered to prospective Eligible Purchasers, (i) the statements in the Offering Memorandum as amended or supplemented, in the light of the circumstances under which they were made, will not be misleading and (ii) the Offering Memorandum will comply with applicable law. (e) Promptly from time to time to take such action as you may reasonably request to qualify the Notes and the Guarantees for offering and sale under the state securities or blue sky laws of such jurisdictions as you may request (provided, however, 18 that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process in any jurisdiction in which it is not now so subject) and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Notes and the Guarantees. (f) To use all reasonable best efforts to do and perform all things required to be done and performed under this Agreement by it prior to or after the Closing Date and to satisfy all conditions precedent on its part to the delivery of the Notes and the Guarantees. (g) Except as contemplated in the Registration Rights Agreement, not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Notes and the Guarantees in a manner that would require the registration under the Securities Act of the sale to you or the Eligible Purchasers of the Notes and the Guarantees. (h) For so long as any Notes remain outstanding and are "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act and during any period in which the Company is not subject to Section 13 or 15(d) of the Exchange Act, to make available upon request to any registered holder or beneficial owner of Notes in connection with any sale thereof and any prospective purchaser of Notes from such registered holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act. (i) To use its reasonable best efforts to cause the Notes to be eligible for trading in The PORTAL(R) Market ("PORTAL"), a subsidiary of The Nasdaq Stock Market, Inc., and to permit the Notes to be eligible for clearance and settlement through DTC. (j) To apply the net proceeds from the sale of the Notes as set forth in the Offering Memorandum under the section entitled "Use of Proceeds." (k) To take such steps as shall be necessary to ensure that neither the Company nor any subsidiary of the Company shall become an "investment company" within the meaning of such term under the Investment Company Act and the rules and regulations of the Commission thereunder. (l) Except for borrowings under the New Credit Facility and a potential exchange by the Company of a note payable to Extendicare Inc. for the 9.35% Senior Subordinated Notes Due 2007 currently held by Extendicare Inc., for a period of 180 days from the date of the Offering Memorandum, not to, directly or indirectly, sell, contract to sell, grant any option to purchase, issue any instrument convertible into or exchangeable for, or otherwise transfer or dispose of, any debt securities of the Company or any Subsidiary Guarantor in a public or private offering for cash having a maturity of more than one year from the date of issue of such securities, except (i) for the Exchange 19 Notes and the Exchange Note Guarantees in connection with the Exchange Offer or (ii) with the prior consent of the Initial Purchasers, which consent shall not be unreasonably withheld. (m) For a period of three years following the Closing Date, to furnish to you copies of all materials furnished by the Company to holders of Notes and all public reports and all reports and financial statements furnished by the Company to the principal national securities exchange upon which the Company's common stock or Notes may be listed pursuant to requirements of or agreements with such exchange or to the Commission pursuant to the Exchange Act or any rule or regulation of the Commission thereunder. SECTION 6. Expenses. The Company agrees that, whether or not the transactions contemplated by this Agreement are consummated or this Agreement becomes effective or is terminated, to pay all costs, expenses, fees and taxes incident to and in connection with: (i) the preparation, printing, filing and distribution of the Preliminary Offering Memorandum and the Offering Memorandum (including, without limitation, financial statements) and all amendments and supplements thereto (but not, however, legal fees and expenses of your counsel incurred in connection therewith), (ii) the preparation, printing (including, without limitation, word processing and duplication costs) and delivery of this Agreement, the Indenture, the Registration Rights Agreement, all blue sky memoranda and all other agreements, memoranda, correspondence and other documents printed and delivered in connection herewith and with the Exempt Resales (but not, however, legal fees and expenses of your counsel incurred in connection with any of the foregoing other than fees of such counsel plus reasonable disbursements incurred in connection with the preparation, printing and delivery of such blue sky memoranda), (iii) the issuance and delivery by the Company and the Subsidiary Guarantors of the Notes and the Guarantees, (iv) the qualification of the Notes for offer and sale under the securities or blue sky laws of the several states (including, without limitation, the reasonable fees and disbursements of your counsel relating to such registration or qualification), (v) furnishing such copies of the Preliminary Offering Memorandum and the Offering Memorandum, and all amendments and supplements thereto, as may be reasonably requested for use in connection with the Exempt Resales, (vi) the preparation of certificates for the Notes (including, without limitation, printing and engraving thereof), (vii) the fees, disbursements and expenses of the Company's counsel and accountants, (viii) all expenses and listing fees in connection with the application for quotation of the Notes in PORTAL, (ix) the costs and expenses of the Company relating to investor presentations on any road show undertaken in connection with the offering of the Notes, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged in connection with the road show presentations with the prior approval of the Company, travel and lodging expenses of the representatives and officers of the Company and any such consultants, and the cost of any aircraft chartered in connection with the road show; (x) all fees and expenses of the Company (including fees and expenses of its counsel) and the Initial Purchasers (but not including fees and expenses of their counsel) in connection with approval of the Notes by DTC for "book-entry" transfer and (xi) the performance by the Company and the Subsidiary Guarantors of its other obligations under this Agreement. 20 SECTION 7. Conditions of Initial Purchasers' Obligations. The respective obligations of the Initial Purchasers hereunder are subject to the accuracy, when made and on the Closing Date, of the representations and warranties of the Company contained herein, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions. (a) The Offering Memorandum shall have been printed and copies distributed to you not later than 9:00 A.M., New York City time, on April 20, 2004, or at such later date and time as you may approve in writing, and no stop order suspending the qualification or exemption from qualification of the Notes in any jurisdiction shall have been issued and no proceeding for that purpose shall have been commenced or shall be pending or threatened. (b) No Initial Purchaser shall have discovered and disclosed to the Company on or prior to such Closing Date that the Offering Memorandum or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Weil, Gotshal & Manges LLP, counsel for the Initial Purchasers, is material or omits to state a fact which, in the opinion of such counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the other Operative Documents, the Credit Documents and the Offering Memorandum, and all other legal matters relating to this Agreement and the Transactions shall be reasonably satisfactory in all material respects to counsel for the Initial Purchasers, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (d) Foley & Lardner shall have furnished to the Initial Purchasers its written opinion, as counsel to the Company and the Subsidiary Guarantors, addressed to the Initial Purchasers and dated as of the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and its counsel, substantially in the form attached hereto as Exhibit B. (e) Roch Carter, Esq., General Counsel of the Company, shall have furnished to the Initial Purchasers his written opinion, as counsel to the Company and the Subsidiary Guarantors, addressed to the Initial Purchasers and dated as of the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and its counsel, substantially in the form attached hereto as Exhibit C. (f) The Initial Purchasers shall have received from Weil, Gotshal & Manges LLP, counsel for the Initial Purchasers, such opinion or opinions, dated as of the Closing Date, with respect to the issuance and sale of the Notes and the Guarantees, the Offering Memorandum and other related matters as the Initial Purchasers may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. 21 (g) Each of the Company, the Subsidiary Guarantors and the Trustee shall have entered into the Indenture and the Initial Purchasers shall have received counterparts, conformed as executed, thereof. (h) Each of the Company, the Subsidiary Guarantors and the Initial Purchasers shall have entered into the Registration Rights Agreement and the Initial Purchasers shall have received counterparts, conformed as executed, thereof. (i) The Notes shall have been approved for trading in PORTAL and shall be eligible for clearance and settlement through The Depository Trust Company. (j) At the time of execution of this Agreement, the Initial Purchasers shall have received from KPMG LLP, a letter, in form and substance satisfactory to the Initial Purchasers, addressed to the Initial Purchasers and dated the date hereof (i) confirming that they are independent public accountants under rule 101 of the AICPA's Code of Professional Conduct and its interpretations and rulings, (ii) stating, as of the date hereof (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than five days prior to the date hereof), the conclusions and findings of such firm with respect to the financial information and other matters ordinarily covered by accountants' "comfort letters" to initial purchasers. (k) With respect to the letter of KPMG LLP, referred to in the preceding paragraph and delivered to the Initial Purchasers concurrently with the execution of this Agreement (the "INITIAL LETTER"), the Initial Purchasers shall have received a letter (the "BRING-DOWN LETTER") of such accountants, addressed to the Initial Purchasers and dated as of the Closing Date (i) confirming that they are independent public accountants under rule 101 of the AICPA's Code of Professional Conduct and its interpretations and rulings, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than five days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (l) The Initial Purchasers shall have received an executed copy of the Credit Documents, with all schedules, exhibits and amendments thereto. (m) The Initial Purchasers shall have received (i) a certificate from the Company, dated the Closing Date, signed by its Chairman of the Board or Chief Executive Officer and its Chief Financial Officer or Treasurer and (ii) a certificate from each Subsidiary Guarantor, dated as of the Closing Date, signed by its President, other executive officer or authorized signatory stating, as applicable, that: (A) The representations and warranties of the Company and the Subsidiary Guarantors, as applicable, are true and correct as if made on 22 and as of the Closing Date (other than to the extent any such representation or warranty is made expressly to a certain date), and the Company and the Subsidiary Guarantors, as applicable, have performed all covenants and agreements and satisfied all conditions on their part to be performed or satisfied hereunder, to the extent a party hereto, at or prior to the Closing Date; (B) At the Closing Date, since the date hereof, except as described in the Offering Memorandum, no event or events have occurred, nor has any information become known that, individually or in the aggregate, would have a Material Adverse Effect; (C) They have carefully examined the Preliminary Offering Memorandum and the Offering Memorandum and, in their opinion, the Preliminary Offering Memorandum and Offering Memorandum, as of their respective dates, did not, and the Offering Memorandum, as of the Closing Date, does not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and since the date of the Offering Memorandum, no event has occurred which should have been set forth in a supplement or amendment to Offering Memorandum; and (D) The issuance and sale of the Notes and Guarantees by the Company and the Subsidiary Guarantors hereunder has not been enjoined (temporarily or permanently) by any court or governmental body or agency. (n) (i) Neither the Company nor any of the Subsidiary Guarantors shall have sustained since the date of the latest audited financial statements included in the Offering Memorandum (exclusive of any amendment or supplement thereto after the date hereof) any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Memorandum or (ii) since such date there shall not have been any change in the capital stock or long-term debt of the Company or any of the Subsidiary Guarantors or any change, or any development involving a prospective change, in or affecting the general affairs, management, financial position, shareholders' equity or results of operations of the Company and the Subsidiary Guarantors taken as a whole, otherwise than as set forth or contemplated in the Offering Memorandum, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of Lehman Brothers, so material and adverse as to make it impracticable or inadvisable to proceed with the offering or the delivery of the Notes and the Guarantees being delivered on such Closing Date on the terms and in the manner contemplated in the Offering Memorandum. (o) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by 23 any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) of the Securities Act and (ii) no such organization shall have publicly announced or privately informed the Company that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities. (p) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock Exchange, the Toronto Stock Exchange or the Nasdaq National Market shall have been suspended or the settlement of such trading generally shall have been materially disrupted or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a general banking moratorium shall have been declared by Federal or state authorities, (iii) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) or there shall have occurred any other calamity or crisis, including without limitation as a result of terrorist activities after the date hereof, as to make it, in the judgment of Lehman Brothers, impracticable or inadvisable to proceed with the offering or delivery of the Notes and the Guarantees being delivered on such Closing Date on the terms and in the manner contemplated in the Offering Memorandum. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchasers. SECTION 8. Indemnification and Contribution. (a) The Company and the Subsidiary Guarantors shall jointly and severally indemnify and hold harmless each Initial Purchaser, its directors, officers and employees and each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of the Notes and the Guarantees), to which that Initial Purchaser, director, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Preliminary Offering Memorandum, the Offering Memorandum or in any amendment or supplement thereto or (B) in any blue sky application or other document prepared or executed by the Company or the Subsidiary Guarantors (or based upon any written information furnished by the Company or the Subsidiary Guarantors) specifically for the purpose of qualifying any or all of the Notes under the securities laws of any state or other jurisdiction (any such application, document or information being hereinafter called a "BLUE SKY APPLICATION") 24 or (C) in any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the offering of the Notes ("MARKETING MATERIALS"), including any roadshow or investor presentations made to investors by the Company (whether in person or electronically), (ii) the omission or alleged omission to state in any Preliminary Offering Memorandum, the Offering Memorandum or in any amendment or supplement thereto, or in any Blue Sky Application or Marketing Materials, any material fact required to be stated therein or necessary to make the statements therein not misleading or (iii) any act or failure to act or any alleged act or failure to act by any Initial Purchaser in connection with, or relating in any manner to, the Notes and the Guarantees or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company and the Subsidiary Guarantors shall not be liable under this clause (iii) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Initial Purchaser through its gross negligence or willful misconduct), and shall reimburse each Initial Purchaser and each such director, officer, employee or controlling person promptly upon demand for any legal or other expenses reasonably incurred by that Initial Purchaser, director, officer, employee or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however that the Company and the Subsidiary Guarantors will not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of or is based upon any such untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with written information furnished to the Company through Lehman Brothers by or on behalf of such Initial Purchaser expressly for inclusion therein. The foregoing indemnity agreement is in addition to any liability which the Company and the Subsidiary Guarantors may otherwise have to any Initial Purchaser or to any director, officer, employee or controlling person of that Initial Purchaser. (b) Each Initial Purchaser shall, severally and not jointly, indemnify and hold harmless the Company, the Subsidiary Guarantors, their officers, each of their directors, and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company, the Subsidiary Guarantors or any such director, officer or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Memorandum, the Offering Memorandum or in any amendment or supplement thereto, or in any Blue Sky Application or (ii) the omission or alleged omission to state in any Preliminary Offering Memorandum, the Offering Memorandum or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Initial Purchaser furnished to the Company 25 through Lehman Brothers by or on behalf of that Initial Purchaser specifically for inclusion therein, and shall reimburse the Company, the Subsidiary Guarantors and any such director, officer or controlling person promptly upon demand for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any Initial Purchaser may otherwise have to the Company, the Subsidiary Guarantors or any such director, officer, employee or controlling person. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that Lehman Brothers shall have the right to employ one counsel (and one local counsel) to represent jointly Lehman Brothers and those other Initial Purchasers and their respective directors, officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Initial Purchasers against the Company under this Section 8 if, in the reasonable judgment of Lehman Brothers, it is advisable for Lehman Brothers and those Initial Purchasers, directors, officers, employees and controlling persons to be jointly represented by separate counsel, and in that event the fees and expenses of such separate counsel shall be paid by the Company. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding and does not include any findings of fact or admissions of fault or culpability as to the indemnified party or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the consent of the indemnifying party or if there be a final judgment of the plaintiff in any 26 such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other from the offering of the Notes and the Guarantees or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company, on the one hand, and the Initial Purchasers, on the other, with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company, on the one hand, and the Initial Purchasers, on the other, with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of the Notes and the Guarantees purchased under this Agreement (before deducting expenses) received by the Company, on the one hand, and the total discounts and commissions received by the Initial Purchasers with respect to the Notes and the Guarantees purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Notes and the Guarantees under this Agreement. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Initial Purchasers, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Subsidiary Guarantors and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this Section 8 were to be determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section 8 shall be deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending or preparing to defend any such action or claim. Notwithstanding the provisions of this Section 8(d), no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Notes purchased by it was resold to Eligible Purchasers exceeds the amount of any damages which such Initial Purchaser has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' 27 obligations to contribute as provided in this Section 8(d) are several in proportion to their respective Purchase obligations and not joint. (e) The Initial Purchasers severally confirm and the Company and the Subsidiary Guarantors acknowledge that the last sentence on the cover page of the Offering Memorandum, and the first sentence of the fifth, sixth, seventh and ninth paragraphs, the second sentence of the seventh paragraph, the sixth and seventh sentences of the tenth paragraph and the eleventh paragraph under the section entitled "Plan of Distribution" in the Offering Memorandum constitute the only information concerning the Initial Purchasers furnished in writing to the Company by or on behalf of the Initial Purchasers specifically for inclusion in the Offering Memorandum. SECTION 9. Defaulting Initial Purchasers. If, on the Closing Date, any Initial Purchaser defaults in the performance of its obligations under this Agreement, the remaining non-defaulting Initial Purchasers shall be obligated to purchase the Notes that the defaulting Initial Purchaser agreed but failed to purchase on such Closing Date in the respective proportions which the amount of the Notes set forth opposite the name of each remaining non-defaulting Initial Purchaser in Schedule 1 hereto bears to the total amount of Notes set forth opposite the names of all the remaining non-defaulting Initial Purchasers in Schedule 1 hereto; provided, however, that the remaining non-defaulting Initial Purchasers shall not be obligated to purchase any of the Notes on such Closing Date if the total amount of the Notes which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase on such date exceeds 10% of the total amount of Notes to be purchased on such Closing Date, and any remaining non-defaulting Initial Purchaser shall not be obligated to purchase more than 110% of the amount of Notes which it agreed to purchase on such Closing Date pursuant to the terms of Section 2. If the foregoing maximums are exceeded, the remaining non-defaulting Initial Purchasers, or those other Initial Purchasers satisfactory to Lehman Brothers who so agree, shall have the right, but shall not be obligated, to purchase, in such proportion as may be agreed upon among them, all of the Notes to be purchased on such Closing Date. If the remaining Initial Purchasers or other Initial Purchasers satisfactory to Lehman Brothers do not elect to purchase the Notes which the defaulting Initial Purchaser or Initial Purchasers agreed but failed to purchase on such Closing Date, this Agreement shall terminate without liability on the part of any non-defaulting Initial Purchaser or the Company, except that the Company will continue to be liable for the payment of expenses to the extent set forth in Sections 6 and 11. As used in this Agreement, the term "INITIAL PURCHASER" includes, for all purposes of this Agreement unless the context requires otherwise, any party not listed in Schedule 1 hereto who, pursuant to this Section 9, purchases the Notes which a defaulting Initial Purchaser agreed but failed to purchase. Nothing contained herein shall relieve a defaulting Initial Purchaser of any liability it may have to the Company and the Subsidiary Guarantors for damages caused by its default. If other Initial Purchasers are obligated or agree to purchase the Notes of a defaulting or withdrawing Initial Purchaser, either the Lehman Brothers or the Company may postpone the Closing Date for up to seven full business days in order to effect any changes that in the opinion of counsel for the Company or counsel for the Initial Purchasers may be necessary in the Offering Memorandum or in any other document or arrangement. 28 SECTION 10. Termination. The obligations of the Initial Purchasers hereunder may be terminated by Lehman Brothers by notice given to and received by the Company prior to delivery of and payment for the Notes if, prior to that time, any of the events described in Sections 7(n), 7(o) and 7(p) shall have occurred or if the Initial Purchasers shall decline to purchase the Notes for any reason permitted under this Agreement. SECTION 11. Reimbursement of Initial Purchasers' Expenses. If the Company and the Subsidiary Guarantors shall fail to deliver the Notes and the Guarantees to the Initial Purchasers by reason of any failure, refusal or inability on the part of the Company and the Subsidiary Guarantors to perform any agreement on its part to be performed, or because any other condition of the Initial Purchasers' obligations hereunder required to be fulfilled by the Company and the Subsidiary Guarantors is not fulfilled, the Company and the Subsidiary Guarantors will reimburse the Initial Purchasers for all reasonable out-of-pocket expenses (including reasonable fees and disbursements of counsel) incurred by the Initial Purchasers in connection with this Agreement and the proposed purchase of the Notes and the Guarantees, and upon demand the Company and the Subsidiary Guarantors shall pay the full amount thereof to Lehman Brothers. SECTION 12. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Initial Purchasers, shall be delivered or sent by mail, telex or facsimile transmission to the care of Lehman Brothers Inc., 745 Seventh Avenue, 19th Floor, Attention: Michael Konigsburg (Fax: (646) 758-4247), with a copy to Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, Attention: Rod Miller, Esq. (Fax: 212-310-8007) and, in the case of any notice pursuant to Section 8(d), to the Director of Litigation, Office of the General Counsel, Lehman Brothers Inc., 399 Park Avenue, New York, New York (Fax: (212) 526-2648); (b) if to the Company and the Subsidiary Guarantors, shall be delivered or sent by mail, telex or facsimile transmission to the Company, 111 West Michigan Street, Milwaukee, Wisconsin 53203-290, Attention: Melvin A. Rhinelander, (Fax: (414) 908-8111), with a copy to Foley & Lardner LLP, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202-5306, Attention: Russell E. Ryba, Esq. (Fax: (414) 297-4900); provided, however, that any notice to an Initial Purchaser pursuant to Section 8(d) shall be delivered or sent by mail, telex or facsimile transmission to such Initial Purchaser at its address set forth in its acceptance telex to Lehman Brothers, which address will be supplied to any other party hereto by Lehman Brothers upon request. Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers by Lehman Brothers. SECTION 13. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company, the Subsidiary Guarantors and their respective personal representatives and successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, 29 except that (a) the representations, warranties, indemnities and agreements of the Company and the Subsidiary Guarantors contained in this Agreement shall also be deemed to be for the benefit of the directors, officers, employees of the Initial Purchasers and each person or persons, if any, who control any Initial Purchasers within the meaning of Section 15 of the Securities Act and (b) the indemnity agreement of the Initial Purchasers contained in Section 8(b) of this Agreement shall be deemed to be for the benefit of directors, officers and any person controlling the Company and the Subsidiary Guarantors within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 13, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. SECTION 14. Survival. The respective indemnities, representations, warranties and agreements of the Company, the Subsidiary Guarantors and the Initial Purchasers contained in this Agreement or made by or on behalf on them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Notes and the Guarantees and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. SECTION 15. Definition of the Term "Business Day." For purposes of this Agreement, "BUSINESS DAY" means each Monday, Tuesday, Wednesday, Thursday or Friday which is not a day on which banking institutions in New York are generally authorized or obligated by law or executive order to close. SECTION 16. Jurisdiction. Each of the parties hereto irrevocably consents to the jurisdiction of the courts of the State of New York and the courts of the United States of America located in the Borough of Manhattan, City and State of New York, over any suit, action or proceeding with respect to this Agreement or the transactions contemplated hereby. Each of the parties hereto waives any objection that it may have to the venue of any suit, action or proceeding with respect to this Agreement or the transactions contemplated hereby in the courts of the State of New York or the courts of the United States of America, in each case, located in the Borough of Manhattan, City and State of New York or that such suit, action or proceeding brought in the courts of the State of New York or United States of America, in each case, located in the Borough of Manhattan, City and State of New York was brought in an inconvenient court and agrees not to plead or claim the same. SECTION 17. Governing Law. This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without regard to the principles of choice of law thereof. SECTION 18. Counterparts. This Agreement may be executed in multiple counterparts and, if executed in counterparts, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. SECTION 19. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. 30 If the foregoing correctly sets forth the agreement among the Company, the Subsidiary Guarantors and the Initial Purchasers, please indicate your acceptance in the space provided for that purpose below. Very truly yours, EXTENDICARE HEALTH SERVICES, INC. By:_____________________________________ Name: Title: EXTENDICARE HEALTH FACILITY HOLDINGS, INC. EXTENDICARE HEALTH FACILITIES, INC. NORTHERN HEALTH FACILITIES, INC. EXTENDICARE HOMES, INC. EXTENDICARE HEALTH NETWORK, INC. THE PROGRESSIVE STEP CORPORATION EXTENDICARE OF INDIANA, INC. EXTENDICARE GREAT TRAIL, INC. FIR LANE TERRACE CONVALESCENT CENTER, INC. ADULT SERVICES UNLIMITED, INC. ARBORS EAST, INC. ARBORS AT TOLEDO, INC. HEALTH POCONOS, INC. MARSHALL PROPERTIES, INC. By:________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO PURCHASE AGREEMENT INDIANA HEALTH AND REHABILITATION CENTERS PARTNERSHIP BY: EXTENDICARE HOMES, INC., AS GENERAL PARTNER By:________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer BY: EXTENDICARE OF INDIANA, INC., AS GENERAL PARTNER By:________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer CONCORDIA MANOR, LLC FIRST COAST HEALTH AND REHABILITATION CENTER, LLC JACKSON HEIGHTS REHABILITATION CENTER, LLC TREASURE ISLE CARE CENTER, LLC BY: EXTENDICARE HOMES, INC., AS SOLE MEMBER By:________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO PURCHASE AGREEMENT KAUFMAN STREET, WV, LLC NEW CASTLE CARE, LLC BY: FIR LANE TERRACE CONVALESCENT CENTER, INC., AS SOLE MEMBER By:________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer ALPINE HEALTH AND REHABILITATION CENTER, LLC COLONIAL CARE, LLC GREENBRIAR CARE, LLC GREENBROOK CARE, LLC HERITAGE CARE, LLC LADY LAKE CARE, LLC NEW HORIZON CARE, LLC NORTH REHABILITATION CARE, LLC PALM COURT CARE, LLC RICHEY MANOR, LLC ROCKLEDGE CARE, LLC SOUTH HERITAGE HEALTH AND REHABILITATION CENTER, LLC THE OAKS RESIDENTIAL AND REHABILITATION CENTER, LLC WINTER HAVEN HEALTH AND REHABILITATION CENTER, LLC BY: EXTENDICARE HEALTH FACILITIES, INC., AS SOLE MEMBER By:________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO PURCHASE AGREEMENT ARBORS AT TAMPA, LLC ARBORS AT BAYONET POINT, LLC ARBORS AT FAIRLAWN CARE, LLC ARBORS AT FAIRLAWN REALTY OH, LLC ARBORS AT SYLVANIA CARE, LLC ARBORS AT SYLVANIA REALTY OH, LLC ARBORS WEST CARE, LLC ARBORS WEST REALTY OH, LLC COLUMBUS REHABILITATION REALTY OH, LLC JACKSONVILLE CARE, LLC SAFETY HARBOR CARE, LLC KISSIMMEE CARE, LLC ORANGE PARK CARE, LLC OREGON CARE, LLC PORT CHARLOTTE CARE, LLC SARASOTA CARE, LLC SEMINOLE CARE, LLC WINTER HAVEN CARE, LLC BLANCHESTER CARE, LLC CANTON CARE, LLC COLUMBUS REHABILITATION CARE, LLC DAYTON CARE, LLC DELAWARE CARE, LLC GALLIPOLIS CARE, LLC HILLIARD CARE, LLC LONDON CARE, LLC MARIETTA CARE, LLC ROCKMILL CARE, LLC ROCKSPRINGS CARE, LLC WATERVILLE CARE, LLC WOODSFIELD CARE, LLC BY: NORTHERN HEALTH FACILITIES, INC., AS SOLE MEMBER By:________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO PURCHASE AGREEMENT GREAT TRAIL CARE, LLC BY: EXTENDICARE GREAT TRAIL, INC., AS SOLE MEMBER By:________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development FISCAL SERVICES GROUP, LLC PARTNERS HEALTH GROUP, LLC STAR PURCHASING SERVICES, LLC BY: EXTENDICARE HEALTH NETWORK, INC., AS SOLE MEMBER By:________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development MILFORD CARE, LLC PRAIRIE VILLAGE CARE, LLC SCOTT VILLA CARE, LLC SWISS VILLA CARE, LLC VILLA PINES CARE, LLC BY: MARSHALL PROPERTIES, INC., AS SOLE MEMBER By:________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development SIGNATURE PAGE TO PURCHASE AGREEMENT PARTNERS HEALTH GROUP - FLORIDA, LLC PARTNERS HEALTH GROUP - LOUISIANA, LLC PARTNERS HEALTH GROUP - TEXAS, LLC BY: PARTNERS HEALTH GROUP, LLC BY: EXTENDICARE HEALTH NETWORK, INC., AS SOLE MEMBER By:________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development SIGNATURE PAGE TO PURCHASE AGREEMENT Accepted: LEHMAN BROTHERS INC. By:__________________________________ Authorized Representative For itself and as representative of the several Initial Purchasers named in Schedule 1 hereto SIGNATURE PAGE TO PURCHASE AGREEMENT SCHEDULE 1

EXHIBIT A REGISTRATION RIGHTS AGREEMENT EXHIBIT B FORM OF FOLEY & LARDNER LLP OPINION 1. The Company and each of the Subsidiary Guarantors (i) are validly existing and in good standing under the laws of their respective jurisdictions of organization and (ii) are duly qualified to do business and are in good standing in each jurisdiction in which their respective ownership or lease of property or the conduct of their respective businesses requires such qualification, except where the failure to so qualify or to be in good standing would not have a material adverse effect on the general affairs, management, consolidated financial position, shareholders' equity, results of operations or business of the Company and its subsidiaries taken as a whole (a "MATERIAL ADVERSE EFFECT"); and the Company and each of the Subsidiary Guarantors have all requisite power and authority to own, lease and operate its properties and carry on its business as such business is described in the Offering Memorandum. 2. The Company and each of the Subsidiary Guarantors has all requisite corporate power and authority to execute and deliver each of the Operative Documents to which it is a party and to perform its respective obligations thereunder. The execution, delivery and performance of each of the Operative Documents by the Company and each of the Subsidiary Guarantors have been duly authorized by all necessary corporate action on the part of the Company and each of the Subsidiary Guarantors. 3. The Agreement has been duly and validly authorized, executed and delivered by the Company and each of the Subsidiary Guarantors. 4. The Indenture has been duly and validly authorized, executed and delivered by the Company and each of the Subsidiary Guarantors and, assuming due authorization, execution and delivery thereof by the Trustee, constitutes a legal, valid and binding obligation of the Company and each of the Subsidiary Guarantors enforceable against the Company and each of the Subsidiary Guarantors in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 5. The Registration Rights Agreement has been duly and validly authorized, executed and delivered by the Company and each of the Subsidiary Guarantors and, assuming due authorization, execution and delivery thereof by the Initial Purchasers, constitutes a legal, valid and binding obligation of the Company and each of the Subsidiary Guarantors enforceable against the Company and each of the Subsidiary Guarantors in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity), and except that rights to indemnification and contribution thereunder may be limited by federal or state securities laws or public policy relating thereto. 6. The Company and the Subsidiary Guarantors, to the extent they are parties thereto, have all requisite power and authority to enter into the New Credit Facility and the other Credit Documents. The New Credit Facility and the other Credit Documents have been duly and validly authorized, executed and delivered by the Company and/or each of the Subsidiary Guarantors, to the extent they are parties thereto, and, assuming due authorization, execution and delivery thereof by the other parties thereto, constitute legal, valid and binding obligations of the Company and/or each of the Subsidiary Guarantors, to the extent they are parties thereto, enforceable against the Company and/or each of the Subsidiary Guarantors, to the extent they are parties thereto, in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 7. The Notes are in the form contemplated by the Indenture. The Notes have been duly authorized, executed and issued by the Company and, assuming due authentication thereof by the Trustee and upon payment and delivery in accordance with the terms of the Agreement, will constitute legal, valid and binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 8. The issuance of the Exchange Notes has been duly and validly authorized by the Company, and when executed, issued, authenticated and delivered in exchange for the Notes in accordance with the terms of the Registration Rights Agreement, the Exchange Offer and the Indenture, will constitute legal, valid and binding obligations of the Company, entitled to the benefits of the Indenture, and enforceable against the Company in accordance with their terms and entitled to the benefits of the Indenture, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 9. The Guarantees have been duly authorized, executed and issued by the respective Subsidiary Guarantors and, assuming due authentication of the Notes by the Trustee, upon payment and delivery in accordance with the terms of this Agreement will constitute legal, valid and binding obligations of the Subsidiary Guarantors enforceable in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 10. The Exchange Note Guarantees have been duly and validly authorized by the Subsidiary Guarantors, and when executed, issued and delivered in exchange for the Guarantees in accordance with the terms of the Registration Rights Agreement, the Exchange Offer and the Indenture, will constitute legal, valid and binding obligations of each of the Subsidiary Guarantors enforceable against each of the Subsidiary Guarantors in accordance with their terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other similar laws relating to or affecting creditors' rights and remedies generally, and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). 11. The Indenture, the Notes, the Guarantees, the Registration Rights Agreement, the New Credit Facility and the other Credit Documents conform in all material respects to the descriptions thereof contained in the Offering Memorandum. 12. None of the Company or the Subsidiary Guarantors (i) is in violation of its certificate of incorporation or bylaws (or similar organizational document), (ii) to such counsel's knowledge, in breach or violation of any applicable statute, judgment, decree, order, rule or regulation, except for any such breach or violation which would not, individually or in the aggregate, have a Material Adverse Effect, or (iii) in breach or default under (nor has any event occurred which, with notice or passage of time or both, would constitute a default under) or in violation of any of the terms or provisions of any of the agreements set forth on Schedule A(1) hereto, except for any such breach, default, violation or event which would not, individually or in the aggregate, have a Material Adverse Effect. 13. The execution, delivery and performance by the Company and each of the Subsidiary Guarantors of the Operative Documents, the New Credit Facility and the other Credit Documents to which it is a party, compliance by the Company and each of the Subsidiary Guarantors with the provisions thereof, the consummation of the Transactions and the issuance and sale of the Notes and the Guarantees as provided pursuant to the Agreement, will not conflict with, constitute a default under or violate (a) any of the terms, conditions or provisions of the certificate of incorporation or bylaws (or similar organizational document) of the Company and each of the Subsidiary Guarantors, (b) any of the terms, conditions or provisions of any of the agreements set forth on Schedule A hereto, (c) any Delaware corporate or federal law or regulation (other than federal securities laws, as to which we express no opinion in this paragraph and state securities or blue sky laws, as to which we express no opinion), or (d) any judgment, writ, injunction, decree, order or ruling of any court or governmental authority binding on the Company or any of the Subsidiary Guarantors - ---------------- (1) Schedule A will include all agreements filed by EHSI as Exhibit 4 or 10 with their 12/31/03 Form 10-K including the existing indenture, but excluding the Existing Credit Facility). which is known to us, except, in the case of this clause (d) for such conflicts, defaults or violations that would not have a Material Adverse Effect. 14. No consent, approval, waiver, license or authorization or other action by or filing with any governmental authority is required in connection with the execution and delivery by the Company and each of the Subsidiary Guarantors of the Operative Documents, the New Credit Facility and the other Credit Documents to which it is a party or the consummation by the Company and each of the Subsidiary Guarantors of the Transactions, or the issuance and sale by the Company of the Notes and the Guarantees as provided in the Agreement, except for (a) federal securities laws (as to which we express no opinion in this paragraph) and state securities or blue sky laws (as to which we express no opinion), (b) those already obtained and which are in full force and effect and (c) those required by the terms of the New Credit Facility. 15. Assuming (i) the representations of the Initial Purchasers contained in the Agreement are true, correct and complete, (ii) compliance by the Initial Purchasers with their covenants set forth in the Agreement and (iii) that each of the Eligible Purchasers is a QIB or a person who acquires the Notes and the Guarantees outside the United States in an "offshore transaction" and is not a "U.S. person" (within the meaning of Rule 904 of Regulation S), it is not necessary in connection with the offer, sale and delivery of the Notes to the Initial Purchasers pursuant to the Agreement or the offer and resales of the Notes by the Initial Purchasers, in the manner contemplated by the Agreement and described in the Offering Memorandum, to register the Notes under the Securities Act or to qualify the Indenture under the Trust Indenture Act. 16. Neither the consummation of the Transactions nor the sale, issuance, execution or delivery of the Notes will violate Regulation T, U or X of the Board of Governors of the Federal Reserve System. 17. The statements made in the Offering Memorandum under the heading "Certain U.S. Federal Income Tax Considerations" insofar as such statements purport to constitute statements of law or legal conclusions are accurate in all material respects. 18. The statements made in the Offering Memorandum under the captions "Description of Other Indebtedness," "Description of the Notes," "Business -- Legal Proceedings," "Certain Relationships and Related Party Transactions," "Notice to Investors" and "Plan of Distribution," in each case insofar as such statements constitute summaries of legal matters, documents or proceedings referred to therein, fairly present the information called for which respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein in all material respects. 19. The Company and each of the Subsidiary Guarantors is not and, after giving effect to the issuance and sale of the Notes in accordance with the terms of the Agreement and the application of the net proceeds therefrom, will not be, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 20. Each of the Preliminary Offering Memorandum and the Offering Memorandum, as of its date (except for the financial statements, including the notes thereto, pro forma financial statements and other financial and statistical data included or incorporated by reference therein, as to which we express no opinion), contains the information specified in, and meets the requirements of, Rule 144A(d)(4) under the Securities Act. 21. When the Notes and the Guarantees are issued and delivered pursuant to the Agreement, no securities of the same class (within the meaning of Rule 144A(d)(3) under the Securities Act) as the Notes or the Guarantees of the Company or the Subsidiary Guarantors will be listed on any national securities exchange or registered under Section 6 of the Securities Exchange Act of 1934, as amended, or quoted on an automated inter-dealer quotation system. We have participated in conferences with the officers and other representatives of the Company and the Subsidiary Guarantors, representatives of the independent public accountants for the Company and the Subsidiary Guarantors, the Initial Purchasers and counsel for the Initial Purchasers in connection with the preparation of the Offering Memorandum and although we have not independently verified and are not passing upon and assume no responsibility for the accuracy, completeness or fairness of the statements contained in the Offering Memorandum (except to the extent specified in paragraphs 17 and 18 above), no facts have come to our attention which lead us to believe that the Offering Memorandum, at the time the Offering Memorandum was issued or at the Closing Date, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements contained therein, in light of the circumstances under which they were made, not misleading (it being understood that we express no view with respect to the financial statements and related notes, the financial projections, the other financial, statistical and accounting data included in or appended as exhibits to the Offering Memorandum). EXHIBIT C FORM OF GENERAL COUNSEL OPINION 1. The Company has an authorized capitalization as set forth in the Offering Memorandum. All of the issued shares of capital stock of the Company have been duly and validly authorized and issued, are fully paid and non-assessable and all of the issued shares of capital stock, limited partner or limited liability company interests of each of the Subsidiary Guarantors have been duly and validly authorized and issued and are fully paid, non-assessable (except, in the case of such subsidiaries that are Wisconsin corporations, for certain statutory liabilities that may be imposed by Section 180.0622(2)(b) of the Wisconsin Business Corporation Law for unpaid employee wages) and are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims, other than liens encumbrances, equities or claims under the Existing Credit Facility and contemplated under the New Credit Facility or otherwise described in the Offering Memorandum. 2. The Company and the Subsidiary Guarantors have obtained all Permits necessary to conduct the businesses now or proposed to be conducted by them as described in the Offering Memorandum, the lack of which would, individually or in the aggregate, have a Material Adverse Effect; and each of the Company and the Subsidiary Guarantors has fulfilled and performed all of its obligations with respect to such Permits, except where the failure to so fulfill and/or perform would not have a Material Adverse Effect; and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, except where any such revocations, terminations or impairments would not, singly or in the aggregate, have a Material Adverse Effect. 3. To the best of such counsel's knowledge, the Company and the Subsidiary Guarantors own or possess adequate licenses or other rights to use all patents, trademarks, service marks, trade names, copyrights and know-how necessary to conduct the businesses now or proposed to be operated by them as described in the Offering Memorandum, and none of the Company or the Subsidiary Guarantors has received any notice of infringement of or conflict with asserted rights of others with respect to any patents, trademarks, service marks, trade names, copyrights or know-how which, if such assertion of infringement or conflict were sustained, would have a Material Adverse Effect. 4. To such counsel's knowledge, there are no holders of securities of the Company or any of the Subsidiary Guarantors who, by reason of the execution by the Company and each of the Subsidiary Guarantors of the Agreement or the consummation by the Company and each of the Subsidiary Guarantors of the transactions contemplated thereby, have the right, pursuant to any material document, agreement or other instrument to which either the Company or any of the Subsidiary Guarantors is a party, to request or demand that the Company or any of the Subsidiary Guarantors register under the Securities Act securities held by them. 5. To such counsel's knowledge, there are no legal or governmental proceedings pending or overtly threatened to which the Company or any of the Subsidiary Guarantors is a party or of which any property or assets of the Company or any of the Subsidiary Guarantors is the subject which, if determined adversely to the Company or any of the Subsidiary Guarantors, would have a Material Adverse Effect. 6. The statements made in the Offering Memorandum under the caption "Business -- Government Regulation" insofar as such statements constitute summaries of legal matters, documents or proceedings referred to therein, fairly present the information called for which respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein in all material respects. 7. To such counsel's knowledge, there are no legal or governmental proceedings involving or affecting the Company or the Subsidiary Guarantors or any of their respective properties or assets which would be required to be described in a prospectus pursuant to the Act that are not described in the Offering Memorandum, nor are there any material contracts or other documents which would be required to be described in a prospectus pursuant to the Act that are not described in the Offering Memorandum EX-4.6 9 c86082exv4w6.txt INDENTURE EXHIBIT 4.6 EXECUTION VERSION ================================================================================ EXTENDICARE HEALTH SERVICES, INC., as Issuer 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 ------------------------------ INDENTURE Dated as of April 22, 2004 ------------------------------ U.S. BANK, N.A., as Trustee ================================================================================ This INDENTURE dated as of April 22, 2004, is by and among Extendicare Health Services, Inc., a Delaware corporation (the "Company"), the Subsidiary Guarantors listed on the signature pages hereto and U.S. Bank, N.A., as trustee (the "Trustee"). The Company, the Subsidiary Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 6 7/8% Senior Subordinated Notes due 2014 (the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. DEFINITIONS. For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: "144A Global Note" means the global note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person: (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person; and (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person. "Additional Interest" shall have the meaning set forth in the Registration Rights Agreement. "Additional Notes" means any Notes (other than Initial Notes and Exchange Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control," as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" have correlative meanings. "Agent" means any Registrar, co-registrar, Paying Agent or additional paying agent. "Applicable Procedures" means, with respect to any transfer, redemption or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer, redemption or exchange. "Asset Sale" means the sale, lease, conveyance or other disposition of any assets or rights (including, without limitation, (x) a sale and leaseback, (y) the issuance, sale or other transfer of any Equity Interests in any of our Unrestricted Subsidiaries, and (z) the receipt of proceeds of insurance paid on account of the loss of or damage to any asset and awards of compensation for any asset taken by condemnation, eminent domain or similar proceeding, and including the receipt of proceeds of business interruption insurance) in each case, in one or a series of related transactions that have a fair market value in excess of $2.0 million or for Net Proceeds in excess of $2.0 million; provided that the sale, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by Section 4.18 and/or Section 5.01 and not by Section 4.12. Notwithstanding the preceding, the following items will not be deemed to be Asset Sales: (1) the sale, lease or other disposition of equipment, inventory, accounts receivable or other assets or rights in the ordinary course of business; (2) a transfer of assets or rights by the Company to a Subsidiary Guarantor, or by a Subsidiary Guarantor to the Company or to another Subsidiary Guarantor; (3) an issuance of Equity Interests by a Subsidiary Guarantor to the Company or to another Subsidiary Guarantor; (4) a Restricted Payment or Permitted Investment that is permitted by Section 4.10; (5) the sale of property or equipment that has become worn out, obsolete or damaged; (6) the sale or other disposition of Cash Equivalents; (7) the sale of accounts receivable pursuant to a Securitization Transaction; or (8) the designation of any Restricted Subsidiary as an Unrestricted Subsidiary or the contribution to the capital of any Unrestricted Subsidiary in accordance with the provisions described under Section 4.17. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the greater of (a) the fair value of the property subject to such arrangement (as determined in good faith by the Board of Directors of the Company) or (b) the present value (discounted at the interest rate borne by the Notes, compounded annually) of the total obligations of the lessee for rental payments during the remaining term of the lease included in such sale and leaseback transaction, including any period for which such lease has been extended or may, at the option of the lessor, be extended. "Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or foreign law for the relief of debtors. "Board of Directors" means: (1) with respect to a corporation, the board of directors of the corporation; (2) with respect to a partnership, the board of directors of the general partner of the partnership; and (3) with respect to any other Person, the board or committee of such Person serving a similar function. "Board Resolution" means a copy of a resolution certified by the Secretary or an Assistant Secretary of the applicable Person to have been duly adopted by the Board of Directors of such Person and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet in accordance with GAAP. 2 "Capital Stock" means: (1) in the case of a corporation, any and all shares, including common stock and preferred stock; (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock; (3) in the case of a partnership or limited liability company, partnership or membership interests (whether general or limited); and (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "Cash Equivalents" means: (1) United States dollars; (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than six months from the date of acquisition; (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers' acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any lender party to the Credit Agreement or with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of "B" or better; (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above; (5) commercial paper having the highest rating obtainable from Moody's Investors Service, Inc. or Standard & Poor's Rating Services and in each case maturing within six months after the date of acquisition; and (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition. "Change of Control" means the occurrence of any of the following: (1) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group"), together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of this Indenture); (2) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of this Indenture); (3) any Person or Group (other than Parent or any direct or indirect wholly owned Subsidiary of Parent) becomes the owner, directly or indirectly, beneficially or of record, of shares representing more than 35% of the aggregate ordinary voting power represented by the issued and outstanding Capital Stock of the Company on a fully-diluted basis; (4) the replacement of a majority of the Board of Directors of Parent or the Company over a two-year period from the directors who constituted the Board of Directors of Parent or the Company, as applicable, at 3 the beginning of such period, and such replacement shall not have been approved by a vote of at least a majority of the Board of Directors of Parent or the Company, as applicable, then still in office who either were members of such Board of Directors at the beginning of such period or whose election as a member of such Board of Directors was previously so approved; or (5) the Company consolidates with, or merges with or into, any Person, or any Person consolidates with, or merges with or into, the Company, in any such event pursuant to a transaction in which any of the Company's outstanding Voting Stock or the outstanding Voting Stock of such other Person is converted into or exchanged for cash, securities or other property, other than any such transaction where the Company's Voting Stock outstanding immediately prior to such transaction is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee Person constituting a majority of the outstanding shares of such Voting Stock of such surviving or transferee Person (immediately after giving effect to such issuance). "Clearstream" means Clearstream Banking S.A. and any successor thereto. "Code" means the Internal Revenue Code of 1986, as amended. "Consolidated Cash Flow" means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus: (1) an amount equal to any extraordinary loss plus any net loss realized by such Person or any of its Subsidiaries in connection with an Asset Sale, to the extent such losses were deducted in computing such Consolidated Net Income; plus (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was deducted in computing such Consolidated Net Income; plus (3) consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus (4) depreciation, amortization (including amortization of goodwill and other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; minus (5) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that: (1) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person; 4 (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders; and (3) the cumulative effect of a change in accounting principles will be excluded. In addition, notwithstanding the foregoing, for the purposes of Section 4.10 only, there shall be excluded from Consolidated Net Income any nonrecurring charges relating to any premium or penalty paid, write off or deferred finance costs or other charges in connection with redeeming or retiring any Indebtedness at or prior to its Stated Maturity. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Company. "Consolidated Tangible Assets" means the total assets, less goodwill and other intangibles, shown on the Company's most recent consolidated balance sheet, determined on a consolidated basis in accordance with GAAP less all write-ups (other than write-ups in connection with acquisitions) subsequent to the date of this Indenture in the book value of any asset (except any such intangible assets) owned by the Company or any of its Restricted Subsidiaries. "Credit Agreement" means that certain Second Amended and Restated Credit Agreement, dated as of the date hereof, by and among Extendicare Holdings, Inc., the Company, Lehman Commercial Paper Inc., as administrative agent, and the lenders party thereto, including any related notes, guarantees, security and collateral documents, instruments and agreements executed in connection therewith. "Credit Facilities" means one or more debt facilities or agreements (including, without limitation, the Credit Agreement) or commercial paper facilities, in each case with banks or other lenders providing for revolving credit loans, term loans, notes, receivables financing (including through the sale of receivables to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced, restructured, restated or refinanced (including any agreement to extend the maturity thereof and adding additional borrowers or guarantors) in whole or in part from time to time under the same or any other agent, lender or group of lenders and including increasing the amount of available borrowings thereunder; provided that such increase is permitted by Section 4.09. "Custodian" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as Custodian with respect to the Notes, any and all successors thereto appointed as custodian hereunder and having become such pursuant to the applicable provisions of this Indenture. "Default" means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in substantially the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Designated Non-Cash Consideration" means the fair market value of total consideration received by the Company or any of its Restricted Subsidiaries in connection with an Asset Sale that is so designated as Designated Non-Cash Consideration pursuant to an Officers' Certificate, setting forth the basis of such valuation, executed by the Company's principal executive officer and principal financial officer, less the amount of cash or Cash Equivalents received in connection with the Asset Sale; provided, however, that the total amount of Designated Non-Cash Consideration outstanding at any one time does not exceed the greater of $15.0 million and 2.5% of Consolidated Tangible Assets. 5 "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Agreement, (ii) any Indebtedness represented by the Senior Notes and (iii) any other Senior Debt permitted hereunder, the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provisions of this Indenture. "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case at the option of the holder of the Capital Stock), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Capital Stock, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Capital Stock that would constitute Disqualified Stock solely because the holders of the Capital Stock have the right to require the Company to repurchase such Capital Stock upon the occurrence of a change of control or an asset sale will not constitute Disqualified Stock if the terms of such Capital Stock provide that the Company may not repurchase or redeem any such Capital Stock pursuant to such provisions unless such repurchase or redemption complies with Section 4.10. "Distribution Compliance Period" means the 40-day distribution compliance period as defined in Regulation S. "Domestic Subsidiary" means any Restricted Subsidiary of the Company that was formed under the laws of the United States or any state of the United States or the District of Columbia. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Euroclear Bank, S.A./N.V., as operator of the Euroclear systems, and any successor thereto. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. "Existing Indebtedness" means Indebtedness of the Company and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid. "Existing Senior Subordinated Indebtedness" means Indebtedness of the Company and the Subsidiary Guarantors represented by the Senior Subordinated Notes, until such amounts are repaid. "Fixed Charge Coverage Ratio" means with respect to any specified Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the specified Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees, repays, repurchases or redeems any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems preferred stock subsequent to the commencement of the reference period for which the Fixed Charge Coverage Ratio is being calculated and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the 6 "Calculation Date"), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase or redemption of Indebtedness, or such issuance, repurchase or redemption of preferred stock and the use of the proceeds therefrom, as if the same had occurred at the beginning of the applicable four-quarter reference period; provided, however, that the Fixed Charges of such Person attributable to interest on any Indebtedness under a revolving credit facility computed on a pro forma basis will be computed based on the average daily balance of such Indebtedness during the four-quarter reference period and using the interest rate in effect at the end of such period. In addition, for purposes of calculating the Fixed Charge Coverage Ratio: (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, subsequent to the commencement of the applicable four-quarter reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of such period, including any Consolidated Cash Flow and any pro forma expense and cost reductions that have occurred or are reasonably expected to occur, in the reasonable judgment of the Company's chief financial officer (regardless of whether those cost savings or operating improvements could then be reflected in pro forma financial statements in accordance with Regulation S-X promulgated under the Securities Act or any other regulation or policy of the SEC related thereto); (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded; and (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date. "Fixed Charges" means, with respect to any specified Person for any period, the sum, without duplication, of: (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations; plus (2) the consolidated interest of such Person and its Restricted Subsidiaries that was capitalized during such period; plus (3) any interest expense on Indebtedness of another Person that is Guaranteed by such Person or secured by a Lien on assets of such Person, whether or not such Guarantee or Lien is called upon; plus (4) the product of (a) all dividends, whether paid or accrued and whether or not in cash, on any series of preferred stock of such Person or any of its Restricted Subsidiaries other than dividends on Equity Interests payable solely in Equity Interests of such Person (other than Disqualified Stock) or to such Person or one of its Restricted Subsidiaries, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such 7 other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date of this Indenture. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Global Notes" means the global Notes in the form of Exhibit A hereto issued in accordance with Article 2 hereof. "Government Securities" means direct obligations (or certificates representing an ownership interest in such obligations) of the United States of America (including any agency or instrumentality thereof) for the payment of which the full faith and credit of the United States of America is pledged and which are not callable at the Company's option. "Guarantee" means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including, without limitation, by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness. "Hedging Obligations" means, with respect to any specified Person, the obligations of such Person under: (1) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements; (2) other agreements or arrangements designed to protect such Person against fluctuations in interest rates; and (3) foreign exchange contracts, currency swap agreements or other agreements or arrangements designed to protect such Person against fluctuations in currency values. "Holder" means a Person in whose name a Note is registered. "IAI Global Note" means a global Note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold to Institutional Accredited Investors, if any. "Indebtedness" means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent: (1) in respect of borrowed money; (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof); (3) in respect of banker's acceptances; (4) representing Capital Lease Obligations; (5) representing the balance deferred and unpaid of the purchase price of any property, except any such balance that constitutes an accrued expense or trade payable; or (6) representing any Hedging Obligations, 8 if and to the extent any of the preceding items (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term "Indebtedness" includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date will be: (1) the accreted value of the Indebtedness, in the case of any Indebtedness issued with original issue discount; and (2) the principal amount of the Indebtedness, together with any interest on the Indebtedness that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this instrument, as originally executed or as it may from time to time be supplemented or amended in accordance with Article 9 hereof. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means $125,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof. "Institutional Accredited Investor" means an institution that is an "accredited investor" as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act. "Investments" means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP; provided that Investments shall not be deemed to include extensions of trade credit by the Company or any of its Restricted Subsidiaries on commercially reasonable terms in accordance with normal trade practices. If the Company or any of its Subsidiaries sells or otherwise disposes of any Equity Interests of any direct or indirect Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a Subsidiary of the Company, the Company will be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Subsidiary not sold or disposed of in an amount determined as provided in the final paragraph of Section 4.10. The acquisition by the Company or any of its Subsidiaries of a Person that holds an Investment in a third Person will be deemed to be an Investment by the Company or such Subsidiary in such third Person in an amount equal to the fair market value of the Investment held by the acquired Person in such third Person in an amount determined as provided in the final paragraph of Section 4.10. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York, the city in which the Corporate Trust Office of the Trustee is located, or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Initial Notes for use by such Holders in connection with the Exchange Offer. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any 9 option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction. "Moody's" means Moody's Investors Service, Inc. or any successor to the rating agency business thereof. "Net Income" means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however: (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with: (a) any Asset Sale or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries; and (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss). "Net Proceeds" means the aggregate cash proceeds received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration, including Designated Non-Cash Consideration, deemed to be cash pursuant to Section 4.12, received in any Asset Sale), net of the direct costs relating to such Asset Sale, including, without limitation, legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale, taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements, and amounts required to be applied to the repayment of Indebtedness, other than Senior Debt, secured by a Lien on the asset or assets that were the subject of such Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt" means Indebtedness: (1) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise, or (c) constitutes the lender; (2) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness (other than the Notes) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (3) as to which the lenders have been notified in writing that they will not have any recourse to the Company's stock or assets or the stock or assets of any of the Company's Restricted Subsidiaries. "Obligations" means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness. "Officer" means the Chief Executive Officer, the President, the Chief Financial Officer, or any Senior Vice President of the Company. "Officers' Certificate" means a certificate, in form and substance reasonably satisfactory to the Trustee, signed by two Officers of the Company, at least one of whom shall be the principal executive officer or principal financial officer of the Company, and delivered to the Trustee. 10 "Opinion of Counsel" means a written opinion, in form and substance reasonably satisfactory to the Trustee, from legal counsel who is acceptable to the Trustee and which meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to the Company or the Trustee. "Parent" means Extendicare, Inc., a corporation organized under the laws of Canada. "Participant" means, with respect to the Depositary, Euroclear or Clearstream, a Person who has an account with the Depositary, Euroclear or Clearstream, respectively, and, with respect to The Depository Trust Company, shall include Euroclear and Clearstream. "Permitted Business" means the lines of business conducted by the Company and its Restricted Subsidiaries on the date hereof and the businesses reasonably related thereto within the healthcare services sector. "Permitted Investments" means: (1) any Investment in the Company or in one of its Wholly Owned Restricted Subsidiaries; (2) any Investment outstanding as of the date hereof; (3) any Investment in Cash Equivalents; (4) loans and advances to employees and officers of the Company and its Restricted Subsidiaries in the ordinary course of business for bona fide business purposes not in excess of $1.0 million at any one time outstanding; (5) Investments in prepaid expenses, negotiable instruments held for collection and lease, utility and workers' compensation, performance and other similar deposits; (6) any Investment by the Company or any of its Restricted Subsidiaries in a Person engaged in a Permitted Business, if as a result of such Investment: (a) such Person becomes one of the Company's Wholly Owned Restricted Subsidiaries; or (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or one of its Wholly Owned Restricted Subsidiaries; (7) any Investment made as a result of the receipt of non-cash consideration (including Designated Non-Cash Consideration) from an Asset Sale that was made pursuant to and in compliance with Section 4.12; (8) any acquisition of assets, Equity Interests or other securities solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (9) any Investments received in compromise of obligations of such Persons incurred in the ordinary course of trade creditors or customers that were incurred in the ordinary course of business, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer; (10)Hedging Obligations; (11)any Investment made in a Special Purpose Vehicle in connection with a Securitization Transaction or to provide adequate capital to a Special Purpose Vehicle in anticipation of one or more Securitization Transactions; and 11 (12)other Investments in any Person having an aggregate fair market value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (12) that are at the time outstanding, not to exceed $25.0 million. "Permitted Junior Securities" means: (1) Equity Interests in the Company or any Subsidiary Guarantor; or (2) debt securities that are subordinated (to substantially the same extent as, or to a greater extent than, the Notes and the Subsidiary Guarantees are subordinated to Senior Debt hereunder) to all Senior Debt and any debt securities issued in exchange for Senior Debt. "Permitted Liens" means: (1) Liens securing Senior Debt, where such Indebtedness was permitted by the terms of this Indenture to be incurred; (2) Liens in favor of the Company or the Subsidiary Guarantors; (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with the Company or any of the Company's Restricted Subsidiaries; provided that such Liens were in existence prior to the contemplation of such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with the Company or such Restricted Subsidiary; (4) Liens on property existing at the time of acquisition of the property by the Company or any of its Restricted Subsidiaries; provided that such Liens were in existence prior to the contemplation of such acquisition; (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature; (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (iv) of the second paragraph of Section 4.09 covering only the assets acquired with such Indebtedness; (7) Liens existing on the date of this Indenture; (8) Liens for taxes, assessments or governmental charges or claims that are not yet delinquent or that are being contested in good faith by appropriate proceedings promptly instituted and diligently concluded; provided that any reserve or other appropriate provision as is required in conformity with GAAP has been made therefor; (9) pledges or deposits in the ordinary course of business to secure lease obligations or nondelinquent obligations under workers' compensation, unemployment insurance or similar legislation; (10) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business or assets of the Company or any of its Subsidiaries incurred in the ordinary course of business; (11) Liens to secure Hedging Obligations, including any guarantees of such Hedging Obligations; and (12) Liens incurred by the Company or any of its Restricted Subsidiaries with respect to obligations that do not exceed $20.0 million at any one time outstanding. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, 12 replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that: (1) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness extended, refinanced, renewed, replaced, defeased or refunded (plus all accrued interest on the Indebtedness and the amount of all expenses and premiums incurred in connection therewith); (2) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (3) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and is subordinated in right of payment to, the Notes on terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; and (4) such Indebtedness is incurred either by the Company or by the Subsidiary who is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded. Notwithstanding the foregoing, any debt incurred under Credit Facilities pursuant to Section 4.09 shall be subject only to the refinancing provision in the definition of Credit Facilities and not pursuant to the requirements set forth in the definition of Permitted Refinancing Indebtedness. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity. "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) hereof to be placed on all Notes issued under this Indenture except as otherwise permitted by the provisions of this Indenture. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Qualified Equity Offering" means any underwritten public or any private offering of Capital Stock (excluding Disqualified Stock) of the Company or any of Parent's Capital Stock (excluding Disqualified Stock), in the latter case, only to the extent that the net cash proceeds therefrom are contributed to the Company's common or non-redeemable preferred equity capital. "Registration Rights Agreement" means the Registration Rights Agreement dated as of the date hereof, among the Company, the Subsidiary Guarantors and the initial purchasers named therein, as such agreement may be amended, modified or supplemented from time to time and, with respect to any Additional Notes, one or more registration rights agreements between the Company and the other parties thereto, as such agreement(s) may be amended, modified or supplemented from time to time, relating to rights given by the Company to the purchasers of Additional Notes to register such Additional Notes under the Securities Act. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means the global note in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with and registered in the name of the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of Notes sold in reliance on Regulation S. "Replacement Assets" means any properties or assets used or useful in a Permitted Business. 13 "Representative" means the trustee, agent or representative expressly authorized to act in such capacity, if any, for an issue of Senior Debt. "Responsible Officer," when used with respect to the Trustee, means any officer within the Corporate Trust Department of the Trustee (or any successor group of the Trustee) with direct responsibility for the administration of this Indenture and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means one or more Definitive Notes bearing the Private Placement Legend. "Restricted Global Notes" means the 144A Global Note, the IAI Global Note and the Regulation S Global Note. "Restricted Investment" means an Investment other than a Permitted Investment. "Restricted Subsidiary" of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Securitization Transaction" means any sale, conveyance or other disposition by the Company or any of its Restricted Subsidiaries of any accounts receivable or any interest therein to a Special Purpose Vehicle. "Senior Debt" means: (1) all Indebtedness of the Company or of any Subsidiary Guarantor outstanding under Credit Facilities and all Hedging Obligations with respect thereto; (2) any Indebtedness represented by the Senior Notes; (3) any other Indebtedness of the Company or of any Subsidiary Guarantor permitted to be incurred under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes or any Subsidiary Guarantee; and (4) all Obligations with respect to the items listed in the preceding clauses (1), (2) and (3). Notwithstanding anything to the contrary in the preceding, Senior Debt will not include: (1) any liability for federal, state, local or other taxes owed or owing by the Company; (2) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates; (3) any trade payables; or 14 (4) the portion of any Indebtedness that is incurred in violation of this Indenture. "Senior Notes" means the Company's 9-1/2% Senior Notes due 2010. "Senior Subordinated Indebtedness" means (i) with respect to the Company, the Notes and any other Indebtedness of the Company that specifically provides that such Indebtedness is to have the same rank as the Notes in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of the Company which is not Senior Debt and (ii) with respect to any Subsidiary Guarantor, the Subsidiary Guarantees and any other Indebtedness of such Subsidiary Guarantor that specifically provides that such Indebtedness is to have the same rank as the Subsidiary Guarantees in right of payment and is not subordinated by its terms in right of payment to any Indebtedness or other obligation of such Subsidiary Guarantor which is not Senior Debt. "Senior Subordinated Notes" means the Company's 9.35% Senior Subordinated Notes due 2007. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date hereof. "Special Purpose Vehicle" means a bankruptcy-remote entity or trust or other special purpose entity which is formed by the Company, any Subsidiary of the Company or any other Person for the purpose of, and engages in no material business other than, acting as a buyer in a Securitization Transaction or other similar transactions of accounts receivable or other similar assets, financing the purchases it makes as such a buyer and realizing, directly or indirectly, on such accounts receivable or other similar assets. "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness (including, without limitation, a scheduled repayment or a scheduled sinking fund payment), the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subordinated Indebtedness" means any Indebtedness (whether outstanding on the date hereof or thereafter incurred) that is subordinated or junior in right of payment to the Notes or the Subsidiary Guarantees pursuant to a written agreement, executed by the Person to whom such Indebtedness is owed, to that effect. "Subsidiary" means, with respect to any specified Person: (1) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees of the corporation, association or other business entity is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and (2) any partnership (a) the sole general partner or the managing general partner of which is such Person or a Subsidiary of such Person or (b) the only general partners of which are that Person or one or more Subsidiaries of that Person (or any combination thereof). "Subsidiary Guarantee" means the Guarantee of the Notes by each of the Subsidiary Guarantors pursuant to Article 10 and in the form of the Guarantee attached as Exhibit E and any additional Guarantee of the Notes to be executed by any Subsidiary of the Company pursuant to Section 4.19. 15 "Subsidiary Guarantors" means all of the Company's existing and future domestic Significant Subsidiaries, all of the Company's existing and future Domestic Subsidiaries that guarantee or incur any Indebtedness and any other existing and future Significant Subsidiaries or Restricted Subsidiaries that guarantee or otherwise provide direct credit support for Indebtedness of the Company or any of its Domestic Subsidiaries. "TIA" means the Trust Indenture Act of 1939, as amended. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Unrestricted Definitive Notes" means one or more Definitive Notes that do not and are not required to bear the Private Placement Legend. "Unrestricted Global Notes" means one or more Global Notes, in the form of Exhibit A attached hereto, that do not and are not required to bear the Private Placement Legend and are deposited with and registered in the name of the Depositary or its nominee. "Unrestricted Subsidiary" means any Subsidiary of the Company (or any successor to any of them) that is designated by the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a Board Resolution, but only to the extent that such Subsidiary: (1) has no Indebtedness other than Non-Recourse Debt; (2) is not party to any agreement, contract, arrangement or understanding with the Company or any of its Restricted Subsidiaries unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (3) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries; and (5) has at least one director on its Board of Directors that is not a director or executive officer of the Company or any of its Restricted Subsidiaries and has at least one executive officer that is not a director or executive officer of the Company or any of its Restricted Subsidiaries. Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.10 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of the Company as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09, the Company will be in default of such covenant. The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation will be deemed to be an incurrence of Indebtedness by one of the Company's Restricted Subsidiaries of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation will only be permitted if (1) such Indebtedness is permitted under Section 4.09, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; (2) no Default or Event of Default would be in existence following such designation; and (3) such Subsidiary executes and delivers to the Trustee a supplemental indenture providing for a Subsidiary Guarantee. 16 "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing: (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by (2) the then outstanding principal amount of such Indebtedness. Section 1.02. OTHER DEFINITIONS. Defined in

Section 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. (a) Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture. (b) The following TIA terms used in this Indenture have the following meanings: "indenture securities" means the Notes and the Subsidiary Guarantees; "indenture security holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; 17 "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes means the Company and any successor obligor upon the Notes. (c) All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them. Section 1.04. RULES OF CONSTRUCTION. (a) Unless the context otherwise requires: (i) a term has the meaning assigned to it; (ii) an accounting term not otherwise defined herein has the meaning assigned to it in accordance with GAAP; (iii) "or" is not exclusive; (iv) words in the singular include the plural, and in the plural include the singular; (v) all references in this instrument to designated "Articles," "Sections" and other subdivisions are to the designated Articles, Sections and subdivisions of this instrument as originally executed; (vi) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. (vii) "including" means "including without limitation"; (viii) provisions apply to successive events and transactions; and (ix) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement or successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01. FORM AND DATING. (a) GENERAL. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto, which is hereby incorporated in and expressly made part of this Indenture. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) FORM OF NOTES. The Notes shall be issued initially in global form and shall be substantially in the form of Exhibit A attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented 18 thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) BOOK-ENTRY PROVISIONS. This Section 2.01(c) shall only apply to Global Notes deposited with the Trustee, as custodian for the Depositary. Participants and Indirect Participants shall have no rights under this Indenture with respect to any Global Note held on their behalf by the Depositary or by the Trustee as the custodian for the Depositary or under such Global Note, and the Depositary shall be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Note for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Participants or Indirect Participants, the Applicable Procedures or the operation of customary practices of the Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Note. Section 2.02. EXECUTION AND AUTHENTICATION. (a) One Officer shall sign the Notes for the Company by manual or facsimile signature. (b) If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. (c) A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. (d) The Trustee shall, upon a written order of the Company signed by an Officer (an "AUTHENTICATION ORDER"), authenticate Notes for original issue. (e) The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Company. (f) The Company may issue Additional Notes from time to time after the offering of the Initial Notes. The Initial Notes, the Exchange Notes and any Additional Notes subsequently issued under this Indenture shall be treated as a single class for all purposes under this Indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Section 2.03. REGISTRAR AND PAYING AGENT. (a) The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("REGISTRAR") and an office or agency where Notes may be presented for payment ("PAYING AGENT"). The Registrar shall keep a register of the Notes and of their transfer and exchange. The Company may appoint one or more co-registrars and one or more additional paying agents. The term "Registrar" includes any co-registrar and the term "Paying Agent" includes any additional paying agent. The Company may change any Paying Agent or Registrar without notice to any Holder. The Company shall notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Company fails to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may act as Paying Agent or Registrar. (b) The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. 19 (c) The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes. Section 2.04. PAYING AGENT TO HOLD MONEY IN TRUST. The Company shall require each Paying Agent other than the Trustee to agree in writing that the Paying Agent shall hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium, if any, or interest and Additional Interest, if any, on the Notes, and shall notify the Trustee of any default by the Company in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the Company or a Subsidiary) shall have no further liability for the money. If the Company or a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. HOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA Section. 312(a). If the Trustee is not the Registrar, the Company shall furnish to the Trustee at least seven Business Days before each Interest Payment Date and at such other times as the Trustee may request in writing, a list in such form and as of such date or such shorter time as the Trustee may allow, as the Trustee may reasonably require of the names and addresses of the Holders and the Company shall otherwise comply with TIA Section. 312(a). Section 2.06. TRANSFER AND EXCHANGE. (a) TRANSFER AND EXCHANGE OF GLOBAL NOTES. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (1) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary; or (2) an Event of Default shall have occurred and be continuing. Upon the occurrence of any of the preceding events in (1) or (2) above, Definitive Notes shall be issued in denominations of $1,000 or integral multiples thereof and in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof. (b) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either clause (i) or (ii) below, as applicable, as well as one or more of the other following clauses, as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Distribution Compliance Period, transfers of beneficial interests in the Regulation S Global Note may not be made to a U.S. Person 20 or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Registrar either (A)(1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B)(1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (B)(1) above. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests in a Restricted Global Note to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transferee will take delivery in the form of a beneficial interest in the IAI Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications and certificates and Opinion of Counsel required by item (3) thereof, if applicable. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; 21 (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a broker-dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this clause (D), if the Registrar and the Company so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to clause (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to clause (B) or (D) above. (v) Transfer or Exchange of Beneficial Interests in Unrestricted Global Notes for Beneficial Interests in Restricted Global Notes Prohibited. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) TRANSFER OR EXCHANGE OF BENEFICIAL INTERESTS FOR DEFINITIVE NOTES. (i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; 22 (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in clauses (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable; (F) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall mail or deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a broker-dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for an Unrestricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or 23 (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this clause (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and mail or deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall mail or deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement Legend. (d) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR BENEFICIAL INTERESTS. (i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in clauses (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3)(d) thereof, if applicable; 24 (F) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (G) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, in the case of clause (C) above, the Regulation S Global Note, and in all other cases, the IAI Global Note. (ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a broker-dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this clause (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the clauses in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Unrestricted Definitive Note to a Person who takes delivery 25 thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. (iv) Transfer or Exchange of Unrestricted Definitive Notes to Beneficial Interests in Restricted Global Notes Prohibited. An Unrestricted Definitive Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, beneficial interests in a Restricted Global Note. (v) Issuance of Unrestricted Global Notes. If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to clauses (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES FOR DEFINITIVE NOTES. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; 26 (C) any such transfer is effected by a broker-dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this clause (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Registrar and the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) EXCHANGE OFFER. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (A) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (B) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes tendered for acceptance by Persons who made the foregoing certification and accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and mail or deliver to the Persons designated by the Holders of Restricted Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount. (g) LEGENDS. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by clause (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: THE NOTES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED, IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS NOTE BY ITS ACCEPTANCE HEREOF (1) REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN 27 RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN "OFFSHORE TRANSACTION" PURSUANT TO RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (2) AGREES THAT IT WILL NOT PRIOR TO (A) THE DATE WHICH IS TWO YEARS (OR SUCH SHORTER PERIOD OF TIME AS PERMITTED BY RULE 144(k) UNDER THE SECURITIES ACT OR ANY SUCCESSOR PROVISION THEREUNDER) AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF (OR OF ANY PREDECESSOR OF THIS NOTE) OR THE LAST DAY ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WERE THE OWNERS OF THIS NOTE (OR ANY PREDECESSOR OF THIS NOTE) AND (B) SUCH LATER DATE, IF ANY, AS MAY BE REQUIRED BY APPLICABLE LAW (THE "RESALE RESTRICTION TERMINATION DATE"), OFFER, SELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (I) TO THE COMPANY, (II) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (III) FOR SO LONG AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (IV) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT OR (V) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND; PROVIDED THAT THE COMPANY, THE TRUSTEE, AND THE REGISTRAR SHALL HAVE THE RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (IV) OR (V) TO REQUIRE THAT AN OPINION OF COUNSEL, CERTIFICATIONS AND/OR OTHER INFORMATION SATISFACTORY TO THE COMPANY, THE TRUSTEE AND THE REGISTRAR IS COMPLETED AND DELIVERED BY THE TRANSFEROR. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT. (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to clauses (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY. UNLESS THIS NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN." 28 (h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or cancelled in whole and not in part, each such Global Note shall be returned to or retained and cancelled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a Holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 4.12, 4.18 and 9.05 hereof). (iii) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (iv) Neither the Registrar nor the Company shall be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (C) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (v) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vi) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (vii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. (viii) The Trustee is hereby authorized to enter into a letter of representation with the Depositary in the form provided by the Company and to act in accordance with such letter. 29 Section 2.07. REPLACEMENT NOTES. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. If required by the Trustee or the Company, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Company to protect the Company, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08. OUTSTANDING NOTES. (a) The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those cancelled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. (b) If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced note is held by a bona fide purchaser. (c) If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. (d) If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. TREASURY NOTES. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though not outstanding, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned shall be so disregarded. Section 2.10. TEMPORARY NOTES. Until certificates representing Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. CANCELLATION. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee upon direction by the Company and no one else shall cancel all Notes surrendered for 30 registration of transfer, exchange, payment, replacement or cancellation and shall destroy cancelled Notes (subject to the record retention requirements of the Exchange Act). Certification of the destruction of all cancelled Notes shall be delivered to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. DEFAULTED INTEREST. If the Company defaults in a payment of interest or Additional Interest, if any, on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. CUSIP OR ISIN NUMBERS. The Company in issuing the Notes may use "CUSIP" or "ISIN" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" or "ISIN" numbers in notices of redemption as a convenience to Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" or "ISIN" numbers. Section 2.14. ADDITIONAL INTEREST. If Additional Interest is payable by the Company pursuant to the Registration Rights Agreement and paragraph 1 of the Notes, the Company shall deliver to the Trustee a certificate to that effect stating (i) the amount of such Additional Interest that is payable and (ii) the date on which such interest is payable. Unless and until a Responsible Officer of the Trustee receives such a certificate or instruction or direction from the Holders in accordance with the terms of the Indenture, the Trustee may assume without inquiry that no Additional Interest is payable. The foregoing shall not prejudice the rights of the Holders with respect to their entitlement to Additional Interest as otherwise set forth in this Indenture or the Notes and pursuing any action against the Company directly or otherwise directing the Trustee to take any such action in accordance with the terms of this Indenture and the Notes. If the Company has paid Additional Interest directly to the persons entitled to it, the Company shall deliver to the Trustee a certificate setting forth the particulars of such payment. 31 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01. NOTICES TO TRUSTEE. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 45 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.02. SELECTION OF NOTES TO BE REDEEMED. If less than all of the Notes are to be redeemed at any time, the Trustee shall select the Notes to be redeemed among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. NOTICE OF REDEMPTION. At least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a redemption date if the notice is issued in connection with a defeasance of the Notes pursuant to Article 8 hereof or a satisfaction and discharge of this Indenture pursuant to Article 11. The notice shall identify the Notes to be redeemed and shall state: (a) the redemption date; (b) the redemption price or if the redemption is made pursuant to Section 3.07(b) a calculation of the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest and Additional Interest, if any, on Notes called for redemption ceases to accrue on and after the redemption date; 32 (g) the paragraph of the Notes or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days, or such shorter period allowed by the Trustee, prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in this Section 3.03. Section 3.04. EFFECT OF NOTICE OF REDEMPTION. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05. DEPOSIT OF REDEMPTION PRICE. On or before 11:00 a.m. on any redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest and Additional Interest, if any, on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest and Additional Interest, if any, on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest and Additional Interest, if any, shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related Interest Payment Date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest and Additional Interest, if any, shall be paid on the unpaid principal from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. NOTES REDEEMED IN PART. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.07. OPTIONAL REDEMPTION. (a) Except as set forth in clause (b) of this Section 3.07, the Notes will not be redeemable at the option of the Company prior to May 1, 2009. Starting on May 1, 2009, the Company may redeem all or a part of the Notes after giving the required notice under this Indenture. The Notes may be redeemed at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Additional Interest, if any, on the Notes redeemed, to the applicable redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date), if redeemed during the twelve-month period beginning on May 1 of the years indicated below: 33

(b) At any time and from time to time prior to May 1, 2007, the Company may redeem up to 35% of the aggregate principal amount of the Notes issued under this Indenture at a redemption price equal to 106.875% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, to the redemption date (subject to the right of Holders of record on the relevant record date to receive interest due on the relevant Interest Payment Date) with the net cash proceeds of any Qualified Equity Offering; provided, however, that after giving effect to any such redemption, at least 65% of the aggregate principal amount of the Notes issued under this Indenture (excluding Notes held by the Company and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption. Any such redemption shall be made within 120 days of the closing of such Qualified Equity Offering. (c) Any prepayment pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. Section 3.08. MANDATORY REDEMPTION. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09. OFFER TO PURCHASE BY APPLICATION OF EXCESS PROCEEDS (a) In the event that, pursuant to Section 4.12 hereof, the Issuer shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. (b) The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "PURCHASE DATE"), the Issuer shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.12 hereof (the "OFFER AMOUNT") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related Interest Payment Date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of the Asset Sale Offer, the Issuer shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (i) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.12 hereof and the length of time the Asset Sale Offer shall remain open; (ii) the Offer Amount, the purchase price and the Purchase Date; (iii) that any Note not tendered or accepted for payment shall continue to accrue interest; 34 (iv) that, unless the Issuer defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest and Additional Interest, if any, after the Purchase Date; (v) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only; (vi) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Issuer, a depositary, if appointed by the Issuer, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (vii) that Holders shall be entitled to withdraw their election if the Issuer, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (viii) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Issuer shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Issuer so that only Notes in denominations of $1,000 or integral multiples thereof shall be purchased); and (ix) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Issuer shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Issuer in accordance with the terms of this Section 3.09. The Issuer, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five Business Days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuer for purchase, and the Issuer shall promptly issue a new Note, and the Trustee, upon written request from the Issuer shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuer to the Holder thereof. The Issuer shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01. PAYMENT OF NOTES. The Company shall pay or cause to be paid the principal of, premium, if any, and interest on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Additional Interest, if any, shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 11:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest and 35 Additional Interest, if any, then due. The Company shall pay Additional Interest, if any, in the same manner, on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the rate then in effect; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Additional Interest, if any, (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. Section 4.02. MAINTENANCE OF OFFICE OR AGENCY. (a) The Company shall maintain an office or agency (which may be an office or drop facility of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be presented or surrendered for registration of transfer or for exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. (b) The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. (c) The Company hereby designates the Corporate Trust Office of the Trustee, as one such office, drop facility or agency of the Company in accordance with Section 2.03. Section 4.03. REPORTS. (a) Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, so long as any Notes are outstanding the Company shall furnish to the Trustee and Holders of the Notes, within the time periods specified in the SEC's rules and regulations: (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such Forms, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" and, with respect to the annual information only, a report on the annual financial statements by the Company's certified independent accountants; and (ii) all current reports that would be required to be filed with the SEC on Form 8-K if the Company were required to file such reports. (b) If the Company has designated any of its Subsidiaries as Unrestricted Subsidiaries, then the quarterly and annual financial information required by the preceding clause (a) will include a reasonably detailed presentation, either on the face of the financial statements or in the footnotes thereto, and in "Management's Discussion and Analysis of Financial Condition and Results of Operations," of the financial condition and results of operations of the Company and its Restricted Subsidiaries separate from the financial condition and results of operations of the Company's Unrestricted Subsidiaries. (c) In addition, following the consummation of the Exchange Offer contemplated by the Registration Rights Agreement, whether or not required by the SEC, the Company shall file a copy of all of the information and reports referred to in clauses (a)(i) and (a)(ii) above with the SEC for public availability within the 36 time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. (d) The Company will be deemed to have furnished such reports to the Trustee and Holders of Notes if the Company has filed such reports with the SEC via the EDGAR filing system and such reports are publicly available. (e) For so long as any Notes remain outstanding, the Company shall furnish to the Holders and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. Section 4.04. COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers' Certificate stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest, if any, on the Notes is prohibited or if such event has occurred, a description of the event and what action the Company is taking or proposes to take with respect thereto. (b) So long as not contrary to the then current recommendations of the American Institute of Certified Public Accountants, the year-end financial statements delivered to the Trustee pursuant to Section 4.03 above shall be accompanied by a written statement of the Company's independent public accountants (who shall be a firm of established national reputation) that in making the examination necessary for certification of such financial statements, nothing has come to their attention that would lead them to believe that the Company has violated any provisions of Articles 4 or 5 hereof or, if any such violation has occurred, specifying the nature and period of existence thereof, it being understood that such accountants shall not be liable directly or indirectly to any Person for any failure to obtain knowledge of any such violation. (c) The Company shall deliver to the Trustee, within 30 days after the occurrence thereof, written notice in the form of an Officers' Certificate of any event that with the giving of notice and the lapse of time would become an Event of Default, its status and what action the Company is taking or proposes to take with respect thereto. Section 4.05. TAXES. The Company shall pay, and shall cause each of its Restricted Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes; provided that neither the Company nor any such Restricted Subsidiary shall be required to pay or discharge, or cause to be paid or discharged, any such tax, assessment, charge or claim the amount, applicability or validity of which is being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP. Section 4.06. STAY, EXTENSION AND USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this 37 Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07. CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Restricted Subsidiary and (ii) the rights (charter and statutory), licenses and franchises of the Company and its Restricted Subsidiaries; provided, however, that the Company shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.08. PAYMENTS FOR CONSENT. The Company will not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to or for the benefit of any Holder for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. Section 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including any Acquired Debt), and the Company shall not issue any Disqualified Stock and shall not permit any of its Restricted Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or issue Disqualified Stock, and any of the Subsidiary Guarantors may incur Indebtedness (including Acquired Debt), if the Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.00 to 1, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the preferred stock or Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. (b) Paragraph (a) of this Section 4.09 will not prohibit the incurrence of any of the following items of Indebtedness (collectively, "PERMITTED DEBT"): (i) the incurrence by the Company of additional Indebtedness and letters of credit under one or more Credit Facilities and Guarantees thereof by the Subsidiary Guarantors; provided that the aggregate principal amount of all Indebtedness of the Company and the Subsidiary Guarantors incurred pursuant to this clause (i) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company and the Subsidiary Guarantors thereunder) does not exceed an amount equal to $200.0 million; (ii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iii) the incurrence by the Company of Indebtedness represented by the Notes to be issued on the date hereof (and the related Exchange Notes to be issued pursuant to the Registration Rights Agreement) 38 and the incurrence by the Subsidiary Guarantors of the Subsidiary Guarantees of the Notes (and the related Exchange Notes); (iv) the incurrence by the Company or any of the Subsidiary Guarantors of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the Company's business or the business of such Subsidiary Guarantor, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (iv), not to exceed 5.0% of Consolidated Tangible Assets at any time outstanding; (v) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to refund, refinance or replace Indebtedness (other than intercompany Indebtedness) that was incurred under clause (a) of this Section 4.09 or clauses (ii), (iii) or (x) of this Section 4.09(b); (vi) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness owed to the Company or any of the Subsidiary Guarantors; provided, however, that: (A) if the Company is the obligor on such Indebtedness, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes; (B) if a Subsidiary Guarantor is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of such Subsidiary Guarantor's Subsidiary Guarantee; and (C) (1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Subsidiary Guarantor and (2) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Subsidiary Guarantor shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Subsidiary Guarantor, as the case may be, that was not permitted by this clause (vi); (vii) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred in the normal course of business for the purpose of fixing or hedging currency, commodity or interest rate risk (including with respect to any floating rate Indebtedness that is permitted by the terms hereof to be outstanding in connection with the conduct of the Company's respective businesses and not for speculative purposes); (viii) the guarantee by the Company or any of the Subsidiary Guarantors of Indebtedness of the Company or of one of its Restricted Subsidiaries that was permitted to be incurred by another provision of this covenant; (ix) the incurrence by the Company's Unrestricted Subsidiaries of Non-recourse Debt; provided, however, that if any such Indebtedness ceases to be Non-recourse Debt of an Unrestricted Subsidiary, such event shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (ix); and (x) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace any Indebtedness incurred pursuant to this clause (x), not to exceed $35.0 million (which amount may be incurred, in whole or in part, under any of the Credit Facilities); provided that no more than $15.0 million of such additional Indebtedness shall be incurred by Restricted Subsidiaries that are not Subsidiary Guarantors. 39 (c) For purposes of determining compliance with this Section 4.09, in the event that an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (x) of Section 4.09(b) as of the date of incurrence thereof or is entitled to be incurred pursuant to clause (a) of this Section 4.09, the Company shall, in its sole discretion, at the time the proposed Indebtedness is incurred, (x) classify all or a portion of that item of Indebtedness on the date of its incurrence under either the clause (a) of this Section 4.09 or under any category of Permitted Debt, (y) reclassify at a later date all or a portion of that or any other item of Indebtedness as being or having been incurred in any manner that complies with this Section 4.09 and (z) elect to comply with this Section 4.09 and the applicable definitions in any order. (d) For purposes of determining compliance with any dollar-denominated restriction on the incurrence of Indebtedness denominated in a foreign currency, the dollar-equivalent principal amount of such Indebtedness incurred pursuant thereto shall be calculated based on the relevant currency exchange rate in effect on the date that such Indebtedness was incurred. (e) The Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to any Senior Debt of the Company and senior in any respect in right of payment to the Notes; provided, however, that no Indebtedness of the Company will be deemed to be contractually subordinated in right of payment solely by virtue of being unsecured. No Subsidiary Guarantor will incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinate or junior in right of payment to the Senior Debt of such Subsidiary Guarantor and senior in any respect in right of payment to such Subsidiary Guarantor's Subsidiary Guarantee; provided, however, that no Indebtedness of a Subsidiary Guarantor will be deemed to be contractually subordinated in right of payment solely by virtue of being unsecured. (f) Indebtedness shall be deemed to have been incurred by the survivor of a merger, at the time of such merger and, with respect to an acquired Subsidiary, at the time of such acquisition. Section 4.10. RESTRICTED PAYMENTS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (a) declare or pay any dividend or make any other payment or distribution on account of the Company's Equity Interests (including, without limitation, any payment in connection with any merger or consolidation involving the Company) or to the direct or indirect holders of the Company's Equity Interests in their capacity as such (other than dividends or distributions payable solely in the Company's Equity Interests (other than Disqualified Stock) or to the Company); (b) purchase, redeem or otherwise acquire or retire for value (including, without limitation, in connection with any merger or consolidation involving the Company) any of the Company's Equity Interests; (c) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness, except (i) a payment of interest or principal at the Stated Maturity thereof or (ii) Subordinated Indebtedness acquired in anticipation of satisfying a sinking fund obligation, principal installment or payment of principal upon final maturity of such Subordinated Indebtedness, in each case acquired within one year of the date of the sinking fund obligation, principal installment or payment of principal upon maturity; or (d) make any Restricted Investment, (all such payments and other actions set forth in these clauses (a) through (d) above being collectively referred to as "RESTRICTED PAYMENTS"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment; and 40 (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and its Restricted Subsidiaries after the date hereof (excluding Restricted Payments permitted by clauses (2) and (3) of the next paragraph), is less than the sum, without duplication, of: (i) 50% of the Company's Consolidated Net Income for the period (taken as one accounting period) from April 15, 2002 to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate net cash proceeds received by the Company (including the fair market value of any Permitted Business or assets used or useful in a Permitted Business to the extent acquired in consideration of Equity Interests of the Company (other than Disqualified Stock)) since the date hereof as a contribution to the Company's common equity capital or from the issue or sale of Equity Interests of the Company (other than Disqualified Stock)or from the issue or sale of convertible or exchangeable Disqualified Stock or convertible or exchangeable debt securities of the Company that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Stock or debt securities) sold to a Subsidiary of the Company), plus (iii) to the extent that any Restricted Investment that was made after the date hereof is sold for cash or otherwise liquidated or repaid for cash, the lesser of (1) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (2) the initial amount of such Restricted Investment. So long as no Default has occurred and is continuing or would be caused thereby, the preceding provisions will not prohibit: (1) the payment of any dividend within 60 days after the date of declaration of the dividend, if at the date of declaration the dividend payment would have complied with the provisions hereof; (2) the redemption, repurchase, retirement, defeasance or other acquisition of any Subordinated Indebtedness or of any of the Company's Equity Interests by conversion into, or by an exchange for, shares of the Company's Equity Interests (other than Disqualified Stock), or in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to any of the Company's Restricted Subsidiaries) of, the Company's Equity Interests (other than Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded from clause (c)(ii) of the preceding paragraph; (3) the defeasance, redemption, repurchase or other acquisition of Subordinated Indebtedness with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (4) the payment of any dividend by a Restricted Subsidiary of the Company to the holders of its Equity Interests on a pro rata basis; (5) the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of the Company or any Restricted Subsidiary of the Company held by any member of the Company's (or any of its Restricted Subsidiaries') management pursuant to any management equity subscription agreement, stock option agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $2.5 million in any twelve-month period; and 41 (6) other Restricted Payments in an aggregate amount since the date hereof not to exceed $25.0 million. The amount of all Restricted Payments (other than cash) will be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair market value of any assets or securities that are required to be valued by this Section 4.10 will be determined by the Board of Directors of the Company whose resolutions with respect thereto will be delivered to the Trustee. The Board of Directors' determination must be based upon an opinion or appraisal issued by an accounting, appraisal or investment banking firm of national standing if the fair market value exceeds $5.0 million. Not later than the date of making any Restricted Payment, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the calculations required by this Section 4.10 were computed, together with a copy of any fairness opinion or appraisal required by this Indenture. Section 4.11. LIENS. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume or suffer to exist any Lien of any kind securing Indebtedness, Attributable Debt or trade payables on any asset now owned or hereafter acquired or any proceeds therefrom, or assign or convey any right to receive income therefrom, except Permitted Liens; provided, however, that: (a) in the case of Liens securing Subordinated Indebtedness, the Notes must be secured by a Lien on such property (including Capital Stock of a Restricted Subsidiary), assets, proceeds, income or profit that is senior in priority to such Liens; and (b) in the case of Liens securing Senior Subordinated Indebtedness, the Notes must be equally and ratably secured by a Lien on such property (including Capital Stock of a Restricted Subsidiary), assets, proceeds, income or profit. Section 4.12. ASSET SALES. (a) The Company shall not, and shall not permit any of its Restricted Subsidiaries to consummate an Asset Sale unless: (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value of the assets sold or otherwise disposed of (evidenced by a Board Resolution of the Board of Directors of the Company set forth in an Officers' Certificate delivered to the Trustee); (ii) if the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale greater than $7.5 million, the fair market value of the assets sold or otherwise disposed of is determined by Parent's Board of Directors (such determination to be evidenced by a Board Resolution of Parent's Board of Directors set forth in an Officers' Certificate delivered to the Trustee) or in a written opinion issued by an independent appraisal firm or financial advisor of national standing; and (iii) at least 75% of the consideration received in the Asset Sale by the Company or such Restricted Subsidiary is in the form of cash, Cash Equivalents or Replacement Assets. (b) For purposes of Section 4.12(a) only, each of the following will be deemed to be cash: (i) any liabilities of the Company or any of its Restricted Subsidiaries, as shown on the Company's or such Restricted Subsidiary's most recent balance sheet (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Restricted Subsidiary's Subsidiary Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases the Company or such Restricted Subsidiary from further liability; and 42 (ii) any securities, notes or other obligations received by the Company or any such Restricted Subsidiary from such transferee that are contemporaneously, subject to ordinary settlement periods, converted by the Company or such Restricted Subsidiary into cash, to the extent of the cash received in that conversion; (iii) any Designated Non-Cash Consideration received by the Company or any of its Restricted Subsidiaries in the Asset Sale. (c) Within 365 days after the receipt of any Net Proceeds from an Asset Sale, the Company and its Restricted Subsidiaries may apply those Net Proceeds at their option: (i) to repay the Company's or any Restricted Subsidiary's Indebtedness (other than Subordinated Indebtedness); (ii) to acquire all or substantially all of the assets of, or a majority of the Voting Stock of, another Permitted Business (or enter into a definitive agreement committing the Company or one of its Restricted Subsidiaries to make such purchase within six months of the date of such agreement; provided that if such agreement is terminated, the Company or such Restricted Subsidiary may invest such Net Proceeds prior to the end of such 365-day period, or if later, prior to the end of the six-month period referred to in this clause (ii)); or (iii) to acquire other long-term assets or to make a capital expenditure, in each case, that are used or useful in a Permitted Business (or enter into a definitive agreement committing the Company or one of its Restricted Subsidiaries to make such acquisition or expenditure within six months of the date of such agreement; provided that if such agreement is terminated, the Company or such Restricted Subsidiary may invest such Net Proceeds prior to the end of such 365-day period, or if later, prior to the end of the six-month period referred to in this clause (iii)). Pending the final application of any Net Proceeds, the Company may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by this Indenture. (d) Any Net Proceeds from Asset Sales that are not applied or invested within such 365-day period as provided in Section 4.12(c) will constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million, not later than 30 days after such date, the Company shall make an Asset Sale Offer (which offer may be made at any time within such 365 or 30-day periods) to all Holders of Notes and Additional Notes, if any, and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth herein with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase, on a pro rata basis, the maximum principal amount of Notes and Additional Notes, if any, and such other pari passu Indebtedness equal in amount to the Excess Proceeds remaining after an asset sale offer required to be commenced prior to the Asset Sale Offer (and not just the amount thereof that exceeds $15.0 million). The offer price in any Asset Sale Offer will be equal to 100% of the principal amount thereof plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, in accordance with the procedures set forth herein, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Company may use those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes and Additional Notes, if any, and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of Excess Proceeds remaining after an asset sale offer required to be commenced prior to the Asset Sale Offer, the Trustee shall select the Notes and Additional Notes, if any, and other pari passu Indebtedness to be purchased as described in Article 3 hereof. Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero. (e) The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with each repurchase of Notes pursuant to an Asset Sale Offer. To the extent that the provisions of any securities laws or regulations conflict with the Asset Sale provisions of this Indenture, the Company shall comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 4.12 by virtue of such conflict. 43 Section 4.13. DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to: (a) pay dividends or make any other distributions on or in respect of its Capital Stock to the Company or any of its Restricted Subsidiaries, or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any other of its Restricted Subsidiaries; (b) make any loans or advances to the Company or any other of its Restricted Subsidiaries; (c) sell, lease or transfer any of its properties or assets to the Company or any other of its Restricted Subsidiaries; or (d) guarantee the Company's obligations. However, the preceding restrictions will not apply to encumbrances or restrictions existing under or by reason of: (i) agreements as in effect on the date hereof or subsequent agreements relating to our Indebtedness or Indebtedness of any Subsidiary Guarantor and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings of those agreements; provided that the amendments, modifications, restatements, renewals, increases, supplements, refundings, replacement or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in those agreements on the date hereof; (ii) this Indenture, the Notes and the Subsidiary Guarantees; (iii) applicable law; (iv) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition, which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred; (v) customary non-assignment provisions in leases entered into in the ordinary course of business; (vi) purchase money obligations for property acquired in the ordinary course of business that impose restrictions on that property of the nature described in clause (c) of the preceding paragraph; (vii) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition; (viii) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced; (ix) Liens securing Indebtedness otherwise permitted to be incurred under Section 4.11 that limit the right of the debtor to dispose of the assets subject to such Liens; and 44 (x) provisions with respect to the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, stock sale agreements and other similar agreements entered into in the ordinary course of business. Section 4.14. TRANSACTIONS WITH AFFILIATES. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of their respective properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate (each, an "AFFILIATE TRANSACTION"), unless: (a) the Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with a Person that is not an Affiliate; and (b) the Company delivers to the trustee: (i) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $15.0 million, a resolution of the Board of Directors of the Company set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with this covenant and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of the Company or Parent's Board of Directors, or, if there are no disinterested members of the approving Board of Directors at the time, a written opinion issued by an independent appraisal firm or financial advisor of national standing that such Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view; and (ii) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, a written opinion issued by an independent financial advisor of national standing that such Affiliate Transaction is fair to the Company or such Restricted Subsidiary, as the case may be, from a financial point of view. The following items will not be deemed to be Affiliate Transactions and, therefore, will not be subject to the provisions of the prior paragraph: (a) transactions between or among the Company and/or its Restricted Subsidiaries; (b) transactions with a Person that is an Affiliate of the Company solely because the Company owns an Equity Interest in such Person; (c) advances to officers of the Company or any of the Company's Restricted Subsidiaries in the ordinary course of business to provide for the payment of reasonable expenses incurred by such persons in the performance of their responsibilities to the Company or such Restricted Subsidiary or in connection with any relocation; (d) sales of Equity Interests (other than Disqualified Stock) to Affiliates of the Company; (e) fees and compensation paid to and indemnity provided on behalf of directors, officers or employees of the Company or any Restricted Subsidiary of the Company in the ordinary course of business; (f) any employment agreement that is in effect on the date hereof and any such employment agreement entered into by the Company or any of its Restricted Subsidiaries after the date hereof in the ordinary course of business; (g) any Restricted Payment that is not prohibited by Section 4.10; 45 (h) any sale, conveyance or other transfer of accounts receivable and other related assets customarily transferred in a Securitization Transaction; (i) payment of premiums to, and the receipt of proceeds of insurance from, Laurier Indemnity Company and Laurier Indemnity Company, Ltd.; (j) payments to or receipts from Extendicare Holdings, Inc. pursuant to any tax sharing agreement entered into for the purpose of preparing a consolidated tax return of Extendicare Holdings, Inc.; (k) payments to or receipts from Virtual Care Provider, Inc. in connection with the provision of technology services to third parties pursuant to the terms of management, consulting or other similar agreements; and (l) transactions pursuant to the services agreement between the Company and Virtual Care Provider, Inc. relating to certain services provided by the Company and Virtual Care Provider, Inc. to each other as in effect on the date hereof. Section 4.15. [Reserved.] Section 4.16. [Reserved.] Section 4.17. DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES. The Board of Directors of the Company may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate fair market value of all outstanding Investments owned by the Company and its Restricted Subsidiaries in the Subsidiary properly designated will be deemed to be an Investment made as of the time of the designation and will reduce the amount available for Restricted Payments under the first paragraph of Section 4.10 or Permitted Investments, as determined by the Company. That designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. The Board of Directors of the Company may redesignate any Unrestricted Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a Default. Section 4.18. REPURCHASE AT THE OPTION OF HOLDERS UPON A CHANGE OF CONTROL. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the Company to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes pursuant to the offer described below (the "CHANGE OF CONTROL OFFER") at a purchase price (the "CHANGE OF CONTROL PURCHASE PRICE") equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest and Additional Interest if any, on the Notes repurchased, to the purchase date (subject to the right of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date). Subject to clause (c) below, within 30 days following any Change of Control, the Company shall mail a notice to the Trustee and each Holder: (i) send, by first-class mail, with a copy to the Trustee, to each Holder, at such Holder's address appearing in the securities register maintained in respect of the Notes by the Registrar (the "SECURITY REGISTER"): (A) that a Change of Control has occurred and a Change of Control Offer is being made pursuant to Section 4.18 and that all Notes timely tendered will be accepted for payment; 46 (B) the Change of Control Purchase Price and the purchase date, which shall be, subject to any contrary requirements of applicable law, a business day no earlier than 30 days and no later than 60 days from the date such notice is mailed; (C) the circumstances and relevant facts regarding the Change of Control (including information with respect to pro forma historical income, cash flow and capitalization after giving effect to the Change of Control); and (D) the procedures that Holders must follow in order to tender their Notes (or portions thereof) for payment, and the procedures that Holders must follow in order to withdraw an election to tender Notes (or portions thereof) for payment. The Company will comply, to the extent applicable, with the requirements of Rule 14(e)-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent those laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. To the extent that the provisions of any securities laws or regulations conflict with the Change of Control provisions of the covenant described hereunder, the Company will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under the covenant described hereunder by virtue of such conflict. (b) On the Change of Control Payment Date, the Company shall, to the extent lawful: (i) accept for payment all Notes or portions of Notes properly tendered and not withdrawn pursuant to the Change of Control Offer; (ii) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered and not withdrawn; and (iii) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes properly tendered and not withdrawn the Change of Control Payment for such Notes, and the Trustee will promptly authenticate and mail (or cause to be transferred by book-entry) to each Holder a new note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each new note will be in a principal amount of $1,000 or an integral multiple of $1,000. (c) Prior to complying with any of the provisions of this Section 4.18, but in any event within 90 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this covenant. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. (d) The provisions described above that require us to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of the indenture are applicable. Except as described above with respect to a Change of Control, this Indenture does not contain provisions that permit the Holders of the Notes to require that the Company repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. (e) The Company will not be required to make a Change of Control Offer upon a Change of Control if a third party makes a Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to a Change of Control Offer made by the Company and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer. 47 Section 4.19. ADDITIONAL SUBSIDIARY GUARANTEES If the Company or any of its Restricted Subsidiaries acquires or creates another domestic Significant Subsidiary or any other Domestic Subsidiary that guarantees or incurs any Indebtedness or any other Significant Subsidiary or Restricted Subsidiary that guarantees or otherwise provides direct credit support for Indebtedness of the Company or any of the Company's Domestic Subsidiaries after the date hereof, then that newly acquired or created Significant Subsidiary, Domestic Subsidiary or other Restricted Subsidiary will execute and deliver to the Trustee a supplemental indenture providing for a Subsidiary Guarantee and deliver an Opinion of Counsel satisfactory to the Trustee within 10 Business Days of the date on which it was acquired or created; provided, however, that the foregoing shall not apply to Subsidiaries that have properly been designated as Unrestricted Subsidiaries in accordance with this Indenture for so long as they continue to constitute Unrestricted Subsidiaries. Section 4.20. [Reserved.] Section 4.21. BUSINESS ACTIVITIES. The Company shall not, and shall not permit any Restricted Subsidiary to, engage in any business other than Permitted Businesses, except to such extent as would not be material to the Company and its Subsidiaries taken as a whole. ARTICLE 5. SUCCESSORS Section 5.01. MERGER, CONSOLIDATION, OR SALE OF PROPERTY. The Company shall not, directly or indirectly (a) consolidate or merge with or into another Person (whether or not the Company is the surviving corporation) or (b) sell, assign, transfer, convey or otherwise dispose of all or substantially all of the properties or assets of the Company and its Restricted Subsidiaries taken as a whole, in one or more related transactions, to another Person; unless: (a) either: (x) the Company is the surviving corporation; or (y) the Person formed by or surviving any such consolidation or merger (if other than the Company) or to which such sale, assignment, transfer, conveyance or other disposition has been made is a corporation organized or existing under the laws of the United States, any state of the United States or the District of Columbia; (b) the Person formed by or surviving any such consolidation or merger (if other than the Company) or the Person to which such sale, assignment, transfer, conveyance or other disposition has been made assumes all of the Company's obligations under the Notes, this Indenture and the Registration Rights Agreement pursuant to a supplemental indenture reasonably satisfactory to the Trustee; (c) immediately after such transaction no Default or Event of Default exists; (d) the Company or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been made, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, (i) shall be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09 or (ii) the Company's Fixed Charge Coverage Ratio, or the Fixed Charge Coverage Ratio of the surviving Person if the Company is not the continuing obligor hereunder, shall not be less than the Company's Fixed Charge Coverage Ratio immediately prior to such transaction and any related financing transactions; and (e) the Company, or the Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, conveyance or other disposition has been 48 made, shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such transaction and any supplemental indenture entered into in connection therewith complies with all of the terms of this Section 5.01 and that all conditions precedent provided for in this Indenture relating to such transaction or series of transactions have been complied with. In addition, the Company may not, directly or indirectly, lease all or substantially all of its properties or assets, in one or more related transactions, to any other Person. The Person formed by or surviving any consolidation or merger (if other than the Company) will succeed to, and be substituted for, and may exercise every right and power of the Company under this Indenture, but, in the case of a lease of all or substantially all the assets of the Company, the Company will not be released from the obligation to pay the principal of and interest on the Notes. Section 5.02. SUCCESSOR CORPORATION SUBSTITUTED. The Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of the Company under this Indenture, but the predecessor Company in the case of: (a) a sale, transfer, assignment, conveyance or other disposition (unless such sale, transfer, assignment, conveyance or other disposition is of all the assets of the Company as an entirety or virtually as an entirety), or (b) a lease, shall not be released from any of the obligations or covenants under this Indenture, including with respect to the payment of the Notes. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01. EVENTS OF DEFAULT. Each of the following is an "Event of Default:" (i) default for 30 days in the payment when due of interest on, or Additional Interest with respect to, the Notes (whether or not prohibited by Article 12); (ii) default in payment when due of the principal of or premium, if any, on the Notes (whether or not prohibited by Article 12); (iii) failure by the Company or any of its Restricted Subsidiaries to comply with Section 4.09 or 4.10 or Article 5; (iv) failure by the Company or any of its Restricted Subsidiaries for 30 days after notice to comply with Section 4.12 or 4.18; (v) failure by the Company or any of its Restricted Subsidiaries for 60 days after notice to comply with any other covenant or agreement in the Notes or in this Indenture; (vi) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Company or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date hereof, if that default: 49 (A) is caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default"); or (B) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more; (vii) failure by the Company or any of its Restricted Subsidiaries to pay final judgments (to the extent not fully covered by insurance) aggregating in excess of $20.0 million, which judgments are not paid, discharged or stayed for a period of 60 consecutive days; (viii) except as permitted by this Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (ix) the Company or any of its Significant Subsidiaries pursuant to or within the meaning of Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; and (x) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any of its Significant Subsidiaries in an involuntary case; or (B) appoints a Custodian of the Company or any of its Significant Subsidiaries or for all or substantially all of the property of the Company or any of its Significant Subsidiaries; or (C) orders the liquidation of the Company or any of its Significant Subsidiaries; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02. ACCELERATION. If an Event of Default (other than an Event of Default specified in clauses (ix) or (x) of Section 6.01 hereof, with respect to the Company, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary), shall have occurred and be continuing, the Trustee or the Holders of not less than 25% in aggregate principal amount of the Notes then outstanding may 50 declare to be immediately due and payable the principal amount of all the Notes then outstanding, plus accrued but unpaid interest and Additional Interest, if any, to the date of acceleration. In the case of an Event of Default specified in clauses (ix) or (x) of Section 6.01 hereof, with respect to the Company, any Subsidiary that is a Significant Subsidiary or any group of Subsidiaries that, taken together would constitute a Significant Subsidiary shall occur, such amount with respect to all the Notes will become due and payable immediately without any declaration or other act on the part of the Trustee or the Holders. Holders may not enforce this Indenture or the Notes except as provided in this Indenture. Subject to the limitations described in this Article 6, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, premium, if any, or interest or Additional Interest, if any) if it determines that withholding notice is in their interest. In the case of an Event of Default occurring by reason of any willful action or inaction taken or not taken by the Company or on the Company's behalf with the intention of avoiding payment of the premium that the Company would have been required to pay if the Company had then elected to redeem the Notes pursuant to Section 3.07 hereof, an equivalent premium will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to May 1, 2009, by reason of any willful action or inaction taken or not taken by the Company or on the Company's behalf with the intention of avoiding the prohibition on redemption of the Notes prior to May 1, 2009, then the premium specified in Section 3.07 will also become immediately due and payable to the extent permitted by law upon acceleration of the Notes. Section 6.03. OTHER REMEDIES. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest and Additional Interest, if any, on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law. Section 6.04. WAIVER OF PAST DEFAULTS. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium, if any, or interest or Additional Interest on, the Notes; provided, however, that after any acceleration, but before a judgment or decree based on acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the Notes then outstanding may rescind and annul such acceleration if all Events of Default, other than the nonpayment of accelerated principal, premium or interest or Additional Interest, have been cured or waived as provided in this Indenture. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. CONTROL BY MAJORITY. Subject to Section 7.01, in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under this Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. Subject to Section 7.07, the Holders of a majority in aggregate principal amount of the Notes then outstanding will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Notes. 51 Section 6.06. LIMITATION ON SUITS. No Holder will have any right to institute any proceeding with respect to this Indenture, or for the appointment of a receiver or trustee, or for any remedy thereunder, unless: (a) such Holder has previously given to the Trustee written notice of a continuing Event of Default, (b) Holders of at least 25% in aggregate principal amount of the Notes then outstanding have made written request and offered reasonable indemnity to the Trustee to institute such proceeding as trustee, and (c) the Trustee shall not have received from the Holders of a majority in aggregate principal amount of the Notes then outstanding a direction inconsistent with such request and shall have failed to institute such proceeding within 60 days. The preceding limitations do not apply to a suit instituted by a Holder for enforcement of payment of the principal of, and premium, if any, or interest or Additional Interest on, a Note on or after the respective due dates expressed in such Note. A Holder may not use this Indenture to affect, disturb or prejudice the rights of another Holder or to obtain a preference or priority over another Holder. Section 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder to receive payment of principal, premium, if any, and interest and Additional Interest, if any, on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder. Section 6.08. COLLECTION SUIT BY TRUSTEE. If an Event of Default specified in clauses (i) or (ii) of Section 6.01 occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium, if any, and interest and Additional Interest, if any, remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. Section 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), its creditors or its property and shall be entitled and empowered to participate as a member, voting or otherwise, of any official committee of creditors appointed in such matter and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, 52 dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. Section 6.10. PRIORITIES. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders for amounts due and unpaid on the Notes for principal, premium, if any, and interest and Additional Interest, if any, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium, if any, and interest and Additional Interest, if any,, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders pursuant to this Section 6.10. Section 6.11. UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. TRUSTEE Section 7.01. DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent man would exercise or use under the circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the 53 requirements of this Indenture. However, the Trustee shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein or otherwise verify the contents thereof). (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) this paragraph does not limit the effect of paragraph (b) of this Section; (2) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (3) the Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. Section 7.02. RIGHTS OF TRUSTEE. (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. (b) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and agents and shall not be responsible for the misconduct or negligence of any agent appointed with due care. (d) The Trustee shall not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. 54 (g) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a Default or Event of Default is received by a Responsible Officer of the Trustee at the Corporate Trust Office of the Trustee, and such notice references the specific Default or Event of Default, the Notes and this Indenture. (h) Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed in writing with the Company. (i) The Trustee shall not be required to give any bond or surety in respect of the performance of its power and duties hereunder. (j) The Trustee shall have no duty to inquire as to the performance of the Company's covenants herein. Section 7.03. INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as Trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Section 7.10 and 7.11 hereof. Section 7.04. TRUSTEE'S DISCLAIMER. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. Section 7.05. NOTICE OF DEFAULTS. If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to Holders a notice of the Default or Event of Default within 90 days after it occurs unless such Default or Event of Default has since been cured. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest or Additional Interest, if any, on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders. Section 7.06. REPORTS BY TRUSTEE TO HOLDERS. Within 60 days after each May 15 beginning with May 15, 2005, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange. 55 Section 7.07. COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder as agreed to in writing. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee or any predecessor Trustee against any and all losses, claims, damages, penalties, fines, liabilities or expenses, including incidental and out-of-pocket expenses and reasonable attorneys fees ("LOSSES") incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such losses may be attributable to its gross negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder. The Company shall defend the claim, and the Trustee shall cooperate in the defense. The Trustee may have separate counsel and the Company shall pay the reasonable fees and expenses of such counsel. The Company need not pay for any settlement made without its consent, which consent shall not be unreasonably withheld. The Company need not reimburse any expense or indemnify against any loss liability or expense incurred by the Trustee through the Trustee's own willful misconduct, gross negligence or bad faith. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal, premium, if any, and interest and Additional Interest, if any, on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in clauses (ix) or (x) of Section 6.01 hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. Section 7.08. REPLACEMENT OF TRUSTEE. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section. The Trustee may resign in writing at any time upon 30 days prior notice to the Company and be discharged from the trust hereby created by so notifying the Company. The Holders of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (c) a custodian or public officer takes charge of the Trustee or its property; or 56 (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Company. If a successor Trustee does not take office within 30 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company, or the Holders of at least 10% in principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Thereupon, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee shall mail a notice of its succession to Holders. Subject to the Lien provided for in Section 7.07 hereof, the retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee; provided, however, that all sums owing to the Trustee hereunder shall have been paid. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Company's obligations under Section 7.07 hereof shall continue for the benefit of the retiring Trustee. Section 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC. If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act shall be the successor Trustee. Section 7.10. ELIGIBILITY; DISQUALIFICATION. There shall at all times be a Trustee hereunder that is a Person organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50,000,000 as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The Company may, at its option and at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. 57 Section 8.02. LEGAL DEFEASANCE AND DISCHARGE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "LEGAL DEFEASANCE"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Debt represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest and Additional Interest, if any, on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the obligations of the Company and each of the Subsidiary Guarantors in connection therewith and (d) this Article 8. If the Company exercises under Section 8.01 hereof the option applicable to this Section 8.02, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, payment of the Notes may not be accelerated because of an Event of Default. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03. COVENANT DEFEASANCE. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.05, 4.06 and 4.08 through 4.18 hereof, and the operation of Section 5.01(d) hereof, with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "COVENANT DEFEASANCE"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. If the Company exercises under Section 8.01 hereof the option applicable to this Section 8.03, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, payment of the Notes may not be accelerated because of an Event of Default specified in clauses (iii) and (iv) (with respect to the covenants contained in Sections 4.05, 4.06 and 4.08 through 4.18 hereof), (v), (vi), (vii) and (viii) (but in the case of clauses (ix) and (x) of Section 6.01 hereof, with respect to Significant Subsidiaries only). Section 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes. The Legal Defeasance or Covenant Defeasance may be exercised only if: (a) the Company irrevocably deposits with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, or interest and premium and Additional Interest, if any, 58 on the outstanding Notes on the Stated Maturity or on the applicable redemption date, as the case may be, and the Company must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of Legal Defeasance, the Company delivers to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that (a) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (b) since the date hereof, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel will confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of Covenant Defeasance, the Company delivers to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit); (e) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under any material agreement or instrument (including, without limitation, the Credit Agreement, but excluding the indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries may is bound; (f) the Company delivers to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders of Notes over the Company's other creditors with the intent of defeating, hindering, delaying or defrauding the Company's creditors or others; and (g) the Company delivers to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with. Section 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 8.06 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of all sums due and to become due thereon in respect of principal, premium, if any, and interest and Additional Interest, if any, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or U.S. Government Obligations deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or U.S. Government Obligations held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee (which may be the 59 certification delivered under Section 8.04(b) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest or Additional Interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest or Additional Interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder shall thereafter, as an unsecured creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining shall be repaid to the Company. Section 8.07. REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any United States dollars or U.S. Government Obligations in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest or Additional Interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder to: (a) cure any ambiguity, defect or inconsistency; (b) provide for the assumption by a successor corporation of the obligations of the Company under this Indenture in the case of a merger or consolidation or sale of all or substantially all of the Company's assets; (c) provide for uncertificated Notes in addition to or in place of certificated Notes; (d) make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any such Holder; or (e) make any change to comply with any requirement of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a Board Resolution of the Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any 60 amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02. WITH CONSENT OF HOLDERS OF NOTES. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes, including Additional Notes, if any, then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (except a continuing Default or Event of Default in the payment of interest or Additional Interest on, or the principal of, the Notes) or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the Notes, including Additional Notes, if any, then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Upon the request of the Company accompanied by a Board Resolution of the Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Persons entitled to consent to any indenture supplemental hereto. If a record date is fixed, the Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to consent to such supplemental indenture, whether or not such Holders remain Holders after such record date; provided, that unless such consent shall have become effective by virtue of the requisite percentage having been obtained prior to the date which is 90 days after such record date, any such consent previously given shall automatically and without further action by any Holder be cancelled and of no further effect. It shall not be necessary for the consent of the Holders under this Section 9.02 to approve the particular form of any proposed amendment or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders to such Holder's address appearing in the Security Register a notice briefly describing the amendment, supplement or waiver. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such amended or supplemental Indenture or waiver. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes, including Additional Notes, if any, then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. Without the consent of each Holder, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption of the Notes; (c) make any change in the provisions of Sections 4.12 or 4.18; 61 (d) reduce the rate of or change the time for payment of interest on any note, (e) waive a Default or Event of Default in the payment of principal of, or interest or premium, or Additional Interest, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the Notes and a waiver of the payment default that resulted from such acceleration); (f) make any Note payable in money other than that stated in the Note, (g) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of, or interest or premium or Additional Interest, if any, on the Notes; (h) waive a redemption payment with respect to any Note; (i) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee or this Indenture, except in accordance with the terms hereof; (j) make any change to Article 12 (including applicable definitions) that would adversely affect the Holders of the Notes; or (k) make any change in the preceding amendment and waiver provisions. Section 9.03. COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04. REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder is a continuing consent by the Holder of a Note and every subsequent Holder that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder or subsequent Holder may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05. NOTATION ON OR EXCHANGE OF NOTES. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon an Officer's Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture and that such amended or supplemental indenture is the legal, valid and binding obligations of the 62 Company enforceable against it in accordance with its terms, subject to customary exceptions and that such amended or supplemental indenture complies with the provisions hereof (including Section 9.03). ARTICLE 10. SUBSIDIARY GUARANTEES Section 10.01. GUARANTEE. Subject to this Article 10, each of the Subsidiary Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Company hereunder or thereunder, that: (a) the principal of, premium, if any, and interest on the Notes shall be promptly paid in full when due, whether at maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Company to the Holders or the Trustee hereunder or thereunder shall be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same shall be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration pursuant to Section 6.02 hereof or otherwise. Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Subsidiary Guarantors shall be jointly and severally obligated to pay the same immediately. Each Subsidiary Guarantor agrees that this is a guarantee of payment and not a guarantee of collection. Each Subsidiary Guarantor hereby agrees that its obligations with regard to this Subsidiary Guarantee shall be joint and several, unconditional, irrespective of the validity or enforceability of the Notes or the obligations of the Company under this Indenture, the absence of any action to enforce the same, the recovery of any judgment against the Company or any other obligor with respect to this Indenture, the Notes or the Obligations of the Company under this Indenture or the Notes, any action to enforce the same or any other circumstances (other than complete performance) which might otherwise constitute a legal or equitable discharge or defense of a Subsidiary Guarantor. Each Subsidiary Guarantor further, to the extent permitted by law, waives and relinquishes all claims, rights and remedies accorded by applicable law to guarantors and agrees not to assert or take advantage of any such claims, rights or remedies, including but not limited to: (a) any right to require any of the Trustee, the Holders or the Company (each a "BENEFITED PARTY"), as a condition of payment or performance by such Subsidiary Guarantor, to (1) proceed against the Company, any other guarantor (including any other Subsidiary Guarantor) of the Obligations under the Subsidiary Guarantees or any other Person, (2) proceed against or exhaust any security held from the Company, any such other guarantor or any other Person, (3) proceed against or have resort to any balance of any deposit account or credit on the books of any Benefited Party in favor of the Company or any other Person, or (4) pursue any other remedy in the power of any Benefited Party whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of the Company including any defense based on or arising out of the lack of validity or the unenforceability of the Obligations under the Subsidiary Guarantees or any agreement or instrument relating thereto or by reason of the cessation of the liability of the Company from any cause other than payment in full of the Obligations under the Subsidiary Guarantees; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon any Benefited Party's errors or omissions in the administration of the Obligations under the Subsidiary Guarantees, except behavior which amounts to bad faith; (e)(1) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms of the Subsidiary Guarantees and any legal or equitable discharge of such Subsidiary Guarantor's obligations hereunder, (2) the benefit of any statute of limitations affecting such Subsidiary Guarantor's liability hereunder or the enforcement hereof, (3) any rights to set-offs, recoupments and counterclaims and (4) promptness, diligence and any requirement that any Benefited Party protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentations, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of the Subsidiary Guarantees, notices of default under the Notes or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Obligations under the Subsidiary Guarantees or any agreement related thereto, and notices of any extension of credit to the Company and any right to consent to any thereof; (g) to the extent permitted under 63 applicable law, the benefits of any "One Action" rule and (h) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of the Subsidiary Guarantees. Each Subsidiary Guarantor hereby covenants that its Subsidiary Guarantee shall not be discharged except by complete performance of the obligations contained in its Subsidiary Guarantee and this Indenture. If any Holder or the Trustee is required by any court or otherwise to return to the Company, the Subsidiary Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Company or the Subsidiary Guarantors, any amount paid by either to the Trustee or such Holder, this Subsidiary Guarantee, to the extent theretofore discharged, shall be reinstated in full force and effect. Each Subsidiary Guarantor agrees that it shall not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Subsidiary Guarantor further agrees that, as between the Subsidiary Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (x) the maturity of the obligations guaranteed hereby may be accelerated as provided in Section 6.02 hereof for the purposes of this Subsidiary Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby and (y) in the event of any declaration of acceleration of such obligations as provided in Section 6.02 hereof, such obligations (whether or not due and payable) shall forthwith become due and payable by the Subsidiary Guarantors for the purpose of this Subsidiary Guarantee. The Subsidiary Guarantors shall have the right to seek contribution from any non-paying Subsidiary Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Subsidiary Guarantee. Section 10.02. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY. Each Subsidiary Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Subsidiary Guarantee of such Subsidiary Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Subsidiary Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Subsidiary Guarantors hereby irrevocably agree that the obligations of such Subsidiary Guarantor under this Article 10 shall be limited to the maximum amount as shall, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Subsidiary Guarantor that are relevant under such laws, including, if applicable, its guarantee of all obligations under the Credit Agreement, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Subsidiary Guarantor in respect of the obligations of such other Subsidiary Guarantor under this Article 10, result in the obligations of such Subsidiary Guarantor under its Subsidiary Guarantee not constituting a fraudulent transfer or conveyance. Section 10.03. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE. To evidence its Subsidiary Guarantee set forth in Section 10.01 hereof, each Subsidiary Guarantor hereby agrees that a notation of such Subsidiary Guarantee in substantially the form included in Exhibit E shall be endorsed by an Officer of such Subsidiary Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture shall be executed on behalf of such Subsidiary Guarantor by its President or one of its Vice Presidents. Each Subsidiary Guarantor hereby agrees that its Subsidiary Guarantee set forth in Section 10.01 hereof shall remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Subsidiary Guarantee. If an Officer whose signature is on this Indenture or on the Subsidiary Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall be valid nevertheless. 64 The delivery of any Note by the Trustee, after the authentication thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set forth in this Indenture on behalf of the Subsidiary Guarantors. Section 10.04. SUBSIDIARY GUARANTORS MAY CONSOLIDATE, ETC., ON CERTAIN TERMS. Except as otherwise provided in Section 10.05 hereof, no Subsidiary Guarantor may sell or otherwise dispose of all or substantially all of its assets to, or consolidate with or merge with or into (whether or not such Subsidiary Guarantor is the surviving Person), another Person, other than the Company or another Subsidiary Guarantor, unless: (a) immediately after giving effect to that transaction, no Default or Event of Default exists; and (b) either: (i) the Person acquiring the property in any such sale or disposition or the Person formed by or surviving any such consolidation or merger (if other than a Subsidiary Guarantor or the Company) unconditionally assumes all the obligations of such Subsidiary Guarantor, pursuant to agreements in form and substance reasonably satisfactory to the Trustee, under this Indenture, the Subsidiary Guarantee and the Registration Rights Agreement on the terms set forth herein; or (ii) the Net Proceeds of such sale or other disposition are applied in accordance with Section 4.12. In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee and satisfactory in form to the Trustee, of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual performance of all of the covenants and conditions of this Indenture to be performed by the Subsidiary Guarantor, such successor Person shall succeed to and be substituted for the Subsidiary Guarantor with the same effect as if it had been named herein as a Subsidiary Guarantor. Such successor Person thereupon may cause to be signed any or all of the Subsidiary Guarantees to be endorsed upon all of the Notes issuable hereunder which theretofore shall not have been signed by the Company and delivered to the Trustee. All the Subsidiary Guarantees so issued shall in all respects have the same legal rank and benefit under this Indenture as the Subsidiary Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Subsidiary Guarantees had been issued at the date of the execution hereof. Except as set forth in Articles 4 and 5 hereof, and notwithstanding clauses (a) and (b) above, nothing contained in this Indenture or in any of the Notes shall prevent any consolidation or merger of a Subsidiary Guarantor with or into the Company or another Subsidiary Guarantor, or shall prevent any sale or conveyance of the property of a Subsidiary Guarantor as an entirety or substantially as an entirety to the Company or another Subsidiary Guarantor. Section 10.05. RELEASES FOLLOWING SALE OF ASSETS. In the event of any sale or other disposition of all or substantially all of the assets of any Subsidiary Guarantor (including by way of merger or consolidation), or any sale of all of the Capital Stock of any Subsidiary Guarantor, in each case to a Person that is not (either before or after giving effect to such transactions) a Subsidiary of the Company, if the sale or other disposition complies with Section 4.12, or if the Company designates any Restricted Subsidiary that is a Subsidiary Guarantor as an Unrestricted Subsidiary in accordance with Section 4.17, then such Subsidiary Guarantor (in the event of a sale of all of the Capital Stock of such Subsidiary Guarantor or a designation of such Subsidiary Guarantor as an Unrestricted Subsidiary) or the corporation acquiring the property (in the event of a sale or other disposition of all or substantially all of the assets of such Subsidiary Guarantor) shall be released and relieved of any obligations under its Subsidiary Guarantee. Upon delivery by the Company to the Trustee of an Officers' Certificate and an Opinion of Counsel to the effect that such sale or other disposition or designation was made by the Company in accordance with the provisions of this Indenture, including 65 without limitation Section 4.12 or 4.17 hereof, the Trustee shall execute any documents reasonably required in order to evidence the release of any Subsidiary Guarantor from its obligations under its Subsidiary Guarantee. Any Subsidiary Guarantor not released from its obligations under its Subsidiary Guarantee shall remain liable for the full amount of principal of and interest on the Notes and for the other obligations of any Subsidiary Guarantor under this Indenture as provided in this Article 10. ARTICLE 11. SATISFACTION AND DISCHARGE Section 11.01. SATISFACTION AND DISCHARGE. This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when: (a) either: (i) all Notes that have been authenticated (except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Company) have been delivered to the Trustee for cancellation; or (ii) all Notes that have not been delivered to the Trustee for cancellation have become due and payable by reason of the making of a notice of redemption or otherwise or will become due and payable within one year and the Company has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars and non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient without consideration of any reinvestment of interest, to pay and discharge the entire indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium, if any, and accrued interest and Additional Interest, if any, to the date of maturity or redemption; (b) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or shall occur as a result of such deposit and such deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which the Company or any Subsidiary Guarantor is a party or by which the Company or any Subsidiary Guarantor is bound; (c) the Company has paid or caused to be paid all sums payable by it under this Indenture; and (d) the Company has delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money and/or non-callable Government Securities toward the payment of the Notes at maturity or the redemption date, as the case may be. The Company shall deliver an Officers' Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied. Section 11.02. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. Subject to Section 11.03 hereof, all money and U.S. Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 11.02, the "Trustee") pursuant to Section 11.01 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, 66 if any, and interest and Additional Interest, if any,, but such money need not be segregated from other funds except to the extent required by law. Section 11.03. REPAYMENT TO COMPANY. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest or Additional Interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder shall thereafter look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. ARTICLE 12. SUBORDINATION Section 12.01. AGREEMENT TO SUBORDINATE. The Company and the Subsidiary Guarantors agree, and each Holder by accepting a Note agrees, that the payment of principal of, premium, if any, and interest on, and all other amounts payable in respect of, the Notes and the Subsidiary Guarantees is subordinated in right of payment, to the extent and in the manner provided in this Article 12 and subject to the provisions of Article 8 hereof, to the payment when due in cash of all Senior Debt of the Company and the Subsidiary Guarantors and that the subordination is for the benefit of and enforceable by the holders of such Senior Debt. The Notes and the Subsidiary Guarantees shall in all respects rank pari passu with any future Senior Subordinated Indebtedness and senior to all existing and future Subordinated Debt of the Company and the Subsidiary Guarantors, and only Senior Debt shall rank senior to the Notes and the Subsidiary Guarantees in accordance with the provisions set forth herein. All provisions of this Article 12 shall be subject to Section 12.12. Section 12.02. LIQUIDATION, DISSOLUTION, BANKRUPTCY. Upon any payment or distribution of the assets of the Company or the Subsidiary Guarantors to creditors upon a liquidation, dissolution or winding up of the Company or the Subsidiary Guarantors, a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or the Subsidiary Guarantors or their respective property, an assignment for the benefit of the Company's or the Subsidiary Guarantors' creditors or the marshaling of their respective assets and liabilities, the holders of Senior Debt will be entitled to receive payment in full in cash of all Obligations due in respect of Senior Debt (including interest after the commencement of any bankruptcy proceeding at the rate specified in the applicable Senior Debt) before the Holders of Notes are entitled to receive any payment of principal of, premium, if any, or interest on, the Notes and the Subsidiary Guarantees, except that Holders of Notes may receive and retain such payments made in Permitted Junior Securities and payments made from the trust described in Article 8 hereof. Until all Senior Debt is paid in full in cash, any distribution to which Holders of the Notes would be entitled but for this Article 12 will be made to holders of the Senior Debt as their interests may appear (except that Holders of Notes may receive and retain payments made in Permitted Junior Securities and payments and other distributions made from the trust described in Article 8 hereof; provided that (i) no Holder of Notes shall have the right to receive and retain any such Permitted Junior Securities if the existence of such right would have the effect of causing the Notes and the Subsidiary Guarantees to be treated in the same class of claims as the Senior Debt of the Company and the Subsidiary Guarantors or any class of claims which is pari passu with such Senior Debt and (ii) holders of Senior Debt shall be entitled to receive any cash payments made to any Holder of Notes on the account of Permitted Junior Securities until all Obligations in respect of Senior Debt have been paid in full in cash). 67 Section 12.03. DEFAULT ON SENIOR DEBT. The Company and the Subsidiary Guarantors may not pay (except in Permitted Junior Securities or from the trust described in Article 8 hereof) principal of, or premium, if any, or interest on, the Notes and the Subsidiary Guarantees, or make any deposit pursuant to Section 8.04, and may not repurchase, redeem or otherwise retire any Notes (collectively, "PAY THE NOTES") if (a) any principal, premium, interest or any other amount payable in respect of any Senior Debt is not paid within any applicable grace period (including at maturity) or (b) any other default on Senior Debt occurs and the maturity of such Senior Debt is accelerated in accordance with its terms unless, in either case, (1) the default has been cured or waived and any such acceleration has been rescinded or (2) such Senior Debt has been paid in full in cash; provided, however, that the Company and the Subsidiary Guarantors may pay the Notes without regard to the foregoing if the Company and the Trustee receive written notice approving such payment from the Representative of the holders of such Senior Debt or, if there is no Representative, from the holders of such Senior Debt. During the continuance of any default (other than a default described in clause (a) or (b) of the preceding sentence) with respect to any Designated Senior Debt pursuant to which the maturity thereof may be accelerated immediately without further notice (except any notice required to effect the acceleration) or the expiration of any applicable grace period, the Company and the Subsidiary Guarantors may not pay the Notes for a period (a "PAYMENT BLOCKAGE PERIOD") commencing upon the receipt by the Company and the Trustee of written notice of such default from the Representative of the holders of such Designated Senior Debt or, if there is no Representative, from the holders of such Designated Senior Debt, specifying an election to effect a Payment Blockage Period (a "PAYMENT BLOCKAGE NOTICE") and ending 179 days thereafter (unless such Payment Blockage Period is earlier terminated (a) by written notice to the Trustee and the Company from the Representative of the holders of such Designated Senior Debt or, if there is no Representative, from the holders of such Designated Senior Debt that gave such Payment Blockage Notice, (b) because such default is no longer continuing or (c) because such Designated Senior Debt has been repaid in full in cash). Not more than one Payment Blockage Notice with respect to all issues of Designated Senior Debt may be given in any consecutive 360-day period, irrespective of the number of defaults with respect to one or more issues of Designated Senior Debt during such period. No non-payment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be the basis for a subsequent Payment Blockage Notice. Following the expiration of any period during which the Company and the Subsidiary Guarantors are prohibited from making payments on the Notes and the Subsidiary Guarantees pursuant to a Payment Blockage Notice, the Company and the Subsidiary Guarantors shall (unless otherwise prohibited as described in the first two sentences of this paragraph) resume making any and all required payments in respect of the Notes and the Subsidiary Guarantees, including, without limitation, any missed payments, unless the maturity of any Designated Senior Debt has been accelerated, and such acceleration remains in full force and effect. The Company shall give prompt written notice to the Trustee of any default in the payment of any Senior Debt or any acceleration under any Senior Debt or under any agreement pursuant to which Senior Debt may have been issued. Failure to give such notice shall not effect the subordination of the Notes and the Subsidiary Guarantees to the Senior Debt or the application of the other provisions provided in this Article 12. Section 12.04. ACCELERATION OF PAYMENT OF SECURITIES. If payment of the Notes and the Subsidiary Guarantees is accelerated when Designated Senior Debt is outstanding, the Company and the Subsidiary Guarantors may not pay the Notes until three Business Days after the Representative of the holders of such Designated Senior Debt or, if there is no Representative, the holders of such Designated Senior Debt receive notice of such acceleration and, thereafter, may pay the Notes only if this Indenture otherwise permits payment at that time. Section 12.05. WHEN DISTRIBUTION MUST BE PAID OVER. If a payment or distribution is made to Holders of Notes that because of this Article 12 should not have been made to them, the Trustee or the Holders who receive the distribution shall hold it in trust for holders of Senior Debt (pro rata as to each of such holders of Senior Debt on the basis of the respective amounts of Senior Debt paid to them) and pay it over to them or their Representative as their interests may appear. 68 Section 12.06. SUBROGATION. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Senior Subordinated Indebtedness) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders have been applied to the payment of Senior Debt. A distribution made under this Article 12 to holders of Senior Debt that otherwise would have been made to Holders is not, as between the Company and the Subsidiary Guarantors and Holders, a payment by the Company and the Subsidiary Guarantors on such Senior Debt. Section 12.07. RELATIVE RIGHTS. This Article 12 defines the relative rights of Holders and holders of Senior Debt. Nothing in this Indenture shall: (a) impair, as between the Company and the Subsidiary Guarantors and Holders of Notes, the obligations of the Company and the Subsidiary Guarantors, which are absolute and unconditional, to pay principal of, premium, if any, and interest on, the Notes and the Subsidiary Guarantees in accordance with their terms; (b) affect the relative rights of Holders and creditors of the Company and the Subsidiary Guarantors other than their rights in relation to holders of Senior Debt; or (c) prevent the Trustee or any Holder from exercising its available remedies upon a Default or an Event of Default, subject to the rights of holders of Senior Debt to receive distributions otherwise payable to Holders. Section 12.08. SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY OR THE SUBSIDIARY GUARANTORS. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes and the Subsidiary Guarantees shall be impaired by any act or failure to act by the Company or the Subsidiary Guarantors or by their failure to comply with this Indenture. Section 12.09. RIGHTS OF TRUSTEE AND PAYING AGENT. Notwithstanding Section 12.03, the Trustee or Paying Agent may continue to make payments on the Notes and the Subsidiary Guarantees and shall not be charged with knowledge of the existence of facts that would prohibit the making of any such payments unless, not less than two Business Days prior to the date of such payment, a Responsible Officer receives notice satisfactory to it that payments may not be made under this Article 12. The Company, the Registrar, the Paying Agent, a Representative or a holder of Senior Debt may give the notice; provided, however, that if an issue of Senior Debt has a Representative, only the Representative may give the notice. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. The Registrar and the Paying Agent may do the same with like rights. The Trustee shall be entitled to all the rights set forth in this Article 12 with respect to any Senior Debt that may at any time be held by it to the same extent as any other holder of such Senior Debt, and nothing in Article 7 shall deprive the Trustee of any of its rights as such holder. Nothing in this Article 12 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 7.07. Section 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative (if any). 69 Section 12.11. ARTICLE 12 NOT TO PREVENT EVENTS OF DEFAULT OR LIMIT RIGHT TO ACCELERATE. Nothing in this Article 12 shall prevent an Event of Default in accordance with Article 6 or have any effect on the right of the Holders or the Trustee to accelerate the maturity of the Notes and the Subsidiary Guarantees or to exercise the rights and remedies in Article 6. Section 12.12. TRUST MONEYS NOT SUBORDINATED. Notwithstanding anything contained herein to the contrary, payments from cash or the proceeds of non-callable Government Securities held in trust under Article 8 by the Trustee for the payment of principal of and interest on the Notes and the Subsidiary Guarantees shall not be subordinated to the prior payment of any Senior Debt or subject to the restrictions set forth in this Article 12, and none of the Holders shall be obligated to pay over any such amount to the Company or the Subsidiary Guarantors or any holder of Senior Debt or any other creditor of the Company or the Subsidiary Guarantors. Section 12.13. TRUSTEE ENTITLED TO RELY. Upon any payment or distribution pursuant to this Article 12, the Trustee and the Holders shall be entitled to rely upon (a) any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 12.02 are pending, (b) a certificate of the liquidating trustee or agent or other Person making such payment or distribution to the Trustee or to the Holders or (c) a certificate of the Representative of the holders of Senior Debt or, if there is no Representative, the holders of Senior Debt for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Senior Debt and other Indebtedness of the Company and the Subsidiary Guarantors, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 12. In the event that the Trustee determines, in good faith, that evidence is required with respect to the right of any Person as a holder of Senior Debt to participate in any payment or distribution pursuant to this Article 12, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Senior Debt held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and other facts pertinent to the rights of such Person under this Article 12, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. The provisions of Section 7.01 and 7.02 shall be applicable to all actions or omissions of actions by the Trustee pursuant to this Article 12. Section 12.14. TRUSTEE TO EFFECTUATE SUBORDINATION. Each Holder by accepting a Note authorizes and directs the Trustee on its behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination between the Holders and the holders of Senior Debt as provided in this Article 12 and appoints the Trustee as attorney-in-fact for any and all such purposes. Section 12.15. TRUSTEE NOT FIDUCIARY FOR HOLDERS OF SENIOR DEBT. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt and shall not be liable to any such holders if it shall mistakenly pay over or distribute to Holders, the Company or the Subsidiary Guarantors or any other Person, money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 12 or otherwise, except if such mistake was the result of the Trustee's gross negligence or willful misconduct. Section 12.16. RELIANCE BY HOLDERS OF SENIOR DEBT ON SUBORDINATION PROVISIONS. Each Holder by accepting a Note acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Debt, whether such Senior Debt was created or acquired before or after the issuance of the Notes and the Subsidiary Guarantees, to acquire and continue to hold, or to continue to hold, such Senior Debt, and such holder of such Senior 70 Debt shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in continuing to hold, such Senior Debt. Section 12.17. RANKING WITH RESPECT TO OTHER SENIOR SUBORDINATED INDEBTEDNESS. The Notes and the Subsidiary Guarantees will rank equally in right of payment with all Existing Senior Subordinated Indebtedness. ARTICLE 13. MISCELLANEOUS Section 13.01. TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. Section 13.02. NOTICES. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telecopier or overnight air courier guaranteeing next-day delivery, to the other's address: If to the Company: Extendicare Health Services, Inc. 111 West Michigan Street Milwaukee, WI 53203 Attention: Chief Financial Officer Telecopier No.: (414) 908-8111 With a copy to: Foley & Lardner LLP 777 East Wisconsin Avenue Milwaukee, WI 53202-5306 Attention: Russell E. Ryba Telecopier No.: (414) 297-4900 If to the Trustee: U.S. Bank, N.A. 1555 North RiverCenter Drive, Suite 301 Milwaukee, WI 53212 Attention: Steven J. Peterson Telecopier No.: (414) 905-5049 The Company or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders and the Trustee) shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next-day delivery. All notices and communications to the Trustee shall be deemed duly given and effective only upon receipt. 71 Any notice or communication to a Holder shall be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next-day delivery to its address shown on the Security Register. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it. If the Company mails a notice or communication to Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee: (a) an Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been complied with; and (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 13.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been complied with. Section 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been complied with. Section 13.06. RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. 72 Section 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS. No past, present or future director, officer, employee, incorporator or stockholder of the Company or any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Company or of the Subsidiary Guarantors under the Notes, this Indenture, the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. Section 13.08. GOVERNING LAW. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE AND THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 13.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 13.10. SUCCESSORS. All covenants and agreements of the Company in this Indenture and the Notes shall bind its successors. All covenants and agreements of the Trustee in this Indenture shall bind its successors. Section 13.11. SEVERABILITY. In case any provision in this Indenture or in the Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 13.12. COUNTERPART ORIGINALS. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 13.13. TABLE OF CONTENTS, HEADINGS, ETC. The Table of Contents, Cross-Reference Table and Headings in this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 73 SIGNATURES Dated as of April 22, 2004 ISSUER: EXTENDICARE HEALTH SERVICES, INC. By:_________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer GUARANTORS: EXTENDICARE HEALTH FACILITY HOLDINGS, INC. EXTENDICARE HEALTH FACILITIES, INC. NORTHERN HEALTH FACILITIES, INC. EXTENDICARE HOMES, INC. EXTENDICARE HEALTH NETWORK, INC. THE PROGRESSIVE STEP CORPORATION EXTENDICARE OF INDIANA, INC. EXTENDICARE GREAT TRAIL, INC. FIR LANE TERRACE CONVALESCENT CENTER, INC. ADULT SERVICES UNLIMITED, INC. ARBORS EAST, INC. ARBORS AT TOLEDO, INC. HEALTH POCONOS, INC. MARSHALL PROPERTIES, INC. By:_________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO INDENTURE INDIANA HEALTH AND REHABILITATION CENTERS PARTNERSHIP BY: EXTENDICARE HOMES, INC., AS GENERAL PARTNER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer BY: EXTENDICARE OF INDIANA, INC., AS GENERAL PARTNER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer CONCORDIA MANOR, LLC FIRST COAST HEALTH AND REHABILITATION CENTER, LLC JACKSON HEIGHTS REHABILITATION CENTER, LLC TREASURE ISLE CARE CENTER, LLC BY: EXTENDICARE HOMES, INC., AS SOLE MEMBER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer KAUFMAN STREET, WV, LLC NEW CASTLE CARE, LLC BY: FIR LANE TERRACE CONVALESCENT CENTER, INC., AS SOLE MEMBER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO INDENTURE 75 ALPINE HEALTH AND REHABILITATION CENTER, LLC COLONIAL CARE, LLC GREENBRIAR CARE, LLC GREENBROOK CARE, LLC HERITAGE CARE, LLC LADY LAKE CARE, LLC NEW HORIZON CARE, LLC NORTH REHABILITATION CARE, LLC PALM COURT CARE, LLC RICHEY MANOR, LLC ROCKLEDGE CARE, LLC SOUTH HERITAGE HEALTH AND REHABILITATION CENTER, LLC THE OAKS RESIDENTIAL AND REHABILITATION CENTER, LLC WINTER HAVEN HEALTH AND REHABILITATION CENTER, LLC BY: EXTENDICARE HEALTH FACILITIES, INC., AS SOLE MEMBER By:____________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO INDENTURE 76 ARBORS AT TAMPA, LLC ARBORS AT BAYONET POINT, LLC ARBORS AT FAIRLAWN CARE, LLC ARBORS AT FAIRLAWN REALTY OH, LLC ARBORS AT SYLVANIA CARE, LLC ARBORS AT SYLVANIA REALTY OH, LLC ARBORS WEST CARE, LLC ARBORS WEST REALTY OH, LLC COLUMBUS REHABILITATION REALTY OH, LLC JACKSONVILLE CARE, LLC SAFETY HARBOR CARE, LLC KISSIMMEE CARE, LLC ORANGE PARK CARE, LLC OREGON CARE, LLC PORT CHARLOTTE CARE, LLC SARASOTA CARE, LLC SEMINOLE CARE, LLC WINTER HAVEN CARE, LLC BLANCHESTER CARE, LLC CANTON CARE, LLC COLUMBUS REHABILITATION CARE, LLC DAYTON CARE, LLC DELAWARE CARE, LLC GALLIPOLIS CARE, LLC HILLIARD CARE, LLC LONDON CARE, LLC MARIETTA CARE, LLC ROCKMILL CARE, LLC ROCKSPRINGS CARE, LLC WATERVILLE CARE, LLC WOODSFIELD CARE, LLC BY: NORTHERN HEALTH FACILITIES, INC., AS SOLE MEMBER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO INDENTURE 77 GREAT TRAIL CARE, LLC BY: EXTENDICARE GREAT TRAIL, INC., AS SOLE MEMBER By:__________________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development FISCAL SERVICES GROUP, LLC PARTNERS HEALTH GROUP, LLC STAR PURCHASING SERVICES, LLC BY: EXTENDICARE HEALTH NETWORK, INC., AS SOLE MEMBER By:__________________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development MILFORD CARE, LLC PRAIRIE VILLAGE CARE, LLC SCOTT VILLA CARE, LLC SWISS VILLA CARE, LLC VILLA PINES CARE, LLC BY: MARSHALL PROPERTIES, INC., AS SOLE MEMBER By:__________________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development SIGNATURE PAGE TO INDENTURE 78 PARTNERS HEALTH GROUP - FLORIDA, LLC PARTNERS HEALTH GROUP - LOUISIANA, LLC PARTNERS HEALTH GROUP - TEXAS, LLC BY: PARTNERS HEALTH GROUP, LLC BY: EXTENDICARE HEALTH NETWORK, INC., AS SOLE MEMBER By:__________________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development SIGNATURE PAGE TO INDENTURE 79 TRUSTEE: U.S. BANK, N.A. By: ________________________________________________ Name: Steven J. Peterson Title: Assistant Vice President SIGNATURE PAGE TO INDENTURE 80 EXHIBIT A ================================================================================ (Face of Note) 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 CUSIP _____________ NO. $_____________ EXTENDICARE HEALTH SERVICES, INC. promises to pay to CEDE & CO., INC. or registered assigns, the principal sum of _________________ Dollars ($______________) on May 1, 2014. Interest Payment Dates: May 1 and November 1, commencing November 1, 2004. Record Dates: April 15 and October 15. Dated: ______________, 20__. A-1 IN WITNESS WHEREOF, the Issuer has caused this Note to be signed manually or by facsimile by its duly authorized officer. EXTENDICARE HEALTH SERVICES, INC. By:_________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer This is one of the [Global] Notes referred to in the within-mentioned Indenture: U.S. Bank, N.A., as Trustee By:___________________________ Authorized Signatory Dated _____________, 20__ A-2 (Back of Note) 6 7/8% Senior Subordinated Notes due 2014 [Insert the Global Note Legend, if applicable pursuant to the terms of the Indenture] [Insert the Private Placement Legend, if applicable pursuant to the terms of the Indenture] Capitalized terms used herein shall have the meanings assigned to them in the Indenture referred to below unless otherwise indicated. 1. INTEREST. Extendicare Health Services, Inc., a Delaware corporation (the "ISSUER"), promises to pay interest on the principal amount of this Note at 6 7/8% per annum until maturity and shall pay Additional Interest, if any, as provided in Section 5 of the Registration Rights Agreement. The Issuer shall pay interest semi-annually on May 1 and November 1 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each an "INTEREST PAYMENT DATE"). Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided, however, that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided, further, that the first Interest Payment Date shall be the first of May 1 or November 1 to occur after the date of issuance, unless such May 1 or November 1 occurs within one calendar month of such date of issuance, in which case the first Interest Payment Date shall be the second of May 1 and November 1 to occur after the date of issuance. The Issuer shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at a rate that is 1% per annum in excess of the interest rate then in effect under the Indenture and this Note; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest (without regard to any applicable grace periods) from time to time on demand at the same rate to the extent lawful. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. 2. METHOD OF PAYMENT. The Issuer shall pay interest on the Notes (except defaulted interest) to the Persons who are Holders at the close of business on the April 15 or October 15 next preceding the Interest Payment Date, even if such Notes are cancelled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. The Notes shall be payable as to principal, premium, if any, and interest and Additional Interest, if any, at the office or agency of the Issuer maintained for such purpose, or, at the option of the Issuer, payment of interest may be made by check mailed to the Holders at their addresses set forth in the Security Register; provided, however, that payment by wire transfer of immediately available funds shall be required with respect to principal of and interest and Additional Interest, if any, and premium, if any, on, all Global Notes and all other Notes the Holders of which shall have provided wire transfer instructions to the Issuer or the Paying Agent. Such payment shall be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts. 3. PAYING AGENT AND REGISTRAR. Initially, U.S. Bank, N.A., the Trustee under the Indenture, shall act as Paying Agent and Registrar. The Issuer may change any Paying Agent or Registrar without notice to any Holder. The Issuer or any of its Subsidiaries may act in any such capacity. 4. INDENTURE. The Issuer issued the Notes under an Indenture dated as of April 22, 2004 ("INDENTURE") among the Issuer, the subsidiary guarantors party thereto (the "GUARANTORS") and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections 77aaa-77bbbb). The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are obligations of the Issuer unlimited in aggregate principal amount. A-3 5. MATURITY. The principal on the Notes shall be due and payable on May 1, 2014. 6. OPTIONAL REDEMPTION. (a) Except as set forth in clause (b) of this Paragraph 6, the Notes will not be redeemable at the option of the Issuer prior to May 1, 2009. Starting on that date, the Issuer may redeem all or any portion of the Notes, at once or over time, after giving the required notice under the Indenture. The Notes may be redeemed at the redemption prices (expressed as percentages of principal amount) set forth below, plus accrued and unpaid interest and Additional Interest, if any, to the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date), if redeemed during the twelve-month period commencing on May 1 of the years indicated below:

(b) At any time and from time to time, prior to May 1, 2007, the Issuer may redeem up to 35% of the aggregate principal amount of the Notes issued under the Indenture at a redemption price equal to 106.875% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, to the redemption date (subject to the right of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date) with the net cash proceeds of any Qualified Equity Offering; provided, however, that after giving effect to any such redemption, at least 65% of the aggregate principal amount of the Notes issued under the Indenture remains outstanding. Any such redemption shall be made within 120 days of the closing of such Qualified Equity Offering upon not less than 30 nor more than 60 days' prior notice. (c) Any prepayment pursuant to this paragraph shall be made pursuant to the provisions of Sections 3.01 through 3.06 of the Indenture. 7. MANDATORY REDEMPTION. The Issuer shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. 8. REPURCHASE AT OPTION OF HOLDER. (a) Upon the occurrence of a Change of Control, each Holder shall have the right to require the Issuer to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of such Holder's Notes (a "CHANGE OF CONTROL OFFER") at a purchase price equal to 101% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest, if any, to the purchase date (subject to the right of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date). (b) If the Issuer or one of its Restricted Subsidiaries consummates any Asset Sales, when the aggregate amount of Excess Proceeds exceeds $15.0 million, not later than 30 days after such date, the Issuer shall commence an offer to all Holders of Notes and Additional Notes, if any, and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an "ASSET SALE OFFER") pursuant to Section 3.09 of the Indenture to purchase, on a pro rata basis, the maximum principal amount of Notes (including any Additional Notes) and such other pari passu Indebtedness equal in amount to the Excess Proceeds remaining after an asset sale offer required to be commenced prior to the Asset Sale Offer (and not just the amount thereof that exceeds $15.0 million) at an offer price in cash equal to 100% of the principal amount thereof plus accrued and unpaid interest and Additional Interest, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture, and shall be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, the Issuer may use those Excess Proceeds for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and Additional Notes, if any, and other pari passu Indebtedness surrendered by holders thereof exceeds the amount of A-4 Excess Proceeds remaining after an asset sale offer required to be commenced prior to the Asset Sale Offer, the Trustee shall select the Notes and Additional Notes, if any, and other pari passu Indebtedness to be purchased on a pro rata basis. Holders of Notes that are the subject of an offer to purchase will receive an Asset Sale Offer from the Issuer prior to any related purchase date and may elect to have such Notes purchased by completing the form entitled "Option of Holder to Elect Purchase" on the reverse of the Notes. 8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30 days but not more than 60 days before the redemption date to each Holder whose Notes are to be redeemed at its registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed. On and after the redemption date interest ceases to accrue on Notes or portions thereof called for redemption. 9. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuer may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuer need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuer need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date. 10. PERSONS DEEMED OWNERS. The registered holder of a Note may be treated as its owner for all purposes. 11. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to certain exceptions, the Issuer and the Trustee may amend or supplement the Indenture or the Notes with the consent of the Holders of at least a majority in principal amount of the then outstanding Notes voting as a single class, and any existing default or compliance with any provision of the Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class. Without the consent of any Holder, the Issuer and the Trustee may amend or supplement the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to provide for the assumption by a successor corporation of the obligations of the Issuer under the Indenture in the case of a merger or consolidation or sale of all or substantially all of the assets of the Issuer, provide for uncertificated Notes in addition to or in place of certificated Notes, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, or to make any change to comply with any requirement of the SEC in order to effect or maintain the qualification of the Indenture under the TIA. 12. DEFEASANCE PRIOR TO MATURITY. Subject to certain conditions, the Issuer at any time may terminate some or all of its obligations under the Notes and the Indenture if the Issuer deposits with the Trustee for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, and interest and premium and Additional Interest, if any, on the Notes on the Stated Maturity or on the applicable redemption date, as the case may be. 13. DEFAULTS AND REMEDIES. Each of the following is an Event of Default under the Indenture: (1) default for 30 days in the payment when due of interest on, or Additional Interest with respect to, the Notes (whether or not prohibited by Article 12 of the Indenture); (2) default in payment when due of principal of, or premium, if any, on the Notes (whether or not prohibited by Article 12 of the Indenture); (3) failure by the Issuer or any of its Restricted Subsidiaries to comply with Sections 4.09 or 4.10 or Article 5 of the Indenture; (4) failure by the Issuer or any of its Restricted Subsidiaries for 30 days after notice to comply with Section 4.12 or 4.18; (5) failure by the Issuer or any of its Restricted Subsidiaries for 60 days after notice to comply with any other covenant or agreement in the Notes or in the Indenture; (6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Issuer or any of its Restricted Subsidiaries (or the payment of which is guaranteed by the Issuer or any of its Restricted Subsidiaries) whether such Indebtedness or guarantee now exists, or is created after the date of the Indenture, if that default (A) is A-5 caused by a failure to pay principal of, or interest or premium, if any, on such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "PAYMENT DEFAULT"); or (B) results in the acceleration of such Indebtedness prior to its express maturity, and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more; (7) failure by the Issuer or any of its Restricted Subsidiaries to pay final judgments (to the extent not fully covered by insurance) aggregating in excess of $20.0 million, which judgments are not paid, discharged or stayed for a period of 60 consecutive days; (8) except as permitted by the Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding to be unenforceable or invalid or shall cease for any reason to be in full force and effect or any Subsidiary Guarantor, or any Person acting on behalf of any Subsidiary Guarantor, shall deny or disaffirm its obligations under its Subsidiary Guarantee; and (9) certain events of bankruptcy or insolvency described in the Indenture with respect to the Issuer or any of its Significant Subsidiaries. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency described in the Indenture, all outstanding Notes shall become due and payable without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal or interest or Additional Interest) if it determines that withholding notice is in their interest. The Holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the Trustee may on behalf of the Holders of all of the Notes waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or Additional Interest on, or the principal of, the Notes. The Issuer is required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuer is required upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default. 14. TRUSTEE DEALINGS WITH ISSUER. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuer or its Affiliates, and may otherwise deal with the Issuer or its Affiliates, as if it were not the Trustee. 15. SUBORDINATION. The payment of principal of, premium, if any, and interest on, and all other amounts payable in respect of, this Notes is subordinated in right of payment to the payment when due in cash of all Senior Debt of the Company as set forth in Article 12 of the Indenture. 16. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator or stockholder of the Issuer or of any Subsidiary Guarantor, as such, shall have any liability for any obligations of the Issuer or any Subsidiary Guarantor under the Indenture, the Notes, the Subsidiary Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes; such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 17. AUTHENTICATION. This Note shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. 18. ABBREVIATIONS. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). 19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuer has caused CUSIP numbers to be printed on the Notes and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption and reliance may be placed only on the other identification numbers placed thereon. A-6 The Issuer shall furnish to any Holder upon written request and without charge a copy of the Indenture. Requests may be made to: Extendicare Health Services, Inc. 111 West Michigan Street Milwaukee, WI 53203 Attention: Chief Financial Officer A-7 Option of Holder to Elect Purchase If you want to elect to have this Note purchased by the Issuer pursuant to Section 4.12 or 4.18 of the Indenture, check the box below: [ ] Section 4.12 [ ] Section 4.18 If you want to elect to have only part of the Note purchased by the Issuer pursuant to Section 4.12 or Section 4.18 of the Indenture, state the amount you elect to have purchased: $_____________________ Date:___________________ Your Signature:________________________________ (Sign exactly as your name appears on the Note) Tax Identification No.: ___________________________________________________ SIGNATURE GUARANTEE: ___________________________________________________ Signatures must be guaranteed by an "eligible guarantor institution" meeting the requirements of the Registrar, which requirements include membership or participation in the Security Transfer Agent Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities Exchange Act of 1934, as amended. A-8 ASSIGNMENT FORM To assign this Note, fill in the form below: (I) or (we) assign and transfer this Note to ________________________________________________________________________________ (Insert assignee's soc. sec. or other tax I.D. no.) ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ as agent to transfer this Note on the books of the Issuer. The agent may substitute another to act for him. ________________________________________________________________________________ Date: ______________ Your Signature:______________________________________ (Sign exactly as your name appears on the face of this Note) Signature Guarantee:_________________________________ A-9 SCHEDULE OF EXCHANGES OF INTERESTS IN THE GLOBAL NOTE The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

EXHIBIT B FORM OF CERTIFICATE OF TRANSFER Extendicare Health Services, Inc. 111 West Michigan Street Milwaukee, WI 53203 Attention: Chief Financial Officer U.S. Bank, N.A. 1555 North RiverCenter Drive, Suite 301 Milwaukee, WI 53212 Attention: Corporate Trust Department Telecopier No.: (414) 905-5049 Re: 6 7/8% Senior Subordinated Notes due 2014 Reference is hereby made to the Indenture, dated as of April 22, 2004 (the "Indenture"), among Extendicare Health Services, Inc., as issuer (the "Issuer"), the Subsidiary Guarantors party thereto and U.S. Bank, N.A., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. ___________________, (the "Transferor") owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___________ in such Note[s] or interests (the "Transfer"), to ___________________________ (the "Transferee"), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that: [CHECK ALL THAT APPLY] 1. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE 144A GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO RULE 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the United States Securities Act of 1933, as amended (the "Securities Act"), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believed and believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a "qualified institutional buyer" within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 2. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE REGULATION S GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO REGULATION S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(a) of Regulation S under the Securities Act, (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act and (iv) if the proposed transfer is being made prior to the expiration of the Distribution Compliance Period, the transfer is not being made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on B-1 Transfer enumerated in the Private Placement Legend printed on the Regulation S Global Note, the Temporary Regulation S Global Note and/or the Definitive Note and in the Indenture and the Securities Act. 3. [ ] CHECK AND COMPLETE IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN THE IAI GLOBAL NOTE OR A DEFINITIVE NOTE PURSUANT TO ANY PROVISION OF THE SECURITIES ACT OTHER THAN RULE 144A OR REGULATION S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one): (a) [ ] such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act; or (b) [ ] such Transfer is being effected to the Issuer or a subsidiary thereof; or (c) [ ] such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act; or (d) [ ] such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the IAI Global Note and/or the Definitive Notes and in the Indenture and the Securities Act. 4. [ ] CHECK IF TRANSFEREE WILL TAKE DELIVERY OF A BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE OR OF AN UNRESTRICTED DEFINITIVE NOTE. (a) [ ] CHECK IF TRANSFER IS PURSUANT TO RULE 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (b) [ ] CHECK IF TRANSFER IS PURSUANT TO REGULATION S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in B-2 accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture. (c) [ ]CHECK IF TRANSFER IS PURSUANT TO OTHER EXEMPTION. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture. This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer. __________________________________________ [Insert Name of Transferor] By: _____________________________________ Name: Title: Dated:_____________________________ B-3 ANNEX A TO CERTIFICATE OF TRANSFER 1. [ ] The Transferor owns and proposes to transfer the following: [CHECK ONE OF (a) OR (b)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note. 2. [ ] After the Transfer the Transferee will hold: [CHECK ONE OF (a), (b) OR (c)] (a) [ ] a beneficial interest in the: (i) [ ] 144A Global Note (CUSIP _________), or (ii) [ ] Regulation S Global Note (CUSIP _________), or (iii) [ ] IAI Global Note (CUSIP _________); or (iv) [ ] Unrestricted Global Note (CUSIP _________); or (b) [ ] a Restricted Definitive Note; or (c) [ ] an Unrestricted Definitive Note, in accordance with the terms of the Indenture. B-4 EXHIBIT C FORM OF CERTIFICATE OF EXCHANGE Extendicare Health Services, Inc. 111 West Michigan Street Milwaukee, WI 53203 Attention: Chief Financial Officer U.S. Bank, N.A. 1555 North RiverCenter Drive, Suite 301 Milwaukee, WI 53212 Attention: Corporate Trust Department Telecopier No.: (414) 905-5049 Re: 6 7/8% Senior Subordinated Notes due 2014 Reference is hereby made to the Indenture, dated as of April 22, 2004 (the "Indenture"), among Extendicare Health Services, Inc., as issuer (the "Issuer"), the Subsidiary Guarantors party thereto and U.S. Bank, N.A., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. __________________________, (the "Owner") owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $____________ in such Note[s] or interests (the "Exchange"). In connection with the Exchange, the Owner hereby certifies that: 1. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN A RESTRICTED GLOBAL NOTE FOR UNRESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN AN UNRESTRICTED GLOBAL NOTE (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Note and pursuant to and in accordance with the United States Securities Act of 1933, as amended (the "Securities Act"), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (b) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Note and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (c) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN AN UNRESTRICTED GLOBAL NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for a beneficial interest in an Unrestricted Global Note, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. (d) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO UNRESTRICTED DEFINITIVE NOTE. In connection with the Owner's Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner's own account without C-1 transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States. 2. EXCHANGE OF RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES FOR RESTRICTED DEFINITIVE NOTES OR BENEFICIAL INTERESTS IN RESTRICTED GLOBAL NOTES (a) [ ] CHECK IF EXCHANGE IS FROM BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE TO RESTRICTED DEFINITIVE NOTE. In connection with the Exchange of the Owner's beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner's own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act. (b) [ ] CHECK IF EXCHANGE IS FROM RESTRICTED DEFINITIVE NOTE TO BENEFICIAL INTEREST IN A RESTRICTED GLOBAL NOTE. In connection with the Exchange of the Owner's Restricted Definitive Note for a beneficial interest in the [CIRCLE ONE] 144A Global Note, Regulation S Global Note, IAI Global Note with an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner's own account without transfer and (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Definitive Note and pursuant to and in accordance with the Securities Act, and in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the beneficial interest issued will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the relevant Restricted Global Note and in the Indenture and the Securities Act. C-2 This certificate and the statements contained herein are made for your benefit and the benefit of the Issuer. __________________________________________ [Insert Name of Transferor] By: _____________________________________ Name: Title: Dated:_____________________________ C-3 EXHIBIT D FORM OF CERTIFICATE FROM ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR Extendicare Health Services, Inc. 111 West Michigan Street Milwaukee, WI 53203 Attention: Chief Financial Officer U.S. Bank, N.A. 1555 North RiverCenter Drive, Suite 301 Milwaukee, WI 53212 Attention: Corporate Trust Department Telecopier No.: (414) 905-5049 Re: 6 7/8% Senior Subordinated Notes due 2014 Reference is hereby made to the Indenture, dated as of April 22, 2004 (the "Indenture"), among Extendicare Health Services, Inc., as issuer (the "Issuer"), the Subsidiary Guarantors party thereto and U.S. Bank, N.A., as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture. In connection with our proposed purchase of $____________ aggregate principal amount of: (a) [ ] a beneficial interest in a Global Note, or (b) [ ] a Definitive Note, we confirm that: 1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the United States Securities Act of 1933, as amended (the "Securities Act"). 2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to the Issuer or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a "qualified institutional buyer" (as defined therein), (C) to an institutional "accredited investor" (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Issuer a signed letter substantially in the form of this letter and, if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Issuer to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein. 3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Issuer such certifications, legal opinions and other information as you and the Issuer may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect. 4. We are an institutional "accredited investor" (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment. D-1 5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional "accredited investor") as to each of which we exercise sole investment discretion. You and the Issuer are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby. __________________________________________ [Insert Name of Transferor] By: _____________________________________ Name: Title: Dated:_____________________________ D-2 EXHIBIT E FORM OF NOTATION OF GUARANTEE For value received, each Subsidiary Guarantor (which term includes any successor Person under the Indenture), jointly and severally, unconditionally guarantees, to the extent set forth in the Indenture and subject to the provisions in the Indenture, dated as of April 22, 2004 (the "Indenture"), among Extendicare Health Services, Inc., as issuer (the "Issuer"), the Subsidiary Guarantors listed on the signature pages thereto and U.S. Bank, N.A., as trustee (the "Trustee"), (a) the due and punctual payment of the principal of, premium, if any, and interest on the Notes (as defined in the Indenture), whether at maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal and premium, if any, and, to the extent permitted by law, interest, and the due and punctual performance of all other obligations of the Issuer to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Subsidiary Guarantors to the Holders of Notes and to the Trustee pursuant to the Subsidiary Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Subsidiary Guarantee. This Subsidiary Guarantee is subject to release as and to the extent set forth in Section 10.05 of the Indenture. The payment of any amount in respect of this Subsidiary Guarantee is subordinated in right of payment to the payment when due in cash of all Senior Debt of the Subsidiary Guarantors as set forth in Article 12 of the Indenture. Each Holder of a Note, by accepting the same agrees to and shall be bound by such provisions. EXTENDICARE HEALTH FACILITY HOLDINGS, INC. EXTENDICARE HEALTH FACILITIES, INC. NORTHERN HEALTH FACILITIES, INC. EXTENDICARE HOMES, INC. EXTENDICARE HEALTH NETWORK, INC. THE PROGRESSIVE STEP CORPORATION EXTENDICARE OF INDIANA, INC. EXTENDICARE GREAT TRAIL, INC. FIR LANE TERRACE CONVALESCENT CENTER, INC. ADULT SERVICES UNLIMITED, INC. ARBORS EAST, INC. ARBORS AT TOLEDO, INC. HEALTH POCONOS, INC. MARSHALL PROPERTIES, INC. By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer INDIANA HEALTH AND REHABILITATION CENTERS PARTNERSHIP BY: EXTENDICARE HOMES, INC., AS GENERAL PARTNER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer BY: EXTENDICARE OF INDIANA, INC., AS GENERAL PARTNER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer CONCORDIA MANOR, LLC FIRST COAST HEALTH AND REHABILITATION CENTER, LLC JACKSON HEIGHTS REHABILITATION CENTER, LLC TREASURE ISLE CARE CENTER, LLC BY: EXTENDICARE HOMES, INC., AS SOLE MEMBER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer KAUFMAN STREET, WV, LLC NEW CASTLE CARE, LLC BY: FIR LANE TERRACE CONVALESCENT CENTER, INC., AS SOLE MEMBER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer ALPINE HEALTH AND REHABILITATION CENTER, LLC COLONIAL CARE, LLC GREENBRIAR CARE, LLC GREENBROOK CARE, LLC HERITAGE CARE, LLC LADY LAKE CARE, LLC NEW HORIZON CARE, LLC NORTH REHABILITATION CARE, LLC PALM COURT CARE, LLC RICHEY MANOR, LLC ROCKLEDGE CARE, LLC SOUTH HERITAGE HEALTH AND REHABILITATION CENTER, LLC THE OAKS RESIDENTIAL AND REHABILITATION CENTER, LLC WINTER HAVEN HEALTH AND REHABILITATION CENTER, LLC BY: EXTENDICARE HEALTH FACILITIES, INC., AS SOLE MEMBER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer ARBORS AT TAMPA, LLC ARBORS AT BAYONET POINT, LLC ARBORS AT FAIRLAWN CARE, LLC ARBORS AT FAIRLAWN REALTY OH, LLC ARBORS AT SYLVANIA CARE, LLC ARBORS AT SYLVANIA REALTY OH, LLC ARBORS WEST CARE, LLC ARBORS WEST REALTY OH, LLC COLUMBUS REHABILITATION REALTY OH, LLC JACKSONVILLE CARE, LLC SAFETY HARBOR CARE, LLC KISSIMMEE CARE, LLC ORANGE PARK CARE, LLC OREGON CARE, LLC PORT CHARLOTTE CARE, LLC SARASOTA CARE, LLC SEMINOLE CARE, LLC WINTER HAVEN CARE, LLC BLANCHESTER CARE, LLC CANTON CARE, LLC COLUMBUS REHABILITATION CARE, LLC DAYTON CARE, LLC DELAWARE CARE, LLC GALLIPOLIS CARE, LLC HILLIARD CARE, LLC LONDON CARE, LLC MARIETTA CARE, LLC ROCKMILL CARE, LLC ROCKSPRINGS CARE, LLC WATERVILLE CARE, LLC WOODSFIELD CARE, LLC BY: NORTHERN HEALTH FACILITIES, INC., AS SOLE MEMBER By:__________________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer GREAT TRAIL CARE, LLC BY: EXTENDICARE GREAT TRAIL, INC., AS SOLE MEMBER By:__________________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development FISCAL SERVICES GROUP, LLC PARTNERS HEALTH GROUP, LLC STAR PURCHASING SERVICES, LLC BY: EXTENDICARE HEALTH NETWORK, INC., AS SOLE MEMBER By:__________________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development MILFORD CARE, LLC PRAIRIE VILLAGE CARE, LLC SCOTT VILLA CARE, LLC SWISS VILLA CARE, LLC VILLA PINES CARE, LLC BY: MARSHALL PROPERTIES, INC., AS SOLE MEMBER By:__________________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development PARTNERS HEALTH GROUP - FLORIDA, LLC PARTNERS HEALTH GROUP - LOUISIANA, LLC PARTNERS HEALTH GROUP - TEXAS, LLC BY: PARTNERS HEALTH GROUP, LLC BY: EXTENDICARE HEALTH NETWORK, INC., AS SOLE MEMBER By:__________________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development TABLE OF CONTENTS

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vi EX-4.7 10 c86082exv4w7.txt EXCHANGE AND REGISTRATION RIGHTS AGREEMENT EXHIBIT 4.7 EXECUTION VERSION EXCHANGE AND REGISTRATION RIGHTS AGREEMENT Dated as of April 22, 2004 among Extendicare Health Services, Inc., The Subsidiary Guarantors from time to time party hereto, and Lehman Brothers Inc., on behalf of the Initial Purchasers EXCHANGE AND REGISTRATION RIGHTS AGREEMENT This Exchange and Registration Rights Agreement (this "Agreement") is made and entered into as of April 22, 2004 by and among Extendicare Health Services, Inc., a Delaware corporation (the "Company"), the Subsidiary Guarantors (as defined herein) and Lehman Brothers Inc., on behalf of itself and Piper Jaffray & Co. and ABN AMRO Incorporated (collectively, the "Initial Purchasers"). This Agreement is made pursuant to the Purchase Agreement, dated April 15, 2004 (the "Purchase Agreement"), by and among the Company, the Existing Subsidiary Guarantors (as defined herein) and the Initial Purchasers, which provides for the sale by the Company to the Initial Purchasers of $125,000,000 aggregate principal amount of the Company's 6 7/8% Senior Subordinated Notes due 2014 (the "Notes"). The Notes are, and the Exchange Notes (as defined herein) will be, guaranteed on a senior subordinated basis by the Subsidiary Guarantors (as defined herein). In order to induce the Initial Purchasers to purchase the Notes, the Company and the Existing Subsidiary Guarantors have agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 7 of the Purchase Agreement. The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Additional Interest: As defined in Section 5(a) hereof. Additional Subsidiary Guarantor: Any subsidiary of the Company that executes a Guarantee under the Indenture after the date of this Agreement. Advice: As defined in Section 6(e) hereof. Blackout Period: As defined in Section 5(a) hereof. Blue Sky Application: As defined in Section 8(a) hereof. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Closing Date: The date of this Agreement. Commission: The U.S. Securities and Exchange Commission. Company: As defined in the preamble hereto. 2 Consummate: A Registered Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (i) the filing and effectiveness under the Securities Act of the Exchange Offer Registration Statement relating to the Exchange Notes to be issued in the Exchange Offer, (ii) the maintenance of such Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the minimum period required pursuant to Section 3(b) hereof, and (iii) the delivery by the Company to the Registrar under the Indenture of Exchange Notes in the same aggregate principal amount as the aggregate principal amount of Notes that were tendered by Holders thereof pursuant to the Exchange Offer. Damages Payment Date: With respect to the Notes, each Interest Payment Date. Exchange Act: The U.S. Securities Exchange Act of 1934, as amended. Exchange Notes: The Company's 6 7/8% Senior Subordinated Notes due 2014 to be issued pursuant to the Indenture in the Exchange Offer, together with the related Guarantees. Exchange Offer: The registration by the Company under the Securities Act of the Exchange Notes pursuant to a Registration Statement pursuant to which the Company offers the Holders of all outstanding Transfer Restricted Securities the opportunity to exchange all such outstanding Transfer Restricted Securities held by such Holders for Exchange Notes in an aggregate principal amount equal to the aggregate principal amount of the Transfer Restricted Securities validly tendered in such exchange offer by such Holders. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Existing Subsidiary Guarantors: The various Subsidiary Guarantors signatory to the Indenture as of the date hereof. Guarantees: Guarantees by the Subsidiary Guarantors of the Company's obligations under the Notes, the Exchange Notes and the Indenture. Holder: As defined in Section 2(b) hereof. Indenture: The Indenture, dated as of the date hereof, among the Company, the Existing Subsidiary Guarantors and U.S. Bank, N.A., as trustee (the "Trustee"), pursuant to which the Notes and the Exchange Notes are to be issued, as such Indenture may be amended or supplemented from time to time in accordance with the terms thereof. Initial Purchasers: As defined in the preamble hereto. Interest Payment Date: As defined in the Indenture and the Notes. 3 Marketing Materials: As defined in Section 8(a) hereof. NASD: National Association of Securities Dealers, Inc. Notes: As defined in the preamble hereto. Person: An individual, partnership, corporation, limited liability company, unincorporated organization, association, joint-stock company, trust, joint venture, government or any agency or political subdivision thereof or any other entity. Prospectus: The prospectus included in a Registration Statement as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Purchase Agreement: As defined in the preamble hereto. Record Holder: With respect to any Damages Payment Date relating to Notes, each Person who is a Holder of Notes on the record date with respect to the Interest Payment Date on which such Damages Payment Date shall occur. Registration Default: As defined in Section 5(a) hereof. Registration Statement: Any Registration Statement of the Company and the Subsidiary Guarantors relating to (a) an offering of Exchange Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, which is filed pursuant to the provisions of this Agreement, in each case including the Prospectus included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Securities Act: The U.S. Securities Act of 1933, as amended. Shelf Filing Deadline: As defined in Section 4(a) hereof. Shelf Registration Period: As defined in Section 4(a) hereof. Shelf Registration Statement: As defined in Section 4(a) hereof. Subsidiary Guarantors: The Additional Subsidiary Guarantors and the Existing Subsidiary Guarantors. TIA: The U.S. Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. Transfer Restricted Securities: Each Note or Exchange Note (including the related Guarantees), as applicable, until the earliest to occur of (a) the date on which 4 such Note is exchanged by a person other than a Broker-Dealer in the Exchange Offer in exchange for an Exchange Note, so long as such person is not prohibited from reselling such Exchange Notes to the public without delivering a prospectus and the Prospectus in the Exchange Offer Registration Statement is not sufficient for such purpose, (b) following the exchange by a Broker-Dealer in the Exchange Offer of a Note for an Exchange Note, the date on which that Exchange Note is sold to a purchaser who receives from that Broker-Dealer on or prior to the date of such sale a copy of the Prospectus contained in the Exchange Offer Registration Statement, (c) the date on which such Note or Exchange Note has been effectively registered under the Securities Act and disposed of in accordance with a Shelf Registration Statement and (d) the date on which such Note is sold by the Holder pursuant to Rule 144 under the Securities Act or is saleable pursuant to Rule 144(k) under the Securities Act. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. SECTION 2. SECURITIES SUBJECT TO THIS AGREEMENT (a) Transfer Restricted Securities. The securities entitled to the benefits of this Agreement are the Transfer Restricted Securities. (b) Holders of Transfer Restricted Securities. A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permissible under applicable law or Commission policy (after the procedures set forth in Section 6(a) below have been complied with), the Company and the Subsidiary Guarantors shall (i) use their reasonable best efforts to cause to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 90 days after the Closing Date, a Registration Statement under the Securities Act relating to the Exchange Notes and the Exchange Offer, (ii) use their reasonable best efforts to cause such Registration Statement to be declared effective on or prior to 150 days after the Closing Date, (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Registration Statement as may be necessary in order to cause such Registration Statement to become effective, (B) if applicable, file a post-effective amendment to such Registration Statement pursuant to Rule 430A under the Securities Act and (C) cause all necessary filings in connection with the registration and qualification of the Exchange Notes to be made under the blue sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer and (iv) upon the effectiveness of such Registration Statement, commence the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting registration of the Exchange Notes to be offered in exchange for the Transfer Restricted Securities and to permit resales of Exchange Notes held by Broker-Dealers as contemplated by Section 3(c) below. 5 (b) The Company and the Subsidiary Guarantors shall use their reasonable best efforts to cause the Exchange Offer Registration Statement to be effective continuously and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable U.S. federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 business days. The Company and the Subsidiary Guarantors shall cause the Exchange Offer to comply with all applicable U.S. federal and state securities laws. No securities other than the Exchange Notes and the Guarantees shall be included in the Exchange Offer Registration Statement. The Company and the Subsidiary Guarantors shall use their reasonable best efforts to cause the Exchange Offer to be Consummated within 30 business days after the Exchange Offer Registration Statement has become effective. (c) The Company and the Subsidiary Guarantors shall indicate in a "Plan of Distribution" section of the Prospectus contained in the Exchange Offer Registration Statement that any Broker-Dealer who holds Notes that are Transfer Restricted Securities and that were acquired for its own account as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company), may exchange such Notes pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Securities Act and must, therefore, deliver a Prospectus meeting the requirements of the Securities Act in connection with any resales of the Exchange Notes received by such Broker-Dealer in the Exchange Offer, which Prospectus delivery requirement may be satisfied by the delivery by such Broker-Dealer of the Prospectus contained in the Exchange Offer Registration Statement. Such "Plan of Distribution" section shall also contain all other information with respect to such resales by Broker-Dealers that the Commission may require in order to permit such resales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Notes held by any such Broker-Dealer except to the extent required by the Commission. The Company and the Subsidiary Guarantors shall use their reasonable best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) below to the extent necessary to ensure that it is available for resales of Exchange Notes acquired by Broker-Dealers for their own accounts as a result of market-making activities or other trading activities, and to ensure that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least 90 days after the Consummation of the Exchange Offer. The Company and the Subsidiary Guarantors shall provide sufficient copies of the latest version of such Prospectus to Broker-Dealers promptly upon request at any time during such 90-day period in order to facilitate such resales. SECTION 4. SHELF REGISTRATION 6 (a) Shelf Registration. If (i) the Company and the Subsidiary Guarantors are not required to file an Exchange Offer Registration Statement or cannot Consummate the Exchange Offer because the Exchange Offer is not permitted by applicable U.S. law or Commission policy (after the procedures set forth in Section 6(a) below have been complied with) or (ii) if any Holder of Transfer Restricted Securities shall notify the Company prior to the 20th day following the Consummation of the Exchange Offer that such Holder (A) is prohibited by applicable U.S. law or Commission policy from participating in the Exchange Offer, (B) may not resell the Exchange Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and that the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) is a Broker-Dealer and holds Notes acquired directly from the Company or one of its affiliates, then the Company and the Subsidiary Guarantors shall: (x) use their reasonable best efforts to cause to be filed a Registration Statement pursuant to Rule 415 under the Securities Act, which may be an amendment to the Exchange Offer Registration Statement if permitted by the rules and regulations of the Commission (in either event, the "Shelf Registration Statement") on or prior to the earliest to occur of (1) the 30th day after the date on which the Company and the Subsidiary Guarantors determine that they are not required to file the Exchange Offer Registration Statement or permitted to Consummate the Exchange Offer and (2) the 30th day after the date on which the Company receives notice from a Holder of Transfer Restricted Securities as contemplated by clause (ii) of paragraph (a) above (such earliest date being the "Shelf Filing Deadline"), which Shelf Registration Statement shall provide for resales of all Transfer Restricted Securities by the Holders which shall have provided the information required pursuant to Section 4(b) hereof; and (y) use their reasonable best efforts to cause such Shelf Registration Statement to be declared effective by the Commission on or before the 90th day after the Shelf Filing Deadline. Subject to Section 5(b), the Company and the Subsidiary Guarantors shall use their reasonable best efforts to keep such Shelf Registration Statement continuously effective, supplemented and amended as required by the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for resales of Notes or Exchange Notes by the Holders of Transfer Restricted Securities entitled to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Securities Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years following the Closing Date or such shorter period that will terminate when all Notes or Exchange Notes covered by the Shelf Registration Statement have been sold pursuant to the Shelf Registration Statement (such period being the "Shelf Registration Period"). (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may 7 include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to Additional Interest pursuant to Section 5 hereof unless and until such Holder shall have used its reasonable best efforts to provide all such reasonably requested information. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. ADDITIONAL INTEREST (a) If (i) any of the Registration Statements required by this Agreement are not filed with the Commission on or prior to the date specified for such filing in Sections 3(a) and 4(a), as applicable, (ii) any of such required Registration Statements have not been declared effective by the Commission on or prior to the date specified for such effectiveness in Sections 3(a) and 4(a), as applicable, (iii) the Exchange Offer has not been Consummated within 30 business days, or longer, if required by federal securities laws, after the Exchange Offer Registration Statement has been declared effective or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable in connection with resales of Transfer Restricted Securities without being succeeded immediately by a post-effective amendment to such Registration Statement that cures such failure and that is itself immediately declared effective during the period specified in Sections 3(b), 3(c) and 4(a), as applicable (except as permitted in paragraph (b); such period of time during which any such Registration Statement is not effective or any such Registration Statement or the related Prospectus is not usable being referred to as a "Blackout Period") (each such event referred to in clauses (i) through (iv), a "Registration Default"), the Company and the Subsidiary Guarantors jointly and severally agree to pay additional interest ("Additional Interest") to each Holder of Transfer Restricted Securities adversely affected by such Registration Default, in an amount equal to $.05 per week per $1,000 principal amount of Transfer Restricted Securities held by such Holder with respect to the first 90-day period immediately following the occurrence of such Registration Default. The amount of Additional Interest shall increase by an additional $.05 per week per $1,000 principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period (or portion thereof) until all Registration Defaults have been cured, up to a maximum amount of Additional Interest for all Registration Defaults of $.50 per week per $1,000 principal amount of Transfer Restricted Securities. All accrued Additional Interest shall be paid to Record Holders by the Company and the Subsidiary Guarantors in the same manner as interest is paid under the Notes. Following the cure of all Registration Defaults relating to any particular Transfer Restricted Securities, the accrual of Additional Interest with respect to such Transfer Restricted Securities will cease. 8 (b) A Registration Default referred to in Section 5(a)(iv) shall be deemed not to have occurred and be continuing in relation to a Registration Statement or the related Prospectus if (i) the Blackout Period has occurred solely as a result of (x) the filing of a post-effective amendment to such Shelf Registration Statement to incorporate annual audited financial information with respect to the Company where such post-effective amendment is not yet effective and needs to be declared effective to permit Holders to use the related Prospectus or (y) the occurrence of other material events with respect to the Company that would need to be described in such Registration Statement or the related Prospectus and (ii) in the case of clause (y), the Company is proceeding promptly and in good faith to amend or supplement (including by way of filing documents under the Exchange Act which are incorporated by reference into the Registration Statement) such Registration Statement and the related Prospectus to describe such events; provided, however, that in any case if such Blackout Period occurs for a continuous period in excess of 30 days, a Registration Default shall be deemed to have occurred on the 31st day of such Blackout Period, and Additional Interest shall be payable in accordance with the above paragraph from the day such Registration Default occurs until such Registration Default is cured or until the Company and the Subsidiary Guarantors are no longer required pursuant to this Agreement to keep such Registration Statement effective or such Registration Statement or the related Prospectus usable; provided further, however, that in no event shall the total of all Blackout Periods exceed 45 days in the aggregate of any 12-month period. All payment obligations of the Company and the Subsidiary Guarantors set forth in this section that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such payment obligations with respect to such security shall have been satisfied in full. SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company and the Subsidiary Guarantors shall comply with all of the provisions of Section 6(c) below, shall use their reasonable best efforts to effect such exchange to permit the sale of Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and shall comply with all of the following provisions: (i) As a condition to its participation in the Exchange Offer pursuant to the terms of this Agreement, each Holder of Transfer Restricted Securities shall furnish, upon the request of the Company, prior to the Consummation thereof, a written representation to the Company and the Subsidiary Guarantors (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any Person to participate in, a distribution of the Exchange Notes to be issued in the Exchange 9 Offer and (C) it is acquiring the Exchange Notes in its ordinary course of business. In addition, all such Holders of Transfer Restricted Securities shall otherwise cooperate in the Company's and the Subsidiary Guarantors' preparations for the Exchange Offer. Each Holder hereby acknowledges and agrees that any Broker-Dealer and any such Holder using the Exchange Offer to participate in a distribution of the securities to be acquired in the Exchange Offer (1) could not under Commission policy as in effect on the date of this Agreement rely on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) and Morgan Stanley and Co., Inc. (available June 5, 1991), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters, and (2) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction and that such a secondary resale transaction should be covered by an effective Registration Statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K if the resales are of Exchange Notes obtained by such Holder in exchange for Notes acquired by such Holder directly from the Company. (ii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company and the Subsidiary Guarantors shall state to the Commission that the Company and the Subsidiary Guarantors are registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988) and Morgan Stanley and Co., Inc. (available June 5, 1991) and shall represent to the Commission that neither the Company nor any Subsidiary Guarantor has entered into any arrangement or understanding with any Person to distribute the Exchange Notes to be received in the Exchange Offer and that, to the best of the Company's and each Subsidiary Guarantor's information and belief, each Holder participating in the Exchange Offer is acquiring the Exchange Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the Exchange Notes received in the Exchange Offer; and (iii) The Company shall issue, upon the request of any Holder of Notes covered by the Exchange Offer, Exchange Notes, having an aggregate principal amount equal to the aggregate principal amount of Notes surrendered to the Company by such Holder in exchange therefor; such Exchange Notes to be registered in the name of such Holder or in the name of the purchaser(s) of such Exchange Notes, as the case may be; in return, the Notes held by such Holder shall be surrendered to the Company for cancellation. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company and the Subsidiary Guarantors shall comply with all of the provisions of Section 6(c) below and shall use their reasonable best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof, and pursuant thereto the Company and the Subsidiary Guarantors will as expeditiously as possible 10 prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Securities Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof. (c) General Provisions. In connection with any Registration Statement and any Prospectus required by this Agreement to permit the sale or resale of Transfer Restricted Securities (including, without limitation, any Registration Statement and the related Prospectus required to permit resales of Notes and Exchange Notes by Broker-Dealers), the Company and the Subsidiary Guarantors shall: (i) use their reasonable best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements (including, if required by the Securities Act or any regulation thereunder, financial statements of any Subsidiary Guarantor) for the period specified in Sections 3 or 4 of this Agreement, as applicable; upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company and the Subsidiary Guarantors shall file promptly an appropriate amendment to such Registration Statement, in the case of clause (A), correcting any such misstatement or omission, and, in the case of either clause (A) or (B), use their reasonable best efforts to cause such amendment to be declared effective and such Registration Statement and the related Prospectus to become usable for their intended purpose(s) as soon as practicable thereafter. Notwithstanding the foregoing, the Company and the Subsidiary Guarantors may allow the Shelf Registration Statement to cease to become effective and usable if (x) the board of directors of the Company determines in good faith that it is in the best interests of the Company not to disclose the existence of or facts surrounding any proposed or pending material corporate transaction involving the Company or the Subsidiary Guarantors, and the Company notifies the Holders within two business days after such board of directors makes such determination or (y) the Prospectus contained in the Shelf Registration Statement contains an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading; provided that the two-year period referred to in Section 4(a) hereof during which the Shelf Registration Statement is required to be effective and usable shall be extended by the number of days during which such Registration Statement was not effective or usable pursuant to the foregoing provisions; and provided further that Additional Interest shall accrue on the Notes as provided in Section 5 hereof; (ii) prepare and file with the Commission such amendments and post-effective amendments to the Registration Statement as may be necessary to keep the Registration Statement effective for the applicable period set forth in Sections 3 or 4 hereof, as applicable; cause the Prospectus to be supplemented by 11 any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and to comply fully with the applicable provisions of Rules 424 and 430A under the Securities Act in a timely manner; and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) cooperate with the selling Holders of Transfer Restricted Securities and the underwriter(s), if any, to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and enable such Transfer Restricted Securities to be in such denominations and registered in such names as the Holders or the underwriter(s), if any, may request at least two business days prior to any sale of Transfer Restricted Securities made by such Holders or underwriter(s); (iv) use their reasonable best efforts to cause the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof or the underwriter(s), if any, to consummate the disposition of such Transfer Restricted Securities; (v) if any fact or event contemplated by clause (d)(i)(D) below shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading; (vi) provide a CUSIP, CINS or ISIN number, as applicable, for all Transfer Restricted Securities not later than the effective date of the Registration Statement and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the depositary; (vii) cooperate and assist in any filings required to be made with the NASD and in the performance of any due diligence investigation by any underwriter (including any "qualified independent underwriter") that is required to be retained in accordance with the rules and regulations of the NASD; (viii) otherwise use their best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to their security holders, as soon as practicable, a consolidated earnings statement 12 meeting the requirements of Rule 158 (which need not be audited) for the 12-month period (A) commencing at the end of any fiscal quarter in which Transfer Restricted Securities are sold to underwriters in a firm or best efforts Underwritten Offering or (B) if not sold to underwriters in such an offering, beginning with the first month of the Company's first fiscal quarter commencing after the effective date of the Registration Statement; (ix) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement, and, in connection therewith, cooperate with the Trustee and the Holders of Notes and Exchange Notes to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute, and use their best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and (x) provide promptly to any Holder upon such Holder's written request each document filed with the Commission pursuant to the requirements of Section 13 and Section 15 of the Exchange Act. (d) Additional Provisions Applicable to Shelf Registration Statements. In connection with each Shelf Registration Statement, during the Shelf Registration Period, the Company and the Subsidiary Guarantors shall: (i) advise the underwriter(s), if any, and selling Holders of Transfer Restricted Securities promptly and, if requested by such Persons, to confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to the Shelf Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Shelf Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Securities Act, of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction or of the initiation of any proceeding for any of the preceding purposes and (D) of the existence of any fact or the happening of any event that requires the making of any additions to or changes in the Shelf Registration Statement or the Prospectus in order that the Shelf Registration Statement and the Prospectus do not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Shelf Registration Statement, or any U.S. state securities commission or other regulatory authority shall issue an order suspending the qualification or 13 exemption from qualification of the Transfer Restricted Securities under U.S. state securities or blue sky laws, the Company and the Subsidiary Guarantors shall use their reasonable best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (ii) if requested in writing, furnish to each of the selling Holders of Transfer Restricted Securities and each of the underwriter(s), if any, before filing with the Commission, copies of any Shelf Registration Statement or any Prospectus included therein or any amendments or supplements to any such Shelf Registration Statement or Prospectus (including all documents incorporated by reference after the initial filing of such Shelf Registration Statement), which documents will be subject to the review of such Holders and underwriter(s), if any, for a period of at least five business days, and the Company and the Subsidiary Guarantors will not file any such Shelf Registration Statement or Prospectus or any amendment or supplement to any such Shelf Registration Statement or Prospectus (including all such documents incorporated by reference) if a selling Holder of Transfer Restricted Securities covered by such Shelf Registration Statement or the underwriter(s), if any, shall not have had an opportunity to review the documents as set forth above; such Holders and underwriter(s) shall be deemed to have reasonably objected to such filing if such Shelf Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains an untrue statement of a material fact or omits to state any material fact necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading, or fails to comply with the applicable requirements of the Securities Act; (iii) upon request, provide copies of any document that is to be incorporated by reference into a Shelf Registration Statement or Prospectus to the selling Holders and to the underwriter(s), if any, make the Company's and the Subsidiary Guarantors' representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such selling Holders or underwriter(s), if any, reasonably may request; (iv) make available for inspection at reasonable times at each of the Company's principal places of business by the selling Holders of Transfer Restricted Securities, any underwriter participating in any disposition pursuant to such Shelf Registration Statement, and any attorney or accountant retained by such selling Holders or any of the underwriter(s) who shall certify to the Company and the Subsidiary Guarantors that they have a current intention to sell Transfer Restricted Securities pursuant to a Shelf Registration Statement, such relevant financial and other records, pertinent corporate documents and properties of the Company and the Subsidiary Guarantors as reasonably requested and cause the Company's and the Subsidiary Guarantors' officers, directors and employees to respond to such inquiries as shall be reasonably necessary, in the reasonable judgment of counsel to such selling Holders or underwriters, to conduct a 14 reasonable investigation; provided, however, that the foregoing inspection and information gathering shall be coordinated on behalf of the selling Holders by one counsel designated by and on behalf of such Holders and, provided further, however, that each such party shall be required to maintain in confidence and not disclose to any other Person any information or records reasonably designated by the Company in writing as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such Shelf Registration Statement or otherwise), (B) such Person shall be required so to disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such Person shall have given the Company prompt prior written notice of such requirement) or (C) such information is required to be set forth in such Shelf Registration Statement or the Prospectus included therein or in an amendment to such Shelf Registration Statement or an amendment or supplement to such Prospectus in order that such Shelf Registration Statement, Prospectus, amendment or supplement, as the case may be, does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements made therein not misleading; (v) if requested by any selling Holders of Transfer Restricted Securities or the underwriter(s), if any, promptly incorporate in any Shelf Registration Statement or Prospectus pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders and underwriter(s), if any, may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities information with respect to the principal amount of Transfer Restricted Securities being sold to such underwriter(s), the purchase price being paid therefor and any other terms of the offering of the Transfer Restricted Securities to be sold in such offering; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company are notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment; provided, however, that the Company shall not be required to take any action pursuant to this Section 6(d)(v) that would, in the opinion of counsel for the Company reasonably satisfactory to the Initial Purchasers, violate applicable law; (vi) deliver to each selling Holder of Transfer Restricted Securities and each of the underwriter(s), if any, without charge, as many copies of the Prospectus (including each preliminary Prospectus) and any amendment or supplement thereto as such Persons reasonably may request; the Company and the Subsidiary Guarantors hereby consent to the use of the Prospectus and any amendment or supplement thereto by each of the selling Holders and each of the underwriter(s), if any, in connection with the offering and the sale of the Transfer 15 Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (vii) furnish to each Holder whose Transfer Restricted Securities have been included in a Shelf Registration Statement in connection with such exchange or sale, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (viii) enter into an underwriting agreement on not more than one occasion in the case of an offering pursuant to a Shelf Registration, and make such representations and warranties, and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any Registration Statement contemplated by this Agreement, all to such extent as may be reasonably requested by any Holder or Holders of Transfer Restricted Securities who hold at least 25% in aggregate principal amount of such class of Transfer Restricted Securities; provided that the Company and the Subsidiary Guarantors shall not be required to enter into any such agreement more than once with respect to all of the Transfer Restricted Securities and may delay entering into such agreement if the board of directors of each of the Company and the Subsidiary Guarantors determines in good faith that it is in the best interests of the Company and the Subsidiary Guarantors not to disclose the existence of or facts surrounding any proposed or pending material corporate transaction involving the Company and the Subsidiary Guarantors; and whether or not an underwriting agreement is entered into and whether or not the registration is an Underwritten Registration, the Company and the Subsidiary Guarantors shall: (A) furnish to the Initial Purchasers, the Holders of Transfer Restricted Securities who hold at least 25% in aggregate principal amount of such class of Transfer Restricted Securities and each underwriter, if any, in such substance and scope as they may reasonably request and as are customarily made in connection with an offering of debt securities pursuant to a Shelf Registration Statement (i) upon the effective date of the Shelf Registration Statement (and if such Shelf Registration Statement contemplates an Underwritten Offering of Transfer Restricted Securities upon the date of the closing under the underwriting agreement related thereto) and (ii) upon the filing of any amendment or supplement to the Shelf Registration Statement or any other document that is incorporated in the Shelf Registration Statement by reference and includes financial data with respect to a fiscal quarter or year: (1) a certificate, dated the date of effectiveness of the Shelf Registration Statement signed by (y) the respective chief executive officer, the respective President or any Vice President and (z) the respective chief financial officer of each of the Company and each of the 16 Subsidiary Guarantors confirming, as of the date thereof, the matters set forth in Section 7(m) of the Purchase Agreement and such other matters as such parties may reasonably request; (2) an opinion, dated the date of effectiveness of such Shelf Registration Statement, of securities counsel for the Company covering matters similar to those set forth in Section 7(d) of the Purchase Agreement and such other matters as such parties may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company and the Subsidiary Guarantors, representatives of the independent public accountants for the Company, the Initial Purchasers' representatives and the Initial Purchasers' counsel in connection with the preparation of such Shelf Registration Statement and the related Prospectus although such counsel has not independently verified the accuracy, completeness or fairness of such statements in such Shelf Registration Statement; and that such counsel advises that, on the basis of the foregoing, such counsel's work in connection with this work did not disclose information that gave such counsel reason to believe that the Shelf Registration Statement, at the time such Shelf Registration Statement or any post-effective amendment thereto became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Shelf Registration Statement as of its date contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading. Such counsel may state further that such counsel expresses no view with respect to, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules, the financial projections and the other financial, statistical and accounting data included or incorporated by reference in the Shelf Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated as of the date of effectiveness of the Shelf Registration Statement from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with primary underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Sections 7(j) and 7(k) of the Purchase Agreement; (B) set forth in full or incorporated by reference in the underwriting agreement, if any, the indemnification provisions and procedures of 17 Section 8 hereof with respect to all parties to be indemnified pursuant to said Section; and (C) deliver such other documents and certificates as may be reasonably requested by such parties to evidence compliance with clause (A) above and with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company and the Subsidiary Guarantors pursuant to this clause (viii), if any. If at any time during the Shelf Registration Period the representations and warranties of the Company or the Subsidiary Guarantors contemplated in clause (A)(1) above cease to be true and correct, the Company or the Subsidiary Guarantors shall so advise the Initial Purchasers and the underwriters, if any, and each selling Holder promptly and, if requested by such Persons, shall confirm such advice in writing; and (ix) prior to any public offering of Transfer Restricted Securities cooperate with the selling Holders of Transfer Restricted Securities, the underwriter(s), if any, and their respective counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or blue sky laws of such jurisdictions as the selling Holders of Transfer Restricted Securities or underwriter(s), if any, may reasonably request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the Shelf Registration Statement filed pursuant to Section 4 hereof; provided, however, that the Company and the Subsidiary Guarantors shall not be obligated to qualify as a foreign corporation in any jurisdiction in which they are not now so qualified or to take any action that would subject them to general consent to service of process, other than as to matters and transactions relating to the Shelf Registration Statement, in any jurisdiction where they are not now so subject. (e) Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of any notice from the Company of the existence of any fact of the kind described in Section 6(d)(i) hereof, such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the Shelf Registration Statement until such Holder's receipt of the copies of the supplemented or amended Prospectus contemplated by Section 6(d)(vi) hereof, or until it is advised in writing (the "Advice") by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus. If so directed by the Company, each Holder will deliver to the Company (at the Company's expense) all copies, other than permanent file copies then in such Holder's possession, of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of such notice. In the event the Company shall give any such notice, the time period regarding the effectiveness of such Shelf Registration Statement set forth in Section 4 hereof, as applicable, shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to Section 6(d)(i) hereof to and including the date when each selling Holder covered by 18 such Shelf Registration Statement shall have received the copies of the supplemented or amended Prospectus contemplated by Section 6(d)(vi) hereof or shall have received the Advice. (f) The Company and the Subsidiary Guarantors may require each Holder of Transfer Restricted Securities as to which any registration is being effected to furnish to the Company such information regarding such Holder and such Holder's intended method of distribution of the applicable Transfer Restricted Securities as the Company may from time to time reasonably request in writing, but only to the extent that such information is required in order to comply with the Securities Act. Each such Holder agrees to notify the Company as promptly as practicable of (i) any inaccuracy or change in information previously furnished by such Holder to the Company or (ii) the occurrence of any event, in either case, as a result of which any Prospectus relating to such registration contains or would contain an untrue statement of a material fact regarding such Holder or such Holder's intended method of distribution of the applicable Transfer Restricted Securities or omits to state any material fact regarding such Holder or such Holder's intended method of distribution of the applicable Transfer Restricted Securities required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such Prospectus shall not contain, with respect to such Holder or the distribution of the applicable Transfer Restricted Securities an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's and the Subsidiary Guarantors' performance of or compliance with this Agreement will be borne by the Company regardless of whether a Registration Statement becomes effective, including without limitation and as applicable: (i) all Commission, securities exchange or NASD registration and filing fees and expenses (including filings made by any Initial Purchasers or Holder with the NASD (and, if applicable, the fees and expenses of any "qualified independent underwriter" and its counsel that may be required by the rules and regulations of the NASD)); (ii) all fees and expenses of compliance with U.S. federal securities and state blue sky or securities laws and compliance with the rules of the NASD (including reasonable fees and disbursements of one counsel for Holders in connection with blue sky and/or NASD qualification of the Exchange Notes); (iii) all expenses of printing (including printing certificates for the Exchange Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services; (iv) all fees and disbursements of counsel for the Company and the Subsidiary Guarantors; (v) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance) and (vi) the reasonable fees and disbursements of one firm of counsel designated by the Holders of a majority in principal amount of Transfer 19 Restricted Securities covered by the Shelf Registration Statement to act as counsel for the Holders of those Transfer Restricted Securities in connection therewith. The Company will, in any event, bear their and the Subsidiary Guarantors' internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company or the Subsidiary Guarantors. (b) Each Holder of Transfer Restricted Securities will pay all underwriting discounts, if any, and commissions and transfer taxes, if any, relating to the disposition of such Holder's Transfer Restricted Securities. SECTION 8. INDEMNIFICATION (a) The Company and each Subsidiary Guarantor shall, jointly and severally, indemnify and hold harmless each Holder of Transfer Restricted Securities, its officers and employees and each Person, if any, who controls any such Holders, within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases, sales and registration of the Notes, the Guarantees and the Exchange Notes), to which that Holder, officer, employee or controlling Person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Registration Statement or preliminary Prospectus or Prospectus or in any amendment or supplement thereto, (B) in any Blue Sky Application (as defined below) or other document prepared or executed by any Company or any Subsidiary Guarantor (or based upon any written information furnished by any Company or any Subsidiary Guarantor) specifically for the purpose of qualifying any or all of the Notes under the securities laws of any state or other jurisdiction (any such application, document or information being hereinafter called a "Blue Sky Application") or (C) in any materials or information provided to investors by, or with the approval of, the Company in connection with the marketing of the offering of the Exchange Notes ("Marketing Materials"), including any roadshow or investor presentations made to investors by the Company (whether in person or electronically); (ii) the omission or alleged omission to state in any Registration Statement, preliminary Prospectus or Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application or Marketing Materials any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, or (iii) any act or failure to act or any alleged act or failure to act by any Holder of Transfer Restricted Securities in connection with, or relating in any manner to, the Notes, the Guarantees or the Exchange Notes or the offering contemplated by any Registration Statement, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clause (i) or (ii) above (provided that the Company and the Subsidiary Guarantors shall not be liable under this clause (iii) to the extent that it is determined in a 20 final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Holder through its gross negligence or willful misconduct); and shall reimburse each Holder and each such officer, employee or controlling Person promptly upon demand for any legal or other expenses reasonably incurred by that Holder, officer, employee or controlling Person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and the Subsidiary Guarantors shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Registration Statement, preliminary Prospectus or Prospectus, or in any such amendment or supplement, or in any Blue Sky Application or Marketing Materials, in reliance upon and in conformity with written information concerning such Holder furnished to the Company by or on behalf of any Holder specifically for inclusion therein; provided, further, that with respect to any such untrue statement or omission made in any preliminary Prospectus or Prospectus, the indemnity agreement contained in this Section 8(a) shall not inure to the benefit of the Holder from whom the Person asserting any such losses, claims, damages or liabilities purchased the Notes, Guarantees or Exchange Notes concerned if, to the extent that such sale was a sale by the Holder and any such loss, claim, damage or liability of such Holder is a result of the fact that both (A) a copy of the Prospectus (or the Prospectus as then amended or supplemented) was not sent or given to such Person at or prior to written confirmation of the sale of such Notes or Exchange Notes to such Person and (B) the untrue statement or omission in the preliminary Prospectus or Prospectus was corrected in the Prospectus (or the Prospectus as then amended or supplemented) unless such failure to deliver the Prospectus was a result of noncompliance by the Company with Section 6(d)(vi) hereof. The foregoing indemnity agreement is in addition to any liability which the Company and the Subsidiary Guarantors may otherwise have to any Holder or to any officer, employee or controlling Person of that Holder. (b) Each Holder, severally and not jointly, shall indemnify and hold harmless each of the Company, each of the Subsidiary Guarantors, their respective directors, officers and employees, and each Person, if any, who controls either of the Company or any of the Subsidiary Guarantors within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company, the Subsidiary Guarantors or any such director, officer or controlling Person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon (i) any untrue statement or alleged untrue statement of a material fact contained (A) in any Registration Statement, preliminary Prospectus or Prospectus, or in any amendment or supplement thereto or (B) in any Blue Sky Application or (ii) the omission or alleged omission to state in any Registration Statement, preliminary Prospectus or Prospectus, or in any amendment or supplement thereto, or in any Blue Sky Application any material fact required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that the untrue statement or alleged untrue 21 statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Holders furnished to the Company by or on behalf of that Holder specifically for inclusion therein, which information consists of the information specified in Section 8(e) of the Purchase Agreement, and shall reimburse the Company, each of the Subsidiary Guarantors and each such director, officer, employee and controlling Person for any legal or other expenses reasonably incurred by the Company, each such Subsidiary Guarantor or each such director, officer, employee or controlling Person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any Holder may otherwise have to the Company, any of the Subsidiary Guarantors or any such director, officer, employee or controlling Person. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and; provided, further, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, any indemnified party shall have the right to employ separate counsel in any such action and to participate in the defense thereof but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel has been specifically authorized by the indemnifying party in writing, or (ii) such indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party and in the reasonable judgment of such counsel it is advisable for such indemnified party to employ separate counsel or (iii) the indemnifying party has failed to assume the defense of such action and employ counsel reasonably satisfactory to the indemnified party, in which case, if such indemnified party notifies the indemnifying party in writing that it elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not, in connection with any one such action or separate but substantially similar or related actions arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate 22 firm of attorneys (in addition to local counsel) at any time for all such indemnified parties, which firm shall be designated in writing by (x) Lehman Brothers Inc. if the indemnified parties under this Section 8 consist of the Initial Purchasers or any of their respective officers, employees or controlling Persons or (y) by the Company, if the indemnified parties under this Section 8 consist of any of the Company, any of the Subsidiary Guarantors or any of their respective directors, officers, employees or controlling Persons. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the consent of the indemnifying party or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company and the Subsidiary Guarantors, on the one hand, and the Holders on the other, from the sale of the Transfer Restricted Securities or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company and the Subsidiary Guarantors, on the one hand and the Holders on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or any of the Subsidiary Guarantors, on the one hand, or the Holders, on the other hand, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Subsidiary Guarantors and the Holders agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were to be determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, 23 damage or liability, or action in respect thereof, referred to above in this Section shall be deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), no Holder shall be required to contribute any amount in excess of the amount by which the net proceeds received by it in connection with its sale of Notes exceeds the amount of any damages which such Holder has otherwise paid or become liable to pay by reason of the untrue or alleged untrue statement or omission or alleged omission. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute as provided in this Section 8(d) are several and not joint. SECTION 9. RULE 144A The Company and each Subsidiary Guarantor hereby agrees with each Holder of Transfer Restricted Securities, during any period in which the Company or such Subsidiary Guarantor is not subject to Section 13 or 15(d) of the Exchange Act within the two-year period following the Closing Date, to make available to any Holder or beneficial owner of Transfer Restricted Securities, in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities from such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting arrangements approved by the Persons entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. SECTION 11. SELECTION OF UNDERWRITERS Subject to Section 6(d)(i), the Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in an Underwritten Offering at such Holders' expense. In any such Underwritten Offering, the investment banker or investment bankers and manager or managers that will administer the offering will be selected by the Holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided that such investment bankers and managers must be reasonably satisfactory to the Company. 24 SECTION 12. MISCELLANEOUS (a) Remedies. The Company and the Subsidiary Guarantors agree that monetary damages (including Additional Interest) would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Agreement and hereby agree to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. Neither the Company nor any Subsidiary Guarantor will, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as disclosed in the Offering Memorandum (as such term is defined in the Purchase Agreement), neither the Company nor any Subsidiary Guarantor has previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's or any Subsidiary Guarantor's securities under any agreement in effect on the date hereof. (c) Adjustments Affecting the Notes. The Company and the Subsidiary Guarantors will not take any action, or permit any change to occur, with respect to the Notes that would materially and adversely affect the ability of the Holders to Consummate any Exchange Offer. (d) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless the Company have obtained the written consent of Holders of a majority of the outstanding principal amount of the Transfer Restricted Securities affected by such amendment, modification, supplement, waiver or consent. Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities being tendered or registered. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, facsimile or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and 25 (ii) if to the Company or the Subsidiary Guarantors to: Extendicare Health Services, Inc. 111 West Michigan Street Milwaukee, Wisconsin 53203-2903 Attention: Chief Executive Officer Fax: (414) 908-8059 with a copy to: Foley & Lardner LLP 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202-5306 Attention: Russell E. Ryba, Esq. Fax: (414) 297-4900 Any such notices and communications shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any notice or communication given or made by the Initial Purchasers. Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders; provided, however, that this Agreement shall not inure to the benefit of or be binding upon a successor or assign of a Holder unless and to the extent such successor or assign acquired Transfer Restricted Securities from such Holder. (g) Counterparts. This Agreement may be executed in any number of counterparts and by the parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CHOICE OF LAW THEREOF. 26 (j) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstance, is held invalid, illegal or unenforceable, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be affected or impaired thereby. (k) Entire Agreement. This Agreement together with the other Operative Documents (as defined in the Purchase Agreement) is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted by the Company and the Subsidiary Guarantors with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. (Signature pages follow.) 27 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. Very truly yours, EXTENDICARE HEALTH SERVICES, INC. By: _________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer EXTENDICARE HEALTH FACILITY HOLDINGS, INC. EXTENDICARE HEALTH FACILITIES, INC. NORTHERN HEALTH FACILITIES, INC. EXTENDICARE HOMES, INC. EXTENDICARE HEALTH NETWORK, INC. THE PROGRESSIVE STEP CORPORATION EXTENDICARE OF INDIANA, INC. EXTENDICARE GREAT TRAIL, INC. FIR LANE TERRACE CONVALESCENT CENTER, INC. ADULT SERVICES UNLIMITED, INC. ARBORS EAST, INC. ARBORS AT TOLEDO, INC. HEALTH POCONOS, INC. MARSHALL PROPERTIES, INC. By: _________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT INDIANA HEALTH AND REHABILITATION CENTERS PARTNERSHIP BY: EXTENDICARE HOMES, INC., AS GENERAL PARTNER By: _________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer BY: EXTENDICARE OF INDIANA, INC., AS GENERAL PARTNER By: _________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer CONCORDIA MANOR, LLC FIRST COAST HEALTH AND REHABILITATION CENTER, LLC JACKSON HEIGHTS REHABILITATION CENTER, LLC TREASURE ISLE CARE CENTER, LLC BY: EXTENDICARE HOMES, INC., AS SOLE MEMBER By: _________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT KAUFMAN STREET, WV, LLC NEW CASTLE CARE, LLC BY: FIR LANE TERRACE CONVALESCENT CENTER, INC., AS SOLE MEMBER By: _________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer ALPINE HEALTH AND REHABILITATION CENTER, LLC COLONIAL CARE, LLC GREENBRIAR CARE, LLC GREENBROOK CARE, LLC HERITAGE CARE, LLC LADY LAKE CARE, LLC NEW HORIZON CARE, LLC NORTH REHABILITATION CARE, LLC PALM COURT CARE, LLC RICHEY MANOR, LLC ROCKLEDGE CARE, LLC SOUTH HERITAGE HEALTH AND REHABILITATION CENTER, LLC THE OAKS RESIDENTIAL AND REHABILITATION CENTER, LLC WINTER HAVEN HEALTH AND REHABILITATION CENTER, LLC BY: EXTENDICARE HEALTH FACILITIES, INC., AS SOLE MEMBER By: _________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT ARBORS AT TAMPA, LLC ARBORS AT BAYONET POINT, LLC ARBORS AT FAIRLAWN CARE, LLC ARBORS AT FAIRLAWN REALTY OH, LLC ARBORS AT SYLVANIA CARE, LLC ARBORS AT SYLVANIA REALTY OH, LLC ARBORS WEST CARE, LLC ARBORS WEST REALTY OH, LLC COLUMBUS REHABILITATION REALTY OH, LLC JACKSONVILLE CARE, LLC SAFETY HARBOR CARE, LLC KISSIMMEE CARE, LLC ORANGE PARK CARE, LLC OREGON CARE, LLC PORT CHARLOTTE CARE, LLC SARASOTA CARE, LLC SEMINOLE CARE, LLC WINTER HAVEN CARE, LLC BLANCHESTER CARE, LLC CANTON CARE, LLC COLUMBUS REHABILITATION CARE, LLC DAYTON CARE, LLC DELAWARE CARE, LLC GALLIPOLIS CARE, LLC HILLIARD CARE, LLC LONDON CARE, LLC MARIETTA CARE, LLC ROCKMILL CARE, LLC ROCKSPRINGS CARE, LLC WATERVILLE CARE, LLC WOODSFIELD CARE, LLC BY: NORTHERN HEALTH FACILITIES, INC., AS SOLE MEMBER By: _________________________________________ Name: Mark W. Durishan Title: Vice President, Chief Financial Officer and Treasurer SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT GREAT TRAIL CARE, LLC BY: EXTENDICARE GREAT TRAIL, INC., AS SOLE MEMBER By: _________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development FISCAL SERVICES GROUP, LLC PARTNERS HEALTH GROUP, LLC STAR PURCHASING SERVICES, LLC BY: EXTENDICARE HEALTH NETWORK, INC., AS SOLE MEMBER By: _________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT MILFORD CARE, LLC PRAIRIE VILLAGE CARE, LLC SCOTT VILLA CARE, LLC SWISS VILLA CARE, LLC VILLA PINES CARE, LLC BY: MARSHALL PROPERTIES, INC., AS SOLE MEMBER By: _________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development PARTNERS HEALTH GROUP - FLORIDA, LLC PARTNERS HEALTH GROUP - LOUISIANA, LLC PARTNERS HEALTH GROUP - TEXAS, LLC BY: PARTNERS HEALTH GROUP, LLC BY: EXTENDICARE HEALTH NETWORK, INC., AS SOLE MEMBER By: _________________________________________ Name: Richard L. Bertrand Title: Senior Vice President - Development SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT Accepted on behalf of the Initial Purchasers: LEHMAN BROTHERS INC. By: ________________________________ Name: Title: SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT EX-5 11 c86082exv5.txt OPINION OF FOLEY & LARDNER LLP EXHIBIT 5 FOLEY & LARDNER LLP ATTORNEYS AT LAW 777 East Wisconsin Avenue June 25, 2004 Milwaukee, WI 53202-5306 414.271.2400 TEL 414.297.4900 FAX www.foley.com CLIENT/MATTER NUMBER 089775-0114 Extendicare Health Services, Inc. Subsidiary Guarantors Set Forth in Exhibit A Hereto 111 West Michigan Street Milwaukee, WI 53203 Ladies and Gentlemen: We have acted as counsel for Extendicare Health Services, Inc., a Wisconsin corporation (the "Company"), and the subsidiaries of the Company set forth in Exhibit A hereto (the "Subsidiary Guarantors"), in connection with the preparation of a Registration Statement on Form S-4, including the Prospectus constituting a part thereof (the "Registration Statement"), to be filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), relating to an offer to exchange (the "Exchange Offer") the Company's new 6?% Senior Subordinated Notes due 2014 (the "New Notes"), which will be registered under the Securities Act, for an equal principal amount of the Company's outstanding 6?% Senior Subordinated Notes due 2014 (the "Old Notes"). The New Notes will be fully and unconditionally guaranteed on a senior subordinated unsecured basis (the "New Note Guarantees") by the Subsidiary Guarantors. The Old Notes were issued, and the New Notes will be issued, pursuant to an Indenture, dated as of April 22, 2004 (the "Indenture"), among the Company, the Subsidiary Guarantors and U.S. Bank, N.A., as Trustee (the "Trustee"). In connection with our opinion, we have examined: (a) the Registration Statement, including the Prospectus; (b) the Indenture; (c) the form of the New Notes and the New Note Guarantees; and (d) such other proceedings, documents and records as we have deemed necessary to enable us to render this opinion. In our examination of the above referenced documents, we have assumed the genuineness of all signatures, the authenticity of all documents, certificates and instruments submitted to us as originals and the conformity with the originals of all documents submitted to us as copies. Based upon the foregoing, assuming that the Indenture has been duly authorized, executed and delivered by, and represents the valid and binding obligation of, the Trustee, and when the Registration Statement, including any amendments thereto, shall have become effective under the Securities Act and the Indenture shall have been duly qualified under the Trust Indenture Act of 1939, as amended, and having regard for such legal considerations as we deem relevant, we are of the opinion that: BRUSSELS LOS ANGELES ORLANDO SAN FRANCISCO TAMPA CHICAGO MADISON SACRAMENTO SILICON VALLEY TOKYO DETROIT MILWAUKEE SAN DIEGO TALLAHASSEE WASHINGTON, D.C. JACKSONVILLE SAN DIEGO/DEL MAR WEST PALM BEACH [FOLEY LOGO] Extendicare Health Services, Inc. Subsidiary Guarantors Set Forth in Exhibit A Hereto June 25, 2004 Page 2 1. The New Notes, when duly executed and delivered by or on behalf of the Company in the form contemplated by the Indenture upon the terms set forth in the Exchange Offer and authenticated by the Trustee, will be legally issued and valid and binding obligations of the Company enforceable in accordance with their terms; and 2. The New Note Guarantees, when duly executed and delivered by or on behalf of the Subsidiary Guarantors in the form contemplated by the Indenture upon the terms set forth in the Exchange Offer, will be legally issued and valid and binding obligations of the Subsidiary Guarantors enforceable in accordance with their terms; except, in each case, as enforcement thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or other similar laws relating to or affecting creditors' rights and remedies generally or the application of general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding in equity or at law). We are qualified to practice law in the State of Wisconsin and we do not purport to be experts on the law other than that of the State of Wisconsin and the Federal laws of the United States of America. We express no opinion and make no representations with respect to the laws of any other jurisdiction. We hereby consent to the reference to our firm under the caption "Legal Matters" in the Prospectus that is filed as part of the Registration Statement, and to the filing of this opinion as an exhibit to such Registration Statement. In giving this consent, we do not admit that we are "experts" within the meaning of Section 11 of the Securities Act or within the category of persons whose consent is required by Section 7 of the Securities Act. Very truly yours, /s/ Foley & Lardner LLP ----------------------- FOLEY & LARDNER LLP [FOLEY LOGO] Extendicare Health Services, Inc. Subsidiary Guarantors Set Forth in Exhibit A Hereto June 25, 2004 Page 3 EXHIBIT A - ------------------------------------------------------------------------------------------------------- Adult Services Unlimited, Inc. Fiscal Services Group, LLC - ------------------------------------------------------------------------------------------------------- Arbors at Toledo, Inc. Gallipolis Care, LLC - ------------------------------------------------------------------------------------------------------- Arbors East, Inc. Great Trail Care, LLC - ------------------------------------------------------------------------------------------------------- Extendicare Great Trail, Inc. Greenbriar Care, LLC - ------------------------------------------------------------------------------------------------------- Extendicare Health Facilities, Inc. Greenbrook Care, LLC - ------------------------------------------------------------------------------------------------------- Extendicare Health Facility Holdings, Inc. Heritage Care, LLC - ------------------------------------------------------------------------------------------------------- Extendicare Health Network, Inc. Hilliard Care, LLC - ------------------------------------------------------------------------------------------------------- Extendicare Homes, Inc. Jackson Heights Rehabilitation Center, LLC - ------------------------------------------------------------------------------------------------------- Extendicare of Indiana, Inc. Jacksonville Care, LLC - ------------------------------------------------------------------------------------------------------- Fir Lane Terrace Convalescent Center, Inc. Kaufman Street, WV, LLC - ------------------------------------------------------------------------------------------------------- Health Poconos, Inc. Kissimmee Care, LLC - ------------------------------------------------------------------------------------------------------- Marshall Properties, Inc. Lady Lake Care, LLC - ------------------------------------------------------------------------------------------------------- Northern Health Facilities, Inc. London Care, LLC - ------------------------------------------------------------------------------------------------------- The Progressive Step Corporation Marietta Care, LLC - ------------------------------------------------------------------------------------------------------- Alpine Health and Rehabilitation Center, LLC Milford Care, LLC - ------------------------------------------------------------------------------------------------------- Arbors at Bayonet Point, LLC New Castle Care, LLC - ------------------------------------------------------------------------------------------------------- Arbors at Fairlawn Care, LLC New Horizon Care, LLC - ------------------------------------------------------------------------------------------------------- Arbors at Fairlawn Realty OH, LLC North Rehabilitation Care, LLC - ------------------------------------------------------------------------------------------------------- Arbors at Sylvania Care, LLC Orange Park Care, LLC - ------------------------------------------------------------------------------------------------------- Arbors at Sylvania Realty OH, LLC Oregon Care, LLC - ------------------------------------------------------------------------------------------------------- Arbors at Tampa, LLC Palm Court Care, LLC - ------------------------------------------------------------------------------------------------------- Arbors West Care, LLC Partners Health Group - Florida, LLC - ------------------------------------------------------------------------------------------------------- Arbors West Realty OH, LLC Partners Health Group - Louisiana, LLC - ------------------------------------------------------------------------------------------------------- Blanchester Care, LLC Partners Health Group - Texas, LLC - ------------------------------------------------------------------------------------------------------- Canton Care, LLC Partners Health Group, LLC - ------------------------------------------------------------------------------------------------------- Colonial Care, LLC Port Charlotte Care, LLC - ------------------------------------------------------------------------------------------------------- Columbus Rehabilitation Care, LLC Prairie Village Care, LLC - ------------------------------------------------------------------------------------------------------- Columbus Rehabilitation Realty OH, LLC Richey Manor, LLC - ------------------------------------------------------------------------------------------------------- Concordia Manor, LLC Rockledge Care, LLC - ------------------------------------------------------------------------------------------------------- Dayton Care, LLC Rockmill Care, LLC - ------------------------------------------------------------------------------------------------------- Delaware Care, LLC Rocksprings Care, LLC - ------------------------------------------------------------------------------------------------------- First Coast Health and Rehabilitation Center, LLC Safety Harbor Care, LLC - -------------------------------------------------------------------------------------------------------

BRUSSELS LOS ANGELES ORLANDO SAN FRANCISCO TAMPA CHICAGO MADISON SACRAMENTO SILICON VALLEY TOKYO DETROIT MILWAUKEE SAN DIEGO TALLAHASSEE WASHINGTON, D.C. JACKSONVILLE SAN DIEGO/DEL MAR WEST PALM BEACH [FOLEY LOGO] Extendicare Health Services, Inc. Subsidiary Guarantors Set Forth in Exhibit A Hereto June 25, 2004 Page 4 - ------------------------------------------------------------------------------------------------------- Sarasota Care, LLC - ------------------------------------------------------------------------------------------------------- Scott Villa Care, LLC - ------------------------------------------------------------------------------------------------------- Seminole Care, LLC - ------------------------------------------------------------------------------------------------------- South Heritage Health and Rehabilitation Center, LLC - ------------------------------------------------------------------------------------------------------- Star Purchasing Services, LLC - ------------------------------------------------------------------------------------------------------- Swiss Villa Care, LLC - ------------------------------------------------------------------------------------------------------- The Oaks Residential and Rehabilitation Center, LLC - ------------------------------------------------------------------------------------------------------- Treasure Isle Care Center, LLC - ------------------------------------------------------------------------------------------------------- Villa Pines Care, LLC - ------------------------------------------------------------------------------------------------------- Waterville Care, LLC - ------------------------------------------------------------------------------------------------------- Winter Haven Care, LLC - ------------------------------------------------------------------------------------------------------- Winter Haven Health and Rehabilitation Center, LLC - ------------------------------------------------------------------------------------------------------- Woodsfield Care, LLC - ------------------------------------------------------------------------------------------------------- Indiana Health and Rehabilitation Centers Partnership - -------------------------------------------------------------------------------------------------------
EX-10.8 12 c86082exv10w8.txt ISDA MASTER AGREEMENT EXHIBIT 10.8 (LOCAL CURRENCY - SINGLE JURISDICTION) [ISDA(R) LOGO] International Swap Dealers Association, Inc. MASTER AGREEMENT dated as of April 16, 2004 U.S. Bank National Association and Extendicare Health Services, Inc. have entered and/or anticipate entering into one or more transactions (each a "Transaction") that are or will be governed by this Master Agreement, which includes the schedule (the "Schedule"), and the documents and other confirming evidence (each a "Confirmation") exchanged between the parties confirming those Transactions. Accordingly, the parties agree as follows: 1. INTERPRETATION (a) DEFINITIONS. The terms defined in Section 12 and in the Schedule will have the meanings therein specified for the purpose of this Master Agreement. (b) INCONSISTENCY. In the event of any inconsistency between the provision of the Schedule and the other provisions of this Master Agreement, the Schedule will prevail. In the event of any inconsistency between the provision of any Confirmation and this Master Agreement (including the Schedule), such Confirmation will prevail for the purpose of the relevant Transaction. (c) SINGLE AGREEMENT. All Transactions are entered into in reliance on the fact that this Master Agreement and all Confirmations form a single agreement between the parties (collectively referred to as this "Agreement"), and the parties would not otherwise enter into any Transactions. 2. OBLIGATIONS (a) GENERAL CONDITIONS. (i) Each party will make each payment or delivery specified in each Confirmation to be made by it, subject to the other provisions of this Agreement. (ii) Payments under this agreement will be made on the due date for value on that date in the place of the account specified in the relevant Confirmation or otherwise pursuant to this Agreement, in freely transferable funds and in the manner customary for payments in the required currency. (iii) Each obligation of each party under Section 2(a)(i) is subject to (1) the condition precedent that no Event of Default or Potential Event of Default with respect to the other party has occurred and is continuing, (2) the condition precedent that no Early Termination Date in respect of the relevant Transaction has occurred or been effectively designated and (3) each other applicable condition precedent specified in this Agreement. Copyright(C)1992 by International Swap Dealers Association, Inc. (b) CHANGE OF ACCOUNT. Either party may change its account for receiving a payment or delivery by giving notice to the other party at least five Local Business Days prior to the scheduled date for the payment or delivery to which such change applies unless such other party gives timely notice of a reasonable objection to such change. (c) NETTING. If on any date amounts would otherwise be payable: (i) in the same currency; and (ii) in respect of the same Transaction, by each party to the other, then, on such date, each party's obligation to make payment of any such amount will be automatically satisfied and discharged and, if the aggregate amount that would otherwise have been payable by one party exceeds the aggregate amount that would otherwise have been payable by the other party, replaced by an obligation upon the party by whom the larger aggregate amount would have been payable to pay to the other party the excess of the larger aggregate amount over the smaller aggregate amount. The parties may elect in respect of two or more Transactions that a net amount will be determined in respect of all amounts payable on the same date in the same currency in respect of such Transactions, regardless of whether such amounts are payable in respect of the same Transaction. The election may be made in the Schedule or a Confirmation by specifying that subparagraph (ii) above will not apply to the Transactions identified as being subject to the election, together with the starting date (in which case subparagraph (ii) above will not, or will cease to, apply to such Transactions from such date). This election may be made separately for different groups of Transactions and will apply separately to each pairing of branches or offices through which the parties make and receive payments or deliveries. (d) DEFAULT INTEREST; OTHER AMOUNTS. Prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party that defaults in the performance of any payment obligation will, to the extent permitted by law and subject to Section 6(c), be required to pay interest (before as well as after judgment) on the overdue amount to the other party on demand in the same currency as such overdue amount, for the period from (and including) the original due date for payment to (but excluding) the date of actual payment, at the Default Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. If, prior to the occurrence or effective designation of an Early Termination Date in respect of the relevant Transaction, a party defaults in the performance of any obligation required to be settled by delivery, it will compensate the other party on demand if and to the extent provided for in the relevant Confirmation or elsewhere in this Agreement. 3. REPRESENTATIONS Each party represents to the other party (which representations will be deemed to be repeated by each party on each date on which a Transaction is entered into) that: (a) BASIC REPRESENTATIONS. (i) STATUS. It is duly organized and validly existing under the laws of the jurisdiction of its organization or incorporation and, if relevant under such laws, in good standing; (ii) POWERS. It has the power to execute this Agreement and any other documentation relating to this Agreement to which it is a party, to deliver this Agreement and any other documentation relating to this Agreement that it is required by this Agreement to deliver and to perform its obligations under this Agreement and any obligations it has under any Credit Support Document to which it is a party and has taken all necessary action to authorize such execution, delivery and performance; (iii) NO VIOLATION OR CONFLICT. Such execution, delivery and performance do not violate or conflict with any law applicable to it, any provision of its constitutional documents, any order or judgment of any court or other agency of government applicable to it or any of its assets or any contractual restriction binding on or affecting it or any of its assets; 2 (iv) CONSENTS. All governmental and other consents that are required to have been obtained by it with respect to this Agreement or any Credit Support Document to which it is a party have been obtained and are in full force and effect and all conditions of any such consents have been complied with; and (v) OBLIGATIONS BINDING. Its obligations under this Agreement and any Credit Support Document to which it is a party constitute its legal, valid and binding obligations, enforceable in accordance with their respective terms (subject to applicable bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditors' rights generally and subject, as to enforceability, to equitable principles of general application (regardless of whether enforcement is sought in a proceeding in equity or at law)). (b) ABSENCE OF CERTAIN EVENTS. No Event of Default or Potential Event of Default or, to its knowledge, Termination Event with respect to it has occurred and is continuing and no such event or circumstance would occur as a result of its entering into or performing its obligations under this Agreement or any Credit Support document to which it is a party. (c) ABSENCE OF LITIGATION. There is not pending or, to its knowledge, threatened against it or any of its Affiliates any action, suit or proceeding at law or in equity or before any court, tribunal, governmental body, agency or official or any arbitrator that is likely to affect the legality, validity or enforceability against it of this Agreement or any Credit Support Document to which it is a party or its ability to perform its obligations under this Agreement or such Credit Support Document. (d) ACCURACY OF SPECIFIED INFORMATION. All applicable information that is furnished in writing by or on behalf of it to the other party and is identified for the purpose of this Section 3(d) in the Schedule is, as of the date of the information, true, accurate and complete in every material respect. 4. AGREEMENTS Each party agrees with the other that, so long as either party has or may have any obligation under this Agreement or under any Credit Support Document to which it is a party; (a) FURNISH SPECIFIED INFORMATION. It will deliver to the other party any forms, documents or certificates specified in the Schedule or any Confirmation by the date specified in the Schedule or such Confirmation or, if none is specified, as soon as reasonably practicable. (b) MAINTAIN AUTHORIZATIONS. It will use all reasonable efforts to maintain in full force and effect all consents of any governmental or other authority that are required to be obtained by it with respect to this Agreement or any Credit Support Document to which it is a party and will use all reasonable efforts to obtain any that may become necessary in the future. (c) COMPLY WITH LAWS. It will comply in all material respects with all applicable laws and orders to which it may be subject if failure so to comply would materially impair its ability to perform its obligations under this Agreement or any Credit Support Document to which it is a party. 5. EVENTS OF DEFAULT AND TERMINATION EVENTS (a) EVENTS OF DEFAULT. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any of the following events constitutes an event of default (an "Event of Default") with respect to such party; (i) FAILURE TO PAY OR DELIVER. Failure by the party to make, when due, any payment under this Agreement or delivery under Section 2(a)(i) or 2(d) required to be made by it if such failure is not remedied on or before the third Local Business Day after notice of such failure is given to the party; (ii) BREACH OF AGREEMENT. Failure by the party to comply with or perform any agreement or obligation (other than an obligation to make any payment under this Agreement or delivery 3 under Section 2(a)(i) or 2(d) or to give notice of a Termination Event) to be complied with or performed by the party in accordance with this Agreement if such failure is not remedied on or before the thirtieth day after notice of such failure is given to the party; (iii) CREDIT SUPPORT DEFAULT. (1) failure by the party or any Credit Support Provider of such party to comply with or perform any agreement or obligation to be complied with or performed by it in accordance with any Credit Support Document if such failure is continuing after any applicable grace period has elapsed; (2) the expiration or termination of such Credit Support Document or the failing or ceasing of such Credit Support Document to be in full force and effect for the purpose of this Agreement (in either case other than in accordance with its terms) prior to the satisfaction of all obligations of such party under each Transaction to which such Credit Support Document relates without the written consent of the other party; or (3) the party or such Credit Support Provider disaffirms, disclaims, repudiates or rejects, in whole or in part, or challenges the validity of, such Credit Support Document; (iv) MISREPRESENTATION. A representation made or repeated or deemed to have been made or repeated by the party or any Credit Support Provider of such party in this Agreement or any Credit Support Document proves to have been incorrect or misleading in any material respect when made or repeated or deemed to have been made or repeated; (v) DEFAULT UNDER SPECIFIED TRANSACTION. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party (1) defaults under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (2) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment or delivery due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or such default continues for at least three Local Business Days if there is no applicable notice requirement or grace period) or (3) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction (or such action is taken by any person or entity appointed or empowered to operate it or act on its behalf); (vi) CROSS DEFAULT. If "Cross Default" is specified in the Schedule as applying to the party, the occurrence or existence of (1) a default, event of default or other similar condition or event (however described) in respect of such party, any Credit Support Provider of such party or any applicable Specified Entity of such party under one or more agreements or instruments relating to Specified Indebtedness of any of them (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount (as specified in the Schedule) which has resulted in such Specified Indebtedness becoming, or becoming capable at such time of being declared, due and payable under such agreements or instruments, before it would otherwise have been due and payable or (2) a default by such party, such Credit Support Provider or such Specified Entity (individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period); (vii) BANKRUPTCY. The party, any Credit Support Provider of such party or any applicable Specified Entity of such party: (1) is dissolved (other than pursuant to a consolidation, amalgamation or merger); (2) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due; (3) makes a general assignment, arrangement or composition with or for the benefit of its creditors; (4) institutes or has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting 4 creditors' rights, or a petition is present for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition (A) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation or (B) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof; (5) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger); (6) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets; (7) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter; (8) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in clauses (1) to (7) (inclusive); or (9) takes any action in furtherance of, indicating its consent to, approval of, or acquiescence in, any of the foregoing acts; or (viii) MERGER WITHOUT ASSUMPTION. The party or any Credit Support Provider of such party consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and, at the time of such consolidation, amalgamation, merger or transfer: (1) the resulting, surviving or transferee entity fails to assume all the obligations of such party or such Credit Support Provider under this Agreement or any Credit Support Document to which it or its predecessor was a party by operation of law or pursuant to an agreement reasonably satisfactory to the other party to this Agreement; or (2) the benefits of any Credit Support Document fail to extend (without the consent of the other party) to the performance by such resulting, surviving or transferee entity of its obligations under this Agreement. (b) TERMINATION EVENTS. The occurrence at any time with respect to a party or, if applicable, any Credit Support Provider of such party or any Specified Entity of such party of any event specified below constitutes an Illegality if the event is specified in (i) below, and, if specified to be applicable, a Credit Event Upon Merger if the event is specified pursuant to (ii) below or an Additional Termination Event if the event is specified pursuant to (iii) below: (i) ILLEGALITY. Due to the adoption of, or any change in, any applicable law after the date on which a Transaction is entered into, or due to the promulgation of, or any change in, the interpretation by any court, tribunal or regulatory authority with competent jurisdiction of any applicable law after such date, it becomes unlawful (other than as a result of a breach by the party of Section 4(b)) for such party (which will be the Affected Party): (1) to perform any absolute or contingent obligation to make a payment or delivery or to receive a payment or delivery in respect of such Transaction or to comply with any other material provision of this Agreement relating to such Transaction; or (2) to perform, or for any Credit Support Provider of such party to perform, any contingent or other obligation which the party (or such Credit Support Provider) has under any Credit Support Document relating to such Transaction; (ii) CREDIT EVENT UPON MERGER. If "Credit Event Upon Merger" is specified in the Schedule as applying to the party, such party ("X"), any Credit Support Provider of X or any applicable Specified Entity of X consolidates or amalgamates with, or merges with or into, or transfers all or substantially all its assets to, another entity and such action does not constitute an event described in Section 5(a)(viii) but the creditworthiness of the resulting, surviving or transferee entity is materially weaker than that of X, such Credit Support Provider or such Specified Entity, 5 as the case may be, immediately prior to such action (and, in such event, X or its successor or transferee, as appropriate, will be the Affected Party); or (iii) ADDITIONAL TERMINATION EVENT. If any "Additional Termination Event" is specified in the Schedule or any Confirmation as applying, the occurrence of such event (and, in such event, the Affected Party or Affected Parties shall be as specified for such Additional Termination Event in the Schedule or such Confirmation). (c) EVENT OF DEFAULT AND ILLEGALITY. If an event or circumstance which would otherwise constitute or give rise to an Event of Default also constitutes an illegality, it will be treated as an illegality and will not constitute an Event of Default. 6. EARLY TERMINATION (a) RIGHT TO TERMINATE FOLLOWING EVENT OF DEFAULT. If at any time an Event of Default with respect to a party (the "Defaulting Party") has occurred and is then continuing, the other party (the "Non-defaulting Party") may, by not more than 20 days notice to the Defaulting Party specifying the relevant Event of Default, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all outstanding Transactions. If, however, "Automatic Early Termination" is specified in the Schedule as applying to a party, then an Early Termination Date in respect of all outstanding Transactions will occur immediately upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(1), (3), (5), (6) or, to the extent analogous thereof, (8), and as of the time immediately preceding the institution of the relevant proceeding or the presentation of the relevant petition upon the occurrence with respect to such party of an Event of Default specified in Section 5(a)(vii)(4) or, to the extent analogous thereto, (8). (b) RIGHT TO TERMINATE FOLLOWING TERMINATION EVENT. (i) NOTICE. If a Termination Event occurs, an Affected Party will, promptly upon becoming aware of it, notify the other party, specifying the nature of that Termination Event and each Affected Transaction and will also give such other information about that Termination Event as the other party may reasonably require. (ii) TWO AFFECTED PARTIES. If an Illegality under Section 5(b)(i)(1) occurs and there are two Affected Parties, each party will use all reasonable efforts to reach agreement within 30 days after notice thereof is given under Section 6(b)(i) on action to avoid that Termination Event. (iii) RIGHT TO TERMINATE. If: (1) an agreement under Section 6(b)(ii) has not been effected with respect to all Affected Transactions within 30 days after an Affected Party gives notice under Section 6(b)(i); or (2) an Illegality other than that referred to in Section 6(b)(ii), a Credit Event Upon Merger or an Additional Termination Event occurs, either party in the case of an Illegality, any Affected Party in the case of an Additional Termination Event if there is more than one Affected Party, or the party which is not the Affected Party in the case of a Credit Event Upon Merger or an Additional Termination Event if there is only one Affected Party may, by not more than 20 days notice to the other party and provided that the relevant Termination Event is then continuing, designate a day not earlier than the day such notice is effective as an Early Termination Date in respect of all Affected Transactions. (c) EFFECT OF DESIGNATION. (i) If notice designating an Early Termination Date is given under Section 6(a) or (b), the Early Termination Date will occur on the date so designated, whether or not the relevant Event of Default or Termination is then continuing. 6 (ii) Upon the occurrence or effective designation of an Early Termination Date, no further payments or deliveries under Section 2(a)(i) or 2(d) in respect of the Terminated Transactions will be required to be made, but without prejudice to the other provisions of this Agreement. The amount, if any, payable in respect of an Early Termination Date shall be determined pursuant to Section 6(e). (d) CALCULATIONS. (i) STATEMENT. On or as soon as reasonably practicable following the occurrence of an Early Termination Date, each party will make the calculations on its part, if any, contemplated by Section 6(e) and will provide to the other party a statement (1) showing, in reasonable detail, such calculations (including all relevant quotations and specifying any amount payable under Section 6(e)) and (2) giving details of the relevant account to which any amount payable to it is to be paid. In the absence of written confirmation from the source of a quotation obtained in determining a Market Quotation, the records of the party obtaining such quotation will be conclusive evidence of the existence and accuracy of such quotation. (ii) PAYMENT DATE. An amount calculated as being due in respect of any Early Termination Date under Section 6(e) will be payable on the day that notice of the amount payable is effective (in the case of an Early Termination Date which is designated or occurs as a result of an Event of Default) and on the day which is two Local Business Days after the day on which notice of the amount payable is effective (in the case of an Early Termination Date which is designated as a result of a Termination Event). Such amount will be paid together with (to the extent permitted under applicable law) interest thereon (before as well as after judgment), from (and including) the relevant Early Termination Date to (but excluding) the date such amount is paid, at the Applicable Rate. Such interest will be calculated on the basis of daily compounding and the actual number of days elapsed. (e) PAYMENTS ON EARLY TERMINATION. If an Early Termination Date occurs, the following provisions shall apply based on the parties' election in the Schedule of a payment measure, either "Market Quotation" or "Loss", and a payment method, either the "First Method" or the "Second Method". If the parties fail to designate a payment measure or payment method in the Schedule, it will be deemed that "Market Quotation" or the "Second Method", as the case may be, shall apply. The amount, if any, payable in respect of an Early Termination Date and determined pursuant to this Section will be subject to any Set-off. (i) EVENTS OF DEFAULT. If the Early Termination Date results from an Event of Default: (1) FIRST METHOD AND MARKET QUOTATION. If the First Method and Market Quotation apply, the Defaulting Party will pay to the Non-defaulting Party the excess, if a positive number, of (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party over (B) the Unpaid Amounts owing to the Defaulting Party. (2) FIRST METHOD AND LOSS. If the First Method and Loss apply, the Defaulting Party will pay to the Non-defaulting Party, if a positive number, the Non-defaulting Party's Loss in respect of this Agreement. (3) SECOND METHOD AND MARKET QUOTATION. If the Second Method and Market Quotation apply, an amount will be payable equal to (A) the sum of the Settlement Amount (determined by the Non-defaulting Party) in respect of the Terminated Transactions and the Unpaid Amounts owing to the Non-defaulting Party less (B) the Unpaid Amounts owing to the Defaulting Party. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (4) SECOND METHOD AND LOSS. If the Second Method and Loss apply, an amount will be payable equal to the Non-defaulting Party's Loss in respect of this Agreement. If that amount is a positive number, the Defaulting Party will pay it to the Non-defaulting 7 Party; if it is a negative number, the Non-defaulting Party will pay the absolute value of that amount to the Defaulting Party. (ii) TERMINATION EVENTS. If the Early Termination Date results from a Termination Event: (1) ONE AFFECTED PARTY. If there is one Affected Party, the amount payable will be determined in accordance with Section 6(e)(i)(3), if Market Quotation applies, or Section 6(e)(i)(4), if Loss applies, except that, in either case, references to the Defaulting Party and to the Non-defaulting Party will be deemed to be references to the Affected Party and the party which is not the Affected Party, respectively, and, if Loss applies and fewer than all the Transactions are being terminated, Loss shall be calculated in respect of all Terminated Transactions. (2) TWO AFFECTED PARTIES. If there are two Affected Parties: (A) If Market Quotation applies, each party will determine a Settlement Amount in respect of the Terminated Transactions, and an amount will be payable equal to (I) the sum of (a) one-half of the difference between the Settlement Amount of the party with the higher Settlement Amount ("X") and the Settlement Amount of the party with the lower Settlement Amount ("Y") and (b) the Unpaid Amounts owing to X less (II) the Unpaid Amounts owing to Y; and (B) If Loss applies, each party will determine its Loss in respect of this Agreement (or, if fewer than all the Transactions are being terminated, in respect of all Terminated Transactions) and an amount will be payable equal to one-half of the difference between the Loss of the party with the higher Loss ("X") and the Loss of the party with the lower Loss ("Y"). If the amount payable is a positive number, Y will pay it to X; if it is a negative number, X will pay the absolute value of that amount to Y. (iii) ADJUSTMENT FOR BANKRUPTCY. In circumstances where an Early Termination Date occurs because "Automatic Early Termination" applies in respect of a party, the amount determined under this Section 6(e) will be subject to such adjustments as are appropriate and permitted by law to reflect any payments or deliveries made by one party to the other under this Agreement (and retained by such other party) during the period from the relevant Early Termination Date to the date for payment determined under Section 6(d)(ii). (iv) PRE-ESTIMATE. The parties agree that if Market Quotation applies an amount recoverable under this Section 6(e) is a reasonable pre-estimate of loss and not a penalty. Such amount is payable for the loss of bargain and the loss of protection against future risks and except as otherwise provided in this Agreement neither party will be entitled to recover any additional damages as a consequence of such losses. 7. TRANSFER Neither this Agreement nor any interest or obligation in or under this Agreement may be transferred (whether by way of security or otherwise) by either party without the prior written consent of the other party, except that: (a) a party may make such a transfer of this Agreement pursuant to a consolidation or amalgamation with, or merger with or into, or transfer of all or substantially all its assets to, another entity (but without prejudice to any other right or remedy under this Agreement); and (b) a party may make such a transfer of all or any part of its interest in any amount payable to it from a Defaulting Party under Section 6(e). Any purported transfer that is not in compliance with this Section will be void. 8 8. MISCELLANEOUS (a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and understanding of the parties with respect to its subject matter and supersedes all oral communication and prior writings with respect thereto. (b) AMENDMENTS. No amendment modification or waiver in respect of this Agreement will be effective unless in writing (including a writing evidence by a facsimile transmission) and executed by each of the parties or confirmed by an exchange of telexes or electronic messages on an electric messaging system. (c) SURVIVAL OF OBLIGATIONS. Without prejudice to Sections 2(a)(iii) and 6(c)(ii), the obligations of the parties under this Agreement will survive the termination of any Transaction. (d) REMEDIES CUMULATIVE. Except as provided in this Agreement, the rights, powers, remedies and privileges provided in this Agreement are cumulative and not exclusive of any rights, powers, remedies and privileges provided by law. (e) COUNTERPARTS AND CONFIRMATIONS. (i) This Agreement (and each amendment, modification, and waiver in respect of it) may be executed and delivered in counterparts (including by facsimile transmission), each of which will be deemed an original. (ii) The parties intend that they are legally bound by the terms of each Transaction from the moment they agree to those terms (whether orally or otherwise). A Confirmation shall be entered into as soon as practicable and may be executed and delivered in counterparts (including by facsimile transmission) or be created by an exchange of telexes or by an exchange of electronic messages on an electronic messaging system, which in each case will be sufficient for all purposes to evidence a binding supplement to this Agreement. The parties will specify therein or through another effective means that any such counterpart, telex or electronic message constitutes a Confirmation. (f) NO WAIVER OF RIGHTS. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right power or privilege will not be presumed to preclude any subsequent or further exercise, of that right power or privilege or the exercise of any other right power or privilege. (g) HEADINGS. The headings used in this Agreement are for convenience of reference only and are not to affect the construction of or to be taken into consideration in interpreting this Agreement. 9. EXPENSES A Defaulting Party will, on demand, indemnify and hold harmless the other party for and against all reasonable out-of-pocket expenses, including legal fees, incurred by such other party by reason of the enforcement and protection of its rights under this Agreement or any Credit Support Document to which the Defaulting Party is a party or by reason of the early termination of any Transaction, including, but not limited to, costs of collection. 10. NOTICES (a) EFFECTIVENESS. Any notice or other communication in respect of this Agreement may be given in any manner set forth below (except that a notice or other communication under Section 5 or 6 may not be given by facsimile transmission or electronic messaging system) to the address or number or in accordance with the electronic messaging system details provided (see the Schedule) and will be deemed effective as indicated: (i) if in writing and delivered in person or by courier on the date it is delivered; (ii) if sent by telex, on the day the recipient's answerback is received; 9 (iii) if sent by facsimile transmission, on the date that transmission is received by a responsible employee of the recipient in legible form (it being agreed that the burden of proving receipt will be on the sender and will not be met by a transmission report generated by the sender's facsimile machine); (iv) if sent by certified or registered mail (airmail, if overseas) or the equivalent (return receipt requested), on the date that mail is delivered or its delivery is attempted; or (v) if sent by electronic messaging system, on the date that electronic message is received, unless the date of that delivery (or attempted delivery) or that receipt, as applicable, is not a Local Business Day or that communication is delivered (or attempted) or received, as applicable, after the close of business on a Local Business Day, in which case that communication shall be deemed given and effective on the first following day that is a Local Business Day. (b) CHANGE OF ADDRESSES. Either party may by notice to the other change the address, telex or facsimile number or electronic messaging system details at which notices or other communications are to be given to it. 11. GOVERNING LAW AND JURISDICTION (a) GOVERNING LAW. This Agreement will be governed by and construed in accordance with the law specified in the Schedule. (b) JURISDICTION. With respect to any suit, action or proceedings relating to this Agreement ("Proceedings"), each party irrevocably: (i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the non-exclusive jurisdiction of the courts of the State of New York and the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and (ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party. Nothing in this Agreement precludes either party from bringing Proceedings in any other jurisdiction (outside, if this Agreement is expressed to be governed by English law, the Contracting States, as defined in Section 1(3) of the Civil Jurisdiction and Judgments Act 1982 or any modification, extension or re-enactment thereof for the time being in force) nor will the bringing of Proceedings in any one or more jurisdictions preclude the bringing of Proceedings in any other jurisdiction. (c) WAIVER OF IMMUNITIES. Each party irrevocably waives, to the fullest extent permitted by applicable law, with respect to itself and its revenues and assets (irrespective of their use or intended use), all immunity on the grounds of sovereignty or other similar grounds from (i) suit, (ii) jurisdiction of any court, (iii) relief by way of injunction, order for specific performance or for recovery of property, (iv) attachment of its assets (whether before or after judgment) and (v) execution or enforcement of any judgment to which it or its revenues or assets might otherwise be entitled in any Proceedings in the courts of any jurisdiction and irrevocably agrees, to the extent permitted by applicable law, that it will not claim any such immunity in any Proceedings. 12. DEFINITIONS As used in this Agreement: "ADDITIONAL TERMINATION EVENT" has the meaning specified in Section 5(b). "AFFECTED PARTY" has the meaning specified in Section 5(b). 10 "AFFECTED TRANSACTIONS" means (a) with respect to any Termination Event consisting of an Illegality, all Transactions affected by the occurrence of such Termination Event and (b) with respect to any other Termination Event, all Transactions. "AFFILIATE" means, subject to the Schedule, in relation to any person, any entity controlled, directly or indirectly, by the person, any entity that controls, directly or indirectly, the person or any entity directly or indirectly under common control with the person. For this purpose, "control" of any entity or person means ownership of a majority of the voting power of the entity or person. "APPLICABLE RATE" means: (a) in respect of obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Defaulting Party, the Default Rate; (b) in respect of an obligation to pay an amount under Section 6(e) of either party from and after the date (determined in accordance with Section 6(d)(ii)) on which that amount is payable, the Default Rate; (c) in respect of all other obligations payable or deliverable (or which would have been but for Section 2(a)(iii)) by a Non-defaulting Party, the Non-default Rate; and (d) in all other cases, the Termination Rate. "CONSENT" includes a consent, approval, action, authorization, exemption, notice, filing, registration or exchange control consent. "CREDIT EVENT UPON MERGER" has the meaning specified in Section 5(b). "CREDIT SUPPORT DOCUMENT" means any agreement or instrument that is specified as such in this Agreement. "CREDIT SUPPORT PROVIDER" has the meaning specified in the Schedule. "DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the relevant payee (as certified by it) if it were to fund or of funding the relevant amount plus 1% per annum. "DEFAULTING PARTY" has the meaning specified in Section 6(a). "EARLY TERMINATION DATE" means the date determined in accordance with Section 6(a) or 6(b)(iii). "EVENT OF DEFAULT" has the meaning specified in Section 5(a) and, if applicable, in the Schedule. "ILLEGALITY" has the meaning specified in Section 5(b). "LAW" includes any treaty, law, rule or regulation and "lawful" and "unlawful" will be construed accordingly. "LOCAL BUSINESS DAY" means, subject to the Schedule, a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) (a) in relation to any obligation under Section 2(a)(i), in the place(s) specified in the relevant Confirmation or, if not so specified, as otherwise agreed by the parties in writing or determined pursuant to provisions contained, or incorporated by reference, in this Agreement, (b) in relation to any other payment, in the place where the relevant account is located, (c) in relation to any notice or other communication, including notice contemplated under Section 5(a)(i), in the city specified in the address for notice provided by the recipient and, in the case of a notice contemplated by Section 2(b), in the place where the relevant new account is to be located and (d) in relation to Section 5(a)(v)(2), in the relevant locations for performance with respect to such Specified Transaction. "LOSS" means, with respect to this Agreement or one or more Terminated Transactions, as the case may be, and a party, an amount that party reasonably determines in good faith to be its total losses and costs (or gain, in which case expressed as a negative number) in connection with this Agreement or that Terminated Transaction or group of Terminated Transactions, as the case may be, including any loss of bargain, cost of funding or, at the election of such party but without duplication, loss or cost incurred as a result of its terminating, liquidating, obtaining or reestablishing any hedge or related trading position (or any gain resulting from any of them). Loss includes losses and costs (or gains) in respect of any payment or 11 delivery required to have been made (assuming satisfaction of each applicable condition precedent) on or before the relevant Early Termination Date and not made, except, so as to avoid duplication, if Section 6(e)(i)(1) or (3) or 6(e)(ii)(2)(A) applies. Loss does not include a party's legal fees and out-of-pocket expenses referred to under Section 9. A party will determine its Loss as of the relevant Early Termination Date, or, if that is not reasonably practicable, as of the earliest date thereafter as is reasonably practicable. A party may (but need not) determine its Loss by reference to quotations of relevant rates or prices from one or more leading dealers in the relevant markets. "MARKET QUOTATION" means, with respect to one or more Terminated Transactions and a party making the determination, an amount determined on the basis of quotations from Reference Market-makers. Each quotation will be for an amount, if any, that would be paid to such party (expressed as a negative number) or by such party (expressed as a positive number) in consideration of an agreement between such party (taking into account any existing Credit Support Document with respect to the obligations of such party) and the quoting Reference Market-maker to enter into a transaction (the "Replacement Transaction") that would have the effect of preserving for such party the economic equivalent of any payment or delivery (whether the underlying obligation was absolute or contingent and assuming the satisfaction of each applicable condition precedent) by the parties under Section 2(a)(i) in respect of such Terminated Transaction or group of Terminated Transactions that would, but for the occurrence of the relevant Early Termination Date, have been required after that date. For this purpose, Unpaid Amounts in respect of the Terminated Transaction or group of Terminated Transactions are to be excluded but, without limitation, any payment or delivery that would, but for the relevant Early Termination Date, have been required (assuming satisfaction of each applicable condition precedent) after that Early Termination Date is to be included. The Replacement Transaction would be subject to such documentation as such party and the Reference Market-maker may, in good faith, agree. The party making the determination (or its agent) will request each Reference Market-maker to provide its quotation to the extent reasonably practicable as of the same day and time (without regard to different time zones) on or as soon as reasonably practicable after the relevant Early Termination Date. The day and time as of which those quotations are to be obtained will be selected in good faith by the party obliged to make a determination under Section 6(e), and, if each party is so obliged, after consultation with the other. If more than three quotations are provided, the Market Quotation will be the arithmetic mean of the quotations, without regard to the quotations having the highest and lowest values. If exactly three such quotations are provided, the Market Quotation will be the quotation remaining after disregarding the highest and lowest quotations. For this purpose, if more than one quotation has the same highest value or lowest value, then one of such quotations shall be disregarded. If fewer than three quotations are provided, it will be deemed that the Market Quotation in respect of such Terminated Transaction or group of Terminated Transactions cannot be determined. "NON-DEFAULT RATE" means a rate per annum equal to the cost (without proof or evidence of any actual cost) to the Non-defaulting Party (as certified by it) if it were to fund the relevant amount. "NON-DEFAULTING PARTY" has the meaning specified in Section 6(a). "POTENTIAL EVENT OF DEFAULT" means any event which, with the giving of notice or the lapse of time or both, would constitute an Event of Default. "REFERENCE MARKET-MAKERS" means four leading dealers in the relevant market selected by the party determining a Market Quotation in good faith (a) from among dealers of the highest credit standing which satisfy all the criteria that such party applies generally at the time in deciding whether to offer or to make an extension of credit and (b) to the extent practicable, from among such dealers having an office in the same city. "SCHEDULED PAYMENT DATE" means a date on which a payment or delivery is to be made under Section 2(a)(i) with respect to a Transaction. "SET-OFF" means set-off, offset, combination of accounts, right of retention or withholding or similar right or requirement to which the payer of an amount under Section 6 is entitled or subject (whether arising under this Agreement, another contract, applicable law or otherwise) that is exercised by, or imposed on, such payer. "SETTLEMENT AMOUNT" means with respect to a party and any Early Termination Date, the sum of: (a) The Market Quotations (whether positive or negative) for each Terminated Transaction or group of Terminated Transactions for which a Market Quotation is determined; and 12 (b) such party's Loss (whether positive or negative and without reference to any Unpaid Amounts) for each Terminated Transaction or group of Terminated Transactions for which Market Quotation cannot be determined or would not (in the reasonable belief of the party making the determination) produce a commercially reasonable result. "SPECIFIED ENTITY" has the meaning specified in the Schedule. "SPECIFIED INDEBTEDNESS" means, subject to the Schedule, any obligation (whether present or future, contingent or otherwise, as principal or surety or otherwise) in respect of borrowed money. "SPECIFIED TRANSACTION" means, subject to the Schedule, (a) any transaction (including an agreement with respect thereto) now existing or hereafter entered into between one party to this Agreement (or any Credit Support Provider of such party or any applicable Specified Entity of such party) and the other party to this Agreement (or any Credit Support Provider of such other party or any applicable Specified Entity of such other party) which is a rate swap transaction, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions), (b) any combination of these transactions and (c) any other transaction identified as a Specified Transaction in this Agreement or the relevant confirmation. "TERMINATED TRANSACTIONS" means with respect to any Early Termination Date (a) if resulting from a Termination Event, all Affected Transactions and (b) if resulting from an Event of Default, all Transactions (in either case) in effect immediately before the effectiveness of the notice designating that Early Termination Date (or, if "Automatic Early Termination" applies, immediately before that Early Termination Date). "TERMINATION EVENT" means an Illegality or, if specified to be applicable, a Credit Event Upon Merger or an Additional Termination Event. "TERMINATION RATE" means a rate per annum equal to the arithmetic mean of the cost (without proof or evidence of any actual cost) to each party (as certified by such party) if it were to fund or of funding such amounts. "UNPAID AMOUNTS" owing to any party means, with respect to an Early Termination Date, the aggregate of (a) in respect of all Terminated Transactions, the amounts that became payable (or that would have become payable but for Section 2(a)(iii)) to such party under Section 2(a)(i) on or prior to such Early Termination Date and which remain unpaid as at such Early Termination Date and (b) in respect of each Terminated Transaction, for each obligation under Section 2(a)(i) which was (or would have been but for Section 2(a)(iii)) required to be settled by delivery to such party on or prior to such Early Termination Date and which has not been so settled as at such Early Termination Date, an amount equal to the fair market value of that which was (or would have been) required to be delivered as of the originally scheduled date for delivery, in each case together with (to the extent permitted under applicable law) interest, in the currency of such amounts, from (and including) the date such amounts or obligations were or would have been required to have been paid or performed to (but excluding) such Early Termination Date, at the Applicable Rate. Such amounts of interest will be calculated on the basis of daily compounding and the actual number of days elapsed. The fair market value of any obligation referred to in clause (b) above shall be reasonably determined by the party obliged to make the determination under Section 6(e) or, if each party is so obliged, it shall be the average of the fair market values reasonably determined by both parties. [SIGNATURE PAGE TO FOLLOW] 13 IN WITNESS WHEREOF the parties have executed this document on the respective dates specified below with effect from the date specified on the first page of this document. U.S. BANK EXTENDICARE HEALTH SERVICES, INC. NATIONAL ASSOCIATION By: By: --------------------------------------- --------------------------------- Name: Name: --------------------------------- ------------------------------- Title: Title: --------------------------------- ------------------------------ Date: Date: --------------------------------- ------------------------------- 14 (Local Currency-Single Jurisdiction) SCHEDULE TO THE MASTER AGREEMENT DATED AS OF APRIL 16, 2004 BETWEEN U.S. BANK NATIONAL ASSOCIATION ("PARTY A") AND EXTENDICARE HEALTH SERVICES, INC. ("PARTY B") Part 1: TERMINATION PROVISIONS AND CERTAIN OTHER MATTERS (a) "SPECIFIED ENTITY" means, in relation to Party A, for the purpose of: SECTION 5(a)(v), none; SECTION 5(a)(vi), none; SECTION 5(a)(vii), none; and SECTION 5(b)(ii), none; and, in relation to Party B, for the purpose of: SECTION 5(a)(v), All Affiliates; SECTION 5(a)(vi), All Affiliates; SECTION 5(a)(vii), All Affiliates; and SECTION 5(b)(ii), All Affiliates. (b) "SPECIFIED TRANSACTION" will have the meaning specified in Section 12 of this Agreement. (c) The "CROSS-DEFAULT" provisions of Section 5(a)(vi) will apply to Party A and Party B. In connection therewith, "SPECIFIED INDEBTEDNESS" will have the meaning specified in Section 12, except that such term shall not include obligations in respect of deposits received in the ordinary course of a party's banking business, and "THRESHOLD AMOUNT" means, in relation to Party A an amount equal to Ten Million Dollars ($10,000,000.00), and in relation to Party B an amount equal to ($0.00). 1 (d) The "CREDIT EVENT UPON MERGER" provisions of Section 5(b)(ii) will apply to Party A and Party B; provided, however, that the phrase "materially weaker" means that the actual or implied Credit Rating of (A) the senior long-term debt of the resulting, surviving or transferee entity is rated less than BBB- by Standard & Poor's Corporation or Baa3 by Moody's Investors Service Inc., or (B) in the event that there are no such Standard & Poor's Corporation or Moody's Investors Service, Inc. ratings, the Policies (as defined below) in effect at the time, of the party which is not the Affected Party, would lead such non-Affected Party, solely as a result of a change in the nature, character, identity or condition of the Affected Party from its state (as a party to this Agreement) prior to such consolidation, amalgamation, merger or transfer, to decline to make an extension of credit to, or enter into a Transaction with, the resulting, surviving or transferee entity. "Policies", for the purposes of this definition means: (x)(i) internal credit limits applicable to individual entities or (ii) other limits on doing business with entities domiciled or doing business in certain jurisdictions or engaging in certain activities, or (y) internal restrictions on doing business with entities with whom the party which is not the Affected Party has had prior adverse business relations. In addition, Section 5(b)(ii) is hereby amended by: (i) deleting in the fourth line thereof the words "another entity" and replacing them with the words "or receives all or substantially all of the assets of another entity or reorganizes, incorporates, reincorporates, or reconstitutes into or as, another entity or X, such Credit Support Provider, or such Specified Entity, as the case may be, effects a recapitalization, liquidating dividend, leveraged buy-out, other similar highly-leveraged transaction, redemption of indebtedness, or stock buy-back or similar call on equity or enters into any agreement providing for the foregoing." (ii) deleting in the fifth line thereof the words "the resulting, surviving or transferee" and replacing them with the words "X or any resulting, surviving, transferee, reorganized, or recapitalized", and (iii) deleting in the seventh line thereof the words "its successor or transferee" and replacing them with the words " any resulting, surviving, transferee, reorganized, or recapitalized entity." (e) The "AUTOMATIC EARLY TERMINATION" provision of Section 6(a) will not apply to Party A. As to Party B, Automatic Early Termination shall apply. (f) PAYMENTS ON EARLY TERMINATION. For the purpose of Section 6(e) of this Agreement: 2 (i) Market Quotation will apply. (ii) The Second Method will apply. (g) ADDITIONAL TERMINATION EVENT will not apply to Party A. As to Party B, an Additional Termination Event shall occur upon (i) termination of any agreements between Party A (or any Affiliate of Party A) and Party B (or any Specified Entity of or Credit Support Provider for Party B), or (ii) any demand for payment under any agreements between Party A (or any Affiliate of Party A) and Party B (or any Specified Entity of or Credit Support Provider for Party B). For the purpose of the foregoing Termination Event, the Affected Party shall be Party B and the non-Affected Party shall be Party A. Part 2: AGREEMENT TO DELIVER DOCUMENTS
PARTY REQUIRED TO FORM/DOCUMENT/ DATE BY WHICH TO BE COVERED BY SECTION 3(d) DELIVER DOCUMENT CERTIFICATE DELIVERED REPRESENTATION Party B Certified copies of all Upon execution and Yes resolutions and authorizations and delivery of this Agreement any other documents with respect to the execution, delivery and performance of this Agreement satisfactory to Party A Party B Certificate of authority and Upon execution and Yes specimen signatures of individuals delivery of this Agreement executing this Agreement and and thereafter, upon Confirmations request of the other Party Party B Consolidated and consolidating Upon request of Party A Yes balance sheet and income statements -- quarterly (unaudited) and annually (audited) Party B A cross-collateralization Upon execution and Yes agreement satisfactory to Party A delivery of this Agreement from Party B and any Credit Support Providers for Party B, plus all other agreements deemed necessary by Party A to evidence such cross-collateralization satisfactory to Party A
3 Part 3. MISCELLANEOUS (a) ADDRESS FOR NOTICES. For the Purpose of Section 10(a) of this Agreement: Any notice shall be delivered to the address or facsimile or telex number specified in the relevant Confirmation of a Transaction. For Purposes of Sections 5 and 6 of this Agreement, any notice shall also be delivered to the following address: Address for notice or communications to Party A: U.S. Bank National Association ATTN: Randy Bailey / Derivative Operations 800 Nicollet Mall Mail Location: BC-MN-H18S Minneapolis, Minnesota 55402 (612) 303-4128 Phone (612) 303-1353 Fax Address for notice or communications to Party B: Extendicare Health Services, Inc. ATTN: Janet L. Kreilein 111 West Michigan Street Milwaukee, Wisconsin 53203 (414) 908-8000 Phone (414) 908-8088 Fax (b) CALCULATION AGENT. The Calculation Agent is Party A. (c) CREDIT SUPPORT DOCUMENT. Credit Support Document is not applicable in relation to Party A. Credit Support Document is applicable in relation to Party B and shall mean each agreement and instrument, now or hereafter existing, of any kind or nature which secures, guarantees or otherwise provides direct or indirect assurance of payment or performance of any existing or future obligation of Party B under this Agreement, made by or on behalf of any person or entity (including, without limiting the generality of the foregoing, any credit or loan agreement, note, reimbursement agreement, security agreement, mortgage, pledge agreement, assignment of rents or any other agreement or instrument granting any lien, security interest, assignment, charge or encumbrance to secure any such obligation, any guaranty, suretyship, letter of credit or subordination agreement relating to any such obligation and any "keep well" or other financial support agreement relating to Party B or any Credit Support Provider) in favor of Party A or any of its Affiliates. (d) CREDIT SUPPORT PROVIDER. Credit Support Provider is not applicable in relation to Party A. Credit Support Provider is applicable in relation to Party B and means any 4 person or entity (other than Party B), that now or hereafter secures, guarantees or otherwise provides direct or indirect assurance of payment or performance of any existing or future obligation of Party B under this Agreement or any Credit Support Document, including but not limited to the following persons and/or entities: Extendicare Holdings, Inc. (e) GOVERNING LAW. This Agreement will be governed by and construed in accordance with the laws of the state of New York (without reference to choice of law doctrine). (f) "AFFILIATE" will have the meaning specified in Section 12 of this Agreement. Part 4. OTHER PROVISIONS (a) SET-OFF. Any amount (the "Early Termination Amount") payable to one party (the "Payee") by the other party (the "Payer") under Section 6(e), in circumstances where there is a Defaulting Party or one Affected Party in the case where a Termination Event under Section 5(b)(ii) has occurred, will, at the option of the party ("X") other than the Defaulting Party or the Affected Party (and without prior notice to the Defaulting Party or the Affected Party), be reduced by its set-off against any amount(s) (the "Other Agreement Amount") payable (whether at such time or in the future or upon the occurrence of a contingency) by the Payee to the Payer (irrespective of the currency, place of payment or booking office of the obligation) under any other agreement(s) between the Payee and the Payer or instrument(s) or undertaking(s) issued or executed by one party to, or in favor of, the other party (and the Other Agreement Amount will be discharged promptly and in all respects to the extent it is so set-off). X will give notice to the other party of any set-off effected under this section. For this purpose, either the Early Termination Amount or the Other Agreement Amount (or the relevant portion of such amounts) may be converted by X into the currency in which the other is denominated at the rate of exchange at which such party would be able, acting in a reasonable manner and in good faith, to purchase the relevant amount of such currency. If an obligation is unascertained, X may in good faith estimate that obligation and set-off in respect of the estimate, subject to the relevant party accounting to the other when the obligation is ascertained. Nothing in this section shall be effective to create a charge or other security interest. This section shall be without prejudice and in addition to any right of set-off, combination of accounts, lien or other right to which a party is at any time otherwise entitled (whether by operation of law, contract or otherwise). (b) EXCHANGE OF CONFIRMATIONS. For each Transaction entered into hereunder, Party A shall promptly send to Party B a Confirmation, via telex or facsimile transmission. Party B agrees to respond to such Confirmation within 5 Business Days, either confirming agreement thereto or requesting a correction of any error(s) contained therein. Failure by party B to respond within such period shall not affect the validity or enforceability of such Transaction and shall be deemed to be an 5 affirmation of the terms contained in such Confirmation, absent manifest error. The parties agree that any such exchange of telexes or facsimile transmissions shall constitute a Confirmation for all purposes hereunder. (c) WAIVER OF RIGHT TO TRIAL BY JURY. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY. (d) TELEPHONIC RECORDING. Each party (i) consents to the recording of the telephone conversations of trading and marketing personnel of the parties and their Affiliates in connection with this Agreement or any potential Transaction and (ii) agrees to obtain any necessary consent of, and give notice of such recording to, such personnel of it and its Affiliates. (e) RELATIONSHIP BETWEEN PARTIES. Section 3 of the Agreement is amended by adding the following as subsection (e): "(e) RELATIONSHIP BETWEEN PARTIES. Absent a written agreement to the contrary: (i) It is not relying on any advice (whether written or oral) of the other party regarding any Transaction, other than the representations expressly made by that other party in this Agreement and in the Confirmation in respect of that Transaction; (ii) In respect of each Transaction under this Agreement, (l) it has the capacity to evaluate (internally or through independent professional advice) that Transaction and has made its own decision to enter into that Transaction; (2) it understands the terms, conditions and risks of that Transaction and is willing to accept those terms and conditions and to assume (financially and otherwise) those risks; and (3) the other party (a) is not acting as a investment or commodity trading advisor for it; (b) has not given to it (directly or indirectly through any other person) any assurance, guaranty or representation whatsoever as to the merits (either legal, regulatory, tax, financial, accounting or otherwise) of that Transaction or any documentation related thereto; and (c) has not committed to unwind that Transaction." (f) FDIC REQUIREMENTS. (i) Corporate Authority. Each party ("X") hereby represents and warrants at all times until termination of this Agreement that X, by appropriate corporate action, is authorized under applicable law to enter into this Agreement, as evidenced by the execution 6 hereof by an officer of X of the level of vice president or higher. (ii) FIRREA Qualified Financial Contract. Each party recognizes and intends that each Transaction entered into under this Agreement is, and shall constitute, a "qualified financial contract" as that term is defined in Section 212 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, as the same may be amended, modified, or supplemented from time to time. ACCEPTED AND AGREED: U.S. BANK EXTENDICARE HEALTH SERVICES, NATIONAL ASSOCIATION INC. By: By: -------------------------------- --------------------------------- Name: Name: ------------------------------ ------------------------------- Title: Title: ----------------------------- ------------------------------ 7 EX-12 13 c86082exv12.txt STATEMENT RE: COMPUTATION OF RATIOS OF EARNINGS . . . EXHIBIT 12 EXTENDICARE HEALTH SERVICES, INC. RATIO OF EARNINGS TO FIXED CHARGES
PROFORMA -------------------------------------- ACTUAL FOR THREE 3 MONTHS 12 MONTHS MONTHS ENDED ENDED ENDED ------------------------------- MAR. 31 DEC. 31 MAR. 31 MAR. 31 2004 2003 2004 2003 ------- -------- -------- ------- Earnings before income taxes from continuing operations 17,454 41,923 14,986 3,828 Add: fixed charges 6,877 28,267 9,345 9,503 Add: Amortization of interest capitalized - - - - Less: interest capitalized (131) (75) (131) - ------------------------------------------------------------------------- Earnings before fixed charges 24,200 70,115 24,200 13,331 ========================================================================= Fixed charges: Interest expense (including amortization of deferred financing costs) 5,732 24,109 8,200 8,495 Interest capitalized 131 75 131 - Estimate of interest within lease expense 1,014 4,083 1,014 1,008 ------------------------------------------------------------------------- Total fixed charges 6,877 28,267 9,345 9,503 ========================================================================= Earnings to fixed charge ratio 3.52 2.48 2.59 1.40 ========================================================================= Dollar Amount Of The Deficiency (if less than 1:1 Ratio) not applic not applic not applic not applic ========================================================================= ESTIMATE OF INTEREST WITHIN RENT EXPENSE: - ----------------------------------------- Lease expense 2,264 9,113 2,264 2,251 Multiplier 8 8 8 8 ------------------------------------------------------------------------- Value of rented equipment/assets 18,112 72,904 18,112 18,008 Lessors' equity assumed at 20% 3,622 14,581 3,622 3,602 ------------------------------------------------------------------------- Debt of lessor 14,490 58,323 14,490 14,406 Estimated interest rate 7.0% 7.0% 7.0% 7.0% ------------------------------------------------------------------------- Lessor financing charge 1,014 4,083 1,014 1,008 ------------------------------------------------------------------------- PROFORMA IMPACT OF DEBT OFFERING - -------------------------------- Actual fixed charges 9,345 38,139 Interest savings from debt offering (2,468) (9,872) ------------------------------------ Proforma interest expense 6,877 28,267 ==================================== Earnings before fixed charges 14,986 32,051 Proforma adjustment to earnings 2,468 9,872 ------------------------------------ Proforma earnings before fixed charges 17,454 41,923 ====================================

ACTUAL FOR 12 MONTHS ENDED ---------------------------------------------------------------------------------- MAR. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 DEC. 31 2004 2003 2002 2001 2000 1999 1998 ------- ------- ------- ------- ------- ------- ------- Earnings before income taxes from continuing operations 43,209 32,051 6,337 (39,932) (82,346) (123,180) 109,252 Add: fixed charges 37,980 38,139 38,422 44,387 53,588 60,251 66,175 Add: Amortization of interest capitalized - - - - - - - Less: interest capitalized (206) (75) - - - (301) (1,099) --------------------------------------------------------------------------------- Earnings before fixed charges 80,983 70,115 44,759 4,455 (28,758) (63,230) 174,328 ================================================================================= Fixed charges: Interest expense (including amortization of deferred financing costs) 33,686 33,981 33,654 37,857 46,541 52,499 57,955 Interest capitalized 206 75 - - - 301 1,099 Estimate of interest within lease expense 4,088 4,083 4,768 6,530 7,047 7,451 7,121 --------------------------------------------------------------------------------- Total fixed charges 37,980 38,139 38,422 44,387 53,588 60,251 66,175 ================================================================================= Earnings to fixed charge ratio 2.13 1.84 1.16 0.10 (0.54) (1.05) 2.63 ================================================================================= Dollar Amount Of The Deficiency (if less than 1:1 Ratio) not applic not applic not applic 39,932 82,346 123,481 not applic ================================================================================= ESTIMATE OF INTEREST WITHIN RENT EXPENSE: - ----------------------------------------- Lease expense 9,126 9,113 10,642 14,575 15,731 16,631 15,895 Multiplier 8 8 8 8 8 8 8 --------------------------------------------------------------------------------- Value of rented equipment/assets 73,008 72,904 85,136 116,600 125,848 133,048 127,160 Lessors' equity assumed at 20% 14,602 14,581 17,027 23,320 25,170 26,610 25,432 --------------------------------------------------------------------------------- Debt of lessor 58,406 58,323 68,109 93,280 100,678 106,438 101,728 Estimated interest rate 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% 7.0% --------------------------------------------------------------------------------- Lessor financing charge 4,088 4,083 4,768 6,530 7,047 7,451 7,121 ---------------------------------------------------------------------------------
EXTENDICARE HEALTH SERVICES, INC. PROFORMA INTEREST EXPENSE FOR 2003 ASSUMING REFINANCE OCCURRED ON JANUARY 1, 2003
UPDATED INTEREST BALANCE RATE EXPENSE ------- ---- ------- Actual Interest expense for 2003 33,981 Repay Senior Subordinated Notes due 2007 (200,000) 9.350% (18,700) Draw on line of credit - 4.300% - New Senior Subordinated Notes 121,875 7.229% 8,810 Amortization of deferred finance charges: Deduct: amortization on Senior Sub Notes due 2007 (643) Add: amortization on new Senior Sub Notes due 2014 661 -------------- Change in interest expense (9,872) -------------- -------------- Proforma interest expense for 2003 24,109 ==============
EXTENDICARE HEALTH SERVICES, INC. PROFORMA INTEREST EXPENSE FOR 2003 ASSUMING REFINANCE OCCURRED ON JANUARY 1, 2003
UPDATED INTEREST BALANCE RATE EXPENSE ------- ---- ------- Actual Interest expense for Q1-2004 8,200 Repay Senior Subordinated Notes due 2007 (200,000) 9.350% (4,675) Draw on line of credit - 4.300% - New Senior Subordinated Notes 121,875 7.229% 2,203 Amortization of deferred finance charges: Deduct: amortization on Senior Sub Notes due 2007 (161) Add: amortization on new Senior Sub Notes due 2014 165 ---------- Change in interest expense (2,468) ---------- ---------- Proforma interest expense for Q1-2004 5,732 ==========
EX-21 14 c86082exv21.txt SUBSIDIARIES OF THE REGISTRANT . . . EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- ADULT SERVICES UNLIMITED, INC. PA Riverside Adult Day Health Care I Riverside Adult Day Health Care II Riverside Rehabilitation Center EXTENDICARE HEALTH NETWORK, INC. DE EHN Health Network, Inc. The Progressive Step Corporation WI None Star Purchasing Services, LLC WI None Partners Health Group, LLC DE None Partners Health Group-Florida, LLC DE None Partners Health Group-Louisiana, LLC DE None Partners Health Group-Texas, LLC DE None HEALTH POCONOS, INC. PA Riverside Rehabilitation II EXTENDICARE HEALTH FACILITY HOLDINGS, INC. WI None Arbors East, Inc. OH Arbors East Subacute & Rehabilitation Center Arbors at Toledo, Inc. OH Arbors at Clyde Arbors at Toledo Subacute & Rehabilitation Center Gardens at Clyde (f/k/a Gardens at Clyde (ACLF)) Marshall Properties, Inc. OH None Milford Care, LLC OH Milford Gardens (f/k/a Milford Gardens (ACLF)) Prairie Village Care, LLC IN Prairie Village Living Center Scott Villa Care, LLC IN Scott Villa Living Center Swiss Villa Care, LLC IN Swiss Villa Living Center River Valley Living Center Villa Pines Care, LLC WI None

STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- EXTENDICARE HEALTH FACILITY HOLDINGS, INC. (CONTINUED) Extendicare Homes, Inc. DE Concordia Arms Concordia Catered Living Concordia Retirement Community Center Concordia Care Center Ivy Court (f/k/a Coeur d'Alene Rehab & Wellness Center) LaCrosse Health & Rehabilitation Center Bell Oaks Terrace Cypress Grove Rehabilitation Center Eastgate Manor Nursing & Rehabilitation Center Emerald House Professional Care Rehabilitation Center Bon Harbor Nursing & Rehabilitation Center Day Break (Adult day care at Irvine) The Elizabethtown Nursing & Rehabilitation Center Fordsville Nursing & Rehabilitation Center Highlands, The Irvine Health & Rehabilitation Center Medco Center of Bowling Green Medco Center of Brandenburg Medco Center of Campbellsville Medco Center of Franklin Medco Center of Hardinsburg Medco Center of Henderson Medco Center of Paducah Morganfield Nursing & Rehabilitation Center Pembroke Nursing & Rehabilitation Center Salyersville Health Care Center Shady Lawn Nursing Home Springfield Nursing & Rehabilitation Center Stanton Nursing Center Sunrise Manor Nursing & Rehabilitation Center Country Villa Galtier Health Center Lexington Health & Rehabilitation Center Park Health & Rehabilitation Center Richfield Health Center (Four Seasons) Rose of Sharon Manor Texas Terrace Beauty Salon Texas Terrace Care Center Trevilla of Golden Valley Trevilla of New Brighton Trevilla of Robbinsdale
2
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- EXTENDICARE HEALTH FACILITY HOLDINGS, INC. (CONTINUED) Extendicare Homes, Inc. (continued) Whittier Health Center Catalpa Health & Rehabilitation Center Oak Hills Nursing Center Ridgewood Nursing & Rehabilitation Center Care Center East Health & Specialty Care Center Clairmont Residential Care Center Clairmont Retirement Center Klamath Regional Rehabilitation Center Meadow Park Health & Specialty Care Center Abington Crest Nursing & Rehabilitation Center Bayberry Court Belair Health & Rehabilitation Center Stonebridge Health & Rehabilitation Center Crestview Assisted Living Aldercrest Health & Rehabilitation Center Cherrywood Place (Retirement & Assisted Living) Edmonds Retirement Inn Evergreen Nursing & Rehabilitation Center Franklin Hills Health & Rehabilitation Center Gardens on University, The Island Health & Rehabilitation Center Kittitas Valley Health & Rehabilitation Center Mission Ridge Assisted Living for Independent Seniors Mountain View Meadows North Auburn Rehabilitation & Health Center Pacific Specialty & Rehabilitative Care Prairie Springs Assisted Living Puget Sound Healthcare Center Riverside Nursing & Rehabilitation Center Twin Cities Therapy West Woods All About Life Rehabilitation Center American Heritage Care Center Cedar Gardens Cedar Springs Health & Rehabilitation Center Cornell Area Care Center Crest House Crystal House
3
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- EXTENDICARE HEALTH FACILITY HOLDINGS, INC. (CONTINUED) Extendicare Homes, Inc. (continued) Crystal River Nursing & Rehabilitation Center Day Break at Lakeside (Adult Day Care at Lakeside) Heritage Court (f/k/a American Heritage ACLF) Heritage Nursing and Rehabilitation Center Hospitality Nursing & Rehabilitation Center Lake View Assisted Living Lake View Estates Lakeside Nursing & Rehabilitation Meadow View Manor Nursing Home Menomonee Falls Health Care Center Morningside Health Center Morningside Terrace (ACLF) Oak Gardens Oakwood Villa Plymouth Manor Nursing & Rehabilitation Center Sheboygan Progressive Care Center (f/k/a Heritage Nursing Center) Tamarack Place Weyauwega Health Care Center Willowcrest Care Center Willowfield Nursing & Rehabilitation Center Concordia Manor, LLC FL None Indiana Health and Rehabilitation Centers IN Applewood Health & Rehabilitation Center Canterbury Gardens (f/k/a Arbors at Ft. Wayne ACLF) Canterbury Nursing & Rehabilitation Center (f/k/a Arbors at Ft. Wayne) Courtland Health & Rehabilitation Center Danville Regional Rehabilitation Center Elkhart Rehabilitation Center Emerald Gardens Hallmark Progressive Care Center Ironwood Health & Rehabilitation Center Meadow View Health & Rehabilitation Center Medco Health & Rehabilitation Center Mount Vernon Nursing & Rehabilitation Center North Park Nursing Center
4
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- EXTENDICARE HEALTH FACILITY HOLDINGS, INC. (CONTINUED) Extendicare Homes, Inc. (continued) Indiana Health and Rehabilitation Centers Partnership (continued) Parkview Nursing Center Todd-Dickey Nursing & Rehabilitation Center Westpark Rehabilitation Center Fir Lane Terrace Convalescent Center, Inc. WA Bremerton Health & Rehabilitation Center Crestwood Convalescent Center Fir Lane Health & Rehabilitation Center Forest Ridge Health & Rehabilitation Center Laurel Park Assisted Living Port Angeles Care Center Kaufman Street, WV, LLC WI Arbors at Fairmont New Castle Care, LLC DE Arbors at New Castle Subacute & Rehabilitation Center First Coast Health and Rehabilitation FL None Center, LLC Jackson Heights Rehabilitation FL None Center, LLC Treasure Isle Care Center, LLC FL None Extendicare of Indiana, Inc. DE None Indiana Health and Rehabilitation Centers IN Applewood Health & Rehabilitation Center Partnership Canterbury Gardens (f/k/a Arbors at Ft. Wayne ACLF) Canterbury Nursing & Rehabilitation Center (f/k/a Arbors at Ft. Wayne) Courtland Health & Rehabilitation Center Danville Regional Rehabilitation Center Elkhart Rehabilitation Center Emerald Gardens Hallmark Progressive Care Center Ironwood Health & Rehabilitation Center Meadow View Health & Rehabilitation Center Medco Health & Rehabilitation Center
5
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- EXTENDICARE HEALTH FACILITY HOLDINGS, INC. (CONTINUED) Extendicare of Indiana, Inc. (continued) Indiana Health and Rehabilitation Centers Partnership (continued) Mount Vernon Nursing & Rehabilitation Center North Park Nursing Center Parkview Nursing Center Todd-Dickey Nursing & Rehabilitation Center Westpark Rehabilitation Center Extendicare Health Facilities, Inc. WI Country Springs (ACLF) Edgewood Nursing Center Eldercrest Nursing Center Glenshire Woods Havencrest Nursing Center Meadowcrest Nursing Center Oak Hill Nursing & Rehabilitation Center The Heights Beloit Health & Rehabilitation Center Brook Gardens Mayville Nursing & Rehabilitation Center Mercy Residential & Rehabilitation Center Monroe Manor Nursing & Rehabilitation Center Willowbrook Nursing & Rehabilitation Center Willowdale Nursing & Rehabilitation Center Willowpark Residence The Willows Nursing & Rehabilitation Center Alpine Health and Rehabilitation Center, FL None LLC Colonial Care, LLC FL None Greenbriar Care, LLC FL None Greenbrook Care, LLC FL None Heritage Care, LLC FL None Lady Lake Care, LLC FL None
6
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- EXTENDICARE HEALTH FACILITY HOLDINGS, INC. (CONTINUED) Extendicare Health Facilities, Inc. (continued) New Horizon Care, LLC FL None North Rehabilitation Care, LLC FL None Northern Health Facilities, Inc. DE Cedar Village Retirement Apartments Maison Aine Maple Wood Care Centre Mifflin Care Center Rittman Nursing & Rehabilitation Center Beaver Valley Nursing & Rehabilitation Center Broad Mountain Nursing & Rehabilitation Center Dresher Hill Health & Rehabilitation Center Elkins Crest Health & Rehabilitation Center Langhorne Gardens Rehabilitation & Nursing Center Mountain Laurel Nursing & Rehabilitation Center Spruce Manor Nursing & Rehabilitation Center Statesman Health & Rehabilitation Center Statesman Woods Tremont Health & Rehabilitation Center Valley Manor Nursing & Rehabilitation Center Arbors at Bayonet Point, LLC FL None Arbors at Fairlawn Care, LLC OH Arbors at Fairlawn Gardens at Fairlawn (ACLF) Arbors at Fairlawn Realty OH, LLC OH None Arbors at Sylvania Care, LLC OH Arbors at Sylvania Arbors at Sylvania Realty OH, LLC OH None Arbors at Tampa, LLC FL None Arbors West Care, LLC OH Arbors West Arbors West Realty OH, LLC OH None
7
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- EXTENDICARE HEALTH FACILITY HOLDINGS, INC. (CONTINUED) Extendicare Health Facilities, Inc. (continued) Northern Health Facilities, Inc. (continued) OH Blanchester Care Center Canton Care, LLC OH Arbors at Canton Subacute & Rehabilitation Center Columbus Rehabilitation Care, LLC OH Columbus Rehabilitation & Subacute Institute Columbus Rehabilitation Realty OH, OH None LLC Dayton Care, LLC OH Arbors at Dayton Nursing & Subacute Center Arbors at Dayton Residential Care Facility (ACLF) Delaware Care, LLC OH Arbors at Delaware Extendicare Great Trail, Inc. DE None Great Trail Care, LLC OH Great Trail Care Center Gallipolis Care, LLC OH Arbors at Gallipolis Hilliard Care, LLC OH Arbors at Hilliard Jacksonville Care, LLC FL None Kissimmee Care, LLC FL None London Care, LLC OH Arbors at London Marietta Care, LLC OH Arbors at Marietta Arbors at Marietta Residential Care Facility (ACLF) Orange Park Care, LLC FL None Oregon Care, LLC OH Arbors at Oregon
8
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- EXTENDICARE HEALTH FACILITY HOLDINGS, INC. (CONTINUED) Extendicare Health Facilities, Inc. (continued) Northern Health Facilities, Inc. (continued) Port Charlotte Care, LLC FL None Rockmill Care, LLC OH Rockmill Rehabilitation Center Rockmill Springs Rocksprings Care, LLC OH Rocksprings Rehabilitation Center Safety Harbor Care, LLC FL None Sarasota Care, LLC FL None Seminole Care, LLC FL None Waterville Care, LLC OH Arbors at Waterville Winter Haven Care, LLC FL None Woodsfield Care, LLC OH Woodsfield Nursing & Rehabilitation Center Palm Court Care, LLC FL None Richey Manor, LLC FL None
9
STATE OF INCORPORATION OR ENTITY NAME ORGANIZATION DOING BUSINESS AS - ----------- ------------ ----------------- Rockledge Care, LLC FL None South Heritage Health and Rehabilitation FL None Center, LLC The Oaks Residential and Rehabilitation FL None Center, LLC Winter Haven Health and Rehabilitation FL None Center, LLC Fiscal Services Group, LLC DE None
10 EX-23.1 15 c86082exv23w1.txt CONSENT OF INDEPENDENT REGISTERED PUB. ACCT. FIRM EXHIBIT 23.1 CONSENT OF REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Extendicare Health Services, Inc. We consent to the use of our reports included herein and to the reference to our firm under the heading "Experts" in the prospectus. Our reports dated February 6, 2004 refer to the Company's change in its method of accounting for goodwill effective January 1, 2002. /s/ KPMG LLP Milwaukee, Wisconsin June 24, 2004 EX-25 16 c86082exv25.txt FORM T-1 STATEMENT OF ELIGIBILITY EXHIBIT 25 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b)(2) ------------------------------------------------------- U.S. BANK NATIONAL ASSOCIATION (Exact name of Trustee as specified in its charter) 31-0841368 I.R.S. Employer Identification No. 800 Nicollet Mall Minneapolis, Minnesota 55402 - --------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code) Steven J. Peterson U.S. Bank National Association 1555 N. RiverCenter Drive, Suite 301 Milwaukee, WI 53212 (414) 905-5010 (Name, address and telephone number of agent for service) EXTENDICARE HEALTH SERVICES, INC. (Issuer with respect to the Securities) Delaware 98-0066268 ------------------------------- ------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 111 West Michigan Street Milwaukee, WI 53203 - --------------------------------------- ----------------------------- (Address of Principal Executive Offices) (Zip Code) 6 7/8 SENIOR SUBORDINATED NOTES DUE 2014 (Title of the Indenture Securities) ================================================================================ FORM T-1 ITEM 1. GENERAL INFORMATION. Furnish the following information as to the Trustee. a) Name and address of each examining or supervising authority to which it is subject. Comptroller of the Currency Washington, D.C. b) Whether it is authorized to exercise corporate trust powers. Yes ITEM 2. AFFILIATIONS WITH OBLIGOR. If the obligor is an affiliate of the Trustee, describe each such affiliation. None ITEMS 3-15 Items 3-15 are not applicable because to the best of the Trustee's knowledge, the obligor is not in default under any Indenture for which the Trustee acts as Trustee. ITEM 16. LIST OF EXHIBITS: List below all exhibits filed as a part of this statement of eligibility and qualification. 1. A copy of the Articles of Association of the Trustee as now in effect.* 2. A copy of the certificate of authority of the Trustee to commence business.* 3. A copy of the certificate of authority of the Trustee to exercise corporate trust powers.* 4. A copy of the existing bylaws of the Trustee as now in effect.* 5. Not applicable. 6. The consent of the Trustee required by Section 321(b) of the Trust Indenture Act of 1939, attached as Exhibit 6. 7. Report of Condition of the Trustee as of Mach 31, 2004, published pursuant to law or the requirements of its supervising or examining authority, attached as Exhibit 7. * A copy of each of these documents is on file with the Securities and Exchange Commission as an exhibit with corresponding exhibit numbers to the Form T-1 of Structured Obligations Corporation, filed pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939, as amended, on November 16, 2001 (Registration No. 333-67188), and is incorporated herein by reference to Registration Number 333-67188. 2 NOTE The answers to this statement insofar as such answers relate to what persons have been underwriters for any securities of the obligors within three years prior to the date of filing this statement, or what persons are owners of 10% or more of the voting securities of the obligors, or affiliates, are based upon information furnished to the Trustee by the obligors. While the Trustee has no reason to doubt the accuracy of any such information, it cannot accept any responsibility therefor. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, as amended, the Trustee, U.S. BANK NATIONAL ASSOCIATION, a national banking association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Milwaukee, Wisconsin on the 18th day of June, 2004. U.S. BANK NATIONAL ASSOCIATION By: /s/ Steven J. Peterson ------------------------------ Steven J. Peterson Assistant Vice President By: /s/ Peter M. Brennan --------------------- Peter M. Brennan Vice President 3 EXHIBIT 6 CONSENT In accordance with Section 321(b) of the Trust Indenture Act of 1939, the undersigned, U.S. BANK NATIONAL ASSOCIATION hereby consents that reports of examination of the undersigned by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon its request therefor. Dated: June 18, 2004 U.S. BANK NATIONAL ASSOCIATION By: /s/ Steven J. Peterson ------------------------------ Steven J. Peterson Assistant Vice President By: /s/ Peter M. Brennan ----------------------- Peter M. Brennan Vice President 4 EXHIBIT 7 U.S. BANK NATIONAL ASSOCIATION STATEMENT OF FINANCIAL CONDITION AS OF 3/31/2004 ($000'S)
3/31/2004 ------------ ASSETS Cash and Due From Depository Institutions $ 7,180,778 Federal Reserve Stock 0 Securities 45,038,794 Federal Funds 2,593,702 Loans & Lease Financing Receivables 116,474,594 Fixed Assets 1,789,213 Intangible Assets 10,532,022 Other Assets 7,996,466 ------------ TOTAL ASSETS $191,605,569 LIABILITIES Deposits $126,605,087 Fed Funds 5,698,785 Treasury Demand Notes 3,981,328 Trading Liabilities 252,912 Other Borrowed Money 23,295,560 Acceptances 148,067 Subordinated Notes and Debentures 5,807,310 Other Liabilities 5,587,914 ------------ TOTAL LIABILITIES $171,376,963 EQUITY Minority Interest in Subsidiaries $ 1,005,645 Common and Preferred Stock 18,200 Surplus 11,677,397 Undivided Profits 7,527,364 ------------ TOTAL EQUITY CAPITAL $ 20,228,606 TOTAL LIABILITIES AND EQUITY CAPITAL $191,605,569
To the best of the undersigned's determination, as of the date hereof, the above financial information is true and correct. U.S. BANK NATIONAL ASSOCIATION By: /s/ Steven J. Peterson --------------------------------- Assistant Vice President 5 EX-99.1 17 c86082exv99w1.txt SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS . . . SCHEDULE II EXTENDICARE HEALTH SERVICES, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (In thousands of dollars)
ADDITIONS SUBTRACTIONS ------------------------- -------------------------- PROVISIONS FROM ACCOUNTS BALANCE AT FOR LOSSES ACQUISITION WRITTEN OFF BALANCE BEGINNING ON ACCOUNTS OR FROM NET OF AT END YEAR ENDED OF PERIOD RECEIVABLE DIVESTITURE DIVESTITURE RECOVERIES OF PERIOD ---------- --------- ----------- ----------- ----------- ----------- --------- December 31, 1999............. 25,899 11,905 -- -- 12,855 24,949 December 31, 2000............. 24,949 17,945 2,367 -- 28,932 16,329 December 31, 2001............. 16,329 8,945 3,515 -- 14,212 14,577 December 31, 2002............. 14,577 10,937 -- -- 16,205 9,309 December 31, 2003............. 9,309 11,038 -- -- 8,655 11,692
REPORT OF REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors Extendicare Health Services, Inc.: Under date of February 6, 2004, we reported on the consolidated balance sheets of Extendicare Health Services, Inc. and Subsidiaries (the Company) as of December 31, 2003 and 2002, and the related consolidated statements of operations, shareholder's equity, and cash flows for each of the years in the three-year period ended December 31, 2003, which are included in the Company's 2003 Annual Report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule as listed in Item 14. The financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. As discussed in note 2 of the consolidated financial statements, the Company changed its method of accounting for goodwill effective January 1, 2002. /s/ KPMG LLP Milwaukee, Wisconsin February 6, 2004 EX-99.2 18 c86082exv99w2.txt FORM OF LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL EXTENDICARE HEALTH SERVICES, INC. OFFER TO EXCHANGE REGISTERED 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 FOR ANY AND ALL OUTSTANDING UNREGISTERED 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 PURSUANT TO THE PROSPECTUS DATED __________, 2004 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME, ON __________, 2004, UNLESS EXTENDED (THE "EXPIRATION DATE"). The Exchange Agent for the Exchange Offer is: U.S. Bank, N.A. By Facsimile Transmission By Registered or Certified Mail, ------------------------- Hand or Overnight Courier: (For Eligible Institutions Only): -------------------------- U.S. Bank, N.A. (651) 495-8158 60 Livingston Avenue St. Paul, MN 55107 Confirm by Telephone: -------------------- Attention: Specialized Finance (651) 495-3513 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY BEFORE COMPLETING THIS LETTER OF TRANSMITTAL. The undersigned acknowledges that he or she has received and reviewed the Prospectus, dated __________, 2004 (the "Prospectus"), of Extendicare Health Services, Inc., a Delaware corporation (the "Company"), and certain of its direct and indirect subsidiaries, and this Letter of Transmittal (the "Letter"), which together constitute the Company's offer (the "Exchange Offer") to exchange its 6 7/8% Senior Subordinated Notes due 2014 (the "New Notes"), which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of the Company's issued and outstanding unregistered 6 7/8% Senior Subordinated Notes due 2014 (the "Old Notes"). For each Old Note accepted for exchange, the Holder of such Old Note will receive a New Note having a principal amount equal to that of the surrendered Old Note. The New Notes will bear interest from the most recent date to which interest has been paid on the Old Notes or, if no interest has been paid on the Old Notes, from April 22, 2004. Accordingly, registered Holders of New Notes on the relevant record date for the first interest payment date following the consummation of the Exchange Offer will receive interest accrued from the most recent date to which interest has been paid or, if no interest has been paid, from April 22, 2004. However, if that record date occurs prior to completion of the Exchange Offer, then the interest payable on the first interest payment date following the completion of the Exchange Offer will be paid to the registered Holders of the Old Notes on that record date. Old Notes accepted for exchange will cease to accrue interest from and after the date of consummation of the Exchange Offer and will be cancelled. Holders of Old Notes whose Old Notes are accepted for exchange will not receive any payment in respect of accrued interest on such Old Notes otherwise payable on any interest payment date the record date for which occurs on or after consummation of the Exchange Offer. This Letter is to be completed by a Holder of Old Notes either if (1) certificates are to be forwarded herewith or (2) tenders are to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the procedures set forth in "The Exchange Offer - Book-Entry Transfer" section of the Prospectus. Holders of Old Notes whose certificates are not immediately available, or who are unable to deliver their certificates or confirmation of the book-entry tender of their Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility (a "Book-Entry Confirmation") and all other documents required by this Letter to the Exchange Agent on or prior to the Expiration Date, must tender their Old Notes according to the guaranteed delivery procedures set forth in "The Exchange Offer - Guaranteed Delivery Procedures" section of the Prospectus. See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility does not constitute delivery to the Exchange Agent. Tenders by book-entry transfer also may be made by delivering an Agent's Message in lieu of this Letter. The term "Agent's Message" means a message, transmitted by the Book-Entry Transfer Facility to and received by the Exchange Agent and forming a part of a Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has received an express acknowledgment from the tendering participant, which acknowledgment states that such participant has received and agrees to be bound by this Letter and the Company may enforce this Letter against such participant. As used in this Letter, the term "Holder" with respect to the Exchange Offer means any person in whose name Old Notes are registered on the books of the Company or, with respect to interests in global notes held by DTC, any DTC participant listed in an official DTC proxy. The undersigned has completed the appropriate boxes below and signed this Letter to indicate the action the undersigned desires to take with respect to the Exchange Offer. 2 List below the Old Notes to which this Letter relates. If the space provided below is inadequate, the certificate numbers and principal amount of Old Notes should be listed on a separate signed schedule affixed hereto. DESCRIPTION OF OLD NOTES TENDERED
NAME(S) AND ADDRESS(ES) OF AGGREGATE REGISTERED HOLDER(S) CERTIFICATE PRINCIPAL AMOUNT PRINCIPAL AMOUNT (PLEASE FILL IN, IF BLANK) NUMBER(S)* OF OLD NOTES TENDERED** -------------------------- ---------- ------------ ---------- -------------------------- ---------- ------------ ---------- -------------------------- ---------- ------------ ---------- -------------------------- ---------- ------------ ---------- Total
- ------------- * Do not complete if Old Notes are being tendered by book-entry transfer. ** A holder will be deemed to have tendered ALL Old Notes unless a lesser amount is specified in this column. See Instruction 2. Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiples thereof. See Instruction 1. [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING: Name of Tendering Institution --------------------------------------------- Account Number Transaction Code Number -------------------------- ----------- [ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) ------------------------------------------- Window Ticket Number (if any) --------------------------------------------- Date of Execution of Notice of Guaranteed Delivery ------------------------ Name of Institution Which Guaranteed Delivery ----------------------------- If Delivered by Book-Entry Transfer, Complete the Following: Account Number Transaction Code Number -------------------------- ----------- [ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO. Name: --------------------------------------------------------------------- Address: ------------------------------------------------------------------- 3 NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS Ladies and Gentlemen: Upon the terms and subject to the conditions of the Exchange Offer, the undersigned hereby tenders to the Company the aggregate principal amount of Old Notes indicated on page 3 of this Letter. Subject to, and effective upon, the acceptance for exchange of the Old Notes tendered hereby, the undersigned hereby sells, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Old Notes as are being tendered hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent as the undersigned's true and lawful agent and attorney-in-fact with respect to such tendered Old Notes, with full power of substitution, among other things, to cause the Old Notes to be assigned, transferred and exchanged. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Old Notes, and to acquire the New Notes issuable upon the exchange of such tendered Old Notes, and that, when the same are accepted for exchange, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim when the same are accepted by the Company. The undersigned hereby further represents that: (1) any New Notes acquired in exchange for Old Notes tendered hereby will have been acquired in the ordinary course of business of the person receiving such New Notes, whether or not such person is the undersigned, (2) neither the Holder of such Old Notes nor any such other person has an arrangement or understanding with any person to participate in the distribution of such New Notes, and (3) neither the Holder of such Old Notes or any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company. The undersigned acknowledges that this Exchange Offer is being made in reliance on interpretations by the staff of the Securities and Exchange Commission (the "SEC"), as set forth in no-action letters issued to third parties, that the New Notes issued pursuant to the Exchange Offer in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by Holders thereof (other than any such Holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that such Holders are not broker-dealers, such New Notes are acquired in the ordinary course of such Holders' business and such Holders have no arrangement or understanding with any person to participate in the distribution of such New Notes. However, the SEC has not considered the Exchange Offer in the context of a no-action letter and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. If the undersigned is not a broker-dealer, then the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of the New Notes. If any Holder is an affiliate of the Company, or has any arrangement or understanding with respect to the distribution of the New Notes to be acquired pursuant to the Exchange Offer, such Holder (i) cannot rely on the applicable interpretations of the staff of the SEC, (ii) is not entitled and will not be permitted to tender Old Notes in the Exchange Offer and (iii) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale transaction. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes, it represents that the Old Notes to be exchanged for the New Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus meeting the requirements of the 4 Securities Act, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned will, upon request, execute and deliver any additional documents reasonably deemed by the Company to be necessary or desirable to complete the sale, assignment and transfer of the Old Notes tendered hereby. All authority conferred or agreed to be conferred in this Letter and every obligation of the undersigned hereunder shall be binding upon the successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives of the undersigned and shall not be affected by, and shall survive, the death or incapacity of the undersigned. This tender may be withdrawn only in accordance with the procedures set forth in "The Exchange Offer - Withdrawal Rights" section of the Prospectus. Unless otherwise indicated herein in the box entitled "Special Issuance Instructions" below, please deliver the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) in the name of the undersigned or, in the case of a book-entry delivery of Old Notes, please credit the account indicated above maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise indicated under the box entitled "Special Delivery Instructions" below, please send the New Notes (and, if applicable, substitute certificates representing Old Notes for any Old Notes not exchanged) to the undersigned at the address shown above in the box entitled "Description of Old Notes Tendered." THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD NOTES TENDERED" ON PAGE 3 OF THIS LETTER AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD NOTES AS SET FORTH IN SUCH BOX ON PAGE 3 OF THIS LETTER. 5 SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if Old Notes not exchanged and/or New Notes are to be issued in the name of someone other than the undersigned, or if Old Notes delivered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at the Book-Entry Transfer Facility other than the account indicated above. Issue: [ ] New Notes [ ] Old Notes Name(s) ----------------------------------------- (Please Type or Print) ----------------------------------------- Address ------------------------------------------------------------------------ Taxpayer Identification or Social Security No. - ----------------------------------------------- [ ] Credit unexchanged Old Notes delivered by book-entry transfer to the Book-Entry Transfer Facility account set forth below. (Book-Entry Transfer Facility Account Number, if applicable) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 3 AND 4) To be completed ONLY if Old Notes not exchanged and/or New Notes are to be sent to someone other than the undersigned, or to the undersigned at an address other than shown in the box entitled "Description of Old Notes Tendered" on this Letter. Mail: [ ] New Notes [ ] Old Notes Name(s) ------------------------------------------------------------------------ (Please Type or Print) ------------------------------------------------------------------------ Address ------------------------------------------------------------------------ ------------------------------------------------------------------------ 6 ALL TENDERING HOLDERS PLEASE SIGN HERE (COMPLETE SUBSTITUTE FORM W-9 ON NEXT PAGE) x , 2004 --------------------------- ----------------------------- Date x , 2004 --------------------------- ------------------------------ Date Area Code and Telephone Number -------------------------------------------------- This Letter must be signed by the registered holder(s) or DTC participant(s) exactly as the name(s) appear(s) on the Old Notes or on a security position listing or by any person(s) authorized to become registered holder(s) by endorsements and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, officer or other person acting in a fiduciary or representative capacity, please provide the following information. See Instruction 3. Name(s): ------------------------------------------------------------------------ (Please Type or Print) Capacity (full title): ---------------------------------------------------------- Address: ------------------------------------------------------------------------ Taxpayer Identification or Social Security No.: --------------------------------- SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 3) Signature(s) Guaranteed By an Eligible Institution: ----------------------------------------------------- (Authorized Signature) Name and Title: ---------------------------------------------------------------- Name of Firm: ---------------------------------------------------------------- Dated: ________________, 2004 IMPORTANT: THIS LETTER (OR A FACSIMILE HEREOF), TOGETHER WITH THE CERTIFICATES FOR OLD NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS OR THE NOTICE OF GUARANTEED DELIVERY, MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. 7 TO BE COMPLETED BY ALL TENDERING HOLDERS (SEE INSTRUCTION 5) PAYOR'S NAME: U.S. BANK, N.A. SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR Social security number FORM W-9 TAXPAYER IDENTIFICATION NUMBER IN THE BOX AT RIGHT AND CERTIFY ------------------------------- BY SIGNING AND DATING BELOW. If OR Old Notes are held in more than Employer Identification number one name, see the Guidelines for Certification of Taxpayer ------------------------------- Identification Number on Substitute W-9 to determine which number you must provide. DEPARTMENT OF THE TREASURY Part 2 - FOR PAYEES EXEMPT FROM BACKUP WITHHOLDING INTERNAL REVENUE SERVICE (See the Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9). PAYOR'S REQUEST FOR Part 3 - CERTIFICATION: UNDER THE PENALTIES OF TAXPAYER IDENTIFICATION PERJURY, I CERTIFY THAT: NUMBER AND CERTIFICATION (1) the number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me); (2) I am not subject to backup withholding either because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the Internal Revenue Service has notified me that I am no longer subject to backup withholding; and (3) I am a U.S. Person (including a resident alien). THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID BACKUP WITHHOLDING. SIGNATURE ----------------------------------------- PRINTED NAME ----------------------------------------- DATE ----------------------------------------- You must cross out item (2) of the above certification if you have been notified by the Internal Revenue Service that you are subject to backup withholding because you failed to report all interest and dividends on your tax return. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING A TAXPAYER IDENTIFICATION NUMBER. 8 CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I certify under penalties of perjury that a taxpayer identification number has not been issued to me, and either (a) I have mailed or delivered an application to receive a taxpayer identification number to the appropriate Internal Revenue Service Center or Social Security Administration Office or (b) I intend to mail or deliver an application in the near future. I understand that if I do not provide a taxpayer identification number by the time of the exchange, 28 percent of all reportable payments made to me thereafter will be withheld until I provide a number. Signature__________________________________________ Date__________________ INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER AND SENIOR SUBORDINATED NOTES; GUARANTEED DELIVERY PROCEDURES. This Letter is to be completed by Holders of Old Notes either if certificates are to be forwarded herewith or if tenders are to be made pursuant to the procedures for delivery by book-entry transfer set forth in "The Exchange Offer - Book-Entry Transfer" section of the Prospectus. Certificates for all physically tendered Old Notes, or Book-Entry Confirmation, as the case may be, as well as a properly completed and duly executed Letter (or manually signed facsimile hereof), with any required signature guarantees, and any other documents required by this Letter, must be received by the Exchange Agent at the address set forth herein on or prior to the Expiration Date, or the tendering Holder must comply with the guaranteed delivery procedures set forth below. Old Notes tendered hereby must be in denominations of principal amount of $1,000 and any integral multiples thereof. Holders who tender their Old Notes by delivering an Agent's Message do not need to submit this Letter. Holders whose certificates for Old Notes are not immediately available or who cannot deliver their certificates and all other required documents to the Exchange Agent on or prior to the Expiration Date, or who cannot complete the procedure for book-entry transfer on a timely basis, may tender their Old Notes pursuant to the guaranteed delivery procedures set forth in "The Exchange Offer - - Guaranteed Delivery Procedures" section of the Prospectus. Pursuant to such procedures, (i) such tender must be made through an Eligible Institution (as defined below), (ii) prior to 5:00 P.M., New York City time, on the Expiration Date, the Exchange Agent must receive from such Eligible Institution a properly completed and duly executed letter (or a facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form provided by the Company (by facsimile transmission, mail or hand delivery), setting forth the name and address of the Holder of Old Notes and the amount of Old Notes tendered stating that the tender is being made thereby and guaranteeing that within three New York Stock Exchange ("NYSE") trading days after the Expiration Date, the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and any other documents required by this Letter will be deposited by the Eligible Institution with the Exchange Agent, and (iii) the certificates for all physically tendered Old Notes, in proper form for transfer, or a Book-Entry Confirmation, as the case may be, and all other documents required by this Letter, are received by the Exchange Agent within three NYSE trading days after the Expiration Date. THE METHOD OF DELIVERY OF THIS LETTER, THE OLD NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE TENDERING HOLDERS, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, 9 PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. See "The Exchange Offer" section of the Prospectus. 2. PARTIAL TENDERS (NOT APPLICABLE TO HOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If less than all of the Old Notes evidenced by a submitted certificate are to be tendered, the tendering Holder(s) should fill in the aggregate principal amount of the Old Notes to be tendered in the box above entitled "Description of Old Notes Tendered -- Principal Amount Tendered." A reissued certificate representing the balance of non-tendered Old Notes will be sent to such tendering Holder, unless otherwise provided in the appropriate box on this Letter promptly after the Expiration Date. All of the Old Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. 3. SIGNATURES ON THIS LETTER; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter is signed by the registered Holder of the Old Notes tendered hereby, the signature must correspond exactly with the name as written on the face of the certificates without any change whatsoever. If this Letter is signed by a participant in DTC, the signature must correspond with the name as it appears on the security position listing as the owner of the Old Notes. If any tendered Old Notes are owned of record by two or more joint owners, all of such owners must sign this Letter. If any tendered Old Notes are registered in different names, it will be necessary to complete, sign and submit as many separate copies of this Letter as there are different registrations of Old Notes. When this Letter is signed by the registered Holder(s) of the Old Notes specified herein and tendered hereby, no endorsements of the tendered Old Notes or separate bond powers are required. If, however, the New Notes are to be issued, or any untendered Old Notes are to be reissued, to a person other than the registered Holder, then endorsements of any Old Notes transmitted hereby or separate bond powers are required. Signatures on the Old Notes or bond power must be guaranteed by an Eligible Institution. If this Letter is signed by a person other than the registered Holder(s) of any Old Notes specified herein, such Old Notes must be endorsed or accompanied by appropriate bond powers, in either case signed exactly as the name or names of the registered Holder or Holders appear(s) on the Old Notes (or security position listing) and signatures on the Old Notes or bond power must be guaranteed by an Eligible Institution. If this Letter or any certificates or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, must submit proper evidence satisfactory to the Company of their authority to so act. Endorsements on Old Notes or signatures on bond powers required by this Instruction 3 must be guaranteed by a firm or other entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible guarantor institution," including (as such terms are defined therein) (i) a bank, (ii) broker, dealer, municipal securities broker or dealer or government securities broker or dealer, (iii) a credit 10 union, (iv) a national securities exchange, registered securities association or clearing agency, or (v) a savings association that is a participant in a Securities Transfer Association (an "Eligible Institution"). Signatures on this Letter need not be guaranteed by an Eligible Institution if the Old Notes are tendered: (i) by a registered Holder of Old Notes (which term, for purposes of the Exchange Offer, includes any participant in the Book-Entry Transfer Facility whose name appears on a security position listing as the owner of such Old Notes) who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on this Letter, or (ii) for the account of an Eligible Institution. 4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering Holders of Old Notes should indicate in the applicable box on page 6 of this Letter the name and address to which New Notes issued pursuant to the Exchange Offer and/or substitute certificates evidencing Old Notes not exchanged are to be issued or sent, if different from the name or address of the person signing this Letter. In the case of issuance in a different name, the employer identification or social security number of the person named must also be indicated. Holders tendering Old Notes by book-entry transfer may request that Old Notes not exchanged be credited to such account maintained at the Book-Entry Transfer Facility as such note Holder may designate hereon. If no such instructions are given, such Old Notes not exchanged will be returned to the name and address of the person signing this Letter. 5. TAXPAYER IDENTIFICATION NUMBER. Federal income tax law generally requires that a tendering Holder whose Old Notes are accepted for exchange must provide the Company (as payor) with such Holder's correct Taxpayer Identification Number ("TIN") on the substitute Form W-9 on page 8 of this Letter, which in the case of a tendering Holder who is an individual, is his or her social security number. If the Company is not provided with the current TIN or an adequate basis for an exemption from backup withholding, such tendering Holder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, the Exchange Agent maybe required to withhold 28 percent of the amount of any reportable payments made after the exchange to such tendering Holder of New Notes. If withholding results in an overpayment of taxes, a refund may be obtained. Exempt Holders of Old Notes (including, among others, all corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. Exempt Holders, other than foreign individuals, should furnish their TIN, write "Exempt" on the face of the Substitute Form W-9 and sign, date and return the form to the Exchange Agent. See the enclosed Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9 (the "W-9 Guidelines") for additional instructions. If the tendering Holder of Old Notes is a nonresident alien or foreign entity not subject to backup withholding, such Holder must give the Exchange Agent a completed Form W-8 Certificate of Foreign Status. To prevent backup withholding, each tendering Holder of Old Notes must provide its correct TIN by completing the Substitute Form W-9 on page 8 of this Letter, certifying, under penalties of perjury, that the TIN provided is correct (or that such Holder is awaiting a TIN) and that (i) the Holder is exempt from backup withholding, or (ii) the Holder has not been notified by the Internal Revenue Service that such Holder is subject to backup withholding as a result of a failure to report all interest or dividends or (iii) the Internal Revenue Service has notified the Holder that such Holder is no longer subject to backup withholding. If the Old Notes are in more than one name or are not in the name of 11 the actual owner, such Holder should consult the W-9 Guidelines for information on which TIN to report. Failure to provide the information on the form may subject the Holder to 28 percent federal income tax backup withholding on all reportable payments to the Holder. If such Holder does not have a TIN, such Holder should consult the W-9 Guidelines for instructions on applying for a TIN, apply for a TIN and write "applied for" in lieu of its TIN in Part 1 of the Substitute Form W-9. Writing "applied for" on the form means that such Holder has already applied for a TIN or that such Holder intends to apply for one in the near future. If "applied for" is written in Part 1 of the Substitute Form W-9 and the Exchange Agent is not provided with a TIN within 60 days, the Exchange Agent will withhold 28 percent of all reportable payments to the Holder thereafter until a TIN is provided to the Exchange Agent. 6. TRANSFER TAXES. The tendering Holders are obligated to pay all transfer taxes, if any, applicable to the transfer of Old Notes pursuant to the Exchange Offer. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted herewith, the amount of such transfer taxes will be billed directly to such tendering Holder. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Old Notes specified in this Letter. 7. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or contingent tenders will be accepted. All tendering Holders of Old Notes, by execution of this Letter, shall waive any right to receive notice of the acceptance of their Old Notes for exchange. Neither the Company, the Exchange Agent nor any other person is obligated to give notice of any defect or irregularity with respect to any tender of Old Notes nor shall any of them incur any liability for failure to give any such notice. 8. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. This Letter and related documents cannot be processed until the procedures for replacing mutilated, lost, stolen or destroyed certificates have been followed. 9. WITHDRAWAL RIGHTS. Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New York City time, on the Expiration Date. For a withdrawal of a tender of Old Notes to be effective, a written notice of withdrawal must be received by the Exchange Agent at the address on page 1 of this Letter prior to 5:00 P.M., New York City time, on the Expiration Date. Any such notice of withdrawal must (i) specify the name of the person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old Notes to be withdrawn (including certificate number or numbers and the principal amount of such Old Notes), (iii) contain a statement that such Holder is withdrawing his election to have such Old Notes exchanged, (iv) be signed by the Holder in the same manner as the original signature on the Letter by which such Old Notes were tendered (including any required signature guarantees) or be accompanied by documents of transfer to have the Trustee with respect to the Old Notes register the transfer of such Old Notes in the name of the person withdrawing the tender and (v) 12 specify the name in which such Old Notes are registered, if different from that of the Depositor. If Old Notes have been tendered pursuant to the procedure for book-entry transfer set forth in "The Exchange Offer - Book-Entry Transfer" section of the Prospectus, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. All questions as to the validity, form and eligibility (including time of receipt) of such notices will be determined by the Company, whose determination shall be final and binding on all parties. Any Old Notes so withdrawn will be deemed not to have been validly tendered for exchange for purposes of the Exchange Offer and no New Notes will be issued with respect thereto unless the Old Notes so withdrawn are validly retendered. Any Old Notes that have been tendered for exchange but which are not exchanged for any reason will be returned to the Holder thereof without cost to such Holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures set forth in "The Exchange Offer - Book-Entry Transfer" section of the Prospectus, such Old Notes will be credited to an account maintained with the Book-Entry Transfer Facility for the Old Notes) as soon as practicable after withdrawal, rejection of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may be retendered by following the procedures described above at any time on or prior to 5:00 P.M., New York City time, on the Expiration Date. 10. IRREGULARITIES. The Company will determine, in its sole discretion, all questions as to the form, validity, eligibility (including time of receipt) and acceptance for exchange of any tender of Old Notes, which determination shall be final and binding. The Company reserves the absolute right to reject any and all tenders of any particular Old Notes not properly tendered or to not accept any particular Old Notes which acceptance might, in the judgment of the Company or its counsel, be unlawful. The Company also reserves the absolute right, in its sole discretion, to waive any defects or irregularities or conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the right to waive the ineligibility of any Holder who seeks to tender Old Notes in the Exchange Offer). The interpretation of the terms and conditions of the Exchange Offer as to any particular Old Notes either before or after the Expiration Date (including the Letter and the instructions thereto) by the Company shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with the tender of Old Notes for exchange must be cured within such reasonable period of time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of any defect or irregularity with respect to any tender of Old Notes for exchange, nor shall any of them incur any liability for failure to give such notification. 11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the procedure for tendering, as well as requests for additional copies of the Prospectus, this Letter, the Notice of Guaranteed Delivery and other related documents may be directed to the Exchange Agent, at the address and telephone number indicated on page 1 of this Letter. 13 EX-99.3 19 c86082exv99w3.txt FORM OF NOTICE OF GUARANTEED DELIVERY EXHIBIT 99.3 NOTICE OF GUARANTEED DELIVERY FOR TENDER OF 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 OF EXTENDICARE HEALTH SERVICES, INC. This Notice of Guaranteed Delivery, or one substantially equivalent to this form, must be used to accept the exchange offer of Extendicare Health Services, Inc. (the "Company") made pursuant to the Prospectus dated _________, 2004 (the "Prospectus") if certificates for the outstanding 6 7/8% Senior Subordinated Notes due 2014 of the Company (the "Old Notes") are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit all required documents to reach U.S. Bank, N.A. as exchange agent (the "Exchange Agent"), prior to 5:00 P.M., New York City time, on _______, 2004 (the "Expiration Date"). This Notice of Guaranteed Delivery may be delivered or transmitted by facsimile transmission, overnight courier, mail or hand delivery to the Exchange Agent as set forth below. In addition, in order to utilize the guaranteed delivery procedure to tender Old Notes pursuant to the exchange offer, a completed, signed and dated Letter of Transmittal (or facsimile thereof) must also be received by the Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration Date. The Exchange Agent for the exchange offer is U.S. Bank, N.A. By Registered or Certified Mail, By Facsimile Transmission Hand or overnight Courier: ------------------------- -------------------------- (For Eligible Institutions Only): U.S. Bank, N.A. (651) 495-8158 60 Livingston Avenue St. Paul, MN 55107 Confirm by Telephone: Attention: Specialized Finance -------------------- (651) 495-3513 DELIVERY OF THIS NOTICE TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY. THIS NOTICE IS NOT TO BE USED TO GUARANTEE SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE GUARANTEED BY AN ELIGIBLE INSTITUTION UNDER THE INSTRUCTIONS THERETO, THE SIGNATURE GUARANTEED MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE SIGNATURE BOX ON THE LETTER OF TRANSMITTAL. Ladies and Gentlemen: Upon the terms and subject to the conditions set forth in the Prospectus and the accompanying Letter of Transmittal, the undersigned hereby tenders to the Company the principal amount of Old Notes of the series set forth below pursuant to the guaranteed delivery procedures described in "The Exchange Offer - Guaranteed Delivery Procedures" section of the Prospectus. - ---------------------------------------------------------- ---------------------------------------------------------- Total Principal Amount of Old If Old Notes will be delivered by book-entry transfer to Notes Tendered:* The Depository Trust Company, provide account number. $__________ Account Number ___________________ Certificate Nos. (if available) ----------------------------- - ---------------------------------------------------------- ----------------------------------------------------------

* Must be in denominations of principal amount of $1,000 and any integral multiple thereof. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and every obligation of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. PLEASE SIGN HERE X -------------------------------------- -------------------------------------- X -------------------------------------- -------------------------------------- Signature(s) of Owner(s) Date or Authorized Signatory

Area Code and Telephone Number(s): Must be signed by the registered holder(s) of Old Notes as their name(s) appear(s) on the Old Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by endorsement and documents transmitted with this Notice of Guaranteed Delivery. If signature is by a trustee, executor administrator, guardian, attorney-in-fact, officer or other person acting in a fiduciary or representative capacity, please provide the following information. Please print name(s) and address(es) Name(s): ------------------------------------------------------------------------ ================================================================================ Capacity: ----------------------------------------------------------------------- Address(es): ==================================================================== - -------------------------------------------------------------------------------- Telephone Number: --------------------------------------------------------------- -2- GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm or other entity identified in Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor institution" including (as such terms are defined therein) (i) a bank, (ii) broker, dealer, municipal securities broker or dealer or government securities broker or dealer, (iii) a credit union, (iv) a national securities exchange, registered securities association or clearing agency, or (v) a savings association that is a participant in a Securities Transfer Association (an "Eligible Institution"), hereby guarantees that the certificates representing the principal amount of Old Notes tendered hereby in proper form for transfer, or timely confirmation of the book-entry transfer of such Old Notes into the Exchange Agent's account at The Depository Trust Company pursuant to the procedures set forth in "The Exchange Offer - Guaranteed Delivery Procedures" section of the Prospectus, together with any required signature guarantee and any other documents required by the Letter of Transmittal, will be received by the Exchange Agent at the address set forth above, no later than three New York Stock Exchange trading days after the Expiration Date. - ---------------------------------------------------- -------------------------------------------------------- Name of Firm Authorized Signature - ---------------------------------------------------- -------------------------------------------------------- Address Title Name: - ----------------------------------------------------- --------------------------------------------------- Zip Code (Please Type or Print) Dated: - ----------------------------------------------------- -------------------------------------------------- Telephone Number

NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR OLD NOTES SHOULD BE SENT ONLY WITH A COPY OF YOUR PREVIOUSLY EXECUTED LETTER OF TRANSMITTAL. -3- EX-99.4 20 c86082exv99w4.txt GUIDELINES FOR CERTIFICATION OF TAXPAYER ID NUMBER EXHIBIT 99.4 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER (TIN) ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER NAME AND IDENTIFICATION NUMBER TO GIVE THE PAYER. Social security numbers (SSNs) have nine digits separated by two hyphens: i.e., 000-00-0000. Employer identification numbers (EINs) have nine digits separated by only one hyphen: i.e., 00-0000000. The table below will help determine the name and number to give the requestor.
- ------------------------------ ------------------------ --------------------------------- ------------------------ FOR THIS TYPE OF ACCOUNT: GIVE NAME AND SSN OF: FOR THIS TYPE OF ACCOUNT: GIVE NAME AND EIN OF: - ------------------------------ ------------------------ --------------------------------- ------------------------ 1. Individual The individual 6. Sole proprietorship or The owner(3) single-owner LLC 2. Two or more individuals The actual owner of (joint account) the account or, if 7. A valid trust, estate or The legal entity(4) combined funds, the pension trust first individual on the account(1) 8. Corporate or LLC electing The corporation corporate status on Form 3. Custodian account of a The minor(2) 8832 minor (Uniform Gift to Minors Act) 9. Association, club, The organization religious, charitable, 4. a. The usual revocable The grantor-trustee(1) educational or other savings trust account tax-exempt organization (grantor is also trustee) 10. Partnership or The partnership b. So-called trust The actual owner(1) multi-member LLC account that is not a legal or valid trust 11. A broker or registered The broker or nominee under state law nominee 5. Sole proprietorship or The owner(3) 12. Account with the The public entity single-owner LLC Department of Agriculture in the name of a public entity (such as a state or local government, school district or prison) that receives agricultural program payments - ------------------------------ ------------------------ --------------------------------- ------------------------
(1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has an SSN, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's SSN. (3) You must show your individual name, but you may also enter your business or "doing business as" name. You may use either your SSN or your EIN (if you have one). (4) List first and circle the name of the legal trust, estate or pension trust. (Do not furnish the identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.) NOTE: If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 HOW TO GET A TIN If you do not have a TIN, apply for one immediately. To apply for an SSN, get Form SS-5, Application for a Social Security Card, from your local Social Security Administration office or get this form on-line at www.ssa.gov/online/ss5.html. You may also get this form by calling 1-800-772-1213. Use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN, or Form SS-4, Application for Employer Identification Number, to apply for an EIN. You can get Forms W-7 and SS-4 from the IRS by calling 1-800-TAX-FORM (1-800-829-3676) or from the IRS Web Site at www.irs.gov. PAYEES EXEMPT FROM BACKUP WITHHOLDING The following is a list of payees specifically exempted from backup withholding: (1) An organization exempt from tax under section 501(a), any IRA, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2). (2) The United States or of any of its agencies or instrumentalities. (3) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (4) A foreign government or any of its political subdivisions, agencies or instrumentalities. (5) An international organization or any of its agencies or instrumentalities. Other payees that may be exempt from backup withholding include: (6) A corporation. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940. (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or custodian. (15) A trust exempt from tax under section 664 or described in section 4947. Exempt payees described at left should file Form W-9 to avoid possible erroneous backup withholding. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" IN PART II OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. If you are a nonresident alien or a foreign entity not subject to backup withholding, give the payer a completed Form W-8, Certificate of Foreign Status. PRIVACY ACT NOTICE. Section 6109 of the Internal Revenue Code requires you to provide your correct TIN to persons who must file information with the IRS to report interest, dividends and certain other income paid to you, mortgage interest you paid, the acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA or Archer MSA. The IRS uses the numbers for identification purposes and to help verify the accuracy of your return. The IRS may also provide this information to the Department of Justice for criminal and civil litigation and to cities, states and the District of Columbia to carry out their tax laws. The IRS may also disclose this information to other countries under a tax treaty, or to Federal and state agencies to enforce Federal nontax criminal laws and to combat terrorism. You must provide your TIN whether or not you are required to file a tax return. Payers must generally withhold 28 percent of taxable interest, dividend and certain other payments to a payee who does not furnish a TIN to a payer. Certain penalties may also apply. PENALTIES (1) FAILURE TO FURNISH TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. If you make a false statement with no reasonable basis which results in no backup withholding, you are subject to a $500 penalty. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. (4) MISUSE OF TINS. If the requester discloses or uses TINs in violation of Federal law, the requester may be subject to civil and criminal penalties. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.5 21 c86082exv99w5.txt FORM OF LETTER TO CLIENTS EXHIBIT 99.5 EXTENDICARE HEALTH SERVICES, INC. OFFER TO EXCHANGE REGISTERED 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 FOR ANY AND ALL OUTSTANDING UNREGISTERED 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _________, 2004, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- ____________, 2004 To Our Clients: Enclosed for your consideration is a Prospectus, dated _________, 2004 (the "Prospectus"), and the related Letter of Transmittal (the "Letter of Transmittal"), relating to the offer (the "Exchange Offer") of Extendicare Health Services, Inc. (the "Company") to exchange its 6 7/8% Senior Subordinated Notes due 2014 which have been registered under the Securities Act of 1933, as amended, for all of its outstanding unregistered 6 7/8% Senior Subordinated Notes due 2014 (the "Old Notes"), upon the terms and subject to the conditions described in the Prospectus and the Letter of Transmittal. The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Exchange and Registration Rights Agreement dated April 22, 2004, by and between the Company, the subsidiary guarantors from time to time party thereto and the initial purchasers named therein, related to the 6 7/8% Senior Subordinated Notes due 2014. This material is being forwarded to you as the beneficial owner of the Old Notes held by us for your account but not registered in your name. A tender of such Old Notes may only be made by us as the holder of record and pursuant to your instructions. Accordingly, we request instructions as to whether you wish us to tender on your behalf the Old Notes held by us for your account, pursuant to the terms and conditions set forth in the enclosed Prospectus and Letter of Transmittal. We urge you to read the Prospectus carefully before instructing us as to whether or not to tender your Old Notes. Your instructions should be forwarded to us as promptly as possible in order to permit us to tender the Old Notes on your behalf in accordance with the provisions of the Exchange Offer. The Exchange Offer will expire at 5:00 p.m., New York City time, on ________, 2004, unless extended by the Company. Any Old Notes tendered pursuant to the Exchange Offer may be withdrawn at any time before the Expiration Date. If you wish to have us tender your Old Notes, please instruct us by completing, executing and returning to us the instruction form enclosed with this letter. The Letter of Transmittal is furnished to you for information only and may not be used directly by you to tender Old Notes. If we do not receive written instructions in accordance with the procedures presented in the Prospectus and the Letter of Transmittal we will not tender any of the outstanding Old Notes on your account. EX-99.6 22 c86082exv99w6.txt FORM OF INSTRUC. TO REGISTERED HOLDER/PARTICIPANTS Exhibit 99.6 INSTRUCTIONS INSTRUCTIONS TO REGISTERED HOLDER AND/OR PARTICIPANTS IN DTC FROM BENEFICIAL OWNER OF 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________, 2004, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- To Registered Holder and/or Participants in The Depository Trust Company: The undersigned hereby acknowledges receipt of the Prospectus dated __________, 2004 (the "Prospectus") of Extendicare Health Services, Inc., a Delaware corporation (the "Company"), and the accompanying Letter of Transmittal (the "Letter of Transmittal"), that together constitute the Company's offer (the "Exchange Offer") to exchange its 6?% Senior Subordinated Notes due 2014 (the "New Notes") which have been registered under the Securities Act of 1933, as amended (the "Securities Act"), for all of its outstanding registered 6?% Senior Subordinated Notes due 2014 (the "Old Notes"). Capitalized terms used but not defined herein have the meanings ascribed to them in the Prospectus. This will instruct you, the registered holder and/or Participants in The Depository Trust Company, as to the action to be taken by you relating to the Exchange Offer with respect to the Old Notes held by you for the account of the undersigned. The aggregate principal amount of Old Notes held by you for the account of the undersigned is (fill in amount): $__________ of the outstanding 6?% Senior Subordinated Notes due 2014. With respect to the Exchange Offer, the undersigned hereby instructs you (check appropriate box): [ ] TO TENDER the following Old Notes held by you for the account of the undersigned (insert principal amount of Old Notes to be tendered, if less than all): $__________ of the outstanding 6?% Senior Subordinated Notes due 2014. [ ] NOT TO TENDER any Old Notes held by you for the account of the undersigned. If the undersigned instructs you to tender Old Notes held by you for the account of the undersigned, it is understood that you are authorized to make, on behalf of the undersigned (and the undersigned, by its signature below, hereby makes to you), the representations and warranties contained in the Letter of Transmittal that are to be made with respect to the undersigned as a beneficial owner, including but not limited to the representations, that (i) the undersigned is not an "affiliate" of the Company, (ii) any New Notes to be received by the undersigned are being acquired in the ordinary course of its business, and (iii) the undersigned has no arrangement or understanding with any person to participate in a distribution (within the meaning of the Securities Act) of New Notes to be received in the Exchange Offer. If the undersigned is a broker-dealer that will receive New Notes for its own account in exchange for Old Notes, it represents that the Old Notes to be exchanged for New Notes were acquired by it as a result of market-making activities or other trading activities and acknowledges that it will deliver a prospectus in connection with any resale of such New Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. - -------------------------------------------------------------------------------- SIGN HERE Name of Beneficial Owner(s) ---------------------------------------------------- Signature(s) ------------------------------------------------------------------- Name(s) (please print) --------------------------------------------------------- Address ------------------------------------------------------------------------ - -------------------------------------------------------------------------------- Telephone Number --------------------------------------------------------------- Taxpayer Identification or Social Security No. --------------------------------- Date --------------------------------------------------------------------------- - -------------------------------------------------------------------------------- -2- EX-99.7 23 c86082exv99w7.txt FORM OF LETTER TO NOMINEES Exhibit 99.7 EXTENDICARE HEALTH SERVICES, INC. OFFER TO EXCHANGE REGISTERED 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 FOR ANY AND ALL OUTSTANDING UNREGISTERED 6 7/8% SENIOR SUBORDINATED NOTES DUE 2014 ____________, 2004 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________, 2004, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Extendicare Health Services, Inc. (the "Company") is offering, upon and subject to the terms and conditions set forth in the Prospectus, dated ___________, 2004 (the "Prospectus"), and the enclosed Letter of Transmittal (the "Letter of Transmittal"), to exchange (the "Exchange Offer") its 6?% Senior Subordinated Notes due 2014 which have been registered under the Securities Act of 1933, as amended, for all of its outstanding unregistered 6?% Senior Subordinated Notes due 2014 (the "Old Notes"). The Exchange Offer is being made in order to satisfy certain obligations of the Company contained in the Exchange and Registration Rights Agreement dated April 22, 2004, by and among the Company, the subsidiary guarantors from time to time party thereto and the initial purchasers named therein, relating to the 6?% Senior Subordinated Notes due 2014. We are requesting that you contact your clients for whom you hold Old Notes regarding the Exchange Offer. For your information and for forwarding to your clients for whom you hold Old Notes registered in your name or in the name of your nominee, or who hold Old Notes registered in their own names, we are enclosing the following documents: 1. The Prospectus; 2. The Letter of Transmittal for your use and for the information of your clients; 3. A form of Notice of Guaranteed Delivery; 4. A form of letter which may be sent to your clients for whose accounts you hold Old Notes registered in your name or the name of your nominee, along with an instruction form for obtaining such clients' instructions with respect to the Exchange Offer; and 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. YOUR PROMPT ACTION IS REQUIRED. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ___________, 2004, UNLESS EXTENDED BY THE COMPANY (THE "EXPIRATION DATE"). OLD NOTES TENDERED PURSUANT TO THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME BEFORE THE EXPIRATION DATE. To participate in the Exchange Offer, certificates for Old Notes, or a timely confirmation of a book-entry transfer of such Old Notes into U.S. Bank, N.A.'s, the Exchange Agent, account at the Depository Trust Company, together with a duly executed and properly completed Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, should be sent to the Exchange Agent, all in accordance with the instructions set forth in the Letter of Transmittal and the Prospectus. If the registered holder of Old Notes desires to tender, but such Old Notes are not immediately available, or time will not permit such holder's Old Notes or other required documents to reach the Exchange Agent before the Expiration Date, or the procedure for book-entry transfer cannot be completed on a timely basis, a tender may be effected by following the guaranteed delivery procedures described in the Prospectus under "The Exchange Offer - Guaranteed Delivery Procedures." We will, upon request, reimburse brokers, dealers, commercial banks and trust companies for reasonable and necessary costs and expenses incurred by them in forwarding the Prospectus and the related documents to the beneficial owners of Old Notes held by them as nominee or in a fiduciary capacity. The tendering holder is obligated to pay or cause to be paid all transfer taxes applicable to the exchange of Old Notes pursuant to the Exchange Offer. Any inquiries you may have with respect to the Exchange Offer, or requests for additional copies of the enclosed materials, should be directed to the Exchange Agent at its address and telephone number set forth on the front of the Letter of Transmittal. Very truly yours, U.S. BANK, N.A. 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Delaware	8051	98-0066268
(State or other jurisdiction of incorporation)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification No.)






			Proposed Maximum			Proposed Maximum		Amount of
Title of Each Class of	Amount to be		Offering Price Per			Aggregate Offering		Registration
Securities to be Registered	Registered		Note(1)			Price		Fee


6 7/8% New Senior Subordinated Notes due 2014(2)	$	125,000,000		100	%	$	125,000,000	$	15,838

Guarantees for the 6 7/8% New Senior Subordinated Notes due 2014(3)		(3)		(3)			(3)		(3)


	State or Other		Primary Standard
	Jurisdiction of		Industrial Code		I.R.S. Employer
	Incorporation or		Classification		Identification
Name, Address and Telephone Number(1)	Organization		Number		Number

Adult Services Unlimited, Inc.		PA		8051		23-2284465
Alpine Health and Rehabilitation Center, LLC		FL		8051		36-4321373
Arbors at Bayonet Point, LLC		FL		8051		36-4329444
Arbors at Fairlawn Care, LLC		OH		8051		36-4402146
Arbors at Fairlawn Realty OH, LLC		OH		8051		36-4321488
Arbors at Sylvania Care, LLC		OH		8051		36-4402158
Arbors at Sylvania Realty OH, LLC		OH		8051		36-4321462
Arbors at Tampa, LLC		FL		8051		36-4329446
Arbors at Toledo, Inc.		OH		8051		34-1645103
Arbors East, Inc.		OH		8051		34-1677616
Arbors West Care, LLC		OH		8051		36-4402159
Arbors West Realty OH, LLC		OH		8051		36-4321454
Blanchester Care, LLC		OH		8051		36-4321500
Canton Care, LLC		OH		8051		36-4321498
Colonial Care, LLC		FL		8051		39-1978966
Columbus Rehabilitation Care, LLC		OH		8051		36-4402162
Columbus Rehabilitation Realty OH, LLC		OH		8051		36-4321497
Concordia Manor, LLC		FL		8051		36-4321452
Dayton Care, LLC		OH		8051		36-4321495
Delaware Care, LLC		OH		8051		36-4321492
Extendicare Great Trail, Inc.		DE		8051		39-1893202
Extendicare Health Facilities, Inc.		WI		8051		39-1045271
Extendicare Health Facility Holdings, Inc.		DE		8051		39-1441286
Extendicare Health Network, Inc.		DE		8051		39-1104974
Extendicare Homes, Inc.		DE		8051		39-1441287
Extendicare of Indiana, Inc.		DE		8051		39-1792004
Fir Lane Terrace Convalescent Center, Inc.		WA		8051		91-1085334
First Coast Health and Rehabilitation Center, LLC		FL		8051		36-4329440
Fiscal Services Group, LLC		DE		8051		None
Gallipolis Care, LLC		OH		8051		36-4321485
Great Trail Care, LLC		OH		8051		36-4402165
Greenbriar Care, LLC		FL		8051		39-1978964
Greenbrook Care, LLC		FL		8051		39-1978961
Health Poconos, Inc.		PA		8051		23-2651850
Heritage Care, LLC		FL		8051		39-1978989
Hilliard Care, LLC		OH		8051		36-4321480
Indiana Health and Rehabilitation Centers Partnership		IN		8051		39-1792007
Jackson Heights Rehabilitation Center, LLC		FL		8051		36-4321425
Jacksonville Care, LLC		FL		8051		36-4321383
Kaufman Street, WV, LLC		WI		8051		36-4321388
Kissimmee Care, LLC		FL		8051		36-4321390
Lady Lake Care, LLC		FL		8051		39-1978988
London Care, LLC		OH		8051		36-4321471


	State or Other		Primary Standard
	Jurisdiction of		Industrial Code		I.R.S. Employer
	Incorporation or		Classification		Identification
Name, Address and Telephone Number(1)	Organization		Number		Number

Marietta Care, LLC		OH		8051		36-4321469
Marshall Properties, Inc.		OH		8051		38-2583847
Milford Care, LLC		OH		8051		36-4402179
New Castle Care, LLC		DE		8051		36-4321396
New Horizon Care, LLC		FL		8051		39-1978984
North Rehabilitation Care, LLC		FL		8051		39-1978982
Northern Health Facilities, Inc.		DE		8051		39-1406172
Orange Park Care, LLC		FL		8051		36-4321421
Oregon Care, LLC		OH		8051		36-4402147
Palm Court Care, LLC		FL		8051		39-1978970
Partners Health Group — Florida, LLC		DE		8051		None
Partners Health Group — Louisiana, LLC		DE		8051		None
Partners Health Group — Texas, LLC		DE		8051		None
Partners Health Group, LLC		DE		8051		39-2013764
Port Charlotte Care, LLC		FL		8051		36-4321416
Prairie Village Care, LLC		IN		8051		20-0847494
Richey Manor, LLC		FL		8051		36-4321430
Rockledge Care LLC		FL		8051		39-1978968
Rockmill Care, LLC		OH		8051		36-4402142
Rocksprings Care, LLC		OH		8051		36-4402136
Safety Harbor Care, LLC		FL		8051		36-4321391
Sarasota Care, LLC		FL		8051		36-4321370
Scott Villa Care, LLC		IN		8051		20-0847534
Seminole Care, LLC		FL		8051		36-4321380
South Heritage Health and Rehabilitation Center, LLC		FL		8051		36-4321432
Star Purchasing Services, LLC		WI		8051		20-0532260
Swiss Villa Care, LLC		IN		8051		20-0847589
The Oaks Residential and Rehabilitation Center, LLC		FL		8051		36-4321428
The Progressive Step Corporation		WI		8051		39-1878099
Treasure Isle Care Center, LLC		FL		8051		36-4321449
Villa Pines Care, LLC		WI		8051		20-0847630
Waterville Care, LLC		OH		8051		36-4321460
Winter Haven Care, LLC		FL		8051		36-4321378
Winter Haven Health and Rehabilitation Center, LLC		FL		8051		36-4321792
Woodsfield Care, LLC		OH		8051		36-4402135


Year	Redemption Price

2009		103.438	%
2010		102.292	%
2011		101.146	%
2012 and thereafter		100.000	%


Melvin A. Rhinelander Chairman of the Board and Chief Executive Officer Extendicare Health Services, Inc. 111 West Michigan Street Milwaukee, Wisconsin 53203 (414) 908-8000 (Name, address, including zip code, and telephone number, including area code, of agent for service)		Copy to: Russell E. Ryba, Esq. Foley & Lardner 777 East Wisconsin Avenue Milwaukee, Wisconsin 53202 (414) 271-2400


	Page

Forward-Looking Statements		ii
Prospectus Summary		1
Summary Consolidated Historical Financial and Operating Data		15
Risk Factors		18
The Exchange Offer		29
Use of Proceeds		38
Capitalization		39
Selected Consolidated Historical Financial Data		41
Management’s Discussion and Analysis of Financial Condition and Results of Operations		42
Business		75
Management		96
Executive Compensation		98
Certain Relationships and Related Party Transactions		102
Description of Other Indebtedness		103
Description of the New Notes		108
Certain U.S. Federal Income Tax Considerations		146
Plan of Distribution		147
Legal Matters		147
Experts		147
Where You Can Find More Information		147
Index to Consolidated Financial Statements		F-1
Articles of Organization of Prairie Village Care
Articles of Organization of Scott Villa Care, LLC
Articles of Organization of Swiss Villa Care, LLC
Articles of Incorporation of Villa Pines Care, LLC
Arts. of Organization of Star Purchasing Services
Second Amended and Restated Credit Agreement
Purchase Agreement
Indenture
Exchange and Registration Rights Agreement
Opinion of Foley & Lardner LLP
ISDA Master Agreement
Statement Re: Computation of Ratios of Earnings
Subsidiaries of the Registrant
Consent of Independent Registered Pub. Acct. Firm
Form T-1 Statement of Eligibility
Schedule II-Valuation and Qualifying Accounts
Form of Letter of Transmittal
Form of Notice of Guaranteed Delivery
Guidelines for Certification of Taxpayer ID Number
Form of Letter to Clients
Form of Instruc. to Registered Holder/Participants
Form of Letter to Nominees


	(Dollars in
	thousands)

Tender premium and call premium	$	(6,636	)
Write-off of deferred finance charges		(2,359	)
Gain on termination of interest rate swap and cap agreements		3,302
Legal expenses		(250	)

		(5,943	)
Income taxes		2,080

Net impact	$	(3,863	)


	•	the Eurodollar rate plus 2.75%; or

	•	the Base Rate plus 1.75%,


Old Notes		On April 22, 2004, we sold to the initial purchasers $125,000,000 aggregate principal amount of our 6 7/8% Senior Subordinated Notes due 2014, which are fully and unconditionally guaranteed on a senior subordinated unsecured basis, jointly and severally, by:

		• all of our existing and future domestic significant subsidiaries;

		• all of our existing and future domestic subsidiaries that guarantee or incur any indebtedness; and

		• any other existing or future significant subsidiaries or restricted subsidiaries that guarantee or otherwise provide direct credit support for indebtedness of ours or any of our domestic subsidiaries.

		In this prospectus we refer to the unregistered senior subordinated notes as the old notes. We issued the old notes at a price per old note of 97.5001% of par, which means the initial purchasers paid less than the principal amount for the old notes. The initial purchasers resold the old notes to qualified institutional buyers under Rule 144A under the Securities Act and outside the United States to non-U.S. persons in offshore transactions meeting the requirements of Regulation S under the Securities Act.

Registration Rights Agreement		When we sold the old notes we entered into a registration rights agreement with the initial purchasers in which we agreed, among other things, to provide to you and all other holders of these old notes the opportunity to exchange your unregistered old notes for substantially identical new notes that we have registered under the Securities Act. This exchange offer is being made for that purpose.

New Notes		We are offering to exchange the old notes for 6 7/8% Senior Subordinated Notes due 2014 that have been registered under the Securities Act, which are fully and unconditionally guaranteed on a senior subordinated unsecured basis, jointly and severally, by:

		• all of our existing and future domestic significant subsidiaries;

		• all of our existing and future domestic subsidiaries that guarantee or incur any indebtedness; and

		• any other existing or future significant subsidiaries or restricted subsidiaries that guarantee or otherwise provide direct credit support for indebtedness of ours or any of our domestic subsidiaries.

		In this prospectus we refer to the registered senior subordinated notes as the new notes. In this prospectus we may refer to the old notes and the new notes collectively as the notes. The terms


		Each participating broker-dealer that receives new notes for its own account under the exchange offer in exchange for old notes that were acquired by the broker-dealer as a result of market-making or other trading activity must acknowledge that it will deliver a prospectus in connection with any resale of the new notes. See “Plan of Distribution.”

		Any broker-dealer that acquired old notes directly from us may not rely on the applicable interpretations of the staff of the Securities and Exchange Commission and must comply with the registration and prospectus delivery requirements of the Securities Act (including being named as a selling securityholder) in connection with any resales of the old notes or the new notes.

Acceptance of Old Notes and Delivery of New Notes		We will accept for exchange any and all old notes that are validly tendered in the exchange offer and not withdrawn before the offer expires. The new notes will be delivered promptly following the exchange offer.

Withdrawal Rights		You may withdraw your tender of old notes at any time before the exchange offer expires.

Conditions of the Exchange Offer		The exchange offer is subject to certain customary conditions, which we may waive. Please see “The Exchange Offer — Conditions to the Exchange Offer” for more information regarding the conditions to the exchange offer.

Consequences of Failure to Exchange Old Notes		If you are eligible to participate in the exchange offer and you do not tender your old notes, then you will continue to hold your old notes and you will be subject to all the limitations and restrictions on transfer applicable to such old notes. Generally, untendered old notes will remain restricted securities and may not be offered or sold, unless registered under the Securities Act, except pursuant to an exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws. Other than in connection with the exchange offer, we do not currently anticipate that we will register the old notes under the Securities Act. The trading market for the old notes could be adversely affected if some but not all of the old notes are tendered and accepted in the exchange offer.

Federal Income Tax Consequences		The exchange of an old note for a new note in the exchange offer will not be a taxable event for United States federal income tax purposes. Consequently, you will not recognize any gain or loss upon receipt of the new notes. See “Certain U.S. Federal Income Tax Considerations” for a more detailed description of the tax consequences of the exchange.

Use of Proceeds		Neither we nor any subsidiary guarantor will receive any proceeds from the issuance of new notes pursuant to the exchange offer.


Accounting Treatment		We will not recognize any gain or loss on the exchange of old notes for new notes. See “The Exchange Offer — Accounting Treatment.”

Exchange Agent		U.S. Bank, N.A. is the exchange agent. See “The Exchange Offer — Exchange Agent.”


Issuer		Extendicare Health Services, Inc.

Notes Offered		$125,000,000 in aggregate principal amount of 6 7/8% Senior Subordinated Notes due 2014.

Guarantees		All payments with respect to the old notes, including principal and interest, are , and with respect to the new notes will be, fully and unconditionally guaranteed on a senior subordinated unsecured basis, jointly and severally, by:

		• all of our existing and future domestic significant subsidiaries;

		• all of our existing and future domestic subsidiaries that guarantee or incur any indebtedness; and

		• any other existing and future significant subsidiaries or restricted subsidiaries that guarantee or otherwise provide direct credit support for indebtedness of ours or any of our domestic subsidiaries.

		The old notes and guarantees are, and the new notes and guarantees will be, our and our subsidiary guarantors’ general unsecured obligations. Each of our subsidiary guarantors has guaranteed our amended and restated credit facility on a senior secured basis.

Maturity Date		May 1, 2014.

Interest Payment Dates		May 1 and November 1, commencing November 1, 2004.

Ranking		The old notes and guarantees are, and the new notes and guarantees will be, unsecured and:

		• subordinated in right of payment to all of our and our subsidiary guarantors’ existing and future senior indebtedness;

		• equal in right of payment with all of our and our subsidiary guarantors’ existing and future senior subordinated indebtedness;

		• senior in right of payment to all of our and our subsidiary guarantors’ subordinated indebtedness.

Optional Redemption		On or after May 1, 2009, we may redeem all or part of the notes, at the redemption prices (expressed as percentages of principal amount) listed below, plus accrued and unpaid interest,


	Redemption
Year	Price

2009		103.438	%
2010		102.292	%
2011		101.146	%
2012 and thereafter		100.000	%


		Before May 1, 2007, we may redeem up to 35% of the aggregate principal amount of outstanding notes issued under the indenture with the net cash proceeds of qualified equity offerings.

Change of Control		Upon specified change of control events, unless we have exercised our option to redeem all of the notes as described above, each holder of a note will have the right to require us to repurchase all or a portion of its notes at a purchase price in cash equal to 101% of the principal amount, plus accrued and unpaid interest, if any, to the date of repurchase.

Covenants		The indenture governing the notes limits our ability and the ability of our subsidiary guarantors to, among other things:

		• incur additional indebtedness;

		• create liens;

		• pay dividends on or redeem capital stock;

		• make certain investments;

		• make restricted payments;

		• make certain dispositions of assets;

		• engage in certain transactions with affiliates;

		• engage in certain business activities; and

		• engage in mergers, consolidations and certain sales of assets.

		The indenture governing the notes will also limit our ability to permit restrictions on the ability of some of our subsidiaries to pay dividends or make certain other distributions.

		These covenants are subject to important exceptions and qualifications, as described under “Description of the New Notes.”

Absence of Established Market for the Notes		The notes are a new issue of securities, and there is currently no market for them. We do not intend to apply for the notes to be listed on any securities exchange or to arrange for any quotation system to quote them. The notes are expected to be designated for trading on the PORTAL Market®. The initial purchasers of the old notes have advised us that they intend to make a market for the notes, but they are not obligated to do so. The initial purchasers may discontinue any market making in the notes at any time in their sole discretion. Accordingly, we cannot assure you that a liquid market will develop or continue for the notes.



			Three Months Ended
			March 31,				Year Ended December 31,

			2004		2003		2003		2002			2001


			(dollars in thousands)
Statement of Operations Data(1):
Revenues:
	Skilled nursing and assisted living facilities		$	224,426	$	204,805	$	843,414	$	787,419		$	766,952
	Outpatient therapy and medical supplies			2,665		2,644		11,524		10,280			9,515
	Other			4,410		3,977		15,494		17,352			17,640

		Total revenues		231,501		211,426		870,432		815,051			794,107
Costs and expenses:
	Operating			189,456		180,496		731,134		691,094			684,814
	General and administrative			7,490		7,838		30,871		32,947			32,387
	Lease costs			2,264		2,251		9,113		10,642			14,575
	Depreciation and amortization			8,681		9,161		37,448		37,575			40,772
	Interest, net			6,658		7,852		29,815		32,275			35,560
	Loss (gain) on disposal of assets			—		—		—		(3,961	)		1,054
	Provision for closure and exit costs and other items			—		—		—		5,293			23,192
	Loss on early retirement of debt			354		—		—		2,849			75
	Loss on impairment of long-lived assets			1,612		—		—		—			1,685

	Earnings (loss) before income taxes			14,986		3,828		32,051		6,337			(40,007	)

Net earnings (loss)			$	9,347	$	2,288	$	20,086	$	3,220		$	(27,495	)

Balance Sheet Data (end of period):
Cash and cash equivalents			$	47,893	$	24,912	$	48,855	$	24,360		$	407
Working capital				55,123		33,963		55,795		29,897			(2,554	)
Property and equipment				449,638		449,574		448,743		453,119			477,830
Total assets				827,685		825,769		833,349		830,278			795,246
Total debt				380,237		398,030		392,918		398,150			385,347
Shareholder’s equity				192,622		162,182		182,660		159,201			156,002



		Three Months Ended
		March 31						Year Ended December 31

		2004			2003			2003			2002			2001


		(dollars in thousands)
Net income (loss) before income taxes		$	14,986		$	3,828		$	32,051		$	6,337		$	(40,007	)
Add (deduct):
	Depreciation and amortization		8,681			9,161			37,448			37,575			40,772
	Interest expense		8,200			8,495			33,981			33,654			37,857
	Interest income		(1,542	)		(643	)		(4,166	)		(1,379	)		(2,297	)
Non-cash, non-recurring (gains) and losses:
	Loss (gain) on disposal of assets		—			—			—			(3,961	)		1,054
	Provision for closure and exit costs and other items		—			—			—			5,293			23,192
	Loss on early retirement of debt		354			—			—			2,849			75
	Loss on impairment of long-lived assets		1,612			—			—			—			1,685

EBITDA		$	32,291		$	20,841		$	99,314		$	80,368		$	62,331



			March 31, 2004

						As
			Actual			Adjusted


			(dollars in thousands)
Cash and cash equivalents			$	47,893		$	2,834
Total debt:
	Amended and restated credit facility(1)			—			18,000
	Industrial development revenue bonds(2)			20,160			20,160
	Promissory notes, mortgages, capital lease obligations and other debt			10,392			10,392
	9.500% Senior Notes due 2010			149,685			149,685
	9.350% Senior Subordinated Notes due 2007(3)			200,000			—
	6.875% Senior Subordinated Notes due 2014			—			121,875

		Total debt		380,237			320,112
Shareholder’s equity:
	Common stock			1			1
	Additional paid-in capital			208,787			208,787
	Accumulated other comprehensive loss			1,600			985
	Accumulated deficit(4)			(17,766	)		(21,629	)

		Total shareholder’s equity		192,622			188,144

		Total capitalization	$	572,859		$	508,256



		Three Months Ended March 31


		2004					2003					% Change

				% of					% of			2004 to
		ADC		Total			ADC		Total			2003

Medicare			2,206		17.1	%		1,966		15.3	%		12.2	%
Private and other			2,185		17.0	%		2,233		17.3	%		(2.1	%)

Quality Mix			4,391		34.1	%		4,199		32.6	%		4.6	%

Medicaid			8,489		65.9	%		8,676		67.4	%		(2.2	%)

	Total		12,880		100.0	%		12,875		100.0	%		0.0	%



		Year Ended December 31

																	Percentage
		2003					2002					2001					Changes

				% of					% of					% of			2003			2002
		ADC		Total			ADC		Total			ADC		Total			to 2002			to 2001

Medicare			1,997		15.5	%		1,699		13.4	%		1,427		11.4	%		17.5	%		19.1	%
Private and other			2,222		17.2	%		2,291		18.0	%		2,362		19.0	%		(2.9	%)		(3.0	%)

Quality Mix			4,219		32.7	%		3,990		31.4	%		3,789		30.4	%		5.8	%		5.3	%
Medicaid			8,682		67.3	%		8,737		68.6	%		8,676		69.6	%		(0.6	%)		0.7	%

	Total		12,901		100.0	%		12,727		100.0	%		12,465		100.0	%		1.4	%		2.1	%



	Occupancy										Operational
	Percentage						ADC				Resident Capacity

	2004			2003			2004		2003		2004		2003

Skilled Nursing		91.3	%		91.3	%		12,978		12,875		14,215		14,096
Assisted Living		86.7	%		85.5	%		1,488		1,501		1,716		1,756
Skilled Nursing and Assisted Living		90.8	%		90.7	%		14,466		14,376		15,931		15,852



																Operational
	Occupancy Percentage									ADC						Resident Capacity

	2003			2002			2001			2003		2002		2001		2003		2002		2001

Skilled Nursing		91.5	%		90.3	%		87.5	%		12,901		12,727		13,358		14,103		14,093		15,266
Assisted Living		86.3	%		83.9	%		83.1	%		1,496		1,472		1,463		1,733		1,756		1,761
Skilled Nursing and Assisted Living		90.9	%		89.6	%		87.1	%		14,397		14,199		14,821		15,836		15,849		17,027



				As of December 31,
	As of March 31,
	2004			2003			2002			2001

Percent of facilities owned		94.3	%		93.7	%		93.7	%		89.7	%
Number of facilities under operation		174			174			175			175


						Percentage
		Three Months Ended				Change
		March 31				From

		2004		2003		2004 to 2003

Medicare (Part A and Part B)		$	346.82	$	318.12		9.0	%
Private and other		$	192.77	$	181.16		6.4	%
Medicaid		$	134.37	$	128.15		4.9	%

	Total	$	180.60	$	167.63		7.7	%

Medicare Part A only		$	317.99	$	290.78		9.4	%



								Percentage
								Changes From
		Year Ended December 31,
								2003 to			2002 to
		2003		2002		2001		2002			2001

Medicare (Part A and Part B)		$	326.31	$	331.23	$	334.13		(1.5	%)		(0.9	%)
Private and other		$	183.76	$	170.86	$	164.45		7.6	%		3.9	%
Medicaid		$	131.31	$	126.03	$	120.25		4.2	%		4.8	%

	Total	$	170.53	$	161.49	$	153.12		5.6	%		5.5	%

Medicare Part A only		$	298.81	$	305.21	$	313.63		(2.1	%)		(2.7	%)



		Three Months
		Ended March 31						Year Ended December 31

		2004			2003			2003			2002			2001

Revenues
	Skilled nursing and assisted living facilities		96.9	%		96.9	%		96.9	%		96.6	%		96.6	%
	Outpatient therapy		1.2			1.3			1.3			1.3			1.2
	Other		1.9			1.8			1.8			2.1			2.2

			100.0			100.0			100.0			100.0			100.0
Operating and general and administrative costs			85.1			89.1			87.5			88.8			90.3
Lease, depreciation and amortization			4.7			5.4			5.4			5.9			7.0
Interest, net			2.9			3.7			3.4			4.0			4.5
Loss (gain) loss on disposal of assets			—			—			—			(0.5	)		0.1
Provision for closure and exit costs and other items			—			—			—			0.7			3.0
Loss on early retirement of debt			0.2			—			—			0.3			—
Loss on impairment of long-lived assets			0.7			—			—			—			0.2

	Earnings (loss) before taxes		6.4			1.8			3.7			0.8			(5.1	)
Income tax expense (benefit)			2.4			0.7			1.4			0.4			(1.6	)

Net earnings (loss)			4.0	%		1.1	%		2.3	%		0.4	%		(3.5	%)


		(dollars in
		millions)

•	a 5.0% increase (excluding prior period adjustments) in the average daily nursing Medicaid rate (which included cost-offset funding as a result of increased state assessments and bed taxes of $1.6 million)	$	5.0
•	an increase in Medicare revenues due to the 6.26% increase in the Medicare Part A rate effective October 1, 2003		3.7
•	an increase in Medicare residents from 15.3% of total residents in the 2003 quarter to 17.1% in the 2004 quarter		3.4
•	increase due to one extra day in the 2004 quarter		2.1
•	increases in other average daily skilled nursing rates		1.9
•	an increase in Medicare revenues due to the improvement in RUGs mix and other factors		1.7
•	an increase in skilled nursing ancillary revenues		1.1
•	an increase in assisted living revenues due to increased occupancy and higher rates		0.5

			19.4


		(dollars in
		millions)

•	wages and benefits of $2.6 million and contracted staffing for food, laundry and therapy services of $0.5 million, totaling $3.1 million, or a 2.2% increase, which included an average wage rate increase of 1.6% in nursing operations	$	3.1
•	state assessments and bed taxes		1.6
•	drug expense due to higher resident census, Medicare mix and drug prices		1.4
•	bad debt expense		0.8
•	other operating expenses		0.5

	Total increase in same facility operating and general and administrative costs	$	7.4


		(dollars in
		millions)

•	wages and benefits of $18.8 million and contracted staffing for food, laundry and therapy services of $4.5 million, totaling $23.3 million, or a 4.4% increase, which included an average wage rate increase of 3.2% in nursing operations	$	23.3
•	drug expense due to higher resident census, Medicare mix and drug prices		3.9
•	state assessments and bed taxes		4.4
•	professional fees expense primarily due to legal fees and nursing consulting		1.9
•	general liability expense primarily due to premiums and accruals		1.7
•	other operating expenses		2.8

	Total increase in operating and general and administrative costs	$	38.0


		(dollars in
		millions)

•	an increase in the average daily Medicaid rate from $121 in 2001 to $127 in 2002	$	19.2
•	an increase in Medicare residents from 11.4% of total residents in 2001 to 13.4% in 2002		16.8
•	a 1.9% increase in resident census from an ADC of 13,928 in 2001 to 14,200 in 2002		14.3
•	other rate increases		8.9

			59.2
These increases were offset and adjusted by:
•	a decrease due to the Medicare cliff, net of the market basket increase, implemented on October 1, 2002		(3.9	)
•	an increase in favorable prior year revenue adjustments recorded in 2002 compared to 2001		0.8

	Total increase in revenues from skilled nursing and assisted living centers	$	56.1


		(dollars in
		millions)

•	wages and benefits of $23.1 million and contracted staffing for food and laundry services of $10.4 million, totaling $33.5 million, or a 7.1% increase	$	33.5
•	workers’ compensation due to prior year actuarial adjustments recorded in 2001		4.6
•	drug expense due to higher resident census and higher drug prices		3.4
•	outside therapy services primarily related to increased use of therapy services and higher Medicare census		3.2
•	bad debt expense		2.7
•	supplies expense primarily due to higher occupancy		1.4
•	other operating and general and administrative expenses		2.5

	Total increase in operating and general and administrative costs	$	51.3


	March 31, 2004		December 31, 2003		December 31, 2002


	(dollars in thousands)
Senior Notes due 2010	$	149,685	$	149,676	$	149,641
Senior Subordinated Notes due 2007		200,000		200,000		200,000
Industrial Development Revenue Bonds, variable interest rates ranging from 1.00% to 6.25%, maturing through 2014, secured by certain facilities		20,160		33,160		33,355
Mortgage notes payable, interest rates ranging from 3.0% to 10.5%, maturing through 2012		10,368		10,054		15,109
Other, primarily capital lease obligations		24		28		45

Long-term debt before current maturities		380,237		392,918		398,150
Less current maturities		1,276		1,223		716

Total long-term debt	$	378,961	$	391,695	$	397,434


	(dollars in
	thousands)

2004	$	1,223
2005		1,287
2006		1,313
2007		204,174
2008		1,221
After 2008		183,700

Total minimum payments	$	392,918



	Payments Due By Period

			Less than						More than
	Total		1 Year		1-3 Years		3-5 Years		5 Years


	(dollars in thousands)
Long-term debt	$	392,918	$	1,223	$	2,600	$	205,395	$	183,700
Operating lease commitments		46,936		8,550		13,609		7,375		17,402

Total	$	439,854	$	9,773	$	16,209	$	212,770	$	201,102